On February 28, 2023, Niu Song, a researcher at the Middle East Studies Institute, Shanghai International Studies University was interviewed by China Business Network on the transformation of the Saudi economy, the full text of which is as follows.
With the fastest economic growth in the G20, where did Saudi Arabia spend all the money it made on oil?
Relying on high oil prices, Saudi Arabia became the fastest growing economy in the Group of 20 (G20) last year.
According to the Saudi General Bureau of Statistics, Saudi Arabia's gross domestic product (GDP) growth rate was 8.7 percent in 2022, beating India, which also has a fast-growing economy, to take the top spot among the G20 countries.
The economy's high growth rate cannot be separated from the contribution of high oil prices, which have not affected Saudi Arabia's overall revenue in this area, despite a fall in oil prices late last year. According to the latest announcement by the Saudi General Bureau of Statistics, Saudi Arabia's oil revenue last year was $326 billion.
Taking advantage of the high oil prices, Saudi Arabia has recently announced a series of ambitious projects, ranging from a trillion dollar ‘mirror line’ new city to building a hub for the Middle East aviation industry.
Niu Song, a researcher at the Middle East Studies Institute of Shanghai International Studies University, told China Business News that promoting the development of non-oil economy is not only an important part of Saudi Arabia's overall development strategy towards the post-oil economy, but also an important supplement to Saudi Arabia's oil economy in the current perspective. Promoting the construction of infrastructure that affects the livelihood of the nation is conducive to maintaining Saudi Arabia's stability and development.
Gulf States make big profits
With crude oil at around $70 per barrel in July 2021, the Saudi economy is expected to grow by 4.8% in 2022, according to International Monetary Fund (IMF) calculations. Following the rise in oil prices, the Saudi economy has significantly outperformed expectations.
In particular, oil prices soared above $100 per barrel in the first half of the year following the Russia-Ukraine conflict last year, significantly boosting Saudi revenues. Oil export revenues account for more than 70% of Saudi Arabia's total export earnings.
Thanks to the increase in oil revenue, Saudi Arabia achieved its first annual budget surplus in nearly 10 years. It is generally believed that the Saudi Arabia can achieve fiscal balance only when the oil price is around $75~$80 per barrel. As a result, the Saudi government can also expand fiscal spending to combat inflation and accelerate the transformation of economic diversification.
Saudi Arabia is the leader of the Organization of Petroleum Exporting Countries (OPEC), and has withdrawn from OPEC Qatar last year also in the energy sector to earn ‘full’. According to data released by Qatar's Ministry of Finance, Qatar's budget surplus for 2022 will reach SAR 89 billion, up more than 54 times compared to the fiscal surplus of SAR 1.6 billion in 2021, benefiting from high prices and demand for oil and gas.
Qatar is the world's largest exporter of LNG, with gas and oil exports accounting for more than 75% of its total exports. Since the Ukraine crisis, many European countries have seen Qatar as an important alternative to Russia, and many European countries have visited Qatar in groups to place orders for oil and gas resources, resulting in a significant increase in the volume and revenue of Qatar's oil and gas exports.
Tourism development
The excess profits gained from oil and gas are being invested in tourism and sports, two new trends in the Gulf countries, in addition to investing them in infrastructure development.
In its Vision 2030, presented in 2016, Saudi Arabia identified the recreational and tourism industry as a pillar to promote economic diversification. The Ministry of Tourism, the Tourism Authority and the Tourism Development Fund have been established to design policies and regulations, promote tourism and invest in tourism infrastructure, respectively.
Saudi Arabia has developed tourism almost from scratch, and in the past Saudi Arabia did not issue tourist visas, but in 2019, Saudi Arabia came to a 180-degree shift, in addition to issuing tourist visas, it also introduced electronic visas to 49 countries, these measures greatly facilitate the entry of foreign tourists into Saudi Arabia, which plans to invest $1.5 trillion in 10 years to become one of the top 10 global tourist destinations by 2030.
In October 2022, Saudi Arabia was also awarded the right to host the Asian Winter Games in 2029. To this end, Saudi Arabia plans to create a futuristic ski resort in the desert to further attract tourists.
Niu Song told the First Financial Reporter that the development of tourism industry and the hosting of large-scale sports events can be described as the sunrise industry of the world's economic development, and the tourism industry and sports events and infrastructure projects are highly related.
He further analyzed that Saudi Arabia is obviously facing the pressure from Qatar, UAE and other Gulf countries in these aspects, so it has to accelerate the pace of transformation. Overall, the non-oil sector in Vision 2030 is designed to help shape a new, open and progressive image of Saudi Arabia.
The 2022 World Cup in Qatar was the first World Cup event to be held in the Middle East, attracting some 1.5 million visitors from around the world. Statistics show that hosting the World Cup brought Qatar about $17 billion in revenue, and the Dubai World Expo, which concluded in March 2022, also attracted 24 million visitors from more than 192 countries and regions.
Driven by the Dubai Expo and the Qatar World Cup, many countries in the Middle East are stepping up their tourism revitalization initiatives, and the regional tourism industry is accelerating its recovery. The World Tourism Organization also recently pointed out in a report that China's optimized epidemic prevention and control measures will provide strong support for the recovery of global tourism, including the Middle East.
Source: China Business Network
(The views expressed in this article are those of the author or interviewee and do not represent the position of this research institution)
