The hare and the tortoise of Arab economic reform

Saudi Arabia speeds ahead and Morocco climbs steadily. Each has lessons to share

By Simon Kitchen

June 16, 2025, 3:15 PM

A group of people enter through the "Bab Al Fahs" on a street in the medina of Tangier in Morocco. Saudi Arabia — People walk through a medina in Tangier. Tourism will always be important for Morocco, but higher-tech manufacturing is changing the economy

Two kingdoms at opposite ends of the Arab world – Saudi Arabia and Morocco – share a language, a religion and a royal form of government. Yet they could hardly be more different.

One is a young petro-state racing to transform itself into a global powerhouse. The other, an ancient kingdom with modest resources but deep institutional roots, has taken a steadier, more strategic approach.

But both are on parallel missions: to diversify their economies, reduce dependence on volatile sectors and take their place on the world stage. And in that shared ambition, they have much to learn from one another.

If we frame it as a race, then Saudi Arabia is the hare: the kingdom has moved at breakneck speed in the past decade. It has relaxed social constraints, increased local workforce participation, embarked on ambitious building projects, reduced wasteful energy subsidies, sold some of the government’s stake in Aramco and joined the Emerging Market (EM) stock market indices.

Yet the question remains: how much has Saudi Arabia really diversified its economy? The budget numbers show that non-oil revenues are estimated at 44 percent of total revenues in 2025, up from 27 percent in 2015 (when oil prices were a lot lower). But a lot of these non-oil revenues are coming from consumption taxes, and a lot of consumption is ultimately backed by government spending.

Moreover, while Saudi Arabia has worked hard to reduce economic “leakage” – by developing recreation at home, for example, or slashing student numbers in the US by three-quarters since 2015 – foreign direct investment (FDI) has fallen short of targets and exports are still dominated by oil and oil-related products.

Banner investments in new cities or in the auto industry have been announced, but these have yet to show results where it matters, in foreign investment and in thriving new export industries.

And this is where the example of the Moroccan tortoise comes in. The north African state has diversified: it carefully encouraged the development of export sectors such as autos and electronics over the past two decades, moving away from lower-margin business like garments. More than half of Morocco’s exports came from medium and high-tech manufacturing in 2023, up from just 21 percent in 2003.

FDI into Morocco has not been particularly high in dollar terms, but those dollars have gone a long way as a hinterland of feeder industries for exporting sectors has grown. Morocco is an exporter of higher-tech exports to Europe and, increasingly, the US. Moroccan companies service aircraft engines and make aerospace components.

Agriculture and tourism will always be important industries for Morocco, but higher-tech manufacturing is helping the country break free of the volatility created by the weather and pandemics. And it has lifted Moroccans in many urban areas into more productive, higher-paying jobs.

Now Morocco is attracting further waves of FDI, building on its success: Chinese companies are building battery plants and the UAE’s Taqa Energy is investing heavily in Morocco’s renewable energy sector.

The country’s relative lack of wealth encouraged it to build up its institutional strength – it has a credible currency policy and inflation has averaged just 2 percent in the past 15 years.

And Morocco has been canny. It was a late entrant in 2023 to the Portugal-Spain joint bid to host the Fifa 2030 World Cup. Morocco will get much of the glory from being in the global spotlight in the summer of 2030, but with a lot less of the expense.

Being part of the winning Fifa 2030 bid has helped to lift Moroccan stocks in the past 12 months. The market is one of the world’s best performers this year, meaning that it has now (slightly) outperformed the Saudi market in dollar terms over the past 10 years.

But stock markets are one area where Morocco can really learn from Saudi Arabia. The Tadawul market only opened up to foreigners 10 years ago, but it is now one of the largest and most actively traded markets in the emerging world. That has allowed Saudi companies – and the Saudi government – to raise money to finance future growth.

Morocco’s market is certainly more active today than it was a few years ago, but it is not on the radar of many EM-focused investors. MSCI, the major index provider, should add Morocco to its watchlist for an upgrade later this month because of rising turnover. This means Morocco could join the EM indices in 2027.

A shrewd next step would be for Morocco to list its state-owned phosphates company, OCP, as Saudi Arabia listed Aramco in late 2019. OCP is as unique as a phosphate producer as Aramco is as an oil producer. Listing 15 percent of OCP could raise north of $3 billion.

Morocco could also help foreigners navigate its stock exchange by giving investors better, more-frequent information about the market. This is where Saudi Arabia has been proactive, supplying an abundance of data and so welcoming in a wide range of investors.

A capital market that is genuinely open to foreigners would allow Morocco to keep diversifying well beyond the looming milestones of an EM upgrade and the Fifa World Cup.

Simon Kitchen is a founding partner and macro-strategist at Emerging & Frontier Capital. He has spent over 20 years working in Mena financial markets