Non-oil sectors and government activities drive growth, showcasing Saudi Arabia’s economic progress despite a slowdown in the oil sector

Saudi Arabia’s economy continues its robust march towards diversification, as revealed by the Ministry of Investment’s Economic & Investment Monitor for the second quarter of 2024. The report paints a picture of an economy in transition, with non-oil sectors compensating for a slowdown in oil activities. This reflects significant Saudi Arabia economic progress, highlighting the country’s efforts to build a more balanced and resilient economic structure.

Despite a 0.4% year-on-year decline in real Gross Domestic Product (GDP) due to an 8.5% drop in oil activities, the Kingdom’s non-oil and government sectors showed impressive growth. The General Authority of Statistics (GASTAT) estimates a 4.4% increase in non-oil activities and a 3.6% rise in government activities during Q2 2024.

This growth aligns with the International Monetary Fund’s (IMF) projections, which forecast Saudi Arabia’s GDP to expand by 1.7% in 2024 and accelerate to 4.7% in 2025. These figures underscore the Kingdom’s economic resilience and successful diversification efforts.

Trade indicators further highlight the economy’s strength. Non-oil exports rose by 3.3% in Q1, reaching SAR69.8 billion ($18.6 billion), with May 2024 showing an impressive 8.2% jump compared to the previous year. Imports also increased by 6.4% in Q1, totalling SAR201.1 billion ($53.6 billion).

Consumer spending indicators point to growing domestic economic activity. Saudi Central Bank (SAMA) data for June 2024 revealed a 5.9% year-on-year increase in Point of Sale (PoS) transactions and a 9.7% rise in SADAD payments.

The most striking figure in the report is the surge in investments. The Gross Fixed Capital Formation (GFCF) reached an impressive 31.3% of GDP in Q1 2024, totalling SAR318 billion ($84.8 billion). This metric, indicating new value added to the economy through investment, signals strong confidence in Saudi Arabia’s economic future. This remarkable investment growth underscores Saudi Arabia’s economic progress and the country’s increasing appeal as an investment destination.

Foreign Direct Investment (FDI) also showed positive trends, with inflows increasing by 0.6% year-on-year in Q1 2024, despite global geopolitical tensions and high interest rates. The FDI stock grew by 1.2%, further solidifying the Kingdom’s position as an attractive investment destination.

The Saudi stock market, Tadawul, continues to perform well. The Tadawul All Share Index (TASI) closed Q2 2024 at 11,680 points, marking a 1.9% year-on-year growth. This performance places it 9th globally in terms of market valuation, with a total market capitalization of SAR10.1 trillion ($2.7 trillion), up 7.8% year-on-year.

Notably, eleven new companies were listed during the period, and the market saw increased diversity in its investor profile. GCC investors’ ownership increased by 21.2% during the quarter, while foreign investors’ ownership rose by 7.1%.

Perhaps most encouragingly, the unemployment rate has fallen to 7.6%, indicating that the Kingdom’s economic growth is translating into job creation and opportunities for Saudi citizens.

As Saudi Arabia progresses towards its Vision 2030 goals, these economic indicators demonstrate the Kingdom’s successful efforts in diversifying its economy, attracting investments, and creating jobs. The growth in non-oil sectors, coupled with strong investment figures and declining unemployment, suggests that Saudi Arabia is well-positioned to navigate global economic challenges and emerge as a leading economic power in the region. These trends are a clear testament to Saudi Arabia’s economic progress, highlighting the substantial advancements made and reinforcing the Kingdom’s evolving economic strength.

Analysis

Political: The latest economic indicators from Saudi Arabia carry significant political implications, both domestically and internationally. The strong performance of non-oil sectors and the decline in unemployment to 7.6% provide substantial political capital for the current leadership, validating their Vision 2030 strategy.

Domestically, these figures may boost public confidence in the government’s economic reforms. The creation of jobs and the growth in non-oil sectors demonstrate tangible progress towards the promised economic diversification, potentially strengthening social stability and political support.

Internationally, Saudi Arabia’s economic resilience in the face of global challenges enhances its geopolitical standing. The growth in non-oil exports and foreign investments positions the Kingdom as an emerging economic powerhouse beyond its traditional role in the oil market. This economic clout could translate into greater influence in regional and global affairs.

However, the slight decline in overall GDP due to reduced oil activities might raise questions about the pace of economic transformation. The government may face pressure to accelerate reforms or adjust strategies to maintain growth momentum across all sectors.

The increased diversity in the Tadawul stock market’s investor profile, with growing GCC and foreign ownership, could have diplomatic implications. It may foster closer economic ties with neighbouring countries and global powers, potentially influencing regional politics and alliances.

Social: The economic data presents a generally positive picture of Saudi society, with potential far-reaching social implications. The drop in unemployment to 7.6% is particularly significant, suggesting that economic growth is creating tangible opportunities for Saudi citizens. This could lead to increased social mobility and potentially reduce social tensions associated with joblessness. These improvements underscore Saudi Arabia economic progress and highlight the social benefits emerging from the Kingdom’s evolving economic landscape.

The growth in non-oil sectors indicates a diversifying job market, which could influence educational choices and career aspirations among Saudi youth. This shift may lead to changes in social status associated with different professions and potentially alter traditional social hierarchies.

The increase in consumer spending, as indicated by rising PoS transactions and SADAD payments, points to growing consumer confidence and potentially improving living standards. This could contribute to social stability and satisfaction with the government’s economic policies.

However, it’s crucial to consider whether the benefits of economic growth are being distributed equitably across all segments of society. The report doesn’t provide data on income distribution or regional economic disparities, which are important factors in assessing the social impact of economic growth.

The high level of investment in the economy, particularly in non-oil sectors, could lead to societal changes as new industries emerge and grow. This might result in shifts in urbanization patterns, changes in lifestyle choices, and evolving social norms as the economy modernizes.

Racial: While the economic report doesn’t directly address racial or ethnic aspects, the data has implications for Saudi Arabia’s diverse population, including expatriate workers who form a significant part of the workforce.

The decline in unemployment to 7.6% is likely to primarily benefit Saudi nationals, aligning with the ongoing Saudization efforts. This could potentially impact the racial and ethnic composition of the workforce, particularly in sectors traditionally dominated by expatriate workers.

The growth in non-oil sectors could create more diverse job opportunities, potentially benefiting various ethnic and national groups within Saudi Arabia. However, it’s important to consider whether these opportunities are equally accessible to all residents, regardless of their ethnic or national background.

The increase in GCC and foreign ownership in the Tadawul stock market suggests growing international integration of the Saudi economy. This could lead to more multicultural business environments and potentially foster greater cultural exchange and understanding within the Kingdom.

As the economy diversifies and new industries emerge, there may be shifts in the types of expatriate workers needed, potentially altering the ethnic and national makeup of the foreign workforce in Saudi Arabia.

Gender: The economic indicators presented have significant implications for gender dynamics in Saudi Arabia, although the report doesn’t provide gender-specific data. The overall decline in unemployment to 7.6% raises questions about female labour force participation and whether women are benefiting equally from job creation efforts.

The growth in non-oil sectors could potentially create more diverse job opportunities, including in fields where women have been traditionally underrepresented. This could contribute to changing perceptions of gender roles in the workplace and society at large.

The increase in consumer spending might reflect growing financial independence among women, who have gained more economic rights and opportunities in recent years as part of the Kingdom’s reforms. However, without specific data on female economic participation or women-owned businesses, it’s difficult to gauge the extent of this impact.

The high level of investment in the economy could lead to the emergence of new industries and startups, potentially providing more opportunities for women entrepreneurs and leaders. This could contribute to advancing the gender equality goals outlined in Vision 2030.

It’s crucial to consider whether the economic growth is translating into increased economic empowerment for women across all socioeconomic levels. Policies to ensure equal access to emerging economic opportunities will be vital for achieving gender equality in the evolving Saudi economy.

Economic: The latest economic data presents a nuanced picture of Saudi Arabia’s economy in transition. The growth in non-oil sectors (4.4%) and government activities (3.6%) demonstrates significant progress in economic diversification efforts, crucial for long-term economic sustainability and reducing vulnerability to oil price fluctuations.

The standout figure is the increase in Gross Fixed Capital Formation (GFCF) to 31.3% of GDP. This high level of investment suggests strong confidence in the Saudi economy’s future and could drive further growth and job creation across various sectors.

The growth in non-oil exports (3.3% in Q1, 8.2% in May) is another positive indicator, showing that Saudi products are becoming more competitive in international markets. This trend, if sustained, could help balance the Kingdom’s trade position and reduce its reliance on oil exports.

The performance of the Saudi stock market is particularly impressive. The 1.9% year-on-year growth in the Tadawul All Share Index (TASI), coupled with the 7.8% increase in total market capitalization to SAR10.1 trillion ($2.7 trillion), indicates strong investor confidence. The diversification of the investor base, with increased GCC and foreign ownership, suggests growing international interest in the Saudi market.

However, the overall 0.4% decline in real GDP, driven by an 8.5% drop in oil activities, highlights the ongoing challenges of economic transition. It underscores the need for continued efforts to accelerate growth in non-oil sectors to offset fluctuations in the oil market.

The slight increase in FDI inflows (0.6% YoY in Q1) and FDI stock (1.2% growth) is positive, especially considering the challenging global economic environment. However, there may be room for improvement in attracting foreign investment, particularly in non-oil sectors. These developments reflect ongoing Saudi Arabia economic progress and underscore the Kingdom’s efforts to enhance its appeal as a global investment destination.

The decline in unemployment to 7.6% is a significant achievement, indicating that economic growth is translating into job creation. This is crucial for social stability and the success of the broader economic transformation agenda.

Looking ahead, the IMF’s projections of 1.7% GDP growth in 2024 and 4.7% in 2025 suggest a positive outlook for the Saudi economy. However, achieving these growth rates will likely require continued reform efforts, successful implementation of Vision 2030 initiatives, and adaptability to global economic conditions.

In conclusion, Saudi Arabia’s Q2 2024 economic indicators show promising progress in economic diversification, investment growth, and job creation, despite challenges in the oil sector. The coming years will be critical in determining whether this transition can be sustained and accelerated to achieve the ambitious goals set out in Vision 2030.