Non-oil private sector exports financed by Saudi Arabia's ten commercial banks contracted last year by 5.9 per cent.

Settled letters of credit (L/Cs) amounted to 10.95 billion Saudi riyals (SR 10.95 billion - US$2.9 billion) by the end of 2002, down from the SR11.63 billion (US$3.1 billion) of L/Cs recorded during 2001.

Continued slide

The decline came the year after an 11.4 per cent drop in the total value of export financings in 2001, after a six-year peak of SR13.13 billion (US$3.5 billion) in 2000.

The downward trend continues this year. During the first three months of 2003 settled L/Cs totalled SR2.72 billion (US$725 million), or 3.16 per cent less than in the first quarter of last year.

Sectoral differences

Agricultural exports have been particularly hard hit this year. They fell by 78 per cent compared to the same three-month period of 2002. Agriculture is however the smallest of the Saudi Monetary Agency's (SAMA's) three export classifications.

The second SAMA classification is chemicals and plastics, which averaged about 28 per cent of total financings last year. Export sales in this area fared better, recording a fall of just 1.3 per cent to SR3.15 billion (US$933 million) last year. This trend continued during the first three months of this year, with settled L/Cs in this category falling by one per cent to SR907 million (US$242 million).

Industrial goods

The third SAMA export classification covers other industrial goods. These represent about 70 per cent of total financings and include a range of industrial products and manufactured goods, base metals, building materials and machinery.

Financings within this classification fell sharply by 8.3 per cent to SR7.62 billion (US$2 billion) last year compared to SR8.31 billion (US$2.21) in 2001, mainly due to lower demand for Saudi industrial products on the international market.

Local exports down

Saudi Arabia appears to be losing export sales to its fellow Gulf Cooperation Council (GCC) neighbours, despite the agreement between the six member nations to work towards a free trade area. The GCC customs union was enacted at the beginning of this year.

Sales from Saudi Arabia to other GCC member states - Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates - represented about 38 per cent of total exports financing last year. The value of exports financing to GCC countries however fell by 17.25 per cent to SR4.13 billion (US$1.11 billion) last year compared to SR4.99 (US$1.33 billion) in 2001.

The trend continues this year. Export financings for sales to GCC countries fell by 16.35 per cent during the first quarter of this year compared to the same three months in 2002.

US sales down

Export financings to Arab countries fell last year by 9.87 per cent over the previous but it was export sales to the US and Canada that fell the most.

Settled L/Cs related to sales to North America fell by a massive 29.4 percent last year, and continue to decline at much the same rates (29.5 per cent) this year.

European sales up

Private sector exports to Western Europe show signs of growth. They rose by 38.5 per cent last year compared with 2000, setting a trend that continues this year. Saudi goods are particularly attractive to European buyers at the moment because of the weaker US dollar.

Reconstruction opportunities in Iraq may boost Saudi exports but with sluggish demand elsewhere for most goods, it is unlikely that Riyadh will record a spectacular recovery of non-oil export sales in the near future.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.