For years, Saudi Arabia’s oil wealth has shaped its power and influence over the world. Today, it is known for more- smart cities, diverse landscapes, as the newest member of the trillion-dollar group of economies, and for Cristiano Ronaldo’s football club. Here is a look at what steers the Saudi Arabia economy towards growth.
KSA’s mission to diversify away from oil revenue appears to be coming to fruition, as recent reports indicate non-oil growth- driven by revenue generated from tourism, retail, and entertainment- was at 6.1% YoY in Q2/23. The private sector also came to account for 41% of the GDP, with private investment accounting for 87.3% of all fixed investments. This growth in non-oil and private sectors has made the KSA economy more resilient to price shocks in energy markets.
But perhaps the most significant scope of development lies in its innovation plans and digitalization strategy.
Large-scale investments across fintech, e-commerce, and AI are on course to digitise business and customer transaction journeys and contribute $135bn to the KSA economy in 2030. Conventional banking platforms and newly developed B2B and B2C payment applications are both undergoing digitisation across the board. AI is also leading the digital transformation in healthcare, where cloud solutions are now able to rapidly diagnose and react to heart attacks remotely.
Sustainability is at the heart of economic activity in KSA. Research partnerships are in place to work towards a solution that can reduce carbon emissions by over 90%. Agri-tech is also on the path of growth with initiatives that enable the use of salt water for commercial crop production, reducing the use of desalination plants. A leading startup, Red Sea Farms, is operating with an initial investment of $18.5mn.
KSA is also home to the combined investments from the EBRD, Saudi’s PIF, African Development Bank, and Arab Bank, amongst others in the form of ACWA, a renewable energy research and development company. Their latest solar investment deal has closed at $2.4bn. At the beginning of 2023, $266bn was earmarked for investment in green energy.
Combining sustainability and innovation is also the smart project, NEOM, a collection of smart cities powered by 5G technology and renewable energy.
Growth is also projected in its mining capabilities, across phosphate, aluminium, zinc, copper, and gold operations. An investment of $170bn would allow the mining of $1.3tn worth of metals through open mine pits across the country.
Another sector going through modernisation is defence, where the aim is to source 50% of its capabilities from domestic sources. Developing a solid defence against external threats with a ramped-up budget of $86.4bn in 2028 against $53.9bn in 2021 is on the agenda. The investments will be spread across naval vessels, missiles and surface combatants. It is also spurring an ancillary ecosystem of OEMs and metals and products that act as raw materials.
In Geopolitics, KSA has made clear its intent to be the undeniable hegemon of the region, by working towards the restoration of peace in Yemen and repairing ties with Israel. It seeks to establish security agreements with the US whilst also maintaining close trade and diplomatic ties with China. It is also engaging in nuclear enrichment activities open to international scrutiny through the IAEA, whilst engaging in normalisation conversations with Israel, a country vehemently opposed to nuclear enrichment in KSA.
KSA is making strides in economic diversification, however, success depends on several factors. Business set-up costs remain high and navigating the bureaucracy is also challenging, which has the potential to discourage SMEs. While economic ventures are backed by multiple sources of investment, cost implications of agri-tech, digitisation, and healthcare would still need due diligence. The $500bn investment in NEOM and building delays are also facing scepticism in relation to the sustainability of the project.
A detailed report by Confluence Consultants on business opportunities in Saudi Arabia is underway. Please get in touch for more information.