Jeffrey Towson is the former Head of Direct Investments for Middle East North Africa and Asia Pacific for Prince Waleed, nicknamed by Time Magazine as the “Arabian Warren Buffett”. He is the author of the global investing book “What Would Ben Graham Do Now?
Egypt, Tunisia and Bahrain are in turmoil. Libya is in a civil war. And, as a result, Saudi Arabia is experiencing its largest economic surge in 5 years. Hold on to your hats. Its boom times again in the desert Kingdom.
I argued two weeks ago that the West was fundamentally misreading the situation in Saudi Arabia. That the King’s announced economic reforms would have a huge impact on the country’s economy. And if you combine these measures with high oil prices and expanded oil production, the result is that 2011 is going to be a banner year in Saudi Arabia.
A few facts:
- Saudi oil revenue has skyrocketed. Oil is now over $100 per barrel and Saudi, the only major oil power with significant excess production capacity, has expanded production to make up for Libya’s decrease. Oil production is already up 7% from last year (and from 8.5M barrels per day in December to about 8.9M in the last couple months).
- KSA GDP growth is now projected to be 5.6% in 2011. This is the highest growth rate since 2004-2005. For those who have forgotten the 2004-2005 Middle East economic boom, take a look at Dubai’s skyline. Or KSA’s economic cities (see picture of King Abdullah Economic City). Or the doubling of the Tadawul during that period.
- The two recent Royal decrees mean this oil windfall is going directly into the economy. The two announced decrees total over $133B in new government spending (without any deficit spending). This is about 30% of the entire economy (GDP approximately $430B in 2010). The petrodollar spigots are wide open.
- The largest component of this spending is $66B for approximately 500,000 new public housing units. This, plus additional funds for the Real Estate Development Authority (the only available mortgages in KSA) and the General Housing Authority, will guarantee a housing and construction boom.
- Increases in government salaries (the majority of employed Saudis work for the government) mean that consumer spending is also going to increase. This will fuel the non-oil economy, which is expected to grow at 4% in 2011
For those of us that invest in the developing economies (see my strategies for global investing if you’re curious), things have just gotten really exciting. For global investors, Middle Eastern economic booms are about as good as it gets.