With the recent push towards greater private sector participation, the economy has been diversifying away from oil and towards other sectors such as IT, telecommunications, healthcare, tourism, and finance. Saudi leaders hope this will lead to more sustainable growth and allow the economy to build a future without oil dependency.
Despite the inevitable economic fallout of the recent global pandemic, this strategy has been working well so far. The Saudi economy grew by 6.7% in the last quarter of 2021, while the global economy grew by 5.5% across the same year. In total, the Saudi economy grew by 3.2% in 2021, which represents its biggest GDP jump in seven years and projections indicate an even stronger future performance.
A Robust Post-Pandemic Recovery
While the global pandemic caused an initial hit to the Saudi economy, it also triggered a period of rapid innovation. The Saudi government has been laying the foundation over the past six years to transform the nation into a regional hub of technological development and progress, and the pandemic gave the industries an extra push to digitise their operations.
This is evidenced by the growing number of startups and tech unicorns in the Kingdom, as well as the recent investment from global tech giants such as Amazon and Google. These companies are drawn to Saudi Arabia's vast market potential, skilled workforce, and increasingly business-friendly environment.
The pandemic also created opportunities for Saudi Arabia to improve the condition of its supply chains. With the rise in e-commerce and online shopping, there is a growing demand for logistics and fulfilment services. The Kingdom is well-positioned to take advantage of this, with its strategic location at the crossroads of East and West, and its ports and airports that are already handling large volumes of trade.
Despite the long-running lockdowns and restrictions, the Kingdom has also managed to lower its unemployed numbers at an impressive rate, bringing them down to pre-2009 levels. It's now predicted that Saudi's economic growth will more than double in 2022, thanks largely to higher-than-expected growth in the oil sector.
GCC Economies Are Beginning To Pick Up Speed
Saudi’s GCC neighbours Qatar, Bahrain, Oman, and Kuwait were all hit hard by the pandemic and the resulting restrictions. However, a gradual recovery is in progress and all four countries are expected to see their economies grow in 2022.
Qatar, one of the richest countries in the world per capita, and the third-largest gas exporter met the pandemic head-on with a strong vaccination program. The result has been a timid but progressive economic recovery. And thanks to a number of serendipitous factors, they are projected to experience strong economic growth in 2022 at a rate of 4.8%. The main contributors to this growth will be the continuing elevated gas prices, as well as the FIFA World Cup set to take place in Qatar in December 2022.
Saudi's smallest neighbour, Bahrain, experienced a 5% contraction during the start of the pandemic in 2020, and recovery now looks to largely hang on the future of hydrocarbon prices. Meanwhile, Kuwait is expected to rebound by 5.3% in 2022 despite a widening fiscal deficit of $35.5bn. The UAE is also on a positive track, eying up a 6% GDP increase in 2022. UAE leaders have stated that they hope to double the economy from Dh1.4 trillion ($381 billion) to Dh3tn over the course of the next seven years.
In the context of its local economic region, Saudi Arabia is on par with or ahead of its neighbours in terms of GDP growth. When compared to the global economy, it falls a little behind but is still expected to have a strong showing in the coming years. The Saudi government has been quick to adapt and adjust its policies in response to the pandemic, and this agility is expected to serve the Kingdom well shortly. Thanks to several key reforms, Saudi Arabia is well-positioned for sustained long-term growth. Additionally, the Kingdom's focus on attracting foreign investment and developing key industries such as technology and tourism is sure to bring even more opportunities for prosperity.