By KHALIL HANWARE | ARAB NEWS
Published: Jul 13, 2011 01:29 Updated: Jul 13, 2011 01:29
JEDDAH: The Nitaqat program announced by the Labor Ministry recently will bear fruit in the long run as the government is trying to create maximum jobs for Saudi citizens, said a senior National Commercial Bank official.
Though there has been a positive as well as a negative reaction from Saudi businessmen initially, the program would eventually benefit Saudi businesses as rising unemployment and a surging young population are putting pressure for further job creation, Said Al-Shaikh, senior vice president and group chief economist at the National Commercial Bank (NCB), said while releasing the Business Optimism Index (BOI) for Saudi Arabia for the third quarter of 2011 here on Tuesday.
The BOI survey, conducted in June 2011 by NCB and Dun and Bradstreet (D&B), indicated a mild slowdown in the pace of growth amid an environment of weakness in business and economic indicators around the world.
Saudi Arabia's hydrocarbon sector optimism has surged in the third quarter of 2011. The overall BOI composite score for the sector is 63 versus 50 in Q2, 2011, due to a higher BOI score for all three parameters. Respondents expect prices to rise further as demand for oil remains strong and will continue to grow. The BOI score for level of selling prices is 65 in Q3, 2011, compared to 53 in the previous quarter. Seventy percent of the businesses expect prices to go up in Q3, while 25 percent anticipate no change. The net profits expectations of the industry players have shown a marked improvement over the previous quarter, the BOI for which is recorded at 65, compared to 50 in the last quarter. The BOI for number of employees has increased to 55 in Q3, from 45 in the second quarter of 2011.
With regard to the non-hydrocarbon sector, the survey reveals that despite a drop in the composite index, business optimism still remains very high. The drop in the value of the composite index is due to a fall in the BOI values of all six parameters. The BOI for the volume of sales parameter has registered a value of 61 compared to 78 in Q2, while the BOI for the new orders parameter is down by 16 points to 62. The BOI for level of selling prices stands at 34 in Q3, down from 46 in the last quarter. Saudi Arabia's annual inflation slowed to a 16-month low of 4.6 percent in May, mainly due to a drop in food costs. However, inflationary pressures are expected to build up in the second half of the year in response to the additional spending measures announced by the government, the weak dollar and high raw material prices.
The composite index for the non-hydrocarbon sector stands at 52 in Q3, 16 points lower compared to the second quarter figure.
Manjeet Chhabra, general manager, Middle East of Dun and Bradstreet South Asia Middle East Ltd., said: “Business optimism levels in the non-hydrocarbon sector dipped to the levels in Q4 last year. This clearly reflects the global economy, which witnessed a mild slowdown in the pace of growth. On the other hand, riding on the higher production of oil, the optimism levels in the hydrocarbon sector witnesses a sharp increase taking the index to an all-time high.”
Al-Shaikh said: “Attributed to the associated downside risk to global growth following rising worries on the Greek and other peripheral European sovereign credit, the extension of the US debt ceiling, and the challenge to tackle increasing inflation in emerging economies, the Saudi sentiment has weakened in the Q3 compared to Q2, yet the Saudi BOI remains elevated. Apparently, the business sentiment continues to swing due to global developments than to the positive Saudi economic prospects, especially on the recent additional spending royal decrees.”
Al-Shaikh said the impact of the allocation of SR250 billion for the housing sector by the government will benefit the sector in the medium to long term, as the amount will more likely be spent over five to seven years.
Once the mortgage law gets its final approval, it will put upward pressure on land prices in immediate term as more Saudis will apply for mortgage loans to build their own houses, he added. In the long term it will help reduce real estate prices in the Kingdom as more housing units become available, Al-Shaikh said.
According to the BOI survey, the composite index for the manufacturing sector stands at 56 in Q3, 14 points lower than the index value in the second quarter.
Saudi Arabia’s efforts to diversify the economic base from oil to other industries have resulted in continuing investments in infrastructure development, which are benefiting the construction industry. The composite index for this sector stands at 57 in Q3, down from 71 in Q2.
The retail sector in Saudi Arabia is set to post solid growth in the current year, tracking the overall growth in the economy. At 32 in Q3, the index has retreated by 29 points from Q2 figure.
Outlook regarding factors likely to adversely influence operations in Q3 reveals a favorable business environment. Forty-one percent of the respondents do not anticipate any negative factors coming into play in the third quarter of 2011. Availability of skilled labor remains an important concern for 24 percent of the firms, while 13 percent expect that availability of finance might impact business operations in Q3. Fifteen percent of the businesses are concerned about inflationary factors in the short term.
Forty-eight percent of the firms plan to invest in business expansion compared to 53 percent in the previous quarter.
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