DUBAI: Saudi Arabia’s 200 billion-riyal ($53 billion) lifeline to its non-oil economy may be in place for longer than planned as the kingdom supports industries struggling to cope with reforms that pushed up costs and dampened demand.
The program is earmarking 36 billion riyals to boost private-sector growth this year, on top of the 40 billion riyals already spent, according to Naif Al-Rasheed, managing director of the Private Sector Stimulus Office.
The financing could continue beyond the original planned end date of 2021, according to Al-Rasheed, who’s in charge of allocating the money and monitoring its effectiveness.
“The office has a long-term mandate to continuously support the private sector through economic cycles,” Al-Rasheed said in his first news media interview.
Until now, Saudi Arabia hasn’t provided the breakdown of how it planned to deploy the stimulus.
Crown Prince Mohammed bin Salman has embarked on the biggest overhaul of the Saudi economy in its modern history to steer the world’s biggest oil exporter from its near-total dependence on crude.
As the makeover proved disruptive, the stimulus package is aiming to help promote exports, invest in new technologies and reimburse small businesses for an expatriate employment tax. The office has already funded a capital increase for the Saudi Industrial Development Fund and mortgage financing.
Al-Rasheed said the Stimulus Office, set up in 2017, is focusing on companies in the real estate, hospitality, health care and education sectors.
Some of the spending will counter the impact of reforms, including higher energy costs and a levy on expatriates that was intended to encourage firms to hire more Saudis.
Over 1.5 million expatriates have left the country since 2016, without having a significant impact on the employment of Saudis. Any firm that receives funding has to demonstrate it can still survive once the support is removed, Al-Rasheed said.
The office expects to spend 22 billion riyals next year, and 25 billion in 2021, he said. It’s also looking for ways to allocate the remainder of about 77 billion riyals it has in its budget, according to Al-Rasheed.
The spending planned by 2021 is expected to contribute more than 150 billion riyals to the economy and create more than 86,000 jobs, he said.
Saudi Arabia’s economy is showing signs of recovery from its mid-2016 low, when the detention of hundreds of royals, billionaires and government officials derailed growth, according to Bloomberg Economics.
A number of indicators are picking up, showing non-oil growth has returned to levels seen before the corruption purge, although that has yet to translate into new hiring.
The Emirates NBD Purchasing Managers’ Index, a measure of business activity in the non-oil private sector, rose in the first quarter at the fastest pace since the last three months of 2017, while bank credit to private businesses grew at its quickest since 2016.
Spending by the stimulus office has benefited over 313,000 companies, accounting for almost 70% of all active businesses, Al-Rasheed said.
“The PMI figures show that confidence has started to pick up,” he said. “I see positive growth over the rest of the year, and expect to see a pick up in the number of new start ups and more job creation as well.” - Bloomberg