The ICT sector is primed for considerable expansion in the coming years as digital technologies become increasingly central to cross-sectoral operations and performance. Recently, the government has made significant financial and time savings after successfully shifting many internal processes and public services online, raising efficiency, productivity and coordination across and between its various ministries.
Multiple government bodies have been formed over the past decade to oversee the progressive integration of disruptive digital innovations into daily life, with notable expansion in the e-banking and e-commerce spaces signalling an increased public appreciation of and familiarity with electronic processes. The Covid-19 pandemic accelerated these trends and saw fundamental activities such as work and education move online, boosting digital literacy among the population and necessitating sizeable investment in the country’s digital infrastructure.
Guiding Policies
In 2016 the Saudi government unveiled its national development strategy, Vision 2030, providing a framework for broad-based economic diversification and increased privatisation to reduce government expenditure and dependence on natural resources. Vision 2030 has at its core cross-sectoral digitalisation and the revamping of public services and industrial processes in line with the demands of the Fourth Industrial Revolution.
Industry stakeholders have been working towards milestones set by the ICT Strategy 2023 launched in 2018. The strategy aims to boost the ICT sector’s contribution to GDP by $13bn, increase female participation in the sector by 50%, expand the Kingdom’s information and emerging technologies market by 50%, and create over 25,000 quality ICT-related jobs by 2023. Furthermore, to provide a roadmap to guide the ICT sector’s achievement of Vision 2030 objectives, the government launched the Digital Economy Policy in 2020. It aims to facilitate enhanced alignment and coordination among ICT stakeholders. The pillars of the policy are focused on accessibility, technology adoption, innovation, human capital enhancement, social prosperity, inclusion, digital confidence and open market dynamics.
Indeed, the adoption of telework could help the country achieve its sectoral goals of greater inclusion. “Looking beyond the pandemic, remote work technologies hold the promise to improve accessibility for people whose lives are limited to the home context or who are unable to work in a full-time role,” Paul Clark, senior vice president and Europe, Middle East and Africa managing director of Poly, a US-based video and voice technology firm, told OBG.
Structure & Oversight
An array of public entities guide the ICT sector’s development and the execution of the policies set by the government. The Ministry of Communications and Information Technology (MCIT) is the arm of the government responsible for ICT sector oversight, supervising the multiple government bodies that work to facilitate the efficient implementation of the relevant laws and regulations. The Communications and IT Commission (CITC) is the regulator for the sector. Its board includes many government officials and private sector representatives.
The CITC works to strengthen synergies between the telecommunications, IT and emerging technologies segments to cultivate a harmonious, expansive digital infrastructure and ecosystem. Its priorities are to safeguard market competition, protect consumers and promote investment. Since 2020 it has facilitated the implementation of the Saudi Open Access agreement among the country’s six major network providers: stc, Mobily, Zain Saudi Arabia, Salam, Dawiyat and GO Telecom. The CITC seeks to maximise ICT infrastructure efficiency through tower- and network-sharing initiatives, increasing cooperation and competition among providers and improving service quality and resource optimisation.
Yesser, the body responsible for digitising government operations and services, was established in 2005 with the primary directives of enhancing public services through increased digitisation, raising government productivity and increasing returns on the government’s digital transformation investment initiatives. The National Committee for Digital Transformation was formed in 2017 to oversee and align Yesser’s operations with Vision 2030.
Two more ICT governance-related entities were formed in 2017: the National Cybersecurity Authority, mandated to establish and implement a robust regulatory framework for network and data protection; and the National Digital Transformation Unit, an independent body that reports to the government and is charged with facilitating the development of the digital economy, relevant policy alignment and private sector engagement.
Several other units were established in 2019, including the Saudi Data and Artificial Intelligence (AI) Authority, the National Centre for AI, the National Data Management Office and the E-Commerce Council. These organisations have bolstered regulatory and supervisory capacities in an increasingly complex and dynamic sector.
Regulatory Evolution
Due to its comprehensive ICT regulatory framework, the Kingdom was awarded the status of fifth-generation digital economy by the International Telecommunication Union (ITU), a specialist UN agency that evaluates digital infrastructure development. The ITU’s designation recognises the efficiency with which Saudi regulators collaborate with a broad range of public and private stakeholders to create an inclusive, progressive and sustainable ICT sector. It comes one year after the country obtained fourth-generation status, reflecting progress in this area.
In March 2021 the Digital Government Authority (DGA) was formed and tasked with preparing a national e-government strategy, oversight of digital government platforms, establishing technical standards for government digital transformation and regulation of DEEM, the government data cloud. In August of the same year the DGA approved a new policy package aimed at simplifying the public sector’s digital transformation processes to ease challenges related to intellectual property rights and intergovernmental coordination encountered during the public sector’s digital transition. The package was officially launched in November 2021.
Size & Coverage
According to the General Authority for Statistics, at basic prices total information and communications output in Saudi Arabia reached SR204bn ($54.4bn) in 2020, up 9.6% from SR186bn ($49.6bn) in 2019, while total intermediate consumption for those two years was SR91bn ($24.3bn) and SR85bn ($22.7bn), respectively, marking a 7.1% increase. The National Development Fund, established in 2017 to oversee economic development funds across several ministries, expects gross non-oil GDP to triple to SR605bn ($161.3bn) by 2030, with telecommunications and digital businesses among the sectors driving growth.
Since 2017 around 37,000 telecoms towers have been erected across the Kingdom, bringing overall landmass coverage to 99%. Having near-universal foundational infrastructure enabled an internet penetration rate of 98% by the close of 2021, according to the CITC, with the Medina region displaying the highest uptake, at 99.1%, while both Riyadh and Hail registered 98.8%. In addition, the number of mobile phone subscriptions has risen in recent years, from 41.3m in 2018 to 47.2m by the second quarter of 2021. Those figures represent 126.9% and 134.7% of the population, respectively, indicating that some residents have multiple subscriptions. The share of the population aged 15 or above with a mobile phone in 2021 was 97.5%. The Kingdom’s preparation for the next phase of digital advancement is well under way, with 5G network coverage climbing above 70% by the end of 2021 and average speeds reaching 360 Mbps, which ranks among the highest in the world.
Legislative Reforms
Recent legislative reforms have opened more sectors of the economy to 100% foreign business ownership and removed restrictions such as minimum capital requirements to boost the economy. This has stimulated significant increases in the issuance of foreign business licences, with ICT and e-commerce among the categories driving that trend. Despite this liberalisation, many foreign investors have still sought local partners to navigate the market, and assist in identifying and securing government contracts.
In April 2022 the government announced a law removing preferential treatment and commercial advantages for local companies, stating its hopes that the new legislation will boost international business by 50%. At the same time, however, data localisation laws in the Kingdom have deterred some investors, as they impose additional compliance requirements that raise the cost of doing business.
Investment
The Kingdom’s telecoms and tech companies invest on average between $3bn and $4bn per year in digital fibre and 5G networks and services. The digital transformation of government, finance and oil and gas operations is also increasing the ICT sector’s value. According to the International Data Corporation (IDC), the Saudi ICT sector expanded by 8% between 2019 and 2021, reaching $32.1bn. The IDC has forecast that the sector’s value will climb by 2.3% in 2022 to $32.9bn. Meanwhile, the MCIT announced the launch of a $15bn public-private partnership fund in 2021 to boost investment in the country’s ICT infrastructure.
State-owned enterprises are playing key roles in ICT sector development. stc – of which 64% is owned by the Public Investment Fund (PIF), the Kingdom’s sovereign wealth fund – announced in 2022 that it would invest $1bn in laying submarine cables and constructing data centres across the country. This investment reinforces Saudi Arabia’s bid to localise core digital operations and its rising status as a global digital economy. stc also entered into a partnership with China’s Huawei, enabling Saudi Arabia to manufacture data centre equipment locally. In addition, Saudi Aramco Ventures, the venture capital arm of Saudi Aramco, the world’s largest integrated energy and chemicals company, announced a planned $1bn investment through its venture capital fund Prosperity7 Ventures. Established in 2019, Prosperity7 invests primarily in disruptive technologies and leading international tech start-ups related to the health care and education sectors. The fund aims to position Saudi Arabia as a global leader in providing innovative solutions to the world’s most pressing socio-economic issues.
The two announcements were made at LEAP, Saudi Arabia’s new annual technology conference and convention, which was held in February 2022 for the first time. ICT investments worth $6.4bn were unveiled at LEAP to an audience of more than 100,000 visitors, including representatives from over 1500 tech companies, investors and CEOs. LEAP and other ICT-related events are designed to help the Kingdom establish itself as a digital leader and gain valuable global exposure along with the opportunity to strengthen relations with the industry’s leading players and most promising talent.
The Kingdom’s sustained investment in technology and related infrastructure, and the resulting sector expansion, have made its ICT consumer market the largest in the MENA region. The European Centre for Digital Competitiveness’ 2021 rankings placed Saudi Arabia first among G20 nations. Although the pandemic negatively affected the global economy, certain segments of the ICT sector experienced notable growth between 2019 and 2021. The need for permanent integration of digital solutions into areas of high socio-economic importance, such as health care and education, was underlined. Broadbased investment across the sector is expected to continue, with several specific technologies and areas of the economy primed to play a leading role in the next phase of the Kingdom’s growth.
5G
With the knowledge that 5G will provide the foundation for the next wave of tech advancement, GCC economies have sought to position themselves as pioneers in this area. In 2018 Qatar became the first country in the region to launch commercially available 5G services, with Saudi Arabia, Bahrain, Kuwait and the UAE following suit in 2019. In October of that year Zain became the first Saudi company to provide 5G coverage, with others implementing their own shortly after. Saudi Arabia announced plans in April 2021 to improve its 5G services by providing an additional 23-GHz spectrum, boosting download speeds that, at the time, ran 127% faster than the global average. In addition, the country has the highest 5G availability in the GCC and ranks second in terms of user adoption rates.
However, significant challenges must yet be overcome before the full transformational potential of 5G is realised throughout the Saudi economy. Among these challenges are the need to streamline complex 5G rollout procedures, reduce deployment costs, implement thorough cybersecurity systems, and develop products and services that can effectively harness 5G capabilities. Coordination between ICT, education and training-related bodies is being strengthened to ensure the local workforce is equipped with the right skills to drive the Kingdom’s transformation into an information economy. “Saudi Arabia continues to make heavy investment in ICT infrastructure. As a result, many companies are paying greater attention to the training of their workforce, to ensure they possess the necessary skills to maximise the benefits of the digital economy,” Mohamed Arafa, country manager of Micro Focus Saudi Arabia, a UK-based software firm, told OBG.
Collaboration among key ICT industry stakeholders will be vital in developing an integrated nationwide 5G ecosystem. The enhanced cooperation among network providers stimulated by the Open Access agreement should provide a solid springboard in that respect. Evolving partnerships between local service providers and multinational tech companies – such as those between Zain and Nokia, and Mobily and Ericsson – are propelling the scaling of 5G applications and use cases across various sectors. The MCIT also entered into a cooperation agreement with Ericsson that saw the February 2022 staging of the Together Apart Hackathon, designed to promote 5G innovation and skills.
Internet of Things
With 5G as its foundation, the internet of things (IoT) is designed to facilitate hyperconnectivity across digital devices, hard and soft infrastructure, vehicles and human beings. Machine-to-machine service subscriptions in Saudi Arabia reached 4.8m by the second quarter of 2021, representing 245.8% year-on-year growth. By April 2022 the Kingdom’s digital infrastructure had the potential to connect around 500m devices.
The joint venture between stc and the PIF announced in 2022 will provide agnostic IoT for smart manufacturing, logistics and city initiatives. It will also develop innovative funding models to support IoT uptake and offer consulting, implementation and training support to businesses seeking to deepen their IoT adoption. The announcement aligns with stc’s DARE 2.0 strategy, two of the foundational pillars of which are to increase its investment in IoT-related initiatives and to aid the localisation of advanced technology creation.
The Saudi IoT market is forecast to expand at a compound annual rate of 12.5% between 2022 and 2025 to reach a value of SR10.8bn ($2.9bn). The market’s importance to the realisation of Vision 2030 goals should make it a fertile ground for attracting private investment in the country. “Although we still get most of our products from large foreign companies such as Microsoft and Google, throughout the coming decade we will see a rise in products that are Saudi made,” George Maalouf, country manager of Everteam Saudi Arabia, a software vendor, told OBG.
AI & Smart Cities
While 5G forms the foundation for the IoT, AI fed by big data provides the technical capabilities that enable smart machines, devices, applications and infrastructure to communicate. “As increasing numbers of devices are plugged into 5G networks, enhanced connectivity and higher speeds will generate an enormous wealth of data. This will lead to new insights and functionalities through AI-powered analytics and cloud services,” Essam Alshiha, president and CEO of Saudi Business Machines (SBM), told OBG. SBM is the Kingdom’s general marketing and services representative of IBM World Trade Corporation, which is a provider of end-to-end enterprise information technology and telecommunications solutions.
Saudi Arabia and the UAE are spearheading AI adoption in the GCC, with its potential economic benefits to the region forecast to reach $320bn by 2030, or 2% of the global total. Currently, the bulk of next-generation technology investment in Saudi Arabia comes from domestic sources, most notably the PIF. The recent regulatory developments related to foreign enterprises should prove influential in the government’s drive to attract $75bn in private finance for its AI ecosystem, as outlined in the National Strategy for Data and AI.
AI’s potential in Saudi Arabia is perhaps best illustrated by the smart city model. The term smart cities is used to describe the use of data and digital technologies to make better decisions and improve the quality of life of citizens. The Saudi government has invested significantly in implementing smart solutions throughout Makkah, Riyadh, Jeddah, Medina and Al Ahsa. Riyadh moved up 23 places to rank 30th out of 118 cities globally and third in the MENA region in the Institute for Management Development’s Smart Cities Index 2021. Medina placed 73rd globally and fourth regionally. Key features of Saudi Arabia’s smart city initiatives are the implementation of smart solutions in response to challenges related to housing and community management, parking, energy efficiency, environmental preservation, waste disposal, and urban landscaping and planning.
NEOM
While the retrofitting of existing towns and cities with smart capabilities is integral to the Kingdom’s development goals, the NEOM project, headed by the PIF, most emphatically conveys the government’s vision for the future. Announced in 2017, NEOM is a $500bn mega-project designed to be the world’s first cognitive city. Earmarked for completion by 2030, NEOM, located in the northwest region of Tabuk, will span 26,500 sq km and stretch along 468 km of the Gulf of Aqaba coastline. Investment is being courted for multiple sectors, and technology is set to be woven through all elements of project development and life within NEOM. Secure 5G hyperconnectivity, purpose-built data centres, AI and advanced robotics, innovation and start-up ecosystems, intelligent analytics, renewable energy, consumer-focused solutions, and augmented, mixed and virtual reality capabilities will be integrated into NEOM’s operational fundamentals. These features are designed to optimise business performance and environmental sustainability.
Meanwhile, the creation of NEOM’s digital twin, called XVRS, will allow paying consumers and companies to interact with the city’s environment virtually, sell and purchase products through its digital marketplace, and experience events in NEOM from anywhere in the world. XVRS aims to offer users multiple points of view and the ability to feature in a variety of locations across the metaverse in real time. The digital twins of physical assets will also be available to investors. NEOM’s tech platform, NEOM Tech and Digital, announced in February 2022 that it plans to invest a further $1bn in the project, providing it a competitive advantage. It also acknowledged that significant additional private investment would be required to achieve the NEOM vision.
E-commerce
Between 2016 and 2019 the Kingdom’s e-commerce segment expanded by 25%, and grew by a further 60% in 2020 as lockdown measures due to the Covid-19 pandemic accelerated growth in online shopping. Market activity is forecast to undergo further expansion of 25% from its 2020 level by 2025, according to international consultancy Boston Consulting Group. Some 53% of Saudi internet users reported paying for goods and services over the internet in 2021.
The main e-commerce players in the Saudi market are namshi.com, jarir.com and extra.com, recording annual turnovers of $153m, $105m and $80m, respectively, in 2021. E-commerce accounted for around 8% of all retail transactions in Saudi Arabia in 2020, which is 10 percentage points lower than the global average, highlighting significant room for investment and growth. In 2021 namshi.com offered 100,000 products through its online store, while global leaders Amazon and Rakuten offered 300m and 250m, respectively.
The pandemic also accelerated the adoption and integration of e-banking procedures as face-to-face interactions were restricted and cashless payments helped to curb the spread of the virus. Saudi Arabia hosts over 60 financial technology firms, and banks are progressively increasing their investment in these companies in recognition of their central role in shaping a more reflexive and inclusive banking system. According to the CITC, cashless payments accounted for 36% of all transactions within the Kingdom in the second quarter of 2021, just over half of the government’s target of 70% by 2030, while in 2020 the value of point-of-sales transactions exceeded $95bn.
Outlook
Saudi Arabia’s plans for its ICT sector are wide-ranging, and international investment and partnerships are being spurred by a large and active consumer market in areas such as network development, data accrual, mobile tech and gaming. Although it will likely take time for large-scale initiatives such as the NEOM project to foster the necessary level of engagement from consumers and investors, the early signs are encouraging.
The government is redirecting large portions of its sovereign reserves into digital economy initiatives, preparing infrastructure, legislation and the national workforce to achieve the goals of Vision 2030. While challenges remain in many areas, the country’s willingness to open its economy to foreign investment, alongside continuing advances in creating a more inclusive society, should enhance its global image. This should encourage investors to explore the Kingdom’s ICT opportunities.
