Saudi consumers minimally affect total consumption.

Position::Samba Financial Group result with economic condition - Consumer consumption
 
FREE EXCERPT

According to an August 2006 mid-year report on the Saudi economy by the Samba Financial Group (Riyadh), the economy is booming based on two major factors: The high price of oil, and the number of large infrastructure projects underway in the kingdom.

The graph above, which covers the period from 1996 through 2005, shows the annual percentage change in total consumption for Saudi Arabia. Total consumption includes public consumption as well as private consumption. And private consumption itself includes consumption by both business and consumers.

The most important influences on total consumption are, in fact, the two elements cited by Samba-oil and what Samba calls in its report "megaprojects."

The graph above shows volatility in the consumption figures. The spike in 2000 is related to a boom year for the country as world oil prices accelerated. Samba's review of the Saudi economy for 2000 observes, "Oil revenues were at their highest since the peak of the oil boom in 1981." The impact was significant. The re port goes on to say, "The high oil revenues of 2000 enabled the government to increase spending modestly over the budget and run its first surplus after 17 consecutive years of deficits."

The 2000 spike in consumption was the result of renewed government and oil industry spending following an actual contraction of the economy in 1999 of 0.7 percent, according to International Monetary Fund (IMF) statistics. The graph on page 1 records percentage changes, and the spike is influenced by a low base effect.

What all of this means is that Saudi consumers-unlike those in more developed economies-have yet to become a major factor in GDP growth. For example in the first half of 2006, again according to Samba's August 2006 report, retail sales were expected to show a decline, quite the opposite of...

To continue reading

FREE SIGN UP