Moody's Investors Service rated Saudi Arabia's economic strength as "Very High (-)" based on its large scale, comparatively high per capita income levels and moderately strong growth dynamics. "We have set the final score for economic strength above the indicative score of "High (+)" to better reflect Saudi Arabia's highly competitive position in the oil market which is not appropriately captured by the indicative score," it noted. Other sovereigns that score similarly for economic strength include Denmark (Aaa stable), France (Aa2 positive), Hong Kong (Aa2 stable), New Zealand (Aaa stable) and Malaysia (A3 stable). Moreover, in its latest "Issuer In-dept" report issued May 1, Moody's said progress on ambitious plans to diversify Saudi Arabia's economy away from oil (Saudi Vision 2030) could lift the country's long-term growth potential. The program announced in 2016 aims to increase the share of the non-oil private sector to 65% of GDP by 2030 from 50% in 2015 and the non-oil export share to 50% from 25%. Key non-oil sectors where the government intends to focus its efforts include logistics, mining, development of religious tourism and entertainment industries, housing and also manufacturing (such as defense, aerospace and renewables technologies). The kingdom also aims to further expand its retail sector, develop a financial center similar to those elsewhere in the region such as Dubai, expand the small and medium-size enterprises (SME) sector's share to 35% of GDP (from 20% currently), while improving the education system to better meet the needs of the growing economy and increasing female labor force participation to close to 30% by 2020. Political and popular support for the government's ambitious reform momentum remains very high. Vision Realization Programs are the main vehicles for reaching the government's national transformation objectives. The main elements of the transformation and reform agenda that underlies the achievement of Vision 2030 have been streamlined during 2017 into 12 vision realization programs (VRPs), which include five-year rolling delivery plans, a raft of targeted initiatives and measurable objectives. The VRPs are currently at different stages of implementation, with eight of the 12 programs being fully launched so far. Furthermore, a set of legislative, regulatory, educational and social reforms are planned or currently in progress, aiming to improve Saudi Arabia's investment climate and support growth in non-oil private sector GDP over the medium to long term. These reforms include the new bankruptcy law and a new commercial code approved in 2018, a new procurement law and the labor market reforms that are currently being designed and implemented. Moody's likewise assessed Saudi Arabia's institutional strength as "High (-)", based primarily on the Worldwide Governance Indicators and the country's high degree of policy credibility. Moody's also acknowledged progress in the past two years on improving economic and financial data transparency and availability. The National Industrial Development and Logistics Program (NIDLP) launched in early 2019 is the largest of the VRPs announced so far. Over the next 10 years, the program aims to attract more than $450 billion of investment (mainly from the private sector) into four key economic sectors: industry, mining, energy and logistics. It also aims to generate 1.6 million new jobs by 2030. While the program is targeting a wide range of sectors, including autos, pharmaceuticals, medical supplies, defense, food processing, aquaculture, power generation, renewables, developing a regional logistics/distribution platform, and expanding the oil and gas industries, we expect that at least in the initial years most of the investment and growth is likely to materialize in the resource-intensive industries where Saudi Arabia has a natural comparative advantage, including petrochemicals and mining. One of the top-priority VRPs for the government is the Housing Program, the importance of which is underscored by its high social and growth multipliers for the rest of the economy. To this end, the government has launched the Saudi Real Estate Refinancing Company in 2018 with the aim of improving affordability and access to residential mortgage financing. As a result, mortgage origination has accelerated significantly since September 2018 and in the first quarter of 2019 was running at an average monthly rate that was nearly a triple of that observed during 2016-2017, with the flow of new mortgages in the first two months of 2019 equivalent to around 1.7% of GDP when annualized. Government-sponsored giga projects and privatization will further advance the development of the non-hydrocarbon sector. The government also expects several large-scale government-sponsored investment giga projects focused mainly on the underdeveloped tourism and entertainment sectors will also boot the economic diversification drive. These projects are expected to be mostly financed by private sector investors with some contribution from the budget and the Public Investment Fund (PIF, the government's sovereign wealth fund). These projects include the Qiddiya entertainment park on the outskirts of Riyadh (phase one opening scheduled for 2022), the Red Sea Tourism Project (the first phase to be completed by end-2022), the Jeddah Downtown development project, the Riyadh City Park announced in early 2019, and well as the futuristic city of NEOM, which will be developed as special economic zone in the northwest of the country with the purpose of attracting international talent to a future technology and innovation hub with its own regulations, ecosystem and industries.
