Al-Iqtisadi: Comprehensive Analysis of the Saudi Economy and Its Role in the

The term Al-Iqtisadi refers to the sum of activities and measures that influence the formation of a country's gross domestic product, including production, services, employment, consumption, and investment. In the Saudi context, Al-Iqtisadi forms the foundation upon which state policies and development strategies are built, serving as the main driver of financial market performance. The performance of the Saudi financial market is closely tied to the state of the macroeconomy; any change in growth rates, oil prices, or government policies is quickly reflected in the movement of the main index (TASI) and stock prices. The primary significance of Al-Iqtisadi lies in its role as a reference for investment decisions and for assessing risks and opportunities. Economic stability boosts investor confidence and encourages both local and foreign investment inflows, while volatility can lead to sharp market fluctuations. Therefore, understanding the Saudi economy is vital for anyone engaging with financial markets or planning to invest in the Kingdom.

The Saudi economy is the largest in the Middle East and North Africa region, traditionally relying on oil revenues, which constitute a significant portion of GDP and state income. In 2024, GDP reached approximately $1.1 trillion, with an estimated growth of 3%. Despite a relative slowdown compared to 2023, the Saudi economy showed resilience due to oil production cuts and the continuation of major development projects. Saudi Arabia enjoys a strong trade surplus, with exports valued at around $400 billion versus imports of about $150 billion. Inflation stabilized at around 2.5%, reflecting the effectiveness of monetary policies in containing global pressures. The Saudi riyal maintained its stability against the US dollar, supported by robust reserves and measures by the Saudi Central Bank (SAMA). These core indicators reflect the strength and sustainability of the Saudi economy, especially amid global challenges and energy market fluctuations.

The oil and gas sector occupies a central position in the Saudi economy, accounting for nearly half of government revenues and a large share of GDP. In 2024, Brent crude prices ranged between $70 and $80 per barrel, supporting the general budget and enabling continued spending on national transformation projects. Oil price fluctuations have a direct impact on the trade balance, export volumes, and government investment. The results of major companies like Aramco strongly influence the main market index due to their size and record profits (Aramco's profits reached about $180 billion in 2023). Meanwhile, the Saudi government is working to reduce oil dependence by developing non-oil sectors and expanding the national economic base in line with Vision 2030. Despite these efforts, oil remains the main driver of liquidity and investment in the Saudi market, affecting stock trends and financial indices.

Saudi Vision 2030 aims to build a diversified and sustainable economy, reducing reliance on oil and developing non-oil sectors such as industry, tourism, financial services, and technology. The government has launched major initiatives like the Public Investment Fund (PIF) to finance national and global projects, alongside infrastructure development (such as NEOM and Qiddiya projects). Economic diversification also includes supporting small and medium enterprises and improving the business climate to attract foreign investment. Major legislative and economic reforms have been implemented, such as privatizing some government sectors, facilitating women's entry into the labor market, and developing the digital sector. These efforts have increased the contribution of non-oil sectors to GDP, created more job opportunities, and enhanced the competitiveness of the Saudi economy regionally and globally.

The Saudi economy consists of several main sectors contributing to GDP and diversifying national income sources:

1. Energy Sector (Oil & Gas): The backbone of the economy, dominated by Aramco and SABIC, providing the largest share of government revenues.
2. Industrial Sector: Includes manufacturing, petrochemicals, and mining. Companies like Ma'aden and SABIC lead this sector, focusing on exports and reducing imports.
3. Financial and Banking Sector: Led by major banks such as Al Ahli, Al Rajhi, and Riyad Bank, accounting for about 15% of GDP. The sector has seen significant development with the entry of fintech and enhanced regulation.
4. Services and Tourism Sector: Includes religious tourism (Hajj, Umrah), leisure tourism, education, and healthcare. This sector is growing rapidly due to major tourism projects and government support.
5. Trade and Retail Sector: Growing with population increase and urban expansion, with special government support for e-commerce and logistics services.

Each of these sectors faces regional and international competition and contributes to enhancing the economy's resilience and reducing risks from oil price fluctuations.

Monitoring economic performance relies on several vital indicators:

- Gross Domestic Product (GDP): Reached $1.1 trillion in 2024, with annual growth expectations of 2.8-3%.
- Inflation Rate: Remained stable at 2.5%, reflecting effective monetary policies.
- Trade Surplus: Exports ($400 billion) exceed imports ($150 billion), providing currency stability.
- Riyal-Dollar Exchange Rate: Stable at 2.975 riyals per US dollar.
- Stock Market Capitalization: $3.5 trillion by the end of 2024.
- Price/Earnings Ratio (P/E): Ranges between 18 and 20, suitable for emerging markets.
- Dividend Yields: Relatively stable, with a slight increase expected due to improved company profits.

These figures highlight the strength of the Saudi economy and provide a solid base for market analysis and trend forecasting, without constituting direct investment advice.

Fiscal policy plays a key role in steering the Saudi economy. In 2024, the government announced a budget aimed at turning the projected 2023 deficit into a slight surplus, benefiting from higher oil prices and increased government spending on vital sectors such as health and education. Monetary policy relies on pegging the riyal to the US dollar, resulting in relative dependence on US monetary policy. The Saudi Central Bank (SAMA) manages liquidity levels and interest rates to ensure currency stability and control inflation. Regulatory measures and reforms introduced in the financial market have enhanced transparency and investor protection. All these policies aim to achieve economic sustainability and strengthen the confidence of local and international investors in the Saudi market.

Despite the strength of the Saudi economy, it faces ongoing structural challenges. Key challenges include:

- Oil Dependence: The economy remains exposed to global oil price fluctuations, despite diversification efforts.
- Job Creation: With a growing youth population, unemployment remains a challenge, especially among women and recent graduates, although the unemployment rate fell to 4-5% in 2024.
- Digital Transformation: Transitioning to a digital economy requires significant investment in infrastructure and education.
- Regional and International Competition: Saudi Arabia competes with other Gulf economies and Asian and European countries to attract investment.
- Inflationary Pressures and Global Recession: Global crises affect oil demand and Saudi exports, imposing pressures on economic policies.

Addressing these challenges requires ongoing reforms, improving the business environment, and supporting innovation and entrepreneurship.

The Saudi economy offers diverse opportunities for local and international investors, especially amid the shift toward non-oil sectors. Key opportunities include:

- Tourism and Entertainment: With the launch of projects like NEOM and Qiddiya, and an increase in international events.
- Manufacturing Industries: Significant opportunities in food, technology, and petrochemicals.
- Fintech and Digital Economy: Strong growth in digital banking, artificial intelligence, and tech solutions.
- Renewable Energy: Major investments in solar and green hydrogen projects.
- Education and Healthcare: Ongoing government support for the development of these sectors.

These opportunities enhance the attractiveness of the Saudi economy and support the achievement of Vision 2030's goals for diversification and sustainable growth.

The performance of the Saudi financial market (Tadawul) is a mirror reflecting the state of the Saudi economy. When economic indicators such as growth or rising oil prices improve, the profits of listed companies and stock prices—especially in leading sectors like banking, energy, and industry—tend to rise. Conversely, during global volatility or crises, the main index may decline, affecting liquidity and trading activity. New regulations and reforms also impact investor confidence and capital flows. Investors closely monitor financial performance reports, state budgets, and Vision 2030 projects to assess growth opportunities and risks. With the expansion of sectoral indices and the listing of new companies, market resilience and investment diversification opportunities are further enhanced.

The Saudi economy witnessed several pivotal developments in 2024-2025:

- Announcement of a budget surplus and major spending plans in health, education, and national projects.
- Major companies like Aramco achieved record profits and increased dividend distributions.
- Acceleration of strategic projects such as NEOM and the launch of solar energy plants.
- Adoption of new policies to enhance transparency in the financial market and protect investors.
- Expansion of investments in the digital economy, artificial intelligence, and government digital transformation.

These developments reflect the dynamism of the Saudi economy and its ability to keep pace with global changes, achieving growth and economic diversification goals.

Saudi Arabia competes strongly in the region and globally to attract investments and infrastructure projects. It faces challenges from other Gulf economies (UAE, Qatar), which are also working to develop non-oil sectors such as tourism, technology, and financial services. Major Saudi companies in oil and industry compete with their counterparts in Asia, Europe, and America (such as ExxonMobil and Shell). Saudi Arabia relies on strategic alliances, trade agreements, and the active role of the Public Investment Fund to improve its competitive position. The Kingdom also seeks to increase non-oil exports, develop supply chains, and localize technology. Continued investment in human capital and infrastructure aims to attract multinational companies and achieve economic sustainability.

In recent years, the Saudi government has focused on developing the legislative and regulatory environment to enhance the economy's competitiveness. These reforms include:

- Updating capital market regulations to boost transparency and protect investors.
- Facilitating company formation procedures and attracting foreign investment.
- Supporting innovation and entrepreneurship through funding programs and business incubators.
- Improving legislation related to e-commerce and the digital economy.
- Launching governance and financial oversight initiatives.

These reforms have raised the Kingdom's ranking in global ease of doing business indices, increased investor confidence, and stimulated growth in non-oil sectors. They have also accelerated digital transformation, increased financial inclusion, and improved the overall investment climate.

Outlooks for the Saudi economy point to continued moderate growth in 2025, with ongoing diversification efforts and development of non-oil sectors. Sectors such as tourism, technology, and manufacturing are expected to experience accelerated growth, supported by public and private investments. However, challenges remain, such as oil price volatility, regional competition, and evolving labor market needs. Fiscal and monetary policy will remain crucial in maintaining stability, alongside the importance of fostering innovation, localizing technology, and developing human capital. The future of the Saudi economy represents an opportunity to build a sustainable and resilient development model, capable of adapting to global changes and achieving national vision goals.