As the Gulf Cooperation Council's biggest economy closes the books on 2009, it may well be remembered as a year of caution and mixed fortunes. Economic growth was positive and inflation fell, but lower oil prices caused the state budget to drift into deficit territory. Nevertheless, with the government clearly committed to supporting the economy through stimulatory spending, higher growth is already expected in 2010. Saudi Arabia's GDP grew by 0.15% in 2009, while inflation fell drastically to 4.4% from 9.9% in 2008, according to preliminary figures released by the Ministry of Finance. “The Saudi economy and monetary system remained solid throughout 2009,” Saleh Nasser Al-Sorayai, the managing director of Al Sorayai Group, told OBG. Oil sector performance was significantly affected by the global fall in prices, causing nominal GDP to fall 22.3% to SR1.38trn ($368bn). However, “All non-oil economic sectors have achieved positive growth during 2009,” the Minister of Finance, Ibrahim Al-Assaf, said in a recent statement. According to Al-Assaf, non-oil sector growth stood at 3%, composed of public and private sector growth at 4% and 2.5%, respectively. The private sector's overall contribution to the economy increased to 47.8% of GDP, from 46% in 2008. GDP growth is expected to be more substantial in 2010. According to Global Investment House's “Saudi Arabia Investment Strategy 2010” report, the Kingdom's economy will expand by 3% on the expected recovery in the global economy, growth in international oil demand and a pickup in domestic private consumption. The best-performing sector in the country last year was transport and communications, which grew by 6%, followed by construction and electricity (3.9%), and the gas and water sector (3.4%). The industrial sector was up 2.2% as local demand remained strong. “For most industrial companies, there was no difference in local sales and growth from previous years, although exports were affected,” Al Sorayai commented. The wholesale, retail, restaurants and hotels sector grew by 2%, while finance, insurance and real estate expanded 1.8%. The year 2009 also saw the first budget deficit in Saudi Arabia since 2002, with a SR45b ($12bn) shortfall on SR505b ($134.7b) in revenues and SR550b ($146.7b) in expenditures. The deficit was smaller than the SR65b ($17.3bn) anticipated by the government at the start of the year, due to increasing oil prices in the latter months of 2009 and ramped up government spending to stimulate the economy. The 2010 budget, released in December, forecasts a SR70b ($18.7bn) deficit based on expected state revenues of SR470b ($125.3bn) and record-high budgeted state expenditures of SR540b ($144.0bn ). With the announcement of the budget, the government has signalled to both domestic and foreign market watchers that it intends to continue spending to stimulate economic growth. The Kingdom's capital markets ended the year well, although there were signs of hesitation among investors. According to the Saudi Stock Exchange Annual Report, the Tadawul All Share Index (TASI) closed up 27.5% for the year and total market capitalisation rose by 29.3%. However, the major indicators of market participation fell significantly, with the total number of shares traded down by 5.7%, while the number of transactions executed fell by 30.1%. The drop in volume of trades can be attributed to the fact that around 90% of TASI volume is made up of retail investors, who had a tougher year financially, and were consequently forced to direct their funds elsewhere or chose to limit trading. The country's capital markets welcomed 11 initial public offerings (IPOs) in 2009, including the National Petrochemical Company of Saudi Arabia, also known as Petrochem, which was the year's biggest initial listing. Of the 11 new issues, 7 were insurance companies who had to list publicly in order to comply with Saudi Arabian Monetary Agency regulations governing insurance operators in the Kingdom. By the end of the year, two of the seven, Gulf General Cooperative Insurance Company and Buruj Cooperative Insurance Company, had not yet been listed, bringing the total number of companies listed and traded on the market to 135. Only a month in, 2010 is already looking more promising for IPO activity. Local fast food chain Herfy Food Services kicked off the IPO season in January with a SR413.1m ($110.2m) initial offering. The next firm in the IPO queue is floor-covering manufacturer Alsorayai Trading and Industrial Group, which is set to raise SR243m ($64.8m) from 30% of the company's capital being offered from February 1-7. The CMA also announced that the two aforementioned insurance companies will enter the market in the upcoming month. Shares of Gulf General Cooperative Insurance Company and Buruj Cooperative Insurance Company will be listed, with trading to begin on February 8 and 15, respectively, marking a busy start to the year for the Saudi capital markets. After a year of mixed economic signals and caution on the part of investors, Saudi Arabia is beginning the new year on a positive note. While some repercussions from the tail end of the global crisis are likely to continue to be felt, the government and business community are forging ahead with plans and strategies to secure future growth and development. Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic and political intelligence on the markets of the Middle East, Africa, Asia, Eastern Europe and the Caribbean. __
