Kingdom well placed to cash in on its G20 role

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JEDDAH: KHALIL HANWARE | ARAB NEWS STAFF

Saudi Arabia has been one of the fastest growing G20 countries in recent years and the leading state in the Middle East and North Africa. In fact, Saudi Arabia’s membership of the G20 reflects the growing global stature and economic importance of the Kingdom and the broader GCC region. Saudi Arabia holds 25 percent of the total Arab GDP. The ongoing globalization has also resulted in the Kingdom’s demographic dynamism and has made it an increasingly interdependent global economy. The Kingdom now holds a special place on the world economic stage. One distinct reason is that it has effectively and successfully used the increase in oil revenues to support its growth in the nonoil sector. A widely acknowledged fact is that Saudi Arabia has supported the global economy in recent years through its stabilizing role in the global oil market. It is the largest oil exporter and the only producer with significant spare production capacity. According to Fitch Ratings, proven reserves are estimated conservatively to be equivalent to more than 70 years of production. “Saudi Arabia plays a key role in energy security of the G20. It can adjust production in order to keep prices fairly stable,” said Paul Gamble, director, Sovereign Group, Fitch Ratings, in comments e-mailed to Arab News. He said: “The Kingdom also maintains, at considerable cost, by far the largest oil production capacity in the world, enabling it to compensate for disruption to production elsewhere.” A regional analyst, who wants to remain anonymous, commented: “Whatever the short-term dynamics of the market, global oil demand continues to grow at a brisk pace and Saudi Arabia is the only true swing producer in today’s world, with a special role in ensuring market stability and continuity.” Ambitious and far-sighted policies in developing other sectors of the economy, most notably manufacturing, have made the Kingdom an increasingly significant producer of many petrochemical products in the world, said the analyst. “The geographic location of Saudi Arabia — at the crossroads of three populous continents — has given it exceptional potential in terms of global trade and transportation, a position ambitious infrastructure investments have further built on,” he said. “Saudi Arabia has always been a defender of free trade but, beyond its global commitments, it is also a critical driving force of economic integration in the GCC and the broader Middle East,” he added. Saudi Arabia is considered to be an important player in global recovery efforts and plays key role in providing stability in oil prices as per the needs of global markets. Equally important is the Kingdom’s stabilizing role in various regional economies and emerging markets. The Kingdom has been well-cushioned from the negative headwinds of the currency declines of other emerging markets as a result of its prudent currency policy. In just three years, Saudi Arabia has risen from 67th to 23rd position in the World Bank’s Ease of Doing Business Index and is currently No. 1 in the Middle East. The Kingdom ranks third and 7th in the world, respectively, for ease of registering property and paying taxes. Asim Bukhtiar, vice president, head of research, at Riyad Capital, said: “As a member nation of G20, Saudi Arabia can play an important role representing regional economic interests on high profile platforms.” Saudi Arabia is seeking to diversify its economic base and could leverage expertise from other G20 nations. Cooperation and knowledge transfer could help the country establish best practices in various sectors that will lead to sustainable employment growth for nationals. For example, banking, education and health care can potentially emerge as global benchmarks. Of course, some difficult steps will have to be taken such as further opening up the economy, developing service-oriented corporate culture and easing travel in order to boost its image as a “go to” destination for foreign capital. Bukhtiar added: “Saudi Arabia is on track to develop world-class infrastructure over the next 15 years and who knows maybe it will foster ambition to host the Olympics or Football World Cup someday.” Fitch Ratings says in its new report that Saudi Arabia’s sovereign net foreign asset position is very strong at 112 percent of GDP, reflecting high foreign assets and no sovereign external debt. The International Monetary Fund (IMF) also has acknowledged Saudi Arabia’s role as an important source of financial assistance and remittances for many developing countries. Saudi Arabia is set to benefit as the centerpiece of the G20 whose commitment is to boost the combined GDP of member countries, representing about 85 percent of the global economy, by 2 percent above the levels expected for the next five years, possibly creating tens of millions of new jobs. World GDP was about $ 72 trillion in 2012. The G20 commitment provides a tremendous opportunity to Saudi Arabia to boost growth and raise standard of living further as its population is young and increasingly well-educated and they continue to enter the labor market. The Kingdom’s per capita income is expected to increase to $ 33,500 by 2020 from $ 20,700 in 2007. BMG Financial Group’s CEO Basil Al-Ghalayini said: “Since it became a G20 member, Saudi Arabia has been systematic in achieving both — stability in the world’s financial markets, as well as, maintaining a balancing act in the energy market.” He added: “Saudi Arabia still keeps the role of a safety valve in the oil market to ensure smooth dynamics between producers and consumers. This crucial tactic has been a noticeable value added by the Saudi Government t to the overall role of the G20 nations.”

 

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