Executive summary
Saudi Arabia responded quickly to contain COVID-19 and moved quickly to reap the benefits of increased digitalization.
THE BUSINESS YEAR returns, in partnership with the Riyadh Chamber of Commerce, to offer first-hand insights into the Kingdom of Saudi Arabia’s experience through the pandemic over the last year and half.
Saudi Arabia was hit by two shocks during the past year and half. COVID-19 had a substantial knock-on effect on the price of oil, which remains the country’s main financial resource. The government’s response was quick and decisive. A range of measures, which by now the world is all-too familiar with, were implemented so as to restrict the spread of the virus. Curfews, travel restrictions, the suspension of public gathering including schools, sports, malls, and mosques went along active side measures like a huge increase in testing, the launching of a mobile applications, Taboud and Tawakkalna to trace the virus, and the building of new makeshift hospitals. By May of last year, the government announced a three-stage plan for removing the restrictions and reopening the economy. International travel had resumed by May 2021 and the Umrah pilgrimage was opened up again to foreign pilgrims.
The story of Saudi Arabia’s journey is one marked by quick decisive action and bold plans to rebound ambitiously once the worst impact of the coronavirus had passed. To date, the Kingdom has had a little over 500,000 cases with under 10,000 deaths, which, alone, is a remarkable achievement considering the size of the population and how, by comparison, the virus ravaged Europe and Norther America. At the time of writing in late July 2021, 20% of the country is fully vaccinated with over 25 million doses being delivered. With the pace of vaccinations remaining steady, the Kingdom is fully focused on returning to its bold ambitions that are found in its Vision 2030.
The specific macro-economic and monetary measures taken by the government can be found in the economy and financial chapters; however, it worth emphasizing that the government’s response with emergency measures fiscal and monetary measures, in particular the actions taken by the Saudi Central Bank, SAMA, were instrumental in staying the ship through the storm. As of July 2021, the result has been that the stabilization of the Kingdom’s economy in the face of the unprecedented pandemic challenge. The IMF’s outlook on the kingdom’s economy has it growing at a respectable
2.1% in 2021. Fitch Ratings, meanwhile, has revised its forecast to stable, highlighting the government’s tripling of VAT rate to 15% in July 2020 as crucial. The kingdom’s non-oil economy is projected to grow 4.3% this year.
More pertinently for the Kingdom’s ambitions post-pandemic has been the durability of the oil sector, rebounding after suffering a significant shock last year. Real oil GDP contracted by 6.7% over 2020 as the OPEC+ group agreed to substantial production cuts to help rebalance the market. With oil prices now looking more stable, the government has a surer footing to move ahead with rebounding on course for its Vision 2030 ambitions.
Of course, central to this ambition is ultimately for the Kingdom to diversify its economy and its reliance away from oil-based GDP income. To that end, Saudi Crown Prince Mohammed bin Salman has just announced mobilizing private sector firms to pump investment worth USD1.3 trillion into the Saudi economy over the next decade. This drive is set to see private-sector opportunities expand even more and situate growth within a local context.
In order to help sustain this privatization drive the Kingdom has continued to push its industrial policy with the realization of its Vision 2030 megaprojects including the city of the future NEOM, the Line Linear City and the entertainment project Qiddiya. The logic behind this industrial strategy is to stimulate the economy through job creation, consumer spending, and the creation of private enterprise opportunities—all important strings to expanding the non-oil economy.
The silver lining that emerged through the pandemic underpinning this drive to diversify the economy and a theme that was felt in every single sector the economy and almost every single interview in this publication was digitalization. With so many companies, both private and public, given pause to reflect, reorganize, and reinvigorate their operations, the last 18 months have seen the fastest adoption of digital tools ever in the history of the Kingdom. The old adage, “necessity is the mother of invention,” comes to mind. In some sectors, there really was no choice. Education and health turned to digital tools in order to keep students learning and to maintain health services while restrictions were in place. EdTech, telehealth, and a rapid increase in digitally innovative devices and programs are sure to push these industries on in the near future. In transport, aviation, and logistics, travel ground to halt. Many companies had to look to cutting costs and streamlining processes in order to stay afloat. And while difficult decisions were taken because of dire straits, the result are leaner, more efficient organizations that have built up their resiliency in the face of the unprecedented challenge of the pandemic.
The impact of the pandemic remains to be fully seen in Saudi Arabia. However, with the pandemic in the rear-view mirror, things are now back on course to motor ahead with the objectives of this coming decade. The country and its economy are more resilient, its people young and ambitious, its sectors more digitally equipped, and its public entities hungrier than ever before after a year and half of navigating the pandemic. In this publication we offer key insights from every sector as to how the journey was managed and what the future of the Kingdom will be and where the investment opportunities will lie. ✖