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.

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It is also being reported that the Kingdom expects to post its first budget surplus in nearly 10 years next year. This is because of the decision to restrict public spending despite a surge in oil prices.

Last month, it was reported that the Kingdom is looking to attract Foreign Direct Investment (FDI) worth $100 bn annually under a National Investment Strategy as a part of the Kingdom’s efforts to diversify its oil-dependent economy, according to media reports.

The annual domestic investment is expected to increase to SAR1.7 tn by 2030, as reported by the Saudi Press Agency after Crown Prince Mohammed bin Salman, the kingdom’s ruler, launched the initiative.

The Crown Prince also mentioned that in March the kingdom was planning investments worth SAR12 trillion by 2030, which was a part of a SAR27 trillion spending push to diversify the Saudi economy.

It included SAR5 trillion by the local private sector, SAR3 trillion from Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, and SAR4 trillion under a new Saudi investment strategy.

The Saudi Press Agency quoted the Crown Prince, saying, “Today, the kingdom embarks on a new investment era to empower Saudi and international private-sector investors with more and better opportunities. The NIS will draw up comprehensive investment plans for sectors, including manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure, and health care.”

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In 2020, annual inflation was 3.4 percent. Saudi economy shrank 4.1 percent last year, but the rate of decline slowed in the third quarter as some Covid-19 restrictions were lifted. According to London-based research firm Capital Economics, the Kingdom’s gross domestic product (GDP) fell by 13 percent year-on-year during the second quarter of 2020.

Jason Tuvey, Senior Emerging Markets Economist told the media, “Overall, after recording a contraction of 1.0 percent y-o-y in Q1, we estimate that the Saudi GDP fell by 13 percent y-o-y in Q2. We expect that the recovery will remain slow as austerity weighs heavily on consumer-facing sectors, the suspension of Umrah pilgrimages continues to hit the tourism sector, and the oil sector remains a key drag on the economy.”

In December, the Kingdom announced a budget of $263.91 billion for 2021. The Kingdom will spend 7 percent less in 2021 than the estimated spending for this year. This is a result of the deficit caused by the turmoil in the oil prices as Saudi Arabia is the biggest exporter of oil in this world.

The Kingdom said in a statement that it expects to post a deficit of 298 billion riyals this year, or 12 percent of gross domestic product (GDP) as crude revenues are slated to drop by over 30 percent. and 141 billion riyals or 4.9 percent of GDP next year.

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Trevor Cullinan, Lead Analyst GCC Sovereign Ratings at S&P told the media, “Higher oil prices are supportive of GCC states fiscal balances. However, most GCC states are likely to continue to post central government deficits in 2021 and their balance sheets are therefore likely to continue to weaken, albeit at a slower pace.”

“GCC governments reforms are largely based on improving the efficiency of government spending and diversifying their revenue streams away from the volatile hydrocarbon sector, which includes introducing new taxes such as VAT.”

S&P further revealed through its report that the UAE recorded a sharper economic contraction in 2020 compared to the Kingdom of Saudi Arabia. This is attributed to weaker economic activities in Abu Dhabi and Dubai, according to Trevor Cullinan. Abu Dhabi was hit by low oil prices last year. When compared to Saudi Arabia, the UAE is more dependent on the oil sector. It contributes about 50 percent of real GDP compared with about 40 percent for Saudi Arabia.

However, he added, “With this said, the aggressive vaccine program in the UAE is clearly positive for the event, and should provide a platform for economic recovery.”

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According to London-based research firm Capital Economics, the Kingdom’s gross domestic product (GDP) fell by 13 percent year-on-year during the second quarter of 2020.

Jason Tuvey, Senior Emerging Markets Economist told the media, “Overall, after recording a contraction of 1.0 percent y-o-y in Q1, we estimate that the Saudi GDP fell by 13 percent y-o-y in Q2. We expect that the recovery will remain slow as austerity weighs heavily on consumer-facing sectors, the suspension of Umrah pilgrimages continues to hit the tourism sector, and the oil sector remains a key drag on the economy.”

In December, the Kingdom announced a budget of $263.91 billion for 2021. The Kingdom will spend 7 percent less in 2021 than the estimated spending for this year. This is a result of the deficit caused by the turmoil in the oil prices as Saudi Arabia is the biggest exporter of oil in this world.

The Kingdom said in a statement that it expects to post a deficit of 298 billion riyals this year, or 12 percent of gross domestic product (GDP) as crude revenues are slated to drop by over 30 percent. and 141 billion riyals or 4.9 percent of GDP next year.

The post Saudi Arabia’s economy shrank by 3.8% in Q4 2020 appeared first on International Finance.

Jason Tuvey, Senior Emerging Markets Economist told the media, “Overall, after
recording a contraction of 1.0 percent y-o-y in Q1, we estimate that the Saudi GDP fell
by 13 percent y-o-y in Q2. We expect that the recovery will remain slow as austerity
weighs heavily on consumer-facing sectors, the suspension of Umrah pilgrimages
continues to hit the tourism sector, and the oil sector remains a key drag on the
economy.”

“All told, we forecast the Saudi economy to contract by 7.3 percent this year and, by
end-2022, GDP is likely to still be 5.5 percent below its pre-virus path” Tuvey added.

The year has been a challenging one for Saudi Arabia who earlier led the Organisation of
the Petroleum Exporting Countries (OPEC) into a oil price war with Russia. To add to its
miseries, the pandemic has significantly slumped demand for crude as well as its prices.
Saudi Arabia also tripled its value-added tax (VAT) from 5 percent to 15 percent on July
1 st , 2020. The increase in VAT is a part of the government’s measures to compensate for
the loss in state revenue due to depleting oil prices and the coronavirus pandemic.

Bloomberg reported that Saudi Arabia has cut its official selling prices for crude oil in
the latest sign that demand recovery is stumbling.

The kingdom lowered its selling prices for both its buyers in Asia as well as the US.

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Saudi Arabia’s new Jada fund of funds is is tasked to invest in venture capital and private equity funds, in addition to SMEs including startups. The plan to establish Saudi Arabia’s Jada fund of funds was first announced in 2017. 

The Saudi Arabian Jada funds of funds was launched in Riyadh this week. PIF said in a statement, “Jada supports Saudi’s diversification efforts as the private sector increases its share of GDP. With a capital of SAR 4 billion, the company will serve as a catalyst for SME investment and provide new job opportunities.”

In 2017, PIF said that it expects investments to create 2,600 jobs and contribute SR400 million to gross domestic product by 2020 end. In fact, those figures are anticipated to increase to 58,000 jobs and SR8.6 billion to GDP by 2027 end. 

According to media reports, Jada is the first of its kind Saudi Arabian fund to promote SME growth. The Saudi Arabian fund of funds is looking for lucrative returns in order to increase fiscal sustainability. This is in line with the Kingdom’s plan to empower SMEs. 

Last year, the Saudi Arabian government launched Saudi Venture Capital Company, which is a SR2.8 billion initiative to invest in the Kingdom’s startups and venture capital funds. 

According to Sovereign Wealth Fund Institute, Jada has made its first commitment to invest in funds managed by Dammam-based Raed Ventures and Vision Ventures. RAED Ventures is a corporate venture capital firm established by established by Almajdouie. 

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The country’s total spending increased by 5 percent. However, its oil revenue dropped 4 percent year-on-year while non-oil revenue also declined by 4 percent.

“A key positive trend is the pickup in capital expenditure, which points to some progress with investment activity and is likely to be in line with a wider trend,” Monica Malik, chief economist at Abu Dhabi Commercial Bank told the media.

Saudi Arabia’s capital expenditure witnessed a 27 percent annual increase. According to the finance ministry, the implementation of housing projects and other developments projects were a major contributor. Subsidy spending also increased by 71 percent as the government continues to support small scale businesses.

Spending on health, social development and municipal services increased by 13 and 22 percent respectively. The government’s capital expenditure also increased by 22 percent.

The International Monetary Fund expects Saudi Arabia will post a budget deficit of 6.5 percent of gross domestic product this year while the government expects the budget deficit of Saudi Arabia to be 4.2 percent deficit.

According to Finance Minister Mohammed Al Jadaan, the results of the first half of the year confirm the effectiveness of the financial and structural reforms implemented by the government, including diversification of government revenue sources through the implementation of initiatives aimed at increasing non-oil revenues.

He also noted that the government is in the process of achieving a balance between the financial discipline and raising efficiency to realise the financial targets for this year by controlling the deficit rates in the budget and public debt.

Revenue from taxes on goods and services was up by 23 percent.

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According to the ministry statement, Saudi Arabia posted a budget surplus of SR27.8 billion ($7.41 billion) in the first three months of 2019. Non-oil revenues increased 46 percent year-on-year in the first quarter to  SR76.3 billion.

The Kingdom recorded expenditures of  SR217.6 billion in the first quarter. The fact that Saudi Arabia remains behind schedule for many expenditures seems to have contributed to the surplus. However, Saudi Arabia projects a budget deficit of SR131 billion or $35 billion for 2019 because of expected increases in expenses during the rest of the year.

Despite the increases in oil and non-oil revenue, Saudi Arabia’s economic growth remains slow, although, recently, signs of a recovery have also started to emerge. The increase in non-oil revenues by 46 percent is an indicator of the success of Saudi Arabia’s Vision2030 strategy to diversify away from an oil-reliant economy.

Saudi Arabian officials had unveiled a plan in December 2018 to increase state spending by 7 percent to stimulate the Kingdom’s economy. In 2019, the government projects that spending will increase to SR1.106 trillion compared to SR1.030 trillion in 2018.

“Expenditure outlays on development projects are expected to increase during the remainder of the year especially on Vision Realization Programs and private sector development programs, alongside increasing expenditure on social protection,” the Ministry of Finance statement said yesterday.

The release of the Emirates NBD Purchasing Manager’s Index is expected to provide additional indications about the state of Saudi Arabia’s economy.

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