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Expected to decrease by 12%.

Areport issued by Banque Saudi Fransi has expressed expectation that the volume of Saudi imports would this year register the biggest decrease in the past 15 years due to the conditions created by the economic recession, which has generated caution among importers and consumers alike.

This phenomenon is not exclusive to Saudi Arabia alone.

The data issued by the World Trade Organization shows that the world's overall imports went down by a third during the second quarter of the current year, compared to the same period in the past year.

In spite of indicators that point towards a gradual return of trust and stability in the Saudi economy, the latest data pertaining to imports show that the averages of growth and the ability to overcome risks would remain modest, in the best of conditions.

Banque Saudi Fransi's Chief Economist John Sfakianakis, and Research Analyst Turki Bin Abdul Aziz Al Hugail, who prepared the report, say there were expectations that Kingdom's imports would decrease by 12% to $ 89 billion in 2009, compared to the record figure of $100.6 billion in 2008.

This is the highest decrease in imports since the year 1994.

This also indicates caution on the part of traders, which led to a decrease in the quantities of imported goods they keep on their inventories stored in warehouses.

At the same time average spending by consumers has also gone down, compared to the previous year, which has made retailers hesitant to buy higher quantities of imported goods thus increasing their costs.

The record decrease in the price of the dollar against Euro, during the past fourteen months has also adversely affected Saudi imports.

It is expected that the continuing weakness of the dollar would further increase costs of Saudi imports in the last months of the year 2009 leading the importers to keep a part of their inventory in warehouses to wait out the adverse phase.

According to the report, the decrease in imports began near the end of the past year, when local demand diminished and value of imported goods also went down.

During the period from 2000 to 2008 imports increased by 400%. Imports of building material, financed through letters of credit increased by 500% during the decade, which extended up to the end of 2008.

Issue of letters of credit also increased during this period for financing imports of foodstuff, automobiles, machinery and other equipment by more than 300%.

The downturn in imports began by the beginning of the current year.

Data issued from the Statistics Department shows that the value of the Kingdom's imports, during the first eight months of the year, came to $57.77 billion showing a decrease of 16% compared to the same period in the previous year.

However, the value of imports, in the month of August, decreased further dramatically by 28.8%, compared to august in the previous year, when the value of imports was the highest for any given month.

The report says that the decrease in the value of imports can be directly attributed to a reduction in local demand. Data shows that the retail of luxury goods in the Kingdom went down by about 40%.

The agents of retail sales were, therefore, inclined towards direct imports as required instead of storage of goods in their warehouses. Similarly, retailers are also keeping reduced inventories of imported goods.

In the month of August past, import of machinery and electronic goods went down by 28%, while foodstuff went down by 8.6%.

In the summer of the current year, costs of Saudi imports went up due to riyal's peg with the US dollar.

Weakness is also seen in the data pertaining to opening of LCs (letters of credit) by importers.

LCs are the main source of financing of imports of everything from rice to cranes and even cars.

Opening of LCs went down by 6.9% from the beginning to the end of September, while value of previously issued LCs, which represent actual imports, went down by 19%, according to the data issued by the Saudi Arabian Monetary Agency (SAMA).

The total amount of approved LCs, for example, for building material decreased by 41%, in September and reached SR 794 million, which is the lowest during the current year.

Similarly, during the same month, the amount of LCs for foodstuff decreased by 26%, and of machinery by 27%.

That is why the local traders want to dispose of their stored inventories and feel anxious towards importing and storing new goods.

At a time when the US dollar continued to weaken and risks grew to increase for world trade, some analysts turned towards the Gulf currency markets.

Saudi riyal rose slightly, by 0.6% in October last, while dollar decreased against Euro so that one Euro became equal to US$ 1.5.

Saudi Economic Survey. All rights reserved.

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Publication:Saudi Economic Survey
Geographic Code:7SAUD
Date:Nov 23, 2009
Words:816
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