Saudi Arabia’s non-oil sector experienced growth in August, with the Purchasing Managers’ Index (PMI) rising to 54.8, up from 54.4 in July. This improvement, driven by enhanced business conditions and employment growth, signals a positive trend for the kingdom’s economic diversification efforts. However, the PMI remains below the 2022 average, indicating that while progress is being made, there is still room for improvement. The non-oil sector’s performance is crucial for Saudi Arabia’s Vision 2030, which aims to reduce the country’s dependency on oil revenues.
Employment and Business Activity
The non-oil sector’s growth in August was significantly influenced by a sharp increase in employment. Job creation reached one of its highest rates in a decade, reflecting businesses’ confidence in their expansion plans. This surge in employment is a positive indicator of the sector’s resilience and its ability to adapt to changing market conditions. Companies are increasingly optimistic about future business activity, with expectations for the year reaching their highest since March.
Business activity levels also showed robustness, driven by new orders and increased government investment. The uptick in foreign sales further contributed to the sector’s growth. However, despite these positive indicators, new business growth remained subdued compared to the rates observed in previous years. This suggests that while the sector is expanding, it faces challenges in maintaining the momentum needed to reach pre-2022 levels.
The competitive nature of the market has led non-oil companies to reduce selling prices for the second consecutive month in August. This strategy aims to stimulate sales and maintain demand strength. The reduction in prices, although slight, indicates that businesses are taking proactive measures to navigate the competitive landscape and sustain growth.
Economic Resilience and Diversification
Saudi Arabia’s non-oil sector continues to demonstrate economic resilience, underscored by a robust 4.4% increase in non-oil GDP in the second quarter of 2024. This growth reflects the ongoing success of the kingdom’s diversification efforts under Vision 2030. The government’s focus on enhancing the non-oil sector is evident in the increased investment and support for various industries, including manufacturing, tourism, and technology.
The Riyad Bank PMI report highlights the sector’s capacity to meet growing market needs, with an uptick in new orders illustrating strong business optimism. The positive outlook is further supported by the significant rise in future output expectations. These indicators suggest that the non-oil sector is well-positioned to contribute to Saudi Arabia’s long-term economic goals.
However, the sector’s growth is not without challenges. The need to balance competitiveness with profitability remains a key concern for businesses. The pressure to reduce prices to stimulate sales highlights the delicate balance companies must maintain to ensure sustainable growth. Despite these challenges, the non-oil sector’s performance in August is a testament to its resilience and potential for future expansion.
Future Outlook and Challenges
Looking ahead, the non-oil sector is expected to continue its growth trajectory, albeit at a measured pace. The Riyad Capital report projects a 4.8% growth rate for the sector in 2024, with an acceleration to 5.2% in 2025. This optimistic outlook is driven by the kingdom’s growth-oriented fiscal policy and increased investment spending. The sector’s expansion is crucial for achieving the Vision 2030 goals and reducing dependency on oil revenues.
One of the main challenges facing the non-oil sector is the need to enhance infrastructure and support services. Developing state-of-the-art facilities and providing training programs for the workforce are essential for sustaining growth. Additionally, fostering innovation and technological advancements will play a critical role in maintaining the sector’s competitiveness.
Another challenge is navigating the global economic landscape, which is marked by volatility and uncertainty. The non-oil sector must remain agile and responsive to changing market conditions to capitalize on emerging opportunities. The focus on diversification and sustainable development will be key to overcoming these challenges and ensuring the sector’s long-term success.
