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Saudi Non-oil Sector Strong at 5.3% in Q1 2023


BNR – For the first quarter of the year, the Saudi economy grew by 3.8% year on year. Growth was mostly led by the non-oil sector, which remained strong at 5.3% year on year in Q1 2023.

According to a report by prominent UAE bank Emirates NBD, the percentage has remained steady from Q4 and Q3 2022. The transport, storage, and communication sector increased 9.3% year on year, while trade, restaurants, and hotels had real output growth increase to 7.5% year on year, according to the report.

It went on to say that the construction industry grew by 5.5% year on year in the first quarter.

Non-oil Government Services Show Strong Growth

According to Emirates NBD, growth in major industries such as finance, insurance, and real estate dropped to 2.8% year on year last quarter, down from 3.9% in Q4 2022. Government services, which make up around 14% of overall GDP, rose 4.9% year on year in the first quarter, the strongest rate since 2018.

On the spending side, consumption increased to 7.8% year on year from 4.5% in Q4 2022, led by an increase in government consumption (16.2% year on year).

Budget figures for the first quarter indicated that government spending on goods and services increased by 70% year on year. Private consumption growth increased to 3.9% year on year, although was lower than in H1 2022.

Gross fixed capital formation kept up its recent robust expansion, albeit slightly slower than in Q4 at 17.6% year on year in Q1 2023.

This indicates a significant rise in the kingdom’s investment spending from the beginning of 2022. Once more, the budget numbers for Q1 indicate a 75% increase in government investment spending year over year.

Private investment, on the other hand, was most certainly a significant contribution to fixed capital investment. According to the Emirati bank’s assessment, the Saudi economy’s first-quarter growth was somewhat lower than the preliminary projection of 3.9%.

On a seasonally adjusted basis, real output fell -1.4% q/q, owing mostly to lower crude oil and natural gas output.

GDP Growth

In the first quarter, net trade contributed favourably to total GDP growth (showing a trade surplus). Export growth slowed to 2.0% year on year, while import growth increased to 11.2% year on year.

“Although we have revised our forecasts for overall GDP growth lower to -0.5% in 2023,” stated the bank, “this is entirely due to the voluntary oil production cuts announced in April and which will be extended from July.”

“We have assumed that the additional 1m b/d in production cuts from July will be extended through the end of the year,” it added. “if these cuts are unwound in H2 then this would boost headline GDP growth in 2023.”

According to Emirates NBD, the robust non-oil sector development is due to a major structural transformation in the kingdom over the previous several years, as well as a surge in investment in non-oil industries post-pandemic.

This is to accomplish Vision 2030 goals as well as provide possibilities for young Saudis who will enter the labour market in the years to come amid an expanding population. According to the most recent census statistics (2022), the population will be 32.18 million in 2022, ranking it around the 40th biggest in the world.

This compares to 24 million in the 2010 census, indicating a 34.2% rise and a 2.5% annual growth rate.  This results in Saudi Arabia being the fastest-rising population in the G20 by a substantial amount in recent years.

Population Growth and Demographic Considerations

The increase in population during the previous census was 4.8 million Saudis, adding to the Saudi population’s young age, with the median age being just 22 years. 63% of the Saudi population is below 30, implying that many individuals will enter working age in the future years.

According to the report, the Saudi government is fully mindful of possible demographic pressure on the labour force, which partly explains the recent economic shift in which an array of new more labour-intensive industries, such as hospitality and tourism, have been supported to prosper. Furthermore, The government has urged Saudis, through the Saudisation strategy, into positions previously occupied by immigrant workers.

The government started the second stage of its Tawteen initiative in December, intending to create 170,000 job opportunities, 30,000 of which would be in the tourist sector. The National Tourism Strategy also seeks to create one million jobs in the industry as the business grows.

On the census’s release, Faisal bin Fadel Al Ibrahim, the minister of economy and planning, stated that ‘its outputs will be an essential component for preparing and making decisions, developing economic and social policy, making development plans for various sectors and services, promoting the Kingdom’s investment environment and accomplishing the Vision 2030 goals.’

Population Split

In 2022, the population split between Saudis and non-Saudis was 58.4% to 41.6%, or 18.8 million to 13.4 million. (down from a non-Saudi peak of 14.6 million in 2016). The majority of these immigrants are from Bangladesh, India, Pakistan, Yemen, Egypt, Sudan, and the Philippines.

However, the labour market divide remains stark, with non-Saudis accounting for two-thirds of the labour force.

Because of the large number of foreign employees, the median age of the non-Saudi population is now 34 years old. 91.8% of non-Saudis are in the working age bracket of 15-64, according to the Emirati bank’s report.

The large share of foreign employees has repercussions for gender equilibrium in Saudi Arabia. However, Saudi males and females are nearly equal in the working age bracket. There are 3.9 males for every female among non-Saudis, resulting in an overall divide of 1.84 to 1.0. Males make up 61.2% of the population, while females make up 38.8%.

In terms of the future, Emirates NBD believes that non-oil sector growth would continue to be solid this year. It cites PMI surveys that show high local and global demand in the first five months of the year.

The Riyadh Bank PMI averaged 59.0 in May, significantly greater than the 55.5 average in January-May 2022.


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