The Report: Saudi Arabia 2013
With oil prices at sustained high levels and the government pushing ahead with a large-scale investment programme to upgrade infrastructure, address social issues and further diversification, Saudi Arabia’s economy is thriving. Indeed, as the dominant economic force within the Middle East and North Africa region, in addition to playing a crucial stabilising role as the world’s swing producer of crude oil, the Kingdom’s influence also extends far beyond its own borders. Moreover, Saudi Arabia’s strong macro fundamentals and reputation for stability have made it the single largest destination for foreign direct investment in the region, and the past few years have heralded an era of unprecedented economic growth.
Country Profile
As the single largest economy in the Middle East and North Africa, and home to an estimated 16.1% of the world’s proven oil reserves, Saudi Arabia is a key player in the region and around the world. This chapter provides an outline of the economy, population and demographics, climate, history, religion, and system of government, as well as information about the Kingdom’s energy resources. This chapter includes viewpoints with Prince Khalid al Faisal bin Abdulaziz Al Saud, Governor, Makkah Province; and David Cameron, UK Prime Minister. It also includes interviews with Shaukat Aziz, former Prime Minister of Pakistan; and Abdullah Al Sheikh, Speaker of the Majlis-Ash-Shura.
Explore chapterEconomy
Saudi Arabia continues to post strong economic growth on the back of its thriving petroleum sector anchored by a steady political and financial base. One of the largest exporters of oil worldwide, the country has also had some of the highest economic growth rates. Real GDP growth was forecast at 6.8% for 2012, following 8.5% expansion in 2011 and 4.8% in 2010. However, a new wave of strong state expenditures has spread revenues across a wide array of economic subsectors. As a result, the government has been able to accelerate its long-term strategic goal of economic diversification away from oil as well as address key social issues like education, employment and the availability of affordable housing. Looking ahead, the state’s continued investments in both infrastructure and social services should continue to fuel domestic growth, particularly in the private sector. This chapter includes interviews with Zafer Çağlayan, Turkey’s Minister of Economy; Karel De Gucht, EU Trade Commissioner; and Muhammad Al Jasser, Minister of Economy and Planning.
Explore chapterBanking
The Kingdom’s banking sector posted solid growth in 2011 and 2012 and is now one of the largest in the GCC, with total assets reaching $439.7bn by the third quarter of 2012. In addition, bank profitability has risen in recent years, reaching $8.23bn at the end of 2011, up from $6.94bn at the end of 2010 and $7.14bn at the end of 2009. The industry’s expansion over the past few years is largely the result of strong fundamentals and proactive government oversight, especially in the wake of the 2008-09 international economic downturn. Since mid-2011, in particular, the banking sector has benefitted from solid non-oil GDP growth and strong spending from both the government and private sector players. Looking ahead, the sector is poised for continued expansion, with high liquidity levels meaning that many banks are preparing to boost lending further. This chapter includes a dialogue between Patrice Couvegnes, CEO, Banque Saudi Fransi, and Bernd van Linder, Managing Director, Saudi Hollandi Bank.
Explore chapterCapital Markets
It has been a good couple of years for the Saudi Stock Exchange (Tadawul), which posted considerable growth in 2011 and 2012. Market capitalisation was up more than 10% over 2011 due to a spate of initial public offerings (IPOs) in late 2011 and 2012. However, while the Tadawul is the largest and most liquid exchange in the region, it lacks large institutional investors; around 90% of trading activity in recent years has been driven by individual retail investors. Additionally, the exchange-based bond market remains small and largely operates on a buy-and-hold basis. Yet despite these issues, the Tadawul is widely expected to continue to grow in the coming years: the government’s ongoing large-scale infrastructure and housing investment programme will likely result in considerable demand for local financing for some time to come.
Explore chapterIslamic Financial Services
For the past decade, Saudi Arabia has been at the forefront of development in the Islamic financial services (IFS) sector. The Kingdom, which is home to more than a quarter of the GCC’s Islamic financial assets and a handful of the world’s largest sharia-compliant financial institutions, is currently among the top IFS markets in the world. In 2011-12 the sector continued to expand, buoyed by strong economic fundamentals and the Kingdom’s growing reputation as a centre for innovation in IFS. Of course, the sector does face challenges, including the lack of a large, well-trained national financial workforce. However, the IFS industry as a whole is poised for substantial expansion for years to come. With GDP growth expected to top 6% in 2013, according to IMF forecasts, the government and private sector alike are bullish on growth for the foreseeable future.
Explore chapterInsurance
Over the past decade Saudi Arabia’s insurance industry has become an important contributor to the economy. In 2011 the sector brought in gross written premiums of $4.93bn, up nearly 13% from $4.37bn the previous year. The majority of this expansion took place in the health and general insurance segments, which together account for more than 95% of the total market. Going forward, with the Kingdom’s rapidly growing population becoming increasingly aware of the benefits of coverage, the industry is expected to continue to expand. While insurance penetration remains low compared to more developed markets around the world, most projections show it rising through 2020 as a result of the Kingdom’s strong economic fundamentals. The reinsurance industry has also grown substantially in recent years. This chapter includes an interview with Abdullah Al Sharif, Secretary-General, Council of Cooperative Health Insurance. It also includes a viewpoint with Dr Metaib Al Rawqi, CEO, Weqaya Insurance.
Explore chapterMakkah
As Islam’s holiest city, Makkah has an economy that enjoys extraordinarily high demand from the many millions of Muslim pilgrims who visit it each year. With pilgrim numbers expected to nearly double between 2008 and 2019, the real estate, infrastructure, hospitality and retail sectors are among those most likely to benefit. Hotel capacity is set to rise from 50,000 rooms to around 75,000 as several massive developments are completed. Most of these properties will be geared towards the higher end of the market, although there are opportunities in other segments as well. All in all, ongoing developments in Makkah were valued at around $200bn in early 2012, with much of this devoted to redeveloping the centre of the city near the Grand Mosque. This chapter includes an interview with Osama Al Bar, Mayor of Makkah.
Explore chapterJeddah
While Jeddah bears evidence of several decades of rapid, poorly-managed expansion, the city is now gearing itself to attract further private investment in a range of economic activities, with tourism and retail in particular well positioned for growth. The first phase of upgrades to Jeddah’s cornice, for example, was completed in December 2012 and includes new parks and outdoor leisure facilities for the city’s residents. Furthermore, rejuvenation plans are in the pipeline for the city centre, including the Heart of Jeddah project, which will incorporate elements such as a metro system, a traditional market, a convention centre and related hospitality venues. These developments could transform the city into a regional coastal resort hotspot. As for the city’s industrial sector, the government hopes that major transportation upgrades will help the region to better compete internationally. This chapter includes an interview with Mazen Batterjee, Vice-Chairman, Jeddah Chamber of Commerce and Industry; and Hani Mohammed Aburas, Jeddah Municipality Mayor.
Explore chapterEastern Province
The A’sharqia, or Eastern Province of Saudi Arabia, continues to be at the forefront of economic and industrial advancement. The province is a microcosm of the government’s diversification efforts and is home to a number of rapidly growing industries. The construction of new industrial sites is being accompanied by support infrastructure, including mixed-use projects that combine residential, commercial, business and leisure activities in one location. Capitalising on the region’s competitive advantages, energy-intensive industries including mining, smelting and petrochemicals are also a natural fit for the Eastern Province and should help it continue to thrive.
Explore chapterEnergy
Accounting for just under 30% of real GDP and providing roughly 80-90% of state revenue in any given year, the oil and gas sector has been the dominant force behind Saudi Arabia’s economy for decades. Seeking to cement its position as a front-runner in the global market, the government has continued to invest heavily in the sector over the last decade to boost capacity and develop new resources. These new discoveries, along with new, more efficient lifting technologies, have seen the Kingdom’s proven reserves increase over the past two decades in spite of rising extraction rates. Indeed, oil consumption in the Kingdom peaked at 2.86m bpd in 2011 and this growth shows no signs of stopping; it is predicted that the rate of consumption will double by 2030. Moreover, since achieving its target production capacity of 12m barrels per day, the nation is looking to continue its success by developing downstream refining and petrochemicals operations. This chapter includes an interview with RPN Singh, Indian Minister of State for Petroleum and Natural Gas. It also features viewpoints with Maria van der Hoeven, Executive Director, International Energy Agency; and Peter Voser, Global CEO, Shell.
Explore chapterUtilities
The utilities sector is enjoying huge investments into expansions and capacity upgrades, with around SR500bn ($133.25bn) to flow into the electricity and water segments in the coming decade. Saudi Arabia has ambitious plans to build up renewable electricity generation capacity, in particular solar power, to address rapidly rising energy consumption. The Kingdom is investing in water desalination plants and looking at new technologies, like solar desalination, to improve efficiency. Another marked feature of the sector, looking ahead, is likely to be more private investment. The government is implementing new policies to encourage businesses to undertake energy efficiency reforms, such as by limiting supply if firms do not meet stipulated targets. Meanwhile, construction and engineering contracts will make for plenty of opportunity for such firms for years to come.
Explore chapterMining
Hydrocarbons are not the only underground resource to yield billions of dollars of profit in Saudi Arabia. The mining of metallic ores, phosphates, bauxite and construction materials is an area of growth that the government hopes will become the third pillar of the economy, after oil and petrochemicals. Indeed, Saudi Arabia encompasses geologically diverse areas that contain a wealth of resources, including some of the world’s largest ore deposits. Furthermore, in recent years the Kingdom has made fundamental changes to its business climate for the sector, while the emergence of a new railway infrastructure should further increase investor interest. This chapter includes an interview with Sultan J Shawli, Deputy Minister for Mineral Resources.
Explore chapterIndustry
With plans in the pipeline to inject significant investment into expanding its output of metals, petrochemicals and plastics over the next several years, Saudi Arabia continues to dominate the region’s industrial activity. This should keep the Kingdom at the forefront of the world’s industrial exporters, at a time when global economic uncertainties are subduing demand for many commodities. As for downstream manufacturing, the government hopes to expand this sector rapidly over the next couple of decades, taking care to tailor new upstream and midstream activities accordingly. Not everybody is sure that Saudi Arabian manufacturers can compete internationally in the long run, but the fact that investments – both Saudi Arabian and foreign – have continued to be announced in 2012 suggests the Kingdom is still seen as a land of opportunity. This chapter includes an interview with Hussein A Al Athel, Secretary-General, Riyadh Chamber of Commerce and Industry.
Explore chapterRetail
Ranked as one of the world’s leading destinations for retail investment, Saudi Arabia is in many respects unrivalled in the Gulf. With a young and rapidly growing consumer base of some 29m people, the Kingdom is the obvious point of entry for retailers looking to start branching out into other promising markets in the wider Middle East region. Indeed, pessimistic forecasts for Saudi Arabia’s retail sector are hard to come by at present. Sales in the sector as a whole are expected to grow annually by 8.6% in 2013, rising to 10.2% in 2015 and 2016. On the supply side, total retail space is continuing to grow as construction proceeds on new development.
Explore chapterTransport
Spurred on by strong demand for services, the government is planning to bolster and upgrade infrastructure capacity across all segments of the transport industry. Indeed, with a rising population and increasing trade volumes, the sector is poised for growth. The transport, storage and communications sector accounted for 7.7% of GDP in 2011 and is growing at a rate of 10.63% per year. Planned road and rail expansions are designed to facilitate the movement of goods and develop the Kingdom as a logistics centre for the region, while several new ports are being developed and expansion plans are under way at a number of existing facilities. This should help accommodate rising levels of traffic – container volume was up around 7.5% in 2011. Such projects illustrate the importance the government is placing on the transportation sector to expedite economic growth and diversification. This chapter includes an interview with Prince Fahad bin Abdullah bin Muhammad, President, General Authority of Civil Aviation (GACA), and Chairman of the Board of Directors, Saudia.
Explore chapterReal Estate
Having avoided the major boom and bust cycles of its Gulf neighbours, Saudi Arabia’s real estate sector is considered relatively stable. For several years, and certainly since the global financial crisis, the sector has been viewed as a safe haven for local capital; prices in the market have held firm and returns have been solid. With demographic trends and a solid economic base supporting a sustainable housing market, Riyadh and Jeddah remain strong, with rental prices growing between 8% and 15% in 2011, making these yields some of the highest in the world. Changing preferences among the under-30 segment, which makes up 60% of the local population, are reshaping the local housing market. At the same time, the government is attempting to energise the mortgage market with a new law offering legal guarantees and recourse for lenders. With greater confidence in foreclosure procedures, banks are also more likely to support the sector.
Explore chapterConstruction & Engineering
While the construction industry in many countries may still be in the doldrums, in Saudi Arabia it is proving to be the driving force behind economic growth. Indeed, all the parts are in place for construction to remain a growing industry over the coming decade. Saudi Arabia has the region's largest market; with its population of 29.2m people – as of 2012 – growing at an annual rate of 2.9%, the need for transport and power infrastructure should continue to grow. In 2012, some $159bn was committed to construction projects, including $67bn allocated for the building of 500,000 housing units and $4.4bn being spent on infrastructure works. While challenges remain for new entrants, the market is gaining in maturity with an improved tendering environment. Moreover, increased competition has the potential to reduce the profit margins for contractors, but it is also likely to improve quality even further.
Explore chapterAgriculture
The Saudi Agriculture show on the outskirts of Riyadh in September 2012 was testament to the buzz surrounding one of the most interesting agricultural sectors in the Middle East. Investors from Europe and Asia were out in force, promoting everything from irrigation equipment to new animal feeds and fertilisers. According to the Ninth Development Plan, investment in the sector is expected to continue to rise 6.6% annually between 2010 and 2014. Going forward, to improve standards in the farming sector, the Agriculture Information Centre has been set up to gather data on existing operations and determine the viability of alternative farming practices. This and other developments in the pipeline should ensure that local producers have a bright future, as the Kingdom continues to retain its position as the largest market in the GCC. This chapter includes an interview with Waleed Abdulkareem Elkhereiji, Director-General, Grain Silos & Flour Mills Organisation.
Explore chapterEducation
Saudi Arabia’s booming export economy and record budget surpluses have provided a golden opportunity to reinvest these profits in the country’s future. The education sector has thus been designated a chief priority. More than half of the Kingdom’s population is under the age of 25, with close to 30% under 15. These numbers make providing a strong education system an even higher priority. As of 2012, unemployment hovered around 10% among Saudi nationals, whereas among expatriates it was just 2%. While demand-side measures may help in the short run, increasing the employment of Saudis in the long term will depend on aligning education with the needs of the job market. Increasing cooperation from the private sector in terms of expanded training programmes and collaborative research and development projects should also assist efforts to create more jobs outside of the oil and gas industry. This chapter includes interviews with Khalid Al Sultan, Rector, King Fahd University for Petroleum and Minerals (KFUPM); and Khaled Al Sabti, Vice-Minister of Education and Chairman, Tatweer Education Holding.
Explore chapterHealth & Life Sciences
Saudi Arabia has a growing population that, combined with increased life expectancy and a rising rate of so-called lifestyle diseases such as diabetes, means demand for health care services is set to continue to grow for the foreseeable future. Yet while the state remains the largest player in the health care industry, providing free treatment to nationals and stepping up spending, the authorities are working to encourage the expansion of the already substantial private health sector. There are indications that progress is being made; growth in the private sector seems to be higher than in the public sector in some areas, with the number of private hospital beds growing by 18% between 2007 and 2011. In addition, a number of large infrastructure projects are under way, including a new medical city in the south of the country and a children’s and maternity hospital in Al Jouf. Private companies are also investing in expansion, while foreign firms are stepping up their commitments within the sector.
Explore chapterTelecoms & IT
As the largest telecommunications market in the Gulf, Saudi Arabia also stands out as one of the region’s most competitive markets. Mobile subscription penetration rates are among the highest in the world, standing at close to 200% of the population. Furthermore, smartphone sales grew 154% in 2010, bringing their share of the hardware market to 32%, while rising demand for tablet computers has eaten into sales of traditional PCs. This, in turn, is impacting levels of internet use; the proportion of individuals using the internet in the Kingdom stood at 47.5% in 2011, up from 41% the previous year and from 19.46% five years previously. This is boosting government efforts at addressing concerns over the relative paucity of Arabic-language content on the internet. Looking ahead, internet use, as well as the hardware and IT services market, look set to continue to grow, with state investment likely to drive growth in services in particular. This chapter includes an interview with Ghassan Al Shibl, CEO, Advanced Electronics Company.
Explore chapterTourism
The tourism industry in the Kingdom has seen good growth in recent years. The number of visitors rose dramatically in 2011, making Saudi Arabia the largest travel market in the Middle East and North Africa. Plans to remove restrictions on the movement within the Kingdom of religious visitors from a number of countries, along with major tourism developments in the pipeline, are set to boost the market further. As demand grows, international hotel chains are expanding their presence, including in the middle and lower end of the market that has traditionally been left to local players. The authorities are also seeking to renovate traditional villages and turn them into tourist attractions, with funding to be generated through the creation of public-private companies. Meanwhile, efforts to develop the meetings, incentives, conferences and events segment are continuing apace.
Explore chapterEnvironment
Like many other nations looking to diversify their economies, Saudi Arabia has chosen to take advantage of its natural resources to fuel development. Solar and wind power have both been earmarked by the government as it seeks to reduce its reliance on the hydrocarbons sector. Some $109bn will be spent to produce 41 GWh of solar power and 9 GWh of wind capacity by 2032. Indeed, solar power is already gaining traction as an important tool for tackling water scarcity in the Kingdom. A series of solar-powered desalinisation plants have already been planned for construction by joint venture groups. Meanwhile, government efforts to create stronger regulatory and incentive schemes should lead to increased private investment in green building technology and energy-efficient appliances, potentially translating into improved energy savings.
Explore chapterTax
Keeping abreast of tax developments is essential for any business hoping to optimise its financial position. This chapter provides an overview of the business environment in Saudi Arabia, outlining the key areas of investment and growth. This chapter also includes a viewpoint with Bakr Abulkhair, Chairman and Managing Partner, Deloitte & Touche Bakr Abulkhair & Co.
Explore chapterLegal Framework
This chapter outlines investment laws and regulations for foreign companies operating within the Kingdom, and provides information about the options available for diversification of corporate ownership. This chapter also includes a viewpoint with Robert W Jordan, Partner in Charge of the Middle East at Baker Botts, and Former US Ambassador to Saudi Arabia.
Explore chapterThe Guide
Contemporary art is beginning to make a name for itself in Jeddah. In February 2012, the eyes of the contemporary art world turned to Saudi Arabia. Seven years since its foundation, and after blockbuster exhibitions in London, Venice, Berlin, Istanbul and Dubai, Edge of Arabia, a Saudi-focused contemporary arts initiative, hosted its first exhibition in Jeddah. In addition to outlining this newly emerging art scene, this chapter includes a listing of the country’s leading hotels and resorts, as well as useful telephone numbers and facts for visitors. It also includes information about etiquette, language, visas, currency, transport and more.
Explore chapterTable of Contents
There are no articles in this chapter. To view the table of contents, please open click the "View in online reader" link above.
