Saudi Arabia continues to diversify its economy away from oil and upstream crude production, with the non-oil sector now accounting for well over half of GDP. The government’s ambitious Vision 2030 diversification program, announced in 2016, aims to grow the non-oil economy through investment in planned economic diversification projects, “Saudization” of the workforce (replacing expatriates with Saudis), increasing female participation in the workforce, improving the business environment, and broader socioeconomic liberalization.
According to S&P Global Ratings Economics, Saudi Arabia’s labor market reforms have led the country’s female labor force participation rate for Saudi nationals to nearly double to almost 36 percent in 2022 from 19 percent in 2016. This, in turn, boosted the overall participation rate to a record high of 61.7 percent in March 2023, compared with a record low of 54.2 percent in June 2017.
Read more: Saudi women make strides
If labor force participation continues to grow at the current pace for the next 10 years, S&P estimates the Saudi economy could potentially be $39 billion, or 3.5 percent, larger compared to a hypothetical scenario with historical (2000-2022) labor force participation rate growth. While the biggest jump in Saudi Arabia’s female labor force participation has clearly already happened, even smaller, steady increases would continue to benefit the world’s 17th largest economy.
GDP boost
S&P calculates that increases in overall participation rate of just 1 percentage point (ppt) per year over the next 10 years would boost the country’s annual real GDP growth by an average of 0.3 ppt, to 2.4 percent per annum (versus 2.1 percent), assuming that labor force productivity growth for the next 10 years will look the same as the last 20 years.
Furthermore, the report highlighted that the odds of real GDP growth averaging 5 percent or above (which has happened nine times since 2000) during the next 10 years are only 25 percent, which would essentially require the economy to repeat some of the fastest labor force productivity growth it has ever seen.
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