Oil, liquidity help Saudi economy sail through year of terror

The Saudi economy has by and large weathered the terror attacks which started in the country a year ago and is set for further growth unless the violence expands, leading economists say.
The impact of the wave of suicide bombings in Riyadh that began on May 12, 2003 and the most recent attack that targeted Westerners at a petrochemical plant in Yanbu has been limited for a combination of reasons, they told AFP.
"If there's a hero in this, it is oil. The price of oil strengthened throughout the past year and this had a positive effect on the Saudi economy," said Ihsan Bu Hulaiga, who sits on the appointed Shura (consultative) Council.
But there were other factors too, namely liquidity which reached a record level as a result of a trend among Saudi financiers to keep their money at home since the September 11, 2001 attacks in the United States, he said.
"The stock market appreciated by 76 percent last year and by around 24 percent so far this year," said Said al-Shaikh, chief economist at the Jeddah-based National Commercial Bank.
Saudi Arabia posted a healthy 45-billion-riyal (12-billion-dollar) surplus in the 2003 fiscal year, the first in the oil-rich kingdom since 2000. Actual gross domestic product (GDP) grew 6.4 percent to reach 677.6 billion riyals (180.7 billion dollars). "The private sector grew by around 3.5 percent last year," Shaikh said.
Bu Hulaiga noted that the banking sector has been very active, with banks extending cheap loans due to high liquidity and low interest rates.
Land prices appreciated between 25 and 30 percent on average, and when the market became "saturated with money, people worried that it might be a bubble, so they started to diversify, going into real estate development," he said.
Shaikh said all financial indicators remained strong into the fifth month of the year. One example is the return on equity, which averages 15 percent across the stock market, he said.
"Terrorism or no terrorism, Saudi money will stay here and Saudi Arabia will produce oil.
"The terror attacks and the instability in Iraq are actually driving the price of oil up. So the prospects for the Saudi economy are good because it is becoming intrinsic," Bu Hulaiga argued.
Figures from the kingdom's investment authority SAGIA show a significant drop in the value of licensed projects between May 2003 and April 2004 compared with the previous 12-month period - from 8.9 billion riyals ($2.38 billion) to 6.3 billion riyals ($1.69 billion).