Since Saudi Crown Prince Mohammed bin Salman assumed de facto control of the Kingdom, he has pledged to invigorate and diversify the nation’s non-oil sector. However, recent developments reveal a stark contrast, highlighting significant challenges and underperformance.
A new report by Fitch Solutions forecasts a deceleration in Saudi Arabia’s non-oil sector in 2024, attributing this slowdown to escalating borrowing costs and heightened corporate debt levels.
Mariette Xuhan, Senior Analyst for Middle East and North Africa Risk at Fitch Solutions, indicated in a virtual seminar on the political and economic outlook for the MENA region that the growth rate of non-oil activities in Saudi Arabia is projected to decline to 2.9% this year.
Contradicting earlier optimism, Saudi Finance Minister Mohammed Al-Jadaan, at the launch of the Future Investment Initiative in October 2023, announced a shift in focus from GDP figures to the development of the non-oil sector. He had predicted a 6% growth in this sector for the year, a forecast that has been disputed by experts.
In an interview with Asharq Newspaper, Saudi Economy Minister Faisal Al-Ibrahim emphasized the country’s aim to diversify income sources through non-oil activities. He noted that much of the economic growth in recent years under bin Salman’s Vision 2030 has stemmed from newly established sectors such as sports, entertainment, and tourism, as well as industrial development. However, experts have criticized this strategy, arguing that the emphasis on entertainment over building a robust industrial base is premature.
Looking ahead to 2025, Mariette Xuhan from Fitch Solutions suggested that the non-oil sector’s development could stabilize if the government reduces borrowing rates, which would lower borrowing costs. This would require accommodative monetary policies. Xuhan dismissed claims of economic recovery promoted by bin Salman’s media, attributing perceived improvements to increased oil production. This underscores the Kingdom’s ongoing struggle to advance its non-oil sector and reduce its dependence on oil, despite eight years of leadership under bin Salman.
Similarly, Moody’s credit rating agency has downgraded its growth forecasts for the economies of the Middle East and North Africa, including Saudi Arabia, to 2.7% for this year. This adjustment reflects a reassessment of the Saudi economy, based on the assumption that current voluntary oil production cuts will persist until the end of 2024 and only be partially lifted in 2025.
In a previous interview with Asharq Newspaper, Saudi Economy Minister Faisal Al-Ibrahim stated that the country aims to develop and expand non-oil activities to include new sources of income. He pointed out that most of the economic growth achieved by Saudi Arabia in recent years under bin Salman’s rule has come from sectors that started from scratch according to the Crown Prince’s Vision 2030, such as sports, entertainment, and tourism development. Additionally, there has been an effort to develop industrial sectors. However, experts have criticized this approach, arguing that Saudi Arabia is putting the cart before the horse by focusing on entertainment activities that are unlikely to attract tourists to its hot, barren deserts before building a strong industrial and commercial base.
Regarding non-oil activity growth rates for 2025, Mariette Xuhan from Fitch Solutions mentioned that the development of the non-oil sector in Saudi Arabia could stabilize, provided the government reduces borrowing rates, which would lower borrowing costs. This is only possible with accommodative monetary policies. Xuhan dismissed the claims of economic recovery touted by bin Salman’s media outlets, attributing any perceived recovery to an increase in oil production. This indicates that the Kingdom has not progressed in developing its non-oil sector and has not proven its gradual independence from oil after eight years of bin Salman’s leadership.
