Saudi Arabia's economic growth is expected to more than double in 2022, helped by higher oil prices and a “robust” non-oil sector, while unemployment among citizens is on the decline, said private equity group Jadwa Investment.
The Arab world's biggest economy is forecast to grow 7.7 per cent in 2022, from 3.2 per cent last year, Jadwa said in a report.
The growth projection is a “result of sizeably higher oil sector growth”, Jadwa said.
Oil gross domestic product is set to rise 15.5 per cent while robust non-oil growth of 3.4 per cent is expected.
The non-oil sector grew 6.1 per cent a year in 2021 while oil GDP recorded annual growth of 0.2 per cent.
Other predictions have also projected strong growth for the Saudi economy this year.
Real GDP in the kingdom, Opec’s biggest oil producer and the world's largest exporter, is expected to expand 7.6 per cent in 2022, according to Japan's largest bank MUFG, while Emirates NBD has forecast 6 per cent growth.
In January, the International Monetary Fund said it expected the kingdom’s economy to grow 4.8 per cent.
Brent, the global benchmark for two thirds of the world's oil, surged to about $140 a barrel earlier this month, the highest since 2008. The benchmark is up about 50 per cent since the start of the year.
Last week, S&P Global Ratings affirmed Saudi Arabia’s rating at “A-/A-2” and revised its outlook to positive from stable, citing improving GDP growth and fiscal dynamics over the medium term.
Unemployment among Saudi nationals hit its lowest levels since 2009 as the economy continues its rebound from the impact of the pandemic and as oil prices rally, government data showed.
The unemployment rate for citizens declined to 11 per cent in the fourth quarter of 2021, compared to 11.3 per cent in the previous three-month period, data from the kingdom’s General Authority for Statistics showed.
Unemployment is lower by 1.6 percentage points when compared to the fourth quarter of 2020.
Labour participation rates rose to 51.5 per cent during the fourth quarter, compared to 49.8 per cent in the third quarter, mainly as a result of higher female participation.
Job creation for both Saudi men and women is among the country's top priorities under its Vision 2030 plan to wean the economy off oil revenue and increase the rate of employment among citizens.
Consumer spending was up 10.4 per cent a year in February despite declining by 9.3 per cent a month, Jadwa said. Within this, point-of-sale transactions rose 25 per cent while ATM cash withdrawals fell 11.1 per cent a year, according to Al Rajhi Capital's monthly economic report.
The increase in POS transactions was mainly driven by a 58.8 per cent annual increase in spending at restaurants and hotels, followed by miscellaneous goods and services (49.4 per cent), clothing and footwear (27.8 per cent), transport (18.9 per cent) and food and beverages (15.8 per cent), Al Rajhi Capital said.
“With consumer sentiment climbing to its highest level on record in March, and with a vast majority of Covid-19 restrictions being lifted during the same month, we expect consumer spending to show strong levels of growth in the months ahead,” Jadwa said.
Remittances made by Saudi nationals increased 33.7 per cent a year in February 2022, compared with a 45.3 per cent yearly increase in the previous month, to about 5.4 billion Saudi riyals, it said.
However, remittances growth on the part of residents declined 0.9 per cent a year in February to about 11.2bn riyals.
In terms of inflation, the cost of living index continued to be in a “positive trajectory”, Al Rajhi said. The index increased by 1.6 per cent a year in February 2022, mainly because of higher costs in the transport and food and beverages segments.
“Looking ahead, we expect rises in global food prices, as a result of the Russian-Ukrainian conflict, to put upward pressure on food prices locally,” Jadwa said.
The current conflict in Eastern Europe has pushed up global food and energy prices, with the two warring countries, Russia and Ukraine, being major suppliers of wheat, grains and other commodities.
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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The Sheikh Zayed Future Energy Prize
This year’s winners of the US$4 million Sheikh Zayed Future Energy Prize will be recognised and rewarded in Abu Dhabi on January 15 as part of Abu Dhabi Sustainable Week, which runs in the capital from January 13 to 20.
From solutions to life-changing technologies, the aim is to discover innovative breakthroughs to create a new and sustainable energy future.
