After years of false starts, Saudi Arabia’s wildly ambitious move away from a reliance on oil is finally in full swing. In the first quarter this year, the government reports that non-oil activities accounted for 40% of gross domestic product, narrowly surpassing oil at 38.5%, with services, hotels and restaurants, and finance driving growth.
Yet the transition away from oil, recently powered by a surge in oil revenues, is doing more than grow the kingdom’s non-energy economy, it is transforming how Saudis live, commute, and spend holidays, and even changing how they see their country.
Why We Wrote This
Progress can demand intense effort, even sacrifice. Saudi Arabia’s drive to modernize its economy is transforming all facets of its society, creating opportunities, and challenges, for its people.
The engine of this transformation is a sovereign wealth fund that has been pumping billions of dollars yearly into local industries, start-ups, renewable energy, tourism, and transportation and housing projects that are changing the look and feel of Saudi cities. The International Monetary Fund is forecasting the Saudi economy to grow by 7.6% this year even as others around the world contract.
In 2016, chemical engineer Mohammad Hashboul left a promising career at state oil company Aramco for a management job at Uber, then helped establish Academi, a Saudi e-learning start-up. He says it was an easy risk to take.
“There was an untapped market, a rapidly evolving economy, and a real desire for change,” he says. “I saw these changes as a high-potential opportunity that we should not miss out on. And now we are living it.”
Riyadh and Jeddah, Saudi Arabia
Mohammad Hashboul has not looked back since he left oil behind.
Since leaving a promising career at state oil company Aramco for a management job at Uber in 2016, the young chemical engineer helped establish Academi, a Saudi e-learning start-up, a year before the pandemic hit.
Sitting at his desk in a leafy office park at the edge of Riyadh, he says giving up the gold standard in Saudi careers for the uncertainty of the private sector was actually an easy risk to take.
Why We Wrote This
Progress can demand intense effort, even sacrifice. Saudi Arabia’s drive to modernize its economy is transforming all facets of its society, creating opportunities, and challenges, for its people.
“At the time I saw great opportunity in Saudi Arabia; there was an untapped market, a rapidly evolving economy, and a real desire for change,” Mr. Hashboul says.
“I saw these changes as a high-potential opportunity that we should not miss out on. And now we are living it.”
Here in the world’s largest producer of crude, oil is increasingly regarded as old news, passé, even a career dead end.
Mr. Hashboul’s career shifts, and the seized opportunities by many like-minded young Saudis, are part and parcel of a wildly ambitious plan by Saudi leadership to transform the economy. After years of false starts, the move away from a reliance on oil is finally in full swing.
The government reports that non-oil activities accounted for 40% of gross domestic product in the first quarter of this year, narrowly surpassing oil at 38.5%, with hotels and restaurants, finance, and services driving growth.
The transition away from oil is doing more than grow the country’s non-energy economy, it is transforming how Saudis live, commute, meet, and spend holidays, and even changing how they see, and what they expect from, their kingdom.
But as the kingdom accelerates its dash to a post-oil future – powered by a sudden surge in oil revenues and a rosy economic outlook – a critical question arises: Can people, and an entire society, keep up with such rapid change?
Benchmarks to achieve a vision
The changes underway were outlined in Vision 2030, launched by Crown Prince Mohammed bin Salman in 2016. The series of reforms and benchmarks included mega-projects dismissed by media and critics as castles in the sky: a futuristic, $500 billion, solar- and wind-powered linear city, an outdoor skiing mountain in the desert, flying cars.
But beneath the grand projects are detailed benchmarks to create a functioning non-oil economy:
- grow the private-sector contribution to GDP from 40% to 65%.
- lower unemployment to 7.6%.
- raise women’s participation in the labor force from 22% to 30%.
- and, perhaps staggeringly, raise non-oil GDP from 16% to 50%.
The engine of the vision is the Public Investment Fund, or PIF, a reservoir of state assets and oil revenues that has become one of the world’s three largest sovereign wealth funds. Founded and chaired by the crown prince, it has been pumping billions of dollars yearly into local industries, start-ups, renewable energy, tourism sites, and transportation and housing projects to spur the economy and create more sustainable cities.
After six years, hundreds of projects are taking off, and the International Monetary Fund is forecasting the Saudi economy to grow by 7.6% this year even as others around the world contract.
At one of the PIF’s projects, Monsha’at, an incubator and support center for SMEs – small to medium-sized enterprises – young Saudi businesses and innovators are developing technologies in health, cybersecurity, logistics, and artificial intelligence at an office park at the edge of the Riyadh desert, near Microsoft and Amazon local headquarters.
In the incubator’s Thakaa lab, surrounded by shelves of drones and robotic odds and ends, Mohammed Alhassan shows off the latest updates to his Shttle, an app-powered, pickup-and-delivery storage locker and logistics solution that employs 25 Saudis and counts UPS among its customers.
He swipes his phone and the demo locker pops open.
“With the rise of online shopping during the pandemic, businesses of all sizes need storage solutions. We revamped the locker model to fit their needs,” Mr. Alhassan says.
“The only way to move forward in this economy, or any economy, is to come up with solutions.”
Wijadan Alruwaili, innovation technology team leader at Monsha’at, says these nascent Saudi businesses are now attracting Saudi and regional investors who once put their billions abroad.
“There is a Silicon Valley in the U.S. Perhaps one day we can have our very own valley right here in Riyadh,” Ms. Alruwaili says.
Meanwhile, to help Saudi Arabia feed itself, Red Sea Farms, a Jeddah-based Saudi ag-tech start-up, is farming in the scorching desert.
Four years since it was founded, the firm is now using its saltwater cooling process and plant science to grow saltwater tolerant tomatoes, cucumbers, and peppers in the Riyadh desert – and is set to expand across the kingdom and region in a bid to decrease the country’s reliance on imported produce.
“I think there is a shift from only looking internationally to looking locally for innovation in Saudi Arabia now,” says Simon Roopchand, chief operating officer of Red Sea Farms.
“There is a recognition that they don’t need to go for international knowledge all the time when they are building up their own expertise within the kingdom.”
City life transformed
But perhaps the most visible symbol of this transformation is Riyadh itself.
With the expansion of business opportunities and the loosening of entertainment and social restrictions, the once-closed conservative city in the Najd desert is no longer the stuffy administrative capital that Saudis and foreigners alike fled in search of relaxation.
Businessmen and women once flocked to the Red Sea coastal city of Jeddah, the more easygoing and open port city that served as a trade center and the beating heart of the Saudi economy.
Now a reverse migration is taking place: Companies, entrepreneurs, and individuals are picking up and moving from Jeddah to Riyadh to make it big.
“There are funds, there are investors, there are international companies, there are tons of cultural events and activities,” says Omar Mohammed, a 27-year-old Jeddah entrepreneur in marketing data whose colleagues next door recently moved to Riyadh. “For the first time in my lifetime, Riyadh is the happening place to be. It’s incredible how quick this has happened.”
With the capital sporting a Times Square-like entertainment center, shopping malls, and a cafe culture, Western diplomats and business people who once bristled at the thought of a posting in Riyadh now describe it as “an American city without the alcohol.”
Entire neighborhoods are rising from the desert on Riyadh’s northern edge every six months, complete with gyms, salons, and spas. Desert that was valued at a few thousand dollars per acre is now the site of condos going for $250,000 a pop.
A slick, $22 billion metro snakes across the city and is set to open this fall with 86 glassed-in, air-conditioned stops – an increasingly attractive option for residents who now face hour-plus commutes.
“If I can leave my car at home and go to work and back in air conditioning, I will ride the metro every day,” says Mohammed, a Riyadh clerk. “I can’t stand driving in traffic anymore.”
In Riyadh and Jeddah, men and women in their 20s sit at tables, writing essays and preparing business proposals on laptops at cafes staffed by Saudi baristas. Across the country, the number of specialty cafes has grown from 5,000 to 20,000 the past four years, emerging as the go-to place for meetings.
Six years ago, such a public mixing of the sexes would not have been allowed.
The change in the economy is also fundamentally reshaping how Saudis are spending their leisure time.
While Saudis once flocked to Lebanon, Jordan, Morocco, and Europe to beat the summer heat, the Saudi leadership’s promotion of unheralded tourism gems in surprisingly diverse climates is encouraging local getaways.
In late May, thousands of Saudis flocked to the city of Abha in the misty pine-dotted mountains of Asir, many escaping 105-degree heat and dust storms in Riyadh.
One pair of sisters at Abha Airport awaiting a return flight to Riyadh told the Monitor they took a budget flight to the mountain area for a “girls’ weekend out” – a reward after a hard month of work.
Four years ago, they would not have been able to travel between cities without a male guardian’s permission. Now, none of the few hundred travelers in the airport appeared to bat an eye.
“We used to just serve the local community, but now we are meeting people from across the kingdom,” Um Amran, a local merchant in Abha, says from her stand selling local red-and-white baskets at the farmers market. “Young women, young men are exploring the country. Times are changing, and so must we.”
Range of challenges
But Saudi Arabia’s transformation is by no means a straight line nor smooth.
The economic opportunities and social freedoms come with a cost:
- Housing prices are up 20% in Riyadh and 10% in Jeddah over the past 12 months.
- A universal 15% value-added tax (VAT) on all goods remains in place four years after it was first introduced to a nation not accustomed to taxes.
- Inflation hovers at 2.5% to 3%, but the cost of living is up for Saudis, who no longer have vast subsidies or state-guaranteed jobs to rely on.
“It’s too expensive to live here,” says one Riyadh resident who is struggling to find an apartment, a precursor to getting married. He complains of working two jobs. “I feel like I am working nonstop to make ends meet. When do I get to start my life?”
And Saudi Arabia’s human rights track record and the fallout from the killing of Saudi journalist Jamal Khashoggi continues to keep some American firms away due to optics back home. But, say several longtime observers and members of the international business community in Saudi Arabia, European companies and American investment firms increasingly are overcoming these concerns, swayed by the vast business opportunities.
Then there is the question of whether Saudi work culture can catch up with the ambitions of its Silicon Valley-inspired entrepreneurs and CEOs.
Foreigners who have set up businesses in the kingdom say some Saudi employees come into work late, leave early, do not complete their tasks, and see their job as an entitlement rather than a service – an attitude carried over from the pre-vision public sector bureaucracy that was long the main employer.
“There are limits to how fast an economy can pivot on its axis,” says Chris Johnson, ex-officio of the American-Saudi Chamber of Commerce in Saudi Arabia, who has been involved in the Saudi private sector for four decades.
“You can’t take a rentier economy where money grows on oil platforms and all of a sudden flip a switch and have everyone be productive in the office.”
Some older conservatives hint, but never say out loud, that they disapprove of gender mixing and a “loss of family values.”
Flush with oil funds, the government says it is looking to cut the VAT, and is set to expand a program to help Saudis achieve affordable homeownership. Social openings are here to stay.
The transformation is set to gain pace for all Saudis, whether they are ready for it or not.
“Saudi Arabia today is full of opportunities and it is growing,” says Mr. Hashboul, the chemical engineer turned entrepreneur. “All you need to do is catch up.”