BrazilSaudi Arabia needs to accelerate non-oil revenues to meet Vision 2030
Over the past decade, Saudi Arabia has made large strides in its transition from an oil-reliant economy to other non-oil income streams. According to a new report by Strategic Gears, though, if the Kingdom is to meet the Vision 2030 target, non-oil revenue needs to accelerate even further.
In 2016 the rulers of Saudi Arabia unveiled their ambitious long-term strategy for the Kingdom, known as ‘Vision 2030’.
With the price of oil having been volatile around the time, like many of the GCC nations, Saudi Arabia had been exposed to economic disruption, and with the world transitioning away from fossil fuels, the decision was made to broaden the country’s exports and income possibilities to other necessary avenues like transportation and entertainment.
In the years since, this economic diversification campaign has proven to be beneficial – not least because oil prices took another massive hit during the ongoing pandemic. For example, China is one of Saudi Arabia’s largest oil importers, but because of the pandemic’s impact on travel, demand for oil from China drastically decreased.
The Kingdom’s oil exports to the rest of the world also declined for similar reasons – seeing GDP shrink. Even with oil prices having rebounded massively since the past two years show how the reliance on oil and gas can be highly challenging to Saudi Arabia’s economy and its public finances.
Fortunately, a new study from Strategic Gears shows that Vision 2030 is already proceeding at pace. The researchers found that non-oil revenue as a proportion of expenditure has grown rapidly since 2016 – now accounting for around one-third of it. Meanwhile, the proportion of total revenue from non-oil activities in the Kingdom’s economy has almost doubled. Between 1970 and 2014, it stood at under 20%, but now non-oil revenue accounts for just short of 40%.
However, the study from Strategic Gears suggests that while progress has been good – the Kingdom must accelerate its 2030 efforts further if it is to meet its original targets. Over the next eight years, this would mean non-oil revenue must grow at a CAGR of 11.6% per year – or an additional SAR69.7 billion annually from 2021 levels.
While Saudi Arabia is enjoying higher levels of non-oil tax revenue than the rest of the GCC according to the Strategic Gears report, the Kingdom is still far from being a leader on the global stage though, with other oil-exporting countries including Algeria, Kazakhstan and Mexico among those are enjoying higher income from non-tax activities.
One way which Saudi Arabia may turn this tide is by bolstering its tourist trade. The report also highlights benefits to be reaped from deploying privatisation and public-private participation (PPP) initiatives.
Saudi Arabia has identified 59 initiatives to earn SAR 143 billion in non-oil income through asset sales and PPPs by 2025, while the government’s 2022 budget also indicated plans to offer privatisation opportunities in several areas, including water desalination, health, housing, and media, and support public-private sector collaboration.
“Since the launch of Vision 2030, progress has been promising, but there is still some way to go as the Kingdom continues to establish sustainable economic growth independent of oil revenues and focuses on increasing the share of non-oil income,” concludes the report by Strategic Gears.
