Vision 2030 is moving along just fine

Neom

The very public slowdown in Saudi Arabia’s infrastructure plans has predictably drawn the attention of the global media. 

When the government said in April that it was reducing the scope of its mirror-walled city The Line by 90 percent, some Western critics appeared gleeful.

In reality, even though Saudi Arabia’s finance minister, Mohammed Al Jadaan, has said the government may “downscale some projects”, the overall trajectory of the Vision 2030 economic diversification is positive.

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The plan, which is now in its second half of implementation, has already transformed Saudi Arabia.

Giga-projects such as the smart city Neom and The Line had really ambitious implementation schedules, so new fiscal and practical realisations have prompted an adjustment to their timelines. Some completion dates are likely to stretch well beyond 2030. 

This reinforces our view that Vision 2030 should be seen as a long-term destination. We expect any downsizing to be reflected in an updated Vision for the longer term.

• Saudi review says 87% of Vision 2030 projects ‘on right track’
• Third of Vision 2030 projects ‘completed’ government says
• Progress report on Vision 2030: so far, so good

The authorities’ shift to a more flexible approach around project timelines lends credibility to the transformation of the economy, even if there is some target slippage in some areas in the near term. 

Since the launch of Vision 2030 in 2016, the kingdom has made tangible progress towards its targets, despite the challenges posed by the Covid pandemic, volatile oil prices, a surge in inflation and higher interest rates. 

Steady growth in the non-oil sector is a major area of success, as it benefits from higher domestic investment and improved competitiveness. Stronger investment remains central to the shift in the economy. 

The approach comprises several investment initiatives under the National Investment Strategy, which aims to lift the contribution of investment to 30 percent of GDP in 2030. 

Inward investment as a percentage of GDP stood at 25 percent in 2023, up from 21 percent in 2016. We see headline investment growing by an average annual pace of 5 percent between 2024 and 2030, fuelled by the Public Investment Fund. 

PIF’s domestic investment covers a broad range of projects in important sectors including construction, manufacturing and transport, as well as new sectors such as entertainment, tourism, technology and green energy. 

The fund manages $925 billion in capital, according to the latest data.

This will support 5 percent annual growth in the non-oil sector to 2030 and mean Saudi Arabia moves steadily toward the Vision 2030 target of 65 percent of the economy accounted for by the private non-oil sector.

Tourism has been one of the largest upside surprises. The introduction of tourist visas in 2019, an easing of restrictions on entertainment, the embrace of sports and the launch of new experiences have put Saudi Arabia on the global tourism map as a leisure destination. 

The localisation of the labour market has gone particularly well. The female workplace participation rate in Q1 2024 was 33%, already above the Vision 2030 target

The kingdom reported 106 million tourists last year, passing the pre-pandemic level by 56 percent. More than a quarter of these visitors were overseas arrivals. 

The Tourism Ministry recently upgraded its 2030 visitor target by 50 percent to 150 million, from 100 million. This outlook is shaped by the National Tourism Strategy and a pipeline of big-draw events, including the Asian Cup 2027, the Asian Winter Games 2029, Expo 2030, and the Fifa World Cup 2034.

The travel and tourism sector is well placed to reach a targeted 10 percent contribution to Saudi Arabia’s GDP.

The localisation of the labour market has gone particularly well. Labour market policies since 2017, including allowing women to drive and increasing their access to financial services, have brought many females into the workforce. The female workplace participation rate in Q1 2024 was 33 percent, already above the Vision 2030 target of 30 percent.

The national unemployment rate is approaching its goal of 7 percent. The positive outlook for non-oil sectors, coupled with investment in education and upskilling, bodes well for the job market.

FDI and export targets

However, foreign direct investment trends and non-oil exports are lagging behind.

Saudi Arabia is targeting FDI inflows of 6 percent of GDP in 2030, which will require an improved performance. In 2023 FDI inflows slipped to $12 billion, or only 1 percent of GDP, after a surge in 2021-2022.

Non-oil exports are not hitting the Vision 2030 marks either, with limited improvement seen to date, leaving Saudi Arabia exposed to oil market fluctuations.

These are areas that are likely to be backloaded – that is to say, with progress deferred to the end of the Vision 2030 period, and seen as a culmination of the whole programme. Optimism about the growth outlook and an abundance of projects could put inflows on a stronger trajectory relative to our central estimate, as the transformation continues. 

The authorities now offer a 30-year tax relief to international firms that establish regional headquarters in Saudi Arabia, which should help boost FDI in the near to medium term, complement the domestic investment drive and lead to a pick-up in non-oil exports.

Scott Livermore is chief economist at Oxford Economics Middle East