The Report: Saudi Arabia 2018

2017 proved a momentous year for the Kingdom of Saudi Arabia as the various strategies related to the country’s Vision 2030 and National Transformation Plan 2020 started to take shape.

Country Profile

Home to an estimated 15.7% of the world’s proven oil reserves and the single largest economy in MENA, Saudi Arabia is a key player not only in the region, but also globally. Since its establishment in September 1932, the Kingdom has poured its considerable resources into a series of large-scale economic development, diversification and modernisation initiatives. In the last few years, Saudi Arabia has also attracted global attention for the momentum of its socio-economic transformation taking place under the auspices of the Vision 2030 development blueprint.

This chapter contains a viewpoint from Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud; and interviews with Prince Saud bin Nayef Al Saud, Governor, Eastern Province.

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As a member of the G20 and the world’s 17th-largest exporter, Saudi Arabia is an economic powerhouse. Classified as a high-income nation by the World Bank, its population of over 30m has established a consumer market in which domestic and global businesses have prospered. The exploitation of its hydrocarbons resources has driven growth for decades, and the nation’s trading status has been augmented by its geographic advantage as a connector of three continents as well as its proximity to the Red Sea – through which 10% of world trade travels. However, this period of low oil prices has presented a number of challenges, not just to Saudi Arabia but to economies across the region. Consequently, economic reform is taking place in many Gulf countries, and the long-standing goal of diversifying revenues away from hydrocarbons is more preeminent than ever.

This chapter contains interviews with Prince Turki bin Saud bin Mohammed Al Saud, President, King Abdulaziz City for Science and Technology; Abdullah Al Sagheir, Acting Governor, General Authority for Small and Medium Enterprises; and Ahmed S Al Rajhi, Chairman, Riyadh Chamber.

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Trade & Investment

For many decades Saudi Arabia has built its financial reserves with the proceeds of oil exports, while its increasingly affluent consumers have established the country as a significant importer of goods and services. However, lower oil prices have eroded the Kingdom’s healthy trade surplus, reminding countries around the world of the importance of having a diversified export base. Saudi Arabia’s newly formulated economic strategy aims to do just that, and targets an increase in foreign direct investment inflows to accomplish some of its goals. The coming years are likely to see considerable alterations to both the investment environment and the mechanisms that govern trading activity, as authorities aim to translate the strategy to reality.

This chapter contains interviews with Ibrahim Al Omar, Governor, Saudi Arabian General Investment Authority; and Saleh Al Solami, Secretary General, Saudi Exports Development Authority.

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Despite the effects of lower international oil prices placing downward pressure on sector profitability, Saudi Arabia’s banks have succeeded in expanding their assets over the past year. While the trend of lower profits is likely to prevail over the medium term, the Kingdom’s banks are well positioned to capitalise on the growth opportunities encompassed in the country’s new economic development strategy. The modern banking landscape emerged from the oil boom that followed the Second World War, a period of economic transformation driven by strong revenue flows from growing hydrocarbons exports. A rapidly expanding money supply and an increasing number of banking institutions called for greater supervision of the market, and in 1952 the Saudi Arabian Monetary Authority was established and tasked with regulating the banking industry.

This chapter contains interviews with Ahmed Alkholifey, Governor, Saudi Arabian Monetary Authority; Rania Nashar, CEO, Samba Financial Group; and Soren Nikolajsen, Managing Director, Alawwal Bank.

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Capital Markets

Subdued oil prices deflated investor sentiment across the GCC throughout most of 2017. However, mid-2017 brought some encouraging developments: news of a possible MSCI reclassification resulted in a spike in the main index of the Saudi Stock Exchange (Tadawul) in the summer of 2017. In 2016 the government launched the National Transformation Programme 2020, with the goal of turning the economy around and taking steps towards achieving the objectives laid out in Vision 2030, the long-term national plan to become a modern, diversified economy. While the onset of the NTP improved investor sentiment by clarifying the government’s long-term objectives, in September 2017 the NTP was revised, postponing some deadlines and removing other elements from the plan altogether. These changes make future progress towards Vision 2030 less certain, which could have negative effects on investor sentiment. While this may discourage some investment in the short term, an ongoing process of reform carried out by the exchange authorities promises to attract more interest in new market instruments.

This chapter contains interviews with Mohammed El Kuwaiz, Chairman, Capital Markets Authority; Sarah Al Suhaimi, Chair, Saudi Stock Exchange; and Majed Najm, CEO, HSBC Saudi Arabia.

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Alternative Investments

Saudi Arabia’s investment environment as a whole is undergoing an overhaul, with Vision 2030 promoting private sector growth, economic diversification, improved infrastructure and a stronger legislative framework for investors. The alternative investment segment in particular should benefit from this, with enhanced rules relating to VC and PE, and a broadening range of targets likely to emerge in the coming years, while greater confidence in the country’s economic future will support fundraising. The government’s involvement through public sector company funds and support for innovation is an important element, and the symbiotic relationships being formed with international investors should benefit local players as well as global targets.

This chapter contains an interview with Khaled Al Aboodi, CEO, Islamic Corporation for the Development of the Private Sector.

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These have been profitable times for the Saudi insurance sector, although bumpy ground in the economy overall has made the growth of premiums more challenging. The sector is undergoing a significant overhaul as a stronger regulatory framework is progressively implemented and enforced, and moves to consolidate the market are in progress. Developments in the health segment continue to look promising after a recent expansion of compulsory health insurance while further widening to include more of the domestic population in obligatory schemes was witnessed 2017.

This chapter contains an interview with Abdulaziz Al Boug, CEO, Tawuniya.

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Makkah & Medina

Due to the importance of Makkah and Medina in the Muslim world, and the millions of pilgrims they attract, the two holy cities form a major component of Saudi Arabia’s non-oil economy. The pilgrimages of Hajj and Umrah are performed each year, with worshippers’ fees, food, transport and accommodation totalling some $12bn in revenues. Makkah is home to the Masjid Al Haram, known as the Grand Mosque, which houses the Kaaba – Islam’s holiest site – and is also the birthplace of the Prophet Muhammad. Medina, meanwhile, is home to the Masjid an-Nabawi, or the Prophet’s Mosque, another important place of pilgrimage for worshippers during the Hajj and Umrah. With religious tourism such a vital source of non-oil revenue, much of the development in and around Makkah and Medina over the coming years is directly linked to the goals laid out in Vision 2030, which include plans to significantly boost pilgrim numbers as well as increase the country’s appeal as a wider tourist destination.

This chapter contains an interview with Osama Al Bar, Mayor of Makkah.

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As the second-largest city in Saudi Arabia, Jeddah plays a central role in the Kingdom’s non-oil economic growth, largely due to a combination of its roots in shipping and trade, and its importance as a transit point for millions of visitors travelling to the holy cities of Makkah and Medina each year. Major infrastructure projects in the city are set to underpin growth across various sectors in the coming years – including industry, tourism and logistics – while also positioning the broader region as a principle contributor in achieving the country’s longer-term goals under Saudi Vision 2030.

This chapter contains and interview with Mazen Batterjee, Vice-Chairman, Jeddah Chamber of Commerce and Industry.

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At a time of great change in Saudi Arabia and amidst debates about rapid economic diversification, it is perhaps easy to overlook the fact that even in the most optimistic forecasts of Saudi Vision 2030 – the national development strategy – the oil and gas sector will account for at least half of the country’s exports in the fourth decade of the 21st century. Similarly, while the revolution in shale oil and gas in the US has dominated headlines, the cost at which Saudi Arabia is able to pump crude oil and gas remains among the lowest in the world. The global oil supply and demand cycle may have resulted in lower prices since mid-2014, but the anticipated initial public offering of 5% of the state energy company Saudi Aramco, valued at up to $2trn, has heightened expectations that the Kingdom could soon be home to the most valuable listed company on the planet.

This chapter contains an interview with Mohammad Sanusi Barkindo, Secretary-General, Organisation of the Petroleum Exporting Countries; and Abdallah Al Subaiyyal, President and CEO, Yanbu Aramco Sinopec Refining Company.

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These are crucial times for Saudi Arabia’s power and water sectors as both move through a process of major reform. Privatisation is at a more advanced stage in water than in power, but the next few years should see substantial change in both markets, providing significant opportunities for investors. Projects that use a wider range of energy sources are also in the planning and development stages, while efficiency in distribution and usage is being strongly promoted, alongside a further reduction in subsidies through reorganisation of the electricity tariff system. Meanwhile, major desalination projects are under way, along with the roll out of new sewage and wastewater treatment plants, reservoirs, leakage reduction measures, transmission networks and groundwater conservation schemes. The Kingdom has set itself some ambitious short- and long-term goals for both sectors, with a shift towards a more market-oriented approach a key objective of the reforms.

This chapter contains an interview Ziyad Al Shiha, President and CEO, Saudi Electricity Company; Ali Alhazmi, Governor, Saline Water Conversion Corporation; and Thamer Al Sharhan, Managing Director, ACWA Power.

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Bold strategies to use industry as an engine of economic change could see new gold mines, plastics factories and medical laboratories boost growth, prosperity and jobs. While raising the profile of private enterprise, the government is planning to inject capital into promising sectors, but it is also setting ambitious targets for itself and for industry. Though the launch of Vision 2030 coincided with a difficult year for many industries in the Kingdom, it has served to galvanise industrialists and government ministries as they work towards recovery and future growth. The shift towards privatization and the increasing focus on SMEs are both positive indicators of the government’s commitment to implement the much-needed structural changes outlined in the development plan.

This chapter contains an interview with Khalid Al Mudaifer, President and CEO, Ma’aden; Mohammed Al Badr, Managing Director, Saudi Chemical; and Khalid Al Amoudi, CEO, Saudi Red Bricks.

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Security, Defence & Aerospace

With the creation of a new defence holding company and clauses requiring that local manufacturing and job creation be written into new contracts with international suppliers, the Kingdom’s aerospace, defence and security sector is primed for growth. The defence and security market in Saudi Arabia is among the most lucrative in the world, as exemplified by the more than $110bn worth of defence contracts signed during US President Donald Trump’s May 2017 visit to Riyadh. Shares in several major US defence firms soared following news of the agreements, and President Trump highlighted the boost for jobs in the US. However, the new deal also included pledges for new factories and employment prospects for people in Saudi Arabia itself.

This chapter contains an interview with Ahmed Al Khateeb, Chairman, Saudi Arabian Military Industries; and Advisor to the Minister of Defence.

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Accounting for 6% of GDP and 10% of non-oil GDP in 2016, according to the Communications and Information Technology Commission, Saudi Arabia’s ICT sector plays an important part in the Kingdom’s economy. Spending in the sector exceeded SR130bn ($34.7bn) in 2016, and in 2017 it was expected to reach SR138bn ($36.8bn) despite economic headwinds. The government’s recently finalised economic strategy places ICT at the centre of the nation’s development, and telecoms players, hardware and software providers, and service operators all stand to benefit from the array of state-directed initiatives it has set in motion. Regulatory changes however have added pressure to ICT companies’ bottom lines over the past year, and the industry is responding by reining in expenditure and shifting the strategic focus to new products and services.

This chapter contains interviews with Abdullah Alswaha, Minister of Communication & Information Technology; Prince Naif bin Sultan bin Mohammed bin Saud Al Kabeer, Chairman, Zain Saudi Arabia; and Essam Alshiha, CEO, Saudi Business Machines.

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With more than SR3.3bn ($879.8m) in spending earmarked for culture and media by 2020, Saudi Arabia’s government is hoping to attract significant private sector investment in the development of its creative and entertainment industries. To this end, state agencies are working hard to encourage international investment, talent and media sector expertise in the Kingdom, and they aim to help develop local entertainment businesses and expand their influence across borders.

This chapter contains an interview with Ghassan Al Shibl, Board Member and Managing Director, Saudi Research and Marketing Group.

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In a push to diversify its economy, Saudi Arabia is determined to increase the role of the private sector in the development of its transport infrastructure, as well as in the operation of seaports, airports and related supply chains. Public-private partnerships are being pursued to fund several key schemes, while a number of the country’s publicly operated facilities, such as airports, are being readied for full privatisation. However, there are a series of challenges ahead in the Kingdom’s pursuit to meet its Saudi Vision 2030 objective of leveraging its location at the crossroads of three continents. Faced with a decline in the country’s ranking among global indices of competitiveness and logistics since 2016, when the national development plan was unveiled, the budget for 2018 – introduced in December 2017 – includes an 86% increase in planned government expenditure on infrastructure and transportation, from SR29bn ($7.7bn) to SR54bn ($14.4bn).

This chapter contains an interview with Nabeel Al Amudi, Minister of Transport; Rumaih Al Rumaih, President, Public Transport Authority; and Saleh bin Nasser Al Jasser, Director-General, Saudi Arabian Airlines.

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Real Estate & Construction

After a period of stabilisation in which the government implemented a number of reforms, the real estate and construction sectors are preparing for the introduction of a range of projects under the Saudi Vision 2030 initiative. Lower oil prices and the resulting fiscal consolidation of the state cooled demand in 2016 and early 2017; however, public and private investment is set to pick up again and the implementation of the NTP and Vision 2030 will have a huge impact on the construction industry if its planned mega-projects are rolled out according to schedule. Increased demand should stem from a growing range of segments, including affordable housing, transport, tourism and commercial space for international tech developers.

This chapter contains interviews with Majed Al Hogail, Minister of Housing; and Khalid S Aljasser, CEO, Arabian Centres.

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Education & Training

Given pride of place in both the Kingdom’s long-term development plans and in its annual budget, education in Saudi Arabia is currently undergoing a major expansion – both in terms of quantity and quality. A range of new projects were launched over 2017 and will continue into 2018, from university construction to curriculum development. Indeed, the centrality of education and training to the country’s ability to achieve other developmental objectives is now widely recognised by planners, policymakers and investors alike, with important consequences for the sector as a whole.

This chapter contains an interview with Ahmed Aleissa, Minister of Education.

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Health & Life Sciences

Recent years have seen a profound restructuring of the Saudi health care sector, with major reform plans being rolled out that foresee not only future expansion, but a much more significant role for the private sector. These moves are being made are in response to a number of basic challenges, brought about by both economic and demographic developments. According to Tawfiq Al Rabiah, the minister of health, these developments mean that some SR250bn ($66.7bn) of investment in the sector will be required up to 2030. This considerable sum will be injected into a system undergoing far-reaching structural change, with increased emphasis on quality of service and the pursuit of alternative funding models to the current public purse. A major initiative to localise both staffing and materials is also under way, and is likely to see increasing investment in training and recruitment of Saudis, and support to domestic pharmaceuticals, medical equipment and supply manufacturers.

This chapter contains an interview with Dr Haitham Alfalah, CEO, King Saud Medical City.

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Nestled between two seas and two continents, Saudi Arabia stretches over 2.1m sq km, an area as large as Western Europe. Its diverse landscapes offer a wide variety of scenery; while its rich history, culture and significance in the Muslim religion attract visitors from around the world, making it one of the most visited countries in the world. At around 31.7m – one-third of whom are expatriates – the Kingdom has the largest population of any country in the GCC region providing it with a sizeable source of domestic tourism. Furthermore, Saudi Arabia had an estimated GDP of $689bn in 2017, ranking it as a high-income country, meaning its inhabitants have substantial purchasing power that could be flexed in the travel sector. It comes as no surprise, then, that developing the country’s tourism sector has become a key priority in recent years, especially given that Saudi Arabia is seeking to boost diversification of its domestic industries away from hydrocarbons dependency.

This chapter contains an interview with Prince Sultan bin Salman bin Abdulaziz Al Saud, Chairperson and President, Saudi Commission for Tourism and National Heritage.

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This chapter contains an overview of the tax framework in which local and foreign investors operate in Saudi Arabia including an explanation of the Value-added tax introduced on January 1, 2018, a summary of the parallel systems for zakat and corporate income tax, and a rundown of the taxation treaties in place to help promote foreign investment.

This chapter contains a viewpoint from Riyadh Al Najjar, Country Senior Leader, PwC Saudi Arabia.

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Legal Framework

This chapter contains an overview of the legal framework in which local and foreign investors operate in Saudi Arabia including a look at the recent restructuring of the insolvency law and an examination of the new reforms and regulations aimed to boost foreign investment into the country.

This chapter contains a viewpoint from Fahad Abuhimed, Managing Partner, Abuhimed Alsheikh Alhagbani Law Firm in cooperation with Clifford Chance.

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The Guide

The guide contains listings of some of the leading hotels and resorts in Saudi Arabia and contacts for important government offices and services. It also contains useful tips and information for first-time or regular and business and leisure visitors alike.

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Table of Contents

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Articles & Viewpoints

Mohammed Al Rumaih, CEO, Saudi Exchange

On helping firms list, mature and access new sources of capital

Suliman Almazroua, CEO, National Industrial Development and Logistics Programme (NIDLP)

On emerging opportunities for investment and private sector participation

Hamad Al Sheikh, Former Minister of Education

On boosting innovation and facilitating a culture of entrepreneurship among students

Omer Alnomany, CEO, solutions by stc

On opportunities to enhance the Kingdom’s regional status as an ICT powerhouse

Turki Al Shehri, CEO, Engie Saudi Arabia

On green hydrogen, energy efficiency and renewables

Mohammed Al Rumaih, CEO, Saudi Exchange
Suliman Almazroua, CEO, National Industrial Development and Logistics Programme (NIDLP)
Hamad Al Sheikh, Former Minister of Education
Omer Alnomany, CEO, solutions by stc
Turki Al Shehri, CEO, Engie Saudi Arabia