The Report: Saudi Arabia 2020
Saudi Arabia’s decision to weaken the link between hydrocarbons and economic growth, and pursue a policy of diversification has seen projects across a range of sectors come to fruition in the last several years. While at present the twin crises presented by the Covid-19 pandemic and the unprecedented plunge in oil prices are causing significant short-term uncertainty, the reforms that have been put in place in recent years should stand the Kingdom in good stead over the longer term.
Country Profile
Home to an estimated 15% of the world’s proven oil reserves and as the largest economy in MENA, Saudi Arabia is a key player not only in the region, but on a global scale. Over the last few years, 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. In November 2020 Riyadh is set to host the 15th annual G20 Leaders’ Summit, bringing together the heads of some of the world’s largest economies. This chapter contains a viewpoint from Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud, as well as interviews with Prince Badr bin Abdullah bin Mohammed bin Farhan Al Saud, Minister of Culture, and Prince Faisal bin Salman bin Abdulaziz Al Saud, Governor of Medina.
Explore chapterEconomy
Four years after the launch of Saudi Arabia’s comprehensive development strategy, Vision 2030, the Kingdom’s non-oil economy is starting to see the benefits of sustained reform. Any decrease in revenue caused by lower oil prices is a significant challenge and presents a downside risk for the economy. Actions taken by the government to mitigate the effects of both the depressed oil price scenario and Covid-19 in the first half of 2020 are substantial. These will support non-oil growth and ensure a social safety net for citizens in the short term, while in the longer term the Kingdom’s increasingly diverse economy is expected to benefit from the implementation of Vision 2030 objectives. This chapter contains interviews with Fahd Al Rasheed, President, Royal Commission for Riyadh City (RCRC); Anas Alfaris, President, King Abdulaziz City for Science and Technology (KACST); and Saad bin Othman Al Kasabi, Governor, Saudi Standards, Metrology and Quality Organisation (SASO).
Explore chapterTrade & Investment
The revenue raised from outgoing shipments of oil fund the government’s social and infrastructural programmes, and are therefore central to the Kingdom’s economy. The onset of the Covid-19 pandemic in the first quarter of 2020 has slowed economic activity and reduced investor sentiment around the world, thus its effect on the Kingdom’s trading activity and inward investment is yet to be seen. However, the process of legislative and regulatory reform that has altered the nation’s trading and investment landscape in recent years is expected to continue to long-term benefit. The government’s goal, according to Vision 2030, is to rank within the top-20 countries on the World Bank’s ease of doing business index – a feat that will require additional revision and innovation in the decade to come.
Explore chapterBanking
The Kingdom’s banking sector started 2020 on a promising note, with 13 local banks serving a population of over 30m people. However, low oil prices and the disruptive effects of the Covid-19 pandemic are likely to undermine asset growth over the course of the year, though the Kingdom’s banks have previously demonstrated the ability to remain profitable despite difficulties. Looking to the longer term, banks are likely to venture beyond the competitive corporate and retail segments and develop their offering in underserved areas of the market, such as lending to smaller enterprises and microfinance. This chapter contains interviews with Ahmed Alkholifey, Governor, Saudi Arabian Monetary Authority; and Tareq Al Sadhan, CEO, Riyad Bank.
Explore chapterCapital Markets
Recent and ongoing reforms of Saudi Arabia’s capital markets have seen the Kingdom gradually liberalise its investment framework and overhaul the operations of the Saudi Stock Exchange (Tadawul) – the largest exchange in the GCC by market capitalisation. Looking to initial public offerings, the state’s privatisation programme – a central component of Saudi Vision 2030 – is likely to generate further activity over the medium term. Targeted sectors include the environment, water and agriculture, transport, energy, housing, education and health. However, the timetable of the privatisation programme, as well as the movement of the Tadawul’s main index, is likely to be adversely impacted by the Covid-19 outbreak that is expected to upend global markets far into 2020. This chapter contains interviews with Khalid Al Hussan, CEO, Saudi Stock Exchange (Tadawul); and Rajiv Shukla, CEO, HSBC Saudi Arabia.
Explore chapterAlternative Investments
The ongoing liberalisation of capital markets provides a positive long-term outlook for Saudi Arabia’s alternative investment segment. The Kingdom is a regional leader in mutual fund activity, with the deepest and most varied investment pool in the GCC. Nevertheless, some structural hurdles remain to fund expansion in Saudi Arabia. The lack of arrangements for the mutual recognition of fund licences between the GCC states means that regional funds face constraints to distribution. At the same time, early-stage investment – which has traditionally been dominated by government funds and accelerator schemes – is starting to attract regional interest. With markets in turmoil as a result of the spread of Covid-19 in the first half of 2020, alternative assets may prove to be a more resilient part of the investment landscape.
Explore chapterInsurance
The ongoing process of privatisation driven by Vision 2030 is slated to provide opportunities to assess or cover risk, both for the government and investors looking to take on state assets. Furthermore, as Saudi companies and citizens take up more financial tools, the insurance sector is likely to benefit. Coverage of risks in areas such as trade credit and investment in foreign markets have already emerged as more active segments, with new products targeting specific concerns such as seizure of assets by a foreign jurisdiction. However, downside risks remain for the Kingdom’s insurers. Volatile capital markets caused by the economic fallout from the global outbreak of Covid-19 may result in lower returns. As such, the insurance sector may well experience consolidation in the year ahead.
Explore chapterMakkah & Medina
The holy sites of Makkah & Medina attract millions of pilgrims each year, and religious tourism remains central to their local economies. The world’s largest mosque, the Masjid Al Haram, also known as the Grand Mosque, is in Makkah and is home to the Kaaba, a shrine that Muslims consider the most sacred place in the world. While uncertainty remains surrounding Covid-19’s impact on the 2020 Hajj season, the bigger picture looks positive for the Kingdom’s two holy cities. The real estate sector is expanding alongside the Grand Mosque’s capacity, and more streamlined visa processes should encourage a larger annual influx of visitors. The key challenge for the government going forwards will be to ensure that transport and hospitality infrastructure keeps pace with the anticipated growth. This chapter contains an interview with Fahad Albuliheshi, Mayor of Medina.
Explore chapterJeddah
Located on Saudi Arabia’s Red Sea coast, Jeddah is the Kingdom’s second most-populous city after the capital Riyadh, and serves as a key commercial and logistics centre. Recently completed and ongoing developments to enhance Jeddah’s transport infrastructure will continue to strengthen the city’s position as a key thoroughfare for both cargo and visitors to the holy cities of Makkah and Medina and the surrounding area. Although visitor numbers will dip as a result of the Covid-19 pandemic, in the long term the city will be able to leverage relaxed visa regulations and the increased capacity of its hotels. This chapter contains an interview with Mohammed Yousuf Naghi, Chairman of the Board of Directors, Jeddah Chamber of Commerce and Industry.
Explore chapterEnergy
Saudi Arabia’s energy sector remains the backbone of the economy. As of March 2020 energy operations were facing the twin challenges of low oil prices and sluggish demand as economies around the world ground to a halt following the outbreak of Covid-19. However, the fundamentals underpinning the Kingdom’s energy sector remain strong. The size of its endowment, the comparatively low cost of recovery and opportunities to tap into new natural gas fields all suggest that the country’s energy sector will be a valuable source of competitively priced fuel when the world’s industrial economies start up again.
Explore chapterUtilities
The government is moving at pace to expand energy and water output to meet growing demand from businesses and individual consumers. Saudi Arabia’s ambitious plans to upgrade its utilities networks, while aligning more closely to market prices, make the Kingdom an increasingly attractive proposition for investors. There is an established framework for private participation and a track record of government will to increase the role played by the private sector in the Kingdom’s transformation towards cleaner and renewable sources of energy, according to targets outlined in Vision 2030. This chapter contains interviews with Mohammed Al Mowkley, CEO, National Water Company; and Khaled Al Qureshi, CEO, Saudi Water Partnership Company.
Explore chapterIndustry
Industry is widely regarded as a promising area for business growth that can provide additional private sector employment for citizens in the decades ahead. The sector is embarking on an agenda based on Industry 4.0, a more efficient and educated workforce, and investment and skills transfer from the private sector to support industrial clusters, expand mining operations and further leverage petrochemicals activity. The industrial sector is guided by the National Industrial Development and Logistics Programme. This chapter contains interviews with Bandar Alkhorayef, Minister of Industry and Mineral Resources; Ibrahim Almojel, CEO, Saudi Industrial Development Fund; and Khalid Al Salem, Director-General, Saudi Authority for Industrial Cities and Technology Zones.
Explore chapterSecurity, Aerospace & Defence
Saudi Arabia is in the midst of restructuring the defence sector and expanding its military industry to ensure more value can be brought to the national economy. The realisation of Vision 2030 requires the development of new high-value-added industries, and the security, aerospace and defence sector stands to become a key element of this strategy. Central to the achievement of these diversification and localisation goals is the development of an advanced domestic industrial and research capacity that generates sustainable employment. Ongoing efforts to foster international partnerships and attract investment will prove vital in this endeavour. Moving forwards, key priorities will continue to be the advanced protection of both the country’s airspace and cyberspace from threats, while ensuring that defence spending delivers the highest returns.
Explore chapterICT
The ICT sector is at the forefront of the digital transformation outlined in Saudi Arabia’s Vision 2030, and is poised to be a key element of diversifying the economy towards greater non-oil growth. In the last few years ICT has become much more prominent, and it has become increasingly dynamic as the country ramps up investment in technology to become an international leader in the digital economy. At the same time, further expansion will be needed going forwards to meet demand for digital services. To that end, citizens, businesses and the government are actively pursuing greater adoption and capacity development, and this trend is anticipated to continue in light of the youthful population and expanding non-oil sectors. This chapter contains an interview with Prince Naif bin Sultan bin Mohammed bin Saud Al Kabeer, Chairman, Zain Saudi Arabia.
Explore chapterTransport
Although the Covid-19 pandemic has cast a shadow of uncertainty over parts of the global transport sector – particularly aviation – beyond those immediate issues, Saudi Arabia’s transport network is positioned to play an increasingly important role in the economy in the years ahead. Improving the Kingdom’s logistics and transport infrastructure is a central goal of the National Industrial Development and Logistics Programme, with early wins in speeding up the movement of cargo through seaports demonstrating a coordinated, multi-agency effort to make significant improvements. With new roads and bridges to Bahrain and Egypt planned, Saudi Arabia is also displaying its intention to leverage its location to serve as a transport hub, connecting countries and continents in the region. This chapter contains interviews with Saad bin Abdulaziz Al Khalb, President, Saudi Ports Authority; and Bashar Al Malik, CEO, Saudi Railway Company.
Explore chapterReal Estate & Construction
With a young population and an increasing number of Saudis entering the workplace, the demand for housing and offices is expected to remain high. As housing preferences evolve, with a move away from extended family homes to those based around nuclear families, appetite for smaller affordable units are set to increase. This will boost construction of residential units and drive continued demand for mortgages. Beyond this, various mega- and giga-projects and large residential housing schemes will drive sector activity. The Kingdom’s growing tourism industry is also expected to be a force in construction planning. As Saudi Arabia prepares for a greater number of visitors due to a new tourist visa, the country will need to analyse its infrastructure requirements, including accommodation and urban transport.
Explore chapterEducation & Training
Education has long been a key sector in Saudi Arabia and a major recipient of government funding. Recently, focus has shifted to boosting the efficiency and quality of services, while also integrating technology in order to achieve the government’s ambitious goals for the sector as part of Saudi Vision 2030, the country’s economic diversification plan. To this end, the authorities are increasingly turning to the private sector for support, creating new opportunities for foreign investors. The year 2019 saw various international players enter Saudi Arabia’s private general education segment, which is still largely underdeveloped. Opportunities for private sector involvement are not limited to traditional education providers, with the rollout of edtech initiatives opening the door for technology companies to develop innovative new systems to modernise teaching and learning in the country. This chapter contains an interview with Ibraheem Almuaqel, Rector, Saudi Electronic University.
Explore chapterHealth & Life Sciences
The outlook for the health care sector remains positive despite Saudi Arabia facing a number of challenges in terms of increasing capacity to meet rising demand and a higher incidence of non-communicable diseases, as well as the more recent threat of Covid-19. The government’s efforts to restructure the public sector through decentralisation and digitalisation initiatives are increasing efficiency and reducing costs. Meanwhile, ongoing privatisation and efforts to create a more competitive health care environment are improving care and attracting significant investment. The shift towards public-private partnerships and build-operate-transfer contracts is expected to support private sector activity in the decade to come, while the burgeoning health start-up ecosystem is set to contribute to a greater level of digitalisation. This chapter contains an interview with Hisham bin Saad Aljadhey, CEO, Saudi Food and Drug Authority.
Explore chapterTourism & Entertainment
The second half of 2019 saw some of the most exciting developments yet for Saudi Arabia’s tourism sector. In a softening of regulations, the government created a new visa category for tourists as it looks to grow the industry. While the full extent of the impact of Covid-19 on Saudi Arabia’s tourism sector was difficult to gauge as of March 2020, it is clear that the pandemic is set to significantly affect tourism numbers not just in the Kingdom but around the world for the year. In the long term, however, the prospects for the sector look bright, with efforts to open up Saudi Arabia’s once little-known and undiscovered landscapes, history and culture to foreign visitors.
Explore chapterTax
Saudi Arabia’s income tax rules are governed by the Income Tax Law, which came into force in 2004. The Tax Law is supplemented by implementing regulations. Zakat, for its part, is governed by the implementing regulations for zakat collection. The Ministry of Finance issues resolutions concerning aspects of tax and zakat, and 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 takes a substance-over-form approach in dealing with tax matters. This chapter contains a viewpoint from Wadih AbouNasr, Head of Tax, KPMG KSA Levant Cluster.
Explore chapterLegal Framework
Saudi Arabia’s Capital Market Authority approved updated corporate governance regulations for joint-stock companies listed on the Saudi Stock Exchange (Tadawul) in February 2017, and amended them in May 2019. The regulations set standards for best corporate practices by promoting accountability, clarity and transparency for management, board members, shareholders and stakeholders. This overview covers shareholder rights, the responsibilities of an organisation’s Board of Directors, competition law, tenders and procurement, arbitration and bankruptcy. This chapter contains a viewpoint from Zeyad Khoshaim, Managing Partner, Khoshaim & Associates.
Explore chapterThe Guide
Explore listings of some of the leading hotels and resorts in Saudi Arabia, as well as access useful tips and information for both business and leisure visitors. This chapter contains an interview with Cihan Yilmaz, General Manager KSA, MAPA Construction & Trade Company.
Explore chapterTable of Contents
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