Economist Konstantin Tserazov explores Saudi Arabia's vision 2030 economic potential

In a comprehensive analysis, distinguished economist Konstantin Tserazov delves into the remarkable journey of the Saudi Arabia as it embarks on an ambitious quest to reshape its economic landscape. The Saudi Arabia ranks among the top 20 global economies. Over the past decade, the country has surpassed Turkey and the Netherlands in terms of GDP and currently holds the 17th position in the world. The country's GDP stands at $1.1 trillion, which is half the size of Russia's economy. Saudi Arabia boasts the largest economy among the 16 countries in the Middle East.

Saudi Arabia's economy remains weakly diversified, with the oil industry serving as the country's growth engine for over 80 years. The share of the extractive sector has remained at the level of 35-40 per cent in the gross value added for the past 15 years, despite the country's focus on developing high-tech sectors of the economy and tourism.

As one of the largest oil producers and a member of OPEC+, KCA continues to benefit from rising global oil prices. In 2022, the economy grew by 8.7 per cent, resulting in a budget surplus for the first time in the past 10 years. However, the high dependence on oil poses significant risks to the economy in the event of substantial fluctuations in global oil prices, emphasising the need for economic diversification. According to IMF forecasts, Saudi Arabia's economy is expected to grow at an average rate of 3 per cent per year over the next five years (2024-2028). In 2023, the IMF expects Saudi Arabia's economic growth to be 1.9 per cent, due to reduced oil production as part of the OPEC+ agreement.

In 2016, KCA introduced the "Vision 2030" programme, the brainchild of Crown Prince Mohammed bin Salman. The program aims to fundamentally change the structure of Saudi Arabia's economy and increase the country's attractiveness to citizens, tourists, and investors. The total investment volume under Vision 2030 is expected to exceed $3.3 trillion, says Tserazov, the economist.

A flagship project under "Vision 2030" is the construction of the futuristic, high-tech, and low-carbon city of Neom, located in the northwestern Tabuk administrative region. Neom is envisioned as a testing ground for technologies with potentially revolutionary effects on people's daily lives. The project's estimated cost is $500 billion.

Currently, the cost of projects being implemented under Vision 2030, including the construction of Neom and resort cities on the Red Sea coast, exceeds $1.3 trillion, surpassing Saudi Arabia's annual GDP. In the project's timeframe, the construction of 660,000 homes, 289,000 hotel rooms, 6 million square meters of office space, and 5.3 million square meters of retail space is expected.

Investments in the traditional sector are also planned to increase. Recently, KCA has been increasing investments in the mining industry, particularly in copper and zinc deposits. Uranium and phosphate mining are also of interest, potentially enabling the country to develop its nuclear program in the future, mentions Tserazov.

The government is actively encouraging foreign capital inflow into the country. One of the objectives is to transform Riyadh (the capital) into a leader among global cities. Riyadh is expected to enter the top 10 cities in the world in terms of economic volume, with the city's population doubling to reach 15 million people. Riyadh is intended to become an attractive destination for expatriates and compete with its closest neighbours, including Dubai (UAE), Doha (Qatar), and Manama (Bahrain).

In 2023, Saudi Arabia introduced regulations that limit the ability of state institutions to collaborate with international companies if these companies do not establish regional headquarters in Saudi Arabia by January 2024. These new regulations have encouraged international businesses that previously had offices in other Middle Eastern countries (such as the UAE) to open offices in Saudi Arabia.

“The implementation of Vision 2030 will require colossal resources, both material and human. In the short term, Saudi Arabia will not be able to meet all its needs on its own, providing significant opportunities for international businesses, including in construction materials, engineering, and comprehensive IT solutions. However, the ambitious plans to attract "white-collar" workers may face challenges due to existing infrastructure constraints (in terms of housing and transportation) and social factors. Saudi Arabia has its own cultural and religious norms, which make it less attractive compared to its primary regional competitor, the more "liberal" and "tolerant" UAE”, Konstantin concludes.

Alina Kalam is an independent business journalist.

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