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Saudi Non-Oil Private Sector Sees Rapid Expansion

A general view of Riyadh, Saudi Arabia. (Asharq Al-Awsat)
A general view of Riyadh, Saudi Arabia. (Asharq Al-Awsat)
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Saudi Non-Oil Private Sector Sees Rapid Expansion

A general view of Riyadh, Saudi Arabia. (Asharq Al-Awsat)
A general view of Riyadh, Saudi Arabia. (Asharq Al-Awsat)

The non-oil-producing private sector in Saudi Arabia witnessed a rapid expansion at the end of the first quarter of 2023.

The sector recorded a sharp rise in new business during March, which helped achieve more growth in employment and procurement, according to a new business survey.

The seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) came in at 58.7 in March, dropping from a near eight-year record of 59.8 in February, but remained firmly above the 50.0 no-change mark as operating conditions improved.

The survey noted that output and new business continued to rise, supporting further growth in employment and purchases.

Some companies said a relatively moderate increase in output prices helped sales grow, while orders from foreign customers expanded again.

A continued surge in new business helped achieve a significant rise in production levels, the latest increase being slightly lower than February’s record level, according to the survey.

“Business conditions remain strongly positive at the end of the first quarter of 2023 as improving market conditions and increased development spending helped to boost demand in the non-oil private sector,” said Naif Al-Ghaith, chief economist at Riyad Bank.

He noted that the strong improvement in demand from foreign customers was due to two reasons: “First, the improvement in industrial landscape has created positive grounds for producers to diversify their production lines and compete in foreign markets, enlarging their market share. Second, the recent depreciation of the US dollar made those goods more affordable and accessible to a number of inflation-torn economies.”

Al-Ghaith added that both production and new orders witnessed a sharp expansion, which increased pressure on production capacity in non-oil-producing companies. Employment levels in all sectors rose at one of the strongest growth rates in the past five years.

The survey found that non-oil firms remained confident of a rise in activity over the next 12 months due to rise in demand and supportive government policy.

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Saudi Arabia Sees Highest Level of Non-oil Private Sector Activity in 4 Months

The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)
The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)
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Saudi Arabia Sees Highest Level of Non-oil Private Sector Activity in 4 Months

The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)
The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)

Business activity in Saudi Arabia's non-oil sector accelerated to a four-month high in September, driven by strong demand, which led to faster growth in new orders. The Riyad Bank Saudi Arabia Purchasing Managers' Index (PMI), adjusted for seasonal factors, rose to 56.3 points from 54.8 in August, marking the highest reading since May and further distancing itself from the 50.0 level that indicates growth.

The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders, alongside challenges in supply. The improvement in business conditions contributed to a significant rise in employment opportunities, although difficulties in finding skilled workers led to a shortage in production capacity.

At the same time, concerns over increasing competition caused a decline in future output expectations. According to the PMI statement, inventories of production inputs remained in good condition, which encouraged some companies to reduce their purchasing efforts.

Growth was strong overall and widespread across all non-oil sectors under study. Dr. Naif Al-Ghaith, Senior Economist at Riyad Bank, said that the rise in Saudi Arabia's PMI points to a notable acceleration in the growth of the non-oil private sector, primarily driven by increased production and new orders, reflecting the sector’s expansionary activity.

Al-Ghaith added that companies responded to the rise in domestic demand, which plays a crucial role in reducing the Kingdom's reliance on oil revenues. The upward trend also indicates improved business confidence, pointing to a healthy environment for increased investment, job creation, and overall economic stability.

He emphasized that this growth in the non-oil sector is particularly important given the current context of reduced oil production and falling global oil prices. With oil revenues under pressure, the strong performance of the non-oil private sector acts as a buffer, helping mitigate the potential impact on the country's economic conditions.

Al-Ghaith continued, noting that diversifying income sources is essential to maintaining growth amid the volatility of oil markets. He explained that increased production levels not only enhance the competitiveness of Saudi companies but also encourage developments aimed at expanding the private sector's participation in the economy.

This shift, he said, provides a more stable foundation for long-term growth, making the economy less susceptible to oil price fluctuations.