Saudi Arabia's construction sector rebounded and is growing for the first time in five years as the kingdom’s non-oil economy expands on the back of continued economic reforms, the kingdom's finance minister said.
The contracting sector accelerated 3 per cent this year from a 2.8 per cent contraction during the same period in 2018, Mohammed Al Jadaan, told the delegates at the third Future Investment Initiative (FII) in Riyadh on Thursday.
“We are focusing on specific industries and we are seeing really good growth,” Mr Al Jadaan said, adding as well as global rankings — such as the ease of doing business — gross domestic product numbers are also reflecting the progress the kingdom has made in expanding its non-oil economy.
Other industries to see “significant growth” on the back of the kingdom’s economic diversification drive include tourism, technology, sport and entertainment, he said during a panel discussion, which also included Naif Al Hajraf, Kuwait’s finance minister and Salman bin Khalifa Al Khalifa, bahrain's finance minister.
Contracting businesses in Saudi Arabia faced headwinds in the wake of the three-year oil price slump that began in 2014 and pushed the crude price below $30 per barrel in the first quarter of 2016. The kingdom, like its other GCC peers, embarked on an austerity drive, cutting spending and shelving non-essential projects.
The price of oil bounced back to above $80 per barrel in the last quarter of 2018 and is currently hovering close to $60 per barrel level, however, the kingdom is continuing to institute wide-ranging economic and social reforms under its overarching Vision 2030 programme. The key pillar of the overhaul agenda is to cut Saudi Arabia’s dependence on oil, and develop alternative revenue lines as its boosts the non-oil sectors such as tourism and industries.
Saudi Arabia's non-oil economic growth accelerated at the fastest pace in four years in the second quarter of the year. The 2.9 per cent year-on-year growth was the strongest since the fourth quarter of 2015, when Riyadh started putting fiscal consolidation measures in place to counter the oil price slump.
It’s oil economy contracted 3 per cent in the second quarter after the kingdom, which along with Russia leads the Opec+ alliance of Opec and non-Opec member countries, cut oil production in a bid to support prices and balance global oil market.
“What we are focusing on is non-oil GDP ….. [which is] our KPI [key performance indicator] for the Vision 2030,” Mr Al Jadaan said.
Economies of Gulf countries are projected to grow 0.7 per cent in 2019, down from 2 per cent last year, before rebounding to 2.5 per cent in 2020, according to the IMF projection. The non-oil sector in the GCC will grow from 1.9 per cent last year to 2.4 per cent in 2019 and 2.8 per cent in 2020, spurred by infrastructure spending in countries such as Kuwait, and a tourism boost in the UAE and Saudi Arabia, according to the Washington-based lender.
However despite the headwinds from the oil sector and a slowdown in global economic growth, Gulf countries as a whole are resilient. From the Arab world, Saudi Arabia, Kuwait, Bahrain and Jordan are among the top-10 global reformers in the Word Bank’s ease of doing business rankings released last week, Mr Al Khalifa noted.
“We believe in the GCC and over the last 37 years or so what has been achieved within the GCC umbrella is too good to let go,” Mr Al Hajraf said. “[The] GCC is there and will continue to be there.”
Decisions are actually made every year, to enhance the economic integration of the bloc members, Mr Al Jadaan noted.
“The economic [cooperation] part is actually improving with every meeting and we meet at least twice a year,” he added.