ISPI MED This Week

MED This Week | Key Reforms Bolster Saudi Economic Diversification Agenda


The MED This Week newsletter provides expert analysis and informed insights on the most significant developments in the MENA region, bringing together unique opinions on the topic and reliable foresight on possible future scenarios. Today we place the spotlight on Saudi Arabia, which has recently displayed a vibrant economic dynamism thanks largely to the sharp rise in oil prices and production, as well as extensive pro-business reforms.

Saudi Arabia has recently accelerated its efforts to become an international business hub, by embarking upon numerous initiatives to develop its non-oil sector. In mid-April, the Saudi government announced the establishment of four new Special Economic Zones (SEZs) that will offer incentives – such as competitive corporate tax rates and flexibility in employing foreign labour – to foreign investors. In Riyadh’s view, these incentives would facilitate an increase in inflows of much-needed Foreign Direct Investments, currently set at 5.7% of the Kingdom’s GDP by the Vision 2030 strategy (which alarmingly plunged by nearly 60% from 2021 to 2022). Furthermore, SEZs’ strategic locations would allow the country to enhance its presence and competitiveness in both the African and Asian markets. Following the same economic strategy, shortly after establishing the SEZs, the Saudi government transferred 4% of the shares of energy giant Saudi Aramco to Sanabil, the venture arm of the Public Investment Fund (PIF) and a key source of investments for Vision 2030. Together with safeguarding the national economy from oil price fluctuations, this move will allow the PIF to expand the Kingdom’s investment strategy well beyond oil. Yet, despite these recent developments, Saudi Arabia remains strongly dependent upon crude oil export revenues and firmly committed to its energy sector. Since early April, Riyadh has spearheaded the OPEC+ decision to cut oil production to help support prices that recently exceeded $85 per barrel.

Experts from the ISPI network react to Saudi Arabia’s latest initiatives to enhance its economic growth.



With new SEZs, Riyadh is searching for competitiveness in Asia and Africa

On Special Economic Zones (SEZ), Saudi Arabia is late to the table, especially in regards to its Emirati neighbour: Riyadh is now rushing to progress and become competitive. In the framework of Vision 2030, the Kingdom has just inaugurated its first-ever SEZ in Riyadh, signed an agreement with Oman to build an integrated SEZ (at Al Dhahirah), and Mohammed bin Salman Al Saud announced that a further four new SEZs will soon be opened. Asia and Africa stand at the top of the expected Saudi SEZ markets as part of a South-to-South growth paradigm: highlighted by two out of four Zones will be located directly in front of the African continent, at Jizan and King Abdullah Economic City (KAEC). As its Gulf partners, but also its competitors, are catching opportunities in Africa (think of the Berbera Economic Zone in Somaliland launched by DP World in 2023), Saudi Arabia is now accelerating: this also implies a greater commitment to Red Sea security and conflicts de-escalation (Yemen; Sudan) in the sub-region.

Eleonora ArdemagniAssociate Research Fellow, ISPI

By transferring Saudi Aramco stakes, Riyadh is moving the money “from one pocket to another”

While the transfer reduces the Saudi Government’s direct ownership in Aramco to 90.18%, it’s really moving the money from one pocket to another. The main difference here is how that money will be invested, in what sectors and where. One fundamental principle of good revenue management for an oil producer is to place some of the oil money into a sovereign wealth fund which can have a mandate to safeguard the economy from oil price fluctuations and stabilise it and/or to convert the extracted resource into a portfolio of other assets that yield a sustainable flow of income for current and future generations. The Public Investment Fund (PIF) expands the investment strategy of the Saudi government well beyond oil – a key requirement for economic diversification that is at the heart of Vision 2030, the country’s first long-term reform plan launched in 2016 and backed by Crown Prince Mohamed Bin Salman. Furthermore, while the sale of Aramco’s shares has been offered only to domestic entities, the PIF can strengthen its presence within the global market. The timing of the transfer couldn’t be any better; Aramco achieved record profitability last year, which has increased its value and subsequently boosted the financial position of the PIF.

Carole Nakhle, CEO, Crystol Energy

For Saudi Arabia, moving away from a solely oil-based economy requires oil export revenues

Saudi Arabia is diversifying its economy away from reliance upon oil, however it needs to generate revenues from crude oil exports now to further drive the reform programme forward. Lower oil prices risk derailing the diversification strategy, which may be one reason it spearheaded an oil output cut with seven other OPEC+ producers on April 2. In addition, Saudi Aramco is a big cash generator for the government. Earlier this month, Riyadh tapped into Aramco’s vast profit pool by transferring 4% of the company’s shares, worth $80 billion, to a subsidiary of the Public Investment Fund (PIF). This adds to the 4% transferred previously to the PIF in 2022. As the kingdom’s economic powerhouse, Aramco’s vast revenues are crucial to realizing the Vision 2030 strategy. In 2022, Aramco posted a record $161 billion in net income as oil prices rose to a near record soon after the Russian invasion of Ukraine. This allowed the Saudi budget to post its first surplus in nine years, thanks mainly to higher oil export revenues.

Kate Dourian, Contributing Editor, MEES; Non-Resident Fellow, AGSIW; and Fellow, Energy Institute

The latest OPEC+ cuts are instrumental to Riyadh’s economic vision

An elevated oil price environment and higher oil export revenues are a boon for Saudi Arabia – pushing growth to summit a decade high. The favourable hydrocarbon pricing landscape has allowed Saudi Aramco to repair its balance sheet – reducing its gearing significantly from the high levels reached during the pandemic downturn – and boost spending in the legacy oil and gas business to expand production capacity. Rising revenues and the resulting budget surplus for the government tend to translate into more public spending – and is likely also to bolster the Kingdom’s efforts to diversify its economy away from fossil fuels.

Salih Yilmaz, Senior Equity Research Analyst, Energy, Oil & Gas, Transition, Bloomberg Intelligence


This week’s MED This Week has been edited by Francesco Schiavi 


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