In March 2023, came the good news for Saudi policymakers. The Kingdom witnessed a GDP growth of 8.7% in 2022, which was the highest among G20 countries that year. The growth exceeded the analysts’ expectations of 8.3%, and as per the Xinhua news agency, the latest GDP growth rate is the highest one for the country since 2012. As per the current exchange rate, the GDP growth has pumped over USD 1 trillion in 2022 alone, again another first in the Kingdom.
Further breakdown of these growth figures only boosts Saudi’s efforts of diversifying and strengthening its economy (along with cutting down its dependence on oil trade) under the ‘Vision 2030’ plan. While the energy sector contributed some 32.7% in the latest GDP upswing, it was followed by government services (15.2%), manufacturing activities except oil refining (8.6%), and wholesale and retail trade, restaurants and hotels (8.2%).
Breaking down the stats
Saudi Arabia’s economy grew by 5.5% in the 2022 fourth quarter. Non-oil activities for the October-December period jumped 6.2%, whereas energy activities grew by 6.1%.
Saudi government also expanded its services by 2.9%. Transport, storage and communication activities recorded the highest yearly growth rates of 13.1%, followed by community, social and personal services (10.5%), other mining and quarrying activities (8.4%), and crude petroleum and natural gas (7.2%).
The Kingdom’s GDP at current prices stood at over 1.02 trillion riyals (USD 272.75 billion) in the 2022 fourth quarter.
The 2022 fourth-quarter GDP growth was Saudi’s seventh consecutive three-month expansion after its slowdown due to COVID. And most importantly, all activities within the Kingdom’s economic framework have achieved positive growth rates.
Crude petroleum and natural gas activities achieved the highest annual growth rates of 16.1 per cent, followed by transport, storage and communication (9.1 per cent), and petroleum refining (8.3 per cent).
The Kingdom’s GDP at current prices amounted to more than 4.15 trillion riyals last year.
The crude petroleum and natural gas activities contributed 32.7% to the Saudi economy. The Kingdom’s preliminary estimates for 2023 indicate a GDP growth of 3.1%, whereas the International Monetary Fund (IMF) expects it to grow by 2.6% this year and by 3.4% in 2024.
Activities in Saudi’s non-oil economy hit an eight-year high in February 2023. Riyad Bank’s Purchasing Managers’ Index for the Saudi economy rose to 59.8 in February 2023 from 58.2 in January, thus recognizing the Kingdom’s fastest growth in the arena of non-oil private sector businesses since March 2015.
The country’s inflation rate for 2022 was estimated at 2.6% and, according to the latest preliminary forecasts, is expected to hit 2.1% in 2023, suggesting that the Kingdom is performing sufficiently on this front as well, when developed economies like the United Kingdom and the United States saw neck breaking inflation last year.
The success story
In March 2023, Saudi Downtown signed a pact with the country’s Small and Medium Enterprises General Authority, also known as Monsha’at, to develop projects in 12 cities around the Kingdom.
The agreement will create business opportunities for the Kingdom’s SME sector in line with the goals of ‘Vision 2030’, reported the Saudi Press Agency.
Saudi Downtown, a wholly-owned subsidiary of the Saudi Public Investment Fund (PIF), will establish urban centres of sustainable economic and social impact in 12 cities across the country.
Another focus area for the Saudi government has been the tourism sector. In the recently concluded ITB Berlin (world’s largest trade fair for the global tourism industry), Ahmed Al-Khateeb, Saudi minister of tourism, not only opened the Saudi pavilion, which received a number of presidents, ministers, leaders, and other key officials, but also interacted with major commercial bodies such as TUI Group and FTI Consulting, apart from the UN World Tourism Organization and the World Travel and Tourism Council. Saudi had the largest space in the trade forum, and its line-up of interactive content not only impressed industry stakeholders, but also helped the Kingdom to seal strategic agreements with UNWTO, Expedia Group, FTI Consulting, DER Touristik, Hotelbeds, and Lufthansa City Center.
The Kingdom recorded 93.5 million visitors in 2022 and is now eyeing to receive 100 million tourists annually by 2030. Saudi Arabia, which is the largest investor globally in the tourism sector, has already allocated USD 550 billion to realize the above goal, as per reports.
And in a further boost to the economic diversification efforts of the Kingdom, the non-oil foreign trade between the UAE and Saudi Arabia jumped 70% over the last ten years, hitting 136 billion dirhams (USD 37 billion) by 2022 end, as per the statistics from the UAE Federal Competitiveness and Statistics Center.
Property & aviation sectors leading diversification efforts
From March 7-10 2023, the Kingdom hosted its Restatex Riyadh Real Estate Exhibition, which witnessed the launch of real estate funds with a total value of more than SAR 4 billion (USD 1 billion), aimed at providing over 4,000 housing units in Riyadh and Madinah on an area of over one million square meters, thus keeping pace with the property sector’s growth targets for ‘Saudi Vision 2030’.
As per PricewaterhouseCoopers (PwC), Saudi Arabia’s housing demand, which was at 99,600 homes in 2021, will increase by over 50% to reach 153,000 houses by 2030. The Kingdom has swiftly acted as per the challenge, by signing up agreements worth over 10 billion Saudi riyals (USD 2.66 billion) to set up four investment funds to fast-track the country’s property projects. Global ratings agency S&P predicted in 2022 that the Kingdom will see sustained growth in its property market, fuelled by ‘Vision 2030’ and the Iskan programme, with USD 1 trillion slated for real estate and infrastructure projects.
The market will witness a massive boom by 2033, as the government draws up more and more high-ticket projects and gets attention from global property market players.
“Investors who want to buy real estate understand that if someone committed to invest [that much] in the country it’s going to be growing. Saudi has a lot of potential for the next ten years … and the next ten years is going to be the greatest time for [the] Saudi property market,” Alex Galtsev, CEO of Dubai-based property technology company Realiste told Al Arabiya English, while giving his insights on the Saudi’s property sector boom.
Investcorp Holdings, one of the largest asset managers in the Middle East, will invest USD 1 billion in the Saudi property market over the next five years.
Also not to forget about the creation of a futuristic city called NEOM. This occupies the centre stage of the Saudi real estate sector’s roadmap for ‘Vision 2030’. The city’s main attraction point will be the luxury island called ‘Sindalah’, which will reportedly rival tourist destinations like Monaco and Athens, with vibrant and world-class marina and yacht clubs.
Dubai Marina and Jumeirah Village Circle have already established themselves as real estate investment destinations within the Kingdom. And the first two months of 2023 have been bumper ones for the sector as property demand in Dubai hit a record high. In February alone, Dubai’s residential market saw 8,515 transactions, a whopping 43.9% increase from 2022. January and February of 2023 together clocked a total of 17,741 residential transactions, a new record.
Shifting the focus from the property sector, let’s explore the Kingdom’s aviation sector. Crown Prince Mohammed bin Salman announced the creation of a new national airline called ‘Riyadh Air’, with industry veteran Tony Douglas being its chief executive, In march 2023. The airline, owned by Saudi Arabia’s Public Investment Fund (PIF), is expected to contribute significantly to the Kingdom’s economic diversification, by adding USD 20 billion to the GDP, apart from creating over 200,000 jobs, while reportedly serving over 100 global destinations by 2030.
The country’s aviation sector has been working aggressively towards localizing jobs. In 2021, General Authority of Civil Aviation (GACA) launched an initiative of localizing around 10,000 jobs. Saudi Arabian Airlines has recently ensured that the majority of its pilots are from the Kingdom, while several other carriers are poised to follow similar moves, which will generate more employment for qualified Saudi professionals in the field of aviation.
King Abdulaziz International Airport’s infrastructures have been expanded to USD 7.2 billion, while the Kingdom’s Minister of Transport and Logistics Saleh Al Jasser revealed his government’s plans of investing approximately USD 133 billons by 2033 in the aviation sector, keeping in mind the country’s goal of hosting 330 million tourists by 2030.
NEOM Bay Airport received its first flight in 2019 and has already been classified as a commercial hub by the International Air Transport Association (IATA). King Salman International Airport is another upcoming big-ticket project, which will be operational by 2030 in Riyadh. The facility will have six runways, apart from possessing the capacity for hosting 120 million travellers yearly.
The world taking note
World Bank’s Vice-President for the Middle East and North Africa Ferid Belhaj recently urged the countries within his jurisdiction to emulate Saudi Arabia’s economic diversification model. He, while noting the impressive growth trajectory of Saudi’s non-oil sector, emphasized that the model has showcased a “new economic and development approach, breaking free from patterns that no longer hold good.”
Moody’s too noted that Saudi’s non-oil sector has become the main driver behind the Kingdom’s economic growth.
“This is (the growth of the non-oil sector) largely due to the Saudi government’s efforts to diversify the economy by carrying out structural reforms, including the introduction of taxation, modernisation of regulatory systems, as well as infrastructure improvements. These reforms have led to increased foreign investment, which has stimulated economic growth and contributed to job creation. The report also highlights that accelerated private sector growth in recent years has helped improve fiscal revenues,” the ratings agency said.
The growth of the Middle East’s non-oil economy will continue to progress into 2023 as the GCC economies continue to diversify, Riyadh Al Najjar, PwC Middle East Chairman of the Board & KSA Country Senior Partner, informed Zawya, a statement which further solidifies the fact that Saudi’s economic diversification efforts, which have proven to be game-changing ones, have steadily been emulated by its Gulf neighbours as well.
When the world was undergoing an economic slowdown in 2022, Saudi defied the trend and continued its bold march towards realising the goals of ‘Vision 2030’. The GCC is undergoing a transition phase, where they are focussing more on economic diversification and sustainable development. The Saudi model gives them a roadmap for how to achieve a sustainable economy.