Overview
Saudi Arabia is in the midst of a digital transformation that is redefining its economic landscape. This transformation is an integral part of Vision 2030, the Kingdom’s strategic framework aimed at reducing its dependency on oil, diversifying its economy, and developing key sectors such as health, education, infrastructure, recreation, and tourism. At the heart of Vision 2030 is the digital economy, which has become a critical enabler of growth, innovation, and competitiveness in the global marketplace. This article delves into the current state of Saudi Arabia’s digital economy, exploring its development, key sectors, and the challenges and opportunities it presents.
National Focus: Government Programs for Digital Economy Growth
Saudi Arabia’s digital transformation centers on a series of government-led programs and initiatives strategically aligned with Vision 2030. The Ministry of Communications and Information Technology (MCIT) has been instrumental in spearheading these efforts, aiming to create a world-class digital infrastructure that supports the Kingdom’s broader economic goals.
One of the most significant initiatives is the formation of the Saudi Data and Artificial Intelligence Authority (SDAIA), which was established as the national data protection enforcement authority and to oversee the Kingdom’s artificial intelligence (AI) strategy This strategy aims to position Saudi Arabia as a global leader in artificial intelligence by 2030, with a focus on leveraging AI to drive innovation and economic growth across various sectors, including healthcare, finance, and logistics.
Additionally, the Digital Government Strategy was launched to transform the delivery of public services through digitalization, with the goal of improving the efficiency, transparency, and accessibility of government services, while also reducing operational costs. The Digital Government Authority (DGA) plays a critical role in regulating and ensuring the integration of digital governance across all government entities.
Projected Digital Economy Growth
Saudi Arabia’s digital economy is undergoing rapid growth, driven by substantial government investments and the increasing adoption of emerging technologies. As of 2023, Saudi Arabia’s Information and Communications Technology (ICT) sector was the largest and fastest-growing in the MENA region. Valued at over $40.94 billion as of 2023, it accounted for 4.1% of the Kingdom’s GDP, reflecting its significant contribution to the national economy.
In 2023, Saudi Arabia ranked second among the G20 countries on the UN International Telecommunication Union’s ICT Development Index (IDI), a testament to the Kingdom’s strong digital infrastructure and the effectiveness of its policies in driving digital transformation. The government’s continued investment in ICT, including the development of smart cities and e-government services, further underscores its commitment to establishing a world-class digital economy.
One of the cornerstones of Saudi Arabia’s digital economy is its investment in digital infrastructure. The Kingdom has invested over $24.8 billion in digital infrastructure over the past six years, leading to a significant improvement in the quality of internet services. As a result, Saudi Arabia boasts a 99% internet penetration rate, with mobile internet speeds doubling to 215 Mbps, nearly double the global average. These advancements have positioned Saudi Arabia among the top 10 countries globally for mobile internet speed.
The rollout of 5G technology is another critical aspect of the Kingdom’s digital infrastructure strategy. Saudi Arabia was among the first countries in the MENA region to launch 5G networks, with coverage now reaching 77% of the country, significantly higher than the global average. In Riyadh, 5G coverage exceeds 94%, making the capital city one of the leading global cities in terms of 5G accessibility. This widespread availability of high-speed internet is expected to catalyze further growth in the digital economy, particularly in sectors like e-commerce, telecommunication, and digital services.
Saudi Arabia’s digital economy is also characterized by its focus on emerging technologies such as AI, cloud computing, and the Internet of Things (IoT). The government has launched several initiatives to promote these technologies, aligning with Vision 2030’s goal of fostering innovation and entrepreneurship.
Artificial intelligence is a key area of focus, with spending in the sector projected to surpass $720 million in 2024 and reach $1.9 billion by 2027, growing at a compound annual growth rate (CAGR) of 40%. The Kingdom’s AI strategy is guided by the Saudi Data and AI Authority (SDAIA), which aims to make Saudi Arabia a global leader in AI by 2030. According to a report by PwC, AI is expected to contribute $135 billion to the Saudi economy by 2030, making it the largest beneficiary of AI technology in the Middle East (PwC, 2020).
Cloud computing is another rapidly growing segment of the digital economy. In 2019, the Saudi government introduced its Cloud First Policy, mandating that all government entities prioritize cloud-based solutions. This policy has led to a surge in cloud computing investments, with spending expected to exceed $4.7 billion by 2027, at a CAGR of 25%. The establishment of a Cloud Computing Special Economic Zone in 2023 further underscores the Kingdom’s commitment to becoming a regional leader in cloud services, attracting major international players like Google, which launched its Saudi cloud region in November 2023.
The competitive environment within Saudi Arabia’s digital economy is being shaped by the presence of major global technology players. Companies such as Google, Microsoft, and Amazon Web Services (AWS) have established a strong foothold in the Kingdom, drawn by the growing market opportunities. These investments are likely to enhance the availability and quality of digital services in Saudi Arabia, further boosting the growth of the digital economy.
The e-commerce sector is also a vital component of Saudi Arabia’s digital economy, driven by the country’s young, tech-savvy population and high internet penetration rates. According to Statista, the Saudi e-commerce market was valued at $5.15 billion in 2023, representing 6% of the Kingdom’s $92.6 billion retail market. The number of e-commerce users is expected to reach 34.5 million by 2025, with user penetration increasing from 66.7% in 2023 to 74.7% by 2027.
Digital payments are also on the rise, aligned with Vision 2030’s objective to achieve a cashless society. The share of electronic payments in retail transactions exceeded 57% in 2021, surpassing the 55% target set by the Financial Sector Development Programme (FSDP). This shift towards digital payments is expected to drive further growth in the e-commerce sector, attracting new players and investment in digital financial services.
Market Challenges
While Saudi Arabia’s digital economy presents significant opportunities, there are also challenges that need to be addressed to sustain growth.
Regulatory Environment
Data Privacy and AI Regulation: Saudi Arabia’s regulatory framework for data privacy and AI is still in its early stages. Although the government has made progress in establishing regulations to protect personal data and ensure the ethical use of AI, there are concerns about the adequacy of these regulations in a rapidly evolving digital landscape. The lack of comprehensive data privacy laws that align with international standards could pose challenges for businesses operating in the Kingdom, particularly those engaged in cross-border data flows. Moreover, the regulation of AI technologies remains a complex issue, requiring more robust guidelines to govern their development and deployment.
Cross-Border Data Flows: Restrictions on cross-border data flows present a significant regulatory challenge for businesses operating in Saudi Arabia. While the government has made efforts to modernize its data governance framework, regulations that limit the free flow of data across borders can complicate the operations of multinational companies. These restrictions, driven by concerns over data sovereignty, require businesses to navigate a complex regulatory landscape, potentially leading to increased operational costs and difficulties in managing global data networks.
Cybersecurity: Cybersecurity remains a critical concern, with Saudi Arabia ranking as the second-largest global market for malicious email attacks. The government has responded by investing heavily in cybersecurity, with spending projected to reach $1.6 billion by 2027. However, continuous efforts are required to safeguard the digital infrastructure and build trust among consumers and businesses. The rapid evolution of cyber threats necessitates continuous updates to regulations and standards, which are managed by the National Cybersecurity Authority (NCA), the Saudi entity that is responsible for developing and enforcing cybersecurity regulations across the public and private sectors. Ensuring compliance with these regulations can be particularly challenging for small and medium-sized enterprises (SMEs), which may lack the resources to implement comprehensive cybersecurity measures.
Market Entry and Public Sector Procurement: Foreign businesses entering the Saudi market often face challenges related to complex regulatory requirements and public sector procurement processes. While the government has taken steps to streamline these processes and attract foreign investment, businesses still encounter hurdles related to licensing, local content requirements, and the necessity of forming partnerships with local entities. Additionally, the public sector procurement process can be opaque, with tenders and contracts frequently favoring local companies. This creates a competitive disadvantage for international businesses seeking to participate in Saudi Arabia’s digital economy and can deter potential investors.
Digital Trade Barriers
Data Localization Requirements: Saudi Arabia has implemented data localization requirements that mandate the storage and processing of specific types of data within the country. These requirements are primarily driven by concerns over data sovereignty and national security. While there are legitimate reasons to implement certain data localization policies, it can also create barriers for foreign companies that rely on global data networks. The need to establish local data centers or partner with local providers can increase operational costs and complicate business operations. Additionally, data localization requirements may limit the ability of businesses to leverage global cloud services, impacting their scalability and competitiveness.
Digital Literacy: Another challenge is the need for greater digital literacy and skills development. While the Kingdom has made strides in this area, including the launch of the “Fuel” program aimed at training 100,000 citizens in digital skills in 2023, ongoing education and training initiatives will be crucial to meet the demands of a rapidly evolving digital economy.
Digital Trade Opportunities
Despite the challenges, Saudi Arabia’s digital economy presents significant opportunities for businesses across various sectors. The government’s focus on digital transformation and the adoption of emerging technologies is creating a dynamic environment for innovation and growth.
Advanced Computing and AI: Advanced computing and artificial intelligence (AI) are critical enablers of productivity and efficiency across multiple industries. Saudi Arabia’s focus on AI, as part of its Vision 2030 strategy, presents significant opportunities for businesses that can offer AI-driven solutions in sectors such as healthcare, manufacturing, finance, and logistics. The government’s investment in AI research and development, as well as the establishment of the Saudi Data and Artificial Intelligence Authority (SDAIA), underscores the importance of AI in the Kingdom’s digital economy.
Open Radio Access Network (Open RAN) Technology: As one of the priority deliverables of Vision 2030, the deployment of ORAN technology is expected to transform Saudi Arabia’s telecommunications landscape. This technology enables more flexible, cost-effective, and efficient network infrastructure, which is critical for the expansion of 5G and future 6G networks. Businesses specializing in these technologies can capitalize on the growing demand for advanced telecommunications solutions in the Kingdom. The government’s commitment to developing a world-class telecommunications infrastructure creates a favorable environment for innovation and investment.
5G, 6G, and Subsea Cables: The rollout of 5G networks in Saudi Arabia is a major milestone in the Kingdom’s digital transformation journey. With 5G coverage now reaching 77% of the country, the technology is expected to drive growth across various sectors, including smart cities, autonomous vehicles, and industrial automation. Looking ahead, the development of 6G networks and subsea cables will further enhance Saudi Arabia’s connectivity and global competitiveness. These technologies are expected to play a pivotal role in enabling new applications and services, from ultra-fast internet access to seamless global communication networks.
Priority Subsectors
Cybersecurity: In 2023, Saudi Arabia ranked second in the Swiss-based International Institute for Management Development (IMD)’s Global Cybersecurity Index and ranked 17th overall in competitiveness ranking. According to IDC, spending on cybersecurity will surpass the $1 billion mark in 2024 and will reach $1.6 billion in 2027. Saudi sectors that are most heavily targeted by cyber threats include government, education, finance, energy, and healthcare. The most common attacks involve ransomware, distributed denial of service (DdoS), and malware. Key areas of opportunity include application security, cloud security, consumer security software, data security, identity access management, infrastructure protection, integrated risk management, network security equipment, and security services.
Internet of Things (IoT) & Smart Cities: Saudi Arabia is currently building several smart cities (including NEOM, Red Sea, Qiddiya, Waad Alshamal, and SPARK), and aims to be the world’s most connected and digitized nation by 2030. According to the International Data Corporation (IDC), Saudi Arabia’s IoT market is estimated to reach $2.9 billion by 2025 with an annual growth rate of 12.8%. Specific areas of focus include industrialized IoT, AI, cloud computing, and data centers. In addition, Saudi Arabia aims to equip five existing cities with smart infrastructure to rank among the top 100 cities worldwide. Opportunities also exist for international companies to develop industrial IoT solutions tailored to local business specifications and higher levels of operational effectiveness. Specific opportunities include predictive maintenance, asset tracking, fleet management, and warehouse optimization.
Cloud Computing: Saudi Arabia is actively promoting the adoption of cloud computing, with annual spending on public cloud services forecasted to surpass $2.4 billion in 2024 and to reach $4.7 billion in 2027, according to IDC. In May 2023, the Economic Cities and Special Zones Authority announced the launch of a new Cloud Computing Special Economic Zone. This special zone is one of the first in the region, offering cloud service providers the flexibility to establish data centers across the Kingdom, and the ability to provide various cloud computing services from the zone. Several hyperscalers have already made commitments to establish cloud regions in the Kingdom, which will greatly enhance the ability of businesses, organizations, and start-ups to serve the local market, including Google, which in November 2023 launched its Saudi cloud region. Additionally, Saudi Arabia requires government entities to prioritize cloud-based solutions. The introduction of its Cloud First Policy in 2019 signaled the government’s intent to push widespread cloud adoption across its public and private sectors. In July 2021, MCIT launched an $18 billion plan to build a network of large-scale data centers across Saudi Arabia. The purpose of the initiative is to transform Saudi Arabia into the main data center hub for the region, by working closely with the private sector, including local and international investors, to achieve this goal. Saudi Arabia’s strategic location allows global cloud service providers (CSPs) to serve the MENA region.
Artificial Intelligence (AI): In 2023, Saudi Arabia ranked first globally in Tortoise Media’s Government Strategy Index for Artificial Intelligence, which evaluates more than 60 countries in the world. According to IDC, spending on AI in Saudi Arabia will surpass $720 million in 2024 and will reach $1.9 billion by 2027 at a CAGR of 40%, half of which will be on interpretative AI. According to a report from global consultancy firm PwC, AI is set to contribute $135 billion to the Saudi economy in 2030, making the Kingdom the biggest beneficiary of technology in the Middle East. Opportunities exist for cutting-edge AI companies specialized in manufacturing oil and gas to tailor their solutions to fit the local market. These include truck hauling optimization, equipment lifetime analytics, supplier delivery date prediction and asset tracking, shipping optimization, satellite/aerial image analytics, and asset failure predictors.
5G: Saudi Arabia was among the first countries in the MENA region to launch 5G networks in 2019. According to Saudi Arabia’s Communications, Space, and Technology Commission, 5G coverage rate has reached 77%, almost double the global average, with the capital city, Riyadh, becoming a leading global capital with 5G coverage reaching the vast majority of the city. The country’s continued investment in digital infrastructure resulted in a significant improvement in the quality of services, including a 99% internet penetration rate and a fast mobile internet speed, which has more than doubled to 215 Mbps securing the Kingdom’s spot among the top countries in the world for mobile internet speed. Additionally, mobile subscription rates have increased to 198% of the population, exceeding the global average, which also implies that most people have multiple subscriptions under their name.
E-Commerce: According to the global consultancy Deloitte, the e-commerce market in Saudi Arabia is projected to reach a volume of $23.46 billion by 2027, and the number of e-commerce users in the Kingdom is expected to reach 34.5 million by 2025, with user penetration increasing from 66.7% in 2023 to 74.7% by 2027. With Vision 2030 aiming to achieve 70% cashless transactions by 2030, the market is expected to see more investment by start-ups and telecoms service providers in the digital payments sector.
Events
- GITEX Technology Week, October 14-18, 2024, Dubai
- Blackhat Middle East & Africa, November 26-28, 2024, Riyadh
- LEAP, February 9-12. 2025, Riyadh
- Global AI Summit, September 2026, Riyadh
Resources
- Saudi Information Technology Company
- Ministry of Communications and Information Technology
- Communications, Space, and Technology Commission (CST)
- Saudi Data and AI Authority
- National Cybersecurity Authority
- International Data Corporation (IDC)
For more information, contact: Tareq.Ghazal@trade.gov