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Jul 23 2012

Saudi economy vibrant in the midst of sustained spending

JEDDAH - People in Saudi Arabia are feeling less threatened by economic worries in the West. While data on personal savings is unavailable, overall deposits in the Kingdom's banking system have been rising over the past year, leaving banks with more money than they know what to do with.

The figures for Saudi Arabia indicate that consumers are more confident than it would first appear, Said Paul Gamble, chief economist and head of research at the local Jadwa Investments.

A large number of private sector firms also subsequently felt obliged to give their workers a bonus. As a result, economists were expecting to see a spike in consumer spending around that time as Saudis spent their bonuses. Instead, spending has just been getting stronger.

"Last year, we were still seeing the benefits of the pay award for public sector workers," Gamble added. "So I was surprised the recent numbers were as good as they were for May."

It is not just pay awards that have encouraged Saudis to spend more. In December, the government started paying unemployed locals SR2,000 ($533) a month in unemployment benefit, the first scheme of its kind. The Labor Ministry now says that more than 1 million people are receiving payments.

These are likely to give a major boost to spending as people with lower incomes tend to spend more of their money.

High government spending levels and strong economic growth are helping build optimism. "The high levels of consumer spending are reflective of the strong economic position of the country, the high oil price and the extent to which government employees make up the labour market," says Gamble.

Unrest in the region is also encouraging Saudis to spend more domestically.

"There is probably less regional travel occurring as a result of the Arab uprisings, so people are spending more at home," says one local analyst.

High spending levels also indicate that despite the threat posed by the social unrest and regional tensions with Iran, Saudis remain largely unconcerned by both issues.

Consumer confidence is important for two reasons.

Firstly, as a barometer of confidence in the growth and stability in the economy. In Saudi Arabia, private consumption, which includes corporate and consumer spending, is about 30 per cent of gross domestic product (GDP), or 57 percent of non-oil GDP.

Secondly, Saudi Arabia has the one thing that the rest of the GCC lacks: a large population. The more people spend, the more attractive the country becomes for big international businesses outside the oil sector, which is the cornerstone of the Saudi economy.

The boom in spending has led to mid-market retailing giants such as the UK's Marks & Spencer and the US' Gap setting up shop, moving retailing beyond just the luxury brands. One local retailer, the Fawaz Alhokair Group , has abandoned its activities in the UAE because of rising costs to focus on its growing domestic market.

With spending set to remain strong, businesses are also importing more goods.

© The Saudi Gazette 2012

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