Construction and telecom sectors most likely to gain from government spending
Saudi Arabia's economy is slowly improving but growth comes mainly from government spending and growth in lending to the private sector will only reach healthier levels next year, bankers said.
Speakers at the Reuters Middle East Investment Summit in Riyadh said the top Arab economy is gradually shaking off any impact of global turmoil but banks would remain cautious to lend following the central bank's request that they raise provisions.
Major Saudi banks saw profits dropping in the third quarter after central bank governor Muhammad al Jasser said banks should make provisions cover more than 100 percent of the non performing loans.
The construction and telecoms industries are most likely to gain as the world's largest oil exporter hands out more government contracts as part of a $400 billion five year spending plan until 2013.
Paul Gamble, head of research at Jadwa Investment, a Saudi private investment bank said: "Consumer demand has improved quite a lot ... This has been a trend throughout this year and will get stronger throughout next year."
He added: "(But) the private sector is still dependent on the government, government contracts."
Credit growth could improve up to 12 percent next year from the current 5 percent, he said, adding that in future years growth rates of 12-15 percent were realistic.
John Sfakianakis, chief economist at Banque Saudi Fransi said: "If the government had not invested the amount they have been investing then for sure the economy would have grown at a much lower rate."
He said credit growth to the private sector would be probably less than his forecast of 8 percent this year and accelerate to 8 to 9 percent next year.
Among other sectors outperforming are telecoms where firms such as Mobily are investing into new technology such as fibre optic or expanding its broadband services.
Mobily benefits from a young population looking for latest devices and handsets such as iPhones in a conservative Muslim country that offers little fun, said Hisham Zaki el Jamal, Director Strategic Financial Planning and Investments.
He said: "Entertainment in Saudi Arabia is scarce we can say and definitely there is with these telecom operators the opportunity to provide them with as much services as possible to provide them with this extra social requirements that they are looking for."
Cinemas and bars are banned in Saudi Arabia where all shops, malls and restaurants have to close five times a day for prayer times.
Investment bankers say business is better than last year.
Omar al Jaroudi, chief executive at Shuaa Capital's Saudi arm which plans to open an office in the eastern province, its third in the kingdom said: "Hopefully business is improving so we just have to be ready."
Gamble said he was not worried about inflation hitting 5.9 percent in September, down from an 18 month peak in August but at the top end of other Gulf Arab producers.
He said: "Credit growth is no where near the level that would feed into inflation. I think the prime concern for SAMA (the Saudi Arabian Monetary Agency/central bank) is to get credit flowing in the economy." (Reuters)
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