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KEY SECTORS TO BENEFIT

Rapid urbanization is likely to positively impact key sectors.

Urbanization to step up Saudi economic growth

JEDDAH, November 12, 2015

Rapid urbanization, expected to add about seven million to Saudi Arabia’s urban population by 2025, is likely to create immediate growth opportunities in the Kingdom with regard to sustainable housing and utilities infrastructure, a report said.

An increase in the male population due to improvements in the male/female ratio and a gradual rise in the number of educated women would support growth in the earning population, added the report entitled “Demographics in Saudi Arabia - New Age Of Opportunities” released by Investment Research practice at Aranca, a global research and analytics company.

According to a recent report by the International Monetary Fund (IMF), Saudi Arabia’s cash reserves are in free-fall and the country could have only five years of financial assets remaining due in large part to the fall in oil prices. Saudi Arabia generates 90 per cent of its income from oil - a commodity which has recently plummeted in value.

While Saudi Arabia's economic performance has always floated on its oil, the sands of time reveal more vernal fortunes. An increase in its indigenous working population coupled with an influx of affluent migrants has swelled its consumer population and stimulated key sectors in the economy. The underlying impact of changing demographics on long-term fundamental demand drivers is yet to be seen, said Ujjal Deb Roy, senior research analyst, Investment Research at Aranca.

“Although the economic performance of Saudi Arabia and other GCC countries is highly correlated with oil fundamentals, we have made an attempt in this report to analyze the socioeconomic demand drivers that are likely to change Saudi Arabia’s economic landscape,” Roy explained.

“We have assessed the demographic trends in Saudi Arabia and their underlying impact on long-term fundamental demand drivers.”

Saudi Arabia is the most populated country in the GCC region; its population was about 29 million in 2013.

“An analysis of the UN’s population data for Saudi Arabia for 1950–2050 shows that rapid urbanization, increasing proportion of the earning and consuming population, rising working population vis-a-vis simultaneous rise in older population, and growing importance of the migrant population are the key demographic trends,” Roy said.

“We expect these trends to positively impact sectors such as healthcare, education, packaged foods, and insurance/wealth management.”

The eight key points outlined in the report include:

1.     Rapid urbanization is expected to create immediate growth opportunities in the Kingdom with regard to sustainable housing and utilities infrastructure. Rapid urbanization is expected to add about 7 million to the urban population by 2025.

2.     Rising consumption - Despite an aging population, consumption growth is expected to remain buoyant due to an increase in the consuming population. The proportion of consuming population would continue to grow before peaking at about 74 per cent by 2030–35. The addition of about 8 million individuals to the consuming population over 2010–30 would act as a significant tailwind for consumption-driven sectors.

3.     Rising working-age/earning population - Saudi Arabia’s working-age population (age group 15–59) is expected to increase in the coming years, thereby improving the country’s productivity. Simultaneously, a surge in the earning population (25–59) would support savings and investment growth in the economy.

4.     Migration - Demand for international migrants would stimulate growth in lifestyle products, leading to the entry of foreign brands in the Saudi market as well as increased consumption of lifestyle/luxury products.

Sectors expected to benefit from changing demographics

5.     Healthcare to benefit from rising government expenditure - While the government provides the majority of the existing healthcare facilities, there exists a sizable opportunity for private players due to the demand for high-quality healthcare from an increasingly urbanized population.

6.     Insurance - There is a scalable opportunity available in the Kingdom, as the level of insurance penetration in the country is currently 1.1 per cent, significantly below the levels in most advanced economies.

7.     Education to benefit from increased government spending - Saudi Arabia is expected to lead the GCC region with the addition of 306,550 to the student population during 2010–15, compared with 64,923 for the UAE and 33,287 for Kuwait.

8.     Packaged foods - Retails sales are expected to reach $30.6 billion during 2014–18 (CAGR of 10.5 per cent). A high tourist inflow, significant migration of the expatriate population (non-Saudi), and a gradual increase in dietary awareness among the Saudi population are some key factors supporting the packaged foods industry in the Kingdom.

 Saudi Arabia is expected to witness demographic changes over the next couple of decades, resulting in multiple challenges. However, these changes could generate opportunities for several sectors/industries, the report said.

“The country’s rising elderly population is expected to exert pressure on the government’s healthcare spending. At the same time, the rising earning and consuming population groups are likely to drive growth in consumption, savings, and investments,” said Roy.

“After analyzing the demographic trends for different population subsets, we believe that sectors such as healthcare, education, insurance, wealth management, and packaged foods would be the key beneficiaries of emerging demographic trends in Saudi Arabia.” – TradeArabia News Service




Tags: Saudi Arabia | population | demographics | Urbanization |

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