Crunching the Numbers:
Potential Gains and Losses to be Reaped if Saudi Arabia Signs up to the Abraham Accords
by Keith Boyfield*
Currently there is a lively debate centring on whether Saudi Arabia might normalise relations with Israel and sign up to the Abraham Accords. It’s an ambitious goal, but already the Kingdom cooperates discreetly on security and intelligence matters. In March this year, Crown Prince Mohammed Bin Salman (known as MBS) observed: ‘We don't look at Israel as an enemy, we look to them as a potential ally, with many interests that we can pursue together. But we have to solve some issues before we get to that.’[i]
What are the economic benefits to be reaped if Saudi Arabia was to commit to the Abraham Accords, and what are the downside risks?
Saudi Arabia’s economy is currently achieving noticeable wins. Last year, it grew by 3.3%. The International Monetary Fund (IMF) calculates that the Arab world’s largest economy will grow by 4.8% in 2022. More recent econometric modelling by Jadwa Investment, a private equity and investment group, indicates that the Saudi economy may expand by as much as 7.7% this year, fuelled by rising oil prices and the successful Covid vaccination programme.[ii]
Hydrocarbons continue to be the powerhouse driving growth. The oil sector's gross domestic product (GDP) is projected to climb by 15.5% this year as the Kingdom lifts output by around 100,000 barrels per day each month under the current OPEC+ production agreement. This is a response to meet increased demand in the wake of sanctions levelled at Russia – and pleas from the US and a personal visit by Boris Johnson, Prime Minister of the UK, to lift production.
Meanwhile, on the basis of Jadwa’s economic modelling, the non-oil sectors of the economy are set to grow by 3.4%. All sectors will show gains, led by retail and the hospitality sector, notably restaurants and hotels as pandemic restrictions are relaxed.
However, the Saudi economy faces challenges. Its unemployment rate, recorded in 2020 prior to the Covid pandemic, stood at 7.4%. What is more, the population is increasing and is forecast to reach 39.1 million by 2026 – a gain of over 4 million from today. In order to create jobs, the economy needs to diversify away from its reliance on oil and gas. With this objective in mind, the government is investing heavily in the new digital city complex at NEOM, focusing on such growth sectors as renewable energy and healthcare – specifically gene therapy, genomics, stem cell research, and pharmaceutical manufacturing. ‘Saudisation’ of these industries will offer many attractions, especially if they are backed by a strong industry regulator, an early buy-in from company management, and clear career pathways.[iii]
All this means a concerted push to train a highly skilled workforce, which opens up major opportunities for cooperation, taking a leaf out of the experience gained by Saudi Arabia’s neighbours who have signed up to the Abraham Accords. Already, Bahrain and the Emirates have agreed to exchange students and academics, particularly in the medical care sector, so as to enhance standards (Saudi Arabia spends an estimated $12.5 billion on overseas healthcare for its citizens).
Crunching the numbers, the RAND Corporation estimates that if Saudi Arabia was to join the Abraham Accords and sign a free trade agreement with Israel – and the other signatories to the agreement – then its economy would likely benefit to the tune of $270 billion in new activity over the next ten years. This would trigger a 6.9% jump in real GDP and generate 192,000 new jobs. Crucially, adopting this strategy should reduce the unemployment rate down to 4.6 % from its current level of 7.4%.[iv]
As Michael Singh points out in the latest issue of Foreign Affairs, ‘Normalising relations with Saudi Arabia would substantially bolster Israel’s prestige among countries traditionally wary of Israel, further its growth, and possibly open up new avenues for military cooperation.’[v] Yet, as Singh points out, Saudi Arabia would have to amend the late King Abdullah’s Arab Peace Initiative referring to the Palestinian issue. However, this may well be possible given that the UAE and Bahrain have revised their long-standing refusal to recognise Israel diplomatically.
Furthermore, Bahrain and the Emirates have spearheaded the drive to combine Arab finance with Israeli technical know-how to the benefit of all concerned. For example, the UAE announced in January 2022 that it planned to invest up to $10 billion into Israel tech over the next decade. At the beginning of this year, Mubadala, the UAE’s sovereign wealth fund with $243 billion in assets, launched a new $100 million Israel tech fund. Only two months previously, in November 2021, Our Crowd, the biggest venture capital fund in Israel, committed to investing substantial funds into the UAE.
Forging a new era of understanding between Saudi Arabia and Israel will not be easy, particularly among certain groups within Saudi society. But the way ahead for improved relations has been established by UAE, Bahrain, Morocco and Sudan. As exchange programmes, mutual investment, and cooperative initiatives generate greater and greater wealth for their growing populations, the rationale for Saudi Arabia to sign up to Abraham Accords should prove compelling.
13 April 2022
*Keith Boyfield is a Senior Fellow of the Euro-Gulf Information Centre.
[i] ‘Saudi Arabia says Israel is “potential ally”,’ Middle East Monitor, 4 March 2022, https://www.middleeastmonitor.com/20220304-saudi-arabia-says-israel-is-potential-ally/.
[ii] Jadwa Investment, ‘The Saudi Economy in 2022, Macroeconomic report.’ Jadwa Investment, 2022. https://www.jadwa.com/en/node/14608.
[iii] See: Nataraj, Shanthi, Howard J. Shatz, Louay Constant, Matthew Sargent, Sean McKenna, Yousuf Abdelfatah, Florentine Eloundou Nekoul, Nathan Vest, and Decision Support Center, ‘A Targeted Industry Approach for Raising Quality Private-Sector Employment in Saudi Arabia.’ Santa Monica, CA: RAND Corporation, 2021. https://www.rand.org/pubs/research_reports/RRA536-1.html.
[iv] Egel, Daniel, Shira Efron, and Linda Robinson, ‘Peace Dividend: Widening the Economic Growth and Development Benefits of the Abraham Accords.’ Santa Monica, CA: RAND Corporation, 2021. https://www.rand.org/pubs/perspectives/PEA1149-1.html.
[v] Michael Singh, ‘Axis of Abraham: Arab-Israeli Normalization could remake the Middle East,’ Foreign Affairs, March/April 2022, https://www.foreignaffairs.com/articles/middle-east/2022-02-22/axis-abraham.