The Report: Saudi Arabia 2014
Home to an estimated 15.9% of the world’s proven oil reserves, Saudi Arabia is the single largest economy in the Middle East and North Africa. According to the Ministry of Finance, GDP grew by 9.3% to $746bn in 2013. While oil income is expected to continue to account for the majority of government revenues for the foreseeable future, the non-oil sector has expanded significantly in recent decades.
Country Profile
Home to an estimated 15.9% of the world’s proven oil reserves, Saudi Arabia is the single largest economy in the Middle East and North Africa. According to the Ministry of Finance, GDP grew by 9.3% to $746bn in 2013. While oil income is expected to continue to account for the majority of government revenues for the foreseeable future, the non-oil sector has expanded significantly in recent decades. Saudi Arabia is a major player in the region and a close ally to many of the world’s leading powers. This chapter contains interviews with Prince Turki bin Abdullah bin Abdulaziz Al Saud, Governor, Riyadh Region; Prince Saud bin Nayef bin Abdulaziz Al Saud, Governor, Eastern Province; Abdul Latif Al Zayani, Secretary-General, GCC; and a viewpoint from Enda Kenny, Prime Minister of Ireland.
Explore chapterEconomy
Fuelled by the ongoing state infrastructure investment drive, non-oil private sector growth was estimated at 9.4% in 2013. The Kingdom posted a budget surplus of $54.9bn in 2013, or 7.4% of GDP, driven largely by oil exports, which averaged 7.54m bpd over the course of 2013. Efforts are under way to boost the employment of nationals and make the most of Saudi Arabia’s young population, and healthy trade ties with countries around the world continue to benefit the economy. Improving access to finance for SMEs remains a priority. This chapter contains a viewpoint from Ibrahim Al Assaf, Minister of Finance, and interviews with Adel Fakeih, Minister of Labour, and Lim Hng Kiang, Singapore Minister for Trade and Industry.
Explore chapterBanking
The past year has been a positive one for the Kingdom’s banking sector, with asset growth and profitability continuing the upward trend that has buoyed the industry in recent years. Growing cooperation between local and overseas banks has helped the sector, while remittance flows in the Kingdom are second only to those in the US. Government initiatives offer support for SMEs looking to boost employment and the non-hydrocarbons sector. In overhauling their technological infrastructure and rolling out new tech-based services to their customers, Saudi Arabia’s banks have a strong platform to expand their operations. The banking sector has shown itself to be particularly adept at building retail loan books and the new mortgage law looks set to help in this regard. This chapter contains a viewpoint from Fahad Al Mubarak, Governor, Saudi Arabian Monetary Agency (SAMA), and an interview with Bernd van Linder, CEO, Saudi Hollandi Bank.
Explore chapterCapital Markets
As the largest and most liquid bourse in the MENA region, the Saudi Stock Exchange accounts for around 50% of the GCC equity market. Increasing investor appetite, sustained earnings growth by Saudi companies and the relatively robust nature of the Kingdom’s economy make for a positive outlook for the exchange. Although still at a relatively early stage of development, the bourse has begun to expand from its initial role as a single-product equities market to introduce a wider array of financial instruments. Increased use of technology and moves to open up to foreign investors look set to boost the market over the coming months and years. This chapter contains interviews with Adel Al Ghamdi, CEO, Saudi Stock Exchange, and Jamal Al Kishi, CEO, Deutsche Securities Saudi Arabia. Share analysis & data is provided by Deutsche Securities Saudi Arabia.
Explore chapterIslamic Financial Services
Long a key participant in the global Islamic finance arena, Saudi Arabia secured its position in 2013 by becoming the largest issuer of sukuks (Islamic bonds) in the region for the second year in a row. The outlook for sukuks is positive, as the short-term nature of most bank lending in the Kingdom (with around 60% of all loans having maturities of less than one year) makes them an attractive alternative for some issuers. Saudi Arabia is also home to a diverse market for sharia-compliant banking products and services, and there are currently four commercial Islamic banks active locally.
Explore chapterInsurance
One of the largest in the GCC, Saudi Arabia’s insurance industry is expanding at a rate which some believe will soon see it surpass the UAE to claim the title of regional leader. 33 insurers are currently licensed to operate in the Saudi market, while a further three have been approved for establishment. This makes for a crowded sector, with intense competition played out largely in the arena of premium prices. This chapter contains an interview with Abdullah Al Sharif, Secretary-General, Council of Cooperative Health Insurance (CCHI).
Explore chapterMakkah
As both the number of pilgrims and the number of residents in Islam’s holiest city continue to rise, the development and expansion of infrastructure is the main theme in Makkah at present. Investing in the necessary facilities to accommodate visitors, boosting the number of available hotel rooms and building more affordable housing for residents will all be major focuses going forward. This chapter contains an interview with Osama Al Bar, Mayor of Makkah.
Explore chapterJeddah
The results of efforts to address decades of rapid unplanned growth in Saudi Arabia’s second-largest city are beginning to become clear as transportation plans advance and major development projects get under way. With a focus on public- private partnerships, affordable housing and the redevelopment of large parts of the city, and a number of mega-projects and a $12bn integrated urban transport network in the works, there are considerable opportunities for investors. Efforts are aimed at facilitating sustainable growth and diversification in the coming years and will ultimately help to bolster Jeddah’s position as both the commercial centre of Saudi Arabia and the gateway to Makkah for the world’s Muslim population. This chapter contains an interview with Mazen Batterjee, Vice-Chairman, Jeddah Chamber of Commerce and Industry.
Explore chapterEastern Province
Home to the world’s largest conventional oil field, and Saudi Arabia’s largest province by size, the Eastern Province is responsible for much of the Kingdom’s oil production. It is the most important centre for heavy industry in the country and home to the world’s biggest petrochemicals cluster at Jubail, which is currently in the midst of a major expansion. Other large-scale projects at Ras Al Khair Industrial City, Al Ahsa Second Industrial City, Dammam Third Industrial City and the Sadara petrochemicals complex, as well as the recently inaugurated SATORP refinery, look set to further bolster the Eastern Province’s status as a centre for heavy industry.
Explore chapterEnergy
Already the world’s largest oil producer and second-largest repository of reserves, Saudi Arabia is now looking to boost output of natural gas, including through deep-water and unconventional exploration, as well as to increase refining output. Total oil production in 2013 was 11.53m barrels a day, down 1.1% on 2012’s record levels, but still amounting to 13.1% of global output. This chapter contains a viewpoint from Ali Al Naimi, Minister of Petroleum and Mineral Resources.
Explore chapterUtilities
Faced with increasing consumer demand, the water and power sector is receiving a $37.5bn injection of state funding in 2014. These projects, chiefly in power generation, will be accompanied by a restructuring of the mostly state-owned power company that accounts for 85% of public supply. Electricity subsidies remain in place, with consumer prices near production costs, making them well below global levels. Considerable efforts are also being directed at reducing consumption and increasing efficiency of power use. Ambitious targets for renewable energy have been set, and there are considerable opportunities for investors as electricity expands.
Explore chapterIndustry
Following two years of double-digit industrial growth in 2010 and 2011, non-oil output rose by 4.9% in 2012 and 4.7% in 2013. The Kingdom may still have a negative trade balance for industry – with exports of $35.08bn and imports of $103.35bn in 2012 – but with access to raw materials set to expand, foreign investors are showing interest in lighter segments. With the government making room for new segments in the industrial sector, expansion of capacity for fertilisers and phosphates, as well as new production plans for pharmaceuticals, the sector looks set to see considerable diversification in manufacturing. This chapter contains interviews with Abdulrahman Al Zamil, Chairman, Riyadh Chamber of Commerce and Industry, and Saleh Al Rasheed, Director-General, Saudi Industrial Property Authority.
Explore chapterRetail
While international brand penetration is increasing, Saudi Arabia’s vast potential for retail has yet to be fully realised. A combination of favourable demographics, rising incomes, and strong consumer confidence and appetite make the country one of the most promising growth markets for retail globally. Although the local industry has a challenging operating environment and unique social dynamics, mall space is set to increase significantly in the near term and e-commerce is now beginning to take off locally as well. As a result, in both the short and the long term, the rewards for investment in the sector should be high.
Explore chapterTransport
In line with plans to make the Kingdom a regional centre for logistics and trade, the 2014 budget put $17.76bn towards transport and infrastructure, the third-highest allocation. Plans for upgrades across all elements of the transport network including ports along the Red Sea and a national rail network will help to position Saudi Arabia as a base for logistics operations in the region, especially for the crucial Europe-Asia cargo route. At the same time, growing airline passenger numbers and large urban public transport projects look set to further develop domestic transportation. This chapter contains an interview with Prince Fahd bin Abdullah, President, General Authority of Civil Aviation.
Explore chapterReal Estate
Saudi Arabia’s real estate market should present the best opportunity on the Arabian Peninsula in the coming years. It has the largest potential market in the GCC with abundant oil wealth and a growing and youthful population. But whereas its counterparts to the east have experienced the highs and lows of a full boom-and-bust cycle, and the headlines that accompany this, the Kingdom has ticked along quietly. That said, affordability remains a significant challenge and new mortgage legislation is set to be implemented in 2014.
Explore chapterEducation & Training
Education is at the heart of an ambitious agenda to diversify Saudi Arabia away from reliance on hydrocarbons and transform it into a knowledge-based economy by 2025. With this in mind, the Kingdom has stepped up investment in the education sector and in the young people who will be expected to drive that new economy, but policymakers face the challenge of rapid population growth. However, considerable efforts are being made to ensure that training and education focuses on equipping young Saudis with the necessary skills to fill gaps in the job market. This chapter contains an interview with Ahmed bin Abdullah Al Shoaibi, Director-General, Institute of Public Administration.
Explore chapterHealth & Life Sciences
Government expenditure on health and social care in Saudi Arabia has more than doubled in the last five years, and in 2014 the state health sector will receive SR108bn ($28.8bn), as compared to the SR52.3bn ($13.94bn) earmarked for 2009. While the health care sector faces challenges, from a growing population and increasing levels of non-communicable diseases, government spending on infra- structure, human capital and resources suggests the sector is both growing in size and improving in quality. The country is also eager to draw on international expertise to train its medical staff and equip new facilities.
Explore chapterTelecoms & IT
Saudi Arabia is an early adopter of telecommunications technologies. It was one of the first countries in the Gulf to launch LTE, for instance, and is now preparing to roll out even more advanced infrastructure. Services like fibre-to-the-home will soon be on offer, and while prospects for major additional growth in both the mobile and fixed-line voice segments appear limited, rising smartphone ownership is expected to drive data revenues going forward. This chapter contains interviews with Mohamed Jamil bin Ahmed Mulla, Minister of Communications & IT; Abdulaziz Al Sugair, Chairman, Saudi Telecoms Company; Hassan Kabbani, CEO, Zain Saudi Arabia; and Bejad Al Harbi, Chairman, Technology Control Company.
Explore chapterConstruction & Engineering
Buoyed by prolonged government stimulus, Saudi Arabia’s construction industry, the second-largest sector in the economy after oil, is experiencing rapid expansion, with no shortage of contracts in any segment. From housing and utilities to transport infrastructure, public spending is driving the contracting industry forward. While operational challenges remain, including concerns over the tightening of labour regulations, contractors are likely to benefit from favourable conditions for the foreseeable future.
Explore chapterAgriculture
Saudi Arabia is one of the largest producers and exporters of agricultural goods in the region and is self-sufficient in a number of areas, including milk, eggs and dates. The sector has seen a notable shift towards higher-value and less-water-intensive crops, and a gradual phasing out of domestic wheat production in favour of imports. Efforts are also being made to boost aquaculture and fisheries, as well as acquire land abroad to help ensure food security. This chapter contains an interview with Fahd Balghunaim, Minister of Agriculture.
Explore chapterTourism
Recognising the important role of tourism in achieving the wider goals of development in Saudi Arabia, including job creation and increased economic diversity, considerable efforts are being made to expand the industry. A new Umrah Plus visa allowing for longer stays after religious pilgrimages has been introduced and, in combination with a focus on expanding and rehabilitating heritage and historic sites, this should help to boost visitor spending. PPPs are targeted as the preferred method for boosting private sector involvement in the sector. This chapter contains an interview with Prince Sultan bin Salman bin Abdulaziz Al Saud, Chairman and President, Saudi Commission for Tourism and Antiquities.
Explore chapterTax
This chapter contains an outline of the tax system including an introduction to overall system, an overview of corporate income tax, and an explanation of Zakat rules. In addition, there is an explanation of the regulations introduced by the New Income Tax Law. The chapter also contains an overview of the regulatory environment for potential investors. This chapter contains a viewpoint from Jacques Fakhoury, KSA Country Leader, PwC.
Explore chapterLegal Framework
This chapter features an overview of the law for both local and foreign investors, as well as an outline of regulations on owning property for non-GCC nationals. It covers up-to-date laws on intellectual property and copyright, as well as environmental guidelines for construction projects and some new standards for disclosure of financial information. This chapter includes a viewpoint from Salman Al Sudairi, Managing Partner of Riyadh Office, the Law Office of Salman M. Al-Sudairi in Association with Latham & Watkins.
Explore chapterThe Guide
The guide contains listings of some of the leading hotels and resorts in Saudi Arabia, as well as contact information for key government offices and relevant services. It also features useful tips and information for visitors.
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