Economic diversification is key to the growth of Saudi Arabia’s economy
23/06/21
Economic diversification is key to the development of the Kingdom of Saudi Arabia and the diversification of the economy. It is expected to have positive effects which will lead to long-term benefits for the country.
The latest statistics show that the country is continuously diversifying the sources of income. In 2020, the non-oil gross domestic product (GDP) accounted for 59% of the total GDP compared to 55% in 2016. The private sector GDP increased from 39% in 2016 to 41% in 2020.
This increase is related to significant government spending and the provision of additional opportunities for the private sector. The most prominent of these changes are enhancing financial sustainability, raising spending efficiency, developing the financial sector and privatisation.
At the same time, the government is progressing with a series of mega projects in vital areas. These include projects in renewable energy, technology, education, logistics and logistics support as well as entertainment and recreation. Tourism will be another driver and recent developments include eco-tourism in the Red Sea, recreational tourism and more capacity to accommodate religious pilgrims.
The Fiscal Balance Program (FBP) suggests that non-oil revenues have grown from SAR 166 billion (USD 44.3 billion) in 2015 to SAR 369 billion (USD 98 billion) in 2020. The program raised the level of financial planning, the quality of budget performance and helped the Government Expenditure & Projects Efficiency Authority in achieving SAR 430 billion (USD 115 billion) in cost savings. Furthermore, the value added tax (VAT) increase from 5% to 15% will add significant revenue while the government owns other sizeable revenue generating assets inside and outside of the country.
Privatization plans have provided more than 160 opportunities across 16 key sectors which include the municipality, housing, health, education, environment, water, agriculture, labour, communication, information technology, media, sports, industrial and mining.
The financial sector has seen the implementation of numerous initiatives. For example, the Financial Sector Development Program increased small and medium enterprise (SME) financing which in turn helped 611 SMEs to secure SAR 642 million (USD 171 million) in funding. The country opened up the Saudi Stock Exchange (Tadawul) which appears in global market indices like the MSCI, S&P Dow Jones and the FTSE Russell. In addition, a derivatives market was launched and the volume of trading in the secondary domestic bond market exceeded SAR 70 billion (USD 18.6 billion) in 2020 compared to SAR 10 billion (USD 2.66 billion) in 2019.
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