Diversifying the kingdom: Rising oil revenues helping Saudi Arabia accelerate economic transformation
- December 1, 2022: Vol. 9, Number 11

Diversifying the kingdom: Rising oil revenues helping Saudi Arabia accelerate economic transformation

by McAlinden Research Partners

Saudi Arabia, reaping the benefits of persistently high energy prices throughout 2022, is utilizing revenues from the oil trade to expand other sectors of its economy as part of the Vision 2030 project — a major investment initiative meant to attract new business to the country; diversify away from oil; ease social restrictions; and establish a legacy of Mohammed bin Salman, the crown prince and prime minister.

Saudi Arabia is currently lining up trillions of dollars of investment in real estate and infrastructure, as well as airlines and supply chains that will facilitate greater movement of labor and capital throughout the country. The Vision 2030 plan has been in place since 2018 but was temporarily hamstrung by COVID-19 and low energy prices that were nowhere near what the country needed to address its budget.

However, international benchmark Brent crude is currently trading north of $92 per barrel, about 33 percent greater than the minimum price level Saudi Arabia will need to address its fiscal needs. Saudi Arabia registered a budget surplus of nearly $21 billion in the second quarter of 2022, an almost 50 percent rise from a year earlier. International Monetary Fund data projects Middle Eastern nations will land a $1.3 trillion windfall from extra oil revenues over the next four years.

When these revenues eventually begin to recede, research shows Saudi Arabia’s economy will be much more durable and less vulnerable to the swings in commodity markets. Measured by total gross domestic product, the kingdom’s economy is estimated to become 60 percent more resilient to oil price shocks by 2030, according to a new study by the King Abdullah Petroleum Studies and Research Center.

Saudi Arabia is on track for its fastest rate of economic expansion in nearly a decade. In that vein, Mohammed bin Salman has announced an initiative to attract investments in supply chains to and from the kingdom, with an aim of raising $10.6 billion. That raise is part of a larger goal of investing more than $133 billion into infrastructure, including airports and seaports, by the end of the decade.

Middle East Monitor notes that Saudi Arabia is already the most visited country in the Arab world, according to figures released by the World Tourism Organization, with over 18 million tourists visiting the kingdom in 2022.

Perhaps the largest project Saudi Arabia is focusing on is Neom, a new developmental region along the northwestern coast of the Arab peninsula, built on an expanse of land the size of Belgium. The key subproject of Neom is The Line, two parallel skyscrapers that cut through the Arabian desert for 105 miles, meant to accommodate 9 million people on a footprint of just 21 square miles. Two additional pieces of Neom will be Trojena, a mountain destination meant to offer year-round outdoor skiing and adventure sports, as well as Oxagon, another futuristic residential area in Neom that will function as a port city in the Red Sea.

Investors can gain exposure via the iShares MSCI Saudi Arabia ETF (KSA), which has gained 7 percent through the end of October.

This story was excerpted from a report by McAlinden Research Partners. Read the full report here.

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