United Nations Conference on Trade and Development 11 th MULTI-YEAR EXPERT MEETING ON COMMODITIES AND DEVELOPMENT 15-16 April 2019, Geneva Saudi economic growth strategy on the face of oil price uncertainty by Ms. Daniah Orkoubi Head of Economic Reports Department, Ministry of Economy and Planning, Saudi Arabia The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.
Saudi Economic Growth Strategy on the face of Oil price Uncertainty By Ms. Daniah Orkoubi
Agenda 1 Overview 2 Oil Prices and KSA 3 Saudi Economic Strategy 3
Section 1 Overview 1. Oil Demand & Global GDP 2. The Future Oil Demand Dynamics 3. Demographic & Economy to drive positive growth 4. KSA : Largest Economy in the MENA & Key Player in Global Oil Sector 4
Oil Demand and Global GDP are positively correlated Correlation: 0.75 (2002-2017) Global GDP & Oil Demand World Oil Demand Growth (%) World GDP Growth (%) 5.50 4.50 3.50 2.50 1.50 0.50-0.502001 2003 2005 2007 2009 2011 2013 2015 2017 2019-1.50 Global GDP & Oil demand growth continues to remain positive even though at a lower pace. 5
The future Global Oil demand dynamics: Primary Energy Mix (%) Oil, 32.09% Oil, 32.09% Oil, 30.96% Coal, 25.48% Coal, 24.01% Coal, 20.21% Gas, 23.06% Gas, 23.60% Gas, 25.74% Biomass/Waste, 9.84% Biomass/Waste, 9.62% Nuclear, 4.85% Nuclear, 5.28% Hydro, 2.49% Hydro, 2.56% Other Renewables, 2.20% Other Renewables, 2.85% Biomass/Waste, 8.36% Nuclear, 6.76% Hydro, 2040, 2.72% Other Renewables, 5.26% 2016 2020 2040 Given the demand dynamics and energy poverty in developing countries, Oil will still remain as dominant fuel across the globe and contribute not only towards economic growth & equity BUT ALSO towards a smooth energy shift. 6
Demographic & Economy will drive positive growth Population Growth & Urbanization: Trends with more households would lead to higher Energy / Oil Demand inside & outside KSA to support modern living standard. World Population by 2040 (in billion) 7.6 20% 9.17 2018 2040 2018 2040 15 5 KSA Population by 2040 (in Million) 33.6 27% More than 90% of the additional population will be in developing nations where the economic growth & improvement in standard of living are policy priority Reducing energy poverty continue to be policy priority in developing nations Rising economic activities, income and urbanization levels in emerging & developing (Non-OECD) countries Economies are expanding (albeit in a lower pace). Higher growth is positively related to energy /oil demand. 42.8 2018 2040 2018 2040 45 35 25 Global Megatrends indicate towards rapid urbanization & growth of global educated middle class Demographic dynamics would drive growth Global Real GDP growth 3.73% 3.65% 3.66% 3.64% 3.58% 3.59% 3.64% KSA Real GDP growth 2.23% 2.43% 1.91% 2.11% 2.20% 2.28% 2.19% Emerging market and developing economies Real GDP growth 4.68% 4.68% 4.93% 4.88% 4.82% 4.84% 4.81% The global economic growth will keep the oil demand up and hence positively impact KSA s economic transition Positive for KSA Economic Growth 2018 2019 2020 2021 2022 2023 Avg. 2018 2019 2020 2021 2022 2023 Avg. 2018 2019 2020 2021 2022 2023 Avg. 7
KSA is the largest Economy in the MENA & Key Player in Global Oil Sector Largest Economy in the MENA Region (IMF Data) with 2nd largest oil reserves worldwide at end 2017 (BP Stat 2018) with 3rd largest oil Exporter worldwide at end 2017 (BP Stat 2018) Share of World oil reserves Share of World oil Exports 2017, Nominal GDP (PPP - Billion International dollars ) 17.9 % 15.7 % 10% 9.3% 8.8% Oil Reserves (bnof barrels) 6.3% 6 % 5.8% 23.2 % 12.7 % 12.2% 11.3 % 8.2% 6.6% 6.2 % Oil Exports (Thousand of barrels per day) 5.9% 1775 1204 303 266 15680 696 649 630 340 290 169 157 149 106 102 98 8611 8238 7641 5540 4470 4201 3993 KSA UAE Egypt Iraq Algeria Qatar Kuwait Venezuela KSA Canada Iran Iraq Russia Kuwait UAE Middle East (ex KSA) Russia KSA Asia Pacific (ex Japan) US West Africa Canada S. & Cent. America 8
Section 2 Oil Prices and KSA 1. Oil Price Trend 2. Oil price & Government Revenue 3. Oil & Non Oil Revenue 4. KSA s Non-Oil Activities recovering 9
Jan-98 May-98 Sep-98 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 Oil Price Trend Monthly Oil Price-Jan 1998-Feb 2019 160 120 Oil Price (USD/Barrel) Jul-08, 133.01 Jun-14, 108.37 76.73 80 40 Dec-98, 10.41 Jan-16, 29.92 0 Oil price has been historically volatile and uncertain which influenced KSA economy differently at different point of time 10
Oil price link with Government Revenue & Expenditure Oil Price, Oil Revenue and Budget Expenditure Move Hand in Hand and are positively correlated Movement of Oil Price, Oil Revenue & Budget Expenditure Total Revenue(Million SAR) Total Expenditure (Million SAR) Oil Revenue(Million SAR) Oil Price (US$/bbl) 1400000 120 1200000 100 1000000 80 800000 60 600000 400000 40 200000 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0 11
Oil & Non Oil Revenue Share of Oil & Non Oil Revenue in Total Revenue 1 400 000 100% 1 200 000 1 000 000 800 000 600 000 400 000 200 000 0 64% 63% 89% 90% 87% 89% 90% 93% 92% 90% 88% 83% 84% 85% 81% 78% 79% 73% 68% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Revenue (SAR Million) Oil Revenue (SAR Million) Non-Oil Revenue (SAR Million) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% The share of oil-revenue has been very high indicating heavy dependence on Oil in KSA budgetary landscape However, the share of non-oil revenue is increasing albeit at a slower pace. During 2012-2017, the share of non-oil revenue in total revenue increased at an average of 35% indicating the progress in revenue diversification & reducing the dependence on oil revenue. However, the oil still dominates the government revenue pie Share of Oil Revenue (%) Share of Non-Oil revenue (%) 12
KSA s Non-Oil Activities recovering 2 700 000 Share of Oil & Non Oil GDP in Total GDP 70% 2 200 000 1 700 000 40% 42% 44% 41% 42% 43% 45% 48% 49% 53% 55% 54% 54% 56% 57% 56% 56% 57% 57% 60% 50% 40% KSA Economy is regaining momentum driven by recovering Non-Oil Activities 1 200 000 700 000 200 000 30% 20% 10% The non-oil GDP is most likely to increase both in terms of absolute value and as the share of GDP (300 000) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Real GDP (Exc Imp Duty) (Million SAR) Share of Oil GDP (%) Share of Non-Oil GDP (%) 0% 13
Section 2 Saudi Economic Strategy 1. New Reality 2. Growing Non-oil private sector 3. Strong macroeconomic fundamentals of KSA 4. Vision & Policy Tools 14
New Reality REQUIRES New Remedy KSA has built up strong buffers to minimize any potential risks pain Risk reducing factors and reforms measures taken by the government are sufficiently capable to sail KSA through the transition period 15
Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Growing Non-oil private sector Economic Diversification reflected by Growing Non-oil Private Sector 58 56 54 52 50 54.4 KSA PMI 51.4 56.6 - Efforts of Economic Diversification have been intensified 3.9 Saudi Non-Oil Exports Jan 2017 - Dec 2018 (USD Billion) 5.6 - Economic Diversification reflected by Growing Non-oil exports Vibrant Consumer Sector REFLECTED BY Healthy Points of Sales Transactions & Credit Growth 70.00 60.00 50.00 40.00 30.00 20.00 10.00 - Pt of Sale Transactions ( USD Billion ) 61.95 19.16 2010 2011 2012 2013 2014 2015 2016 2017 2018 Average 16
Strong macroeconomic fundamentals Moderate Growth + Comfortable Inflation = Investment Heaven 3.0 2.0 1.0 Actual Fitch 2.3 Saudi Real GDP Projection 2.4 2.6 0.0-1.0 2017 2018 2019P 2020P -0.9 37.3 Debt to GDP Ratio (%) Low Public Debt = Low Financial Risk & Value Creation 25.8 17.1 12.1 14 8.4 5.4 3 2.1 1.6 5.8 13.1 17.2 19.1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Est) In Billion USD 2015 2016 2017 2018 2019* 2020* 2021* 2022* 2023* Expansionary Fiscal Policy Revenues Expenditure Deficit/Surplus 163.2 138.4 184.5 238.7 260.0 268.0 277.9 292.3 307.7 266.9 221.3 248.0 274.7 294.9 304.8 312.0 310.1 307.5-103.7-82.9-63.5-36.3-34.9-36.8-34.1-17.9 0.3 17
Strong macroeconomic fundamentals - Low Budget deficit - High Forex Reserve as a emergency buffer zone Forex reserve KSA vs USA (in USD bn) 494.5 489.96 126.21 126.36 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Saudi Arabia United Satates KSA Fiscal & Current Account Balance (% of GDP) - KSA s Financial Condition remains firm 29.8% 26.3% 25.5% 22.5% 23.6% 22.4% 19.9% 18.1% 11.3% 12.6% 11.6% 11.9% 9.8% 9.2% 4.9% 4.4% 5.6% 1.5% -5.4% -3.5% -3.7% -4.6% -8.7% -9.2% -15.8% -12.9% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% 2004 2006 2008 2010 2012 2014 2016 2018 2020 Fiscal Balance (% of NGDP) Current Account Balance (% of NGDP) 18
KSA is all set to face the new reality under the direction of Vision 2030 by using appropriate policy tools Vision & Philosophy Basic Elements of Transition Policy Tools Vision 2030 Goals V I S I O N Economic Diversification Economic Liberalization & Globalization Structural Policy Fiscal Policy Monetary Policy A VIBRANT SOCIETY A THRIVING ECONOMY AN AMBITIOUS NATION & D I R E C T I O N Privatization Key Pillar of Economic Transition Institutional Reforms Social Reforms KSA Policy Tools Clean Environment & Sustainable Development Policy 19
Thank you 20