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The Saudi economy is not limited to oil. 4 actions to consider.

The war in Gaza brings to mind the image of a stagnant Middle East amid bloody and intractable conflicts. But not everywhere.

Saudi Arabia, a former conservative bulwark, has become one of the most dynamic societies in the world, with economic ambitions to match. Under the de facto leadership of Mohammed bin Salman, women’s employment has doubled and once-nonexistent entertainment and leisure industries have come back to life.

The Saudi Stock Exchange has hosted 70 IPOs since the start of 2022, says Emre Akcakmak, Dubai-based senior consultant at East Capital. “Ten years in this market have seen 50 years of progress,” he enthuses.

MBS, as the 38-year-old crown prince is nicknamed, even appears as an adult in the geopolitical room, six years after the assassination of dissident journalist Jamal Khashoggi. Riyadh is dangling stronger defense cooperation with the United States, while keeping China as its biggest oil customer and restoring diplomatic ties with regional rival Iran. Cautious investors can take advantage of this positive momentum, says David Aserkoff, JP Morgan.
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equity strategist for emerging Europe and the Middle East. “Investors are looking for companies that can deliver double-digit earnings growth, and they are finding them,” he says.

The Neom project, a signature of Riyadh, reaped a harvest of mocking headlines as the notional price rose from $500 billion to $1.5 trillion. A futuristic residential complex known as The Line has been reduced from 170 kilometers to less than three kilometers by 2030. This obscures real growth catalyzed by MBS’s social liberalization and a young population (median age 31) who rushes to take advantage of it.

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The International Monetary Fund projects that Saudi Arabia’s non-oil economy will grow 4 percent annually this decade. Shares of gym operator Leejam Sports have soared 85% in the past 18 months. IT consultant Elm Co. more than doubled on its government digitization contracts.

Akcakmak adds tourism-focused stocks such as Budget Saudi Arabia (ticker: 4260.Saudi Arabia) and private education providers like Ataa Educational to the new economy’s prized roster.

Saudi Arabia is also rapidly raising its profile in the bond market, for better or worse. The Kingdom, which issued its first Eurobond in 2016, has risen to 9% of the global emerging markets sovereign index, borrowing to finance its economic transformation, notes Razan Nasser, emerging markets sovereign analyst at T. Rowe Price. “It’s too early to tell” whether MBS’s grand vision will succeed, she said.

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Meanwhile, Saudi 30-year securities yield almost two percentage points more than comparable US Treasuries – not the worst bet, with Riyadh’s debt still below 30% of domestic product gross and foreign exchange reserves of approximately $440 billion.

No one would call MBS’s Saudi Arabia completely stable. Its express modernization could still provoke negative reactions at the national level. “A very good source says that everyone under 35 loves MBS, and everyone over 35 hates him,” says Simon Henderson, director of Gulf and energy policy at the Washington Institute.

Iran remains a serious external threat, gradually moving closer to nuclear weapons and facing an uncertain leadership succession. A stronger US defense umbrella could depend on recognizing Israel, an impossible step for MBS under current circumstances. “The Middle East lacks an internal balance of power, which makes disruption very likely,” says Matt Gerken, geopolitical strategist at BCA Research.

Yet this time traveler from ten years ago would be amazed to see Saudi Arabia today. “Right now, MBS fits into the broad definition of success,” concludes Henderson. “There are still a lot of ‘buts’.”