Despite the impact of oil production cuts on Saudi Arabia’s GDP, the nation continues to shine as one of the most promising emerging markets in 2024. This resilience is largely driven by the remarkable expansion of its non-oil economy.
Saudi Arabia’s ambitious Vision 2030 initiative, introduced by Crown Prince Mohammed bin Salman eight years ago, has been pivotal in transforming the country beyond its traditional oil-based economy. The program has not only fueled economic growth but also generated a multitude of job opportunities for the burgeoning local workforce.
Although the challenges of fluctuating oil prices and regional geopolitical tensions exist, they have thus far had minimal effect on the optimism within the non-oil business sector. However, questions arise regarding the government’s ability to deliver on its ambitious projects, including the expected addition of hosting the FIFA World Cup in 2034, amidst the ongoing struggle to attract foreign direct investment.
Vision 2030: Transforming Dreams into Reality
The narrative of Saudi Arabia’s shift towards a diversified economy under Vision 2030 is becoming well-known. Landmark achievements such as lifting bans on cinemas and women drivers, the partial public offering of Saudi Aramco, and launching significant domestic projects underscore the nation’s commitment to change.
According to Simon Williams, chief economist for central and eastern Europe, the Middle East, and Africa at HSBC, “The scale of reforms in Saudi Arabia over the past five years is unmatched in the region.” These reforms, encompassing policy-making, social norms, and investment environments, are expected to significantly boost non-oil growth.
The labor market in Saudi Arabia remains robust, with three million individuals joining since the pandemic, and unemployment rates reaching a 25-year low. Despite rising geopolitical tensions, the non-oil economy has remained resilient, as evidenced by the country’s Purchasing Managers Index, which indicates sustained growth.
Naif Al-Ghaith, chief economist at Riyad Bank, highlights the surge in business activity and demand, stating, “The dynamic marketplace is responding to growing consumer needs, with companies gaining more flexibility to invest in operations and workforce.”
Public Investment and Future Challenges
As Saudi Arabia continues its economic reform journey, the sustainability of these reforms remains a topic of discussion. The Public Investment Fund, with its $940 billion portfolio, plays a crucial role in driving development. However, questions about the future of female workforce participation and the reliance on public spending arise.
The execution of Saudi Arabia’s flagship projects, such as the Red Sea development and Neom, presents significant funding challenges. The state’s heavy involvement has increased risks, especially if costs rise or oil prices drop. Simon Williams notes, “The scale of these projects presents a management challenge for a centralized governing system.”
Recent additions to Saudi Arabia’s ambitious plans include hosting the World Expo in 2030 and being the sole bidder for the FIFA World Cup in 2034.
Attracting Foreign Direct Investment
Saudi Arabia has been actively working to attract foreign direct investment, a key pillar of Vision 2030. The introduction of new legal frameworks, such as the 2018 bankruptcy law and the civil code, aims to create a business-friendly environment for global investors. However, the real test lies in the practical application of these laws.
The “project HQ” initiative, requiring multinational companies to establish regional headquarters in Saudi Arabia to secure government contracts, has already attracted firms like PepsiCo and Boeing. Nevertheless, FDI inflows remain below targets, challenging the kingdom’s ambitions.
James Swanston, a Middle East economist at Capital Economics, points out, “The business environment remains relationship-driven, which can deter foreign companies compared to the UAE.”
There are concerns about the progress of major projects like The Line, with reports indicating scaled-back ambitions. Swanston warns, “Without further efforts to attract foreign investment, the burden will increasingly fall on the state and the Public Investment Fund to finance Vision 2030.”
