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KSA’s Economy Grows as it Diversifies

Published

2 years ago

30th September 2023

Huda

KSA’s economy is transforming as it implements reforms to reduce oil dependence, diversify income sources, and enhance competitiveness.

Sustaining growth in private non-oil investment requires maintaining the reform momentum and sound macroeconomic policies. KSA’s economy is transforming as it implements reforms to reduce oil dependence, diversify income sources, and enhance competitiveness.

This year marks an important juncture as the midpoint of Saudi Arabia’s ambitious Vision 2030 journey.

The most notable indicator of success has been non-oil growth, which has increased since 2021 and averaged 4.8% in 2022, according to the most recent IMF annual evaluation of the nation’s economy. Despite lower overall growth reflecting additional oil production cuts, non-oil growth will remain close to 5 per cent in 2023, spurred by strong domestic demand.

KSA’s economy is transforming as it implements reforms to reduce oil dependence, diversify income sources, and enhance competitiveness.

Improvements in the commercial and regulatory environments have fuelled diversification. As a result of a new set of laws to promote entrepreneurship, protect investors’ rights, and reduce the costs of doing business, new investment deals and licences grew by 95 per cent and 267 per cent in 2022, respectively.

In addition, the Saudi Investment Fund (PIF) has been deploying capital, including to help stimulate private sector investment.

KSA’s economy is transforming as it implements reforms to reduce oil dependence, diversify income sources, and enhance competitiveness.

Charting the course ahead

Strong domestic demand, especially from private non-oil investment, has fuelled the economy’s non-oil expansion. Sustaining this performance requires pursuing sound macroeconomic policies and maintaining the reform momentum, irrespective of developments in oil markets.

Challenges ahead include making sure large projects generate returns and boost productivity, which are vital for sustained economic growth and will help further diversify the KSA’s economy. There is a need to continue the ongoing efforts to foster a more conducive environment for innovation and invest in workforce skills that complement the diversification agenda.

Streamlining fees and taxes faced by businesses—particularly at local and city levels—will further boost private sector development. The PIF’s growing role in the economy should continue to stimulate private-sector investment.

Lastly, rigorous monitoring and evaluation can help minimise risks from targeted interventions and industrial policies, ensuring that these policies (which are not a substitute for broader structural reforms) attain the intended benefits.