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11/20 04:21
Saudi Arabia may Face Recession, Unemployment as Oil Prices Fall

 

Riyadh, Nov. 20 -- Saudi Arabia's economy may slip into recession next year because of a drop in oil prices and output, economists said, at a time when the world's largest oil producer already faces rising unemployment and a population boom.

Saudi Arabia will probably trim average oil output to 7.5 million barrels a day in 2002 from about 8 million barrels a day this year in a bid to prop up prices, said Brad Bourland, chief economist at Saudi American Bank, the kingdom's second-largest.

``We expect the decline in production will not be offset by growth in the non-oil sector,'' Bourland said in an interview, adding that the economy could contract by as much as 1 percent in 2002. Saudi crude prices will slide to $18 a barrel from $22 this year, further slashing government revenue, he said.

Even last year, when oil prices averaged a 15-year high near $27 a barrel, economic growth reached only 4.5 percent, below the 6 percent needed to absorb the more than 100,000 men who enter the labor force each year, according to Saudi American Bank.

Economic decline will only add to Saudi Arabia's 15 percent unemployment rate and put further pressure on the government of the ruling al-Saud family to sell off state assets and introduce more competition into the economy, analysts said. Oil represents 40 percent of the $232 billion economy.

Crude oil prices are 46 percent lower than at this time last year and have fallen 18 percent since Nov. 9. Prices tumbled after the Organization of Petroleum Exporting Countries refused to cut daily output by 1.5 million barrels unless such non-OPEC nations as Russia also curtail shipments.

Borrow More

For the moment, the government, which generates about 75 percent of its revenue from oil exports, can withstand the decline in prices because it can borrow more money to cover a growing budget deficit, economists said.

``I think the government has room to maneuver,'' said Khan Zahed, chief economist at Saudi Arabia's third-largest bank, Riyadh Bank. ``Interest rates are very low at the moment, so it can afford to borrow more, particularly as it paid back some of its debt last year.''

Most Saudis work for the government or for such quasi- government bodies as Saudi Basic Industries Corp., the Middle East's largest petrochemicals company. Now, the government is no longer taking on new hires except in education, Zahed said. Government debt is already equal to more than 100 percent of gross domestic product.

Of more than 100,000 school-leavers and graduates coming onto the job market each year, only a quarter are finding work, Bourland said. More than 350,000 young Saudis are jobless.

Outside Investment

At 3.5 percent a year, Saudi Arabia's population growth rate is one of the highest in the world. With almost 60 percent of Saudis under the age of 19, the population is also one of the youngest.

``There is a problem of skills and expectations,'' said Turki al-Saudairi, editor-in-chief of al-Riyadh newspaper. ``Saudis expect more money than expatriates and don't necessarily have the skills to do the job.''

The government is opening its natural gas, power and telecommunications industries to outside investment to introduce more competition into the economy and boost growth.

Crown Prince Abdullah bin Abdul Aziz al-Saud signed an agreement with Exxon Mobil Corp., BP Plc and six other Western oil companies to explore for natural gas, the first time Saudi Arabia has let foreign companies drill for gas or oil since the petroleum industry was nationalized in the 1970s.

Still, the Sept. 11 attacks on the U.S. may curb investor interest for months or perhaps years, especially outside the oil industry, analysts said.

``For most non-energy U.S. and European companies, Saudi Arabia was never very high on their lists,'' said Kevin Taecker, a former U.S. diplomat and former chief economist for Saudi American Bank. ``Now it will be even lower.''
 

Source: Bloomberg
2001 Bloomberg L.P. All rights reserved

 

 

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