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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The reduction in oil production, in line with the decision by OPEC+ to cut oil production until 2023-end, is expected to impact the Kingdom’s economy as the oil sector accounts for more than 45% of the country’s GDP.

Additionally, the slowdown in economic activities and subdued external demand will likely affect the country’s trade prospects, as per the GlobalData report.

Bindi Patel, Economic Research Analyst at GlobalData, while interacting with the Zawya, stated that the subdued economic activities in Europe and the American continents are expected to slow Saudi Arabia’s export growth to 5.9% in 2023 from 6.3% in 2022 and 47.1% in 2021.

On the other hand, benign inflation rate (2.6% in 2023 forecast vs. 2020-22 average of 3%) and declining unemployment rate (6% vs. 6.8%) are projected to keep the domestic demand buoyed with real household consumption expenditure likely to grow by 4.4% in 2023 compared to 3.7% in 2022, the official added.

The diversification efforts of the Saudi economy are exhibiting fruitful results as the share of the service sector in the overall gross value added increased from 40.1% in 2000 to 48.5% in 2022. In contrast, the industry sector contribution declined from 54.9% to 49.1% during the same period.

“The economy still significantly depends on the oil and gas sector, which makes it vulnerable to oil price shocks,” Bindi Patel said, maintaining that the Saudi government must continue its transformation efforts at a fast pace to make the economy resilient to external shocks.

Saudi Arabia’s General Authority for Statistics recently released its initial estimates of real GDP scores for the first quarter 2023, which showed that the country’s economy grew at a pace of 3.9%. While this marked a slowdown in pace to the 5.5% growth the previous quarter, economic activity will be growing further over the rest of 2023.

The non-oil revenues increased by 9% in Q1 2023 while oil revenues declined by 3%, as per the Saudi government stats, thus further boosting ‘Saudi Vision 2030’, under which the Kingdom aims to diversify non-oil exports and increase its share of non-oil GDP from 16% to 50%.

According to the Ministry of Finance, Saudi Arabia reported a budget deficit of SR2.91 billion in Q1-23. The actual revenue flow increased 1% to SR280.94 billion of which oil revenue amounted to SR178.61 billion, as per the stats.

Expenditures also shot up 29% year-over-year to SR283.9 billion. In its first quarter budget, the government allocated SR52.1 billion for education, SR58.9 billion for defence, and SR49.6 billion for health and social development. Saudi Arabia also lowered its public debt by 2.89% to SR962.25 billion during the first quarter as cash inflows remain resilient.

Moving forward, analysts are anticipating a budget surplus Saudi economy for the first time in eight years.

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In the three months leading up to the end of September, the largest economy in the Arab world only saw a 2.9% increase in the consumer price index, as per the data released recently by the kingdom’s Ministry of Economy and Planning.

“Despite the rise in global inflation rates to record levels, a substantial part of this increase was restrained in the kingdom. The consumer price index climbed only by 2.9%, perhaps the lowest rates recorded in the G20 countries,” it stated in its quarterly report.

According to the report, compared to September of the previous year, prices rose most in education, recreation and culture, and food and drink, while clothes and footwear costs decreased by 0.99% monthly. On the other hand, prices for furniture and household goods increased by 0.66%.

The newest prediction from the International Monetary Fund predicts that Saudi Arabia’s GDP will rise 7.6% this year after accelerating by 3.2% last year.

The world’s top oil exporter, the kingdom, has profited from the increase in crude prices this year after Brent, the international benchmark for two-thirds of the world’s oil, increased by more than 23% since the year’s beginning.

The third quarter of 2022 saw Saudi Arabia’s economy grow by 8.6% due to increasing oil prices, according to the General Authority for Statistics’ flash estimates released last month.

The biggest economy in the Arab world has also taken action to reduce inflationary pressures there. In July, it set aside 20 billion Saudi riyals (USD 5.3 billion) to lessen the impact of price increases on its people.

The third quarter saw growth in the kingdom’s non-oil economy of 5.6%, driven by the manufacturing, wholesale, retail, leisure and hospitality, construction, and transportation industries, according to the Gastat report.

In contrast, the third quarter saw growth in the kingdom’s oil economy of 14.5%. The third quarter saw a 24% year-over-year growth in government income to 301.8 billion riyals, while foreign direct investments in the kingdom totalled 7.8 billion riyals.

Saudi Arabia is making a variety of efforts to increase foreign investment. According to the government-run Saudi Press Agency, it introduced the National Investment Strategy last year, which aims to draw in 388 billion riyals in foreign direct investments per year. It also established a new investment promotion authority to encourage greater regional and foreign investment in the nation.

According to Saudi Arabia’s Minister of Economy and Planning, Faisal Alibrahim, “Looking ahead, our growth outlook remains robust, and financier should be bullish about the near-term operation of the economy thanks to strong energy prices, non-oil growth, robust trade, and the kingdom’s growing ability to attract talent, tourism, and investment.”

How did they make a comeback?
Thanks to oil windfalls and economic reforms to withstand the twin shocks of the coronavirus pandemic and the decline in oil prices in 2020, Saudi Arabia’s economic recovery is anticipated to strengthen in the second half of 2022.

Successful vaccination campaigns aided the oil-rich kingdom’s recovery from the pandemic. Still, according to recent research from Deutsche Bank, the fallout from the Russia-Ukraine war led to surging oil prices that boosted economic activity in the kingdom and resulted in a sizable surplus in the first few months of 2022.

Due to the exchange rate peg and price limits, inflation has continuously stayed mild.

“We expect the country to record large current account and fiscal surpluses this year, leading to a significant improvement in both the fiscal and external position. Oil prices are trading above $100/bbl and with the latest estimates of breakeven fiscal oil prices hovering around $70 per barrel,” Deutsche Bank Economist Samira Kalla said in a report.

“The current policy boost and the Fed’s rate increases cycle should help keep inflation in check despite a recent slight uptick. In addition, Saudi Arabia might use its oil windfall to bolster ailing industries hit by tighter financial circumstances given the high price of oil,” Samira Kalla added.

The kingdom should benefit in the medium and long term from various economic and social reforms included in Saudi Arabia’s Vision 2030 plan, which emphasizes efforts to diversify the country’s economy and achieve net-zero carbon emissions.

Oil price increases should aid Saudi Arabia in advancing its reform plan and increasing investments for the remainder of 2022. In addition, the paper claims that Saudi Arabia, given its current excess capacity and low manufacturing costs, might play a more significant role internationally.

The paper observed that the government has significant political clout thanks to the country’s considerable spare manufacturing capacity, which it may be able to use to strengthen connections with its allies.

Is the future promising for Saudis?
Saudi Arabia anticipates posting a budget surplus and is planning to raise state spending in 2023.

The Finance Ministry claimed in next year’s preliminary budget statement that the largest economy in the Arab world expects public revenue to be 1.12 trillion Saudi riyals (USD 298 billion) in 2019, up from an earlier estimate of 968 billion riyals and expenditures to increase by 18% to 1.11 trillion riyals.

Compared to an earlier forecast of 27 billion riyals, the expected surplus of 9 billion (USD 2.4 billion) riyals for the following year is roughly 0.2% of the gross domestic product (GDP).

According to the ministry, the government has kept its forecast for a 90 billion riyal fiscal surplus this year. The report states that the economy would expand by 3.1% in 2023 and 8% in 2022.

According to the Ministry of Finance, “The fiscal performance indicates tangible improvement in the ability of the Saudi economy to face economic challenges and shocks in light of changes in the growth outlook and geopolitical problems facing the global economy.”

The Kingdom of Saudi Arabia’s Vision 2030 called for bold structural and fiscal reforms, which made it possible to attain solid economic growth rates in the current year.

Due to increasing oil prices, Saudi Arabia, the top supplier of crude oil, has had robust economic growth this year following its recovery from the effects of the coronavirus-induced downturn in 2021.

Due to increasing oil prices, the kingdom’s economy expanded by 12.2% in the second quarter, marking the highest growth in more than a decade, according to data released last month by the General Authority for Statistics (Gastat). According to the most recent Gastat figures, the kingdom’s GDP increased by 2.2% from one quarter to the next.

In August, the International Monetary Fund predicted that the kingdom’s economy would expand at its most robust rate in a decade this year and could rank among the fastest-growing economies globally.

The International Monetary Fund stated in its World Economic Outlook report in July that it is anticipated to increase by 7.6% this year, following growth of 3.2% in 2021. According to the World Bank, the country’s GDP will expand by 7% this year and 7.7% in 2023, according to Jadwa Investment.

After the Russia-Ukraine conflict erupted in February, oil prices spiked dramatically this year as supply fears grew. Prices have decreased, nevertheless, due to worries that a looming recession could reduce global demand.

According to the most recent data, the kingdom’s non-oil private sector business environment has also improved. S&P Global’s purchasing managers’ index for Saudi Arabia, seasonally adjusted, increased to 57.7 in August from 56.3 the month before, the uppermost reading since October 2021, as new business growth reached a 10-month high.

Al Rajhi Capital, a regional investment bank, claims that Saudi Arabia has budgeted for Brent oil to cost roughly USD 76 per barrel in 2023. According to Mazen Al Sudairi, research head at Al Rajhi Capital, oil revenues might total 754 billion riyals in 2023, while non-oil income could total 417 billion riyals.

Our analysis indicates that the government’s planned revenues for 2023 are predicated on the assumption that Brent will trade at about USD 76 per barrel.

In response to potential changes in the local and international economies, the Finance Ministry stated that it was “basing the estimates of oil and non-oil revenues in the budget on conservative standards.”

Meanwhile, in 2022 and 2023, Saudi Arabia’s inflation is projected to be 2.6% and 2.1%. The ministry stated that the private sector “continues to contribute towards the extraordinary economic growth and increases job creation in the labour market.” The ongoing efforts of the administration to diversify the economy will help to increase non-oil earnings.

According to Al Rajhi Capital, the budget surplus is projected to be less than the original expectation of 293 billion riyals because the government reduced the expectations for 2022 expenditure to 1.13 trillion riyals from 955 billion previously disclosed. Because increasing spending will help economic growth, “we view this as a positive sign.”

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