Saudi Arabia’s non-oil growth slows to record

Riyadh: A measure of growth in Saudi Arabia’s non-oil economy fell to a record low as cheap crude weighs on the world’s largest oil exporter.
The Emirates NBD Purchasing Managers’ Index for Saudi Arabia dropped to 53.9 in January, the lowest in the six-and-a-half-year history of the survey, driven by slower expansion in new business.
The United Arab Emirates PMI also showed a loss in growth momentum, slipping to 52.7 in January, a 46-month low. A reading above 50 still indicates expansion. Egypt’s PMI contracted for a fourth month, to 48 from 48.2 in December.
As the price of crude has dropped from above $100 a barrel to below $30 in January, Saudi officials have cut spending, reduced subsidies and called for a wave of privatisations in unprecedented efforts to wean the kingdom off oil.
“The slowdown in the non-oil sectors is in line with our expectations as the economy adjusts to lower oil prices and fiscal policy is adjusted accordingly,” Khatija Haque, head of Middle East and North Africa research at Emirates NBD, said in the report. Global financial market volatility “and increased concerns about Chinese and global growth are likely to have weighed on sentiment,” she said.
Saudi officials have repeatedly said the economy is strong enough to weather the drop in oil prices. While the slump has sapped the kingdom’s reserves, they are still among the highest in the world.
The PMI, which is seasonally adjusted, is based on data compiled from monthly replies to questionnaires sent to executives in 400 companies in manufacturing, services, construction and other non-oil sectors.
Saudi Arabia is seeking to cut its dependence on oil, which accounted for about 73 per cent of government revenue last year, according to a statement posted on the Finance Ministry website when it issued the budget for 2016. The country is forecasting total revenue will fall to 513.8 billion riyals in 2016, from 608 billion riyals last year
Islamic bonds
Meanwhile, Saudi Arabian Oil Company has held talks with banks about selling Islamic bonds for the first time, according to three people with knowledge of the matter.
Saudi Aramco, as the company is known, discussed setting up a programme that could include several Sharia-compliant bond sales over the next few years, the people said, asking not to be identified as the information is private. No banks have been appointed and the size of the sale hasn’t been determined, they said.
The state-owned company is maintaining investments in oil and gas projects amid the fall in prices, chairman Khalid Al Falih said at a conference last week in Riyadh, and is also studying options including the sale of shares in the parent company or its downstream operations, he said.
The oil producer recently held talks with banks to raise $4.7 billion to refinance an oil refinery it developed with China Petroleum & Chemical and last year also borrowed $10 billion, four people with knowledge of the matter said at the time.
A Saudi Aramco Islamic bond issue would be a first for the company. The closest it has come in the past to selling debt is a 3.75 billion-riyal ($1 billion) sukuk issued by Saudi Aramco Total Refining & Petrochemical, a joint venture with France’s Total known as Satorp. In 2013, another Saudi Aramco joint venture, Sadara Chemical with Dow Chemical, raised 7.5 billion riyals through a sukuk to finance a chemicals complex.