Saudi partnership with Asian giants a trailer

The new warmth in the relations between Saudi Arabia and India as well as China is perceived to be the manifestation of the kingdom's desire to move away from the situation of 'one big friend', meaning the US and the West, and 'one big product' that is oil.

With India sourcing as much as 26 per cent of its oil from Saudi Arabia and China making 17 per cent of its crude imports from the kingdom, the broad-basing of diplomacy is a recognition of the significant changes taking place in the global economy and is driven by deep-seated economic interests.

China has overtaken the UK and France as the fourth largest economy in the world and India is closely behind in the ascendancy.

The joint declaration, the first such Saudi initiative with any country, between India and the kingdom focuses on 'a strategic energy partnership based on complementarities and interdependence' and joint ventures both in the public and private sectors in the upstream and downstream oil and gas sectors in India and Saudi Arabia as well as in third countries and setting up of India-Saudi ventures for gas-based fertiliser plants in Saudi Arabia.

Perfect timing

Similarly, the prospects of Saudi investments in a crude oil stockpile facility on Hainan Island have become brighter while Saudi Aramco is already a partner of state Sinopec and ExxonMobil in an integrated petrochemical and refining venture in Fujian province.

The Saudi move is in sync with the increasing clout of China and India in determining the shape of things to come in the global economy. It has timed perfectly with the optimism expressed at the just-concluded Davos World Economic Forum, where the unstoppable growth of the two countries into world economic powers has been a dominant theme.

The two Asian giants are also expected to make up for a predicted end to the 'great American spending binge' this year. The durability of US consumer spending, along with a possible housing bubble, has been a major worry and the key weak link in the global economy.

The slowdown in consumer spending is making US economic growth increasingly anaemic and a 1.1 per cent growth rate in the last quarter is just about a quarter of the 4.1 per cent annualised pace of expansion in the third quarter. This is the smallest growth in three years and has huge implications for the performance of the world economy.

The negative impact of the US slowdown is, however, expected to be largely neutralised by a boom in consumer spending in India and China where the ranks of middle-class high-spenders are expanding by the millions. A third of total domestic demand in the world economy over the past five years has come from the BRICs countries of Brazil, Russia, India and China, and exceeds the contribution from Europe. So, these countries could take up much of the slack left by US consumers.

According to S&P's report, the speed of the expansion and the enormity of retail credit in the emerging markets are indeed remarkable. BRIC retail lending soared at almost 40 per cent weighted average annual growth in the four years to 2005.

"Extrapolate that rate over the next four years starting January 2006, and BRIC retail loans would grow to $1.8 trillion by year-end 2009. S&P's Ratings Services believes that such growth is not hypothetical, but a real possibility that is making domestic and international financial services groups salivate at the business prospects. Our base scenario is for loans to individuals in the BRIC countries to grow 20-30 per cent a year in the medium term," the agency says.

The report also refers to the huge retail potential of China with its 1.3 billion population and 9 per cent growth in GDP. Similarly, retail credit in India is set for robust expansion as the culture of borrowing to purchase a home is taking root in the country, it says.

These are real positives for the world economy and take the sting out of some worrisome tendencies in the mature economies.

The writer is a UAE-based journalist.