TAKING THE REINS

Saudi Arabia 2016 | FINANCE | INTERVIEW

TBY talks to Dr. Said A. Al Shaikh, Chief Economist of the National Commercial Bank, on reasons for optimism in the Kingdom, actualizing on opportunities for growth, and promoting local attractiveness to investors.

Dr. Said A. Al Shaikh,
BIOGRAPHY
Dr. Said A. Al Shaikh has been the Chief Economist at the National Commercial Bank since 2000. Before joining NCB in 1998, he was an assistant professor of finance and economics at the King Fahd University of Petroleum and Minerals (KFUPM). He also served as a part-time consultant for the Federation of the GCC Chambers of Commerce representing the Federation in several local and regional conferences. He earned a bachelor’s in architectural engineering from KFUPM, a master’s in public policy and planning from the University of Oregon, and a PhD in economics from Cornell University. He was appointed to the Majlis Ashoura Council in 2009 and 2013.

Despite the challenges that Saudi Arabia's economy is going through, what are the main elements that bring optimism to the country?

Despite the challenges, the economy continues to grow and last year it grew by 3.4%, as both oil GDP and non-oil GDP sectors have generated positive growth even with the sharp fall of oil prices. The government's ability to finance fiscal deficit is met through withdrawal from the its huge official reserves and by tapping into capital markets and issuing debt, as it did last year and more likely will continue to do this year. These factors allowed businesses to maintain a good level of optimism despite the fact that the Kingdom's economy has moderated in comparison with previous quarters or years. The non-oil sector is more affected by government spending and readiness to finance deficits than by oil price changes, and that is why we are seeing the level of optimism still holding, yet lower than previous years. Overall, there is a fair level of optimism at present within the Saudi Arabian economy.

In which sectors are you witnessing more optimism?

Optimism varies across different sectors. Manufacturing was the least positive given that the manufacturing sector is highly dominated by petrochemicals and plastic, which are mostly affected by falling oil prices. The transportation sector had the highest optimism at 37 points, while manufacturing got 22 points. There are some variations between the different sectors. The real estate sector, for example, showed some level of optimism and this is influenced by the recent policies taken by the government to deal with the challenges facing this industry and by the different programs that were initiated by the Ministry of Housing and various banks to stimulate individual home ownership.

What has to be done in the public and private sectors to actualize these opportunities?

There are several factors within the government to consider, but there are also other issues that are not necessarily within the government's control. Falling oil prices are something that the government will be subjected to, and it will just have to accept it and deal with its consequences. If the Kingdom were to change its oil policy and defend the price versus market share then that would be another issue, as it would have to be done in collaboration with other producers in OPEC or even outside of OPEC, such as Russia. In the medium term, we are awaiting the launch of the National Transformation Plan. A workshop already took place sometime in January but the plan has not been rolled out yet. Once the plan is implemented the government will move toward more privatization and offloading some of its assets to the private sector and to the appetite of investors. The latter will be encouraged by a public campaign to explain and demonstrate the benefits of this economic transformation to citizens. The plan is intended to reform the Saudi economy and to expand the private sector, lessening the role of the government and making it a more effective regulator. All production had to go to the private sector because it is more efficient and less bureaucratic. Saudis holding some of their wealth outside the Kingdom will start to repatriate some of their net worth, and we will see increasingly large volumes of FDI.

Do you think the country has already done everything possible to make the economy more attractive to potential investors?

The government has taken some of the necessary steps, but there is surely more to be done. The most urgent of these relate to the legal system, the regulatory framework, and the enforcement of commercial courts. If these things were taking place more regularly, it would provide more comfort to foreign investors. Of course, they would look to the quality of infrastructure and quality of labor force also, and these issues would require important consideration by government.