Economic, Market and Industry Analysis Outline of Saudi Arabia

            Saudi Arabia as G20 member and 17th-largest exporter in the world, Saudi Arabia is also known as the powerhouse of economy. They categorize by World Bank as a nation with high-income, its populace of about 30m has set up a customer market to flourish domestic and global businesses. The utilization of its resources of hydrocarbons has driven expansion for many decades, and the trading status of Saudi Arabia has been increased by its geographic benefit as a three continents connector and also its immediacy to Red Sea, through about 10% trade of world travels. On the other hand, this era of low prices of oil has presented a lot of challenges for Saudi Arabia and economies of the other counties. As a result, the reforms of economy are changing in numerous Gulf countries, and the venerable goal of diversifying revenues not here from hydrocarbons is finest than ever.

Key economic indicators that affect market performance in Saudi Arabia

        The Saudi Arabia is leading oil and natural gas producer and as of 2015 embrace about 16% of the proven oil reserves in the world. The government of Saudi Arabia goes on to pursuing diversification and economic reform, mainly in 2005 economy accession of Saudi Arabia’s to WTO, and promotes Kingdom’s foreign investment. In 2016, the governments of Saudi publicize socio-economic reforms broad set, also known as Vision 2030. The reduction in international oil prices all through 2015 and 2016 considerably lowered governmental revenue of Saudi Arabia. In reaction, the government of Saudi Arabia cut financial support on electricity, water and gasoline; concentrated compensation packages of government employee; and also announced limited taxes of new land. In the OPEC coordination and a number of non-OPEC countries, Saudi Arabia decided to cut oil production early on in 2017 to control supply and help in international prices.

        The Saudi Arabia economic revival continuously increases traction in Q2, with expanding GDP at the greatest speed in 1.5 years. The economy of Saudi Arabia continued to gain profit from higher prices of oil—which are approximately 50% higher than levels practical last year—and production of solid crude oil. Next to this setting, the governments release its financial stance that mainly interpret into higher contributions and cash transport to domestic to compensate unhelpful spillovers from financial support cuts and the opening of VAT in January. In spite of a soft start to year, movement in non-oil sectors is gradually gathering force, with the non-hydrocarbon PMI sector in July and August balanced over Q2’s average. The economic position Saudi Arabia expected to cover JP Morgan to proclaim, in 26 September, the enclosure of country into promising bond indexes market government in the next year, which leads Saudi bonds to public meeting in September.

        The Economic growth of Saudi Arabia is likely to gather condensation in the coming year as its stronger financial place should encourage the private expenditure and speculation. On the other hand, the downside risks at rest emerge great economic outlook over the country, mainly the stem from protectionism rising trade that also add downward global growth stress, and also from increasing geopolitical danger in the country and indecision about the reform agenda of the country. In 2018 the Economics Consensus predicts panelists expecting growth of 2.0%. In the 2019, the growth is likely to accelerate to 2.4%, that is not changed from projection of last months.

Forecasted GDP value and growth of Saudi Arabia

        The Saudi Arabia economy is primarily based on oil with strong administration controls over most important activities of economy. It possesses over 16% of established petroleum reserves in the world, position as the major petroleum exporter, and plays a most important function in OPEC. The sector of petroleum balance sheet for roughly 87% of revenues in the budget, 90% of export earnings and 42% of GDP.

        The Saudi Arabia is encouraging the private sector growth to economy diversification and to employ more nationals of Saudi Arabia. About 6 million overseas employees play a major role in the economy of Saudi, mainly in the sectors of oil and service; nevertheless, Riyadh is under pressure to decrease unemployment among the nationals. The officials of Saudi Arabia are mainly paying attention on employing its population youth.

        In 2017, Kingdom incurs a financial plan shortfall predictable at GDP 8.3%, which was economics by bond sales and reserves drawing down. Even though Kingdom can finance high shortfall for numerous years by substantial foreign assets drawing down or by have a loan from other countries, it has decrease capital expenditure and condensed financial support on water, electricity and petroleum goods and newly bring in a tax value-added about 5%. In 2016, Deputy Prime Minister and Crown Prince publicize that Saudi Arabia plan to list all the shares of its petroleum company, ARAMCO – that is another shift to boost outside investment and revenue. The Saudi government has looked at diversification and privatization of economy directly in the wake the weaken market of oil. In recent times, government also has approach investors for increasing private sector performance in the education, health care and tourism industries.

GDP - real growth rate of Saudi Arabia

0.1% (2017 est.)

1.7% (2016 est.)

4.1% (2015 est.)

Price trend of Saudi Arabia

        From the recent research it is estimated that the personal spending growth would remain indifferent as returns of inflation follow the fiscal reforms of Saudi Arabia and the partial oil prices recovery. The economic diversification efforts of the country are improbable to surprise considerably soon and not likely to increase to expenditure over the temporarily, predicted by BMI. The Consumer prices increased 3% on yearly basis in January and about 3.9 %from December, according to bureaucrat information (Focus-economics.com 2018).

        The Saudi Arabia Gasoline Prices remained unaffected at 0.54 USD/Liter from 0.54 to USD/Liter, in September 2017 to august 2018. The Gasoline Prices has been 0.24 USD/Liter from 1995 until now, in January of 2018 accomplishes all time high of 0.54 USD/Liter and in March of 2013 low evidence of 0.12 USD/Liter. The Price of Gold in Saudi Riyal is at a present level of 4575.28, up from 4521.11 the preceding market from 4838.82 in one year.

Pricing assumptions tied to economic analysis of Saudi Arabia

        In Mar 2018 the data of Consumption Expenditure was stated at 420,908.76 SAR MN. In Dec 2017, this also account a decline from the preceding figure of 481,205.58 SAR mn. The GDP of Saudi Arabia’s data of Consumption Expenditure is quarterly updated; averaging from Mar 2003 to Mar 2018 is about 260,925.01 SAR mn, with 61 remarks. In Dec 2017 the data reached an unprecedented high of 481,205.58 SAR mn and in Mar 2003 evidence low down of 110,994.00 SAR mn. The data Consumption Expenditure in Saudi Arabia remains in active position in CEIC and is account by General Authority (Ceicdata.com 2018)

Upside potential and Downside risk of Saudi Arabia

        The Saudi Arabia can now not rely on public spending and oil revenue for growth, in the shifting market of global energy and a demographic changeover that will considerably augment working-age Saudis number by the year 2030. The present rate of labor participation is about 41 %, and output growth of 0.8 % yearly from 2003 to 2013 trails a lot of promising economies. The most awful for Saudi economy is most likely to over now. The most of the essential public spending score have previously happened and the pace of austerity expects to be on ease in the upcoming years. This supposed to be hold up a steady recovery of non-oil sector in Saudi. In the meantime, there are by now signs that bumper $17.5 billion last week global bond issuance is facilitating the government to untie a little the purse strings, with expenses to outworker being resumed that is also a downside risk for Saudi Arabia.

Benefits of diversification of Saudi Arabia

        The Saudi Arabia government is going towards the economy diversification especially in the market of oil. Now the Saudi government is not more willing to depend on the oil production for the economic sustainability. The government starts investing in many of the other sectors like health care, education etc for growing its economy. From the previous few years the government of Saudi Arabia is also facing decrease in the oil prices and now they think that the diversification of economy system is very important for the long lasting growth of economy. The diversification into a economy envision by leadership of Saudi Arabia will necessitate venture in areas range from innovation infrastructure, generating more chances for foreign investors to contribute in the procedure through the stipulation of expertise in fields and hardware as diverse as equipment of railway and training in health care. In a lot of sectors this is previously making some efforts to diversify the economy of the country. So, it can be said that the diversification of the economy of Saudi Arabia is a good decision made by the government by keeping in mind the future and it is likely to provide a lot of benefits to the country as far as growth of economy is concern (Gassan Al-Kibsi, et al. 2015).

How does diversification and investment help our portfolio?

        In Saudi Arabia all of the 9 successive plans of development have emphasized on the diversification of economic, and the major goal of the country was growing contribution of sectors to GDP productive and increasing the private GDP growth continuously over time, on the other hand by decreasing natural resources dependence. The government of Saudi Arabia is making investment is many other sectors that is giving a boost to the Saudi 2030 plan of economic development. Nevertheless, achieving diversification of economy in Saudi Arabia was not a simple task. the efforts of diversification faced a lot of  complexities that make strategies and plans implementation towards economic diversification, and in the bigger vision this plan of diversification have a huge impact of Saudi economic growth (Kassem and Mahmoud 2017).

Industry Analysis

Industry Profitability of Saudi Arabia

    The industry sectors of Saudi Arabia are under control by petrochemical based products and petrochemicals. The major industries of Saudi Arabia include petroleum refining, crude oil production, fertilizers, commercial ship, industrial gases, ammonia, cement, sodium hydroxide, metals, plastics and aircraft repairing.  The Saudi Arabia contribution in the real estate sector to economy signify GDP 5.1 percent at SAR55 billion. The lend operations have guide towards a investments turn down in the sector of  residential real estate in the past 10 years, resulting in deficit of about 20 percent  of  investment levels (CONTENT 2010).

Growth Potential (Life and/or demographic trends) of Saudi Arabia

    The Domestic policy in the Saudi Arabia will stay centered in the crown prince, Mohammed bin Salman hands. The prices of oil have presented a lot of challenges for Saudi Arabia and economies of the other counties, that also make Saudi government to invest in other ventures. The economy of Saudi Arabia continued to gain profit from higher prices of oil, which are approximately higher than levels practical last year and production of solid crude oil. The Kingdom can finance high shortfall for numerous years by substantial foreign assets drawing down or by have a loan from other countries, it has decrease capital expenditure and condensed financial support. Nonetheless, the economy should retain growth through 2023, lifted by a general uptick in oil prices.

Competition Analysis of Saudi Arabia

Porters 5 characteristics of a competitive market of Saudi Arabia

Competitive rivalry of Saudi Arabia

    The of oil and gas industry competitiveness and particularly in industry upstream division is considerably intensive. There are about 3 players in the upstream division. One company’s category is the private oil and gas corporations, which are in service just to oil and gas industry upstream sector (Production and Exploration). Some of these main oil and gas industry companies that are also the competition for Saudi Aramco, are the following (Pitatzis 2016).

China National Petroleum Company (CNPC)

Rosneft, Russia

National Iranian Oil Company (NIOC)

Petroleos de Venezuela (PDVSA)

Gazprom, Russia

Threat of New Entrants of Saudi Arabia

        The threat of new entrants is medium for the Saudi Arabia because for starting this kind of business in the industry a huge capital is required. The National Oil Companies manage 90 percent of the proven reserves of oil and gas in the country. I is also possible that other oil and gas companies can also amplify their spending on R&D which will offer a competitive advantage these companies (Hokroh 2014).

Threats of Substitutes in Oil and Gas Industry of Saudi Arabia

The substitutes impact of oil and gas industry is also high for Saudi Arabia. The major substitute to oil and gas sources for energy production for the transportation, electricity, heating, etc. are the following:

Coal

Biofuels and renewables sources for example wind energy and solar

Nuclear Energy

Hydrogen

These sources of energy alternative can restore a elevated amount of hydrocarbons global energy mix use concerning their quality, performance and price. This strategy needs a lot of investments in producing procedures.

Bargaining power of buyers of Saudi Arabia

        The bargaining power of buyer for oil and gas industry is medium. In the oil and gas industry the bargaining power of buyers is comparatively low because of the nature of industry. The Buyers are very much interested in quality of a product and pricing. It is recognized that international benchmarks of oil determine oil price, the major benchmarks of oil are:

Brent Blend

Dubai/Oman

West Texas Intermediate (WTI)

Bargaining Power of Suppliers of Saudi Arabia

        The Bargaining Power of Suppliers is relatively very high for the oil and gas industry in Saudi Arabia. Some of the main oil and gas industry suppliers are completely incorporated oil and gas industry (National and International Oil Companies) that are very active in complete oil and gas sector value chain. Those companies’ ability to have an effect on oil prices and the industry is also very high because of their involvement in business on all segments of business in the oil and gas industry, so it can be said that the bargaining power is considerably higher than the buyers.

Past trend and Forecasted Price of Saudi Arabia

        The Saudi Arabia economy is primarily based on oil with strong administration controls over most important activities of economy. It possesses over 16 percent of established petroleum reserves in the world, position as the major petroleum exporter, and plays a most important function in OPEC. The Saudi Arabia is also worried to decrease unemployment among the nationals. The officials of Saudi Arabia are mainly paying attention on employing its population youth. The Saudi government has looked at diversification and privatization of economy directly in the wake the weaken market of oil. In recent times, government also has approach investors for increasing private sector performance in the education, health care and tourism industries.

References of Economic, Market and Industry Analysis Outline of Saudi Arabia

Ceicdata.com. 2018. Saudi Arabia GDP: Consumption Expenditure. April 1. https://www.ceicdata.com/en/saudi-arabia/gdp-by-expenditure-current-price/gdp-consumption-expenditure.

CONTENT, ECONOMYWATCH. 2010. Saudi Arabia Industry Sectors. MARCH 17. http://www.economywatch.com/world_economy/saudi_arabia/industry-sector-industries.html.

Focus-economics.com. 2018. Saudi Arabia Economic Outlook. October 2. https://www.focus-economics.com/countries/saudi-arabia.

Gassan Al-Kibsi, Jonathan Woetzel, Tom Isherwood, Jawad Khan, Jan Mischke, and Hassan Noura. 2015. Moving Saudi Arabia’s economy beyond oil. December . https://www.mckinsey.com/featured-insights/employment-and-growth/moving-saudi-arabias-economy-beyond-oil.

Hokroh, Mohammed. 2014. "AN ANALYSIS OF THE OIL AND GAS INDUSTRY’S COMPETITIVENESS USING." G.J.C.M.P 76-82 .

Kassem, and Mahmoud. 2017. Saudi Arabia on track to diversify economy. August 22. https://www.thenational.ae/business/saudi-arabia-on-track-to-diversify-economy-1.622017.

Kassem, Mahmoud. 2018. Saudi Arabia consumer spending to pick up as economy improves. March 8. https://www.thenational.ae/business/saudi-arabia-consumer-spending-to-pick-up-as-economy-improves-1.711417.

Pitatzis, Athanasios. 2016. Porter's Five Forces Model for the Oil & Gas Industry. May 23. https://www.greekenergyforum.com/publications/studies/2016/porters-five-forces-model-for-the-oil-gas-industry/.