In its most recent report, the Arab Gulf States Institute in Washington reveals that Saudi Arabia's diversification efforts are bearing fruit, while also underscoring the enduring signs of progress within the Kingdom.
The report's author, Tim Callen, former assistant director in the Middle East and Central Asia department at the International Monetary Fund, says that countries who are as heavily reliant on oil exports as Saudi Arabia have found economic diversification very difficult, stressing however, that only few "have approached the challenge with such strong political commitment, such a comprehensive plan, and the vast resources to finance the needed investment as Saudi Arabia."
Callen says that the Saudi government has implemented an impressive list of economic reforms under Vision 2030, including improving the business climate and legal framework. He also highlighted how the Kingdom worked on reducing restrictions on women’s employment, strengthening domestic capital markets, reducing energy subsidies, and developing new sectors of the economy, such as tourism.
"Evaluating progress across four dimensions – exports, output, government revenue, and employment – reveals that, although oil remains a dominant force in the Saudi economy, the kingdom’s diversification efforts appear to be starting to bear fruit."
- Exports The report says oil (crude and refined products) still dominated the Saudi economy in 2022, accounting for 74% of total exports of goods and services, but this is well below the 84% average share in 2012-13. Most of the decline in the share of oil in Saudi exports is due to the expansion of petrochemical exports and tourism.
"The share of petrochemicals rose from 9% of goods and service exports in 2012-13 to 12% in 2022. Travel exports (what Saudi Arabia receives from non-nationals visiting the country) increased from 2% in 2012-13 to 5% in 2022," it added.
- Output
The private sector’s share of the kingdom’s nominal gross domestic product grew from 37% in 2012-13 to 39% in 2022. The non-oil sector, which includes the public and private sectors, made up 56% of GDP in 2022, up from just under 52% in 2012-13. Correspondingly, the private sector’s share of GDP in real terms (after adjusting for price effects) was 41% in 2022, compared to 39% in 2012-13.
- Govt. Revenue
The report notes that Saudi Arabia hwe achieved substantial advancements in diversifying the channels of government budget revenue, saying "non-oil revenue rose to 32% of total government revenue in 2022, up from less than 10% in 2012-13. The introduction of the value-added tax in 2018 and the rate increase from 5% to 15% in 2020 have provided most of the boost to non-oil revenue."
- Employment
Saudi workers accounted for 23% of total employment (Saudi and non-Saudi) in the private sector at the end of 2022, compared to 16% in 2016 (the earliest year for which data is available). The share of Saudi workers identified as employed in the public sector fell to 42% at the end of 2022, down from 45% in 2016.
The report stressed that Saudi Arabia’s diversification efforts "do seem to be bearing fruit, with progress in all four areas considered."
"Looking forward, continued progress with economic diversification will require the deepening of ongoing reforms and their consistent implementation to raise productivity in the economy."
