Regional Development and Economic Clusters
Governments around the world strive to enhance economic stability by addressing key challenges such as inflation, monopolistic practices, and shadow commerce. These challenges hinder sustainable development; therefore, public policies are often designed to tackle them in a comprehensive and inclusive manner. At the local level, particularly in villages and rural areas, underdeveloped infrastructure, such as roads, electricity, water networks, and internet access, might be a challenge. These areas may also face limited access to essential services, such as healthcare and education.
Regional development refers to targeted efforts aimed at stimulating growth and prosperity in specific areas. This approach helps increase regional contributions to GDP, generates economic opportunities, reduces unemployment, and improves living standards. It also alleviates economic concentration in major cities and supports the development of emerging sectors based on each region’s competitive advantages. Experts emphasize that leveraging regional advantages enhances sectoral efficiency and encourages the formation of economic or industrial clusters, which are networks of businesses and services built around a specific economic activity.
This concept aligns with economist Alfred Marshall’s theory of “agglomeration economies,” where productivity rises when similar industries are concentrated in one geographic area. These industries benefit from shared resources and specialized labor. As clusters mature, they help develop complementary industries, fostering an interconnected ecosystem that drives innovation, increases efficiency, and enhances competitiveness. For instance, a successful agricultural sector can stimulate related activities such as logistics, packaging, and marketing.
To support these clusters, governments can introduce flexible and stimulating policies, such as incentives for local content contributions, targeted development finance to support high-potential economic activities, and other relevant policies.
Research highlights three main ways in which clusters contribute to development:
- Increased productivity through collaboration among businesses in the same sector.
- Enhanced innovation driven by healthy competition and the adoption of emerging technologies and new business models.
- Creation of complementary activities that expand the value chain and strengthen the local economy.
For example, the coffee-farming sector in Jazan region hosts over 2,500 farms and more than 400,000 coffee trees, producing around 800 tons annually. National initiatives aim to increase this number to 1.2 million trees by 2026. Development support can also focus on the coffee-farming cluster, supporting logistics, processing, and marketing to help build an integrated value chain that serves the sector.
Developing regional economies enhances competitiveness and delivers several benefits, including improved self-sufficiency, increased export potential, and greater contributions to GDP. It also encourages the rise of specialized businesses, generates quality jobs, and promotes technological advancement, all within a unified strategic framework involving both public and private sector collaboration.
Saudi Vision 2030 has identified several high-potential sectors for economic clustering. These include olive farming in Al-Jouf, innovative date production in Al-Qassim, rural tourism in Asir, and advanced manufacturing, biotechnology, and clean energy in NEOM. These clusters are expected to play a key role in boosting non-oil GDP and fostering balanced, inclusive growth across the Kingdom.