New opportunities emerging in Saudi Arabia’s transformation
It is five years since, Saudi Arabia’s Crown Prince Mohammed bin Salman al-Saud unveiled Vision 2030, a national agenda for economic and social reform aimed at launching an new era of investment in the kingdom that would accelerate diversification, plug the housing shortage, open up tourism, and expand the kingdom’s manufacturing base.
Five years on, and despite the impact of the Covid-19 pandemic, Vison 2030 is delivering an economic surge that is creating exciting opportunities for companies and investors in almost every area of the economy. It is also bringing new challenges.
For real estate developers and construction companies, many of these opportunities are emerging on the vision’s real estate gigaprojects such as Neom future city, Qiddiya entertainment city, Diriyah Gate, Amaala and the Red Sea Project. And while significant project contracts are already being awarded, it is clear that the best is yet to come. Thousands of project packages are in the pipeline that will drive project spending and business opportunities for many years.
PPP and privatisation
The new opportunities are not only in construction. The wide-ranging political, institutional, and financial reforms of the past five years are also generating prospects in new areas such as renewable energy, advanced technology, transport, shipbuilding, healthcare, food, and aerospace. Behind it all, is the kingdom’s new economic champion, the Public Investment Fund (PIF).
The impact of Covid-19
In 2020, Riyadh’s ambitions were knocked by Covid-19, particularly its impact on travel and tourism. Even the annual Hajj and Umrah pilgrimages, which generate as much as $12bn a year in revenues, were reduced to a fraction of normal levels.
Despite its deep impact, Covid has not fundamentally changed the direction of travel for Riyadh. While short-term challenges centre on the fiscal problems of reduced oil income and the need to raise non-oil revenues and cut spending, structural reform, diversification, and job creation remain the long-term goals.
The events of 2020 narrowed Riyadh’s fiscal space to balance these priorities. Despite making cuts and raising new revenue streams such as the increased 15 per cent VAT rate, fiscal consolidation remains high on the agenda. A return to budget surpluses appears increasingly remote and has added urgency to the privatisation programme.
This year began with a bang as the government rewrote the functions of the central bank to make economic growth part of its mandate, and likely precipitating further transfers of the kingdom’s foreign reserves to the PIF. The move signals Riyadh’s intent to mobilise all available asset pools to accelerate future-focused investments.
Challenges for business
While Saudi Arabia’s banks must grapple with the financial fallout from the pandemic, localisation targets place new obligations on companies. Legislative updates, such as limiting government contracts to Saudi-headquartered companies and the newly launched public-private partnership law, will require companies to quickly adapt in an increasingly competitive environment.
Nonetheless, most companies would rather face these challenges in a high-reward market like Saudi Arabia than take on the risks presented by the regional decline in new opportunities.
Saudi Arabia 2021
Saudi Arabia 2021: Trends, opportunities, and challenges for business in the Middle East’s biggest market is a comprehensive guide for companies seeking to work in Saudi Arabia.
Covering oil & gas, petrochemicals, power, construction, water, manufacturing and transport, the report is a powerful resource for anyone seeking to find opportunities, understand risks and set strategy in Saudi Arabia.
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