Industry

Saudi Arabia invests $400bn in factories as oil industry slows

January 11, 2024

A solar panel factory in Uyayna, north of Riyadh. The Saudi industrial sector employs more than 750,000 people

Annual rise of 9.3%
Non-oil economy to lead
11,273 factories in kingdom

Total investment in Saudi Arabia’s industrial sector has risen by nearly 10 percent in a year, to reach SAR1.5 trillion ($400 billion).

The official figures, released by the Saudi Press Agency, show growth of 1.5 percent in the third quarter of 2023 and growth of 9.3 percent for the year to Q3.

The non-oil economy is expected to drive growth this year, according to analysts from BMI.

Oil production is set to remain subdued after a 7 percent contraction in 2023. As a result BMI has revised down its forecast for Saudi Arabia’s real GDP growth this year to 2.6 percent, from 3.3 percent.

November data on manufacturing production showed a 3.3 percent annual decline in output which has been contracting since March, said James Swanston, Middle East and North Africa economist with Capital Economics.

“It is important that Saudi Arabia can turn this around as the kingdom aims to diversify away from oil so that it can have a local industrial sector rather than having to look entirely toward the services sector in the economic diversification plans,” he told AGBI.

Most of the investment in Saudi industry – nearly SAR976 billion – went to large-scale industrial facilities, the country’s press agency said.

Another SAR390 billion was invested in medium-scale factories and SAR133 billion in small sites.

The total number of factories in the kingdom increased by 5.1 percent in the year to Q3 2023, reaching 11,273. There were 757,429 employees in the sector, an annual growth rate of 11.6 percent.

Riyadh and the surrounding area has the most factories (4,389) and the largest workforce (282,702 people) in Saudi Arabia.

BMI’s analysts are predicting that the Saudi non-oil economy will expand by 3.7 percent this year, down from 4.7 percent in 2023, but still ahead of the oil sector in the wake of Opec+ cuts.

“Despite some softening, we expect diversification efforts in line with Vision 2030 will mean the non-oil economy will remain resilient in 2024, growing above the five-year pre-Covid trend of 2.3 percent,” BMI said.

The analysts are forecasting that Brent oil will average $85 per barrel this year, adding that this would support investment activity by government-related entities and wealth funds.

“This will keep investment a key growth engine in Saudi Arabia in 2024,” BMI said.

Historically, Saudi-based investors have accounted for more than 62 percent of financing in the industrial sector.

Foreign investments made up just under 5 percent while joint investments were 32.5 percent of the total.

Swanston added: “The fact that foreign investment into the sector remains very small as a market share is something that officials need to address by improving the local business environment and reducing barriers to entry.

“Otherwise it will not incentivise this investment and will keep Saudi non-oil manufactured exports uncompetitive on the global stage.”