KSA-Frost & Sullivan Report TJ Sivan, Senior Consultant, Supply Chain & Logistics Practice, Frost & Sullivan fields questions on the Saudi logistics landscape.

Saudi Arabia’s burgeoning economy to peak over US$ one trillion in 2022—IMF Forecast

Under Saudi Vision 2030, the Kingdom’s Transport and Logistics sectors have made several inroads and key accomplishments during the past few year

With stable growth in non-oil sectors and the spike in oil prices, Saudi Arabia managed to blunt off the effects of the pandemic. The country reported a GDP of about US$ 833 billion in 2021. Economic growth of the country is predicted to rise by 6.8 to 7 percent in 2022 due to higher oil prices, before returning to a normal growth rate 3.8 to 4 percent in 2023, affirms a recent Frost & Sullivan Report.

TJ Sivan, Senior Consultant, Supply Chain & Logistics Practice, Frost & Sullivan The financial growth metrics are looking good for Saudi Arabia on all counts. According to recent International Monetary Fund (IMF) forecasts, the size of the Kingdom’s economy will exceed US$1 trillion in 2022, for the first time in its history, it was widely reported in the regional and international media.

The International Monetary Fund (IMF) raised its 2022 forecast for Saudi Arabia, suggesting that the Kingdom’s economy is set to grow by more than two-fold amid a record-high surge in oil prices.

The IMF’s latest report entitled ‘World Economic Outlook: War sets back the global recovery,’ stated that it revised its 2022 economic forecast for Saudi Arabia, anticipating a 2.8 percent growth, “reflecting higher oil productions in line with the OPEC+ agreement, reinforced by strong-than-anticipated growth in the non-oil sector.”

The Fund’s baseline fiscal projections are primarily based on its understanding of government policies as outlined in the 2022 budget, the report stated, adding that export oil revenues are based on World Economic Outlook baseline oil price assumptions and their understanding of current oil policy under the OPEC+ agreement.

Their monetary projections for the Kingdom were based on the continuation of the exchange rate peg to the US dollar currency, the report added.

Saudi Arabia’s economy grew by 9.6 percent in the first quarter of 2022, compared to a year earlier, according to flash government estimates in early May 2002, as a recovery in the oil sector drove the strongest growth in more than a decade.

During the first quarter, oil activity in

Saudi Arabia increased by 20.4 percent and non-oil activity by 3.7 percent, the estimates showed.

If the estimates are confirmed, they would mark the highest growth rate since 2011, the Saudi General Authority for Statistics stated.

These encouraging statistics and reports clearly bode well for the Saudi Arabian economy and a surge in logistics and supply chain capital investments and business growth in this key sector in the Kingdom as reiterated by TJ Sivan, Senior Consultant, Supply Chain & Logistics Practice, Frost & Sullivan. Global Supply Chain (GSC): How would you characterize the state of the current Saudi Arabian economy—general comments, brief? TJ Sivan (TJS): After more than two years from the economic dip that resulted from the onset of the Covid pandemic, Saudi Arabia has managed to register strong growth and recover better than expected in the latter half of 2021.

With stable growth in non-oil sectors and the spike in oil prices, Saudi Arabia managed to blunt off the effects of the pandemic. The country reported a GDP of about US$ 833 billion in 2021. Economic growth of the country is predicted to rise by 6.8 to 7 percent in 2022 due to higher oil prices, before returning to a normal growth rate 3.8 to 4 percent in 2023.

GSC: The Saudi economy is being boosted by surging oil prices and revenues. What implications does this have for the Kingdom’s economy in real time and what is your assessment of the same? TJS: A key factor in the recovery of the Saudi Arabian economy was the hike in oil prices. With increased prices, Saudi Aramco benefitted from this surge as it almost doubled its profits. The profit from oil brought the country from recovery to a growth stage.

Oil output is predicted to grow by 11 to 14 percent in 2022 after the conclusion of OPEC+ production cutbacks in December 2022. The oil sector contributes about 40 percent of GDP and around 60 percent of government revenue, which is likely to support infrastructure investment growth; considering logistics as a priority area as part of Vision 2030, investments in logistics infrastructure is expected to increase.

GSC: Covid-19 is now on decline. Relatively speaking, how much of an economic fallout has the pandemic had on Saudi Arabia had vis-a-vis other regional neighbours and countries? TJS: In 2020-2022 Saudi Arabia fared better when compared to other GCC countries. Despite limited restrictions, the Kingdom’s growth was high compared to its neighboring countries, and it managed to recover its economy fairly well in 2021.

COUNTRY REPORT: KINGDOM OF SAUDI ARABIA Saudi economy during 2021-2022

increased significantly and reached about SAR 231 billion (US$ 61.6bn) in its non-oil sector in 2021, seeing 37percent growth from the previous year.

The Saudi Economy remained strong compared to neighbouring countries such as Kuwait and UAE in 2020 and recovered well in 2021 with a growth of 3.2 percent. It is expected to perform better in 2022 compared to other neighboring countries.

GSC: As things stand currently, what are the key takeaways and highlights of the Saudi economy? TJS: The progress regarding the nonoil sector development is estimated at 4 percent growth this year, and the oil sector is predicted to grow between 11 to 14 percent. Increased private consumption, religious tourism, and more investments by the Public Investment Fund (PIF—the Saudi Sovereign Wealth Fund) and other government organizations will play a pivotal role in increasing GDP from non-oil sectors.

The boom in ecommerce and increased cross-border trade are expected to support the growth of the logistics industry.

GSC: Where are the new opportunities and challenges for investment in Saudi Arabia and which sectors hold the most promise and potential? TJS: New opportunities for Investment in Saudi Arabia are in petrochemicals, logistics, construction, mining, manufacturing, industrial and tourism. Challenges within the investments could be related to Covid-related disruptions, increasingly changing business atmosphere and security challenges. However, the challenges are few and the opportunities outweigh the challenges by a huge number.

As Saudi Arabia is moving towards developing its sectors with full force, foreign investments are increasing, with PIF as the government-led investor fuelling the growth of various sectors. The most promising sectors are manufacturing, industrial and tourism, with Giga smart city projects under construction.

GSC: Saudi Vision 2030 has been the logistics and supply chain and transportation infrastructure the centerpiece of the Kingdom’s economy…. comment please. TJS: Development of infrastructure is one of the main priorities of Saudi Arabia for its ‘Vision 2030’, as it plans to become the logistics hub of the region, connecting Europe, Asia and Africa.

The government has taken several initiatives for a smart government, Industry 4.0 and a cloud-based platform to support its logistics activities. These initiatives will incorporate the newest technologies like Blockchain, 5G, BigData, AI, Robotics and IoT. PIF’s Warehouse Automation project offers a fully automated warehouse with robotics.

Regarding port automation, the

Saudi Global Ports has invested in developing key infrastructure in King Abdulaziz Port in Dammam with a focus on sustainable and advanced systems. Airport development projects are being undertaken with a focus on increasing air cargo capacity. Road and railway projects are also expected to strengthen logistics capabilities of Saudi Arabia further.

GSC: How significant is the logistics and supply chain industry to Saudi Arabia, the region’s biggest economy? TJS: To diversify its economy, Saudi Arabia plans to construct economic cities and special economic zones. The country wishes to open tourism and increase trade facilitation. As the supply chain lies in the heart of the most important sectors contributing to the GDP, logistics is crucial for these sectors to flourish.

Without a resilient supply chain, the growth of various sectors might get hindered and therefore the sector will stagnate in terms of development. Since Saudi Arabia has a geographical advantage, it aims to establish itself as a logistics hub and therefore improve its economic stature.

By 2030, Saudi Arabia intends their transport and logistics sector to contribute 10 percent to the total GDP, which stood at around 6 percent in 2021.

GSC: What kind of impact will giga projects like Neom, AMAALA, Red Sea Development Project and Qiddiya to name a few, have on the logistics sector in the Kingdom? TJS: Promising the latest technology and clean energy in these Giga projects, the Kingdom aims to commercialize them and build them into tourist destinations. As the business will develop in the region and new economies will emerge, logistics services are required to serve the areas that would face a demand from customers.

As customers pour in and the city expands, logistics sector will face an increasing demand for an integrated smart supply chain. The Private sector is contributing to take advantage of this opportunity. Maersk’s Integrated Logistics Park is under construction in Jeddah Islamic ports and intends to offer extensive Warehousing, distribution and e-commerce services.

In tandem, public sectors like Saudi Ports Authority (MAWANI) and DP World Jeddah are working on expanding the Container terminal in Jeddah Islamic Port. In addition, the Neom, AMAALA, Red Sea Development and Qiddiya projects are all expected to incorporate the newest technologies and be digitally smart. This will require smart logistics services and a more significant demand base to cater to.

GSC: How important is Aramco to the Kingdom’s economy? What implications do oil revenues have for the logistics sector in the country? TJS: Saudi Arabia’s oil sector is responsible for roughly 40 percent of its income. With such a high percentage of contribution to GDP, it is the largest sector constituting the economy of the Kingdom. Aramco is the largest oil and gas company in the country, accounting for the highest percentage of share compared to its competitors.

It contributes largely to Saudi Arabia’s economy and has also participated in developmental programs. The company plans on developing and incorporating technology in its strategy. It intends to focus on doubling its production and making its business stronger by expanding into chemicals and include renewables as well.

GSC: What has been the impact of the pilgrimage-hajj-umrah-ban this year on the economy? TJS: In 2019, the number of religious tourists in the Kingdom was approximately 19 million for Umrah and 2.5 million for Hajj. Collectively they accounted for about 6-8 percent of the total GDP, including oil and 19-21 percent in the exclusively non-oil sector.

However, restrictions have been eased up since 2021, during which the government allowed about 60,000 local pilgrims only for Hajj and nearly six million local and international pilgrims for Umrah. This year, Saudi Arabia expects to welcome one million pilgrims for the annual Hajj season and Umrah to recover its economy.

GSC: Based on current trends and economic indices, what is Frost & Sullivan’s prognosis for the Saudi economy and the logistics and supply chain sector for 2021-2022? TJS: Saudi economy during 20212022 increased significantly and reached about SAR 231 billion (US$ 61.6bn) in its non-oil sector in 2021, seeing 37percent growth from the previous year. It is expected to grow at a higher percentage in 2022 with the development of non-oil sectors in Saudi Arabia.

Concurrently, as the economy develops, the supply chain sector will see a high demand in relation to increased business activities. The industry is said to grow at a CAGR of around 4-5 percent between 2022-2025, as Saudi Arabia’s vision 2030 will progress.