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Sharp rise in export orders for Saudi non-oil firms

Saudi non oil Reuters
Non-oil goods such as chemicals, plastics and other industrial products recorded growth in February and March
  • Rising demand for exports from foreign companies
  • Higher exports drive employment and purchases
  • Non-oil firms confident of increased activity over next 12 months

Saudi non-oil companies recorded a sharp uplift in export orders from foreign companies in March, driven by improved market conditions and increased development spending, according to a new survey.

Both output and new business rose markedly, supporting further growth in employment and purchases.

Employment growth was also among the quickest seen in the past five years, while stock levels rose at the sharpest rate since August 2022.

Along with a further increase in orders from foreign customers, some firms added that a relatively mild increase in output prices had supported sales growth.

While the rate of overall new order growth softened from February, it still ranked as the second-fastest in a year and a half, signalling continued rapid expansion in the kingdom’s non-oil private sector economy covering goods including chemicals and plastics and other industrial products.

The latest Riyad Bank Saudi Arabia Purchase Managers’ Index (PMI), published today, recorded a headline figure of 58.7 in March – a drop from a near eight-year record of 59.8 in February – but remaining firmly in positive territory.

Any score above 50 indicates economic expansion and any score below is a warning of contraction.

“One of the main takeaways of this month’s report is the pickup in exports,” said Naif Al-Ghaith, chief economist at Riyad Bank, in a research note accompanying the PMI data.

“Non-oil firms continued to see a strong improvement in demand from foreign customers for two reasons. First, the improvement in the industrial landscape has created positive grounds for producers to diversify their production lines and compete in foreign markets, enlarging their market share.

“Secondly, the recent depreciation of the US dollar made those goods more affordable and accessible to a number of inflation-torn economies.”

Non-oil firms also remained confident of a rise in activity over the next 12 months.

“Despite the global headwinds, including the recent credit crunch and heightened uncertainty, Saudi non-oil firms exhibited a robust degree of confidence towards future activity in March,” said Al-Ghaith.

“Supportive government policies along with improving demand levels have been grounds for this optimism.”

Strong confidence levels and a desire to boost capacity led companies to increase their headcounts in March.

The March PMI figures come as the kingdom’s General Authority for Statistics reported that unemployment in Saudi Arabia among citizens fell to 8 percent in the fourth quarter of 2022, down from 9.9 percent the previous quarter and 11 percent in the fourth quarter of 2021.

Job creation, especially for Saudi nationals, over 60 percent of whom are under the age of 35, is a key pillar of the kingdom’s ambitious Vision 2030 economic agenda.

However, Riyad Bank also noted that input cost inflation faced by non-oil firms picked up to a four-month high in March, driven by rising costs for raw materials and staff wages. On the latter, efforts to compensate workers facing higher living costs meant that salaries rose to the greatest degree since September 2016.

Nonetheless, average prices charged by Saudi non-oil companies rose only slightly at the end of the first quarter. The pace of increase slipped to the weakest seen since early 2022, as a result of a desire for businesses to remain price-competitive.

Separately, new research from consulting firm Kearney showed that foreign investor optimism in the kingdom remains high.

Saudi Arabia ranked third regionally and sixth globally in the inaugural Emerging Markets ranking published this week as part of Kearney’s 2023 Foreign Direct Investment Confidence Index.

The consulting firm highlights the kingdom’s combined appeal of “economic scale and relentless transformation efforts” and it ranked 24th globally.