Saudi Non-Oil Exports before and after COVID-19: Historical Impacts of Determinants and Scenario Analysis

Abstract

The diversification of the economy including its exports is at the core of Saudi Vision 2030. The vision targets to raise non-oil export from 16% to 50% of non-oil GDP by 2030. Achieving this, in addition to other goals, necessitates a better understanding of the non-oil export relationship with its determinants. However, we are not aware of a study that estimates the impacts of the determinants on Saudi non-oil exports covering the recent years of reforms and low oil prices and that conducts simulations for future. The purpose of this study is to develop an econometric modeling framework for Saudi non-oil export that can enhance informing the policymaking process through empirical estimations and simulations. For estimations, we applied cointegration and equilibrium correction methodology to the annual data for the period 1983–2018. Results show that Middle Eastern and North African countries’ GDP, as a measure of foreign income, and Saudi Arabia’s non-oil GDP, as a measure of production capacity, have statistically significant positive effects on Saudi non-oil exports in the long run. The real effective exchange rate (REER), as a measure of competitiveness, also exerts a positive effect in the long run if it depreciates and vice versa. Furthermore, our findings support the Export-led growth concept, which articulates that export can be an engine of economic growth and does not support the Dutch disease concept, which highlights the consequences of the resource sector for the non-resource tradable sector for Saudi Arabia. Macroeconometric model-based simulations conducted up to 2030 reveal out that the Saudi non-oil export is more responsive to the changes in REER than any other determinants. The simulation results also show that non-oil manufacturing makes a three times larger contribution to the future expansion of non-oil exports than agriculture. Moreover, the simulations discover that finance, insurance, and other business services, as well as transport and communication play an important role in improving the Saudi non-oil export performance in the coming decade. The key policy recommendation is that measures should be implemented in a coordinated and balanced way to achieve non-oil exports and other targets of the Vision.

The Impact of Non-Oil Exports on the Economic Growth in Saudi Arabia: An Empirical Analysis

“…Raid et al (2024) investigated the impact of non-oil institutional sectors on the economic growth of Saudi Arabia from 1970 to 2020 by employing Vector Auto-Regressive (VAR) and variance decomposition and they found that the growth of the oil sector is highly susceptible to shocks and negatively affecting the economic growth while the growth of non-oil sector had more stability and reduces the adverse shocks on GDP. Similarly, Hasanov et al (2022) examined the role of non-oil exports on the economy of Saudi Arabia by using the co-integration technique over the time frame 1983-2018. The findings of their study supported the concept of export-led growth while they didn't find any evidence of the Dutch disease.…”

“…It has been acknowledged for a long time that exports are a leading driver for sustainable economic growth (environmental and social sustainability to a certain level) by boosting the rate of employment, encouraging investment particularly, foreign direct investment, and advanced technologies, producing positive externalities for other sectors. Nonetheless, all these factors are pivotal for sustainable inclusive economic development as they can contribute to the augmentation of economic activity, a rise in the level of income, and poverty alleviation (Hasanov et al, 2022).…”

“…Third, an influential spillover effect will occur due to the growth in non-oil exports and will increase the demand for other non-tradeable and tradeable goods. Fourth, improvement in exports has also contributed to appealing to foreign investors regarding foreign direct investment, which increases the efficiency in growth and productivity by transferring advanced technologies and creating positive externalities in the whole economy (Hasanov et al, 2022). Despite this, the empirical research in the literature does not give comprehensive prospects on the importance of non-oil exports in Saudi Arabia.…”

An analysis of the effects of oil and non-oil export shocks on the Saudi economy

“…This shows how dependent the country is on the commodity. In 2019, the oil industry made up 41% of the GDP, 77% of the money came from exports, and 64% went into the government's budget (Hasanov et al, 2022).…”

“…Although most of Saudi Arabia's non-oil exports are tied to oil production, such as chemicals and plastics, the country's non-oil exports have grown by a factor of seven, or 12.5% a year, between 2002 and 2019. This means that the oil business still accounts for a large share of Saudi Arabia's GDP, even though the non-oil sector has developed rapidly in recent years (Hasanov et al, 2022).…”