Saudi Arabia’s Economic Transformation: Defeating the Resource Curse?

Saudi Arabia Tourism Minister Ahmed Al Khateeb leads a delegation to Barbados, February 2022. Photo by PMO Barbados.

Flying taxis and ski resorts are both part of Saudi Arabia’s plan to modernize. Since 2016, Saudi Arabia has been undergoing an economic transformation that could reshape its fortunes and serve as a guide for other resource-rich nations struggling against the resource curse.

For decades, the Kingdom of Saudi Arabia’s economy has been synonymous with oil in a classic example of a rentier state, where the economy is heavily based on revenue from external sources, primarily oil exports. The resource curse—characterized by economic volatility, corruption, and low levels of private sector development—has been an enduring challenge for the Kingdom. 

Nations afflicted by the resource curse often become economically underdeveloped, though Saudi Arabia has handled its situation better than its counterparts. Since the revenues of rentier states consist mostly of external income, these states have little need to tax the domestic economy. Instead, citizens depend on benefits from the autonomous state to survive, creating a power imbalance in which the population can make relatively few political demands. Thus, rentier states tend to fall short in democracy and suffer from high levels of corruption. Without taxation, the people further lack political representation in state decision-making processes. 

However, under the leadership of Crown Prince Mohammed bin Salman, Saudi Arabia has decided to break free from its dependency on oil. By doing so, the country is aiming to circumvent the economic failures associated with the rentier state model. This decision has been accompanied by a modernization of the government and its society, moving away from the authoritarian nature of the rentier state.

The agent of change is Saudi Arabia’s Vision 2030 initiative, a comprehensive government program aimed at economic diversification and sustainability. At the heart of the strategy is the recognition that over-reliance on oil is precarious. Saudi Arabia’s oil-based economy is becoming particularly outdated in the era of green energy and sustainability. This was evidenced by COP28, which ended with a call to “transition away” from fossil fuels. The main economic sectors impacted by Vision 2030 are entertainment, tourism, and sustainability. Women’s rights are at the core of the societal changes effected by Vision 2030.

One element of Vision 2030, and its largest economic undertaking, is the development of futuristic urban areas under NEOM. A $500 billion project, NEOM is designed to be a global hub for innovation and cutting-edge technologies, spanning an area of roughly 10,200 square miles in total. Urban planning and sustainability are at the core of NEOM, which will include several cities in the northwestern province of Tabuk when complete, including the Line and the Gulf of Aqaba. 

The Line is an ultramodern city that measures a mere four city blocks in width and is designed to run on 100% renewable energy. Though narrow, the city is built vertically and length-wise, cutting through roughly 105 miles of the desert in length. Expected to accommodate 9 million people, the Line promises that “residents will have access to all daily essentials within a five-minute walk.” A high-speed rail will provide end-to-end transit in 20 minutes, eliminating the need for cars.

The entertainment and tourism sectors are also receiving significant attention. Initiatives like the Qiddiya entertainment city, set to become the region’s top destination for sports and entertainment, and the opening of Saudi Arabia to international tourists mark a deliberate shift from oil-centrism. The Kingdom’s new Red Sea International Airport will be operational as of this year, while ongoing investments will permit the country to accommodate 150 million annual tourist trips by 2030. 

Saudi Arabia’s expansion in the entertainment industry is a notable attempt to gain an indispensable status in global culture, yet many of its initiatives have drawn criticism. One such example is the introduction of Saudi Arabia’ LIV Golf league, which competed with the United States’ longstanding PGA Tour, creating a rift in the golf world, though the two have since announced a merger. 

Sustainability is also at the crux of Saudi Arabia’s diversification efforts. NEOM, for instance, will have “a zero-carbon circular economy, 100% powered by low-cost, renewable energy.” S&P Global Ratings revealed that Saudi Arabia’s renewable energy generation capacity grew from 24.3MW in 2016 to 443MW in 2021. This number will likely continue to grow given the country’s development of the world’s largest solar-power plant in Al Shuaibah. This will all assist in Saudi Arabia’s goal to become a net zero emitter by 2060.

Societal changes have also been made to meet the increased government accountability that comes with abandoning the rentier state model. In 2018, Saudi Arabia enacted a policy allowing women to drive. Female workforce participation nearly doubled from 2018 to 2022. The workforce as a whole has also been evolving, as the share of high-skilled workers increased by 10 percent from 2016 to 2022. Beyond their economic implications, Saudi Arabia’s social modernizations are aimed at creating a direct dialogue with the West, in particular its long-time ally the United States, with whom it shares a tumultuous relationship. 

The implications of Saudi Arabia’s economic transformation extend beyond the country’s borders. Resource-rich nations worldwide, particularly those facing the resource curse, are closely watching this experiment unfold. Examples from neighboring Gulf countries, such as the United Arab Emirates’ (UAE) success in diversifying its economy through investments in tourism and industry, serve as precedents to this phenomenon. 

The UAE has been undergoing grand economic and social transformations as part of its own 2030 reform goals, creating competition between the two states. One such manifestation is the recent race between the two to normalize relations and gain influence with Southeast Asian states.

Given Saudi Arabia’s status as the world’s second largest oil producer, the country’s  sheer scale and influence in the global energy market make its diversification efforts noteworthy. As the world seeks alternative energy sources and embraces sustainable practices, the Kingdom’s shift towards renewable energy, with projects like NEOM’s The Line and the development of the world’s largest solar project, demonstrates a commitment to staying ahead of the curve. 

Still, the country has received criticism for many of its projects. Roughly 20,000 members of the Huwaitat tribe may be facing eviction due to NEOM, constituting one point of contention. Many architects have further argued that The Line does not make sense from an urban planning perspective. Questions have also been raised regarding the authenticity of Saudi Arabia’s women’s rights movement. Though Saudi Arabia’s modernization efforts seem promising, the future of the projects are still uncertain.

Vision 2030 could set a precedent for other oil-dependent nations facing similar economic challenges. As the world transitions to a more sustainable and globalized future, Saudi Arabia’s economic trajectory provides hope, demonstrating that the resource curse might be overcome. It all depends on whether the Kingdom will live up to its ambitious economic targets, positioning itself for success in a world after oil.

Celeste Abourjeili (GS ’24) is a staff writer at CPR studying political science and Middle Eastern affairs.