Saudi Arabia's non-oil economy expanded in December as new orders rose at their fastest pace in six months, amid the kingdom's continued diversification efforts.
The headline Riyad Bank purchasing managers' index reading stood at 57.5 for the second month running in December, remaining well above the 50-point neutral mark that separates expansion from contraction.
The index has remained above the neutral mark for more than three years, according to the survey.
The latest PMI data indicates “a marked improvement in operating conditions across the non-oil economy”, it said.
“This growth was supported by a sharp rise in business activity and exports, highlighting the resilience and strength of the non-oil economy,” said Naif Al-Ghaith, chief economist at Riyad Bank.
The export sector experienced the fastest increase since July, driven by government initiatives and the emergence of new market opportunities, he said.
Non-oil companies continued to signal bullish expectations for the next 12 months, driven by predictions that new business inflows will continue to grow robustly, according to the survey.
“The positive performance of the non-oil sector throughout 2023 has exceeded the expansion witnessed in the previous year, further demonstrating the effectiveness of policies aimed at reducing dependence on oil revenues,” Mr Al-Ghaith said.
“These efforts have helped bolster the country's non-oil industries and enhance their competitiveness. The positive expansion in PMI as we near the end of the year is a promising sign for the country's economic diversification efforts.”
Saudi Arabia, the world's biggest oil exporter, is transforming its economy under its Vision 2030 diversification agenda as it aims to reduce its dependence on oil, support domestic industries and boost jobs.
The kingdom's economy, which expanded 8.7 per cent in 2022, the highest annual growth rate among the world's 20 biggest economies, is expected to expand 0.8 per cent in 2023, according to the International Monetary Fund.
The kingdom is taking a number of steps to support the country's non-oil economy. Saudi Arabia's regulation, which requires businesses to set up a local base in the kingdom or face the risk of losing out on government contracts, came into effect on Monday.
The move aims to attract multinational companies by offering a range of benefits and premium support services, including a 30-year tax break.
Meanwhile, the employment growth rate of the non-oil private sector eased further in December after hitting a nine-year record in October, the PMI data showed.
The pace of sales growth was also among the quickest registered in the past nine years, as companies commented on new clients and strengthening demand conditions.
Businesses also benefitted from a substantial cut in average supplier delivery times, which was one of the sharpest recorded since the survey began 14 years ago.
Despite evidence of companies hiring skilled staff to reduce workloads, the overall rise in employment was only modest, the survey said.
“Notably, the increased demand and expansion of the non-oil sector have also had a positive impact on employment. With the growing need for skilled workers to meet rising demand, employment has witnessed a noticeable increase,” said Mr Al-Ghaith, adding that wages had also been on an upward trend.
“This positive employment outlook reflects the success of the government's efforts to create a diverse and robust economy, offering job opportunities and improving the standard of living for its citizens.”
The unemployment rate in Saudi Arabia slid in the third quarter of 2023 on an annual basis due to a higher employment rate among women, the kingdom’s General Authority for Statistics said last week.
The overall unemployment rate in the country – for both citizens and residents – declined to 5.1 per cent in the three months to the end of September, compared with 5.8 per cent in the same period in 2022, the data showed.
The unemployment rate among women fell to 13.7 per cent during the period, from 16.6 per cent in the third quarter of 2022.
Meanwhile, construction companies are more optimistic about their growth prospects for this year than the other main sectors, the survey showed.
Saudi Arabia is developing a number of new projects as it focuses on diversifying its economy away from oil. The projects span sectors such as property, tourism, entertainment and infrastructure.
On top of the list is Neom, the $500 billion megacity, which is the kingdom's new destination on the Red Sea. Spanning 26,000 square kilometres, it’ll be more than twice the size of Lebanon.
And another Saudi project, Qiddiya, is being built on the outskirts of Riyadh. Work on Qiddiya City, part of Saudi Arabia's vast sports and entertainment-focused project, is progressing with contracts worth 10 billion Saudi riyals ($2.66 billion) awarded so far.
Qiddiya City is expected to create more than 325,000 job opportunities, yielding a nominal gross domestic product of 135 billion riyals a year, Qiddiya said last month.
