2PIVOTING WITH AI
CONTENTS
The new factor of production.....7
What is artifcial intelligence.......9
Three channels of AI-led growth......11
How AI can support industrial growth
and diversifcation.......14
Next steps for policy makers and
business leaders...17
3PIVOTING WITH AI
Saudi Crown Prince Mohammed bin
Salman did not mince words: “We have
developed a case of oil addiction.”1
This was the prince’s terse summation of the central economic
dilemma facing the oil-producing countries of the Middle East
– their dependence on the energy sector to drive growth – in a
2016 interview with al-Arabiya television.
In Saudi Arabia, for example, the petroleum sector accounts for roughly 43 percent
of gross domestic product (GDP), according to an International Monetary Fund (IMF)
report prepared for the annual meeting of the Arab Ministers of Finance in 2016,
and 80 percent of its export earnings.2 The kingdom is not alone. The IMF pegged
oil’s contribution to GDP growth in the United Arab Emirates (UAE) at 34 percent.
The recent steep, sustained fall in oil prices only makes the situation more precarious.
Figure 1: Saudi Arabia economic fortunes closely mirror the oil cycle
The energy sector will be no more successful at meeting the other critical challenge
facing these countries: high rates of unemployment and underemployment,
particularly among the region’s youth. A 2017 World Economic Forum study on the
future of jobs and skills in the Middle East and North Africa projects that the region’s
population, already among the world’s youngest, will grow by a quarter by 2030, a
signifcant proportion of which will be of “prime working age.” Youth unemployment
today stands at 31 percent, cautions the study.3
Source: Accenture analysis based on Saudi Arabian Monetary Authority (SAMA)
724
450
500
550
600
650
700
750
Mar
2014
Jun
2013
Mar
ReservesWTI Spot
Price
2013
Jun
2014
Sep
2013
Dec
2013
Sep
2015
Dec
2014
Sep
2014
Dec
2015
Mar
2015
Jun
2015
Mar
2017
Jun
2016
Mar
2016
Jun
2017
Sep
2017
Dec
2017
Sep
2016
Dec
20161030
40
50
60
70
80
90
100
110
120
663682
695
554
717725733
736
664
647
609
579570
536
509502
485496
691
WTI Spot Price ($ Per Barrel)Reserves (US$ Billion)
4PIVOTING WITH AI
The way out of this bind: diversifying the economy. To achieve this goal,
how much should oil ultimately contribute to GDP
Using a regression equation and GDP time series data from 1980, Accenture
Research calculated optimal real GDP, divided between oil and non-oil sectors,
to 2030. This modelling reveals that for the kingdom to achieve faster growth and
to reduce the strain on public fnances, oil’s contribution to GDP must continue
to drop – to around 30 percent by 2030. The model further suggests that to do
this, the oil industry will need to grow at a compound annual growth rate (CAGR)
of just under two percent, while non-oil related industries need to grow at more
than twice that rate, a CAGR of 5.8 percent – for a combined GDP (oil plus non-
oil) CAGR of 4.3 percent to 2030.
If diversifcation does not take place at the anticipated rate, and oil prices remain
low, the kingdom’s economy will grow at a CAGR of 2.6 percent to 2030, thus
missing its ambitious Vision 2030 national development plan targets.
Saudi Arabia: the 4.3 percent solution
Since the 1990s, the contribution of the energy sector to the Saudi economy
has fallen signifcantly, from almost two thirds of GDP to 43 percent by 2015.
But despite recent success in reducing oil dependence, Saudi Arabia’s economic
and fnancial fortunes remain strongly tied to international energy markets—both
GDP growth and reserves still closely mirror oil price movements.
The step-by-step deterioration of the kingdom’s position is charted in Figure 1 –
beginning in mid-2014 with the slump in oil prices, which created both current
account and fscal defcits. This forced the Saudi Arabian Monetary Authority,
hobbled by the country’s fxed exchange rate regime, to draw on the country’s
reserves and to issue debt to fnance the dual shortfall. Meanwhile, annual real
GDP growth has fallen from 10 percent in 2010 to a forecast 2.7 percent this year.
Real GDP Growth (year-on-year)GDP Composition (oil and non-oil)
-4%
0%
4%
8%
12%
12419
80900020102030
2012
Saudi ArabiaUAE
20102014
3.8
2.8
2.070%57%
30%
-0.71.7
4.13.7
2.7
5.4
10.0
5.0
20162018f2020f
Non oil
Riyal, Trillions
Oil
Source: Accenture Research based on SAMA and Oxford Economics。