Source: Saudi Arabian Monetary Agency (SAMA), IMF, EIU


Recent Developments

• Saudi Arabia's economy grew by 4.2% year-on-year (YoY) in 2008. As the largest oil producer and exporter of the Organisation of the Petroleum Exporting Countries (OPEC), oil production accounts for nearly 90% of Saudi Arabia's exports.
• According to MEED Projects, the value of construction contracts in Saudi Arabia as of March 2009 stood at US$15.7 billion, almost four times as much as that of the UAE, which had tumbled from US$74.1 billion in 2008 to only US$4.1 billion in March 2009.
• In December 2008, the Gulf Cooperation Council (GCC, which consists of the UAE, Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman) reaffirmed their commitment to creating a single currency by 2010, with the exception of Oman.
• In an effort to diversify its economy, Saudi Arabia has announced plans to build five economic cities: the Economic Cities of King Abdullah, Rabigh, Medine, Hail and Jizan.
• Saudi Arabia is Hong Kong's third largest export market in the Middle East (after the UAE and Israel). During the first two months of 2009, Hong Kong's total exports to Saudi Arabia grew by 1.7% to US$62 million, while imports from Saudi Arabia decreased by 29.2% to US$51 million.

Current Economic Situation

Saudi Arabia's economy grew by 4.2% in 2008. As an economy that is heavily reliant on oil, the plunge in oil prices from a high of over US$140 per barrel in 2008 to the current level of about US$50, Saudi Arabia's economy is facing many challenges. In response to the financial tsunami, the Saudi government unveiled an expansionary budget for 2009 in December 2008, at SR475 billion (US$127 billion), to counter the repercussions of a deteriorating global economy.
Except in 2000, Saudi Arabia had recorded fiscal deficits from 1983 to 2002. In order to contain the deficits, the Saudi government had exercised restraints on spending. Helped by strengthening oil prices, the government has recorded budget surplus since 2003. However, with an anticipated fall in oil revenues, together with an expansionary budget, Saudi Arabia is projecting a budget deficit this year. But given its windfall oil revenues in the past few years, the government's financial position is likely to remain strong.

On external trade, nearly 90% of Saudi's exports are oil. Other exports include plastics, organic chemicals, and also a small amount of vehicles and electronics. Leading export destinations are Japan, the US, South Korea and the Chinese mainland. Meanwhile, major import items include machinery, transport equipment, electronics, iron and steel, foodstuffs, textiles and clothing. Principal suppliers are the US, the Chinese mainland, Germany, Japan, and Italy.

Production and refinery of oil are the pillars of the Saudi economy, which account for around 90% of export receipts and a substantial share of government revenue. The country's medium to long-term prospects will hinge on the government's success in economic reforms. Its reform programmes stress the need of promoting economic diversification and an active role of the private sector in the economy. To these ends, the Saudi government encourages the development of industrial sectors such as the production of chemicals, petrochemicals and plastics.

Attracting foreign investment forms a vital part of Saudi Arabia's economic policy. With effect from June 2000, Saudi investment law allows 100% ownership of projects by foreigners, and relaxes rules for sponsoring foreign employees. The law also permits foreign ownership of property, and lowers corporate taxes.

Similar to the UAE, Saudi Arabia has ambitious plans of infrastructure expansion. The main difference between the two GCC countries is that while the UAE puts more emphasis on commercial and tourism development, Saudi Arabia has a wider range of infrastructure being planned: oil and gas facilities, water and electricity plants, residential and commercial buildings, and roads and railways. The country's mega projects include the construction of five economic cities: the Economic Cities of King Abdullah, Rabigh, Medine, Hail and Jizan. According to MEED Projects, the value of construction contracts in Saudi Arabia as of March 2009 stood at US$15.7 billion, almost four times as much as that of the UAE, which had tumbled from US$74.1 billion in 2008 to only US$4.1 billion in March 2009.


Trade Policy

In December 2005, Saudi Arabia became the 149th member of the WTO after over 12 years of negotiations. In 1993, when Saudi Arabia first applied for membership of the General Agreement on Tariff and Trade (GATT), the predecessor of the WTO, 75% of Saudi tariffs on imports were at 12%. Since 2003, 85% of tariffs have been lowered to 5% or less.

Saudi Arabia's WTO commitments provide for foreign participation in its wholesale and retail trade. Upon accession, Saudi Arabia allowed foreign companies to hold up to 51% of the equity in a wholesale or retail business. The limit has been increased to 75% since January 2009.

However, some products remain restricted from entering Saudi Arabia for religious, health or security reasons. Prohibited items include alcoholic beverages, pork, non-medical drugs, non-Islamic religious materials, weapons and weapon-related electronic equipment. In addition, foreign companies that are deemed to support Israel in one way or another are blacklisted because of the Arab League boycott of Israel, to which Saudi Arabia is a participant.

Tariffs are mostly ad valorem. The tie between Saudi Arabia and its fellow GCC members is strong. In November 1999, the GCC agreed to form a customs union, which took effect from 1 January 2003. The accord establishes a single tariff of 5% on 1,500 imported items from non-member countries. It also provides a list of other essential items that can be imported duty-free. Under the accord, goods imported into the GCC area can be freely transported subsequently throughout the region without paying additional tariffs.    In December 2008, the GCC, with the exception of Oman, reaffirmed their commitment to creating a single currency by 2010.

Saudi Arabia maintains regulations on product labelling and country of origin marking. In addition, there are safety regulations on toys, and product standards regulations for electrical and electronic goods.

There are health and sanitation regulations for all imported foods. Saudi Arabia has agreed to adopt the obligations of the WTO Agreement on Sanitary and Phytosanitory Measures. Under the agreement, Saudi Arabia has to apply science-based safety standards to all agricultural goods.

Imports for exhibition purposes have to be accompanied by an invoice with the value of the goods endorsed by the local chamber of commerce, and a certificate of origin. The invoice should show clearly that the goods are imported for exhibition purposes, and will be re-exported. Saudi Customs requires a deposit, which is refundable, for these goods.

Hong Kong's Trade with Saudi Arabia^

Hong Kong's total exports to Saudi Arabia during the first two months of 2009 grew by 1.7% YoY to US$62 million. Major export items to Saudi Arabia during the period included telecommunications equipment and parts (16.2% of the total), watches and clocks (12%), women's or girls' wear of textile fabrics, not knitted (8.2%), and computers (6.8%).

On the other hand, Hong Kong's imports from Saudi Arabia were down by 29.2% YoY to US$51 million during the first two months of 2009. Major import items from Saudi Arabia during the period included polymers of ethylene in primary forms (35.6% of the total), hydrocarbons (34.7%), other plastics in primary forms (8.5%), and parts and accessories of motor vehicles (4.4%).

Source: Census & Statistics Department, Hong Kong

^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the full picture of the export business managed by Hong Kong companies.

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