SAUDI ARABIA

THE kingdom of saudi arabia

The Kingdom of Saudi Arabia has a vibrant and a thriving economy, which represents the largest in the Gulf region and the 20th largest in the world. Saudi Arabia is committed to enhancing its business climate to make it more attractive to foreign investment. Currently, it is ranked 29th out of 138 countries worldwide in the World Economic Forum’s Global Competitiveness Index, the most comprehensive assessment of national competitiveness worldwide. In addition, the World Bank and the International Finance Corporation’s 2017 “Ease of Doing Business” report ranked Saudi Arabia 94th out of 190 countries; the Kingdom rose two spots from the 2016 report. A 2015 law lowered some barriers to starting a new business. Other recent reforms include removing a barrier to full foreign ownership of certain types of businesses; introducing a computerized system to make property transfers faster; and increasing corporate transparency requirements and strengthening control and ownership structures of companies to protect minority investors.
To realize its dreams, Saudi Arabia is gearing up to stage the world’s largest IPO, offering up a slice of Saudi Aramco, the state oil giant. According to the Vision 2030 blueprint, a stake of just 5% will be made public. Nonetheless, this will still generate around USD100 billion—far exceeding Alibaba’s USD25 billion listing on the NYSE, the biggest IPO to date. In selling off a stake in the firm, the government hopes to simultaneously invigorate the foreign investment environment and fill the coffers, in this instance the Public Investment Fund (PIF), Saudi Arabia’s main investment arm. Already valued at over USD100 billion with key domestic assets through stakes in SABIC and National Commercial Bank, the PIF is on course to become the world’s biggest fund once Aramco’s partial sale materializes.

THE ECONOMY

Public Investment Fund - PIF

The Public Investment Fund is a sovereign wealth fund owned by Saudi Arabia, founded for the purpose of investing funds on behalf of the Government of Saudi Arabia. The PIF has a portfolio made up of approximately 200 investments, of which around 20 are listed on Tadawul, the Saudi Stock Exchange.
The Public Investment Fund invests in specific projects through equity, loans or guarantees, and allocations of public funds. The PIF also provides medium and long-term loans to the large-scale government and private industrial projects. The PIF invests in the fields of telecoms, aerospace, energy, green technologies, and security, seeking a focus on housing finance, renewable energy and information technology.
Since its inception, the PIF has been the Kingdom’s main investment arm, and has played an important role in the financing of vital projects in the Kingdom, including oil refining, fertilizer, petrochemical and electricity sectors. In July 2014, the Council of Ministers granted the PIF authority to fund new companies inside and outside the Kingdom, either independently or in cooperation with the public and private sectors, without the council’s prior approval.

THE BANKING SYSTEM

Saudi Arabia has one of the lowest bank fraud rates in the world as Saudi banks play a vital role in raising agents’ awareness from fraud.
Saudi banks launched its Ninth campaign to raise awareness about financial fraud and means to prevent it. Raising such awareness is very significant considering that financial fraud has dangerously developed and further burdened the global economy due to more losses.
Financial frauds around the world are continuing to increase as they become a burden that costs the world economy more losses.
The rates of financial frauds are much lower in Saudi Arabia compared to the rest of the world after Saudi Arabia began raising awareness through its nine campaigns that targeted both the consumer and the banks, in an effort to ensure both locals and expats don’t fall prey to fraudulent cases.
These precautionary measures helped Saudi Arabia secure one of the lowest bank fraud rates in the world.

LARGEST BUDGET IN HISTORY

King Salman announced the largest expenditure budget in the history of the Kingdom. The budget, he said, takes into account the lower oil price levels compared to previous years, and has been planned in order to continue development and enhancement process towards achieving the Kingdom’s Vision 2030, that aims at increasing the size of the national economy and sustain its growth, through diversification of the economic base, sources of income and the capacity to adapt to developments and for overcoming challenges.
The King said that dozens of programs have been launched to realize the goals of diversifying the economic base and empower the private sector to play a major role, in sustaining expenditure efficiency, in order to realize appropriate economic growth rates, mitigate the burden on the citizens and tackle possible impacts, in addition to supporting the private sector.

King Salman announce largest budget in Saudi Arabia history.

THE 2021 BUDGET

Saudi Arabia said its spending plans for 2021 would be expansionary, as it leans more heavily on government-controlled funds to make up for cuts to a budget battered by a decline in oil prices and the coronavirus pandemic. The kingdom will stick to its plan to cut spending by 7.3 per cent in 2021 after its deficit widened dramatically in 2020. Spending is projected at SR990 billion ($264 billion). Revenue is expected to rise to SR849 billion. The budget deficit is expected to narrow to SR141 billion, or 4.9 per cent of economic output, compared to nearly SR300 billion, or 12 per cent of gross domestic product in 2020.
In regards Government spending, major projects would continue in 2021 despite a growing deficit. It is expected that the pace of growth will accelerate in the Kingdom with the demise of the pandemic, especially after the adoption of vaccine.
The 2021 ministry of finance budget statement, that the kingdom would continue to support the private sector through the National Development Fund and the Public Investment Fund to provide more jobs for citizens and encourage them to develop self-employment ideas to enhance their incomes. That legislative reforms during the past years had enabled the government to absorb the shock and deal with the Covid-19 pandemic efficiently, adding that the kingdom enjoys a “strong financial position given the large size of its reserves with relatively low government debts.

Public-Private Partnerships

Public-Private Partnerships (PPPs) are an effective way to reduce the burden on the government and encourage more private investment and involvement in the economy. Saudi Arabia has been using PPPs — merging government bodies with private companies aligned in their fields. Some of the well-known names involved in recent endeavors include Saudi Aramco, Saudi Airlines and SABIC.
Under the Saudi Vision 2030 transformational plan, PPPs and the divestment of state-owned properties are seen as a crucial step to changing how the government operates. A key aspect of this is to change the role of the government from an implementor to a regulator and encourage more private sector involvement in the Kingdom.
PPP and privatization will support these objectives by facilitating the transfer of ownership of economic activities, services and assets owned or traditionally delivered by the government to the private sector.
This will play a key role in transforming the country from an oil-dependent economy to a diverse, private-sector driven one.
The Kingdom has a long track record of using PPP. A variety of new projects have been launched on the market over the last few years, including number of renewable energy projects, water and waste-water projects, schools, hospitals, diagnostic centers and ports. The National Centre for Privatization and PPP, which is a government body mandated to enable the program, lists 11 transactions have been closed, 18 that are under tender and 34 that are under preparation.
Saudi economic activity picked up in the 2020 third quarter. The pickup comes amid improving global economic sentiment linked to news from Pfizer and BioNTech, which reported that their COVID-19 vaccine had been found to be more than 90 percent effective in a late stage trial. That helped to propel stock markets to record gains worldwide as the price of oil also climbed on the renewed optimism.
A more optimistic Saudi private sector reacting to the start of the vaccine rollout in the Kingdom is being credited for positive data seen for the month of January 2021.
Saudi Arabia is encouraging the growth of the private sector in order to diversify its economy and to employ more Saudi nationals. Approximately 6 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors; at the same time, however, the Government is struggling to reduce unemployment among its own nationals. Saudi officials are particularly focused on employing its large youth population.

VISION 2030

King Salman hailed the achievements related to decreasing the deficit of the budget of the current fiscal year to 8.9% of the GDP from 12.8% during the last fiscal year. Despite increasing the expenditure in next year’s budget, he added that the target is to decrease the deficit to be less than 8% of the Gross Domestic Product, in spite of the great and expansionary volume of the budget.
This plan provides a detailed blueprint for building upon the country’s strong economic foundation by diversifying its economy across a broad range of sectors, boosting private sector participation, and improving the overall economic competitiveness. This highly ambitious reform agenda not only sets forth a roadmap for the country’s economic growth, but also offers a framework for all future decisions to ensure that future projects are aligned with the Vision.
Every aspect of this plan will have an impact on business and the economy.
From supporting families by improving healthcare and facilitating homeownership through new regulations and better access to funding, to supporting SMEs and increasing their contribution to GDP, to improving government transparency and digitizing services, each goal within Vision 2030 will directly impact and improve the lives of the Saudi people. By outlining a plan that draws on Saudi Arabia’s existing strengths and capabilities while staying true to its national and cultural identity, Vision 2030 provides a framework through which the Kingdom can grow and achieve its goal of becoming a global leader.
The U.S. private sector is encouraged by the economic reforms proposed in Vision 2030 and looks forward to taking advantage of the various commercial and investment opportunities that it offers, while partnering with the Kingdom to fulfill its goals.
On the issue of Saudi economic reforms, the American Assistant Secretary for Global Markets at the U.S. Department of Commerce commented that “We laud Saudi Arabia’s economic reforms and commitment towards ensuring the long-term health of its economy. The Kingdom has demonstrated real leadership in undertaking energy subsidy reforms.
We also recognize the challenges Saudi Arabia faces when rolling out the National Transformation Program (NTP).
The U.S. Government and U.S. private sector stand ready to support the Kingdom through lessons learned, solutions and technologies, and best practices to attract investment and innovation.
Adding that “investment in both directions will enhance the international competitiveness of our respective economies. While we are undertaking efforts to expand our trade and investment relationship, U.S. companies have already invested $11 billion in the Kingdom, and Saudi companies have similarly invested $13 billion in the United States.
We welcome additional Saudi investment in the U.S. companies find that by investing in the U.S., and working with its demanding markets and gaining access to the latest technologies, they become more competitive globally”.

VISION 2030 PILLARS

The first pillar of our vision is our status as the heart of the Arab and Islamic worlds. We recognize that Allah the Almighty has bestowed on our lands a gift more precious than oil. Our Kingdom is the Land of the Two Holy Mosques, the most sacred sites on earth, and the direction of the Kaaba (Qibla) to which more than a billion Muslims turn at prayer. The second pillar of our vision is our determination to become a global investment powerhouse. Our nation holds strong investment capabilities, which we will harness to stimulate our economy and diversify our revenues. The third pillar is transforming our unique strategic location into a global hub connecting three continents, Asia, Europe and Africa. Our geographic position between key global waterways, makes the Kingdom of Saudi Arabia an epicenter of trade and the gateway to the world.

THE TRANSFORMATION PLAN

A. REALIZING SAUDI ARABIA’S FULL POTENTIAL BY 2030

GDP could double again
$4 trillion to be invested in the non-oil economy, primarily from private sources
6 million additional Saudi nationals in the workforce
60% increase in Saudi household income
$800 billion GDP increase

B. EIGHT SECTORS THAT WILL GENERATE GROWTH AND JOBS

Tourism
Finance
Construction
Health care
Mining and Metals
Petrochemicals
Manufacturing
Retail and wholesale trade

C.THE THREE TRANSFORMATION PILLARS

Sustainable fiscal management

An overhaul of the existing model based on oil revenue and public spending
More efficient spending and a new focus on value for money

Economic reform

More competition and greater openness to foreign investment and trade
Simpler and speedier processes to remove hurdles to private-sector growth

More productive workforce

Increased employment and participation of men and women in the labor force
Eliminating the mismatch between skills and the needs of the labor market

DOING BUSINESS IN SAUDI ARABIA

The Saudi Arabian economy is the largest in the Gulf region, and the country is the only nation in the region that is a member of the G-20 group of major economies. Saudi Arabia has an oil-based economy with petroleum accounting for approximately 87 percent of budget revenues, 42 percent of GDP, and 90 percent of export earnings revenue. Current GDP is estimated at USD 681.2 billion. In response to the sustained period of low oil prices and the realization that a primary commodity-based economy is not sustainable, the government is seeking to step up and accelerate its drive to diversify the economy from an over dependence on oil.

SAUDI ECONOMY IN TODAY'S WORLD

The following are some indicators of how KSA is positioned in today’s world community economically:

2nd globally in oil reserves, production and exports.
4th in natural gas reserves.
0th in producing natural gas.
Largest petrochemical producer in the Arab Region.
One of the largest 20 economies in the world.
Largest Arab economy.
One of the largest economies in MENA by GDP.
78th globally in the Economic Freedom Index (Heritage Foundation).
25th globally (among 140) in the Global Competitiveness Index (Heritage).
43rd globally (among 130) in the Global Innovation Index (Cornell).
29th globally in openness to world economy and initiatives (Davos).

SAUDI PRIVATE SECTOR STIMULATION PLAN

The Custodian of the Two Holy Mosques King Salman issued a Royal Decree approving the private sector stimulation plan, allocating SR72 ($19) billion for the plan. The plan initiatives include the:

Subsidized Housing Loans Initiative.
Projects Support Fund Initiative.
Supporting Financially Distressed Companies initiative.
Exports Promotion Program Initiative.
Exports Finance Enhancing Initiative.
Indirect Loan for Small and Medium Enterprises Initiative.
The government Risk Capital Initiative for small and medium enterprises.
The Government Fees Refunding Initiative for small and medium enterprises.
Mega Investment Program Initiative.
Broadband and Optical Fiber Stimulation Initiative.
Building Technologies Stimulation Initiative.

The private sector stimulation packages aim at strengthening competitive capabilities of a number of segments of the economy, develop its outcomes as well as improve business and investment environment and facilitate the packages implementation under Vision 2030.

SAUDI INFRASTRUCTURE

The annual World Investment Report 2020 analyzed trends in foreign direct investment around the world, at regional and national levels. The latest edition revealed that Saudi Arabia is one of the top destinations for foreign direct investment in the West Asia region, and accounted for a majority of regional inflows before the economic downturn caused by the COVID-19 pandemic began to have an effect.
Foreign direct investment in Saudi Arabia rose to $4.6 billion in 2019, according to the World Investment Report 2020 published by the United Nations Conference on Trade and Development. For a second consecutive year the figure increased by 7 percent, which is more than three times the level of growth recorded in 2017.
The report identified improvements to the business environment in Saudi Arabia as a key driver of annual growth. In particular it highlighted a number of the economic reforms last year as improving the overall ease of doing business.
In a report published by the World Investment Report on June 16, 2020, confirmed that an upward trend indicated by investor license figures released last month by Invest Saudi. These revealed a 19 percent increase in the number of licenses granted by the Kingdom in the first three months of the year 2020 compared with the same period last year.
“Saudi Arabia continued to see this encouraging pattern of growth in the first quarter of 2020, with strong month-by-month increases in the number of international companies setting up in the Kingdom recorded in Jan. and Feb. the report stated. However, as the economic effects of COVID-19 began to be felt in March, we found that growth began to slow.”
According to a market review report by the Global Infrastructure Hub, Saudi Arabia has announced a trillion-dollar pipeline of infrastructure projects aimed at diversifying the economy beyond oil and positioning the Kingdom as a global hub for investment and logistics. The development agenda has created opportunities in a range of new areas such as smart cities, tourism, and clean energy.
A view of the Saudi Arabia Infrastructure Q4 2020 presented in a Search Inside Report by the Market Research.com stated that Saudi Arabia’s construction sector will fall into recessionary territory during 2020 as the impact of the ongoing Covid-19pandemic weighs on short-term growth prospects in the sector. The long-term outlook remains strong, with efforts to diversify the economy away from oil offering opportunities for residential and non-residential projects and large-scale transport infrastructure.
A Fitch report expected the Saudi Arabia’s construction sector to expand quickly by global standards in the coming years, but trail faster growing GCC peers like Qatar and Oman. Within the Kingdom’s infrastructure mix, we expect economic diversification imperatives to support outperformance within the transport sector, while strong structural demand driven by a young population will incentives investment into the energy and utilities segment.
Saudi Arabia’s history is rich in supporting private and public partnerships in a multilateral framework, and in supporting investment in sustainable infrastructure.
To conclude, there is an urgent need for a global investment in sustainable infrastructure, and to integrate both the public and private sectors to develop measures to fill funding gaps, especially in developing countries.
As part of reaching such goal, the Kingdom established in 2015 the “Digital Goodness Platform” in partnership with UNDP to fund the first global resource that enables people to fund local efforts to achieve the Sustainable Development Goals.
Meanwhile, with a significant contribution made by Saudi Arabia, the G20 established has established a global infrastructure center that provides data, insights and best practices and unites the discourse on infrastructure.
On the global level, Saudi Arabia has always welcomed the facilitation and the creation of a global environment conducive to private investment in infrastructure, including public-private partnership initiatives, that was welcomed by Saudi Arabia. In addition to that, the development of financing infrastructure projects will be supported by Saudi Arabia as well.

SAUDI MEGA PROJECTS

THE “NEOM” PROJECT

NEOM is a planned 10,230-square-mile (26,500 sq km) transnational city and economic zone to be constructed in Tabuk, Saudi Arabia close to the border region of Saudi Arabia and Egypt (via a proposed bridge across the Straits of Tiran via Tiran Island). The city was announced at the Future Investment Initiative conference on October 24, 2017. It will operate independently from the “existing governmental framework” with its own tax and labor laws and an “autonomous judicial system. The initiative emerged from Saudi Vision 2030, a plan that seeks to reduce Saudi Arabia’s dependence on oil, diversify its economy, develop public service sectors, and put Saudi kingdom at the forefront of technological advance.
Planning and construction will be initiated with $500b from the Public Investment Fund of Saudi Arabia and international investors. The first phase of the project is scheduled for completion by 2025.

‘The Line” A Zero-Carbon Emissions City at NEOM

In January 2021, Saudi Arabia unveiled ambitious plans for a new carbon-free at Neom. It is the first major construction project for the $500 billion flagship business zone aimed at diversifying Saudi Arabia’s economy. The Line would extend over 170 km (105 miles) and be able to house a million residents in “carbon-positive urban developments powered by 100% clean energy. The city will be home to a million people and have no cars and no streets.
According to a video released about “The Line,” a “spine” of transportation routes will connect the city together, and the vision for the city involves everything one might need within a 5-minute walk.
Saudi Arabia’s Public Investment Fund (IPF) is the cornerstone investor in NEOM, a 26,500-square-km (10,230-square-mile) high-tech development on the Red Sea with several zones, including industrial and logistics areas, planned for completion in 2025.

RIYADH: THE NEW CITY

Cities represent 85 percent of global economic activity. True growth begins in the city, whether in terms of industry, innovation, education, services, or other sectors. As such, world economies are not based on nations, but on cities.

Riyadh aims to more than double its population and become one of the 10 richest cities in the world under ambitious plans unveiled at the Future Investment Initiative (FII) gathering in the Saudi capital. Riyadh’s features set the groundwork for job creation, economic growth, investment, and many more opportunities, with the aim of making Riyadh one of the 10 largest city economies in the world. It stands toady as the fortieth largest city economy worldwide.

Riyadh represents about 50 percent of the non-oil economy in Saudi Arabia and enjoys cost advantages over other urban centers. The cost of creating jobs in the city is 30 percent less than in other cities in the Kingdom. In regard to the cost of developing infrastructure, it is 29 percent less than the other cities.

THE “QIDDIYA” PROJECT

The Qiddiya project is located 40 kilometers from the center of the capital Riyadh and bears the name of the area and has spectacular views of mountains, valleys and desert. It is expected to be the world’s largest entertainment city by 2030, with a total area of 334 square kilometers, surpassing Walt Disney World in Florida, which is only 110 sq. km. The project targets local, regional and international tourists and will be Saudi Arabia’s pre-eminent entertainment, sports and cultural destination that embodies the Saudi identity, with a budget of $500b. By 2030, the number of annual visitors to Qiddiya is expected to reach 17 million in the entertainment sector, 12 million in the shopping sector and two million in the hospitality sector. Qiddiya will help diversify national income sources as it is forecast to contribute to up to SR17 billion of GDP by 2030

THE “RED SEA” PROJECT

The Red Sea $4b Project will be a luxury resort destination that will be developed across a group of natural islands and steeped in nature and culture. It will set new standards for sustainable development and bring about the next generation of luxury travel, putting Saudi Arabia on the international tourism map. The Red Sea Project is located along the western coast of the Kingdom of Saudi Arabia. Envisioned as an exquisite luxury resort destination built on 50 unspoiled natural islands that stretch along 200 km. of stunning coastline, the project will be situated on the site of one of the world’s hidden natural treasures. With tourism representing the second most important sector in Saudi Arabia, The Red Sea will spearhead the diversification of the Kingdom’s leisure industry. As outlined in Vision 2030, the project also aims to diversify the Kingdom’s tourism offerings to create a year-round hospitality sector, while promoting cultural conservation and economic stimulation through local and international investments and spending. This is projected to achieve a contribution of SAR 15 billion per annum to the Kingdom’s GDP, in addition to creating up to 35,000 jobs, once it is up and running.

Al-Faysaliya

The Kingdom had also announced detailed plants about Al Faysaliya. The city situated in the West of Mecca, is set to encompass residential units, entertainment centers, an airport and a sea port. The project will cover a total area of 2,450 sq. km and is expected to be completed by 2050

ENTERTAINMENT CITY

Similarly, the Kingdom announced plans to construct the largest cultural, sporting and entertainment city in the country. The project is to be situated in Al Qidya, and is set to span a total area of 334,000 sq. km. Constituting this area is a Safari designated attraction and an amusement park under the Six Flags entertainment franchise.

KING ABDULLAH’S ECONOMIC CITY

King Abdullah’s Economic City is considered as the first city subject to the Kingdom’s free ownership system. This project is run by both EMAAR Economic City, a company subject to the Saudi government’s control and Dubai’s EMAAR which is considered the biggest real estate company in the emirate. It includes establishing a deep sea water port, a 55 sq. km logistics center, a sporting and entertainment center and more 6500 residential estates. This is a $100b project which have been started few years back and is described as the largest private development of its kind in the world; the RIYADH METRO whose first phase completion was scheduled for 2020, is a $22.5 billion.

KING ABDULLAH FINANCIAL CENTER

It is expected that King Abdullah’s financial center, perceived to be the Saudi counterpart to Dubai International Financial Center, to attract banks and financial services companies, financial auditors and lawyers, the Saudi financial market and the Capital Market Authority to one place.

ECONOMIC KNOWLEDGE CITY

It is the first city in the Kingdom of Saudi Arabia to be part of the Saudi Smart Cities development program, located in Madinah, will focus on intellectual property, knowledge-based industries, medicine, hospitality, tourism and multimedia. Residents in the city, which holds an area of 4.8 sq. km will be able to commute to Mecca and Jeddah through the Haramain High Speed Rail.

PRINCE ABDUL-AZIZ BIN MUSA’D ECONOMIC CITY

This is a 156 sq. km multipurpose city situated in Ha’el north of the Kingdom. Apart from having a residential area, it will also include an international airport, hotels, shopping centers and entertainment facilities. According to Index Saudi, the Saudi mega projects include the tourist destination AMAALA project with a $2b budget; the entertainment and leisure AL-WIDYAN project with a budget of $2.7b; the MALL OF SAUDI project with a $3.2m budget; the major Makkah development project JABAL OMAR with a budget of $4.4b; the shopping mall complex THE AVENUES MALL with a $2.9b budget. During the late November 2020 G20 Summit, Saudi Arabia announced its plan to establish a number of new economic cities, which means more government spending in the years to come.

GROWTH PROSPECTS

The International Monetary Fund (IMF) raised its growth projection for the Saudi economy on the back of higher oil prices but retained its estimates for the region.
In its World Economic Outlook update, the IMF said the Saudi economy is expected to grow by 1.6 percent in 2018, up 0.5% on its October 2017 estimates.
The Saudi economy, the largest in the region, contracted in 2017, for the first time since 2009, when it dove into negative territory, due to the global financial crisis.
The kingdom has posted budget deficits in the past four fiscal years since oil prices began to plunge. Riyadh has introduced a series of measures to boost non-oil income including the introduction of a value-added tax (VAT) of 5% .

ANTI-CORRUPTION CRACKDOWN

Corruption, in all its kinds and forms, is a severe lesion that undermines societies and prevents their development and growth, as such, Saudi Arabia is determined to confront it in a fair and firm way so that the country enjoys the prosperity and development hoped for by every citizen. King Salman stated in a cabinet session that the Kingdom will continue along its path to protect integrity and combat and eliminate corruption, assign that the audit agencies must bolster their roles to ensure that public funds are protected and preserved. In early 2019, Saudi authorities announced an end to a high-profile anti-corruption probe that boosted state coffers by over $100 billion.