ASSESSMENTS

Why Saudi Arabia Will Struggle to Draw Investors in 2019

Dec 12, 2018 | 11:00 GMT

A Saudi man gestures near a sign at the start of the three-day Future Investment Initiative in Riyadh on Oct. 23, 2018.

A Saudi man gestures near a sign at the start of the three-day Future Investment Initiative in Riyadh on Oct. 23, 2018. Riyadh is experiencing great difficulty in cultivating a more robust private sector.

(FAYEZ NURELDINE/AFP/Getty Images)

Highlights

  • Economic growth in Saudi Arabia in 2019 will stem largely from public sector spending.
  • The reliance on public sector spending underlines how difficult it will be for Saudi Arabia to move to a more diversified economy with a vibrant private sector.
  • Political uncertainty in the Middle East, as well as perceptions of domestic political turmoil within Saudi Arabia, will contribute to lackluster foreign direct investment in the kingdom.

With 2019 just around the corner, Saudi Arabia's economic planners are busy at work, planning the oil giant's budget for the coming year. On one hand, the outlook for the country's economic growth is good, especially when compared to a year ago. Over the past year, oil prices have been high enough that the desert kingdom has succeeded in narrowing its substantial budget deficit faster than originally planned. Real GDP growth also hit 1.8 percent in the first half of 2018 – up a full 1 percent from the same period of 2017. Nevertheless, a deeper problem lurks, namely, the economic engine that is responsible for the country's growth. If growth only comes from heavy state spending, rather than private sector activity or higher levels of consumption, Saudi Arabia's ambitious plans to diversify the economy have little chance of success in the near term....

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