The global economy is on the brink of concluding a challenging year, marked by persistent inflation rates that have endured despite a gradual decline over the past eight months of 2023. Furthermore, the prospect of ending interest rate hikes remains distant.
Amid these circumstances, Saudi Arabia emerges as a notable bright spot. According to IMF Managing Director Kristina Georgieva, the country is steadily progressing towards the objectives outlined in Saudi Vision 2030.
Over the last two years, the Kingdom has spearheaded the economic recovery of the region, overcoming the setbacks of the COVID-19 pandemic. Notably, the nation achieved an impressive 8.7 percent GDP growth in 2022, marking the highest growth rate in over a decade. This exceptional performance, the strongest among G20 countries, surpassed the historic milestone of $1 trillion.
At the same time, the Kingdom is diligently advancing its economic diversification endeavors as outlined in Vision 2030. A key focus is the elevation of the non-oil sector to the forefront of the country’s economic advancement. Notable initiatives like the National Transformation Plan and Fiscal Balance programs are designed to diversify total government revenues in alignment with Vision 2030 goals.
Read: $421 bn in trade exchange between Saudi, G20 countries in 2022
While the notion of economic diversification and augmented non-oil revenues has been central to development strategies since the 1970s, it gained substantial momentum with the introduction of Saudi Vision 2030 in 2016.
In 2022, the non-oil economy contributed to 59 percent of the country’s economic makeup. The non-oil GDP exhibited significant growth, expanding by 15 percent in real terms and an impressive 28 percent in nominal terms. The second quarter of 2023 saw a 5.5 percent surge in non-oil activities, contrasting with a 4.2 percent decline in hydrocarbon activities when compared to figures from the same period in 2022.
Moody’s projections indicate that the Saudi economy is set to exceed anticipated growth rates in 2023 and 2024, largely fueled by the resilience of the non-oil sector.
Recent research from the Arab Gulf States Institute in Washington highlights four key dimensions of Saudi Arabia’s diversification success:
1- Exports: The Kingdom has seen a reduction in oil exports as a proportion of total exports, accompanied by an expansion in petrochemical exports and tourism. Petrochemical exports’ share surged from 9 percent in 2012-2013 (a period characterized by exceptionally high Saudi oil export revenues) to 12 percent in 2022. Likewise, travel exports escalated from 2 percent in 2012-13 to 5 percent in 2022.
2- Private Sector Growth: The private sector’s contribution to the Kingdom’s nominal GDP has risen from 37 percent in 2012-2013 to 39 percent in 2022. Moreover, the combined public and private non-oil sector accounted for 56 percent of GDP in 2022, up from just under 52 percent in 2012-2013. In real terms, the private sector’s GDP share was 41 percent in 2022, compared to 39 percent in 2012-2013.
3- Government Revenues: A significant shift has occurred in government revenues, with the non-oil segment representing 32 percent of total government revenues in 2022, up from less than 10 percent in 2012-2013.
4- Reduced Dependency: The report underscores the decreased reliance of private companies on non-Saudi labor and the lowered dependence of Saudi nationals on public sector employment.
Sectors that drive economic diversification
Many non-oil sectors in Saudi Arabia are currently undergoing remarkable expansion, which can be categorized into five main areas:
1- Digital Transformation: A pivotal focus on digital transformation is evident, including the development of a comprehensive artificial intelligence (AI) strategy across the nation. Vision 2030 has accorded top priority to digital transformation, devising an integrated, resolute, and pragmatic strategy to expedite and facilitate this transformation with utmost efficiency. Saudi Arabia allocates an annual budget of more than SAR 2 billion (approximately $3 billion) for digital government initiatives.
These investments have yielded early positive indicators and outcomes in this domain. The evolution of digital government platforms in the country is marked by rapid advancements that enhance competitiveness, streamline the entry of companies and institutions into the local market, and foster investment and expansion through seamless, high-quality services. This progress is evidenced by an 80.6 percent growth in the Digital Experience Maturity Index in Saudi Arabia.
2- Sustaining Economic Momentum and Energizing the Energy Transition: A steadfast commitment to preserving economic momentum and driving the transition towards sustainable energy sources remains unwavering. In alignment with its commitment to achieve net zero emissions by 2060, the Kingdom initiated the Saudi Green Initiative and earmarked substantial resources – nearly $180 billion – to realize its objectives.
3- Talent Development and Localization: A concerted effort to nurture talent and promote localization is underway. This entails meeting Saudization targets and enhancing localization across the supply chain, industrial sector, and skills-based economies.
4- Population Growth Facilitation: Achieved through innovative visa reforms designed to attract expatriates and incentivize trade for both large enterprises and small and medium-sized businesses within the region.
5- Hospitality and Tourism Advancement: Substantial investments in infrastructure and recent reforms related to visas characterize the hospitality and tourism sector. Newly established tourism laws and initiatives simplify visa acquisition processes and foster the development of tourist attractions such as Riyadh Season, AlUla, and more. The Kingdom anticipates a surge in tourist numbers, projecting an increase of about 43 percent from 2019 to reach 25 million tourists by 2023.
Beyond the horizon
Without a doubt, the Kingdom has made significant progress in its pursuit of economic diversification objectives, steadily augmenting the proportion of its non-oil economy. However, this trajectory will not abruptly halt upon the arrival of 2030, the designated target year for realizing the ambitions of the vision.
“It’s continuous work,” Finance Minister Mohammed al-Jadaan said, stressing the role of companies and investors in driving economic development.
“If we fail to engage a private sector, one which is more effective than the public sector, it will be difficult to achieve the diversification program in accordance with Vision 2030,” he added.
Hence, the government is meticulously focusing on the private sector and facilitating its active engagement in economic diversification, with the aim of elevating its contribution to GDP to 65 percent.
Furthermore, advancing initiatives for privatization and nurturing public-private partnerships remains of paramount importance, as these measures bolster non-oil revenues. It’s worth noting that the Kingdom has identified 59 initiatives capable of generating 143 billion riyals in non-oil income through asset sales and public-private partnerships by 2025. These findings stem from a report by the Saudi National Center for Privatization and Public-Private Partnership, released in August 2021.
Finally, the Public Investment Fund will continue to be a prime catalyst for growth, delivering added impetus to the economy by harnessing the potential of non-oil sectors and augmenting the private sector’s role in the economic landscape.
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