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.
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