Without the diversification of its revenues, the Saudi economy runs the risk of stagnation, according to Saudi economists.
While nonoil exports have grown by an annual average of 17 percent over the past decade, there is an obvious decline in nonoil economic growth, Mohammad Shams, president of Economic and Managerial Feasibility Consultancy Center, told Arab News.
“The use of oil increased about 20 percent over past 10 years. Such an increase is considered a real danger. Latest reports show that the Kingdom uses around 2.8 million oil barrels per day,” Shams said.
“Oil is not going to be here forever and so it's time to plan for the future by diversifying the sources of revenue such as industry and agriculture. Worldwide, most countries have decreased their dependence on oil. Some countries have found a replacement for oil such as natural gas. Saudi government should start looking for other sources of revenue like many other countries. For example, Canada and some countries in Africa have discovered the sandy oil. America also discovered the use of distilled oil. Therefore, the demand on Saudi crude oil will decline in the coming years,” he said.
According to Shams, the program of revenue diversification should go hand in hand with the Kingdom's increased investments in IT technology, agriculture, manufacturing and petrochemical industries.
Shams also emphasized the need for expanding the scope of private sector's contribution to more than 19 percent in the GDP.
“The private sector's participation in the GDP has improved, but oil still plays a very important role as the principal revenue earner for the country. Private sector can help in diversifying Saudi revenues by encouraging small and medium enterprises (SMEs), manufacturing and agriculture,” he said.
According to him, there is still a long way to go on the diversification front.
“One key strategy toward this goal is industrial expansion, with the aim of raising the contribution of the industrial sector to the GDP to 20 percent by 2020 compared to its current level of 10 percent since 45 years ago,” said Osama Filali, an economist teaching at King Abdulaziz University in Jeddah.
According to Filali, the government's development strategy since nine years ago has been emphasizing on industrial expansion.
“Such a strategy aims to achieve diversification, competitiveness and non-reliance on only one source, increasing sustainable growth rates and creating job opportunities,” he said.
Natural gas exploration and petrochemicals are major areas recommended by the economist to grow the Kingdom's industrial sector.
Filali added: “Moving from trade to industry is a risk that most private sector companies are trying to avoid.”
Although banks have given loans to industrial sector, private companies' participation in industry is only 10 percent. The private sector's contribution in industry will increase its contribution to GDP to 20 percent, said Filali.
Essam Khalifa, member of Saudi Economic Association, said the Saudi economy has several weak points such as single source of revenue and slow process of economic reforms and privatization.
“Official statistics indicate that the contribution of the oil sector is about 85 percent due to the high volume of oil prices. In contrast, other commodity exports account for only 15 percent of the total exports. The ratio of Saudi exports is almost stable for more than twenty years despite the variation in oil prices during that period,” he said.
He added: “From this standpoint, it is clear that oil revenue is still driving the Saudi economy.”
Diversification of the economic revenue is needed to monitor the challenges, redirect the economy and improve the efficiency of the various economic sectors such as industry, tourism and free zones.
According to Khalifa, the government is betting on the private sector to play a vital role as an engine of Saudi economy.
“Strategies and plans have to be implemented quickly. Government has to come up with a clear strategy to implement reforms with a specific timetable to achieve its set objectives,” he said.
Source: Arab News, 15.07.2012