The march of the global economy is slowing down and could come to a complete halt, handicapped by the war in Ukraine, inflation and the credit crunch. Things are bad everywhere, except in very few places around the world.
Posted at 6:00 a.m.
Saudi Arabia is one of those places. The country will top India in the ranking of the best performing economies this year. The oil kingdom is on course for its strongest economic growth in 10 years.
This is thanks, of course, to the surge in oil prices. In 2022, due to Russia’s invasion of Ukraine and the Russian oil boycott, the price of crude exceeded US$100 per barrel for the first time since 2008.
The fever has subsided, but the barrel is still up nearly 20% since the start of the year.
The Saudi economy depends almost entirely on its oil exports and is obviously surfing on rising prices, but not only. The International Monetary Fund (IMF) says so.
The country has undertaken reforms which are beginning to bear fruit. When we are so dependent on a single product, there is cause for concern when the rest of the world shows its desire to free itself from oil and proves it by investing massively in renewable energies.
Attempts at diversification have therefore been initiated in the country of Mohammed bin Salman, who wants to develop tourism, make life easier for private companies and attract foreign investment.
All sorts of measures have therefore been put forward to achieve this. Some of them aim to encourage women to enter the labor market. Financial assistance is offered for transporting women to workplaces and incentives are offered for companies that hire them.
And it seems to have results. According to the IMF, the share of working women has doubled over the past four years and they now account for 33% of the total workforce. Seen from home, that’s very little, but it’s still higher than the average for the Middle East (27%) or North Africa (27%).
A new discipline
The other change that has a positive impact on the Saudi economy, according to the IMF, is that public finances are better managed. In other words, the kingdom manages not to blow up its spending when the price of oil is high and then be forced to borrow when the price collapses.
Despite its oil wealth, the country is a subscriber to budget deficits, and the surplus expected this year will be the first in nine years.
In a country where almost everything must be imported, this new discipline has kept inflation below 3%, a feat that only two other countries have achieved this year, China and Japan.
At the same time, the country is active on the world’s stock exchanges, where it invests its profits in promising sectors. According to Bloomberg, the Saudi sovereign wealth fund that collects oil revenues took advantage of the recent market drop to invest 7 billion US dollars in American companies such as Amazon and Alphabet.
Saudi Arabia intends to benefit from the oil windfall for a long time to come. This is what should be understood from the decision of OPEC+ to reduce its production in order to maintain prices. The main producer within the organization, the kingdom could produce oil for another 75 years, analysts estimate.
The reduction in production will increase prices at the pump, much to the chagrin of the President of the United States, who even traveled to Saudi Arabia to demand the exact opposite, namely an increase in production to relieve American consumers.
The OPEC+ decision can be seen as a rebuff to the United States and support for Russia. But it first serves the own interests of Saudi Arabia and the other countries of the Persian Gulf.
In the longer term, oil-producing countries have no interest in driving up prices unduly and thus accelerating the energy transition. They want to have more time to prepare for the aftermath.