Saudi Arabia's economy seven years after Crown Prince Mohammed's appointment

Mohammed bin Salman became Crown Prince in June 2017 and has since transformed the kingdom's economy and its social fibre

Mohammed bin Salman, then Deputy Crown Prince of the kingdom, at a press conference in Riyadh to announce the Vision 2030 programme in April 2016. AFP

Crown Prince Mohammed bin Salman has pushed forward with an expansive fiscal policy since his appointment on June 21, 2017, helping to turn the Saudi Arabian economy into one of the fastest growing in the G20.

The Crown Prince, who served as the chairman of the Council for Economic and Development Affairs, has helped spearhead groundbreaking moves such as the listing of Aramco, the world’s biggest oil producing company, and the launch of the futuristic city of Neom.

The kingdom’s Council of Ministers tasked Ceda with identifying and monitoring the mechanisms and measures that are crucial for the delivery of the country's Vision 2030.

Expanding the country’s industrial base, creating jobs, increasing women’s participation in the labour force, boosting foreign direct investment and broadening the kingdom’s financial markets are among the main pillars of the vision.

The National Centre for Performance Measurement, the Delivery Unit, and the Project Management Office of the Ceda are the bodies overseeing the delivery of vision-related schemes, which according to public estimates could cost Riyadh at least $1 trillion to complete.

The kingdom has delivered on many aspects of the agenda and opening new sectors for FDI is among the major achievements.

In the tourism sector, Saudi Arabia is ploughing $800 billion in investments and has set a revised target of attracting 150 million visitors by the end of the decade.

Economists say Saudi Arabia, which has the world's second-largest oil reserves, began diversification away from hydrocarbons years ago.

“Saudi Arabia is still going to be dependent on oil and its public sector in 2030 but the transformation already made and still to come is undeniable and would not have happened without the Crown Prince,” says Hasnain Malik, head of emerging markets strategy at Tellimer, an investment research firm in Dubai.

Tax income adds to non-oil revenue

The kingdom implemented 15 per cent sales tax and 20 per cent tax on corporate income, however it offers tax incentives to companies that set up headquarters in the kingdom.

Tax revenue last year reached an estimated 352 billion riyals ($93.8 billion), an increase of 8.9 per cent on an annual basis. Taxes on income, profits, and capital gains climbed almost 46 per cent year-on-year to 36 billion riyals at the end of December, while taxes on goods and services rose by 5 per cent to 264 billion riyals.

Fuel subsidies represent a significant burden for the budget, according to the International Monetary Fund, which earlier this month told the kingdom to step up efforts to remove subsidies.

Though still not where the kingdom intended to be in terms of the subsidy reforms, wheels are clearly in motion.

Non-oil exports have increased by 1.5 percentage points of non-oil GDP to 14.5 per cent compared to the target of 50 per cent and much of that has been service-led, says James Swanston, Middle East and North Africa economist at Capital Economics.

Going forward, policy continuity is anticipated.

“We do not see any significant change in direction [of the economic policy] in the future as what we are seeing currently, and over the last few years, is a very gradual and smooth transformation benefitting the overall Saudi population,” says Junaid Ansari, director of Investment strategy and research at Kuwait-based Kamco.

Mega projects galore

One of the main pillars of the Vision 2030 is the development of new sectors of the Saudi economy including healthcare, sports, renewables, technology and automotive, real estate, aerospace, defence, entertainment, leisure, retail and mining.

The push, mainly powered by the Public Investment Fund and its related entities, to expand the non-oil sector has led to a flurry of megaprojects in the kingdom. From giant cubes to luxury seaside resorts the list of projects has grown quickly over the past eight years.

Some of the projects are of such scale and ambition that they are defined as giga-projects, considered “once in a generation” undertakings.

“This is evident in the projects market with contract awards seeing consistent growth since 2018 [excluding 2020, due to the Covid-19 pandemic],” Mr Ansari at Kuwait’s Kamco says.

“Contract awards in the Kingdom reached a record high of $102.1 billion in 2023 up 64.5 per cent from 2022 … [and] these contracts are spread across industries, indicating an all-round development process in the kingdom.”

The futuristic city of Neom alone has awarded contracts $237 billion in contract, while mega tourism development The Red Sea Project has awarded contracts worth $21 billion since 2017 when it was announced, according to Meed data.

PIF: driver of change

The Public Investment Fund in Saudi Arabia, one of the world’s largest sovereign wealth funds, will remain vital to the degree of success the Crown Prince will ultimately achieve in delivering his vision.

The fund with $925 billion in assets has been instrumental in carving the new path of growth.

In 2021, the PIF launched a five-year strategy, with aim of doubling assets to $1.07 trillion, invest a minimum of $40 billion a year into the domestic economy until 2025 and help create 1.8 million jobs.

Yasir Al Rumayyan, the governor of PIF at the time, said the fund will contribute $320 billion to the kingdom's non-oil economy through ten new investment sectors and setting up companies in Saudi Arabia to boost economic activity and solidify government holdings.

In March, Saudi Arabia transferred its 8 per cent shareholding in Aramco to the PIF to boost its assets. The stake was worth roughly $163.6 billion based on Aramco shares price at the time.

The market expects Riyadh to further sell down its shareholding in the world’s biggest oil producing company to continue funding its ambitions.

Recalibrating the vision

Although there is strong commitment to delivering key projects, changing economic realities and the sheer scale of the financial commitment needed have required Riyadh to revisit its strategy.

In April, Saudi Arabia’s Finance Minister Mohammed Al Jadaan said the kingdom would adapt to current economic and geopolitical challenges and “downscale” or “accelerate” some of the projects.

Saudi Arabia had to “mark-to-market” its expectations regarding the goals of the 14-year long programme, the minister said.

There is no clarity as to which elements of the vision will be scaled down or if the government plans to delay the delivery of projects such as the 170km-long The Line.

Riyadh aimed to accommodate 1.5 million residents within The Line, the linear smart city under construction in Neom, in the kingdom's Tabuk province. Officials now expect only 2.4km of the project to be completed by 2030.

“A lot of the targets have been overdelivered, there are challenges obviously, and this is why I said we don't have any ego. We will change, we will adjust or extend some of the projects. We will downscale some projects and accelerate others,” Mr Al Jadaan said.

The change in the country’s social fibre is already palpable.

From a buzzing entertainment industry with rapid growth in the network of cinemas and music festivals across the kingdom, to women allowed to drive, the easing of female travel restrictions and a sharp increase in the rate of their participation in labour force – these are all signs of the change that the Crown Prince has led.

“Social and cultural changes have probably seen the far more dramatic changes,” says Mr Swanston.

Analysts say the transformation in the kingdom was a necessary and perhaps long overdue. There are still a few years left before the turn of the decade and there is room to improve more but the progress achieved so far, especially on the social front, has reached all sectors of society.