Saudi Arabia is grappling with the formidable task of reinventing its economy, steering away from the dependence on oil that has long defined its financial landscape. Vision 2030, unveiled five years ago by Crown Prince Muhammad Bin Salman, outlines an ambitious plan to diversify and transform the economy. However, the journey toward economic reform seems to be progressing at a pace slower than initially envisioned. The linchpin of this transformation is tourism, a sector that policymakers hope will become the largest source of new jobs and account for a significant share of GDP. Abha, a city nestled in the southwestern part of the kingdom, has been earmarked for a grand makeover.
The Public Investment Fund has committed billions to build hotels and tourist attractions, with the aim of drawing 2 million visitors annually by 2030. Yet, the challenge lies in convincing foreign tourists to choose Saudi Arabia over other global destinations. The kingdom only began offering tourist visas in 2019, and while the potential is vast, the competition is fierce. The question looms large – what unique selling points does Saudi Arabia possess beyond the allure of its royal family and stunning landscapes? Attracting foreign firms and investors is paramount to the success of Vision 2030, yet the government struggles to articulate a compelling case for their choice of the kingdom.
Crown Prince Muhammad’s success will be closely tied to his ability to create jobs for the country’s youthful population, two-thirds of whom are under 35. The pandemic exacerbated unemployment, reaching 15.4 per cent in the second quarter of 2020. Although the rate has since declined, concerns persist. Saudis are now taking on low-skilled jobs that were traditionally filled by migrants, but the higher end of the market still lacks opportunities for educated citizens. Foreign direct investment (FDI), a crucial element for economic growth, has been sluggish, falling short of the kingdom’s targets. In 2020, the hoped-for $10 billion in annual FDI inflows reached only $5.5 billion. The recent announcement of a new strategy aiming for $100 billion in annual FDI by 2030 raises eyebrows, as some critics argue that officials set ambitious targets without adequate feedback.
The business climate, dominated by one man, is a cause for concern among potential investors. The detention of businessmen and royals in 2017 on corruption charges sent shockwaves through the business community. Tax issues, exemplified by hefty bills served to companies like Uber, further add to uncertainty. The recent directive for multinationals to relocate regional headquarters to the kingdom by 2024 is seen by some as a coercive move, prompting firms like Siemens and Unilever to open offices in Riyadh.
The economic challenges, including the reduction of subsidies, increased taxes, and rising labour costs, have eroded some of Saudi Arabia’s traditional advantages for foreign firms. The path to diversification is intricate, and success will hinge on the delicate balance of economic reforms, foreign investment, and the ability to create a competitive edge.