Advancing industrial policy

Saudi Arabia‘s industrial sector will play a pivotal role in shaping the nation‘s future economy and achieving the objectives outlined in Vision 2030. Enhancing competitiveness and nurturing the growth of emerging industries will be crucial to meeting these objectives, encouraging both localization of domestic consumption and export-driven growth.

Despite the potential of the industrial sector, the market alone will not be sufficient to spur the necessary economic shift. Government intervention through industrial policy will be critical as Saudi Arabia continues its economic transformation. These policies will provide the necessary support to encourage innovation and technology adoption, attract investment, foster sector development, and promote export expansion.

The Kingdom has iterated five-year development strategies since the 1960s. Its strategies has served as a general planning framework to achieve national objectives, incorporating pragmatic development goals. In spite of these development strategies, the Kingdom has struggled to align the proper set of policies to achieve their objectives. The right set of policies build on strategies, creating the concrete environmental factors that enable progress towards national objectives.

Designing effective industrial policies faces several challenges – as proven in other countries around the world. The success of these policies hinges on selecting the right instruments and targeting industries with the most potential for growth, which requires a data-driven approach and continuous adaptation to new challenges. A critical issue is balancing targeted support without falling into the trap of “picking winners“ and distorting market competition. Ensuring transparency and accountability in policy implementation is essential to maintain public trust and prevent misuse of resources. Moreover, there is the challenge of socializing both the risks and benefits of industrial investments, as profits often remain privatized while risks are borne by taxpayers.

Furthermore, economies do not operate in a vacuum. Intricate trade and manufacturing networks present the risk of a race-to-the-bottom, zero-sum mentality towards industrial development. Therefore, industrial policies should be designed to promote industries that complement and integrate into global value chains rather than attempting to isolate or protect domestic excessively.

Finally, there is the overarching challenge of embedding knowledge acquisition and fostering human capital development to support innovation and sustainable industrial growth. These challenges require a nuanced and flexible approach to industrial policy that is tailored to the Kingdom‘s unique economic and social context.

By leveraging targeted industrial policies focused on market-oriented reforms, Saudi Arabia can hone its competitive edge, drive sustainable economic growth, and achieve the transformative goals set out in Vision 2030. This comprehensive approach will not only support the development of key industries but also position the Kingdom as a significant player in the global economy.

As the Kingdom continues its industrial development journey, it must remain aware that the efficacy of industrial policy is not guaranteed. Industrial policy is not a one-size-fits-all toolset; it must be tailored to meet the specific needs of the economy while remaining sufficiently flexible to adapt to future challenges. The success of these policies relies on careful design and implementation, continuous monitoring, and the ability to adjust to evolving economic conditions.