The Rise of Saudi Arabia: Competitive Advantages

Part 1 of 1

This is the first part of our series on the rise of Saudi Arabia. This five-part series will review the kingdom’s competitive advantages, its vision to grow and diversify its economy, and outline a framework to create successful business and trade relationships with the country.

The Kingdom of Saudi Arabia (KSA) has the 19th largest GDP in the world and is the 13th largest country by landmass. KSA holds the second-largest amount of oil reserves in the world at 16%, second only to Venezuela’s 18%. In 2018, KSA was ranked the No. 21 exporter in the world; fuel comprises over 62% of those exports.

Key Facts About the Kingdom

Economic

• As of October 2020, KSA was the largest economy in the Middle East and the 19th largest in the world.
• KSA produces 40% of the world’s oil supply.
• By landmass alone, Saudi Arabia is the 13th largest country in the world.

Demographic

• As of 2013, 50% of the population was under 25 years of age.
• The country is home to more than 34 million people.
• Over 30% of the country’s inhabitants are from outside the country.

Cultural

• Home to Makkah, the holy city of Islam.
• Islam is the state religion of Saudi Arabia.
• Cultural changes of the 2010s included women’s suffrage and allowing non-religious tourism.

KSA’s Competitive Advantages

Oil Is Not the Only Determinant of KSA’s Economic Power

Saudi Arabia has already started to diversify outside of oil production. The figure below shows resilient growth despite volatility in oil prices. This is a result both of diversification efforts and the high volume of oil available in the state.

KSA’s GDP continues to grow despite oil price fluctuations. This is due to the volume of oil the country produces, which makes it less price sensitive. KSA has been steadily diversifying its economy and will continue to do so into 2030. Energy prices are historically volatile; KSA’s ability to grow through these cycles is an indication of the kingdom’s successful economic diversification.

A Low Debt-to-GDP Ratio Creates Liquidity for Government Spending on Growth

KSA’s debt-to-GDP ratio is lower than countries similar in size. It is approximately 20% compared to nearly 100% for economies like the USA and the UK, or 40% for China. This gives the KSA government liquidity to invest in public and private initiatives in the foreseeable future.

Brazil, Yemen, and Malaysia all have ratios nearly twice as high as KSA’s. Only the UAE matches KSA’s low debt-to-GDP ratio, though not its size. Based on KSA’s Vision 2030, the following industries are expected to experience the most growth:

A Vision to Diversify

The Saudi Vision 2030 is a framework to reduce Saudi Arabia’s dependence on oil and diversify its economy. The framework’s goals include reinforcing investment activities, increasing non-oil trade, promoting a more secular image of the kingdom, and increasing military spending. The goals are expected to create alternative sources of revenue for the government, such as taxes, fees, and income for the sovereign wealth fund. Another major component of KSA’s Vision 2030 is to increase private sector participation and provide more employment opportunities.

Several Gulf Cooperation Council (GCC) countries have similar plans, such as the Kuwait Vision 2035, UAE Vision 2030, and the Qatar National Vision 2030. Since KSA has only recently become a more accessible economy, J&A expects it will propel into a boom of economic growth beyond its GCC counterparts.

KSA is uniquely positioned among all Arab countries to become an increasingly dominant player in the geopolitical scene. Its liquidity, GDP size, young population, and commitment to economic diversification are all evidence of this. The next three parts of this series will analyze the country’s Vision 2030 plan and how it will impact its economy and therefore business opportunities.

In the next article of our series on the competitive advantages of the kingdom, J&A will analyze a vision for 2030, reviewing trends and changes in Saudi Arabia’s travel, tourism, and hospitality industries.

Source: IAGS | The World Bank | IMF GCC Banking | IMF GCC Markets | IMF Trade and Foreign Investment | Saudi Arabia Vision 2030 | UAE Ministry of Finance | McKinsey and Company