ECONOMIC TRENDS

SAUDI’S Q2 2021 GDP FUELLED BY NON-OIL ECONOMY

Saudi Arabia has staged a smart recovery, with the kingdom’s real gross domestic product (GDP) posting a positive growth rate for the first time since the COVID-19 pandemic started.

Data from the General Authority for Statistics (GaStat) shows GDP grew 1.5% in the second quarter of 2021 compared to the same period last year. Non-oil economy surged 10.1%, while government activities rose by 0.7%, even as the oil economy declined 7% during the period.

“Seasonally adjusted real GDP recorded a positive growth rate of 1.1% in Q2/2021 compared to the previous quarter (Q1/2021),” GaStat stated in its flash GDP estimate report. “This increase in GDP was a result of growth in both oil activities and non-oil activities by 2.5% and 1.3%, respectively, while government activities recorded a negative growth of 2.6%.”

Saudi Vision 2030 programmes have also become a major draw for global investors looking for new opportunities in the country.

The launch of Shareek (the Arabic word for “partner”), is part of a USD 7.2 trillion investment programme to boost investment and the private sector’s contribution to GDP over the next 10 years.

“As private sector’s contribution to GDP is set to rise to 65% in accordance with Vision 2030 goals, Shareek is expected to create hundreds of thousands of additional jobs through new investments,” according to the Ministry of Investment of Saudi Arabia (MISA).

The ministry awarded a record number of foreign investment licenses at 478 in the first quarter of this year, a 36.2% increase compared to the same period last year. This surge marked the fourth consecutive quarter of increase in the number of new foreign investment projects.

The Q1 2021 peak broke the previous record of 466 licences awarded in the fourth quarter of 2020. January saw 113 licenses issued, and the momentum only accelerated with 160 in February and 205 in March.

Around 59% of the licences issued were for full foreign ownership and the remainder were joint ventures with investors, MISA data shows.

The manufacturing sector led the foreign licences with 114 new investment licenses during the quarter, as investors were attracted to the spate of opportunities.

“After a slowdown in the last quarter of 2020, the month of March witnessed a whopping USD 4.1 billion in new industrial investments licensed by the Ministry of Industry and Mineral Resources, leading to a 198% overall spike in Q1 2021,” MISA noted.

International investors are also eyeing Saudi Arabia’s potential as an industrial power, buoyed by efforts to diversify its economy further away from oil. In March, the government launched “Made in Saudi” programme, aimed at strengthening the private sector’s resilience and contribution to GDP.

The programme aims to support national products and services at a local and global level, improve direct purchasing power towards local goods and services, increase export capacity, and raise the private sector’s contribution to GDP.

Other sectors also saw a number of foreign investment licences issued, underscoring the broad range of business opportunities in the country. Construction saw 78 new foreign investment licenses, after new projects were announced as part of Saudi Vision 2030.

Retail and ecommerce, a sector that is 100% open to foreign ownership, saw 78 new foreign investment licences. As many as 62 licences were also issued in the burgeoning professional and scientific sector.

“The annual increase among top new investment areas was starkest in retail and ecommerce, where the number of new licenses awarded by MISA skyrocketed by 151.6% compared to the same period in 2020,” MISA noted. “This reflected the rapid adjustment of the market in the kingdom to the new normal emerging after the COVID-19 pandemic.”

Foreign investors are also attracted to The Saudi Exchange, which has surged 26.7% in the first seven months of the year, making it among the best performing major markets in the world.

Tadawul saw USD 50.6 billion in investments inflows in the first quarter through qualified foreign investors (QFI) – the fourth consecutive quarterly increase, MISA data shows.

The kingdom has also boosted its efforts to develop the capital city of Riyadh as a regional hub for foreign companies.

“Twenty-five companies have already signed MoUs with MISA to move their regional headquarters to Saudi Arabia,” noted MISA, adding that US companies Deloitte, PricewaterhouseCoopers (PwC), PepsiCo, Schlumberger, Hewlett-Packard Enterprise and Germany’s Siemens, were among the signatories.