Sometimes, change begets change at a speed that makes you wonder: did someone say 'energise' and something unexpected happened? That seems to be happening in Saudi Arabia, for the more it changes, the faster it changes.
With skyscrapers doing more than just scraping and the carpet of cities rolling out further and further into sea and sand, its vision of a brave new world glittering in the desert is becoming reality much faster than the tea leaves predicted.
The question is will it be able to maintain this pace of change?
According to the IMF’s progress report on Vision 2030 targets, the Kingdom is making good progress on economic diversification, regulatory reform, and enhancing competitiveness. Non-oil growth, which was hovering just below 5% during 2022 will, buoyed by domestic demand, probably remain around that level for 2023 too. Although oil still accounts for well over half of its exports, it accounted for significantly less output and GDP in the five-year period between 2017-2022 compared to 2005-2010. The GCC average for the same period remained higher. Meanwhile, the contribution of manufacturing, services and tourism to GDP is rising steadily, with the latter already at 4.5% against a Vision 2030 target of 10%.
Underpinning this accelerating rate of change are labour reforms and digitalization. Saudis now account for 42% of high-skilled jobs, up from 32% in 2016, while female employment has crossed the 30% targeted in Vision 2030 to reach 37% by July 2023.
And, while the digital sector’s contribution to GDP grew from less than 1% in 2016 to 15% by 2022, we can expect exponential growth in this space over the next few years given that the government has committed to investing 2.5% of GDP annually in research, development and innovation, to deliver US$16B in GDP growth by 2030. Artificial Intelligence (AI) alone could contribute US$135.2B or 12.4% of GDP by 2030.
How will the Kingdom maintain this momentum and how will it attract the level of investment, technological, human and capital, needed to deliver it?
In a number of ways, underpinned by regulatory and policy reform that delivers something new every week if not every day. These changes are enshrined in a National Investment Strategy. Launched in 2021 and worth US$3.3 trillion, it reimagines the drivers of Saudi economic growth replacing oil clean technology, renewable energy, metals and mining, transport and logistics and of course, ICT and digital transformation. An estimated US$1 trillion could be spent on targeted support to encourage innovation and incentives to encourage private sector contribution across these sectors.
Foreign Direct Investment flowing in through Megaprojects and Special Economic Zones combined with domestic investment in the private sector will play an outsize role in diversifying the economy, reducing its dependence on oil, opening avenues for technology and knowledge transfer as well as employment opportunities for an increasingly high-skilled workforce. SMEs for instance, have grown 179% since 2016 and now contribute around 33% of GDP against a Vision 2030 target of 35%.
A vision that was a mere twinkle in the eye in 2016, is already turning heads, with international brands and global talking heads flocking to its shores in numbers unimaginable just two years ago. As a modern renaissance story of the East, this one has only just begun.
For more about zones, strategies and visions in Saudi Arabia, the GCC and beyond, stay tuned.