EDITOR'S NOTE:

In September 2004 Brad Bourland, Chief Economist of the SAMBA Financial Group in Riyadh, was a member of a distinguished panel discussing commerce, economics and energy at the annual Arab-US Policymakers Conference in Washington. He began his presentation with an economist's reality check:

You know I thought long and hard how I can add some value this afternoon to what really is a very simple story about the performance of the economies of the Arab world. That simple story is that oil prices are $44 per barrel today.

This month Mr. Bourland's office released its report on the performance of the Saudi Arabian economy in 2004 and its forecast for 2005 (see link). It concluded that 2004 showed the best "balanced performance" in Saudi economic history. Not only was the strong performance buoyed by the high-flying oil prices he noted in September, but the non-oil private sector also showed strong growth in most segments.

We are pleased today to present a conversation with Brad Bourland who provides his perspective on these developments. This exchange was conducted with Mr. Bourland in Riyadh via email on February 27, 2005.
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Saudi Economic Performance:�
A Conversation with SAMBA Chief Economist Brad Bourland

SUSRIS: SAMBA Financial Group recently released a report on the performance of the Saudi economy for 2004 and the forecast for 2005. The report said 2004 was the "best year of balanced performance" in Saudi Arabia's history. What was behind this strong showing?

Brad Bourland:� It really was the combination of the highest oil revenues in the Kingdom's history and robust non-oil growth. Past periods of exceptional growth were somewhat one-dimensional by comparison. In the 1970s the boom really was just government spending of oil revenues, and the last period of exceptionally high growth, 1990-1991, was war-driven. So 2004 really stood out as a year of across the board strength in the economy, which, by the way, looks set to accelerate in 2005 and perhaps beyond.

SUSRIS: The last year saw a strong upward swing in oil prices. How has heightened demand and tighter supplies shaped Saudi Arabia's approach to oil production, excess capacity and its commitment to a stable world energy market?

Brad Bourland:� What was unique about the oil market in 2004 was that the move up in prices was not driven by supply disruptions, as in the past, but by the explosion of demand from China, which took the market by surprise. Another unusual aspect is that the high prices of 2004 have not caused any apparent damage to global economic growth. The IMF says that 2004 was the best year for the global economy in 3 decades. The demand strength, in particular, has, I believe, led the Saudis to conclude that the world will now sustain a higher appetite for Saudi oil than it has at any time during the past 20 years. As a result, they are expanding production capacity significantly to meet the demand, and to maintain an excess capacity cushion of around 2 million barrels per day. As for oil market stability, I think that because Saudi oil reserves will last for a century or more, the Kingdom will remain committed to a stable and well-supplied oil market.

SUSRIS: A few months ago we spoke with Majlis member Usamah al-Kurdi who described some of the economic reforms in Saudi Arabia. What can you tell us about how reforms have reshaped the economy and may have contributed to the 2004 success story?

Brad Bourland:� I have maintained for some time that I will believe the reforms are having impact when I start to see it reflected in the numbers, especially higher levels of non-oil GDP growth. Well, it is time to give some credit where credit is due. Non-oil growth has been moving upward over the past few years and is now approaching what I believe is a sustainable, organic trend rate of growth of 6 percent per year. I think it is now fair to say that the reforms of the past decade are adding perhaps 1 to 2 percentage points to non-oil growth today. Key areas would be telecoms reform, capital markets reforms, and foreign investment reforms.

SUSRIS: The SAMBA 2004 report highlighted shifts in Saudi Arabia's trading patterns. While the US remained the top source of imports to the Kingdom, China has shown strong gains in this regard, jumping from seventh to fourth largest source for Saudi Arabia. How will the changing trade landscape impact US-Saudi relations?

Brad Bourland:� I don't know how the trade patterns themselves will affect relations more broadly -- maybe it is the reverse that is true -- but it is clear that the trade relationship is in decline. China is gaining globally, so that is a challenge for the US that is not unique to Saudi Arabia. I was struck that even with the strength of the Euro in 2003, imports into Saudi Arabia from the Euro area showed strong growth in both volume and value.

SUSRIS: What should Americans better understand about the Saudi economy and its importance in the relationship between our countries?

Brad Bourland:� I think Americans instinctively understand the fundamentals, that Saudi Arabia is a global oil market powerhouse and that the stable flow of oil from Saudi Arabia is crucial to US and global economic interests. As for the domestic economy, it is a reasonably open market, about the size of a major US state, and should be of interest to any US company that is a global exporter.

SUSRIS: What is the status and forecast for Saudi Arabia's accession to the WTO?

Brad Bourland:� I don't have a forecast for when the accession process will be completed, since it is a matter of negotiations and there is no deadline. The US is the Kingdom's major trading partner that has not yet reached agreement on the terms of the Kingdom's accession. I know negotiations are ongoing. When Saudi Arabia is a member, it will be good news. I think the impacts will be similar to what happened with China, but on a smaller scale. Foreign investment interest in China jumped sharply after China's accession. I think WTO membership gives foreign investors comfort that there are legal mechanisms and organizations they can turn to in the event of a dispute, and that will increase the appetite for business risk-taking in Saudi Arabia.

SUSRIS: The Jeddah Economic Forum was recently held. What is the purpose and importance of these meetings?

Brad Bourland:� The JEF is a major annual conference that attracts very high-profile speakers and attendees, including current and former world leaders. Of interest to Americans in particular would be that it is a forum for freewheeling discussion of change and reform that participants believe should occur in the Kingdom.

SUSRIS: Thank you for taking time to talk with us about the performance of the Saudi economy.

Brad Bourland:� You're welcome and please tell your readers they can download the report you mentioned and others at www.samba.com.sa.�

Also see:

Arab World Economies: Prosperity Amidst Political Uncertainty
Brad Bourland

Brad Bourland, CFA 

Since 1999 Brad has been the Chief Economist at Samba Financial Group, formerly Saudi American Bank, in Riyadh, where he publishes regularly on issues related to the Saudi and global economies and the world oil market. He appears frequently in the domestic and international media and is a regular public speaker. Brad is also head of country risk management for the bank, which involves managing the bank's cross-border risks. Before joining Samba, Brad spent an 18-year career as diplomat, economist, and manager with the U.S. Department of State. During the last three years of his diplomatic career he was in Riyadh as the American Embassy's First Secretary responsible for financial affairs, where he analyzed the Saudi economy for the U.S. Government and conducted financial aspects of US-Saudi relations. Brad has his BA and MA magna cum laude from the University of Utah, and is a CFA (Chartered Financial Analyst) charterholder.