A range of developments contributed to making 2019 an overall positive year for Saudi Arabia.
One of the most significant events was the initial public offering (IPO) of state-owned energy giant Saudi Aramco, the largest in history.
Shares in Aramco were listed on the Saudi Stock Exchange (Tadawul) in December 2019. The first day of trading lifted the company’s valuation from a previously estimated $1.7trn to $1.9trn, putting it well above Apple, the world’s next-largest company with a current market capitalisation of around $1.1trn. Aramco has since hit a valuation of more than $2trn, which was the initial target.
While the IPO was successful, some concerns were expressed that the majority of investment came from within Saudi Arabia and other Gulf countries. This may have an impact on the long-term sustainability of the initiative.
Meanwhile mounting regional tensions loomed large for the Kingdom in 2019, with Saudi Aramco subject to attacks on its facilities at Abqaiq and Khurais. While on-site damage was quickly fixed by the company, the incident led credit ratings agency Fitch to downgrade the country’s credit score from “A+” to “A”.
The World Bank put the country’s annual GDP growth at 1.7%, with this forecast to rise to 3.1% in 2020.
See also: The Report – Saudi Arabia 2019
Hydrocarbons fuel diversification
Saudi Arabia is the world’s second-biggest producer of oil – behind only the US – and biggest exporter. In 2019 oil and gas accounted for half the country’s GDP and around 70% of its export earnings.
This dominance of hydrocarbons was a key factor behind the creation of Vision 2030, the socio-economic reform plan launched in 2016 aimed at diversifying the Kingdom’s economy away from an overreliance on hydrocarbons and towards sectors such as manufacturing, industry, entertainment, tourism and ICT.
Saudi Arabia’s Public Investment Fund (PIF) has been tasked with spearheading many of the reforms and projects associated with Vision 2030. Vision 2030 also promotes the privatisation of public services and government-owned assets in areas such as transport, utilities and education, in order to secure more foreign direct investment (FDI).
Indeed, a key tenet of the plan is to drive foreign investment into the Kingdom, and in October some $15bn in agreements were signed at its Future Investment Initiative Conference, its annual investment forum in Riyadh. These deals spanned energy, transport and manufacturing, and are set to notably increase FDI inflows.
In the same month the Red Sea Development Company announced it was seeking a loan of more than SR10bn ($2.7bn) from local banks to help finance new tourism projects, in addition to equity provided by the PIF. Initiatives include creating a special economic zone on the Red Sea coast with its own regulatory framework and entry visas, designed to incentivise foreign players to invest.
October also saw a visit from Brazilian President Jair Bolsonaro, with the Kingdom announcing it would invest up to $10bn in projects in the South American country. Bolsonaro hopes to see the funds directed to the oil and gas, infrastructure, sanitation and tourism sectors.
Diversification efforts thus continue to underpin the Kingdom’s economic development plans, driven by a focus on FDI and investment abroad. However, these efforts are themselves underwritten by hydrocarbons-based income, and oil exports remain the backbone of the economy.
Concerted efforts in target sectors
Although hydrocarbons continue to dominate the Kingdom’s economic profile, several non-oil sectors witnessed growth in 2019, which is set to continue into 2020.
With tourism and entertainment emerging as focal points of diversification efforts, Saudi Arabia is now also working to enhance its position as a sporting destination. The country hosted a series of high-profile events in 2019 including the Clash on the Dunes boxing match in December, and the Spanish Super Cup, which took place in Riyadh in January.
The business and events segment is also expanding, with the G20 Leaders’ Summit to be held in Riyadh in November.
ICT is highlighted as another area that can drive economic diversification, both as a growth industry itself and to boost productivity in other sectors. The ICT Strategy 2019-23 was launched in August 2019 and lays out plans to expand the sector by 50%, as well as to increase Saudi participation in the industry by 50% before the end of the term.
The strategy is set to drive technical innovation, attract international companies and give rise to a robust ICT ecosystem, which it is hoped will contribute over $13bn to the economy in the five years of the plan.
Furthermore, research and development is being promoted within the Kingdom’s start-up market, while e-commerce, digital education, digital health care, industry 4.0, smart cities and e-government services stand to benefit from increased local and foreign investment.
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