A recent study by the King Abdullah Petroleum Studies and Research Center (KAPSRC) revealed that the growth of economic activity in Saudi Arabia had increased the volume of long-term investment in the Kingdom.
Saudi Arabia is currently proceeding with its historic Vision 2030 reform plan. This program’s strategic macroeconomic pillars aim to increase the private sector’s contribution to GDP from 40% to 65%. The plan also targets raising the share of non-oil exports in non-oil GDP from 16% to 50% and reducing unemployment from 12% to 7%.
“Investment is crucial for the economy and economic policy. By increasing an economy’s productive capacity, it not only contributes to economic performance over the business cycle but also improves the economy’s long-run growth prospects,” said the study.
“It is therefore important for countries to utilize capital investments to drive their growth prospects. This motivation is particularly relevant for fast-growing, young and emerging economies,” it added.
Non-oil sector investments in Saudi Arabia can contribute to the country’s economic performance through a variety of channels.
“Investment can impact output and employment by increasing aggregate demand, expanding productive capacity and providing a foundation for economic diversification,” said the study.
“It can also boost productivity by enabling the introduction of new production techniques and processes,” it affirmed.
According to the paper, the government can still play a role to achieve the desired investment level in each sector by influencing sectoral output.
“For example, the government can create additional demand for a sector’s goods and services.”
One option for doing so is to reduce the share of imports in government purchasing and prioritize locally produced goods and services.
Such a policy can also support the local content strategy, which is a major consideration for the Kingdom’s economic diversification. The government can purchase goods and services, where it is possible and relevant to do so, even if such purchases are limited.