RIYADH: Saudi Arabia can attract global investments and successfully diversify its economy thanks to the Kingdom’s abundant natural resources and youthful workforce, said BlackRock Investment Institute.
In its latest report, the asset management firm said Saudi Arabia offers substantial opportunities across public and private markets, though success will depend on the progress of governance, regulatory improvements, and labor market reforms.
The Kingdom is currently embarking on an economic diversification journey known as Vision 2030 by strengthening the non-oil private sector and reducing its decades-long dependence on oil revenues.
With its predominantly young population and labor reforms, the Kingdom reduced the unemployment rate among Saudi nationals to 7.1 percent by the end of the second quarter of 2024, representing a quarterly drop of 0.5 percentage points and an annual decline of 1.4 percentage points.
By the end of the second period of the year, joblessness among Saudi females also witnessed a sharp quarterly decline of 1.4 percentage points, reaching 12.8 percent.
In terms of natural resources, Saudi Arabia holds abundant mineral wealth estimated at $3 trillion, and Vision 2030 aims to turn the mining sector into the Kingdom’s third pillar of economy.
“Saudi Arabia stands at the crossroads of economic transformation. Unlike many developed economies, we think it benefits from low debt levels, ample energy resources, and a young, expanding workforce — a combination that supports long-term economic growth and creates opportunities in infrastructure and urban development,” said BlackRock.
It added: “However, realizing these opportunities hinges on sustained investment. Historical data shows that Saudi Arabia is already an outlier in terms of population growth and has room to increase investment further.”
A recent report released by the International Monetary Fund also echoed similar views, and said that the Kingdom is expected to witness economic growth of 1.5 percent in 2024 and 4.6 in 2025, driven by activities in the non-oil sector.
In October, the World Bank also projected that the economy of Saudi Arabia will grow by 1.6 percent this year and 4.9 percent in 2025.
Capital investments
According to BlackRock, Saudi Arabia has ramped up capital investments, with about $780 billion invested over the past three years, fueled by a bank lending boom and significant public spending.
The report added that Saudi Arabia is successfully leveraging domestic and foreign private financing, while equity and fixed-income markets are developing rapidly through the rising number of initial public offerings and bond issuances in the Kingdom.
A report released in July by the Kuwait Financial Center, also known as Markaz, revealed that the Kingdom led the Gulf Cooperation Council’s initial public offering market in the first half of 2024, raising $2.1 billion in what was an annual increase of 141 percent.
Another report released by Markaz in October revealed that Saudi Arabia raised $512 million from IPOs in the third quarter.
“Building a large, liquid local-currency corporate bond market is key to boosting non-bank financing across corporate bonds, infrastructure debt, and mortgage-backed securities,” said BlackRock.
Attracting investments
BlackRock revealed that Saudi Arabia’s Vision 2030 aims to establish the Kingdom as a leading hub for infrastructure investment.
The Kingdom’s National Investment Strategy seeks to attract $3.3 trillion over the next decade, spanning sectors from energy to health care to tourism.
“The investments are set to cover energy, water, transportation, logistics, digitalization, and services like waste recycling. The transformation involves three main shifts: transitioning to renewable energy, boosting private sector activity, and expanding non-oil sectors like household spending and tourism,” added BlackRock.
According to the report, the Shareek program launched in 2021 could play a crucial role in fulfilling the investment targets of Saudi Arabia.
Through this initiative, the Kingdom targets $1.3 trillion in funding, representing 40 percent of the Vision 2030 goal.
Foreign direct investment, currently a small share of the Kingdom’s GDP, is also targeted to provide 15 percent of Vision 2030’s total investment.
The report added that regulatory improvements such as simplifying business licensing, reducing red tape, enhancing transparency, and introducing investor rights measures are key to elevating investments in the Kingdom.
“Becoming a major investment destination requires broad economic and societal changes, stronger governance frameworks, and regional security assurances to attract capital,” said the analysis.
It added that global investors will also need confidence in regional stability before committing significant capital, as geopolitical tensions remain a major concern determining the future economic growth in the region.
Reliance on oil
According to the report, Saudi Arabia’s future economic growth and diversification plans will not be without any hurdles, as oil revenues have direct impacts on the country’s progress.
“Saudi Arabia’s economic trajectory remains heavily reliant on oil revenue, making it vulnerable to shifts in global energy markets. A decline in oil prices – potentially influenced by increased US production or a slowdown in global demand – could challenge its reform agenda and economic resilience,” the analysis said.
On a positive note, Blackrock added that the Kingdom is aiming to strengthen its position as a low-cost oil and gas producer.
“The BlackRock Investment Institute Transition Scenario sees rising global oil and gas demand over the next decade, with declines approaching 2050. Saudi Arabia’s low-cost, low-emission production positions it to maintain or grow market share across various demand scenarios,” said the report.
It added: “Diversifying energy exports through natural gas/LNG could enhance its competitive edge, though an accelerated low-carbon transition could pressure oil prices.”
According to the analysis, Saudi Arabia is also making significant efforts to reduce greenhouse gas emissions.
The report said that the Kingdom is planning to shift power generation from 40 percent oil and 60 percent gas to an equal mix of gas and renewables by 2030.
“Saudi Arabia’s solar installation costs are 40 percent lower than the global average, boosting energy security, reducing emissions, and freeing up oil for export. Investments in carbon capture and hydrogen production could further support decarbonization,” said BlackRock.
