Saudi Arabia, with a nominal GDP of over $745,3 billion in 2013, is the largest economy in the Gulf Cooperation Council group, with a weight equal to 45%. The hydrocarbon sector, which contributes one-fifth of real GDP and 47% of nominal GDP, remains the engine of the economy. Gas and oil account for 92% of tax revenues and nearly 90% of export earnings. In addition, the sector feeds the country's main manufacturing industries, specifically petrochemicals and metalworking. According to the data provided by the last focus Intesa Sanpaolo, in 2012 known oil reserves amounted to 266 billion barrels (the fifth largest in the world) which, at the 2012 extraction rate (9,8 million per day), would be depleted within 78 years. Those of gas, equal to 8232 billion cubic meters (the fourth in the world), at the extraction rate of 2012 (92 billion cubic meters) would last over 90 years. in perspective, Saudi Arabia's oil production dynamics depend on stabilization in producing countries such as Saudi Arabia Libya where, in the recent past, the extraction activity has been hampered by internal political tensions. Average daily oil extraction in Saudi Arabia exceeded 10 million barrels in July-October 2013, hitting 10,2 million barrels last August, the highest level in more than 30 years, to cope with lower supply from other countries.
Like the other economies of the region, in the recent past Saudi Arabia has pursued a policy of relative diversification of the structure of the economy, aimed at reducing dependence on the energy sector. The development of these activities primarily concerned transport and communication services, followed by manufacturing, public utility services, sales and hotel services and financial services. Within the manufacturing, the most important industries are those energy intensive (chemical, rubber and metalworking) and those of food processing. Between 2009 and 2013, the Saudi Arabian economy recorded an average growth rate of 5,5% (+1,7% for hydrocarbons, +6,7% for non-oil), one of the highest in the G20 group, lower only than those of China and India. During this period, the average GDP growth in the GCC countries was 4,4% (+2,9% hydrocarbons and 4,9% non-hydrocarbons). Saudi Arabia, thanks to the availability of substantial unused oil extraction capacity, continued to play a stabilizing role in oil supply, making up for production cuts in other producing markets. The substantial oil revenues led to large surpluses in the current account (on average equal to 16,4% of GDP over the five-year period) and in the public budget (6,4% of GDP on average over the same period). To prevent the protests that have exploded in the region in recent years the country has pursued expansionary fiscal policies which have supported growth and led to a breakeven increase in oil prices, which rose from 65,2 dollars in 2009 to 85,5 dollars in 2013. In the second half of 2013 and in the first months of the year, inflationary pressures coming from the two most important sectors affected by generous subsidies, food&beverage (26%) and costs for housing (18%), were balanced by drop in prices for textile and clothing products and for transport and communication services. The average inflation rate is expected to decrease to 3,2% in 2014 from 3,5% in 2013.
The country positions itself among the first places in the special classifications of the World Bank on the ease of doing business (22nd place out of 185 countries) and of the World Economic Forum on the conditions of competitiveness (20th place out of 148 countries), even if the score on health, education and labor market efficiency is not particularly high. Sovereign wealth funds managed by SAMA, the monetary authority of Saudi Arabia, invested USD 540 billion in foreign securities in the first quarter of 2014, with a significant impact on the global financial market. Saudi Arabia has a large population (almost 30 million, of which 9,7 million immigrants) and also records a high growth rate, which in the last decade has averaged 2,5% per year. The sustained growth of the new workforce, together with an education system not in line with market demand and generous benefits for the unemployed, have led to a substantial increase in the unemployment rate, which among the native population is 11,7%. According to published estimates, to bring the unemployment rate down by 5pp over the next five years, the non-oil part of the economy is expected to grow by an average of 7,5%. Unemployment is virtually non-existent among non-Saudis. In 2011, the government launched a program to boost the hiring of Saudis in the private sector. Furthermore, at the end of 2013, a regularization program for foreigners present in the country began, which resulted in the expulsion of over 1 million people without the necessary documents, without forgetting the restrictions introduced on the renewal and granting of visas to foreign workers.
Economic growth slowed down to 3,8% in 2013, from 5,8% in 2012 mainly due to the decline in hydrocarbon extraction and processing activities (-0,6%) while activities other than hydrocarbons recorded continued sustained growth (+5,1% from +5,8% in 2012). In particular, the economy benefited from the acceleration of construction activities (+8,2% from +4,8%) supported both by infrastructure and, above all, by residential buildings thanks to the demand from a rapidly growing population. The dynamics of services slowed down (+5% from +6,3%) due to the lower contribution of the public operator, after the extraordinary interventions made in recent years. Among services, only transport and communication accelerated (+7,2% from +6%). In this sense the economy continues to benefit from infrastructure development plans (see urban and suburban transport), services (schools and hospitals) and residential, without forgetting the expansion of the manufacturing base, largely energy-intensive (refineries, petrochemical plants for metalworking and gas liquefaction). The total amount of outstanding projects already funded by the state exceeded $1.1 trillion in early 2014.
GDP growth is expected to accelerate slightly in 2014 (4%) due to the expected increase in the energy sector able to balance the expected slowdown (+4,8%) of the non-oil part of the economy. In 2015, GDP is expected to reach 4,4%, once the effects of the aforementioned measures on employment and immigration have been absorbed. Downside risks for the non-hydrocarbons part, in particular services, arise from the possible expansion in the Arabian peninsula of the MERS virus, a life-threatening respiratory syndrome similar to SARS which struck Asia between 2002 and 2003. Concerns about contracting this disease could lead many Muslim faithful to give up the pilgrimage to Mecca and discourage the attendance of public places with consequent negative effects on services dependent on tourism and recreation.
Saudi Arabia's solvency is assured, data the large stock of financial resources set aside, the low public debt and the substantial surpluses of the State and of the current account of the balance of payments. Last March Fitch upgraded its foreign currency sovereign debt rating from AA- to AA based on solid macro fundamentals and the sustained growth of the non-oil part of the economy seen in recent years. S&P and Moody's assign Saudi Arabia a rating of AA- with positive outlook and Aa3, respectively.
In recent years, the country has accomplished efforts to modernize the economy. Among the most significant reforms:
1) the presentation of a privatization programme, which saw the first placement of a public company, the telecommunications company STC (2002) which was followed by that of NCCI, the main insurance company in the Arab world (2004);
2) the customs union between the economies of the Gulf (2003);
3) the modernization of the legal system and of the insurance business (2003);
4) accession to the WTO (2005);
5) licenses for capital market, brokerage and insurance activities (2006-07);
6) the establishment of SASEC, the Capital Market Supervisory Authority and the establishment of SASE, the Saudi Arabian Stock Market (2004) and the strengthening of the supervision of the banking system. From 2012, foreign companies will be able to be listed on the Tadawul Stock Exchange.
However, the economy and the budget and external accounts balances are vulnerable to the oil situation. The main investment projects underway in the industrial sector concern all activities with high energy consumption, specifically power plants and desalination plants fueled by petroleum, petrochemicals and for the production of aluminum. Saudi Arabia is, together with China, one of the countries with the highest growth in hydrocarbon demand. To weigh, as in the case of India, is rather the lack of infrastructure and housing units, factors which highlight a certain difficulty in spending oil wealth in the direction of long-term development. Without forgetting that from a geopolitical point of view, Saudi Arabia is in a particularly unstable area.
