The Report: Saudi Arabia 2019
Home to an estimated 15% of the world’s proven oil reserves and the single-largest economy in MENA, Saudi Arabia is a key regional and global player. The Vision 2030 blueprint sets out regulatory, budget and social reforms that will be implemented over the coming decade as the nation sets about curbing its reliance on crude oil production and export, which accounted for 43.5% of GDP in 2018.
Country Profile
Saudi Arabia is the largest country in the Middle East and the 13th-largest nation in the world, with an area of approximately 2.15m sq km, covering 80% of the Arabian Peninsula. Home to an estimated 15% of the world’s proven oil reserves and the single-largest economy in MENA, Saudi Arabia is a key player both regionally and globally. Established in September 1932, in recent years the Kingdom has poured its considerable financial resources into a series of large-scale economic development, diversification and modernisation initiatives. Saudi Arabia has attracted international 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 an interview with Prince Khalid bin Faisal Al Saud, Governor, Makkah Province.
Explore chapterEconomy
A welcome improvement was seen in the Kingdom’s economic fortunes in 2018, with GDP growth of 1.2% in the first quarter marking the first expansion of the national economy after five consecutive quarters of contraction. Overall, the economy grew by 2.2% for the year, compared to a contraction of 0.7% in 2017. Firming oil prices have enabled the government to produce two record-breaking budgets for 2018 and 2019, and the private sector is poised to benefit as the projects outlined in the nation’s ambitious development strategy begin to take shape with its help. Saudi Arabia’s long-term goal of securing enough private investment to shift the nation’s primary engine of growth away from state spending, however, remains a work in progress. This chapter contains interviews with Turki Al Hokail, CEO and Board Member, National Centre for Privatisation; Ajlan Abdulaziz Alajlan, Chairman of the Board, Ajlan & Bros, and Chairman, Riyadh Chamber of Commerce and Industry; and Husameddin Al Madani, Director-General, National Centre for Performance and Measurement.
Explore chapterTrade & Investment
Firming oil prices have brought about an improvement in Saudi Arabia’s trade balance in 2018. The government’s longer-term ambition, however, is to protect itself from the uncertainty of the energy market by diversifying the export base away from hydrocarbons. The Kingdom’s newly formulated economic strategy also aims to boost foreign investment, thereby reducing the economy’s dependence on public spending. Both of these objectives are being pursued through a cross-government effort that is reshaping Saudi Arabia’s business environment. The changes being made to the legislative and regulatory frameworks that govern trade and investment bode well for economic growth in the long term, although concrete results in the short term have yet to be secured. This chapter contains an interview with Ibrahim Al Omar, Governor, Saudi Arabian General Investment Authority.
Explore chapterBanking
As one of the biggest banking sectors by assets in the MENA region, Saudi Arabia has been something of a sleeping giant in recent years. Economic uncertainty and the effects of low international oil prices have seen both muted lending growth and deposit acquisition, while economic reforms have led to more market uncertainty. The Kingdom’s lenders have, however, remained profitable throughout this period, and are well positioned to take advantage of opportunities arising from an anticipated acceleration of economic growth. In the meantime, an industry that has seen little structural change over recent decades is about to be transformed by new market entrants and mergers of some of its biggest institutions. This chapter contains interviews with Ahmed Alkholifey, Governor, Saudi Arabian Monetary Authority; and Søren Nikolajsen, Managing Director, Alawwal Bank.
Explore chapterCapital Markets
While primarily an equity exchange, over the past decade the Saudi Stock Exchange (Tadawul) has evolved from its starting point as a single-asset-class platform to include a wider array of financial instruments, starting in 2010 with the addition of an exchange-traded fund. Tadawul entered 2019 on the back of a strong year, in which the main index showed the first solid gain since 2016. A raft of reform measures, inclusion in some of the world’s most influential indices and a lengthy roster of initial public offering prospects emerging from the Kingdom’s Vision 2030 strategy mean that the near term is likely to be another lively period for the market. This chapter contains an interview with Khalid Al Hussan, CEO, Saudi Stock Exchange (Tadawul).
Explore chapterAlternative Investments
Alternative asset activity in Saudi Arabia is taking place across an increasingly diverse range of investment instruments. The Kingdom is a regional leader in mutual fund activity, with the deepest and most varied investment pool in the GCC. The size of the Kingdom’s fund market means that its key participants are some of the largest and most influential in the wider MENA financial sector. Meanwhile, in the venture capital arena, the domination of state-funded programmes is giving way to private capital, which has until now been largely focused on private equity opportunities. While 2018 was a quiet year for deal-making across the region, the government’s bold programme of economic reform is expected to generate new opportunities over the short to medium term.
Explore chapterInsurance
As a result of recent drops in oil prices, Saudi Arabia’s insurers have been operating in a challenging environment. The sector has faced stability issues over the last decade, and smaller players in the market are under increased scrutiny. For the better capitalised insurers, however, the market is a young and increasingly promising one. Insurance penetration in the Kingdom remains low, at approximately 1.7% of GDP according to Fitch credit ratings agency, and business is concentrated in the compulsory segments of motor and health cover. In some areas there have been encouraging signs of growth: data from the Kingdom’s central bank shows that insurance penetration expanded at a compounded annual growth rate of 12% between 2014 and 2019. This chapter contains an interview with Abdulaziz Al Boug, CEO, Tawuniya.
Explore chapterMakkah & Medina
Makkah and Medina are situated in western Saudi Arabia, near the coast of the Red Sea and roughly 350 km apart. The cities are home to Islam’s holiest sites, and are thus important to the religious lives of many of the world’s 1.2bn Muslims. Makkah is the birthplace of the Prophet Muhammad and the location of the Masjid Al Haram, also known as the Grand Mosque, which houses the Kaaba, a shrine that Muslims consider the most sacred spot in the world. Medina, meanwhile, became the destination of the Prophet Muhammad’s flight from Makkah, and it was in this new city that he helped to build the Mosque of Quba – the first in Islamic history – and was later buried.
Explore chapterJeddah
As Saudi Arabia’s second-largest city, Jeddah serves as an important commercial centre and is also the setting for a series of important developments currently under way, which will secure its place on the map as a regional economic centre. While Jeddah already boasts the biggest seaport on the Red Sea and is the gateway to the holy cities of Makkah and Medina, it is also set to become home to new tourist destinations and the world’s tallest building, the Jeddah Tower. As such, the city will play a central role in achieving the Kingdom’s aim of reducing its dependence on oil and diversifying its economy, as laid out in the long-term development blueprint Saudi Vision 2030. This chapter contains an interview with Mazen Batterjee, Vice-Chairman, Jeddah Chamber of Commerce and Industry.
Explore chapterEnergy
Even as Saudi Arabia lays the groundwork for diversification, the energy sector is expected to continue to play a leading role in the economy. It is estimated that oil and gas will account for at least half of the country’s exports to 2040. As the world’s leading oil exporter, the Kingdom plays a key role in meeting global demand and forming international energy policies, as evidenced by the implementation of the Organisation of the Petroleum Exporting Countries (OPEC) supply cuts to stabilise oil prices. In 2019 Saudi Arabia’s energy sector aims to strike a balance between diversifying and strengthening downstream offerings such as petrochemicals, and incorporating renewables into the energy mix. This chapter contains interviews with Abdulkarim Alnujaidi, CEO, National Gas and Industrialisation Company; and Kamal Pharran, CEO, Saudi Tabreed.
Explore chapterUtilities
Amid ongoing reform of subsidies, the gradual privatisation of public assets, and ambitious plans to expand seawater desalination facilities and improve sanitation infrastructure, Saudi Arabia’s utilities sector will undergo significant changes over the coming years. In order to diversify its energy mix, the Kingdom is pursuing a series of ambitious goals to increase its solar and wind capacity, while also developing its first nuclear power station. In May 2016 a royal decree dissolved the Ministry of Water and Electricity, which had previously overseen the sector. The electricity segment now falls under purview of the newly revamped Ministry of Energy, Industry and Mineral Resources, while water is overseen by the recently established Ministry of Environment, Water and Agriculture. This chapter contains interviews with Fahad Al-Sudairi, Acting CEO of Saudi Electricity Company (SEC); Mohammed Al Mowkley, CEO, National Water Company; and Khaled Al Qureshi, CEO, Water and Electricity Company.
Explore chapterIndustry
The sweeping changes announced in Vision 2030 aim at giving rise to a reinvigorated and prosperous private sector, driving growth through broad industrial development. By the time the G20 summit convenes in Riyadh in 2020, four years after the Vision 2030 announcements, the country’s leaders will be able to showcase some of the first results of the new agenda, as detailed in the National Transformation Programme (NTP). There are high expectations of the individual reforms, as policymakers work to meet key performance indicators outlined in the NTP’s second iteration, dubbed NTP 2.0. Mega-projects such as the Sadara Petrochemicals Complex are producing raw materials that can spawn new manufacturing plants, while the consumer habits of a growing, young and affluent population are creating fresh markets for innovative service industries. This chapter contains an interview with Khalid Al Salem, Director-General, Saudi Authority for Industrial Cities and Technology Zones.
Explore chapterSecurity, Defence & Aerospace
As the world’s largest military spender per capita, Saudi Arabia is committed to maintaining the balance of power in the Middle East. It is also examining ways to balance its books by ensuring that a growing percentage of spending is on hardware locally produced within the Kingdom. Vision 2030 aims to localise spending on military equipment from its 2017 level of 2% to more than 50% by 2030. In the 2019 fiscal budget, 27% of spending was earmarked for defence and security, the highest allocation given to any sector. The government is also encouraging the development of advanced manufacturing in the Kingdom, and the aerospace segment in particular is a major target for increased investment. This chapter contains an interview with Andreas Schwer, CEO, Saudi Arabian Military Industries.
Explore chapterICT
Like other sectors of the economy, development of Saudi Arabia’s ICT industry is being deeply influenced by the government’s Vision 2030 strategy, which emphasises the need for diversification and modernisation. However, in the context of this roadmap, ICT is not being addressed as a standalone sector, but rather as a fillip to help all other sectors transform through the adoption of digital technologies, cloud computing and e-commerce, among other applications. In 2018 a study to estimate the value of spending on ICT services concluded that it totalled $36.2bn in 2017, up by 4.6% on the previous year. Of that total, telecommunications accounted for almost two-thirds (65%), with the remaining 35% distributed between IT, hardware and software services. This chapter contains interviews with Nasser Al Nasser, CEO, Saudi Telecom Company; Mohammed AlShaibi, CEO, Tamkeen Technologies.
Explore chapterTransport
The government’s vision is for both domestic and international transport to play a key role in the diversification and modernisation of the economy. The authorities are aiming at making the country a regional and international logistics centre. To achieve this goal, they envisage working closely with leading global logistics companies via public-private partnerships. One aspect of the new approach is the increased promotion of special economic zones in different parts of the country, creating industrial clusters with multi-modal freight links to a range of international destinations. As a result levels of both domestic and foreign investment are rising, particularly with regard to major infrastructure projects. This chapter contains interviews with Nabeel Al Amoudi, Minister of Transport; Rumaih Al Rumaih, President, Public Transport Authority; and Abdullah Aldubaikhi, CEO, Bahri.
Explore chapterReal Estate & Construction
Although growth in Saudi’s real estate sector has softened since 2016, government-led initiatives to increase access to affordable housing, in addition to wider economic diversification plans focused on tourism and industrial output, look set to turn its fortunes around. All eyes have been on the impact of the government’s white land tax on unused plots, which was introduced in 2017, with early signs indicating that this reform is encouraging greater access to land for mixed-use real estate development. Government reforms and funding initiatives in the home loans sector are under way, with the aim of significantly increasing home ownership. However, going forward there are concerns that an oversupply in new real estate developments will drag down sales and rental prices. This chapter contains an interview with Majed Al Hogail, Minister of Housing.
Explore chapterEducation & Training
As Saudi Arabia seeks to modernise and diversify its economy by moving away from a reliance on hydrocarbons and identifying opportunities created by rapid technological change, the education sector is increasingly being called upon to reinvent itself. The Ministry of Education (MoE) is the key government agency with overall responsibility for the sector. Over the years, separate departments for higher education and education for women have been merged into the MoE. There is also a range of separate bodies responsible for training, including the Technical and Vocational Training Corporation (TVTC). A programme called Colleges of Excellence operates under the TVTC and is set to deliver a range of technical and vocational partnerships with international institutions.
Explore chapterHealth & Life Sciences
Saudi Arabia’s health sector is currently facing a combination of demand-led growth and major structural change as the government seeks to privatise hospitals and other medical service providers. The interplay of these two forces is likely to have an influence on the sector in the coming years. Since 2016 two primary strategy documents have been guiding health care policies: the National Transformation Programme, which runs until 2020, and the Vision 2030 development blueprint. The former calls for increased private sector participation in the health sector, while the latter is an overall strategic plan for the country that highlights the need to modernise and diversify the economy. This chapter contains an interview with Hisham bin Saad Aljadhey, CEO, Saudi Food and Drug Authority.
Explore chapterTourism & Entertainment
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 to Islam attract visitors from around the globe, making it one of the most-visited countries in the world. However, the tourism and entertainment sector in Saudi Arabia is on the cusp of a major change. Under the umbrella of the Vision 2030 programme, the government has set out ambitious tourism development initiatives, as well as ushering in a series of multi-billion-dollar investment projects to build new resorts, hotels and cultural attractions. This chapter contains an interview with Amr Banaja, CEO, General Entertainment Authority.
Explore chapterTax
Corporate income tax rules are governed by the Income Tax Law, which came into force in 2004. The Ministry of Finance issues ministerial resolutions concerning aspects of tax and zakat, a payment under Islamic law that is used for charitable or religious purposes. The General Authority of Zakat and Tax (GAZT) regularly issues circulars and responses to frequently asked questions containing its interpretation or position on regulations. The GAZT generally prefers to take a substance-over-form approach in dealing with tax matters. The GAZT often scrutinises transactions and challenges taxpayers if they view transactions as being motivated by non-commercial tax reasons. This chapter contains a viewpoint from Wadih AbouNasr, Head of Tax, KPMG KSA Levant Cluster.
Explore chapterThe Guide
The guide contains listings of some of the leading hotels and resorts in Saudi Arabia as well as contacts for important government offices and services. It also contains useful tips and information for business and leisure visitors alike.
Explore chapterTable of Contents
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