Saudi Arabia's economy is among the world's twenty largest, the largest in the Arab world, and the second largest in the Middle East after Turkey. It is a permanent member and leader of OPEC and a permanent member of the G20.
Saudi Arabia possesses the world's third-largest natural resources, valued at $35 trillion. The country has the second-largest proven oil reserves and is the world's largest oil exporter. It also has the fifth-largest proven natural gas reserves and is considered a major energy power.
As the world's largest oil exporter, Saudi Arabia's economy is heavily reliant on oil. In 2016, the Saudi government launched Vision 2030 to reduce the country's dependence on oil and diversify its economy. By implementing economic reforms that reduce reliance on oil as the primary economic activity, and by developing strategies to diversify non-oil revenue sources within the framework of Saudi Vision 2030, the Kingdom has raised its projected economic growth rate from 1.8% in 2019 to 2.1% in 2020. These reforms, which included establishing a one-stop shop for company registration, enacting a secured transactions law and a bankruptcy law, improving minority investor protections, and implementing measures to increase women's participation in the workforce, have contributed to Saudi Arabia's 30-place jump in the World Bank's Doing Business 2020 report. This makes it the most improved and reformed country among 190 nations worldwide, achieving first place globally in business environment reforms within the report's Ease of Doing Business index.
Saudi Arabia ranked 7th among the G20 countries and 26th globally in the World Competitiveness Index, according to the 2019 World Competitiveness Yearbook published by the International Institute for Management Development (IMD). This yearbook measures the competitiveness of 140 countries worldwide, based on their ability to leverage available resources. The report also showed that Saudi Arabia shared first place globally in the macroeconomic stability index, which included inflation and debt stability. Furthermore, the report indicated that Saudi Arabia advanced three places in competitiveness compared to 2018, achieving its largest improvement in seven years, ranking third in the Arab world and 36th globally. The Kingdom maintained its 17th position in market size, while advancing to 19th globally in market output and 37th in the institutions index.
The 2020 World Competitiveness Yearbook showed Saudi Arabia's improved ranking in three key areas: economic performance, where the Kingdom advanced from 30th to 20th place; business efficiency, where it rose from 25th to 19th place; and infrastructure, where it climbed from 38th to 36th place. The Kingdom also ranked 10th globally in economic resilience. The report further indicated Saudi Arabia's improvement from 26th to 24th place among the 63 most competitive countries in the world, a two-place jump from the previous year, despite the economic challenges posed by the COVID-19 pandemic. Saudi Arabia was the only country in the Middle East and the Gulf region to achieve such exceptional progress. According to the report's indicators, it ranked eighth among the G20 countries. On June 18, 2024, the Kingdom ranked 16th globally out of 67 of the world's most competitive countries, according to the World Competitiveness Yearbook published by the World Competitiveness Center of the International Institute for Management Development (IMD).
In 2023, the Saudi budget achieved total revenues of approximately 1.21 trillion riyals against total expenditures of approximately 1.29 trillion riyals. In March 2024, the total non-oil economy in Saudi Arabia reached 1.7 trillion riyals, with non-oil activities recording their highest contribution to real GDP during 2023 at 50%, the highest level ever recorded. In May 2024, the Saudi Central Bank's monthly statistical bulletin for March 2024 showed that liquidity levels in the Saudi economy grew, reaching a peak of 2.8 trillion riyals by the end of March 2024, achieving an annual growth rate of 8.3% compared to the end of the same period in 2023.
Overview
The petroleum sector accounts for approximately 45% of budget revenues, 45% of GDP, and 90% of export earnings. Around 40% of GDP comes from the private sector. The government encourages private sector growth to reduce the Kingdom's dependence on oil and increase job opportunities for its growing population. The government has begun allowing private sector and foreign investors to participate in the power generation and telecommunications sectors. As part of its efforts to attract foreign investment and diversify the economy, Saudi Arabia joined the World Trade Organization in 2005 after years of negotiations.
With rising oil revenues enabling budget surpluses, the government has sought to increase spending on job training, education, infrastructure development, and raising the salaries of Saudi government employees.
The Saudi Vision 2030 plan is based on the principle of strengthening the economy, expressed in the phrase "a leading investment powerhouse."
The Overall Economic Trend
In the 1970s, Saudi Arabia’s per capita GDP reached a world record high of 1,858% thanks to the oil boom. However, this bubble could not last, and per capita GDP contracted by 58% in the 1980s. Successful diversification efforts, however, helped the economy achieve a 20% growth rate in the 1990s.
Sovereign Wealth Fund
As part of its national investment strategy, Saudi Arabia is working to boost economic growth and diversify its sources of income. The Public Investment Fund (PIF) is a key mechanism for achieving the goals of Saudi Vision 2030. Established in 1971, the PIF is currently one of the world’s largest sovereign wealth funds, with assets of approximately SAR 3.47 trillion (USD 925 billion) as of the end of 2024, ranking it sixth globally.
The PIF focuses on reducing dependence on oil by investing in non-oil sectors such as tourism, technology, renewable energy, entertainment, and healthcare. In 2023, he launched a platform to support the private sector, aiming to facilitate access to investment opportunities in strategic sectors. He also invested approximately $5.5 billion in green bonds to finance sustainable energy projects.
Through this strategy, the Kingdom seeks to attract international capital and transfer technology and knowledge, thereby contributing to strengthening Riyadh's position as a regional political and economic hub and a preferred destination for major global companies.
Saudi Arabia's Public Debt
Saudi Arabia's public debt fell to its lowest level in 2014, reaching SAR 44.3 billion, a low figure compared to other countries' debts. Saudi Arabia benefited from the significant rise in oil prices in recent years, reducing its debt levels to a record low.
However, with the sharp decline in the price of a barrel of oil, which reached around $40, Saudi Arabia returned to issuing bonds for the first time since 2007 to borrow funds to cover its budget deficit. The Kingdom issued bonds worth $5.3 billion. Officials at the International Monetary Fund (IMF) say that Saudi Arabia may issue treasury bills again before the end of the year to cover its budget deficit.[1] In November 2023, Saudi Arabia raised $11 billion through a syndicated loan as part of its efforts to finance the budget deficit amidst weak oil revenues.
The Oil Sector
Oil was discovered in Saudi Arabia by geologists from the United States in the 1930s, although large-scale production did not begin until after World War II. Oil wealth enabled rapid economic development, which began in earnest in the 1960s and accelerated dramatically in the 1970s, fundamentally transforming the Kingdom. Saudi Arabia possesses the world's largest oil reserves, and the Kingdom is the world's largest producer and exporter of oil. Proven reserves are estimated at approximately 260 billion barrels, or a quarter of the world's total oil reserves.
More than 95% of Saudi Arabia's total oil production is handled by the state-owned giant, Saudi Aramco. Most of Saudi Arabia's oil exports are shipped from the Ras Tanura refineries. The remainder is transported via pipeline to the port of Yanbu on the Red Sea.
Due to a sharp increase in oil revenues in 1974 following the 1973 Arab-Israeli War, Saudi Arabia became one of the world's fastest-growing economies. However, the surge in oil prices led to further development of oil fields and increased production worldwide, resulting in market saturation and a subsequent drop in prices.
Saudi oil production, which had risen to nearly 10 million barrels (1.6 million cubic meters) per day during 1980–81, fell to around 2 million barrels per day (300,000 cubic meters per day) in 1985. The budget deficit grew, and the government was forced to draw down its foreign assets. In response to the financial pressures, Saudi Arabia relinquished its role as a swing producer within OPEC in the summer of 1985 and agreed to a production quota.
Investment
The growth of the Saudi economy in non-oil sectors and the stability of economic factors, coupled with increased public spending on infrastructure and economic projects, have created an attractive environment for foreign investment. In recent years, the average annual growth rate has reached 4%, with GDP reaching $782 billion. The facilities offered to those wishing to invest have also increased, making Saudi Arabia the fastest-growing Arab country in terms of the value of foreign investment inflows, at 126%, with the total stock of foreign direct investment rising to $230.79 billion.
By the end of 2019, Saudi Arabia had secured its place among the world's most competitive nations, ranking 7th among the G20 countries and 23rd out of 63 countries included in the 2019 World Competitiveness Yearbook published by the International Institute for Management Development (IMD). Saudi Arabia achieved these rankings based on the infrastructure indicators (36th), government efficiency (18th), and business efficiency (25th). It also advanced in the merchandise export growth index, ranking second, and in the public debt index, ranking fourth, and in the government policy adaptability index, ranking eighth. According to the General Investment Authority's 2019 report, there was a steady increase in foreign investment opportunities in the education, construction, retail and wholesale trade, transportation and storage, manufacturing, communications and information, healthcare and insurance, and hotel, management, and support services sectors. 291 foreign companies were established to begin operations in Saudi Arabia, with an average of five new licenses issued daily. This led to an increase in the percentage of inward foreign direct investment (FDI) flows to 24% in the first quarter of 2019, and an increase in the percentage of investment licenses issued in the first half of the year to 85%.
Foreign Direct Investment
FDI inflows in the first quarter of 2019 amounted to $1.249 billion. This represents a 24% increase compared to the same period in 2018. Investment licenses also saw a 103% increase compared to the same period in 2018, distributed as follows: 66% for fully foreign-owned businesses and 34% for joint ventures with local investors.
China, the UAE, Jordan, Egypt, the US, India, the UK, and France were among the top investors in Saudi Arabia during the first quarter of 2019.
In September 2015, the Saudi Capital Market Authority announced that it was nearing a relaxation of the rules limiting foreign ownership in listed companies to 49%, with the decision potentially taking effect before the end of the year.
Facilitating Investment
Premium Residency
This is a residency system specializing in investment and business, announced by the Saudi Council of Ministers in May 2019. The Premium Residency allows expatriates to invest and purchase shares directly in the Saudi stock market, and to establish and operate businesses in accordance with the Foreign Investment Law, which permits full foreign ownership of companies in most sectors. It also allows for the ownership of real estate for residential, commercial, and industrial purposes.
Removal of the Maximum Ownership Limit for Investors in the Stock Market
The Saudi Capital Market Authority (CMA) had previously imposed a 49% limit on foreign strategic investors' ownership in the Saudi stock market. In June 2019, it announced the removal of this limit, enabling investors to own larger stakes in companies listed on the Saudi Stock Exchange (Tadawul), the largest stock market in the Middle East and North Africa. Total foreign investment in the market during the first half of 2019 reached US$14.4 billion. In November 2023, Saudi Arabia is moving towards allowing foreigners to own shares in companies listed on the Saudi Stock Exchange that own investment properties in Mecca and Medina.
The National Competitiveness Center
The National Competitiveness Center, in collaboration with more than 65 government entities and with the participation of the private sector, represented by the Council of Saudi Chambers, has implemented over 900 legislative and procedural reforms. These reforms have helped improve the business environment in the Kingdom and develop it in line with international standards. They have also formed the basis for new regulatory transformations aimed at enhancing the global competitiveness of the Saudi economy. These efforts are based on Saudi Vision 2030, which seeks to make the Kingdom one of the most competitive countries globally by enhancing productivity, achieving economic sustainability, and supporting economic inclusivity and resilience across various sectors.
Tourism
The tourism sector in the Kingdom of Saudi Arabia witnessed remarkable growth in 2023, with the number of tourists reaching 109.3 million, including 27.4 million international visitors, representing an increase of over 64.8% compared to 2022. Total tourism expenditure reached SAR 255.6 billion, of which SAR 141.2 billion came from international tourism, reflecting strong growth in both traffic and spending.
In 2024, the sector continued its upward trajectory, with the number of international tourists rising to approximately 30 million and inbound tourism expenditure reaching SAR 153.6 billion. This resulted in an unprecedented travel surplus of SAR 49.8 billion, according to data from the Ministry of Tourism and the International Monetary Fund.
These indicators highlight the Kingdom's prominent position on the global tourism map and reflect the effectiveness of the policies and programs aimed at developing the sector and increasing its contribution to the national economy.
Communications and Information Technology
In 2024, Saudi Arabia ranked second among G20 countries for the second consecutive year in the ICT Development Index issued by the International Telecommunication Union (ITU). This index tracks the performance of 170 countries in digital development and is based on two main pillars: inclusive connectivity and effective connectivity.
The Kingdom ranked first in the effective connectivity pillar and second in the inclusive connectivity pillar, reflecting the continuous progress in the communications and information technology sector and confirming the strength of the country's digital infrastructure.
The Kingdom's communications and technology market is the largest and fastest growing in the Middle East and North Africa region, reaching a value of SAR 166 billion. Mobile penetration reached 198% of the population, and the average monthly data consumption per capita in the Kingdom is more than three times the global average.
These indicators contribute to consolidating the Kingdom's position as a regional digital hub and are part of the broader development towards a knowledge-based economy in Saudi Arabia, which is a strategic pillar of economic growth and relies on technology, innovation, and human capital development.
Data Saudi also showed that the sector recorded a 20.3% growth in operating revenues in 2023, and a 203.7% increase in foreign direct investment flows, reflecting rising international confidence in the Kingdom’s digital environment and technological infrastructure, and confirming the sector’s growing role in supporting the transition to a digital economy.
Taxes
In the Kingdom of Saudi Arabia, taxes are levied on citizens, residents (non-Saudis), and visitors. These are as follows:
Income Tax:
This is the first and oldest tax imposed in the Kingdom of Saudi Arabia. It was introduced during the reign of King Faisal bin Abdulaziz in 1370 AH (1950 CE) by Royal Decree No. 17/2/28/3321, and reinstated during the reign of King Fahd bin Abdulaziz by Royal Decree No. M/1 in 1425 AH (2004 CE). It applies to residents and foreigners who have commercial activities in the Kingdom or who have taxable income without a permanent establishment in the Kingdom, or who work in the production of oil and hydrocarbons or in the natural gas sector. It is not currently applied to individual Saudi citizens.
Excise Tax:
This tax is levied on goods that are harmful to public health or the environment, or on luxury goods, at varying rates. It is paid by Saudis, residents, and visitors. It was introduced under the Unified Agreement of the Gulf Cooperation Council (GCC) in 2017 during the reign of King Salman bin Abdulaziz. It was applied to soft drinks at a rate of 50%, tobacco products at 50%, and energy drinks at 100%. In 1441 AH (2019 CE), the selective tax was expanded to include beverages sweetened with sugar or other sweeteners. This was the first tax levied directly on Saudis.
Value Added Tax (VAT):
VAT is an indirect tax levied on all goods and services bought and sold by businesses. It was introduced in 1440 AH (2018 CE) at a fixed rate of 5% on all goods and services, with some exceptions. In May 2020, an increase in the VAT rate from 5% to 15% was announced. This decision was made following a sharp decline in global oil prices and the spread of the coronavirus pandemic.
Real Estate Transaction Tax:
This is an indirect tax levied on all transactions that result in a legal effect, namely the transfer of ownership of real estate, or its possession for the purpose of ownership or usufruct, from one person to another. It is levied on all real estate, regardless of its condition, form, or use at the time of the transaction. It was introduced during the reign of King Salman bin Abdulaziz by Royal Decree No. A/84 in 1442 AH (2020 CE) at a fixed rate of 5%.
