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Saudi Arabia’s economy grew at a rate of 3.6% in 2013. This decline from its 2012 growth rate of 5.8% was primarily due to a fall in oil production from the high it had reached in 2012. Non-oil GDP grew at a pace of 5%. The economy continues to be heavily dependent on its hydrocarbon sector for growth possibly setting the stage for slower growth in 2014 and 2015 as oil prices apply downward pressure on private sector confidence.

Saudi Arabia’s economy is also being affected by decreasing Chinese demand and by challenges in the non-oil sector including slowing government spending and a crackdown on illegal workers  as many as one million have fled the country. Construction will likely slowdown in Saudi Arabia, despite continuing capital investment of around $66.7 billion in mostly government infrastructure projects and even more spending by state-owned firms like Aramco. Services, however, may provide better growth opportunities for investors as they provide about one third of GDP and rely on consumption dynamics.

With current spending expected to average about 6% a year salaries, subsidies and unemployment benefits will likely be relatively stable and debt and employment will be low clearing the way for brisk consumption in wholesale, retail, transport, communications, finance and real estate. Overall, non-oil growth will be modest in 2014.

Saudi Arabia’s petroleum sector is consistently the world’s largest producing 9.6 million bbl per day, more than 45% of GDP, 92% of government revenues and 90% of exports. The oil sector, which is run by the state, is the largest employer in Saudi Arabia. As Iraq, Iran and Libya increase output, oil prices will likely be hit and Saudi Arabia will cut back production. However, Saudi Arabia also faces the prospect of rising domestic energy consumption, estimated to account for more than 20% of output by 2018.

Saudi Arabia’s non-oil industrial private sector grew by 5.50%. Sectors with the highest growth rates included construction, the largest non-oil contributor to GDP at 8.11%, transportation communications and storage at 7.2 percent, wholesale, retail, restaurants and hotels at 6.16% and finance insurance, real estate at 4.9 percent and non-oil manufacturing grew at 4.72%.

Saudi Arabia announced in its most recent budget that it would focus on education, which accounts for 25% of 2014 expenditures, with planned spending of $56 billion, 3% higher than 2013. Healthcare and social welfare services expenditures will increase by 8% over 2013 with plans to spend $29 billion. The kingdom will spend $17.8 billion on transportation and telecommunications, including $10.7 billion for roads, rail, seaports and other infrastructure projects. Saudi Arabia plans to spend $16.3 billion on water and agricultural infrastructure, a 5.7% increase over 2013.

Saudi Arabia overall doing business ranking (ranked 26 out of 189 economies) is one of the highest both in the world and in the region though it declined by 4 points in 2014 from 2013. The best performing indices were paying taxes (3), registering property (14) and getting electricity (15). The relatively worse performing indices were starting a business (84), enforcing contracts (127) and declined by 3 ranks in 2014 from 2013.

The worst performing indices were getting credit (130), protecting investors (128) and starting a business (112). The better performing indices were paying taxes (2), dealing with construction permits (23) and getting electricity (27). In the region the country ranks 2nd with only UAE performing better than it.

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