Saudi Arabia has changed much since its founding in 1937. Stretching across a land area of 830,000 sq mi, the nation is the 5th largest in Asia and the largest in the Middle East. From Riyadh, to Jeddah and Dammam, Saudi Arabia has transformed itself into a major player in the global tech ecosystem. Now with an ecosystem of over 1,600 startups supported by around 127 VC funds along with numerous proactive government schemes - Saudi Arabia’s strategy puts itself in an advantageous position in a regional tech boom. However, for Saudi Arabia to push further, it needs to navigate a myriad of internal and external challenges in order to make true its vision as a global power for many years to come.
Written by: Tanay Sonawane
A SHORT HISTORY OF THE SAUDI ECONOMY
The story of Saudi Arabia’s tech development is deeply tied to its economic history as a whole. Saudi Arabia has gone through multiple phases of development, with each phase prioritising different elements of the economy. Before the discovery of commercial oil wells in the 1930’s, Saudi Arabia’s economy was mainly an agrarian economy, with significant revenues coming from a large hospitality sector, driven by the need to accommodate and support pilgrims on their journey to Mecca, Islam’s holiest site. In fact it is estimated that in this period annual government receipts would have been the equivalent of $500,000 USD in today’s money.
The discovery of oil marked a vast shift in the development trajectory of Saudi Arabia, with companies like ARAMCO being set up by what would become Chevron to exploit the rich oil reserves in the country. The sale of these vast fossil fuel reserves enabled the nation to push itself out of a primarily agrarian economy and onto the path of an increasingly industrial one. It was in the 60’s that computing power had become a major element of the Saudi energy economy with the development of seismic computing. In fact, one of the first integrated computers by Texas Instruments was used in 1966 to calculate and analyse seismic data. Further discoveries in the 70’s and 80’s as well as the Saudi Government buying out ARAMCO to create Saudi ARAMCO boosted further revenues enabling investment into universal healthcare programmes and investment into economic development.
In the early 2000’s Saudi Arabia had accumulated a vast fiscal surplus from its successful energy trade, but had realised it needed to focus this into the effective mobilisation of economic growth at a societal level. This shift has materialised in an attempt to lessen an over reliance on oil and gas wealth, and redirect it into other forms of economic activity. Technological innovation’s focus has shifted away from primarily servicing the energy industry, to a broader perspective. This shift precipitated itself into investments in the knowledge economy, with significant boosts in investment for Human Resources sectors, and a boost in private sector contributions to the nation’s GDP to 58.7% in 2013 from 36.5% in 1980.
The largest shift in Saudi strategy on their economy, and an acceleration into tech innovation came in 2016 with the announcement of Vision 2030, a plan to dramatically diversify the economy of Saudi Arabia into a global force. Since then, the size of the Saudi tech industry has reached SAR 81 billion (USD 22 Billion) in 2023, with targeted and well thought out programmes such as the Riyadh Techstars Accelerator, National Technology Development Program (NTDP) and Ataa Digital are deploying billions. For example, the Digital Content Council has deployed $1.1 Billion USD into further developing the nation’s digital content industry.
Having seen how the Saudi economy has changed from an agrarian economy, to one almost exclusively dependent on oil and now an economy that is growing in diversity and innovation, let’s see some of the key tech industries that are growing in Saudi Arabia.
SOME INDUSTRIES DRIVING SAUDI ARABIA'S TECH BOOM
E COMMERCE
Saudi Arabia has one of the youngest populations in the world, with 63% of Saudi citizens being under 30. Such a young population has resulted in a deep level of internet penetration and a strong affinity with technology. Nothing has demonstrated this more in Saudi Arabia than the explosive growth of E-Commerce.
According to Delloitte, the projected annual growth rate (CAGR 2023-2027) of the E-Commerce sector in Saudi Arabia is around 14.37%, leading to a market volume of around$23.46 billion USD by 2027. Furthermore, the number of eCommerce users is expected to reach 34.5 million by 2025, with user penetration increasing from 66.7% in 2023 to 74.7% by 2027. This level of growth is further supported by the creation of bodies such as the E-Commerce Council, which focus on creating effective policy to support these markets.
One of the amazing startups that has come from this boom is Zid. Zid has raised around $58 million USD in total, its most recent round being a Series B raise. Zid operates a platform that allows local merchants to sell their products online, and has proved highly successful, with around half a million downloads of their “Mazeed” product since launch.
FINTECH
Fintech too has been a major market player in Saudi Arabia. According to Arthur D. Little More than SAR 4 billion (approximately USD $1 billion) has been invested in fintech companies in Saudi Arabia. To further catalyse development the creation of Fintech Saudi as the nation’s key policy body for fintech has enabled over 100,000 individuals to participate in fintech-related events, training courses, and internships organised by them. Growth has also been very focussed on payments and forex systems as well as lending platforms, but a broad variety of fintech startups have come about too.
A lot of the development in the Fintech space seems to be centrally planned by the Saudi government with key goals in place to benchmark growth. The goals include establishing at least 525 fintech companies (up from 200 in 2023), creating 18,000 fintech job opportunities (compared to around 5,400 in 2023), contributing SAR 13.3 billion (USD 3.5 billion) directly to GDP (up from around SAR 1 billion in 2023[USD 266 million]), and achieving SAR 12.2 billion (USD 3 billion) in direct venture capital (VC) contributions (versus SAR 1.4 billion in 2023 [USD 373 million]).
A company that has been highly successful in the space is STC Pay. One of the highest funded companies in Saudi Arabia, it has raised a total of around $200 Million USD since founding. STC Pay provides both personal and business banking services, digitising payments, financial management and allowing easy control of personal and business finances. At the end of 2022 STC Pay had around 8 Million users, making it a key backbone of the Saudi economy.
However, there are key challenges in how the fintech industry can establish a strong position in the global market. While growth within Saudi Arabia is impressive, the product offerings from startups have yet to make a significant impact beyond the country’s borders. Companies like STC Pay, though successful domestically, lack a distinctive product that stands out on the global stage. Saudi Arabia’s strategy of rapid expansion is effective for now, but beyond 2030, there should be a stronger emphasis on developing unique market offerings and defining the distinct value proposition of its ecosystem for global investors and customers. Startup founders are already trying to tackle this issue, but more planning is needed to see how Saudi Arabia can leverage its leadership position to provide truly unique services beyond its borders and on a global stage.
LOOKING TO THE FUTURE
As the Saudi economy develops further and even more innovation takes place, there are a few trends we might see coming to the area in the foreseeable future.
An increasing number of Saudi startups are advancing to the later growth stages, seeking Series B funding. This shift has prompted many venture capital firms to focus on growth-stage funds to support their existing portfolio companies and meet the rising demand within the Kingdom. Currently, some of these fast-growing Saudi startups are turning to international VCs for support, securing backing from prominent firms like Softbank and Sequoia.
While direct-to-consumer (D2C) categories such as fintech and eCommerce continue to dominate the startup landscape in Saudi Arabia, there is a growing emergence of business-to-business (B2B) startups. These B2B solutions are beginning to gain traction in subsectors like supply chain technologies, fleet optimisation, agtech, and deeptech, with AI-powered software solutions driving much of this innovation.
The vibrant startup ecosystem in Saudi Arabia has significantly shifted mindsets, leading many experienced professionals to leave their established 10-20 year careers to launch their first startups. This trend has resulted in the development of highly specialised solutions, bringing more sophisticated offerings to the market. It is vital that this be leveraged to produce solutions that offer something truly unique beyond Saudi markets.
As Saudi Arabia continues to open its borders, the entry of international startups into the market is also on the rise. Accelerator programs like 500 Global and KAUST are extending invitations to international founders, while local VCs such as Wa’ed Ventures are investing in foreign startups to support their market entry into the Kingdom. This trend is expected to result in a gradual increase in the presence of foreign startups in Saudi Arabia, with international VCs also assessing the Saudi market as a potential opportunity for their global portfolio companies.
SOME CHALLENGES
One of the biggest challenges facing the Saudi tech industry is the level of workforce readiness. While Saudi Arabia’s young population are tech savvy in their consumption, finding sufficiently skilled workers who can productively grow and build technological solutions of the future is something that Saudi Arabia still has to tackle. Currently, the demand for highly skilled workers far outweighs supply. Economist Impact conducted a survey of employers regarding how satisfied they were of their labour force readiness in tackling the accelerated technological growth plans the central government has.
These survey results show that there are significant gaps in workforce readiness that hinder the ability of SMBs in Saudi Arabia to fully participate in the digital economy. Over 40% of SMB respondents cite the limited availability of local talent with the necessary digital skills as a major challenge. Similarly, a large portion of respondents report that their workforce lacks essential digital transformation skills, such as programming, coding, and proficiency with advanced emerging technologies.
The country also scores low on upskilling initiatives. Only 28% of executives strongly agree that their companies are actively investing in and providing digital training programs for employees, despite 44% acknowledging that upskilling could significantly improve worker retention. To tackle this, both companies and the Saudi government need to expedite and grow their programmes for training and upskilling labour.
Further to this, while Saudi Arabia has made impressive strides in the number of women in the startup space, there is still a unanimous view that there just are not enough female founders in the nation, with them making up only around 24% of founders. If Saudi Arabia wants to attract more diversity related funding, as well as improving the quality and range of companies that are present in their ecosystem, they must further focus targeted funding towards female founders.
Beyond this, geopolitical factors are still at play in the MENA region. While Saudi Arabia has recently improved relationships with other nations such as Israel, the currently volatile situation regarding Iran’s potential retaliation towards Israel and the ongoing situation in Gaza brings the possibility of a regional escalation into reality. There is still a risk that Saudi Arabia could be dragged into a prolonged geopolitical struggle, especially if conflict can not be contained sufficiently. Investors might therefore become hesitant to invest in an increasingly volatile region. Saudi Arabia needs to have a strategy in place to protect its economy in the event of geopolitical shocks and is already taking a proactive role in calling for calm in the region. Digital economies, even if they do deal in products online, are not immune to the often physical effects that conflict has close to their borders, both on supply chains and on market confidence.
Since its founding, Saudi Arabia has undergone significant transformation. Its economy has evolved into a diversified contender on the global stage and a leader in the MENA region. The rapid growth in the fintech and e-commerce sectors indicates that the country is taking promising steps forward. Saudi Arabia appears to be adopting strategies similar to those employed by the East Asian developmental states, which saw explosive growth in the 2000s.
These centralised planning policies have fostered an encouraging environment for innovation and growth. If Saudi Arabia can further develop its unique ecosystem, enhance workforce readiness, foster even more growth in female founders and successfully navigate both local and global geopolitical challenges, a bright future awaits its already flourishing tech scene.
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