World Economy

Saudis Losing Purchasing Power

Inflation rate forecast for the full year is averaged around 3.1%.Inflation rate forecast for the full year is averaged around 3.1%.

Saudi Arabia is so intent on changing its identity that today’s kingdom bears no resemblance to recent years’ past. From removing the ban on women driving, to introducing movies and entertainment, not to mention opening the country to tourism with a new tourist visa for all, Saudi is looking for a complete make-over.

But this diversification strategy that began with Vision 2030 costs money, as it strives to derive income from sources other than oil, Ameinfo reported.

Saudi implemented 5% value-added-tax at the start of the year, a move that was preceded by the implementation of excise duty in May 2017.

Now, citizens are feeling the after effects, with prices reported to be inflated in a new report by Jadwa Investment, citing an April report by the Saudi General Authority for Statistics.

In GaStat’s report, overall prices in the kingdom have increased by 2.8% year-on-year so far in 2018. Furthermore, prices rose by 2.6% year-on-year in April. Jadwa said food and beverages prices rose by 5.7% year-on-year in April, but declined by 0.9% month-on-month for the second time in a row.

They also explained, “We maintain our inflation rate forecast for the full year of 2018 to average around 3.1%, due to expected higher imported inflation, and higher costs borne by local food and agriculture companies”.

  Poor the Main Losers  

This does not spell good news for the Saudi customer, whose salary is about to buy less. While the upper and middle-class demographics might not be as impacted by this at the onset, customers with lower earnings will feel the greater blow.

Of the country’s 11.7 million expats, 1 out of 5 falls into the lowest income bracket, earning less than $12,000 a year. This portion of the population will be hit the hardest. Construction workers, cleaning servicemen and women, and other labor-intensive job holders will come out as the greatest losers in this situation.

Financial services company Al Rajhi Capital estimates consumption to remain relatively flat until 2020, increasing just 3.8%.

  FDI Falls

Forbes recently published an article saying inward investment into Saudi Arabia collapsed in 2017, based on published data from the UN Conference on Trade and Development. The report said foreign direct investment into Saudi Arabia last year amounted to just $1.4 billion, down from $7.5 billion the year before and as much as $12.2 billion in 2012.

“The precipitous fall means the country was outranked by far smaller economies in terms of its ability to attract international investment last year, with the likes of Oman and Jordan overtaking it in 2017, with inward FDI of $1.9 billion and $1.7 billion respectively,” said Forbes.

“While the kingdom accounted for around 25% of total regional FDI between 2012 and 2016, last year it attracted just 5.6% of the regional total.”

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