Saudi Joblessness May Rise to 12.5%: SAMBA

Public Media | August 2003

A review of the Saudi economy during the first half of this year shows that while the real GDP growth rate is likely to exceed six percent, unemployment of Saudi men will rise to an estimated 12.5 percent.

These are the major conclusions of the study conducted by SAMBA (previously Saudi American Bank) for mid-2003. It states that oil revenues (projected to reach $85 billion this year as against $ 65 billion last year) have surged to a record high in over 20 years.

The reason is that despite a late-year OPEC production cut to support prices, Saudi oil production was expected to average 8.6 million barrel per day for the year compared with 7.5 million bpd last year.

“We forecast the average price for Saudi oil to be $26 this year, well above government budget expectations. As a result, the government is expected to produce a strong budget surplus coupled with some debt reduction,” the report said. Other positive features include a healthy current account surplus and a continued real estate boom, with the stock market up 55 percent by the end of July. The buoyancy in the market is the fifth in as many years. However, according to SAMBA chief economist Brad Bourland, the oil sector, despite its resurgence, employs only 1.5 percent of the labor force.

“Unemployment of Saudi men should increase slightly to a SAMBA-estimated 12.5 percent this year. In past years unemployment has been worsening by about one percentage point per year, but this year the combination of good private sector growth and likely government hiring of Saudis should keep unemployment fairly stable.”

The growth rate of the non-oil private sector was anticipated at 3.5 percent in real terms this year, well below the 4.2 percent growth rate of 2002. This has been attributed to the seasonal post-Ramadan slowdown along with the cautious consumer mood that prevailed during the run-up to the Iraq war. The situation is expected to normalize for the remaining part of the year.

Another major feature of economic growth, the SAMBA study points out, has been the 55 percent rise in the stock market through July. “All sectors were up, but the sharpest rise was in the Saudi Telecommunications Company, up 132 percent over its February IPO price, followed by the Saudi Electric Company, up 98 percent.

“The continuing instability in Iraq and terrorist attacks in the Kingdom are factors weighing against investment, but strong and continuing growth in consumer demand, low borrowing costs, and several years of strong oil revenues flowing into the Kingdom are forces supporting an increase in the business environment,” the report said.

Midyear, a new capital markets law was enacted. This will lead to the creation of a Securities and Exchange Commission as a supervisory body, conversion of the stock exchange into a joint stock company with the possibility of partial private ownership, and licensing of brokerages outside the banking system.