Saudi Arabia announced this weekend that its gross domestic product had crossed the threshold of $1 trillion for the first time in its history, a milestone reached with the aid of high global oil prices and heavy government investment in tourism and entertainment.
The Saudi government had reportedly expected to reach a $1-trillion GDP in 2025, the Saudi news outlet al-Arabiya reported, citing the state-run Saudi Press Agency (SPA). The Federation of Saudi Chambers made the announcement that the country reached that goal much more quickly than anticipated on Friday in anticipation of the Saudi National Day on September 23.
“The Saudi Chambers report detailed that the Kingdom had achieved a growth rate of 8.7 percent – the highest among the G20 member-states – spurred mainly by its production capabilities,” al-Arabiya reported, “which is reflected in the increase in the self-sufficiency rate of the Saudi economy to 81.2 percent, and the increase in the country’s investment rate (the invested percentage of output) to 27.3 percent.”
The outlet, citing the Federation, emphasized the growth in the number of Saudis employed by private companies and the rapidly rising percentage of the economy represented by exports abroad as major contributing factors to the rapid growth of the economy.
Saudi Arabia has been one of the world’s best performing economies in the last two years, largely due to consistently high oil prices, the Saudi government welcoming lucrative investments from countries such as China and South Korea, investments in tourism and entertainment, and the introduction of some women into the Saudi workforce. Tourism has risen to seven percent of the nation’s GDP share, reports this week asserted, up from three percent. Chinese dictator Xi Jinping cut deals worth $29 billion during his visit to Saudi Arabia in December, while Korean companies agreed to $75 billion in investments in Saudi Arabia in November when Crown Prince Mohammed bin Salman visited the country.
As for women, they form a rapidly growing sector of the economy. Women’s participation in the workforce was at 36 percent in 2022, compared to just 16 percent in 2016. Women in the market are expected to grow the Saudi economy by $39 billion in the next decade, the Emirati newspaper the National reported last week.
Prior to the implementation of “Vision 2023,” bin Salman’s plan to diversify the Saudi economy away from oil and make the repressive Islamic theocracy more welcoming to wealthy foreigners, Saudi women were almost entirely absent from the workforce and stripped of most of their civil rights.
The situation in Saudi Arabia remains dire for women, who are forced into second-class citizen status through “guardianship” laws and strict dress codes. Female political dissidents face brutality in prison or execution. Bin Salman has legalized women driving and invested in making elite women more visible in Saudi government and industry, but women who protested against the ban on their right to drive remain in prison long after the ban ended.
Despite the poor human rights situation, and largely due to the ongoing complex oil economy on the world stage, organizations such as the International Monetary Fund (IMF) and Organization for Economic Development (OECD) have expressed optimism in recent months about the future of the economy, suggesting the trillion-dollar mark is far from the ceiling. The OECD, for example, predicted that the nation’s GDP will likely expand by 3.1 percent in the next year while inflation is projected to modestly decrease.
In September, the IMF identified Saudi Arabia as the fastest-growing economy in the G-20 nation coalition.
“Saudi Arabia was the fastest growing G20 economy in 2022. Overall growth reached 8.7 percent, reflecting both strong oil production and a 4.8 percent non-oil GDP growth driven by robust private consumption and non-oil private investment, including giga projects,” the IMF detailed. “The Saudi unemployment rate is at a historical low. … Despite a booming economic activity, inflation remains low and appears to be easing. Average CPI grew by 2.5 percent y-o-y in 2022, in part contained by domestic subsidies/price cap and a strong US dollar.”
Oil is by far the most visible factor in Saudi Arabia’s success. Saudi Arabia’s national oil company Aramco posted record profits in the second quarter of 2022, exceeding the profits of American technology giants Alphabet (Google), Facebook, and Apple combined. According to Aramco’s announcement in August of that year, it documented a 90 percent year-on-year increase in net income.
Aramco posted record profits again in March for the fiscal year 2022, raking in $161.1 billion.
Aramco has benefitted not only from high oil prices but, ironically, from “Environmental, Social, and Governance” ESG investments meant to fund “green” companies attempting to diversify humanity’s electricity sources away from oil, gas, and coal. According to a report published by Bloomberg in July, Aramco subsidiaries with ties to BlackRock have received money from ESG investments into third-party “special purpose vehicles” used to repay bridge loans created for transactions tracing back to the original Aramco.
Oil prices surged following the full-scale Russian invasion of Ukraine in February 2022 and related sanctions on the Russian fossil fuel industry. The sanctions have limited the supply of oil in the global market, increasing prices. Saudi Arabia has subsequently, both single-handedly and through the OPEC+ oil cartel, spearheaded dramatic cuts to oil production, keeping prices high.
Reuters reported on Monday that oil prices surged once again as the market opened after Russia announced it would temporarily ban some fuel exports.
“Brent crude futures climbed 71 cents, or 0.76%, to $93.98 a barrel by 0809 GMT after settling 3 cents lower on Friday,” Reuters reported. “U.S. West Texas Intermediate crude futures extended gains for a second session, trading at $90.63 a barrel, up 60 cents, or 0.67%.”
Experts cited by OilPrice.com last week suggested the “oil price rally still has room to run,” suggesting oil prices could surge even higher and generate more profits for economies such as Saudi Arabia’s. Conventional analysts, the outlet reported, expect Brent crude prices to reach $100 a barrel, but “where analysts diverge is with respect to how long $100 oil prices can last.” Most cited the intentions of the Saudi government – whether to continue cutting production or easing restrictions – as key to the future of the industry.