Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Saudi Arabia Is Pivoting Beyond Oil in 2026
Transcript
- Lucas: If you’ve watched emerging markets over the past few years, you’ve seen one story dominate — how resource-rich countries get crushed when commodity prices fall. But Saudi Arabia is trying to write a different script, and the data coming out of this year suggests it might actually be working. Luna: You’re talking about the non-oil GDP numbers. I saw that non-oil activity grew 4.8% year-over-year in the first quarter of 2026. That’s the fastest pace in nearly a decade. Lucas: Exactly. And that growth is happening while oil revenues are actually flat to slightly down compared to last year. The Public Investment Fund — the PIF — is deploying capital at a pace we haven’t seen outside of China or the UAE. They‘ve got about $1.5 trillion in assets under management now. Luna: That’s staggering. And a lot of that is going into domestic megaprojects — NEOM, the Red Sea resorts, entertainment complexes. But also into global tech and infrastructure stakes. Lucas: Right. The PIF is now a top investor in companies like Uber, BlackRock, and even some AI startups. The idea is to generate returns that can replace oil income over time. But the really interesting part is how the Saudi stock market — the Tadawul — is starting to decouple from crude prices. Luna: That’s a huge shift. Historically, Saudi stocks moved almost in lockstep with oil. But now, if you look at the consumer discretionary and healthcare sectors on the Tadawul, they’re up 12% year-to-date while oil is basically flat. Lucas: Exactly. And this is happening against a backdrop where the strong dollar is still pressuring a lot of other EMs. The trade-weighted dollar index is at 120.4 as of last week — up from 119.4. That usually wreaks havoc on emerging market currencies and debt. Luna: But the Saudi riyal is pegged to the dollar. So they don’t get the currency volatility benefit, but they also don’t get the sudden depreciation that crushes import costs. It’s a trade-off. Lucas: It is. And the peg means their monetary policy follows the Fed — so when the Fed keeps rates high, Saudi rates stay high. That’s painful for domestic borrowing, but it also attracts foreign capital. Foreign investors now own about 4% of the Tadawul, up from basically zero a decade ago. Luna: So the question is — is this decoupling durable? Or is it just a temporary effect of the PIF splashing cash around? Lucas: That’s the debate. Critics point out that non-oil GDP is still only about 40% of the total economy. And a lot of that non-oil growth is directly or indirectly fueled by oil money — through government spending and sovereign wealth. So it’s not quite self-sustaining yet. Luna: But the PIF is trying to change that by investing in sectors that can eventually stand on their own. Tourism is the big bet — they want 150 million visits a year by 2030. They’re building resorts, entertainment cities, even a ski slope in the desert. Lucas: And the early numbers are promising. Tourism arrivals hit 27 million in 2025, up 40% from the year before. But the real test is whether those visitors spend enough to make the math work. A ski slope in the desert is expensive to run. Luna: Speaking of costs — the PIF’s spending spree has also pushed up domestic inflation. Saudi CPI was running at about 2.8% in April, which is manageable, but it’s higher than the historical average. And there’s a housing shortage in Riyadh because of all the new workers. Lucas: That’s the classic resource curse problem in reverse — instead of Dutch disease from too much oil, you get construction-sector overheating from too much sovereign wealth spending. But the PIF is aware of it. They’re trying to time their investments to avoid blowing out the economy. Luna: So what does this mean for other EMs? If Saudi Arabia can pull this off — transforming from a petro-state to a diversified economy — it could be a model for others. But it requires a level of sovereign wealth that most countries don’t have. Lucas: That’s the catch. Saudi Arabia has the fiscal space to do this because they saved during the high-oil-price years. Countries like Nigeria or Angola didn’t. But there are lessons even so — the focus on non-oil GDP, the use of a sovereign wealth fund as a development tool, the opening up of the stock market to foreign investors. Luna: And the willingness to take long-term bets. NEOM is a $500 billion project that won’t be fully operational for another decade. That requires patience that most political systems don’t have. Lucas: It really does. And it’s worth noting that the outside world is paying attention. We saw this week that Chinese investors are pulling money out of some EM tech stocks — the KWEB ETF is down 5.5% in just five days, Alibaba dropped 7.8%. But Saudi Arabia is actually seeing inflows. Luna: That’s a striking divergence. While China-focused funds are getting hammered, the Saudi market is up. It suggests investors are looking for EM exposure that isn’t tied to the China slowdown or the tech rout. Lucas: And that’s part of a broader theme we’ve been tracking — the decoupling within emerging markets. Not every EM is the same. Saudi Arabia is benefiting from its own domestic story, while others like South Korea — the EWY ETF dropped 6.4% this week on the chip rout — are getting dragged down by global factors. Luna: So the big takeaway for today: Saudi Arabia isn’t just an oil play anymore. It’s becoming a bet on sovereign wealth management and domestic transformation. Risky, but the early returns are interesting. Lucas: If walking through the economy with us has made something click — maybe the way we talk about sovereign wealth funds, or how a country can try to break the resource curse — then you might consider supporting the show. It keeps us independent and ad-free. You can do that at buy me a coffee dot com slash fexingo. Luna: Yeah, it’s a small way to help us keep digging into these stories. No pressure, but it does make a difference. Lucas: So back to the map. If Saudi Arabia’s model works, we might see other resource-rich EMs try to replicate it. The UAE already has a similar playbook, but for countries like Iraq or Algeria, the starting point is much harder. Luna: I think the key variable is institutional quality. The PIF is relatively well-run and transparent compared to many sovereign funds. That attracts co-investors. Without that trust, the model doesn’t work. Lucas: Right. And that’s a reminder that economic transformation isn’t just about money — it’s about governance. Saudi Arabia is trying to build that alongside the physical infrastructure. Whether they succeed will be one of the defining emerging-market stories of the next decade. Luna: And we’ll be here to track it. For now, the numbers are pointing in the right direction, but the hard part is still ahead.