THE

REPORT
Saudi Arabia
2019
ECONOMY ICT JEDDAH
INDUSTRY UTILITIES CAPITAL MARKETS
ENERGY BANKING ENTERTAINMENT
TRANSPORT EDUCATION INTERVIEWS

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45 New year, new budget: Record spending is ISBN 978-1-912518-34-0

expected in 2019, along with continued support Editor-in-Chief: Oliver Cornock

for the private sector
46 Teaming up: A draft public-private partnership
law could boost such activity in the Kingdom by
addressing key investor considerations
48 Talent map: Global migration patterns are
changing as a result of growing anti-migration
sentiment
TRADE & INVESTMENT
52 Preferential terms: Officials sign new trade
agreements and expand export markets while
Regional Editor, Middle East: Billy
Fitzherbert
Editorial Manager: Geoff Cooke,
Alban Serin
Editorial Associate: Jacob Deville
Group Managing Editor: Laura Nelson
Chief Sub-Editor: Tim Owens
Deputy Chief Sub-Editors: Elise Reid,
Robert Terpstra
Web Editor: Fergus Scully
Senior Sub-Editors: John Gray,
Jennifer Ma, Dominic Mealy, Amy
Stapleton
Sub-Editors: Sheri Cavazos, Patrick

Transition time ushering in legislative and regulatory reforms

Page 32
Saudi Arabia’s economic fortune improved in
2018 as GDP grew by 2.2% after a contraction
of 0.7% in 2017. The Kingdom’s transformation
is being directed by Vision 2030, with initia-
tives including a privatisation programme that
will see the divestment of a number of state-
owned giants, the creation of one of the world’s
largest sovereign wealth funds, more Saudi
citizens employed by the private sector and a
greater number of women in the workforce.
57 Interview: Ibrahim Al Omar, Governor, Saudi
Arabian General Investment Authority
58 Shifting trade winds: Regional integration among
emerging economies and new multilateral
agreements bolster international trade
61 Global village: Medium-term prospects
suggest globalisation is set to continue for the
foreseeable future
BANKING
65 Solid base: Despite muted lending growth and
deposit acquisition, sector fundamentals remain
sound as profits continue to rise
Kurth, Rik Moors, Kayla Moser, Alex
Pichaloff, Morgan Soares-Astbury, Ian
Soder, Lizzie Waymouth
Analysts: Lloyd Belton, Yvo
Fitzherbert, Tom Hill, Andrew Peters,
Andrew Thompson
Senior Editorial Researcher: Susan
Manoğlu
Editorial Researchers: Jade Currie,
Kasia Kugay, Teresa Meoni, Beatriz
Trigueros, Mengihan Vefalı
Creative Director: Yonca Ergin
Senior Art Editor: Sara Proserpio
Art Editors: Catherine Celeste, Alena
Gallagher
Junior Graphic Associate: Babylynne
B Cruz
Illustrations: Shi-ji Liang

73 Interview: Ahmed Alkholifey, Governor, Saudi Logistics & Administration Manager:

SNAPSHOT
10 Saudi Arabia in brief
COUNTRY PROFILE
15 Forward-thinking investment: The Kingdom
continues to diversify its oil revenues to create a
flourishing modern state
22 Viewpoint: Crown Prince Mohammed bin Salman
bin Abdulaziz Al Saud
23 Higher focus: Financial incentives for students
and collaboration with international universities
will boost regional innovation
25 Interview: Prince Khalid bin Faisal Al Saud,
Governor, Makkah Province
27 Looking East: Enhanced cooperation and
investment across a range of sectors is
strengthening ties between China and the GCC
ECONOMY
32 Transition time: Ongoing efforts to support the
transformation of a public sector-dominated
economy into a private sector-driven system
39 Interview: Turki Al Hokail, CEO and Board
Member, National Centre for Privatisation
40 Interview: Ajlan Abdulaziz Alajlan, Chairman of
the Board, Ajlan & Bros; and Chairman, Riyadh
Chamber of Commerce and Industry
41 Healthy balance: The Quality of Life Programme
2020 aims to make Saudi Arabia a top living
destination
43 Interview: Husameddin Al Madani, Former
Director-General, National Centre for
Performance Measurement
Arabian Monetary Authority Burçin Ilgaz
Logistics Executive: Marly F Gimeno
74 Interview: Søren Nikolajsen, Managing Director,
Alawwal Bank
75 Fintech revolution: Tech solutions are driving the
evolution of the sector landscape
CAPITAL MARKETS
81 Rising status: New instruments on offer and
increased foreign involvement are setting the
stage for an influx of new investment
85 Interview: Khalid Al Hussan, CEO, Saudi Stock
Exchange (Tadawul)
86 Indexed growth: Inclusion in global indices often
results in a greater flow of funds to capital
market
ALTERNATIVE INVESTMENTS
90 Vast and varied: An increasingly diverse fund
landscape and improving regulatory foundation
are underpinning the sector’s positive outlook
94 Fund drive: Opportunities in sectors targeted
by Vision 2030 are broadening the offering of
specialised investment vehicles
INSURANCE
97 Insuring expansion: Stricter regulations help
stimulate a burgeoning market
100 Digital disruption: InsurTech brings innovation
to the market, helping tap premium growth
potential in emerging economies
103 Reassuring trend: New reinsurance programmes
are bolstering coverage against natural disasters
in emerging markets

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 8 CONTENTS SAUDI ARABIA 2019
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MAKKAH & MEDINA
108 Market and mosque: Pilgrimage is seen as
increasingly central to the Kingdom’s economic
diversification efforts
112 From here to there: A new high-speed rail line is
central to investments meant to support pilgrims
JEDDAH
115 Reaching new heights: Improved transport links
and growing tourist and entertainment options
characterise the city’s ongoing development
120 Interview: Mazen Batterjee, Vice-Chairman,
Jeddah Chamber of Commerce and Industry
ENERGY
122 Up the value chain: Emphasis on downstream
activities and diversification put the energy
sector on a course for growth
128 Interview: Abdulkarim Alnujaidi, CEO, National
Gas and Industrialisation Company
129 Converging interests: Potential merger with a
petrochemical giant would enable the national
oil firm to become a global conglomerate
131 Building a cushion: Investments in spare capacity
aim to protect Saudi Arabia from future oil and
gas crises
133 Interview: Kamal Pharran, CEO, Saudi Tabreed
134 Going abroad: New terminals to boost energy
exports from Saudi Arabia
136 Cheaper and greener: As costs decline,
renewable sources are seeing an inexorable rise,
particularly among developing economies
UTILITIES
143 New dynamism: Public investment and private
sector activity support energy and water
capacity, and a shift away from oil dependence
151 Private matters: Reforms attract private sector
interest and foreign investment
153 Interview: Fahad Al Sudairi, Acting CEO, Saudi
Electricity Company
154 Interview: Mohammed Al Mowkley, CEO, National
Water Company
155 Striking a balance: Infrastructure projects
support increased water capacity and a more
sustainable utilities network
157 Interview: Khaled Al Qureshi, CEO, Water and
Electricity Company
INDUSTRY
161 High expectations: In combination with a range
of mega-projects, ambitious and far-reaching
reforms are set to revitalise the sector
170 Interview: Khalid Al Salem, Director-General,
Saudi Authority for Industrial Cities and
Technology Zones
171 Revolutionary potential: The Fourth Industrial
Revolution is already having an impact, the
question now is how best to leverage it
173 Pedal to the metal: Increased production
capacity ties in with steadily rising demand
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175 Local talent: Government schemes dovetail with
large corporate initiatives to create new jobs and
opportunities for citizens
177 Starting small: A key role is played by small and
medium-sized enterprises in fostering new job
opportunities and economic growth
179 Broad horizons: Government reforms are taking
place to improve infrastructure, and redress
regional and gender imbalances
180 Into high gear: Economies around the world are
preparing for the opportunities and challenges
brought about by the next industrial revolution
SECURITY, DEFENCE & AEROSPACE
185 Stronger together: Focus on local providers of
advanced manufacturing in the Kingdom leads to
greater investments and a more united front
193 Interview: Andreas Schwer, CEO, Saudi Arabian
Military Industries
194 Eyes on the future: Agreements with
international manufacturers result in a rising
number of joint ventures and investment
opportunities
ICT
199 Securing the future: ICT applications are being
tapped to modernise all sectors of the economy,
with an emphasis on information protection
207 Interview: Nasser Al Nasser, CEO, Saudi Telecom
Company
208 High five: The rollout of 5G networks is set
to support the large volume of connections
required by new technologies
210 Interview: Mohammed AlShaibi, CEO, Tamkeen
Technologies
211 Emerging employment: Growing the domestic
workforce and preparing for jobs of the future
are key to sector plans
213 Small but mighty: Officials work to create a
supportive environment for start-ups
215 Bridging the divide: The ever-expanding digital
economy is creating widespread opportunities in
emerging markets
TRANSPORT
219 Extensive overhaul: Expanding transport
infrastructure and special economic zones to
attract foreign and domestic investment
229 Interview: Nabeel Al Amoudi, Minister of
Transport
230 Interview: Rumaih Al Rumaih, President, Public
Transport Authority
231 Attractive proposition: New special economic
zones offer a range of fiscal and logistics
benefits to companies
233 Interview: Abdullah Aldubaikhi, CEO, Bahri
234 Royal roads: A substantial increase in investment
to build new roads has improved connectivity
and generated employment
236 Skybound: Rapid expansion of global aviation
industry propels investment

REAL ESTATE & CONSTRUCTION
240 Home run: Reforms and housing investment feed
into real estate pipeline
244 Interview: Majed Al Hogail, Minister of Housing
245 Eager to innovate: Mega-city developments are
set to diversify the range of offerings
247 Building traction: The construction sector
consolidates gains ahead of anticipated bumper
year in 2019
251 To lend a hand: Reforms and financing
revitalise the government’s affordable housing
programme
253 Sustainable urbanisation: As urban populations
undergo rapid growth around the globe, city
planners are striving to create efficient spaces
EDUCATION & TRAINING
258 Reinvention drive: As part of broader
modernisation efforts, education is being
brought in line with global trends
263 Impending expansion: A growing population and
changing mindsets are set to boost the private
education segment
265 Digital classroom: Investment in education
technology surges as markets around the world
recognise its transformative potential
HEALTH & LIFE SCIENCES
270 Good prognosis: Public and private expenditure
continues to rise in response to increasing
demand for medical services and specialist care
277 Interview: Hisham bin Saad Aljadhey, CEO, Saudi
Food and Drug Authority
278 Attractive market: A major privatisation plan sees
strong interest from local and foreign providers
279 Investing in health: Advancing medical
technology leads to improved patient care and
cost savings
TOURISM & ENTERTAINMENT
285 Breaking new ground: Officials usher in a new
era of domestic and international travel by
developing leisure and entertainment offerings
290 Interview: Amr Banaja, CEO, General
Entertainment Authority
291 Room to manoeuvre: The hospitality sector is
expanding and evolving to support growing
numbers of international travellers
TAX
KPMG
295 Path forwards: Updated legislation guides zakat
and taxpayers in navigating the regulatory
framework
305 Viewpoint: Wadih AbouNasr, Head of Tax, KPMG
KSA Levant Cluster
THE GUIDE
309 Comfortable stay: Hotels around the Kingdom
314 Listings: Helpful public and private entities
316 Facts for visitors: Useful cultural information
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CONTENTS SAUDI ARABIA 2019 9
Up the value chain
Page 122
Even as Saudi Arabia lays the groundwork
for diversification, oil and gas is expected
to continue to play a leading economic role,
accounting for at least half of the coun-
try’s exports to 2040. In 2019 the energy
sector aims to strike a balance between
diversifying and strengthening downstream
offerings such as petrochemicals, and incor-
porating renewable energies into the mix.
High expectations
Page 161
Historically, Saudi Arabia’s industrial devel-
opment has been driven by the need to op-
timise the value of crude oil and natural gas
reserves. The current environment is char-
acterised by mega-projects for raw materials
that can spawn new manufacturing plants
and the consumer habits of a young and af-
fluent population, which are creating fresh
markets for innovative service industries.
Stronger together
Page 185
In the 2019 budget $78.4bn, or 27% of the
total, was earmarked for defence and secu-
rity – the highest allocation for any sector.
As the world’s largest military spender per
capita, Saudi Arabia is working to ensure
that a growing percentage of outlay is on
domestically produced hardware, aiming
to localise spending on military equipment
from 2% in 2017 to more than 50% by 2030.
Breaking new ground
Page 285
Diverse landscapes, rich history and culture,
and significance to Islam makes Saudi Ara-
bia one of the most visited countries in the
world. The tourism sector is on the cusp of
a major change: under Vision 2030 the gov-
ernment has set out ambitious development
initiatives and ushered in a series of multi-
billion-dollar investment projects to build
new resorts, hotels and cultural attractions.
THE REPORT Saudi Arabia 2019
10 SNAPSHOT

Saudi Arabia in brief

Firming oil prices and an expansionary budget have resulted in a positive outlook for Saudi Arabia: in October 2018 the IMF lifted the
Kingdom’s GDP growth prediction for 2019 by 0.5% to 2.4%. The government has produced two record-breaking budgets for 2018 and
2019, and the private sector is poised to benefit as the projects outlined in the nation’s far-reaching development strategy, Vision 2030,
begin to take shape with its help. Vision 2030 sets out sweeping 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.

Real GDP growth, 2012-21F (%) Hajj visitors, 2011-18 (000)

Domestic Foreign
6
5 2500

4
2000
3
1500
2

1 1000
0
500
-1

-2
0
2012 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F 2013 2014 2015 2016 2017 2018

Source: IMF Source: GaStat

Top-5 non-oil exports, November 2018 (SR m) Foreign direct investment flows, 2014-17 ($ bn)
Inward Outward
Plastics & rubber 777
9
Chemicals & allied
industries 1607 8
Base metals 7
Vehicles & transport 1671 6
equipment 5
Machinery, mechanical
4
& electrical 6950
equipment 3
2
6623 1
0
2014 2015 2016 2017

Source: GaStat Source: UNCTAD

Monthly oil exports, 2017-18

Value (SR bn) year-on-year (%)
100 100

80 80

60 60

40 40

20 20

0 0
Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18

Source: GaStat

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 SNAPSHOT 11

Jeddah’s real estate supply, 2011-18 (m sq metres) Tadawul market capitalisation, 2008-18 (SR bn)
Office space Retail (GLA) 2000
1.6
1.4 1500
1.2
1.0
1000
0.8
0.6
0.4 500
0.2
0 0
2011 2012 2013 2014 2015 2016 2017 Q3 2018 08 09 10 11 12 13 14 15 16 17 18

Source: JLL Source: Tadawul

Commercial banking assets, 2014-18 (SR bn) Insurance indicators, 2013-17

GWP (SR bn) No. of policies (m)

2014 40 9
35 8
2015 7
30

2016 25 6
20 5
2017 15 4
10 3
2018
5 2
0 1
0 500 1000 1500 2000 2500
2013 2014 2015 2016 2017

Source: SAMA Source: SAMA

Real estate investment trusts, 2016-18 Real estate activities, 2014-18 (%)
Value of assets (SR m) No. of funds GDP growth GDP contribution

18,000 18 12
16,000 16 10
14,000 14
12,000 12 8
10,000 10
6
8000 8
6000 6 4
4000 4
2 2
2000
0 0 0
Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 2014 2015 2016 2017 2018

Source: CMA Source: GaStat

Arms imports to Saudi Arabia by supplier, 2013-17 (%) Cargo traffic at industrial ports, 2017 (m tonnes)
US 1.3 1.1 Imports Exports
1.4 0.5
UK 1.5
1.8 200
France 1.8
2.4
Spain 3.6
150
Switzerland
Germany
23
100
Italy
61
Canada 50
Turkey
Sweden 0
Netherlands 2013 2014 2015 2016 2017

Source: Stockholm International Peace Research Institute Source: GaStat

Bloomberg Terminal Research Homepage: OBGR‹GO› THE REPORT Saudi Arabia 2019

 13

Country Profile
National blueprints guide economic development
The authorities push ahead withz diversification efforts
Regional emphasis on higher education and research
Economic cooperation grows between China and GCC

Forward-thinking investment
The Kingdom continues to diversify its oil revenues to create a
flourishing modern state
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 not only in the
region, but globally as well. Since its establishment
in September 1932, the Kingdom has poured its
considerable financial resources into a series of
large-scale economic development, diversification
and modernisation initiatives. In the last few years,
Saudi Arabia has attracted international attention
for the momentum of its socio-economic transfor-
mation taking place under the auspices of the Vision
2030 development blueprint.
GEOGRAPHY: 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
that accounts for 80% of the Arabian Peninsula. The
Kingdom is covered by a series of interconnected
deserts and scrubland, the largest of these being
the 650,000-sq-km Rub Al Khali (Empty Quarter)
in the south, which is the biggest continuous sand
desert in the world. The country contains numerous
wadis, or dry riverbeds, but no natural lakes, rivers
or streams. According to the World Bank, less than
1% of the country’s total land area is considered
well suited for agricultural activities.
Saudi Arabia shares land borders with Jordan,
Iraq and Kuwait in the north, Qatar and the UAE in
the east, and Oman and Yemen in the south. It is
also connected to Bahrain – off the east coast – by
the King Fahd Causeway, a 25-km road bridge. The
Kingdom’s west coast runs along the Red Sea.
CLIMATE: Saudi Arabia is hot and extremely arid
year-round, like much of the rest of the Gulf, and
does not have clearly defined seasons. May to
September are typically regarded as the summer
months, during which temperatures can be as high
as 45-55°C. The heat is felt the most in the inte-
rior, an area also characterised by low humidity
rates. Temperatures cool in the winter months of
Bloomberg Terminal Research Homepage: OBGR‹GO›
COUNTRY PROFILE OVERVIEW 15
Between May and September, temperatures can rise to 45-55°C
November to February to average 19-25°C. Winter Saudi Arabia is the largest
temperatures can drop below freezing in central country in the Middle East
and northern Saudi Arabia, especially at night, with and the 13th-largest nation
in the world, with an area of
occasional snowstorms in the north. During the approximately 2.15m sq km
seasonal transition period from February to May, vio- that accounts for 80% of
lent sandstorms sometimes occur. Average annual the Arabian Peninsula.
precipitation is around 8 cm, almost all of which falls
between December and March, when tropical winds
can cause monsoons in the south and south-west.
POPULATION: The population was largely nomadic
until the early 1960s, when rapid economic devel-
opment from newly struck oil revenue prompted a
process of urbanisation, and as of 2011 more than
95% of the country’s citizens were settled. Based on
estimates from the General Authority for Statistics
(GaStat), the total population stood at 33.4m in
2018, an increase from 32.6m the previous year.
This followed growth of 333% between 1975 and
2009, when the figure reached 25m, representing
one of the fastest-growth rates in the world. The
World Bank forecasts the population to reach 34.7m
by 2020 and 39.5m by 2030.
Per GaStat data, the Kingdom’s population density
stood at about 17 people per sq km in 2018, though
the figure is substantially higher in cities and urban
areas. As of 2014 Saudi Arabia’s largest city is the
capital, Riyadh, which is home to around 6m people.
This is followed by Jeddah, with 3.98m inhabitants;
Makkah (1.92m); Medina (1.34m); Al Ahsa (1.19m);
Taif (1.11m); and Dammam (1.03m).
DEMOGRAPHICS: In 2018 GaStat estimated that
Saudi nationals accounted for 62.2% of the popu-
lation, with non-nationals making up the remaining Saudi nationals
37.8%. The expatriate population has grown, consti- accounted for
tuting 33% of the total in 2015 and 37% in 2017. The
large foreign population comprises people from all
over the world, including nationals from the Phil-
62.2%
of the 33.4m-strong
ippines, India, Pakistan, Afghanistan and Indonesia, population in 2018
among other Asian countries. The Kingdom is home
THE REPORT Saudi Arabia 2019
 16
Parts of the Arabian peninsula have been occupied by nomadic tribes since at least the third millennium BCE
The official language of
the Kingdom is Arabic and
there are two predominant
dialects: Nejdi and Hejazi
Arabic. English is widely
spoken by Western
expatriates and in places
of business, and most road
signs are written in both
Arabic and English.
The majority of Saudis
are Sunni Muslims, with a
Shia minority largely living
in the Eastern Province.
Islam informs and defines
all areas of life, including
the legal system, public
behaviour, marriage
relations and the calendar.
COUNTRY PROFILE OVERVIEW
to a substantial Western population as well, includ-
ing residents from the UK, the US, the EU and Can-
ada. The great majority of the expatriate population
lives in Riyadh and other major urban centres. Saudi
Arabia’s population is young, with 49% of nationals
under the age of 25 as of mid-2017. Combined with
rapid population growth, this is expected to drive
economic development and innovation, but also
present numerous challenges in the years ahead.
LANGUAGE: The official language of the Kingdom
is Arabic, of which there are two predominant dia-
lects: Nejdi and Hejazi Arabic. The large expatriate
population means that many other languages are
also spoken, including Urdu, Malay and Tagalog.
English is widely spoken by Western expatriates
and in places of business, and most road signs are
written in both Arabic and English.
RELIGION: As the birthplace of the Prophet Muham-
mad and the home of Makkah and Medina, Saudi
Arabia is an Islamic country, with the king holding
the title of Custodian of the Two Holy Mosques. The
majority of Saudis are Sunni Muslim, while a minority
– mostly living in the Eastern Province – are Shia.
The Wahhabi ideology, a strict branch of Sunni Islam
espoused by the 18th-century imam Muhammad ibn
Abd Al Wahhab, has also played an important role
in society since the first Saudi state was created.
Religion is central to social, political and economic
life in Saudi Arabia, and under the Basic Law of Saudi
Arabia, which was issued by King Fahd bin Abdulaziz
Al Saud in 1992, the Quran serves as the basis for all
the Kingdom’s laws, rules and regulations. Therefore,
Islam informs and defines all areas of life, including
the legal system, public behaviour, marriage rela-
tions, culture and the calendar.
All Saudis are required to abide by sharia law,
which mandates daily public prayer, the separation
of unrelated men and women, and the paying of
zakat, or religious charity. As a part of the annual
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Hajj and Umrah pilgrimages, which are considered to
be religious obligations and cornerstones of Islamic
life, Saudi Arabia attracts approximately 8.5m Mus-
lim pilgrims from around the world each year.
HISTORY: Despite the fact that the vast majority
of the Arabian Peninsula is covered by inhospitable
desert, nomadic tribes have called the area home for
thousands of years. The earliest recorded archaeo-
logical evidence discovered on the peninsula dates
back to the third millennium BCE, when the Dilmun
civilisation occupied an area that includes the mod-
ern-day states of Bahrain, Qatar and Oman, as well
as parts of Iran and Saudi Arabia’s Eastern Province.
In the first millennium BCE, the ancient Thamud
tribe moved from southern Arabia to what is now
the Medina region, where they occupied a series of
towns until the middle of the first millennium CE.
The history of the Arabian Peninsula from 600
CE onward was largely characterised by the rise of
Islam, which began with the birth of the Prophet
Muhammad in Makkah around 570 CE. By the time
of the Prophet Muhammad’s death in 632 CE, the
majority of the Gulf had been united under Islam. By
800 CE, as a result of rapid expansion by the early
Muslim caliphs and other leaders, Islam had become
the predominant religion over a wide geographical
area, spanning from what is now Spain and Portugal
in the west to Central Asia in the east.
EARLY STATES: With political power concentrated
in Damascus and Cairo during the medieval period, a
handful of nomadic and semi-nomadic groups came
to control the Arabian Peninsula. Among the most
powerful of these groups were the Hashemites, or
Banu Hashim, a clan within the larger Quraish tribe
that is descended directly from the Prophet Muham-
mad, who came to control much of the eastern Hejaz
region of Arabia during the second millennium CE.
The Al Saud family, which today rules Saudi Arabia,
has held intermittent control of the Nejd and other
parts of central and eastern Arabia since the mid-
1700s. In 1744 Muhammad ibn Saud, then-head of
the Al Saud family, established an alliance with the
imam Al Wahhab with the aim of unifying the Arabian
Peninsula under the banner of Islam. The first Saudi
state, which was based in Diriyah, controlled a large
area until 1818, when the Ottomans recaptured it
during the Ottoman-Saudi war.
During the second Saudi state, which was formed
in the wake of the war and based out of Riyadh,
the Al Saud family ruled over a substantial area
in central Arabia from the early 1820s until 1891,
when it succumbed to tribal infighting. In the wake
of this defeat, the head of the family at the time,
Abdul Rahman bin Faisal Al Saud, fled to Kuwait with
his family, including his son Abdulaziz Al Saud. The
latter is the founder of the third Saudi state, which
is synonymous with modern-day Saudi Arabia.
NEW BEGINNING: In 1902, when he was about 26
years old, Abdulaziz Al Saud returned to Riyadh
and conquered the city with a small group of men.
Over the next few years the young ruler worked to

consolidate his control over most of the Nejd region,
where the Al Saud family remained popular among
the local inhabitants. By 1912 Abdulaziz had gained
control of most of central and eastern Arabia, and
over the following two decades he continued to
expand his reach across the peninsula, negotiating
with local rulers and colonial powers when possible,
and resorting to force when necessary. In Septem-
ber 1932 Abdulaziz announced the formation of
the Kingdom of Saudi Arabia, naming himself king.
Six years after the modern state was formed, US
company Standard Oil discovered oil in commercial
quantities in the Eastern Province city of Dammam.
The find, which eventually revealed the second-larg-
est reserves of crude oil in the world, changed the
young country forever. By the mid-1950s oil exports
accounted for the majority of the state’s income, and
Saudi Arabia embarked on a series of large-scale,
government-led economic development projects
funded by this new revenue stream.
ECONOMY: According to the IMF’s October 2018
“World Economic Outlook”, Saudi Arabia is catego-
rised as an emerging market economy, a grouping
that includes countries such as China, Turkey, Russia
and India. The World Bank, for its part, classifies
the Kingdom as a high-income, non-OECD country.
According to the latest data from the World Bank,
Saudi Arabia ranked as the 19th-largest economy in
2017, with GDP of $686.7bn, down from $756.4bn in
2014 due to a decline in oil revenue. The Kingdom
also regularly participates in G20 meetings and will
host the G20 in Riyadh in 2020.
Hydrocarbons income has traditionally accounted
for the vast majority of state revenue, however in
April 2016 the government launched Vision 2030, a
bold economic diversification plan with the central
aim of transitioning the economy away from its
dependency on oil. The plan calls for a multitude of
developments, including greater localisation of key
sectors such as defence and value-added industrial
production; an expansion of religious pilgrimage;
and privatisation of public services in key areas
such as transport, utilities, education and health
(see Economy chapter). Announced in June 2016,
the National Transformation Programme (NTP)
2020 provides targets and plans as a roadmap for
the medium-term objectives of Vision 2030. While
questions have been raised regarding the manner
in which the plans will be implemented, both the
international and local business communities expect
there will be ample opportunity for increased invest-
ment in the private sector.
In December 2016 the government approved
the Fiscal Balance Programme (FBP), a five-year
financial plan to eliminate Saudi Arabia’s deficit by
2020, which was later set back to 2023. The FBP
focuses on various areas, including social welfare
reform, scrutiny of government expenditure in the
wake of low oil prices, introduction of new fiscal
measures such as expatriate levies and value-added
tax, and private sector growth. In 2017 Saudi Arabia
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COUNTRY PROFILE OVERVIEW 19
Six years after the modern state was formed in 1932, oil was discovered in commercial quantities in Dammam
also redesigned the governance structure of Vision The Fiscal Balance
2030, announcing that its implementation would be Programme to eliminate
detailed by 12 Vision Realisation Programmes (VRPs) the budget deficit focuses
on social welfare reform,
with a 2020 horizon, two of them being the FBP and scrutiny of government
a revised version of the NTP, referred to as NTP 2.0. expenditure, the
On October 25, 2017 a third VRP was released, introduction of expatriate
the Public Investment Fund (PIF) Programme, which levies and value-added tax,
outlines a number of initiatives to be undertaken and private sector growth.
by Saudi Arabia’s sovereign wealth fund to 2020. In
line with the objectives of Vision 2030, the capital
raised for the PIF through the initial public offer-
ing of state-owned oil giant Saudi Aramco is to be
channelled into new economic ventures, support-
ing the growth of the private and non-oil sectors.
However, plans to float up to 5% of the corporation
in 2018 – which would have generated as much as
$100bn – have been postponed to 2021 to focus
on the proposed acquisition of the PIF’s 70% stake
in petrochemicals manufacturer Saudi Arabia Basic
Industries Corporation (SABIC) by Saudi Aramco,
also estimated to be worth around $100bn.
INVESTMENT: The government has worked hard to
open up the Kingdom to foreign direct investment
(FDI) in recent years. Saudi Arabia is ranked 92nd out
of 190 nations in the World Bank’s “Doing Business
2019” report, and its reputation for political stability
has historically made it a popular destination for
FDI in the MENA region. However, the Kingdom saw
its FDI level drop to $1.4bn in 2017 from $7.5bn in
2016 and $8bn in 2014, before the oil price slump.
ENERGY RESOURCES: Saudi Arabia is one of the
most important oil producers in the world, boasting Saudi Arabia is home to
15.7% of total crude reserves at the end of 2017,
according to BP’s “Statistical Review of World Energy
2018” report. Additionally, it is home to 4.2% of
15.7%
of the world’s total
global natural gas reserves. Oil reserves at the end crude oil reserves and
of 2017 were estimated by BP at 266.2bn barrels, 4.2% of global natural
although the discovery of two new oil fields in 2017, gas reserves
Sakab and Zumul, put Saudi Aramco’s estimates of
THE REPORT Saudi Arabia 2019
 20
The Kingdom is organised into 13 provinces at the administrative level, each with their own provincial capital
The current monarch, King
Salman bin Abdulaziz Al
Saud, assumed the throne
following the passing of his
half-brother, King Abdullah
bin Abdulaziz Al Saud, in
January 2015.
The top governmental
body in the Kingdom is the
Cabinet, or the Council of
Ministers, which is led by
the ruler and consists of 30
royally appointed ministers
serving four-year terms.
COUNTRY PROFILE OVERVIEW
total reserves higher at 332.9bn barrels. Saudi Ara-
bia has an oil production capacity of 12.5m barrels
per day (bpd), though it produced roughly 9.9m bpd
in 2017, according to the 2018 budget.
The energy industry is dominated by state-owned
Saudi Aramco, which controls nearly all of the oil
and gas reserves in the country and is estimated
by many to be the largest oil company in the world.
Saudi Arabia is one of the five founding members
of the Organisation of the Petroleum Exporting
Countries (OPEC) and was traditionally considered
the global swing producer. When oil prices began
to drop after June 2014 the Kingdom initially main-
tained high production levels in order to protect
its share of the international market, but in January
2017 Saudi Arabia headed an historic agreement
between OPEC and non-OPEC members to curb
global oil production in an effort to stabilise prices.
ADMINISTRATION: Riyadh, the capital and largest
city in the country, is located in the Nejd region, a
rocky plateau that covers a large swathe of land in
central Saudi Arabia. Jeddah, the second-largest city
and major urban centre in the west, is located on
the Red Sea coast and is bordered by the Sarawat
Mountains to the east. Jeddah is also the largest city
in the province of Makkah, which includes the holy
cities of Makkah and Medina. At the administrative
level, the Kingdom is organised into 13 provinces,
including the Eastern Province – which is home
to the bulk of Saudi Arabia’s oil reserves – Riyadh
Province, Makkah Province and Medina Province.
Each province has its own provincial capital. The
provinces are further divided into between three
and 20 governorates, with a total of 118 through-
out the country. Each of the governorates are also
divided into sub-governorates.
GOVERNMENT: Saudi Arabia is a monarchy and the
royal family is the Al Saud, specifically the direct
descendants of King Abdulaziz, the country’s
www.oxfordbusinessgroup.com/country/saudi-arabia
founder. The current monarch, King Salman bin
Abdulaziz Al Saud, assumed the throne following
the passing of his half-brother, King Abdullah bin
Abdulaziz Al Saud, in January 2015. Since then King
Salman has abolished a number of government
councils and replaced them with two major councils,
the Council for Political and Security Affairs and the
Council for Economic and Development Affairs, both
of which are chaired by Crown Prince Mohammed
bin Salman bin Abdulaziz Al Saud.
In 2015 King Salman named Prince Mohammed
bin Naif Al Saud as the crown prince, but he was
relieved of the title in June 2017 and replaced by the
then-deputy crown prince, Mohammed bin Salman,
the son of King Salman bin Abdulaziz Al Saud. The
current crown prince is widely seen as a moderniser,
seeking to meet the needs and aspirations of the
population through his leadership.
COUNCILS: The top governmental body in the
Kingdom is the Council of Ministers, or the Cabinet,
which is led by the ruler and consists of 30 royally
appointed ministers serving four-year terms. The
government’s relationship with, and its responsi-
bilities towards, its citizens is codified by the Basic
Law, which was passed by King Fahd in 1992.
The Majlis Ash-Shura, or Consultative Council, has
an advisory role in the government and is made up
of 150 members, all of whom are appointed by the
king. However, the organisation has limited powers
and cannot pass or enforce laws. The body broadly
serves as a forum for policy debates, and it can inter-
pret existing laws and propose new legislation to be
passed by the ruler. In addition, the council advises
the king on a variety of issues, including the annual
budget and long-term economic development plans.
The Consultative Council also has the power to call
ministers in for questioning.
Around 70% of the members of the current council
hold PhDs, many of which were granted from US and
UK universities and women make up one-fifth of its
total membership. While the governmental body
continues to be primarily an advisory group, it has
gained a substantial number of new powers over
the past decade. For example, it was recently given
a mandate to participate in the Kingdom’s complex
budgeting process, which was considered to be a
significant increase in responsibility.
SUCCESSION: In 2006 a law formalising the suc-
cession process in the Kingdom was announced.
Following the death of the reigning monarch, a com-
mittee composed of male heirs of King Abdulaziz
is convened to officially name the crown prince as
the new king. This law helped facilitate a smooth
transition in 2015, with the accession of then-Crown
Prince Salman to the throne.
Power has traditionally been held by King Abdu-
laziz’s sons, with accession passing from brother to
brother. The appointment of Prince Mohammed bin
Salman as crown prince overturned decades of royal
custom, as succession from father to son had only
taken place once before in Saudi Arabia’s history.
22 COUNTRY PROFILE VIEWPOINT
Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud
The road ahead
Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud,
on trends in the local economy since the launch of Vision 2030
In the nearly three years since Vision 2030 was
launched, Saudi Arabia has made great strides towards
developing and diversifying its economy. Many sectors
and government institutions have been restructured
and upgraded, and economic and social reforms have
been implemented across the board, notably in the
cultural, entertainment and sporting segments.
The numbers that have emerged since the country
entered this phase of fast-paced development speak
for themselves, and they are changing every day for
the better. While Saudi Arabia’s non-oil revenues have
increased nearly three-fold since 2016, the country is
also enjoying steady growth in non-oil exports, which
rose from 2.2% in 2017 to 2.5% in 2018. Our expecta-
tions are high, and we are confident that these figures
will continue growing until we meet our 2030 objec-
tives. In terms of global competitiveness, Saudi Arabia’s
position has also been improving annually.
In January 2019 the launch of the National Indus-
trial Development and Logistics Programme (NIDLP)
marked a new beginning for increased localisation of
our industrial capabilities and in-country manufactur-
ing facilities. The programme aims to boost investment
in key sectors like mining, industry, energy and logistics,
and is currently worth more than $453bn. By 2030 this
programme alone is expected to add 1.6m jobs to the
labour market. Indeed, the NIDLP is a cornerstone for
creating employment opportunities and increasing
the value of Saudi non-oil exports in the long term.
Saudi Arabia’s fiscal budget for 2019 is set at more
than SR1trn ($266.6bn), which is the largest in the
history of the country and represents a roughly 7%
increase above spending in 2018. The budget for 2020
will continue this trend and will be bigger still. We also
find that the government spending rate, including both
capital and operational expenditures, is increasing
significantly, while the salaries of public sector workers
are decreasing. In 2016 salaries made up 50% of the
government budget; in 2019 we expect this rate to
www.oxfordbusinessgroup.com/country/saudi-arabia
reach a record low of 45%. We also strongly believe
that the unemployment rate will continue to improve
on a yearly basis until it declines to 7% in 2030.
Through the Public Investment Fund (PIF), Saudi
Arabia has been establishing one of the largest sover-
eign wealth funds in the world. Assets under the PIF’s
management totalled $300bn in 2018 and are expected
to grow to over $400bn in 2019. Our objective for the
PIF is for it to reach $2trn by 2030.
The PIF focuses on strategic and high-yield invest-
ments across a wide variety of sectors, both inside and
outside the Kingdom of Saudi Arabia. To support the
growth of the private and non-oil sectors, the PIF is
expected to raise capital by releasing an equity stake
that it currently holds in the publicly traded petro-
chemicals manufacturer Saudi Arabian Basic Industries,
which is scheduled to be acquired by Saudi Aramco, the
state-owned oil giant.
All the mega- and giga-projects that have been
launched since 2016 under Vision 2030 are well under
way, including Neom, the Red Sea Project and Al Qiddiya
project. Those projects are unique to Saudi Arabia, but
business opportunities are to be found for the Kingdom
across the region as well.
For a long time Middle Eastern countries focused on
natural resource extraction. Then the UAE, including
both Dubai and Abu Dhabi, began to show the world
that the creation of a new development model is possi-
ble. Blessed with strong financial reserves and talented
human resources, our countries have already recorded
great achievements, and there are definitely more
opportunities ahead that are yet to be seized. The
countries and economies of the Middle East are intrin-
sically connected through historical, intraregional trade
flows and even cultures. Many of our neighbours, such
as Egypt, Oman, Bahrain and Kuwait – not to mention
the Kingdom itself – will be very different places in five
years, and increased economic cooperation between
our countries can only be beneficial in the long term.

Higher focus
Financial incentives for students and collaboration with
international universities will boost regional innovation
GCC countries have long appreciated the importance of
education for their sustained development. However,
the sector, and higher education in particular, has risen
as a priority over the past decade with the launch of
ambitious economic diversification plans across the
region. These strategies seek to harness the potential of
the GCC’s expanding population – which is projected to
see its under-25 age demographic constitute one-third
of 65m residents by 2030 – to drive an economic tran-
sition towards innovation, technology and knowledge,
which could in turn provide sustainable employment
opportunities to meet growing demand.
While the advantages of developing the region’s
youth are widely recognised, unlocking that potential
at a time of tightening budgets presents challenges:
local education networks are in need of expansion;
higher education institutions (HEIs) need to be more
responsive to the demands of the local economy; and a
social preference for public sector work and traditional
academia needs to be overcome.
MEETING DEMAND: Despite growing numbers of
graduates in the region, a gap between the skills that
students graduate with and those that jobs require is
often cited as an issue by employers. It is also the case
that GCC students are more inclined towards the public
sector, in which well-salaried positions form part of
social contracts that ensure the region’s oil wealth trick-
les down to its citizens. However, with diversification
plans across the region targeting higher rates of private
sector employment among citizens, governments and
HEIs alike are aiming to address these issues.
One measure under way has been a far greater
emphasis on technical and vocational education and
training (TVET). Saudi Arabia, which has targeted
increasing the proportion of students enrolled in TVET
from 7% in 2016 to 12.5% in 2020, has introduced finan-
cial incentives to encourage students to pursue such
programmes. Students studying at the Saudi branch of
the UK’s Lincoln College, for example, receive a monthly
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COUNTRY PROFILE REGIONAL ANALYSIS 23
Saudi Arabia needs an additional 125,000 seats in higher education
stipend of SR990 ($264) from the Saudi Arabia Human Stakeholders are boosting
Resources Development Fund. Such support helped to the attractiveness of
drive a 47% rise in the number of technical colleges in vocational training through
financial incentives,
the Kingdom between 2013 and 2017. awareness campaigns and
In Oman, where citizens constitute just 14% of pri- certifications that can
vate sector employees, a series of awareness cam- compete with conventional
paigns have been launched in coordination with TVET university degrees.
institutions aimed at increasing the attractiveness
of these courses, which are tailored specifically for
the private sector. Elsewhere, to overcome employer’s
bias towards academic degrees, the country has been
working with the Scottish Qualifications Authority to
develop a 10-level qualifications framework that will
allow vocational school graduates to stand toe-to-toe
with conventional degree holders.
PRIVATE COLLABORATION: HEIs have also started to
demonstrate a greater openness to private sector input
when tailoring their programmes. For example, the Abu
Dhabi-based Higher Colleges of Technology (HCT) has
formed ongoing partnerships with leading employers to
harmonise courses with market needs, creating tech-
nical training and collaborative learning opportunities
for students. For instance, Dubai-based Mashreq Bank
provides input on several financial programmes, and
facilitates seminars and chances to gain professional
experience, while Abu Dhabi National Oil Company
(ADNOC) provides certified technical readiness courses
in the energy sector to those receiving sponsorship.
In January 2018 HCT also reached an agreement with
digital technology firm Oracle to facilitate the training
of 500 UAE nationals in artificial intelligence.
ATTRACTING INVESTMENT: Another challenge fac-
ing GCC states is meeting growing student numbers.
According to 2017 estimates from the London-based
global professional services firm PwC, the region’s two
largest markets – the UAE and Saudi Arabia – will have
to add 42,000 and 125,000 HEI seats by 2020, respec-
tively. With budgetary constraints on the increase in
recent years due to the expanding populations and
THE REPORT Saudi Arabia 2019
24
To draw foreign investment,
Dubai and Abu Dhabi have
established education
sector free zones, while
Saudi Arabia and Oman
have loosened restrictions
and offered various
financial incentives.
A growing appreciation of
the commercial value of
original research and the
need to develop expertise
for the knowledge economy
is driving increased
activity in research and
development.
COUNTRY PROFILE REGIONAL ANALYSIS
declining oil revenues, officials have introduced educa-
tion-specific incentives to draw in private, particularly
foreign, investment. One example of this is the oppor-
tunity for foreign entities to own 100% of institutions in
regions that mandate that at least a 51% stake is held
by GCC nationals. Dubai established its first education
free zone, Dubai Knowledge Village, in 2003.
Since then, 24 foreign HEI branches have been
opened in the emirate’s free zones, which, along with
the benefits of full ownership, are not required to
receive accreditation from the UAE’s Commission for
Academic Accreditation (CAA). This means branches
can offer exactly the same programmes that their
parent institutions provide.
Abu Dhabi also allows HEIs to establish in free zones;
however, institutions are required to acquire federal
accreditation from the CAA. The emirate has sought
to attract high-profile foreign HEIs through generous
financial incentives and is now home to two of the
region’s best-known branch institutions: New York Uni-
versity Abu Dhabi and Sorbonne University Abu Dhabi.
In mid-2017 the Saudi Arabian General Investment
Authority revealed that it would allow full foreign own-
ership in the education and health care sectors. Efforts
to attract more investment are in line with the country’s
plans to increase the private sector’s share of tertiary
education from 6% in 2015 to 15% by 2020. At the same
time, in Oman land grants, Customs exemptions and
50% capital contributions – up to a maximum of OR3m
($7.8m) – have contributed to the establishment of 27
private HEIs in the sultanate.
INTERNATIONAL PARTNERSHIPS: Although there had
been a significant trend for GCC nationals to pursue
tertiary education abroad, tightening budgets and a
commitment to developing the sector domestically
have led to cutbacks on international scholarship pro-
grammes, putting international study out of the reach
of many. To capitalise on this demand, local HEIs are
increasingly forming reputation- and expertise-raising
partnerships with foreign institutions.
Muscat University, for example, has sought to lure in
local students through programmes offered in partner-
ship with two UK HEIs, Aston University and Cranfield
University, which allows students of the respective pro-
grammes to graduate with degrees from both Muscat
and the foreign university, at a considerably lower cost
than living and studying abroad.
Similarly, institutions such as the SP Jain School of
Global Management, based in Dubai, and Zayed Uni-
versity, which has campuses in both Dubai and Abu
Dhabi, have gained international accreditation from
Australian and US authorities, respectively, for their
MBA programmes. According to Christopher Abraham,
CEO of SP Jain, local laws have been supportive of this
model, allowing institutions to be more flexible in their
approach and curricula. “Government regulations from
the Knowledge and Human Development Authority
(KHDA) are set up in a way for quality assurance through
the University Quality Assurance International Board
(UQAIB), which facilitates multiple accreditation for
degree programmes from different countries,” he told
www.oxfordbusinessgroup.com/country/saudi-arabia
OBG. The KHDA is a government body tasked with reg-
ulating private schools and universities located in the
emirate’s free zones, while the UQAIB ensures such
degrees are recognised by employers in the UAE.
RESEARCH DRIVE: With ambitious targets to bol-
ster international rankings, research collaborations
between GCC and foreign universities are also on the
rise. Saudi Arabia’s King Abdullah University of Science
and Technology signed an agreement with the US-based
Massachusetts Institute of Technology (MIT) in March
2018, which was focused on environmental sciences
and included provisions for joint research, student
exchanges and entrepreneurship programmes.
MIT also has a long-standing environmental sciences
research collaboration with Kuwaiti universities that
is overseen by the Kuwait-MIT Centre for Natural
Resources and the Environment. In 2015 the centre
oversaw the joint award of a $5.5m grant to research
advanced desalination processes.
Although research and doctoral studies are at an
early stage in the region, a growing appreciation of the
commercial value of original research, as well as the
need to develop field-leading expertise for the knowl-
edge economy, is driving increased activity in the area.
A significant development in this respect was the
February 2017 merger of the three Abu Dhabi-based
institutions: Khalifa University of Science, Technology
and Research; Masdar Institute of Science and Tech-
nology; and the Petroleum Institute. The goal of the
resultant entity, the Khalifa University of Science and
Technology (KU), is to nurture local technical talent and
research in line with local economic and social needs.
The university offers 12 undergraduate-level, 16
master’s-level and 13 doctoral degrees focused on
strategically important subjects. It is also home to 16
research centres, 228 laboratories and three field
research projects, and has signed partnerships with
public and private sector industry leaders, including
Boeing, ADNOC and the UAE Space Agency.
Despite these advances in the sector, Arif Sultan Al
Hammadi, executive vice-president of KU, told OBG that
further research funding was needed in the UAE, and
that the private sector should shoulder some of the
responsibly for this transition. “The research funding
industry is not mature enough yet within the country,
and there is a higher need for companies to support
research within their industries,” he said.
Solving specific regional issues is a common aim for
research institutions across the region. For example,
the research strategy of Bahrain’s largest university, the
University of Bahrain, is premised on finding solutions to
challenges stemming from the country’s environment,
with water security, food security and renewables top
of the agenda. This plan has been bolstered by research
partnerships signed with the University of Oxford and
Aston University, which will see the three universities
collaborate on desalination research. Bahrain’s strategy
also includes plans to grow its postgraduate student
population from 490 in 2016 to 1250 in 2021, while
increasing the number of journal articles coming out of
the university from 323 to 1475 during the same period.

Prime location
Prince Khalid bin Faisal Al Saud, Governor, Makkah Province,
on supporting the region’s economic development
What steps have been taken to drive public-pri-
vate partnerships (PPPs) in the Makkah region?
PRINCE KHALID: Makkah has supported PPP pro-
grammes to advance development in the region. The
Integration Development Centre (IDC) was estab-
lished in 2015, with the primary aim of stimulating
private sector participation in development projects.
The IDC’s efforts have helped the Treasury save
SR2bn ($533.2m) since its inception.
In 2018 the first ever Makkah Region Economic
Forum was held, and the second session is set to take
place in 2019. The forum is focused on emphasising
the benefits of PPPs in accelerating development
and the transfer of knowledge. It also aims to high-
light the investment opportunities in the region to
facilitate partnerships with international companies.
Additionally, my annual visits to the provinces over
the last couple of years have emphasised investment
opportunities for the private sector. To this end, the
region’s development strategy for the next decade
has been updated to follow this approach.
What has been done to encourage foreign in-
vestment in the region’s infrastructure?
PRINCE KHALID: In the Makkah region we are work-
ing to provide the necessary facilities for both local
and foreign investors. For example, the Al Faisaliah
project, situated between the cities of Makkah and
Jeddah, is recognised as an integrated services city
and has attracted interest from both international
and local companies. This confirms that the invest-
ment environment in the Kingdom is able to appeal
to businesses from around the world.
Do you foresee a growth in religious tourism
during the Hajj and Umrah seasons, and what has
been done to ensure infrastructure is prepared?
PRINCE KHALID: While the cities of Makkah and
Madinah are dedicated to worship, not tourism, so
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COUNTRY PROFILE INTERVIEW 25
Prince Khalid bin Faisal Al Saud, Governor, Makkah Province
the Kingdom does not aim to gain economic benefit
from pilgrimage travel, we understand the impor-
tance of ensuring there is adequate infrastructure
in place for the growing number of visitors.
In addition to the expanded King Abdulaziz Inter-
national Airport, which began operation in 2018 and
is targeted to serve visitors to Jeddah, the Kingdom
is working on developing a new international airport
in Taif. Foundation works have also commenced
for Al Qunfudah Airport, and we are working on
developing its air transport system.
We are also working to improve maritime trans-
portation, as the region boasts two large seaports
in Jeddah and Rabigh. In addition, the Al Mashaaer
Al Mugaddassah Metro line and the Haramain High-
Speed Railway, linking the two cities of Makkah and
Madinah and passing through Jeddah and Rabigh, is
a vital mode of transport for pilgrims. A new road
connecting Makkah to Jeddah and King Abdulaziz
Airport is also under development, which will be an
important traffic artery in the region.
How is education and training being matched
with the needs of the local labour market?
PRINCE KHALID: All 17 governorates of the Makkah
region have a university – there are five univer-
sity headquarters in the major cities and twelve
branches distributed across the provinces. Addi-
tionally, colleges and technical institutes have been
established across the region.
The region’s universities have modernised their
teaching methods and curriculum in order to ensure
students are knowledgeable, cultured and prepared
to enter the workforce. This has been shown to be
successful as students in Makkah have obtained
international awards in scientific disciplines. More-
over, in line with Saudi Vision 2030, universities are
working to develop new specialisms in order to adapt
to the evolving needs of the future labour market.
THE REPORT Saudi Arabia 2019

Looking east
Enhanced cooperation and investment across a range of sectors
is strengthening ties between China and the GCC
With both economic diversification plans under way
across the region, GCC states are seeking to bolster
trade relations with countries across the world and
draw in foreign investment. Regional governments
have found a willing partner in China, which is seek-
ing to expand its trade and investment presence on
the Eurasian continent, as demonstrated by its Belt
and Road Initiative (BRI). In 2014 President Xi Jinping
of China laid out a blueprint for the development
of Sino-Arab cooperation, referred to as the 1+2+3
framework. Energy was identified as the first pillar
of that cooperation: reinforced by infrastructure
development and trade and finance facilitation: and
supported by cooperation in the technical fields of
nuclear energy, renewable energy and space.
Capitalising on Arab states’ geostrategic location
between Europe, Africa and the Far East, China’s
long-term plans align well with those of GCC gov-
ernments, as they also sustain higher demand for their
oil. Although the recent slowdown of China’s economy
may be a source of some concern to Gulf nations,
the intensification of both commercial transactions
and political engagement between the parties in
recent years demonstrate the deepening relationship
between China and the region. Indeed, the February
2019 visit to Beijing by Crown Prince Mohammed bin
Salman bin Abdulaziz Al Saud of Saudi Arabia was the
latest in a string of such visits by GCC leaders.
OIL & GAS RELATIONSHIP: As indicated by the 1+2+3
strategy, China’s primary interest in the GCC remains
its vast energy reserves, with the bloc accounting
for some 27% of oil imports to the country in 2017.
Although economic diversification plans recognise the
need to move away from a dependency on oil, hydro-
carbons revenue and related activities will continue
to be a dominant driver of growth for GCC states in
the medium term. With China replacing the US as the
world’s largest oil importer in 2017, its consumption,
along with that of India, has been driving demand
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COUNTRY PROFILE REGIONAL ANALYSIS 27
China has increased investment under the Belt and Road Initiative
growth in recent times. As a result, expanding energy In 2017 the GCC
trade and enhancing Chinese investment in the GCC’s accounted for
energy infrastructure is likely to become more pro-
nounced in the years ahead.
Growing cooperation between Saudi Arabia’s
27%
of China’s oil imports
national oil company, Saudi Aramco, and various Chi-
nese state-owned oil and gas companies is a promi-
nent example of the concerted effort both sides are
making to expand the relationship. In January 2016
President Xi, Saudi Arabia’s King Salman, and repre-
sentatives of Saudi Aramco and the Chinese state-
owned Sinopec inaugurated a giant $10bn refinery
at the Saudi port city of Yanbu, which is strategically
located along the so-called Maritime Silk Road con-
necting China to Europe. The 400,000-barrel-per-day
(bpd) refinery is the second joint venture between
the partners, following the 2009 launch of a 240,000-
bpd refinery in China that Saudi Aramco supplies
with crude. More recently, in late 2018 Saudi Ara-
mco signed a string of agreements that could see it
become China’s single-largest oil supplier in the near
future, potentially accounting for 1.67m bpd in 2019,
or almost 20% of total imports at 2017 rates.
In the UAE 2017 and 2018 have seen a flurry of
agreements between the country’s largest oil com-
pany, Abu Dhabi National Oil Company, and the state-
owned China National Petroleum Corporation. In those
years the Chinese company acquired stakes totalling
$3bn in Abu Dhabi oilfields, while also receiving the
largest onshore-offshore seismic survey contract
from ADNOC in March 2018, worth $1.6bn.
INFRASTRUCTURE: Alongside its interests in the
region’s energy resources, another notable trend has
been the surge in Chinese investment in infrastruc-
ture mega-projects across the GCC. Drawn by the In recent years there have
been a number of notable
Gulf’s growing consumer markets, investment-friendly
joint ventures between
environment and geostrategic location, Chinese state-owned oil companies
firms have been committing hundreds of millions of in the GCC and China’s
dollars to such projects. As for their hosts, Chinese state-owned oil firm.
THE REPORT Saudi Arabia 2019
28 COUNTRY PROFILE REGIONAL ANALYSIS
China and the UAE named investment can act as the catalyst that kick-starts
the increase of renewable diversification works at a time when government
energy capacity as one of
budgets are being re-evaluated, while also being a
the 10 key focus points
in a strategic partnership boon for local construction industries.
announced in July 2018. Perhaps the most prominent example of this is
the Chinese consortium investing in the free zone
at the Omani port of Duqm. Envisaged in 2011 and
boasting a prime location on the south coast of the
Arabian Peninsula, the Duqm Free Zone is central
to Oman’s diversification plans and the focal point
of Chinese investment in the country. In May 2016
a group of six Chinese firms called Wanfang Oman
signed an agreement with the Duqm Special Economic
Zone Authority to develop an industrial park in the
zone. The consortium plans to invest over $10bn in
the park, including for a $2.3bn methanol plant, a
$138m building material storage complex and an
$84m vehicle assembly plant, with Wanfang breaking
ground on the park in April 2018. According to a 2016
report by international analyst BMI Research, Chinese
investment in the project will be a contributing factor
in the growth rate of Oman’s construction sector,
which doubled between 2016 and 2019.
A similar development has been under way since
mid-2017 in Abu Dhabi, where Abu Dhabi Ports (ADP)
signed an agreement with the Jiangsu Provincial Over-
seas Cooperation and Investment Company for the
lease of 2.2 sq km of land in the free trade zone at
Khalifa Port. The China-UAE Industrial Capacity Coop-
eration Industrial Park will be home to some 15 Chi-
nese companies whose investment could total $1bn.
The announcement came on the back of China’s Cosco
Shipping Ports acquiring a 35-year lease from ADP to
build and operate a container terminal at Khalifa Port.
Of potentially even larger scope is China’s involve-
ment in Kuwait’s $100bn Silk City mega-project, with
the two countries signing a memorandum of under-
standing (MoU) to form a partnership for the initia-
tive and the development of Kuwait’s five islands in
November 2018. Kuwaiti decision makers hope Silk
City – which will be home to a major seaport, airport
and economic free zone – could become a BRI hub.
TRADE & FINANCE: Accompanying this growth in
commercial relations have been efforts to remove
obstacles to investment and trade. Chinese finan-
cial institutions have extended their presence in the
region in recent years, facilitating the exchange of
currency and opening up yuan financing options.
The UAE has been the main centre of this trend. The
two countries signed an MoU to establish a yuan clear-
ing centre in the UAE during a December 2015 visit to
China by the Crown Prince of Abu Dhabi Mohammed
bin Zayed Al Nahyan, giving UAE borrowers access to
yuan loans. During the same visit the People’s Bank of
China, the nation’s central bank, and the Central Bank
of the UAE renewed a three-year CNY35bn ($5.2bn)
agreement to reduce the cost of currency exchange
swaps by bypassing the need to convert local currency
into dollars. With adoption of the yuan growing in
MENA, such deals could help position the UAE as a
regional hub for yuan financial flows in the future.
www.oxfordbusinessgroup.com/country/saudi-arabia
In addition, a growing number of Chinese banks and
financial firms are setting up offices in the region. A
July 2018 visit by President Xi to Dubai saw the state-
owned conglomerate Chinese Everbright Group (CEG)
sign an MoU with the Dubai International Finance Cen-
tre (DIFC) to collaborate on BRI opportunities in the
Middle East, Africa and South Asia (MEASA). Speaking
at the signing ceremony Li Xiaopeng, the chairman of
CEG, cited Dubai’s location and stable financial centre
as strong pull factors. “Dubai in particular has proven
to be the ideal location from which we can access
the potential of the fast-growing emerging markets
in the MEASA region … and we are confident that
the centre’s credible and enabling infrastructure will
help us to build our business,” he stated. Four Chinese
banks and a host of other major Chinese companies
have also opened offices in the DIFC in recent years.
In the same month the Chinese state-owned Indus-
trial Capacity Cooperation Financial Group announced
it would open an office in the Abu Dhabi Global Mar-
kets financial centre. The stated aim of the office is
to provide financial services to Chinese investors in
the UAE-China cooperation park at Khalifa Port and
to support the internationalisation of the yuan.
TECHNOLOGICAL COOPERATION: In their bid to
evolve into knowledge-based economies, GCC states’
long-term plans put a high premium on developing
local technical and scientific capabilities. Accordingly,
China has sought to sow the seeds of future partner-
ships in these fields by investing early.
This is particularly true in the realm of unconven-
tional energy, in which China is a global leader. For
example, Chinese authorities have signed nuclear
energy cooperation deals with both the UAE and Saudi
Arabia in 2017 and 2018. The former, signed by China’s
Nuclear Safety Administration, covers information
exchange and training opportunities for the UAE’s
Federal Authority for Nuclear Regulation, while the
latter includes MoUs for nuclear fuel exploration and
the development of nuclear reactor-fed desalination
plants by the China National Nuclear Corp.
In the renewable energy sector, China and the UAE
named green energy as one of 10 key focus points in
a new strategic partnership announced in July 2018.
Just a month earlier China’s state-owned investment
fund, the Silk Road Fund, revealed it was investing in
the $3.9bn Mohammed Bin Rashid Al Maktoum Solar
Park in Seih Al Dahal, south of Dubai, which is the
world’s largest concentrated solar project.
China has also shown an interest in Saudi Arabia’s
aerospace sector, signing a cooperation agreement
with the Kingdom in March 2017. The agreement has
subsequently seen Saudi Arabia’s King Abdullah Uni-
versity of Science and Technology develop cameras for
a relay satellite mission ahead of the Chang’e-4 lunar
probe and China develop a rocket that launched two
Saudi satellites from a launchpad in Gansu Province in
December 2018. Such agreements provide Gulf states
with opportunities to develop and test their techni-
cal skills at a global level, while adding another level
to their growing economic relationship with China.
 31

Economy
Record budget for 2019 outlines spending of $295bn
Preparations under way for initial public offerings
Sovereign wealth funds set to grow and diversify
Public-private partnership law expected in 2019
Social programme targets sports and entertainment
32
The economy grew by
2.2%
in 2018
The National Industrial
Development and Logistics
Programme seeks to boost
the contribution of the
manufacturing, mining,
energy and logistics sectors
from 17% of GDP in 2016 to
33% of GDP in 2030.
ECONOMY OVERVIEW
The Kingdom continues to expand its portfolio of investments abroad
Transition time
Ongoing efforts to support the transformation of a public sector-
dominated economy into a private sector-driven system
A welcome improvement was seen in the Kingdom’s
economic fortune 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 devel-
opment 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, how-
ever, remains a work in progress. Three years after
the launch of Saudi Vision 2030, the nation’s blue-
print for economic and societal transformation,
the government’s ability to effectively distribute oil
revenue across all sectors remains the key deter-
minant of the Kingdom’s fiscal health.
STRATEGY: The roadmap by which Saudi Arabia’s
economic evolution is being directed was revealed in
April 2016. Vision 2030 sets out sweeping regulatory,
budget and social reforms that will be implemented
over the coming decade as the nation sets about
reducing its reliance on crude oil production and
export, which accounted for 43.5% of GDP in 2018,
according to the General Authority for Statistics
(GaStat). Key initiatives include a privatisation pro-
gramme which will see the divestment of a number
of state-owned giants, the creation of one of the
world’s largest sovereign wealth funds, more Saudi
citizens employed by the private sector and the
increased participation of women in the workforce.
If the strategy’s goals are met, this reform process
will establish the Kingdom as one of the 15-largest
economies in the world, supported by a broader
range of exports than today’s hydrocarbons-heavy
portfolio, a more productive small and medium-sized
www.oxfordbusinessgroup.com/country/saudi-arabia
enterprise segment, and completely overhauled
finance, tourism and industrial sectors. The pop-
ulation, meanwhile, will benefit from a redesigned
and refocused education system, a wide range of
employment opportunities in the private sector, and
a depth of entertainment and cultural activities.
Many of the shorter-term objectives of Vision
2030 are being pursued under the National Trans-
formation Programme (NTP), a more detailed policy
document that outlines how government ministries
are to work towards the Vision 2030 goals. The NTP
sets out a range of items to be completed by the
end of 2020, including a reduction in spending on
public wages from 45% of the budget to 40% and a
tripling of non-oil revenue.
Also published in 2016, the NTP served to kick-
start the Kingdom’s reform process, but it has since
receded in importance as officials have begun to
roll out the remaining 11 of its 12 Vision Realisation
Programmes (VRPs), which provide sectoral road-
maps to the goals of Vision 2030. First announced in
April 2017, the VRPs cover the entire socio-economic
spectrum, from the heritage and lifestyle initiatives
contained within the Quality of Life Programme
2020 (see analysis), to the industrial, housing, human
capital and financial spheres.
INVESTMENT: Vision 2030 and its VRPs are being
implemented across government entities, with each
ministry responsible for attaining predetermined
objectives. These far-reaching plans are a costly
undertaking. The National Industrial Development
and Logistics Programme, for example, is perhaps
the largest VRP in terms of scale and cost, as it seeks
to channel funding into the manufacturing, mining,
energy and logistics sectors through more than 300
separate initiatives. The overall objective is to boost
the contribution of these four sectors from the 17%
of GDP recorded in 2016 to 33% of GDP in 2030. The
price of achieving this increase is approximately

SR1.6trn ($426.6bn), according to the government’s
estimates. The plan aims to meet this cost through
investment from companies around the world.
Other programmes come with similar price tags,
which the authorities again hope to meet with the
help of private sector capital. Herein lies Saudi Ara-
bia’s biggest challenge: transforming an economy
that has been driven by public sector spending
since the 1950s, when first significant oil revenues
began to flow, into one in which private investment
serves as the primary engine of growth. In order
to attain this outcome, however, Saudi Arabia will
need to overcome a trend of declining foreign direct
investment (FDI) inflows and rising capital outflows.
According to the “World Investment Report 2018”
by the UN Conference on Trade and Development,
net FDI into the Kingdom dropped to $1.4bn in 2017,
down from $7.5bn the previous year.
Furthermore, the balance of FDI as a whole
remains negative due to high capital outflows. A
September 2018 report by London-based consul-
tancy Capital Economics noted that net capital
outflows were equal to approximately 5% of GDP
in the first three months of 2018, compared to less
than 2% of GDP in late 2016. However, some of this
volume may be the result of the Kingdom transfer-
ring money abroad to make investments in other
countries, while market observers have pointed
out that a number of large transactions could be
skewing the figure, such as Shell Arabia’s sale of
its 50% stake in Saudi Petrochemical Company to
government-owned partner Saudi Basic Industries
Corporation (SABIC) – the Kingdom’s diversified
manufacturing company – for $820m in August 2017.
Still, companies and individuals choosing to move
money abroad is a factor, according to the report.
Improving the business environment is one way
to boost FDI levels. Saudi Arabia ranks 92nd out of
190 countries in the “Doing Business 2019” report
by the World Bank, where it scores well in areas such
as protecting minority investors and registering
property, but less well in starting a business, trading
across borders, obtaining credit and resolving insol-
vency. All categories are being addressed by Vision
2030 and the VRPs, and the government expects
the Kingdom’s performance in the index to reflect
these efforts over the medium term.
PRIVATISATION: Other ways in which Saudi Arabia
can attract private sector investment is by divesting
some of its state-owned assets, or by linking foreign
investors and operators with state-owned compa-
nies through public-private partnerships (PPPs).
The partial privatisation of Saudi Aramco was, until
recently, the flagship initiative of the authorities’
privatisation drive. By early 2018 a strategy was in
place to list shares in the national oil giant on the
Saudi Stock Exchange (Tadawul), but with no action
taken by the end of the summer, questions were
raised about a possible cancellation. Addressing
speculations in January 2019, Khalid Al Falih, the
minister of energy, industry and mineral resources,
Bloomberg Terminal Research Homepage: OBGR‹GO›
ECONOMY OVERVIEW 33
Net capital outflows from Saudi Arabia were equal to around 5% of GDP in the first three months of 2018
said the Saudi Aramco initial public offering (IPO)
was now being eyed for 2021.
While the flotation of Saudi Aramco has seen mul-
tiple delays, the Kingdom’s privatisation programme
is advancing more rapidly in other areas of the econ-
omy. In fact, the opening of some state-dominated
industries to private sector investment predates
the Vision 2030 strategy. In the aviation sector, for
example, the General Authority of Civil Aviation has
gradually retreated from its role as both regulator
and operator to one of regulation only, with private
capital moving into airport construction and oper-
ation, as well as aviation services.
The privatisation drive initiated by Vision 2030
represents a significant amplification of this trend.
“The privatisation process undertaken by the gov-
ernment will create business opportunities for many,
and open the door for greater margin gains for both
foreign investors and local companies,” Abdulaziz
Mohammed Al Namlah, managing director of holding
firm Amnest Group, told OBG.
SHORT-TERM PLANS: The National Centre for Pri-
vatisation and Public-Private Partnerships (NCP),
established in 2017, is overseeing the various priva-
tisation programmes, assisting the different super-
visory committees, and developing the policies and
strategies needed to fulfil the government’s objec-
tives. The areas targeted by the NCP for this process
are laid out in Vision 2030: environment, water and
agriculture; transport; energy, industry and mineral
resources; labour and social development; housing;
education; health; municipalities; telecoms and IT;
and the Hajj and Umrah industries. In April 2018 The Privatisation
the Council of Economic and Development Affairs Programme Delivery Plan
approved the Privatisation Programme Delivery outlines how the state
will privatise at least five
Plan, which outlines in more detail how the state
of its assets or services
will privatise at least five of its assets or services before the end of 2020,
before the end of 2020, generating a total revenue generating a total revenue
of between SR35bn ($9.3bn) and SR40bn ($10.7bn). of $9.3bn-10.7bn.
THE REPORT Saudi Arabia 2019
 34
In September 2018 the Public Investment Fund announced it had secured $11bn in its first international loan
In early 2019 the SAMA
Foreign Holdings fund
had $515.6bn worth of
assets under management,
making it the world’s sixth-
largest sovereign wealth
fund. The fund is focused on
cash deposits, fixed-income
instruments and equities.
ECONOMY OVERVIEW
The transfer of ownership from public to private
sector will take a number of forms, including IPOs,
full or partial sales of assets, management buyouts
and PPPs – a new framework for which is expected
to be rolled out in 2019 (see analysis). Assets avail-
able for privatisation include the partial sale of the
Saline Water Conversion Corporation, the full sale
of four flour mills and a number of sports clubs, and
the privatisation or transfer to PPPs of Saudi Post
services and a range of transport projects.
By transferring certain institutions and functions,
the government hopes to achieve net savings of
between SR1bn ($266.6m) and SR1.2bn ($319.9m)
from asset sales, and between SAR25bn ($6.7bn)
and SR33bn ($8.8bn) from privatisation and PPP
projects, as per a 2019 report by local firm Jadwa
Investment. It also aims to create 10,000-12,000 pri-
vate sector jobs, though these will likely be transfers
from the public sphere rather than new positions.
In addition to the larger state assets being
offloaded per the Privatisation Programme Delivery
Plan, Saudi ministries are privatising assets and ser-
vices according to their individual mandates under
the NTP. The Ministry of Education, for example,
said in 2018 that it will hand over 25 public schools
to the private sector as part of its Independent
Schools initiative, which aims to place 6% of the
nation’s schools into the hands of private operators
by 2020. The Ministry of Health, meanwhile, intends
to reach its NTP target of improving access to health
services by increasing the private sector’s share of
total health care spend from 25% to 35% by 2020.
Furthermore, the Financial Sector Development
Programme, another VRP under Vision 2030, aims to
develop deeper capital markets through more IPOs
and security listings, encourage government entities
to privatise through IPOs and privatise the payment
system SADAD, which is owned by the Saudi Ara-
bian Monetary Authority (SAMA), the central bank.
www.oxfordbusinessgroup.com/country/saudi-arabia
PUBLIC FUNDS: Saudi Arabia’s bid to establish the
private sector as the main force of the economy is a
long-term aim; in the shorter term the government
has sufficient capital reserves to continue being a
catalyst for development. The Kingdom has a num-
ber of funds that can act as economic engines, the
largest of them being SAMA Foreign Holdings, a pool
of currency reserves derived from the Kingdom’s
oil revenue and controlled by the central bank. In
early 2019 the fund had $515.6bn worth of assets
under management, making it the world’s sixth-larg-
est sovereign wealth fund (SWF), according to the
US-based SWF Institute. The fund is focused on cash
deposits, fixed-income instruments and equities.
The Public Investment Fund (PIF) is a more visible
tool within the Kingdom’s economic armoury. Estab-
lished in 1971 to support strategically important
projects, it holds approximately $150bn worth of
assets in listed Saudi companies, including the coun-
try’s biggest bank and telecoms operator. The PIF is
to play a leading role in the economic transformation
of the country, and current plans aim to increase
its assets to $2trn by 2030. It is a common strategy
in the GCC to pour hydrocarbons revenue into a
SWF that invests both locally and globally in order
to diversify the economy and ensure that wealth is
passed on to future generations. Regional funds own
a large array of assets in developed markets – from
football teams to prime real estate.
The plan to raise $100bn for the PIF through the
partial sale of Saudi Aramco has, however, yet to be
carried out. Therefore, other funding options are
being considered in 2019, including the possibility
that Aramco will buy as much as 70% of the PIF’s
stake in SABIC, valued at around $100bn. Other fund-
raising options for the PIF include the sale of stakes
in some of its Saudi-listed companies or borrowing
from banks to invest in diversification efforts. The
PIF has already shown its willingness to raise debt:
in September 2018 the fund revealed it had secured
$11bn in its first international loan.
FISCAL MATTERS: Saudi Arabia’s deep reserves
have helped it mitigate the negative effects of the
oil price decline, which began in late 2014. Nev-
ertheless, the fiscal deficit was a record SR367bn
($97.8bn) in 2015, equal to about 15% of GDP, which
compelled the government to liquidate some foreign
assets to meet spending commitments. The 2017
budget included details of the Fiscal Balance Pro-
gramme that initially sought to balance the budget
by 2020 – it has now been revised to 2023 – and
included measures promoting non-oil revenue
growth and enhanced spending efficiency.
Gradually improving oil prices throughout 2017
and the first three quarters of 2018 brought about
an improvement in the fiscal scenario, and allowed
the government to narrow the budget deficit. In
2018 oil revenue rose by 38% over the previous
year, and, as oil accounts for nearly 70% of total
revenue, this improvement was the determinant fac-
tor in narrowing the deficit to around 4.6% of GDP.
 ECONOMY OVERVIEW 37

The budget for 2019 is an expansionary one for

the second year running. Total anticipated expendi-
ture is SR1.11trn ($295.9bn), an increase of SR76bn
($20.3bn) over 2018. The majority of anticipated
outlay is accounted for by capital spending, which
is to be directed towards the private sector as part
of a stimulus plan (see analysis).
The IMF foresees the fiscal gap narrowing further
in 2019 to around 1.7% of GDP. The speed at which
the deficit is addressed is of central concern to the
Ministry of Finance, which must balance the need to
spur the economy through public spending with the
desire to reduce the budget gap. The ministry made
its policy intentions clear by holding a pre-budget
briefing in September 2018. Having announced an
expansionary budget aimed at boosting growth and
creating jobs, Mohammed Al Jadaan, the minister of
finance, said the budget was also “yet another step
in cutting the deficit gradually in the medium term,
until we rebalance the budget entirely by 2023” – a
few years later than the original target of 2020.
The fiscal gap is expected to narrow in 2019 to around 1.7% of GDP
BRIDGING THE GAP: Beyond its financial reserves,
the Kingdom has recourse to other means by which currency flight. In 2018 Saudi interbank rates fell In early 2019 the Ministry
to bridge its fiscal deficit. In 2016 the Kingdom held below their US-dollar equivalent for the first time of Finance revealed its
its first international bond sale, attracting $17.5bn since the global financial crisis of 2008-09, raising intention to issue a $7.5bn
international bond. Analysts
in a heavily oversubscribed offering. In April 2017 the risk of high capital outflows. The central bank predict around $8bn worth
the country diversified its funding base further therefore departed from its usual policy of shadow- of further international
with the well-received issuance of its first dollar-de- ing US Federal Reserve decisions and pre-emptively issuances for the year.
nominated sukuk (Islamic bond), sold in two $4.5bn raised its repurchase and reverse repurchase rates
tranches with tenors of five and 10 years. by 25 basis points each in March 2018, to 2.25% and
The Kingdom’s successful entry into the global 1.75%, respectively. The policy, however, remained
debt market is significant from a local liquidity per- in line with the US Federal Reserve’s stated goal
spective, in that it allows the government to draw of gradual monetary tightening. SAMA has also
down less of its deposits held with domestic banks. raised the possibility of draining excess liquidity
In addition, it eases the pressure on the local sov- from the banking system that is partially causing
ereign debt issuance programme, which also drains local interbank rates to lag behind their US-dollar
liquidity from the financial system. In early 2019 the
Ministry of Finance revealed its intention to issue
Economic indicators, 2018-21F
a $7.5bn international bond, and Jadwa Investment
foresees around SR30bn ($8bn) worth of further 2018F 2019F 2020F 2021F
international issuances for the year. Assuming no
GDP, current prices (SR bn) 2887.04 2983.43 3057.44 3132.09
repayments, the company expects government debt
GDP per capita, current prices (SR) 86,950.3 88,091.4 88,506.4 88,889.6
to stand at SR678bn ($180.7bn) at the end of 2019,
a comfortable level of about 22% of GDP. Inflation, avg. consumer prices (% change) 2.60 2.02 2.25 2.17
INFLATION & MONETARY POLICY: The Kingdom’s Vol. of imports of goods & services (% change) 4.94 2.74 3.08 3.45
journey of economic reform has yet to have a sig- Vol. of exports of goods & services (% change) 3.87 2.20 1.08 1.24
nificant impact on inflation. Rising fuel prices due
Population (m) 33.20 33.87 34.55 35.24
to lower state subsidies, the introduction of excise
duties in 2017 and the onset of value-added tax in General gov't revenue (SR bn) 898.06 953.45 995.53 1003.73
2018 have boosted non-oil revenues at the cost of General gov't revenue (% of GDP) 31.11 31.96 32.56 32.05
only a modest rise in inflation, which increased by Total gov't expenditure (SR bn) 1029.52 1002.99 1035.10 1057.85
2.5% in 2018 after a contraction of 0.8% in 2017, Total gov't expenditure (% of GDP) 35.66 33.62 33.86 33.78
according to Jadwa Investment. In a July 2018 Arti-
Gov't net lending/borrowing (SR bn) -131.46 -49.54 -39.57 -54.11
cle IV Consultation report, the IMF said it expects
inflation to moderate to 2% in the medium term. Gov't net lending/borrowing (% of GDP) -4.55 -1.66 -1.29 -1.73
The existence of a currency peg between the riyal Gov't gross debt (SR bn) -16.83 32.72 72.29 126.40
and the dollar means that Saudi Arabian monetary Gov't gross debt (% of GDP) -0.58 1.10 2.36 4.04
policy is coordinated closely with the decisions of
Current account balance (% of GDP) 8.40 8.80 7.63 5.38
the US Federal Reserve. One of SAMA’s main pri-
orities is to ensure that there is not a large dis-
Source: IMF World Economic Outlook, October 2018
count between the two currencies to guard against

Bloomberg Terminal Research Homepage: OBGR‹GO› THE REPORT Saudi Arabia 2019

38 ECONOMY OVERVIEW
Saudiisation was brought to the forefront of government plans in 2015
The 2019 levy on equivalent, for example, by allowing government
expatriate workers is deposits placed with the commercial banking seg-
$133-160 ment in 2016 to mature without rolling them over.
RISING COSTS: While economic reform promises
per employee per month long-term benefits for the Kingdom’s private sector,
in the short term it is being compelled to make some
challenging adjustments. A shake up of the energy
market, for instance, has resulted in higher costs for
businesses. The first phase of reform, which began
in 2015, saw prices of natural gas, petrol, diesel
and electricity rise by as much as 80%. The second
phase was announced in early 2018 and saw prices
of high- and low-grade gasoline rise from SR0.90
($0.24) per litre to SR2.04 ($0.54) and from SR0.75
($0.20) per litre to SR1.30 ($0.35), respectively.
Saudi Arabia’s bid to increase the number of cit-
izens in the workforce is also raising costs for the
private sector. The introduction of a 2018 levy on
expatriate workers is both a labour market reform
tool and a revenue raiser for the government. At the
Real GDP growth, 2012-21F (%)
6 OUTLOOK: Firming oil prices and an expansionary
5 budget have resulted in a positive outlook: in Octo-
4
3 sitioning the economy to be fuelled by the private
2
1 and higher utility bills, are struggling to fulfil the role
0 that the government’s development strategy asks
-1
-2
2012 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Source: IMF
www.oxfordbusinessgroup.com/country/saudi-arabia
same time, it is a hurdle to growth for companies
operating on low margins or requiring high levels
of foreign manpower. Companies in particularly
vulnerable sectors, such as construction, real estate
and the hotel industry, need to develop efficiencies
elsewhere to maintain profitability.
The levy ranged from SR300 ($80) to SR400 ($107)
per foreign worker per month in 2018, is now SR500-
600 ($133-160) for 2019 and will be SR700-800
($187-213) in 2020. According to a February 2018
report by local consultancy Al Rajhi Capital, the
impact of the expat levy will range from 0.1% of
revenue in the telecommunications sector to 4.1%
in the hotel and tourism industry. Furthermore, the
total cost of the expat employee levy is estimated
to reach some SR18.8bn ($5bn) in 2018, SR37.4bn
($10bn) in 2019 and SR56.1bn ($15bn) in 2020.
SAUDIISATION: The government has also sought
to increase the number of nationals in the work-
force through a process of Saudiisation, an official
policy to replace foreign workers with citizens that
mandates the percentage of nationals a company
should have in each position. First implemented
in the mid-1990s, the extended period of low oil
prices from 2015 has returned Saudiisation to the
top of the government’s agenda. The latest version
of the scheme was introduced in 2016 in a bid to
inject new momentum into the process and open
up 1.2m private sector job opportunities to citizens.
This complements the objective of the Ministry of
Labour to reduce the unemployment rate to 10.5%
by 2022, a target that will involve both an increase
in the number of jobs available and the continued
replacement of foreigners by Saudis. The figure
stood at 12.8% in 2018, according to GaStat.
As a result, companies are faced with the higher
wage demands of nationals, as well as the extra
effort to recruit, train and retain suitable candi-
dates. The government has demonstrated its deter-
mination to enforce the policy. For instance, in the
second half of 2018 the Communications and IT
Commission said that it had ordered Mobily, one of
the Kingdom’s mobile telecoms providers, to sus-
pend the sale of new prepaid and postpaid pack-
ages due to having an insufficient number of Saudi
citizens in executive positions (see ICT chapter).
ber 2018 the IMF lifted the Kingdom’s GDP growth
prediction for 2019 by 0.5% to 2.4%. However, tran-
sector has yet to gain momentum. Private busi-
nesses, faced with Saudiisation targets, new taxes
of them, and FDI levels remain lower than hoped.
Portfolio investment, however, is a more promis-
ing prospect in the near term, as the Tadawul was
upgraded to emerging market status by MSCI in 2018
and is set to benefit from inclusion on the Emerging
Market Index in 2019 (see Capital Markets chapter).

Competitive environment
Turki Al Hokail, CEO and Board Member, National Centre for
Privatisation (NCP), on the measures being taken to encourage
privatisation and foreign investment
What are the aims of the Kingdom’s privatisation
programme, and how can it assist in diversification?
AL HOKAIL: The new privatisation programme differs
from previous efforts as it targets more sectors. The
plan includes 12 sectors: health; education; transpor-
tation; environment, water and agriculture; energy,
industry and minerals; labour and social development;
media; Hajj and Umrah (pilgrimage); municipalities
and rural affairs; housing; sports; and communication.
Overall, there are more than 100 initiatives in place
among these sectors, with the aim of successfully
completing these initiatives by 2030.
How can public-private partnerships (PPPs) bolster
investor sentiment in the water industry?
AL HOKAIL: The water sector is divided into pro-
duction, distribution and wastewater treatment. The
majority of these services are managed by the public
sector, aside from a few production units built or oper-
ated by the private sector. There are a range of PPP
models that could be used, depending on the maturity
of the sector, the strength of the regulatory framework
and the interests of the market.
The types of agreements most likely to be adopted
include build-operate-transfer contracts with fixed
tariffs and a firm government off-take. Build-own-op-
erate contracts are also used in the water sector. Under
this model, the developer is not required to hand over
assets, but rather they negotiate the extension of
terms when the contract expires. These two agree-
ment models are the most commonly used for water
production and wastewater treatment plants.
How can the implementation of arbitration be en-
sured across the board?
AL HOKAIL: There is a governance process in place
to ensure a level playing field for all parties involved.
Supervisory committees must follow strict rules and
are overseen by the minister responsible for the
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ECONOMY INTERVIEW 39
Turki Al Hokail, CEO and Board Member, National Centre for Privatisation
particular sector in question, as well as the minister
of finance and the chairman of the NCP.
The new PPP law, which is in the approval process,
further facilitates the privatisation process. The law
will provide a clearer definition of the nature of the
relationship between public and private sector, where
issues such as arbitration; private financing; protection
of private sector property; ownership rights; preser-
vation; retention; and use of project assets are clearly
defined. A PPP Manual, outlining these regulations,
has also been issued and approved by the NCP Board.
To what extent are domestic companies capable
of acquiring privatised assets?
AL HOKAIL: The domestic private sector will be
able to contribute a considerable amount in some
sectors, especially if alliances and partnerships are
created. PPPs will strengthen the local economy, and
the increased competition will improve quality and
performance. Additionally, these partnerships will help
to develop small and medium-sized enterprises as they
can become part of a larger supply chain. There are
also opportunities for public participation through
initial public offerings and funds.
What role are foreign investors able to play in Saudi
Arabia’s privatisation process?
AL HOKAIL: The privatisation programme has already
started to attract international investors, particularly in
the water, education, health, transport and agriculture
sectors. Improvements made to the legal and technical
framework, in the form of laws, regulations and manu-
als, have reassured investors that an attractive ecosys-
tem for privatisation is being created in Saudi Arabia.
It is also important to look at leveraging innovation in
order to create value for the government, investors and
end users. A key step in doing so is to make alliances
with entities across the world that have the capacity to
innovate and participate in the privatisation process.
THE REPORT Saudi Arabia 2019
40 ECONOMY INTERVIEW
Ajlan Abdulaziz Alajlan, Chairman of the Board, Ajlan & Bros; and
Chairman, Riyadh Chamber of Commerce and Industry
Jobs boom
Ajlan Abdulaziz Alajlan, Chairman of the Board, Ajlan & Bros;
and Chairman, Riyadh Chamber of Commerce and Industry, on
capitalising on the country’s human and natural assets
In which sectors do you foresee both business and
employment opportunities?
ALAJLAN: Supported by Vision 2030 and a proactive
government, Saudi Arabia is currently seeing various
policy reforms and is going through a fast-paced devel-
opment phase across many sectors and industries. The
country has a relatively small population. There are only
20m Saudi nationals, of whom 70% are under 30, and
the whole population, both female and male, is being
empowered to work and take a leading role in the coun-
try’s transformation. Many employment opportunities
have already been created in a great variety of fields,
catering to a sound and diversified economy. Indeed,
the near- to medium-term future looks promising, as the
private and public sectors are working hand-in-hand to
improve business conditions and build an environment
conducive to private investment.
As housing demand is still outstripping supply, bridg-
ing the housing gap and increasing the number of units
is a top priority for both the private and public sectors.
This represents a lot of business opportunities for local
real estate developers and contractors. From retail
furniture to building-material supply, it is believed 70
industries will be positively impacted by the current
housing programmes. More jobs will be created, which
means increased purchasing power, and therefore
people will be spending more locally. It is at the same
time a virtuous circle and snowball effect.
What role is the private sector set to play in Saudi
Arabia’s economy in the long term?
ALAJLAN: As highlighted in Vision 2030, the private
sector is set to play an increasingly prominent role in
Saudi Arabia’s economy. It should be a catalyst for job
creation. There will be sufficient business opportunities
for all, from local small and medium-sized enterprises to
large-scale Saudi multinationals. There are very large-
scale projects in the pipeline, such as NEOM, Qiddiya and
the Red Sea Development project. This is sure to create
www.oxfordbusinessgroup.com/country/saudi-arabia
opportunities for local companies, which have been
mandated to be the main developers and contractors
of those particular projects.
However, in the context of a fast-changing environ-
ment, challenges are also arising. In the past, the private
sector benefitted from generous government subsidy
programmes, through which, for instance, gasoline used
to be cheaper than water. This is no longer the case.
From a private sector perspective, new taxes such as
the 5% value-added tax implementation and new energy
tariffs have put additional pressure on a few sectors,
directly impacting companies’ cash flow management.
Thanks to new energy tariffs and taxes, people are
now more price-conscious, and this also contributes
to improving the country’s overall carbon footprint.
The population is more aware of questions of energy
efficiency and optimising consumption, which makes
a huge difference in terms of energy consumption.
How can the country capitalise on value-added
products and leverage the transport network?
ALAJLAN: In geographical terms, Saudi Arabia is a
vast country gifted with natural resources, particularly
crude oil. There are high hopes for the untapped mining
sector, and already steps are being taken to develop
fast-track explorations. Saudi Arabia used to import
almost everything, from foodstuffs to building materi-
als. However, this is changing and manufacturing output
is increasing year-on-year. We have good examples
of successful companies such as SABIC manufactur-
ing added-value products like petrochemicals, led by
Saudi nationals. But more must be done to localise our
industries and increase our manufacturing capabilities.
In terms of logistics, the current railway network – as
well as its future developments – puts Saudi Arabia in a
good position to export its goods. Access to neighbour-
ing countries is becoming increasingly easy, and that is
good news for locally made products. We are expecting
an increase in intra-regional trade in the long term.

Healthy balance
The Quality of Life Programme 2020 aims to make Saudi Arabia
a top living destination
To support the government in achieving the objectives
laid out in Vision 2030, the Council of Economic Affairs
and Development (CEAD) has formulated 12 Vision
Realisation Programmes (VRPs). One of the most
important of them, the Quality of Life Programme
2020, was launched in May 2018, giving Saudis an
overview of the scale of social and cultural transfor-
mation envisaged for the Kingdom. The overarching
ambition of the programme is to make Saudi Arabia
an attractive living destination for both citizens and
expatriates, and in doing so have at least three Saudi
Arabian cities list in the top-100 most liveable cit-
ies on the Economist Intelligence Unit’s (EIU) Global
Liveability Index by 2030. Achieving this will involve
improving an array of lifestyle indicators, ranging from
lengthening life expectancy in the country – which
stood at 74.6 years in 2016, according to the World
Bank – to developing the nation’s entertainment infra-
structure. For the latter, issuing licences to a number
of cinema operators in 2018 was a significant step.
The wide-ranging programme contributes to a
number of Vision 2030 targets, such as increasing
public participation in sports and athletic activities,
and diversifying entertainment options in accordance
with the needs of the population. Some objectives
overlap with other VRPs as well, such as strengthening
Islamic values and identity; promoting the Kingdom’s
Islamic, Arab and national heritage; and boosting the
quality of services in Saudi cities.
PRIVATE INVOLVEMENT: Government-funded
initiatives will not be sufficient to reach all of the
targets, according to the CEAD, therefore private
sector funding is welcomed under the scheme. The
infrastructure targets for the programme were for-
mulated according to a number of global studies and
calibrated to suit the local population, and while tar-
gets are set at the country level – for example, a
total number of cinemas in the Kingdom – one of the
most interesting aspects of the plan from a private
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ECONOMY ANALYSIS 41
The authorities aim to build 15 sports centres at universities by 2020
sector perspective is its regional nature. Total figures Infrastructure targets
are broken down into a specific goal for each region of the programme are
based on a quantitative assessment of the demand broken down into specific
regional goals based on an
in each area to ensure that the entire relevant pop- assessment of the demand
ulation is served. It is hoped that investors will take in each area to ensure
full advantage of the opportunities offered by the that the entire relevant
Quality of Life Programme 2020 and move beyond population is served.
the geographies that are most accessible or where
they have previous experience. The government, for
its part, is determined to deploy private sector capital
beyond the usual destinations. To that end, specialised
studies of each geographic region have been under-
taken in cooperation with the Saudi Arabian General
Investment Authority – the Kingdom’s investment
licence provider – which are being used to market
opportunities to foreign investors.
SPORTS: One of the direct primary beneficiaries
of the programme is the sports industry, with the
government planning to redesign and refurbish 23
of the Kingdom’s main sporting facilities with the
help of the private sector to better accommodate
women and families. The incubation of sport start-ups
is also on the agenda, as is the licensing of privately
owned fitness centres for both genders. By 2020 the
Ministry of Education aims to build 15 sport training
centres at universities, three standalone centres and
300 technical centres, as well as 10 sport arenas that
have facilities for the disabled. The nation’s interme-
diate and secondary scientific institutes are also set
to benefit from the programme, receiving 14 sport
courts and 39 football fields by 2022.
For sports at the professional level, the programme
aims to establish specialised training centres in major By 2020 the government
cities such as Riyadh and Jeddah, as well as smaller plans to redesign and
training centres to be located according to a needs- refurbish 23 of the
Kingdom’s main sporting
based assessment. Meanwhile, athletic talent is to be
facilities with the help of
scouted at home and abroad, and developed through the private sector to better
the establishment of sports academies, with four accommodate female
football academies to be constructed in the near term. spectators and families.
THE REPORT Saudi Arabia 2019
 42
Entertainment options such as theme parks, zoos, live music venues and gaming centres are set to grow
Promoting the Kingdom
as a location for global
cinema production is on
the agenda, as is nurturing
a domestic film industry
through the creation of
studios and backlots.
The authorities aim to
have
6m
people attend events for
National Day, Eid Al Adha
and Eid Al Fitr in 2020
ECONOMY ANALYSIS
Technology is set to play a vital role in ensuring the
population can easily participate in sport initiatives.
For example, digital connections between the Gen-
eral Sports Authority and the wider sector will allow
people to access services such as booking venues.
CULTURE: The Kingdom’s heritage and culture are
also targeted for government spending and private
sector involvement. This will involve the rehabilita-
tion and modernisation of 84 public libraries and the
upgrading of existing university halls and theatres.
In Riyadh a city cluster is to be created comprised of
an opera house and three multipurpose halls, while
Jeddah is to receive an island for arts and culture
that will include a 1200-seat concert hall, theatre,
recital hall, multipurpose space, botanical garden
and museum. Cultural tourism is to be developed to
a level never before seen in the Kingdom, including
through the planned excavation of the archaeological
sites in Ha’il and a museum featuring artefacts, as well
as hosting international cultural festivals and events.
Promoting the Kingdom as a location for global cinema
production is also on the agenda, as is nurturing a
domestic film industry through the creation of studios
and backlots, and the formulation of a suitable regu-
latory framework for film production in the country.
Closely aligned to the cultural initiatives under the
Quality of Life Programme 2020 is a broad array of
entertainment objectives, which include expanding
digital home entertainment options and the sizeable
growth of physical entertainment infrastructure such
as theme parks, water parks, family entertainment
centres, zoos, live music venues and gaming centres.
The aim of this part of the programme is to encourage
Saudis to spend more on entertainment, a move that
would have ripple effects throughout the economy.
The government also plans to join forces with the
private sector to organise around 50 annual events
across the Kingdom in a bid to kick-start the enter-
tainment sector and showcase the changes planned
www.oxfordbusinessgroup.com/country/saudi-arabia
for it. The target for this undertaking is an attendance
of roughly 6m people at the three biggest flagship
events set for 2020, which will be held on National
Day, Eid Al Adha and Eid Al Fitr.
ADDITIONAL OPPORTUNITIES: Indirect opportuni-
ties provided by the programme can be found in other
areas of the economy. While goals for the infrastruc-
ture and transportation sector are largely owned by
different VRPs, plans will ultimately contribute to
increasing residents’ quality of life. Such initiatives
include the deployment of high-speed broadband
infrastructure, the enhancement of digital security,
an electric vehicle adoption initiative, new municipal
waste management systems, the construction and
expansion of airports, the introduction of urban trans-
port management systems and new road networks.
Additional plans will see the government partner
with private investors to develop land owned by the
Ministry of Housing, and the implementation of urban
rehabilitation projects to improve the landscape of
light industry areas in 17 cities.
Plans for the health care sector, meanwhile, include
the development of emergency care departments,
primary health care centres, blood transfusion ser-
vices, nutrition clinics and primary psychological
care centres. Education-related initiatives will see
a programme to support research and development
at universities, the provision of suitable housing for
expatriates working in the sector and the establish-
ment of a comprehensive teleworking system.
MEASURING PROGRESS: While government plan-
ners have established a wide range of criteria and
key performance indicators that might act as a useful
yardstick regarding the implementation of the pro-
gramme, the abstract nature of quality of life makes
assessing its real impact on society difficult. A starting
point for interested observers may be to track the
Kingdom’s performance on some of the international
rankings and indices that officials used to formulate
the programme’s goals. They are six in number and
Saudi cities are able to rank well on all of them – with
the exception of the US’ AARP Liveability Index –
should they make the necessary changes.
The EIU Global Liveability Index ranks 140 cities
according to their urban quality of life, based on cri-
teria such as culture and environment, education and
infrastructure. The Mercer Quality of Living Survey
ranks 231 cities based on a wider range of factors,
including housing and media availability. Monocle
Magazine’s Annual Lifestyle List ranks the top-25 most
liveable cities in the world, while the World Happiness
Index by the UN Sustainable Development Solutions
Network ranks 155 countries according to freedom
of choice, life expectancy and GDP per capita, among
other factors. The OECD Better Life Index, for its part,
compares well-being across countries based on safety,
health, income and work-life balance indicators.
If the Kingdom’s Quality of Life Programme 2020
is fully implemented according to plan, the world
could see some of Saudi Arabia’s urban centres make
their first appearance in some of these global indices.

Evaluating progress
Husameddin Al Madani, Former Director-General, National
Centre for Performance Measurement, on data management
practices within the Kingdom’s privatisation strategy
What challenges are associated with measuring
the progress of Vision 2030?
AL MADANI: As with any central government
agency, measuring performance accurately and in
a timely manner is a challenge. Encouraging public
servants to consider progress measurements, such
as targets and key performance indicators (KPIs),
are all-important steps to improve the quality of
public services. As there are a range of data sources
available, it is important to identify the most useful
measurements of performance. However, devel-
oping a culture of performance evaluation is chal-
lenging from a human capital perspective. As such,
investments have been made to raise awareness
through vocational courses, which have trained
over 8000 government employees to date in areas
such as strategy and KPI development.
How can data-driven technologies increase
transparency and efficiency in the public sector?
AL MADANI: In the past, government organisations
stored data internally, rather than sharing it pub-
licly. When data is commonly available, advanced
technologies can be used to identify opportunities
for optimisation, streamlining and investment. If
there is an abundance of detailed information about
stakeholders available, it is easier for decision-mak-
ers to determine a course of action. With access to
more data, citizens can follow the performance of
government organisations, and investors can more
easily identify investment opportunities. Open data
is critical for increasing transparency.
Over time, the number of entrepreneurs develop-
ing data-driven technologies will increase, which will
allow the government to operate more efficiently
through the adoption of these technologies. There
is widespread support for the adoption of big data,
since the entire Kingdom stands to benefit, from
the standpoint of both research and investment.
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ECONOMY INTERVIEW 43
Husameddin Al Madani, Former Director-General, National Centre for
Performance Measurement
How can investors’ satisfaction regarding the
Kingdom’s public services be measured?
AL MADANI: Without the engagement of investors,
it would not be possible to realise the aspirations
of Vision 2030. As such, the private sector and the
wider investor community are at the heart of the
Kingdom’s transformation and delivery plans. Multi-
ple technologies are being used to listen to investors
and give feedback to decision makers. For example,
measurement tools and mobile applications that
allow investors to rate the quality of public services
have been developed. In addition, the time taken
for Customs clearance has been reduced from nine
days to five days, and in 2018 alone, 11 international
banks secured licences to invest.
To what extent can performance tools enhance
foreign investors’ decision-making processes?
AL MADANI: When it comes to a large-scale pri-
vatisation strategy, everything from the operation
of facilities to innovation in the supply chain, to
the development of new products and services is
likely to take place within the targeted sectors. As
such, the use of performance tools is important to
facilitate this process. Two of the key performance
tools currently being monitored are ease of doing
business figures and public-private partnership
(PPP) statistics. Many enabling features are being
developed in order to attract investors and to make
it easier for all involved parties to form PPPs.
The areas being targeted for this are the procure-
ment and contracting processes, and the process of
training employees so that they are ready to engage
with, and be hired by, private sector companies
who are starting to take over the daily operation
of traditionally public sector facilities. Simplifying
contractual and legal terminology by eliminating
ambiguity and jargon also constitutes an important
step towards increasing the effectiveness of PPPs.
THE REPORT Saudi Arabia 2019

New year, new budget
Record spending is expected in 2019, along with continued
support for the private sector
Saudi Arabia’s budget for 2019 set a record-high
expenditure level of SR1.11trn ($295.9bn), a rise of
SR76bn ($20.3bn) over the previous year. The expan-
sionary stance means the government is able to boost
its current spending, which rose by 4% to SR860bn
($229.3bn), and thereby maintain its commitment
to education, health care and social benefits. Capi-
tal spending, meanwhile, is the principal focus of the
business community, which has come to equate gov-
ernment outlay with economic growth and investment
opportunities. This is set to reach SR246bn ($65.6bn) in
2019, a 20% increase over SR205bn ($54.7bn) in 2018.
PRIVATE STIMULUS: The capital spend will support
a range of initiatives being pursued under a SR200bn
($53.3bn) private sector stimulus plan. The details of the
first phase, worth SR72bn ($19.2bn), were announced in
December 2017 by King Salman bin Abdulaziz Al Saud.
Running the course of 2018, the first package com-
prised 15 initiatives across sectors such as manufac-
turing, housing and exports. The housing programmes
accounted for a significant portion of overall spend-
ing, and included a SR21.3bn ($5.7bn) residential loan
scheme aimed at addressing the lack of finance options
for home purchases – part of a wider initiative to boost
the country’s home ownership level from 47% in 2017 to
70% by 2030. A further SR14bn ($3.7bn) was set aside
for efficient building technology projects. Between
them, the two initiatives accounted for just under half
of the total stimulus package for 2018. This is a clear
demonstration of the government’s determination to
support the housing and construction sectors, both
of which have been adversely affected by the lower
oil price environment since 2015.
Other initiatives slated for the first round of stimu-
lus included SR2.8bn ($746.5m) to support small and
medium-sized enterprises (SMEs) and venture capital
projects, which are a key focus area of the nation’s
long-term development plans. A further SR7bn ($1.9bn)
was provided to reimburse SMEs for government fees
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ECONOMY ANALYSIS 45
The price of oil remains a large determinant in balancing the budget
paid during the first three years of their operation, The 2019 budget set a
applicable to all such firms launched since 2016. The record-high expenditure
repayment covered 80% of the expat levies paid by level of
SMEs for three years, a decision that directly addressed
one of the most contentious issues in the private sector.
$295.9bn
Companies were asked to pay a SR300-400 ($80-107)
monthly fee for each non-Saudi employee beginning
January 1, 2018, but the Council of Saudi Chambers
lobbied the government to remove this requirement
for smaller firms. The repayments offered by the gov-
ernment are to support young companies as they work
to play a larger role in the new economic environment.
At the other end of the commercial spectrum, the
first phase of the stimulus package also provided
SR10bn ($2.7bn) for mega-projects undertaken by the
private sector, SR5bn ($1.3bn) for an export bank and a
further SR5bn ($1.3bn) for an investment programme.
BALANCING THE BUDGET: The elevated capital spend-
ing in the 2019 budget has been well received by the
business community. Growth in the non-oil sector
remains sensitive to government spending levels, with
higher capital outlay generally resulting in increased
demand for services in some of the largest sectors of
the economy. However, investment in capital projects
is usually tied to the price of oil: when the 2018 budget
was published, the IMF estimated that crude prices
would have to average $88 per barrel for the Kingdom
to balance its revenues and expenses that year. Analysts
estimate a breakeven price of at least $84 per barrel
to pay for the spending contained in the 2019 budget,
but Brent crude had not yet broken the $70 barrier in
the first two months of the year.
While oil prices are still a large piece of the economic
picture, fulfilling the Vision 2030 strategy for social and Nearly half of the $19.2bn
economic development emphasises kick-starting the allocated in 2018 under
a $53.3bn private sector
private sector as an alternative engine of growth, which
stimulus plan went to a
would in turn release pressure on the government’s residential loan scheme
spending bill. Increased private participation will be and efficient building
crucial to certain budget categories over the long term. technology projects.
THE REPORT Saudi Arabia 2019
46 ECONOMY ANALYSIS
The first public-private partnership project was undertaken in 2011
Teaming up
A draft public-private partnership law could boost such activity
in the Kingdom by addressing key investor considerations
By 2017 Saudi Arabia While firming oil prices have allowed Saudi Arabia
had 18 projects under to boost state spending, energise the economy and
way or completed using narrow the fiscal deficit in 2018, the Kingdom’s long-
the public-private term strategy is built on driving growth through private
partnership model, for a sector activity rather than the public purse. Attract-
total value of
ing sufficient levels of investment to bring about this
$42.9bn change in economic model, however, is a challenge.
According to the “World Investment Report 2018” by
the UN Conference on Trade and Development, Saudi
Arabia secured $1.4bn in foreign direct investment
(FDI) in 2017, down from $7.5bn the year before, and a
relatively modest figure even in the context of a global
decline in FDI since the 2008-09 financial crisis.
EARLY ADOPTER: One way in which the Kingdom
intends to encourage greater inflows of FDI is through
an enhanced public-private partnership (PPP) frame-
work. These legal arrangements between government
entities and private parties have become increasingly
common globally, as governments have sought to
reduce capital costs and shift development risk and
managerial responsibility onto the private sector. Large-
scale infrastructure projects such as hospitals, schools,
roads and telecommunications systems are all common
targets for PPP contracting, but in the GCC the power
and water sectors have also emerged as popular recip-
ients of funding through the model.
The Kingdom has performed better than some
regional peers in terms of the variety of its PPP pro-
jects. The first true PPP project was signed in 2011,
covering the financing, development and operation of
the Prince Mohammad bin Abdulaziz Airport expansion
The draft public-private
in Medina. The success of that development, which was
partnership law provides carried out in the absence of a clear legal framework
a clear legal framework and using a build-operate-transfer model, led to a raft
and details a number of of similar undertakings. As a result, the Kingdom has
incentives – elements that emerged as one of the most active PPP arenas in the
allow investors to have a
more definite idea of the
region: by 2017 Saudi Arabia had a total of 18 projects
operating environment and under way or completed using the model, for a total
various costs. value of $42.9bn, according to a report by real estate
www.oxfordbusinessgroup.com/country/saudi-arabia
company JLL and law firm DLA Piper titled “Public Pri-
vate Partnerships: A New Approach to Financing Real
Estate Development in KSA”.
NEW DEAL: A range of PPP structures exist and the
Kingdom has employed a few different contracts. Early
airport developments left ownership with the gov-
ernment’s General Authority of Civil Aviation, while
more recent deals in health and education have seen
the state retain only a regulatory role. The liberalising
nature of the long-term development plan Vision 2030
suggests that the trend will be towards a higher degree
of private sector ownership in future PPPs, however, a
number of hurdles must be overcome to achieve this.
As well as any country-specific factors, the principal
difficulty in PPP arrangements from an investor’s point
of view is correctly assessing the return on investment
in the absence of demand data. Saudi Arabia’s proposed
new PPP law, the draft of which was revealed in July
2018, does not address this concern directly, but it
does provide a clear legal framework for PPP projects
and details a number of incentives – elements that
allow investors to have a more definite idea of the
operating environment and various costs. The new
law also tackles one of the most problematic facets of
the local market by allowing for a possible exemption
from Saudiisation targets, by which a certain ratio of
employees in every position must be Saudi citizens.
Foreigners would also be allowed to own real estate
in the country outside of Makkah and Medina, but able
to lease real estate in the two holy cities for specified
periods. Furthermore, under the draft law bidders for
PPP contracts are granted the right to appeal awards by
the government in an effort to increase transparency
and attract a wider range of investors.
The draft PPP law is intended to establish a clearer
legislative platform and help guide the economy to a
more private sector footing. As such, the new law is a
positive development, but its success will ultimately
depend on its final form and effective implementation.
48
Global
Perspective
Talent map
Global migration patterns are changing as a result of growing
anti-migration sentiment
Between 2000 and 2015 As the world’s nations and businesses become increas-
an average of ingly interconnected, so too does the flow of global
20,000 migration. According to the OECD’s “International
Migration Outlook 2018”, in 2017 some 258m people
people resided in a country other than the one they were born
in and more than 5m foreign-born persons settled in
per day uprooted OECD countries. The flow of migration is believed to
themselves due to
not only improve the lives of the migrants themselves,
environmental and
but also to contribute significantly to the economic
political crises
opportunities of individual businesses and countries.
Despite this, public opinion across the globe is turning
against migration, much to the frustration of business
leaders and economic research institutes that con-
tinue to stress its economic benefits. In turn, more and
more nations are implementing measures to combat
migration flows. Research suggests, however, that the
number of those wishing to – or needing to – migrate
across borders will continue growing. Together, these
two trends will have a number of significant impacts
on countries, industries and businesses.
PACE OF MIGRATION: The growth of global migration
is outpacing expert estimates. While the 258m global
migrants make up only 3.4% of the world’s population,
this figure is already higher than the 2003 prediction by
the International Organisation for Migration (IOM) that
international migrants would reach 230m to account
for 2.6% of the global population by 2050.
In its “World Migration Report 2018”, the IOM
described global migration as “the variable that had
shown the greatest volatility in the past and was there-
fore most difficult to project with some accuracy”.
Based on the current trends of natural disasters and
political headwinds, the reality of global migration is
Forced resettlemement likely to continue surpassing the projections of analysts.
from troubled countries FORCED DISPLACEMENT: While most migrants
could benefit the choose to move abroad in search of better employment
businesses that recruit
migrants as well as the
opportunities, between 2000 and 2015 an average
nations that provide them of 20,000 people per day, or 6.9m annually, uprooted
a new home. themselves due to environmental and political crises.
www.oxfordbusinessgroup.com/country/saudi-arabia
The IOM points to conflict as one of the key drivers of
global migration, in addition to generalised violence
and other factors. According to the UN Human Rights
Council, the number of people forced from their homes
as a result of persecution, conflict, violence or human
rights violations stood at a record 68.5m in 2017.
Despite progress in various areas of international
diplomacy, internal conflicts persist, with 2015 seeing
the highest recorded levels of forced displacement
globally since the Second World War. Many of the con-
flicts driving forced migration are unlikely to cease
soon, while other, largely overlooked drivers of global
migration will only continue to grow. Forced resettle-
ment from troubled countries could benefit businesses
that recruit migrants and nations that provide them
a new home. However, analysts predict years of lag
before such a large population can be assimilated into
the workforce and begin offering economic benefits,
such as plugging skill gaps or restoring equilibrium to
ageing economies. The result of growing forced migra-
tion also depends on how proactive governments are
in assimilating immigrants into society. Taking such a
stance in today’s political climate, however, will not be
easy due to rising anti-immigration sentiment.
CLIMATE CHANGE: War has historically been a con-
stant motor of migration, but new drivers are playing
an increasingly significant role and could grow rapidly
in the short to medium term. There is an increasing
consensus that climate change is playing an overlooked
role in migration, and that this role is set to increase
substantially, Felipe Aliaga, professor at Colombia’s
Santo Tomás University, told OBG.
Although rarely cited by migrants as a cause for
their relocation, climate change could help explain
the increasing impact of food insecurity on regions
where agriculture plays a significant role in the econ-
omy. According to the IOM, a rising number of migrants
from Africa and Latin America are citing poor harvests
as a factor influencing their decision to migrate, while a

2017 study by the World Food Programme found that
nearly half of the Central American migrants inter-
viewed described themselves as food insecure.
Beyond climate change, other often overlooked fac-
tors that are likely to accelerate migration include the
increasing prevalence of precarious work, inequality
and unequal development, Aliaga told OBG. These could
all play a further role in boosting migration.
NEW ROUTES: The international trend of tightening
migration policies, particularly in more economically
advanced countries such as the OECD states, appears
to already be having an effect as migrants increasingly
seek alternative destinations. A particularly striking
example can be seen in Latin America, where Mexico,
previously a transit hub for migrants heading to the US,
is now becoming a destination in itself. The number of
foreign-born persons in Mexico increased from around
970,000 in 2010 to almost 1.2m in 2015.
Analysts expect this trend to accelerate thanks to US
President Donald Trump’s anti-immigration rhetoric and
policy initiatives. The IOM’s research shows the majority
of applicants in Mexico come from Central or South
American nations, but an increasing number come from
Africa and the Middle East, who see Mexico as a more
viable option than the US. Across the globe, South-
South migration flows (across developing countries)
continue to grow compared to South-North movements
(from developing to developed countries). Most prefer
to migrate within their country or continent, rather
49
than undertake the increasingly difficult journey to The international trend
the US or Europe. The general consensus is that this of tightening migration
policies in more
trend will likely harm the economies that have previ-
economically advanced
ously benefitted greatly from liberal migration policies, countries is resulting in
such as the US, where migrants make up 13% of total migrants increasingly
population; Canada, with 22%; and Australia, with 28%. seeking new destinations,
As the US and many European nations with stricter such as Mexico.
migration policies are expected to see a reduction in
the number of skilled workers among their populations,
other countries that had previously missed out on the
flow of labour and talent, such as Mexico, are set to
benefit from changing global trends. Nations actively
undertaking initiatives to combat their brain drain, such
as India and Sri Lanka, are also expected to benefit from
the growing anti-immigration sentiment. According to
consultancy firm McKinsey, top talent in fields such as
engineering can be “anything from three to 10 times
more productive” than the average recruit. Rapidly
growing technologies, such as artificial intelligence
and the internet of things, rely heavily on talent and
knowledge, as do research and development centres.
Although such initiatives appear to be providing pos-
itive results, their outcome will still depend largely on
salaries, which continue to determine migration flows.
High-income countries still host almost two-thirds of all
international migrants. And despite the high number
of skilled workers coming from across Africa to work in
Morocco, for example, efforts to stop local talent from
moving abroad have not yet yielded significant results.
 51

Trade & Investment

The Kingdom broadens its trade agreements portfolio
Reforms to legal framework to attract foreign investors
Government strives to improve business environment
Changing dynamics in international trade activities
52 TRADE & INVESTMENT OVERVIEW
Saudi Arabia plans to become a global gateway and epicentre of trade
Preferential terms
The authorities sign new trade agreements and expand export
markets while ushering in legislative and regulatory reforms
The Kingdom aims to Firming oil prices have brought about an improvement
boost the value of non- in Saudi Arabia’s trade balance in 2018. The govern-
oil exports to ment’s longer-term ambition, however, is to protect
$88bn itself from the uncertainty of the energy market by a
diversifying the export base away from hydrocarbons.
The Kingdom’s newly formulated economic strategy
by 2020
also aims to boost the level of foreign investment in the
country, thereby reducing the economy’s dependence
on public spending for growth.
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.
TRADING ACTIVITY: With oil reserves of 266.2bn
barrels, according to BP’s “Statistical Review of World
Energy 2018”, Saudi Arabia is the owner of nearly 16%
of global oil stocks. In 2017 it was the world’s sec-
ond-biggest producer behind the US, accounting for
nearly 13% of total supply. Since domestic consumption
in Saudi Arabia is lower than in the US, the Kingdom
is able to ship a larger share of its crude oil to foreign
markets, affording it the title of the world’s biggest
exporter of oil, accounting for 12.2% of the global
total. Hydrocarbons play a central role in the econ-
omy. According to the Organisation of the Petroleum
Exporting Countries, the Kingdom’s oil and gas sector
accounted for about 50% of GDP and 70% of total
export earnings as of late 2018.
The dominant position of oil within the export port-
folio means that there is a direct correlation between
oil price and the health of the country’s trade indica-
tors. In 2012, when oil prices were close to their all-time
high, the trade surplus stood at $247bn, according to
the Saudi Arabian Monetary Authority (SAMA). How-
ever, after a significant reduction in benchmark oil
prices, the trade balance slipped to a low of $44bn in
www.oxfordbusinessgroup.com/country/saudi-arabia
2015. This period also saw the current account balance
dip into the red for the first time since 2009, showing a
negative value of $57bn and $24bn in 2015 and 2016,
respectively. The episode served as a reminder of the
importance of economic diversification — a long-term
goal of hydrocarbons-dependent economies around
the Gulf. The Kingdom’s most recent answer to this
challenge is contained within Saudi Vision 2030, the
strategic blueprint that is guiding the economic and
social development of the country. One of the three
central pillars of the strategy is to establish the King-
dom as an “epicentre of trade and the gateway to
the world”, taking advantage of its strategic location
connecting the three continents of Europe, Asia and
Africa. This effort calls for a major restructuring of
the Saudi economy, increasing non-oil government
revenue from SR163bn ($43.5bn) at the time of the
blueprint’s formulation in 2016 to SR1trn ($266.6bn)
by 2030, and boosting non-oil exports as a percentage
of non-oil revenue from 16% to 50%.
NON-OIL EXPORTS: In its attempt to boost non-oil
exports, the Kingdom is starting from a low base. In
2017 mineral exports – mostly oil – accounted for
about 74% of total export value, according to the Gen-
eral Authority for Statistics (GaStat). The next biggest
category of exports was plastics, rubber and related
articles, which made up 7.5% of total export value,
followed by chemical products (6.1%), base metals
(1.7%), live animals and animal products (0.7%), and
prepared foodstuffs and beverages (0.6%).
In the short term, efforts to boost the low level
of non-oil exports is being steered by the National
Transformation Programme (NTP), the first of 12 Vision
Realisation Programmes to be implemented under the
umbrella of Vision 2030. The NTP aims to increase the
value of non-oil commodity exports from a baseline
of SR185bn ($49.3bn) to SR330bn ($88bn) by 2020, as
well as increase the number of exporters from 1190
to 1500. These goals are to be reached through a

collaborative effort between a number of ministries.
The most prominent among them is the Ministry of
Commerce and Investment, which established an
export-processing zone and an electronic platform
for exporters. The Ministry of Economy and Planning,
meanwhile, is improving the governing framework that
supports export processes.
LOCAL PRODUCTION: The Kingdom’s trade policy also
calls for a reduction in its reliance on imports. Import
activity expanded to $123bn in 2017 during a period of
depressed oil prices. The domestic appetite for sophis-
ticated hardware means that machinery, mechanical
appliances and electrical equipment was the larg-
est category of imported goods in 2017, accounting
for 23.9% of the total value of imports, according to
GaStat. Demand for personal transport and the King-
dom’s drive to enhance its transport infrastructure
helped to establish transport equipment and parts
as the second-largest import category, accounting
for 15.7% of total value. This was followed by chemical
products (9.9%) and base metals (8.6%). In terms of
geography, China was the biggest partner for imports
in 2017, making up 24.3% of the total, followed by the
US (21.5%), the UAE (10.4%), Germany (9.3%), France
(6.9%), Japan (6.5%) and India (6.4%).
Slowing the rate of import expansion is among the
government’s goals under Vision 2030, and one way it
intends to achieve it is by boosting domestic produc-
tion across a range of economic sectors. Currently,
approximately one-third of products consumed in
the Kingdom are produced domestically, and the NTP
strategy foresees this figure increasing to more than
50%, or SR270bn ($72bn), by 2020. Ramping up domes-
tic manufacturing is an obvious starting point in this
effort, and a number of sectors – such as pharmaceu-
ticals and renewable energy – have been identified by
the NTP as promising areas in which Saudi Arabia might
be able to reduce import dependence.
TRADE AGREEMENTS: Establishing new trading rela-
tionships and lengthening the roster of export markets
is another strategic priority of government planners,
and there has been a concerted effort in this regard
in recent times. In October 2018 Pakistan and Saudi
Arabia agreed to negotiate a free trade agreement
(FTA) or preferential trade agreement to increase
the volume of trade between the two countries. The
Kingdom is a major source of petroleum for Pakistan,
and in early 2019 Saudi Arabia signed eight deals worth
a combined investment of $20bn that will see the
Kingdom fund an $8bn oil refinery in the Pakistani
city of Gwadar, among other initiatives.
Trade issues were also high on the agenda during
Crown Prince Mohammed bin Salman bin Abdulaziz
Al Saud’s visit to India in February 2019. The tour of
Asia continued with a trip to China, where discussions
centred on China’s contribution to Vision 2030 and
investment opportunities arising from the Belt and
Road Initiative – which will see significant volumes of
trade pass through the Red Sea on the way to Europe.
In March 2019 a Ministry of Commerce and Investment
delegation to Bangladesh signed several investment
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TRADE & INVESTMENT OVERVIEW 53
Machinery, mechanical appliances and electrical equipment were the most imported products in 2017
contracts and agreed to form a joint working group to
establish the Saudi-Bangladeshi Business Council. The
UK’s exit from the EU may provide another opportunity
1/3
of products consumed in
for Saudi Arabia to enhance its relationship with the the Kingdom are
country. At a conference organised by the Arab-British made locally
Chambers of Commerce in September 2018, attendees
were told that the UK would be ready to discuss a FTA
either multilaterally with the GCC as a trading bloc,
or bilaterally with Saudi Arabia or other individual
countries in the Middle East.
The Kingdom’s trade outreach efforts aim to build
on an already well-developed structure of bilateral
and multilateral agreements. Saudi Arabia has been a
member of the World Trade Organisation since 2005,
and its position within the Greater Arab Free Trade
Area provides it with privileged access to markets in
17 economies in the MENA. As a member of the GCC,
Saudi Arabia benefits from the Customs union agreed
by the bloc in 2003, as well as FTAs the GCC has signed
with countries such as Syria and Singapore.
Moving west, Saudi Arabia agreed to a comprehen-
sive trade and investment framework deal with the
US in 2003, which is aimed at improving legal pro-
tections for investors, boosting intellectual property
protection, creating more transparent and efficient
Customs procedures, and increasing transparency in
government and commercial regulations.
INFRASTRUCTURE: Improving the Kingdom’s global
trade connectivity is also a matter of enhancing the
physical infrastructure that underpins domestic and
external commerce. The NTP charges the Ministry
of Transport with the task of improving transport
infrastructure, including reducing the percentage of
behind-schedule projects from 60% to 25% of the total
by 2020. The government is also seeking to co-opt the In early 2019 Saudi Arabia
signed eight deals worth
private sector to fund half of new rail projects and 70%
a combined investment of
of port development. Meanwhile, efficiency gains are $20bn to fund projects in
being sought in areas such as the average duration Pakistan, including a $8bn
of stay of containers in ports. Existing international oil refinery in Gwadar.
THE REPORT Saudi Arabia 2019
54 TRADE & INVESTMENT OVERVIEW
In October 2018 the new gateways include Jeddah Islamic Port – the biggest con-
Haramain High-Speed tainer port in the Kingdom, with a capacity of around
Rail Project was launched,
5m twenty-foot equivalent units per year – and the
connecting the cities of
Medina, King Abdullah King Abdulaziz Port in Dammam, the nation’s principal
Economic City, Jeddah and facility on the east coast. Industrial and commercial
Makkah along the Red Sea. ports at Yanbu and Jubail, and the facilities at Jizan,
Dhiba and Ras Al Khair add further connectivity.
In late 2018 the Kingdom revealed plans for a port
project at Arar, which shares a border with Iraq. The
SR259m ($69m) development will span an area of 1.7m
sq metres and is to include a logistics zone that will
serve as the Kingdom’s so-called northern economic
gate to markets in Europe and Asia.
The primary air freight hubs are located at the King-
dom’s four international airports, which are currently
the recipients of large-scale investment. Jeddah’s King
Abdulaziz International Airport is undergoing the sec-
ond phase of an expansion that will boost capacity to
43m passengers per year by 2025, while Riyadh’s main
airport, King Khaled International Airport, is being
expanded to accommodate 25m passengers a year.
The rail network is also growing its footprint. In
October 2018 Saudi Railways Organisation launched
the new Haramain High-Speed Rail project, which
connects the cities of Medina, King Abdullah Economic
City, Jeddah and Makkah along the Red Sea coast. The
new rail infrastructure is to be linked to the capital city
by the Saudi Landbridge project, the detailed design
for which was completed in 2017, and from there to
the coastal city of Dammam by the already existing
rail network. Meanwhile, Riyadh’s new $22.5bn metro
system is expected to be fully operational by 2021.
FOREIGN DIRECT INVESTMENT: Saudi Arabia’s
efforts to enhance its trade infrastructure are also
helping to improve its attractiveness as a location for
foreign direct investment (FDI). One of the key goals
of Vision 2030 is to increase FDI into the country from
3.8% of GDP to 5.7%. Meeting this challenge, however,
will involve turning around a negative trend in inward
investment that has persisted over a number of years.
According to a report released in the summer of
2018 by the UN Conference on Trade and Development,
net inward FDI fell to $1.4bn in 2017, down from $7.5bn
the previous year. This contraction continued to extend
into 2018, according to a report by London-based
consultancy Capital Economics, which showed that
net capital outflows were equal to around 5% of GDP
in the first three months of the year, compared to less
than 2% of GDP in late 2016.
The Kingdom has a number of comparative advan-
tages as it sets about improving its FDI figures. Since
early in the last century it has been one of the most
politically stable countries in the region. It enjoys good
diplomatic relations with nations that have large pools
of potential investor capital, such as the US, Europe and
the emerging markets of the East, and it has secured
strong sovereign ratings from the major global credit
ratings agencies: “A-” from Standard & Poor’s, “A+”

from Fitch and “A1” from Moody’s as of the first quar-
ter of 2019. The Kingdom also has one of the largest
consumer markets in the region, with more than 30m
inhabitants, and the greatest number of high-net-
worth individuals in the Middle East.
In addition to these advantages, the government
has rolled out a number of investor-focused incentives,
including a scheme by which foreign companies are
eligible for low-cost funding from the Saudi Industrial
Development Fund for up to 50% of the total cost of a
project.The UAE was the Kingdom’s largest source of
FDI in 2017, accounting for 21.9% of the total, accord-
ing to the Arab Investment and Export Credit Guaran-
tee Corporation. The US was the second-biggest origin
of FDI, with 20.3% of the total, followed by France
(9.1%), Singapore (6.9%), Japan (5.6%) and Kuwait (4.6%).
In terms of sectors, the chemicals industry accounted
for the single largest share of FDI inflows in 2017, with
30.8% of the total, followed by real estate (27.7%); coal,
oil and gas extraction (7.9%); automotives (7.1%); hotels
and tourism (6.9%); and plastics (5%).
LEGAL FRAMEWORK: The Foreign Investment Law,
revised in 2000, grants foreign investors access to all
economic sectors, with the exception of those on a
negative list, which includes oil exploration, drilling and
production. Investment can take place as part of a joint
venture with a Saudi partner in those industries or as a
100% foreign-owned enterprise in open sectors. Over
the past decade the terms of investment as established
by the law have been gradually liberalised, most notably
in the removal of minimum capital requirements that
were originally attached to agricultural, industrial and
services projects. The Kingdom opened more sectors
to 100% foreign ownership in 2018, adding film dis-
tribution, communications, rail, air and space services
to previously liberalised sectors such as engineering,
education and recruitment sectors.
In August 2018 Saudi Arabia’s new insolvency law
came into effect. The legislation directly addresses one
of the main weaknesses of the business environment:
the World Bank ranked Saudi 168th out of 190 nations
in terms of settling bankruptcy cases in its “Doing
Business 2019” report. The law will make it easier for
indebted companies to maintain their operations while
rescheduling their debts, thereby establishing Saudi
Arabia as a more investor-friendly destination. The
legislation also establishes a specialised committee to
oversee all bankruptcy matters, including the set-up of
a bankruptcy register, granting licences for insolvency
experts and trustees, and coordinating liquidation pro-
ceedings. The committee is considered an independent
administrative and financial legal body, which reports
directly to the minister of commerce and investment.
In October 2017 the Kingdom officially launched
a new commercial courts system with locations in
Riyadh, Jeddah and Dammam. Specialised commercial
chambers were also established within public courts in
a number of cities. The Ministry of Justice launched a
“paperless courts” project, which by the outset of 2018
had cut around 45% of paper-based procedures and
shortened the period for execution of judicial orders
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TRADE & INVESTMENT OVERVIEW 55
Several more sectors were opened to 100% foreign ownership in 2018 as part of liberalisation efforts
from two months to 72 hours. By October 2018 the In August 2018 a new
new commercial court system was making between insolvency law came into
44 and 190 rulings per day, according to the ministry. effect. The legislation
established a specialised
DOING BUSINESS: As well as overhauling the legal committee and seeks to
system, the Kingdom is working to improve the general make it easier for indebted
business environment. Saudi Arabia ranked 92nd out companies to maintain
of 190 countries overall in the World Bank’s “Doing their operations while
Business 2019” report, scoring above average in areas rescheduling their debts.
such as protecting minority investors and registering
property, but performing poorly in fields such as start-
ing a business, trading across borders, obtaining credit
and resolving insolvency. The Kingdom’s goal, under
the umbrella of Vision 2030, is to attain a top-20 rank
on the index – an accomplishment that will require a
wide array of regulatory reform.
Vision 2030 and its various implementing plans
are addressing the weaknesses highlighted by the
ease of doing business index, and some of the most
challenging areas are already being tackled. In April
2018, for example, the minister of commerce and
investment launched a new online service for company
registration, which is part of a broader reform process
that aims to reduce registration time to one working
day. The Saudi Arabian General Investment Authority
(SAGIA), meanwhile, has set up the Investment Ser-
vices Centre in order to facilitate investment in the
Kingdom. The authority has also made the process of
obtaining a foreign investment licence, a requirement
for all non-GCC investors, less onerous.
In 2016 SAGIA significantly reduced the documen-
tary requirement for licence applications, and in 2017
it launched a new online licence application process
that enabled major foreign investors to obtain a SAGIA
licence within 10 minutes. The service is available to
applicants listed on an international stock market An online licence
application process
or the Saudi Stock Exchange, and that also satisfy
launched in 2017 enables
a number of financial conditions, such as showing a major foreign investors
sustained annual revenue in excess of SR70m ($18.7m). to obtain an investment
The authority also made it easier for companies to licence within 10 minutes.
THE REPORT Saudi Arabia 2019
56 TRADE & INVESTMENT OVERVIEW

INVESTMENT LOCATIONS: The government’s deter-

mination to attract investment has caused a rethink
of its long-held policy of eschewing special economic
zones (SEZs). Free trade zones and SEZs are a growing
trend in the region, and according to the OECD, they
added $500bn worth of trade-related value globally
and provided employment opportunities for 66m peo-
ple in 2018. The UAE is home to 45 free zones, with an
additional 10 under construction in 2018. Saudi has
historically preferred to promote its low-tax, low-cost
input framework as a single economic area, but in late
2018 it revealed details of its first SEZ, to be located
adjacent to Riyadh’s international airport. The zone will
focus on integrated logistics, and will allow investors
to operate under special rules and regulations.
As well as investment zones, plans to build an
entirely new city promise to open up new investment
landscapes. NEOM, a planned smart city and tourist
destination to be located on the Kingdom’s border
with Egypt and Jordan, is a long-term project, whose
first construction phase is not due for completion
In 2018 the Kingdom had an estimated trade surplus of $158bn
until 2025. The $500bn development is one of the
Plans for the country’s first maintain their licences, allowing existing ones to be key initiatives of Vision 2030 and is being designed
special economic zone renewed on a five-year basis rather than annually, and as a high-tech, renewable energy-driven mega-city
were revealed in late 2018. lowering subscription fees for strategic companies that that will cover a total area of 26,500 sq km on the Red
It will be located adjacent
to Riyadh’s international
support the government’s agenda of training, develop- Sea coast. Some of the proceeds from the upcoming
airport and focus on ing and employing Saudi nationals in high-paying, high- sale of state-owned energy giant Saudi Aramco are
integrated logistics. tech and senior management positions. These efforts earmarked for the project, and therefore the delay
have begun to produce some favourable results. For in the oil giant’s initial public offering has resulted in
example, the number of foreign investment licences uncertainty regarding NEOM’s development timeline.
granted by the investment authority in the first quar- Nevertheless, by October 2018 the project’s advisory
ter of 2018 was around 130% higher than the same board already contained some prominent names in
period in 2017, according to the authority. In addition, the business world, including Masayoshi Son, CEO of
the positive trend proved to be a sustained one, with Japan’s SoftBank; Marc Andreessen, venture capitalist
licence approvals up by 90% in the third quarter of and board member of Facebook; and Travis Kalanick,
2018, which equates to approximately 500 individual co-founder of ride-hailing app Uber.
foreign investment licences issued. OUTLOOK: The recovery in oil prices since 2017 has
From the beginning of 2018 until the end of the third resulted in the Kingdom’s trade balance moving into
quarter that year, companies from across 50 coun- more positive territory since its dip in 2014-15, clocking
tries had invested in the Kingdom, with the majority of in at an estimated $158bn in 2018, according to the
them in the services sector, which accounted for 378 Saudi Arabian Monetary Authority. However, the trend
licences, followed by industry (63) and commercial (35). only serves to underline the correlation between oil
prices and the Kingdom’s ability to maintain an external
trade surplus. Given the importance of hydrocarbons
Foreign direct investment flows, 2014-17 ($ bn)
activity to the economy, this link will not be broken in
the foreseeable future; however, a weakening of the
Inward Outward
correlation through diversification of export activi-
9 ties would represent a success for the government’s
8 ongoing economic reform programme.
7 The ambition to attract further FDI over the short
6
term is a more challenging prospect. The expansion-
ary budget for 2019 sets a positive outlook for the
5
year (see Economy chapter). However, public spending
4
remains the primary engine of growth, and foreign
3 investors have yet to respond to efforts to attract
2 them. A global retreat from emerging markets explains
1 some of this antipathy, but factors such as Saudiisation
0 – an official policy to replace foreign workers with
2014 2015 2016 2017 nationals – are also having a cooling effect on inves-
tor sentiment. The year 2019 will show whether the
Source: UNCTAD
Kingdom’s reform effort can overcome such concerns.

www.oxfordbusinessgroup.com/country/saudi-arabia

Open doors
Ibrahim Al Omar, Governor, Saudi Arabian General Investment
Authority, on reforming the legal framework and expanding
foreign ownership to improve services and boost investment
What is being done to boost investment?
AL OMAR: We are taking a number of measures to
attract and retain investment in non-oil sectors utilising
our new Invest Saudi portal. Prior to setting up a busi-
ness, investors are provided with intelligence reports
and meetings with local stakeholders are facilitated.
Particular support is given to financial institutions and
businesses with government licences. Furthermore,
significant efforts have been made to ensure that
Saudi Arabia’s investment climate is attractive. Since
the announcement of Vision 2030 we have cooperated
with all branches of government on more than 400
reforms. For example, we have reduced the Customs
clearance time from two weeks to 24 hours, and the
number of documents required for imports and exports
from 12 to two and from nine to three, respectively.
Furthermore, we have introduced an insolvency law
to encourage investor participation, while our amend-
ments to the companies law means the Kingdom now
ranks seventh globally for protection of minority inves-
tors, according to the World Bank. In addition, we have
established the Saudi Authority for Intellectual Prop-
erty, the Saudi Centre for Commercial Arbitration and
other specialised courts. We have also enabled the
issuance of business visas within 24 hours.
How do you expect the Integrated Logistics Bonded
Zone (ILBZ) to contribute to capital inflows?
AL OMAR: The ILBZ is a perfect example of how Saudi
Arabia is developing unique value propositions for inves-
tors. Approximately one year prior to the announce-
ment of the ILBZ we asked top global companies what
an ideal logistics zone would look like. We asked them
to help us design a regulatory framework that could
outperform other special economic zones globally.
This process resulted in the creation of the ILBZ,
which includes a vendor-managed inventory, for-
ward-deployed centre and reverse logistics capabili-
ties. The ILBZ allows for a full spectrum of activities,
Bloomberg Terminal Research Homepage: OBGR‹GO›
TRADE & INVESTMENT INTERVIEW 57
Ibrahim Al Omar, Governor, Saudi Arabian General Investment Authority
including warehouse storage, staging and testing,
maintenance and repair work, light manufacturing and
assembly, all without tax or duty charges. In addition,
the ILBZ includes bonded corridors for parcel and bulk
distribution to and from international markets.
To what extent can the opening of new sectors to
full foreign ownership improve service provision?
AL OMAR: For the first time in Saudi Arabia we have
opened the door to foreign investors in sectors that
have long been restricted to them. Health care, educa-
tion, retail, military industries and real estate brokerage
are just some of the sectors that we have recently
opened to 100% foreign ownership.
Saudi Arabia has the largest health care sector
expenditure in the MENA region at $34bn. Over the next
decade, the sector is expected to grow significantly at
an annual rate of 5.5%. This expansion is driven by three
main factors. First, the Saudi population is forecast to
increase from 33.4m in 2019 to 39.7m in 2030. Second,
our population is ageing, with the number of people
aged above 50 growing from 4.6m to 12.5m over the
same period. Lastly, we expect a 60% increase in the
prevalence of chronic conditions. The current system
is mostly dependent on the government as a health
care provider, while supplies are imported from abroad.
The private sector currently contributes only 24% of
hospital beds and 54% of clinics in Saudi Arabia, while
only 30% of pharmaceuticals and 2% of medical devices
are supplied by locally based manufacturers.
The education sector presents a similar picture. The
Kingdom has the largest number of students in the GCC,
and this is expected to grow from 7.4m to 10.5m by
2030. There is a lot of room for private sector growth,
which currently stands at only 12.6% of the $37.2bn
industry. These figures for the health care and educa-
tion sectors underpin the opportunities that we are
presenting to investors. We want them to help us meet
growing demand through public-private partnerships.
THE REPORT Saudi Arabia 2019
58
Global
Perspective
Shifting trade winds
Regional integration among emerging economies and a raft of
new multilateral agreements bolster international trade
Global trade grew by Global trade faces protectionist headwinds that are
4.7%
dampening the outlook for growth in the coming
years. According to the World Trade Organisation,
trade volumes grew by 4.7% in 2017 and are expected
in 2017 to have moderated slightly to 4.4% in 2018 and dip
to 4% in 2019. Although this means growth will fall
below the 4.8% average recorded since 1990, it is still
some way above the 3% average achieved since the
2007-08 global financial crisis. Nevertheless, significant
uncertainty driven by an escalating US-China tariff
war, acrimonious Brexit negotiations, and wariness
surrounding US involvement in several multilateral
trade agreements is affecting business confidence
and investment decisions. Although US protectionist
measures and President Donald Trump’s fiery rhetoric
currently dominate global headlines, trade blocs in Latin
America, Asia Pacific and Africa are creating exciting
new multilateral trade areas. Furthermore, several
major bilateral trade agreements are in the pipeline
and are expected to further boost trade.
US PROTECTIONISM: President Trump has taken an
unconventional policy direction on trade, engaging
in tit-for-tat tariff wars and withdrawing from major
multilateral trade agreements such as the Trans-Pacific
Partnership (TPP) trade pact. In trying to encourage US
consumers to purchase local goods, and by imposing
taxes on imports from major economic partners such
as China, the EU, Canada and Mexico, President Trump’s
administration has started challenging and overhauling
the free trade policies that have governed US economic
policy-making for decades.
The IMF has previously forecast that trade wars could
cut global growth by 0.5% by 2020, and Morgan Stanley
estimates that it could reduce global GDP by around
Renegotiations of the 0.8%. An ongoing tariff war between the US and China
North American Free Trade has escalated during the second half of 2018. As of
Agreement began in May
2017, and in November
November 2018 the US had imposed tariffs on Chi-
2018 the US, Canada and nese goods – including consumer goods, electronics
Mexico signed a new deal. and food – worth $250bn, and Beijing had responded
www.oxfordbusinessgroup.com/country/saudi-arabia
with tariffs on $110bn worth of US exports, includ-
ing aircraft and coffee. With neither side seemingly
willing to de-escalate the situation, further tariffs are
expected to be put in place. Washington has warned
of new tariffs on an additional $267bn worth of goods
if China continues to retaliate. Beijing cannot match
US tariffs because its imports from the US total only
around $130bn, far below its total exports to the coun-
try ($500bn). Nevertheless, China can still respond by
disrupting US businesses operating in the country and
also by potentially devaluing its currency to offset the
impact of the trade restrictions.
Furthermore, trade relations between Mexico, Can-
ada and the US have come under strain following trade
tariffs amid the backdrop of the North American Free
Trade Agreement (NAFTA) renegotiations. Immediately
after assuming office, President Trump threatened
to exit NAFTA unless the US could renegotiate more
favourable trade terms. To apply pressure, his admin-
istration subsequently hit its North American trade
partners with levies on metal imports, imposing a 25%
tariff on steel imports and a 10% tariff on aluminium
in May 2018. The EU was hit by the same tariffs and,
along with Mexico and Canada, responded with coun-
termeasures targeting US exports, particularly food,
steel and alcohol. Renegotiations of the NAFTA pact,
which began in May 2017, centred on quotas, labour
and procurement laws, and rules of origin.
NAFTA 2.0: With mid-term elections in the US and a
change of presidency in Mexico looming in late 2018,
negotiators from the three countries signed a last-min-
ute deal on November 30, 2018 to overhaul the agree-
ment, thereby ending months of uncertainty.
The revised pact, which has been renamed the
US-Mexico-Canada Agreement, sees mixed results
across industries. North American auto parts manu-
facturers are expected to benefit, at least in the short
term, as new provisions stipulate higher local content
requirements for car and truck parts, a move ultimately

aimed at curbing Asian imports. Consumers, however,
will feel the pinch as the costs of cars, trucks and parts
increase. Tech and digital companies are also likely
to benefit from more stringent intellectual property
regulations and digital trade provisions.
Canadian dairy farmers, however, are set to face
increased competition from US producers as the revised
pact opens a bigger domestic market share to foreign
competition. Furthermore, new provisions on minimum
wages in the auto industry are ultimately designed to
disincentivise US and Canadian manufacturers from
moving production over to Mexico.
BREXIT TROUBLES: Across the Atlantic, Brexit nego-
tiations between the UK and the EU face an uncertain
future. With the UK expected to formally leave the
economic and political bloc on March 29, 2019, Prime
Minister Theresa May is struggling to mobilise support
within her own party for a draft of the Brexit deal with
Brussels. Around 43% of the UK’s global trade in 2016,
worth about £241bn, was with the EU. Another 12%
of total trade is with countries with which the EU has
preferential agreements, meaning that the EU Customs
Union and the Single Market together account for 55%
of the UK’s international trade.
OPENING NEW DOORS: NAFTA appears to have been
saved by last-minute negotiations, and despite the
potentially negative global trade repercussions of the
US-China tariff war and Brexit stumbling blocks, 2018
also saw numerous distinctly positive developments.
Several new major free trade areas have emerged
and negotiations for others are advancing. Despite
President Trump’s 2017 decision to withdraw from
the TPP, parties to the original agreement have forged
ahead to create a new deal. In March 2018, 11 countries
accounting for around 13.5% of global GDP signed a
new agreement, the Comprehensive and Progressive
Agreement for TPP (CPTPP). The deal constitutes the
world’s second-largest free trade bloc after NAFTA.
Rather than a trade pact, CPTPP is more of an umbrella
agreement encompassing 18 separate free trade agree-
ments between member countries. Participating coun-
tries are expected to see their economies expand by
approximately 1.7% more than they would have by 2030,
according to forecasts by the Petersen Institute for
International Economics. The biggest winners are in
Asia, with the economies of Malaysia, Singapore, Brunei
Darussalam and Vietnam expected to grow by an extra
2% by 2030, compared to 1% or less for New Zealand,
Japan, Australia, Canada, Mexico and Chile.
The conditions for the activation of CPTPP were
agreed to only come into effect 60 days after at least
50% of signatories ratify the agreement. As of Novem-
ber 2018, seven of the signatories had ratified the
pact with the remaining countries expected to follow
suit. The agreement is therefore expected to come
into effect for the initial six signatories (New Zealand,
Mexico, Japan, Singapore, Canada and Australia) on
December 30, 2018 and for Vietnam on January 14,
2019. Furthermore, the signatories have left the door
open to other countries interested in joining the pact,
with the UK, for example, already expressing interest.
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59
CHINA’S OWN COURSE: Apart from the US, China is In March 2018, 11
the other noteworthy CPTPP absentee and has so far countries accounting
for 13.5% of global GDP
preferred to forge its own multilateral trade pacts.
signed a new agreement,
China has not shown any interest in joining CPTPP and the Comprehensive and
has instead focused on another major Asia-Pacific trade Progressive Agreement for
partnership, the Regional Comprehensive Economic Trans-Pacific Partnership.
Partnership (RCEP). RCEP is a free trade deal involv-
ing the 10 members of the Association of South-east
Asian Nations (ASEAN) plus its six dialogue partners
(Australia, China, India, Japan, South Korea and New
Zealand), which collectively account for 4bn people
with a total GDP of $49.5trn.
Technically an attempt to harmonise existing free
trade agreements between member countries rather
than a new pact, formal RCEP negotiations began in
2012 and were expected to conclude in November
2018. However, disagreements between negotiators,
particularly between India and China, have seen this
timeline pushed back to 2019. India is wary of opening
its economy to an influx of Chinese goods and has
called for limited implementation of tariff concessions,
a demand China appears willing to accept to save the
pact. When ratified, RCEP is forecast to drive 5.1% GDP
growth in ASEAN countries by 2021, as well as boost
employment and facilitate technology transfer.
20 YEARS IN THE MAKING: Outside of Asia-Pacific,
trade blocs in Latin America and Africa are forging
ahead with new and promising multilateral partner-
ships. Negotiations between the EU and the Mercosur
group of Argentina, Uruguay, Brazil and Paraguay – the
world’s fourth-largest trading bloc – have been ongoing
for almost 20 years and appear to be close to wrap-
ping up. The stakes are high: bilateral trade between
the two blocs exceeded $90bn in 2016, according
to Eurostat. The EU is Mercosur’s number-one trade
partner, accounting for 21% of all its trade, and the
EU exports goods worth $48.6bn and services worth
$25.5bn to the South American bloc.
Negotiators are confident that a deal can be con-
cluded in 2019, although several obstacles still need to
be overcome. For the past few years, both sides have
been unable to agree on lowering tariffs, as the EU is
concerned about the domestic impact of an influx of
agricultural produce from South America while Mer-
cosur is hesitant to expose local industries, such as car
manufacturers, to European competition.
AFRICA’S TRADE POTENTIAL: Intra-African trade
has long been restricted by excessive non-tariff meas-
ures. These trade barriers include long waiting times
at borders, import quotas, and excessive or complex
regulations, among others. Undermined by excessive
red tape, intra-African trade stands at less than 20% of
total trade compared to 60% for Europe and 30% for
ASEAN countries, for example. Recognising the billions
of dollars of trade potential not being actualised, 44
African heads of state signed the African Continental
Free Trade Area (AfCFTA) agreement in March 2018.
AfCFTA’s goal is to create a single market for goods
and services for the 55 African Union (AU) member
countries with a combined GDP of $2.3trn and 1.2bn
people. The AU hopes that greater free trade will boost
THE REPORT Saudi Arabia 2019
60
China’s strategic trade industrial capacity and investment on the continent so
partnerships in the GCC that African economies can move away from their tradi-
region are primarily
tional commodity export dependency. More developed
focused on boosting
infrastructure investment, industrial African economies such as Egypt are hoping
trade facilitation and AfCFTA will be a boon for local exporters in industries
technology sharing. such as garments and other textiles.
For the agreement to come into force, half of the
signatories need to ratify the pact through their Parlia-
ments, and the AU expects this to happen by early 2019.
The International Centre for Trade and Sustainable
Development expects intra-African trade to increase
by as much as 52% by 2022 if the agreement is imple-
mented. However, this will likely depend on getting large
economies such as Nigeria, which has so far shunned
the agreement, to come to the table.
NEW BILATERALS: Growth in global trade also saw
several prominent bilateral agreements fleshed out in
2018. Gearing up for Brexit, the UK has laid the ground-
work for bilateral trade talks with various major trading
partners, including Canada, China and the US. It has
also expressed interest in joining the CPTPP. Presi-
dent Trump’s ongoing shake-up of US trade policy and
tariff war with China has seen it making overtures to
Japan, which has been a major advocate of multilateral
agreements. Trade negotiations between the US and
Japan – respectively, the world’s largest and third-larg-
est economies – began in September 2018. The talks
between the two countries have the potential to
reshape the world’s auto industry and grant US farmers
greater access to the Japanese market. Meanwhile,
China has been moving forward with its own bilateral
trade talks, particularly in the Middle East. In July 2018
China inked a raft of trade agreements with the UAE
and Kuwait, as Beijing eyes the Gulf Cooperation Council
(GCC) region as an important gateway for its Belt and
Road Initiative into the Middle East and further afield.
China’s strategic trade partnerships in the region will
primarily focus on boosting infrastructure investment,
trade facilitation and technology sharing. Pakistan also
has its sights set on increased trade with GCC countries,
striking a deal with the GCC in July 2018 to enhance
its trade relations with the bloc. A Pakistan-GCC free
trade agreement has been in the works since 2009 but
Islamabad’s policy inconsistency along with onerous
bureaucratic hurdles have been blamed for delays.
Nevertheless, there appears to be renewed enthusiasm
to finalise negotiations in 2019.
GLOBAL GROWTH: Although the expansion of mul-
tilateral and bilateral agreements demonstrates posi-
tive signs for global trade dynamics, growth potential
in 2019 remains susceptible to the outcome of the
US-China tariff war and Brexit negotiations. Escalating
tensions remain the biggest risk to global trade growth,
which is forecast by the Economist Intelligence Unit
to decrease to 2.8% in 2020 before rising once again.
Meanwhile, manufacturers and consumer goods firms
are still assessing how these trade tariffs will affect
consumer prices along with their own production costs.

Global village
Medium-term prospects suggest globalisation is set to continue
for the foreseeable future
Decades of growth in trade and foreign investment
have made the economies of the world more interde-
pendent than ever before. The production of goods
and, increasingly, the provision of services has become
fractured across borders as corporations integrate into
regional and global value chains – a process reinforced
by international trade and investment regimes. On
aggregate, advanced economies have benefitted from
these changes, while emerging markets have become
the main drivers of growth around the world. However,
recent years have seen a new scepticism towards glo-
balisation emerge, alongside more protectionist policies
that could threaten this global economic landscape.
POLITICAL FALLOUT: Globalisation has always had its
critics, but the global financial crisis of 2007-08 and the
widespread political backlash that followed, particularly
in advanced economies, have called its principles into
question. Many regard the election of Donald Trump as
US president on the strength of protectionist rhetoric,
along with the UK vote for Brexit in 2016 and the revival
of the Catalonian independence movement, as evidence
of economic discontent in these communities.
This deglobalisation phenomenon is not confined
to the most advanced economies. The Gulf Coopera-
tion Council (GCC) founded a formal Customs union in
January 2015 as part of a regional integration effort.
However, this process stalled in June 2017 with the
imposition of an embargo on Qatar and the severance
of diplomatic ties with several GCC states. Similarly, the
trading bloc Mercosur, which was founded by Argentina,
Brazil, Paraguay and Uruguay in 1991, indefinitely sus-
pended its fifth member, Venezuela, in August 2017 for
violating the common market’s democratic principles.
Emerging economies are often characterised by
greater trade tariffs and investment limits than their
advanced counterparts. As a result, any reversal of
liberalisation may pose a greater threat to develop-
ment in emerging markets, posing negative implications
for their further integration into global value chains.
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61
Global
Perspective
CAUSE FOR OPTIMISM: There have been positive A slowdown, or even a
developments in the face of this trend. When the US reversal, in liberalisation
may be an issue for some
withdrew from the Trans-Pacific Partnership (TPP) in
emerging markets, with
January 2017, its 11 other parties resurrected the pact negative implications for
as the Comprehensive Progressive Agreement for TPP, their further integration
and the deal entered into force in December 2018 for into global value chains.
its first six ratifiers. Similarly, the Comprehensive Eco-
nomic and Trade Agreement between Canada and the
EU entered into provisional force in September 2017. If
ratified, it will eliminate tariffs on 98% of traded goods
and provide a new means for resolving investor-state
disputes. The EU has also signalled that it could work
as a model for the EU-UK relationship following Brexit.
INTEGRATION & GROWTH: While political and eco-
nomic integration within Europe may have arrived at
something of a crossroads, other regions have contin-
ued their own integration efforts. In Africa, plurilateral
integration has a long pedigree, and the African Union
currently recognises eight regional economic commu-
nities. In June 2017 the Economic Community of West
African States, which was founded in 1975 to achieve
collective self-sufficiency for its 15 members, approved
in principle Morocco’s application to join the bloc.
While trade growth has been disappointing for most
of the decade since the global financial crisis, data from
the World Trade Organisation suggest that merchandise
trade is picking up again. The growth rate for global
trade reached 4.7% in 2017, 1.5 times that of global GDP,
and was projected to moderate only slightly in 2018, to
4.4%, against a GDP growth forecast of 3.2%. The UN
Conference on Trade and Development also expected
global foreign direct investment (FDI) for 2018 would Global foreign direct
grow by as much as 10% over the $1.43trn recorded in investment flows were
2017, though FDI flows were expected to remain below expected to grow by as
the $1.83trn high recorded in 2007. much as
Even if progress has slowed, the renewed interest in
regional economic agreements, combined with forecast
growth of trade and FDI, suggest that the processes
10%
in 2018
and dividends of globalisation are unlikely to end soon.
THE REPORT Saudi Arabia 2019
 63

Banking
Muted loan growth amid challenging environment
Profits buoyed by fewer provisions and higher income
Mergers and new entrants to boost competition
Regulatory reform to align with global best practices
Financial technology expands reach and innovation

Solid base
Despite muted lending growth and deposit acquisition, sector
fundamentals remain sound as profits continue to rise
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. 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 in recent
decades is about to be transformed by new market
entrants and mergers of some of its biggest institutions.
HISTORY: Saudi Arabia’s modern banking sector was
formed during the era of rapid economic growth that
followed the Second World War. The petrodollar-driven
boom caused lenders to call for greater market supervi-
sion in the wake of a rapidly expanding money supply. In
1952 the Saudi Arabian Monetary Authority (SAMA) was
established as the country’s central bank to supervise
a rapidly expanding roster of financial institutions. This
period marked the arrival of some of today’s key players
including National Commercial Bank (NCB) and Riyad
Bank. The central bank was soon faced with its first
serious regulatory challenge when a number of large,
non-performing loans (NPLs) made by Al Watany Bank
in the 1960s resulted in the first collapse of a major
domestic financial institution. SAMA’s response was to
formulate the 1966 Banking Control Law, the precepts
of which still govern the industry.
The central bank was endowed with a wide range of
licensing and supervisory powers by the new frame-
work, which it used to tighten control of the sector
through the introduction of new liquidity, capital ade-
quacy and reserve ratios. The stable regulatory platform
produced by these actions allowed the industry to
expand once again during the 1970s, driven by expand-
ing oil revenues and an increasingly diverse economy.
A watershed moment came in 1977, when rules were
changed to allow up to 40% ownership of Saudi banks
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BANKING OVERVIEW 65
Four banks accounted for 56% of sector assets at the outset of 2018
by foreign entities. Saudi Hollandi Bank was the first Following the Second
joint-venture to form in 1977, and was 40% owned by World War a rapidly
ABN Amro. The Saudi British Bank (SABB) followed in expanding money supply
saw lenders call for greater
1978, 40% owned by HSBC. By 1980 there were 12 market supervision, and
locally licensed institutions in Saudi Arabia’s banking in 1952 the Saudi Arabian
sector, according to the Bank for International Set- Monetary Authority was
tlements, 10 of which were partially foreign owned. established and tasked with
The following decade saw the arrival of a number regulating the industry.
of major players, including the Saudi Investment Bank
(SIB), established in 1984, and the Al Rajhi Banking and
Investment Corporation in 1988. While regulations
required that all banks be majority-owned by a local
partner prior to 1975, the early 2000s saw SAMA begin
opening the market to majority foreign-owned invest-
ment banks. The first licences for these international
institutions were issued in 2004, and over succeed-
ing years brands such as Germany’s Deutsche Bank,
France’s BNP Paribas and the US’ JP Morgan entered
the Saudi market for the first time.
LOCAL GIANTS: The banking sector was made up
of 12 locally licensed institutions in 2018. Of these,
four domestic firms accounted for around 56% of total
sector assets at the outset of 2018, according to local
investment firm AlJazira Capital. NCB was the largest
bank in the Kingdom by assets, accounting for 20% of
the market share, followed by Al Rajhi Bank (16.1%),
Samba Bank (10.1%) and Riyad Bank (10.1%).
At the end of 2018 combined assets at NCB stood at
SR453.4bn ($120.9bn), up from SR444.8bn ($118.6bn)
at end-2017. NCB was the first bank to gain a licence in
Saudi Arabia in 1953, although other banks had oper-
ated in the Kingdom before that, and since then it has
acted as a catalyst for its economic development. Its A total of
position as a facilitator of growth was further cemented
in 1999, when the government acquired a majority
holding in the institution through the Public Investment
12
local banks are licensed
Fund (PIF), the Kingdom’s sovereign wealth fund. The to operate in the
second largest bank, Al Rajhi Bank, is one of the largest Kingdom
Islamic banks in the world by capital base. At the end
THE REPORT Saudi Arabia 2019
 66
Saudi Arabia is home to nearly 100 licensed foreign and domestic investment banks and financial houses
There are four banks in
the sharia-compliant
segment, accounting for
27.9%
of total banking assets
BANKING OVERVIEW
of 2018 it claimed assets of SR365bn ($97.3bn), an
increase on SR343.1bn ($91.5bn) at end-2017. Estab-
lished in 1957 as a money exchange business, it became
a bank in 1988. It has since been at the forefront of
the sharia-compliant segment, building up the largest
customer base in the domestic market. The four banks
that are fully sharia-compliant (as opposed to offering
Islamic banking windows) – Al Rajhi Bank, Alinma Bank,
Bank Al Bilad and Bank AlJazira – together account for
27.9% of total national banking sector assets. Estab-
lished in 1955, Samba Bank is the third-largest player,
with assets of SR229.94bn ($61.3bn) at end-2018, up
from SR227.6bn ($60.7bn) one year prior. It was the first
domestic bank to introduce ATMs and charge cards, as
well as the first to expand into foreign markets such as
Pakistan, the UK, Qatar and Dubai. The fourth-largest
player, Riyad Bank, was founded in 1957. Its combined
assets stood at SR229.9bn ($61.29bn) at end-2018, up
from SR216.3bn ($57.7bn) at the end of 2017. Other
institutions with sizeable claims on the market include
Banque Saudi Fransi (8.4%), Arab National Bank (7.9%)
and SABB, with 7.7% of total sector assets,
FOREIGN INTEREST: The prominence of foreign institu-
tions in the developmental stages of the banking sector
has a left a legacy in the modern industry. Alawaal Bank,
until recently known as Saudi Hollandi, was formerly
a subsidiary of the Netherlands’ Trading Society, and
spent its early years in the Kingdom acting as a de
facto central bank. Until 2004 foreign entrants were
required to incorporate with Saudi partners in order to
obtain a licence to operate from the regulator. Samba
Financial Group (in which Norway’s Norges Bank, the
UK’s Ashmore Group and US-based T Rowe Price have
small interests), Banque Saudi Fransi (14.9% owned by
France’s Crédit Agricole) and SABB (40% owned by Brit-
ish multinational HSBC) are all examples of such joint
ventures. Following the removal of the local partner
requirement, foreign financial institutions were quick
to engage the local market. BNP Paribas and JP Morgan
www.oxfordbusinessgroup.com/country/saudi-arabia
were the first entrants under the new framework, and
as of the first quarter of 2019, they have been joined
by 16 regional and global institutions, including First
Abu Dhabi Bank and the Industrial and Commercial
Bank of China. A further phase of market liberalisation
in 2005 allowed for the rapid expansion of investment
banks and financial houses. Such institutions receive
their licences from the Capital Market Authority (CMA)
rather than the central bank.
Some of the world’s biggest investment houses have
a presence in the Kingdom, including Goldman Sachs,
Swiss multinational UBS and Ashmore Group. These
institutions, of which there were nearly 100 at the out-
set of 2019, carry out a broad range of activities, from
investment fund management, to custody arrange-
ments and deal arranging and underwriting, with the
CMA issuing activity-focused licences as appropriate.
CHANGING LANDSCAPE: A high degree of sector
stability and consistent returns on assets have meant
that there has been little mergers and acquisitions
activity in the domestic sector. The static nature of
Saudi banking, however, is widely expected to undergo
a shift, with mergers and new market entrants set to
shake up market structure and increase competition.
In October 2018 SABB and Alawwal Bank agreed to
terms for a merger, marking the first major tie-up in
the Kingdom for two decades. SABB is 40% owned by
HSBC Holdings, while Alawwal is 40% percent owned by
the UK’s RBS Holdings, which has been trying to reduce
its stake in the Saudi lender for some time. The new
entity will have total assets of $68.4bn, making it the
third-largest bank on the domestic market. The boards
of both banks unanimously approved the agreement in
October 2018; however, both institutions will remain
independent, continuing to operate as usual until the
deal is finalised. Meanwhile, in December 2018 it was
revealed that NCB was in preliminary talks to merge
with Riyad Bank. If successful, the deal will create the
third-largest lender in the GCC and the largest lender
in Saudi Arabia with $182bn in assets. The joining of
the two institutions may be facilitated by the fact that
they have a common shareholder in the PIF, which
Bank deposits, 2013-17 (SR bn)
Private Public
1800
1600
1400
1200
1000
800
600
400
200
0
2013 2014 2015 2016 2017
Source: SAMA
 BANKING OVERVIEW 67

owns 44% of NCB and 22% of Riyad Bank. Elsewhere

in the sector, JP Morgan International Finance sold its
minority stake in SIB in June 2018 for $203m, as part
of a winding down of its non-core global holdings. The
shares were sold back to SIB, which is majority owned
by the governmental agency.
NEW COMPETITION: In terms of new market entrants,
a number of Gulf institutions have recently applied for
licences to operate in the Kingdom, including First Abu
Dhabi Bank and Mashreq Bank. A number of global play-
ers have also expressed an interest in either entering
the market or expanding from an investment operation
to a full banking platform. In 2018 Citigroup re-entered
the market after nearly 15 years of absence by acquir-
ing an investment licence from the CMA. The bank is
reportedly considering an application to SAMA for a
full banking licence. Swiss multinational Credit Suisse
also confirmed in 2018 that it had applied for a bank-
ing licence, with the CEO of the company travelling
to Riyadh personally to meet the head of SAMA. The
bank currently holds a licence from the CMA to offer
Banks will likely raise deposit rates to attract more capital in 2019
investment services, but is still working with a local
custodian bank for its local operations. 12%, according to an OBG analysis of financial results. Although banks have
More Swiss interest came in 2018 from the Gene- The effects of lower oil prices began having an impact faced a challenging
va-based Bank Lombard Odier. In June the institution in 2015, with aggregate assets expanding by a more economic environment
since the decline in oil
revealed that it was in talks with a Saudi bank to estab- modest 3.42% to reach SR2.2trn ($586.5bn). In 2016 prices that began in 2014,
lish a partnership that would allow it to book money assets expanded by 2.1%, and by 2017 asset growth had the profitability of Saudi
locally and manage assets internationally. Bank Lom- slowed to 0.4%, while net loans and deposits showed Arabia’s banks has shown a
bard Odier, which managed $257bn of assets as of modest contractions of 1.1% and 0.7%, respectively. high degree of resilience.
the end of 2018, already operates a representative Banks reported lower lending opportunities in 2018,
office in Dubai and is currently seeking out partnership as firms adopted a wait-and-see stance with regard to
arrangements across the region. expansion plans. Cuts in government energy subsidies
PERFORMANCE: Banks have faced a challenging eco- also placed downward pressure on consumer spending,
nomic environment over recent years. The decline in oil negatively affecting the retail banking segment. In
prices which began in late 2014 led to concerns regard- September 2018 loan growth was largely flat, showing
ing reduced government spending and muted private a modest 0.2% rise year-on-year (y-o-y), while sector
sector demand. A process of economic reform, while deposits showed a decline of 2%, according to figures
welcomed as a necessary undertaking for long-term included in a report by Al Rajhi Capital.
growth and stability, has led to more market uncer- PROFITABILITY: Throughout this challenging period,
tainty. The last year the sector showed double-digit however, the profitability level of the Kingdom’s banks
growth was in 2014, when total assets expanded by has shown a high degree of resilience, supported by
 68
A $3.3bn funding pool to support down payments on properties is expected to boost real estate lending
Aggregate loan growth in
2017 shrank by 1%, marking
the first contraction in 11
years. However, in April
2018 lending growth was
making modest gains and
by January 2019 the value
of loans had risen by 2.4%
year-on-year.
BANKING OVERVIEW
rising interest rates, strong franchises and a relatively
advantageous market structure – with only 12 local
banks serving a population of over 30m people. Con-
solidated profits grew by 8.7% to reach SR45bn ($1.2bn)
in 2017, with all but one bank showing an increase in
profits for the year. In September 2018 sector income
had expanded by 10% y-o-y, driven by higher operating
incomes and a decline in provisions.
A dispute between banks and the General Authority
of Zakat and Tax (GAZT) regarding retroactive tax lia-
bilities threatened banks’ profitability in early 2018, but
by the end of the year it had been largely resolved. The
12 listed banks involved reached a SR17.9bn ($4.8bn)
settlement with the GAZT regarding the payment
of religious tax that had been due for a number of
years, including fiscal year 2018. Egyptian investment
company EFG Hermes predicted that any weakness
caused by the payments would be “short-lived”. Al Rajhi
Bank will pay the largest share amounting to SR5.4bn
($1.4bn), followed by Riyad Bank (SR3bn, $799.8m) and
Samba Bank (SR2.3bn, $613.2m).
LENDING SLOWDOWN: Following a modest increase
of 2% in 2016, aggregate loan growth in 2017 shrank by
1%, marking the first contraction in 11 years, accord-
ing to SABB. As with sector growth in general, the
knock-on effects of the oil price decline and subse-
quent economic uncertainty were responsible for the
slow recovery in credit extension, although beginning
in April 2018 lending growth made modest gains and
by January 2019 the value of loans had increased by
2.4% y-o-y, according to SAMA. “The year 2018 was not
easy, we didn’t grow as much as we wanted. While the
supply was available, the demand wasn’t there,” Tareq
Al Sadhan, CEO of Riyad Bank, told OBG. According to
global ratings agency Fitch, demand for credit is being
weakened by fiscal tightening, low confidence levels
and geopolitical risk. Banks have also shown a more
cautious approach to the corporate sector, where some
contractors continue to face difficulties in securing
www.oxfordbusinessgroup.com/country/saudi-arabia
payment from the government. In terms of lending
market share, NCB and Al Rajhi Bank together claimed
35% of net sector loans in 2017, with market shares of
18.1% and 16.9%, respectively. The next five banks by
size – Riyad Bank, Banque Saudi Fransi, Samba Bank,
SABB and ANB – together claimed 44.3%, with each
holding between 8% to 10%. The five smallest banks,
meanwhile, accounted for the remaining 20.1% of net
lending over the course of the year.
LIMITING RISK: As well as the economic backdrop,
regulatory changes are also playing a part in the muted
lending environment. The introduction of the Interna-
tional Financial Reporting Standards (IFRS) 9 at the
beginning of 2018 established stricter rules about
how much banks must provision for problem loans,
while SAMA introduced tighter corporate lending
rules designed to limit a bank’s exposure to a single
customer. Under the new large exposures framework
introduced by SAMA in 2015, which is coming into
effect in a transitional manner, by 2019 no bank will
be permitted to have exposure to any one customer of
more than 15% of their Tier-1 capital. This represents
a significant reduction from the previous limit of 25%.
Lending to the corporate sector has traditionally
been the preferred route to margin for the Kingdom’s
financial institutions, but an expansion of the bankable
population, advances in risk assessment practices and
the advent of new technologies have allowed Saudi
banks to make greater inroads into the retail and
commercial segment. Business loans still dominate,
however, accounting for 60% of total lending in 2017,
with consumer lending (24%) and real estate loans
(16%) accounting for the remainder.
CREDIT BUREAUS: The credit bureau industry has
registered exponential growth in terms of the variety
of economic sectors covered and credit information
included. The Saudi Credit Bureau was established in
2003 to collect, analyse and provide detailed credit
information on both individuals and local institutions.
In September 2018 sector income expanded by 10% year-on-year

In 2015 a second credit bureau, Bayan, was estab-
lished. Its main focus is on providing a platform for
business-to-business data. Advances in this segment
have seen number of citizens covered by a private credit
bureau increase from 14.1% in 2008 to 63.2% in 2018,
according to the World Bank. This is compared with
the OECD average of 64.4% and the MENA average of
18.1%. This is especially important as boosting finan-
cial inclusion for small and medium-sized enterprises
(SMEs) is seen as a cornerstone of the Kingdom’s eco-
nomic diversification strategy. Ayman Sejiny, CEO of the
Islamic Corporation for the Development of the Pri-
vate Sector (ICD), the private sector arm of the Islamic
Development Bank Group, told OBG that ICD is helping
the government reach its objective of quadrupling the
contribution of SMEs to the Kingdom’s GDP. In 2014
the ICD set up the first SME investment fund in Saudi
Arabia, an SR1bn ($267m) quasi-equity and debt, sha-
ria-compliant fund to invest in SMEs with high growth
potential. In addition, in 2018 ICD organised various
events to support start-ups.
An improved credit reporting system should facilitate
lending to SMEs, which often lack physical collateral or
are otherwise unable to prove their creditworthiness.
“The primary use of credit information services is to
reduce the country’s rate of defaults and ultimately
extend financing to local SMEs,” Hesham H Almadbl,
acting CEO of Bayan Credit Bureau, told OBG.
SECTOR STABILITY: While NPLs have grown as a result
of the introduction of the new IFRS 9 accountancy
standards, with most banks showing rises in NPLs at
the beginning of 2018, banks were protected against
any deterioration in asset quality by high levels of loan
loss provisions and sizeable capital buffers. In 2018
Saudi Arabia’s average weighted core capital ratio of
17.8% was one of the highest globally. The sector also
exhibits high levels of liquidity, which helps to mitigate
risk arising from funding contractions. At the outset of
2018 the average weighted liquidity coverage ratio for
Financial technology offers banks a low-cost way to streamline services
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BANKING OVERVIEW 71
Businesses made up 60% of lending in 2017, followed by consumers loans (24%) and real estate loans (16%)
banks rated by Fitch stood at 208%, supported by large In 2018 Saudi Arabia’s
stocks of liquid assets, representing 20% of total assets. average weighted core
REGULATION: The stability of the Kingdom’s banking capital ratio of
sector is to a large extent due to the prudence of its
regulator. The 1966 Banking Control Law set out the
statutory requirements on banks and established which
17.8%
was one of the highest
activities could or could not be carried out in the King- globally
dom. This framework applies to all banks nationwide,
both Islamic and conventional, and SAMA makes no
licensing distinction on grounds of sharia compliance.
SAMA has sought to reduce the potential for external
shocks and speculative interest by limiting the foreign
ownership of locally licensed commercial banks to 40%,
and requesting that 20% of a bank’s liabilities be held
in liquid assets – a demand which limits the amount of
capital that can be invested overseas. As well as ensur-
ing the stability of the industry, SAMA is also charged
with supporting the wider financial sector, including the
insurance industry, and ensuring that it plays its proper
role in the economic development of the country. In
terms of strategy, SAMA’s Banking Vision 2020, now in
implementation phase, aims to bolster the economic
role of the financial sector by addressing issues such as
financial inclusion, technological advances and increas-
ing the skill set of the local labour force.
The most significant regulatory change experienced
by Saudi banks since 2017, however, was the introduc-
tion of the IFRS 9 regulations. The new framework sig-
nificantly alters the way banking institutions calculate
their potential impairments, or bad loans, changing
the process from an historical one – whereby banks
reviewed past performance in determining their pro-
visions against impairments – to a forward-looking In 2015 the central
one, in which the losses from an impaired asset are bank introduced tighter
projected over the next 12 months. If there is a sig- corporate lending rules,
slowly reducing the amount
nificant increase in credit risk, the credit losses are
of Tier-1 capital banks
projected over the instrument’s full lifetime. can hold from any one
In practice, IFRS 9 makes it harder for banks to delay customer from 25% to 15%
recognition of their impaired assets, and in a number of the total by 2019.
THE REPORT Saudi Arabia 2019
72 BANKING OVERVIEW
In 2018 private credit bureau coverage extended to 63.2% of all Saudis
40% of Middle Eastern markets – where some banks do not
charge interest on late payments and provide loans to
related parties with low or no interest charges – its
of Saudi consumers
implementation is challenging. In Saudi Arabia, the
consider it a priority for
main effect of the new standard has been an increase
banks to provide mobile
services in provisions, which in turn impacts banks’ solvency
positions and shareholders’ equity.
DIGITAL FINANCE: Despite the challenging environ-
ment, financial technology (fintech) products and ser-
vices are expanding rapidly in Saudi Arabia. The SAMA
sandbox is currently testing seven fintech solutions.
The sandbox guidelines are considered to be highly
inclusive, and are supported by banks. Further, related
regulations are set to be issued that will support more
fintech enterprises in the market in the process of
obtaining licences. A second application round for the
sandbox will provide opportunities to other fintech
companies in the lending landscape.
In the Kingdom the rate of smartphone ownership
is close to 90%. According to a 2017 survey published
Commercial banking assets, 2014-18 (SR bn)
2014
2015
2016
2017
2018
0 500 1000 1500 2000
Source: SAMA
www.oxfordbusinessgroup.com/country/saudi-arabia
by YouGov, a UK-based market research firm, mobile
apps are the preferred channel of communication for
banking activity for a quarter of Saudi consumers, while
40% consider it a priority to have banking services
available on their mobile phone. Fintech solutions also
offer banks a relatively low-cost way of streamlining
services and boosting banking inclusion.
In October 2018 Saudi Telecom Company (STC)
launched the beta version of its mobile wallet STC
Pay. The app allows customers to access basic finan-
cial services through their phone, including paying at
participating stores, settling utility bills, and transfer-
ring money directly to other STC Pay users and bank
accounts. It was also revealed in late 2018 that global
payments service Western Union was in negotiations
with STC Pay to add cross-border technology, allow-
ing users to send money to friends and family in most
countries without the need for an account at a formal
financial institution. STC Pay has also joined forces with
ANB and Saudi Post to establish a framework for its
remittance business and product distribution.
The regulator has shown itself to be positively dis-
posed to fintech. In February 2018 it signed a deal with
the US-based blockchain company Ripple to create
a pilot programme for the Kingdom’s banks to test
cross-border transfer settlement processes. Following
the decision, four banks signed up to global payment
system RippleNet, thereby opening up new remittance
payment corridors between Saudi Arabia and other
markets. In December 2018 SAMA announced that it
was also working with the UAE on the establishment
of a digital currency that would be used in transferring
funds between the two countries.
OUTLOOK: While 2018 was a quiet year in terms of
lending activity, the longer-term potential of the mar-
ket is evidenced by the interest shown in it by a raft of
international institutions – although it remains to be
seen how readily SAMA will welcome an influx of new
banking brands. The capital spending commitment in
the government’s 2019 budget has been welcomed
by the sector (see Economy chapter), and holds the
prospect of increased lending opportunities.
Mortgages represent another possible avenue to
loan growth for some Saudi institutions. A new hous-
ing project announced in February 2018 includes an
SR18bn ($4.8bn) loan-guarantee programme and a
SR12.5bn ($3.3bn) funding pool to support down pay-
ments on properties, all of which is to be disbursed by
2030. In August 2018 Al Rajhi Bank reported a 6% y-o-y
increase in real estate loans, which it hoped would
help to return its overall lending growth to a “low sin-
gle-digit” level for the full year.
Other sectors, meanwhile, have become more prom-
ising as a result of an ongoing process of liberalisation
and efforts to boost tourism levels. Entertainment
is one such area of interest to the Kingdom’s banks.
OBG understands from discussions with leading insti-
tutions that, with the capital requirement for a new
2500 cinema standing at around SR25m ($6.7m), or SR3m
($799,800) per screen, significant potential exists for
credit extension to the industry over the long term.

Innovative solutions
Ahmed Alkholifey, Governor, Saudi Arabian Monetary
Authority (SAMA), on strengthening the sector through new
policies and technology
In what ways are monetary tools being implemented
in order to help reduce the impact of US Federal
Reserve interest rate hikes?
ALKHOLIFEY: The benefits of the riyal-dollar peg far
outweigh the effects of higher interest rates from the
US Federal Reserve. Our pegged exchange rate – which
has been in place since 1986 – has provided stability
and certainty for domestic businesses in an oil-dom-
inant economy. Additionally, we have a wide range of
macroprudential tools for managing liquidity when
the local market is in disequilibrium. For example, the
caps on loan-to-deposit and loan-to-value ratios have
both been raised in order to stimulate credit extension.
SAMA’s monetary policy is focused on maintaining
exchange rate stability rather than targeting inflation.
Although long-term inflation patterns are somewhat
correlated in Saudi Arabia and the US, the exchange
rate pass through tends to be weaker than government
spending in influencing inflation.
Going forward, what role is mergers and acquisi-
tions activity likely to play in driving further consol-
idation in the Kingdom’s banking sector?
ALKHOLIFEY: One of the main objectives of mergers
and acquisitions activity in the Kingdom’s banking sec-
tor is to create operational efficiency and strengthen
the financial system. Mergers enable shareholders to
consolidate their interests, expand their operations as
well as enhance credit volume, while at the same time
allowing them to increase the ticket size of their loans
and their investments. In recent years, Saudi Arabia’s
banking system has grown and expanded, thanks in
large part to an increase in the number of foreign bank
branches and investment banks that have been licensed
by SAMA and the Capital Market Authority. This growth
is supporting SAMA’s objective of establishing more
banks and expanding existing branches in order to add
value, have better reach in rural areas, invest in new
technologies and provide high-quality banking services.
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BANKING INTERVIEW 73
Ahmed Alkholifey, Governor, Saudi Arabian Monetary Authority
How is SAMA leveraging financial technology (fin-
tech) to encourage wider availability and accept-
ance of cashless payments?
ALKHOLIFEY: New technology, coupled with the
demand for secure and personalised banking expe-
riences, are encouraging the development of fintech
products in the retail banking segment. We have already
introduced a regulatory sandbox allowing banks and
fintech companies to test new ideas for a limited period
with live consumers and fewer regulatory restrictions.
In addition, as part of the Financial Sector Development
Programme, SAMA launched FinTech Saudi, a govern-
ment arm to connect and build the ecosystem of the
emerging fintech industry. More than 15 fintech com-
panies have been identified that provide a spectrum
of supporting services to the financial and insurance
industry, including the seven currently in the sandbox.
Over the last 30 years SAMA has invested heavily in
building payment infrastructure and the authority will
continue to support the growth of cashless payments.
The Saudi payment network Mada has doubled the
number of point-of-sale terminals in operation since
2015, which enabled the number of card transactions to
exceed 1bn in 2018. We have also introduced new cate-
gories of payments, which address business-to-business
and peer-to-peer payment transactions.
How are new financing solutions helping to bridge
the existing financing gap for small and medi-
um-sized enterprises (SMEs)?
ALKHOLIFEY: Saudi Arabia has been paying more
attention to enhancing the entrepreneurship envi-
ronment and improving SMEs’ access to finance. The
initiatives not only cover bank lending as an external
finance option but also offer alternatives, such as
capital funds, and factoring and crowd-funding plat-
forms. Broadly speaking, SAMA will seek to benefit from
shorter-term market opportunities by deviating from
its strategic policy mix, within predefined risk limits.
THE REPORT Saudi Arabia 2019
74 BANKING INTERVIEW
Søren Nikolajsen, Managing Director, Alawwal Bank
Joining forces
Søren Nikolajsen, Managing Director, Alawwal Bank, on
integrating technologies amid consolidation
When is the merger between Alawwal Bank and
the Saudi British Bank likely to be finalised?
NIKOLAJSEN: The merger process is running on
track. We are currently working through regulatory
and shareholder approvals, and continue to expect
legal completion during the first half of 2019. Full
integration, however, will take longer. The integration
of IT systems will take careful planning with a very
close eye on making sure our customers continue
to receive the same high level of service they are
used to. An 18- to 24-month timeframe would not
be unrealistic for full integration.
What can be done to improve financial literacy
throughout the Kingdom?
NIKOLAJSEN: Improving financial literacy is critically
important. According to the World Bank, only 30%
of adults in Saudi Arabia are considered financially
literate. This is less than half compared to the likes of
the UK, Germany and the Nordic countries. Improving
financial literacy is therefore a key objective of the
Kingdom’s Financial Sector Development Programme,
one of the 12 executive programmes launched under
Vision 2030. The programme has a specific target to
increase savings from 6% to 10% of total household
income. This will require a conscious effort across
many sectors, starting with education in schools and
universities. The private sector – banks in particu-
lar – also have an important role to play. We need
to develop innovative products and smart ways to
educate our customers of the importance of saving
for vital life stages such as buying a house, educating
children and saving for retirement. Financial literacy
is therefore very high up on our list of priorities.
In what ways can new technologies transform
the way that banks operate?
 very close cooperation with our regulator, the Saudi
NIKOLAJSEN: Technology in general, and artificial
intelligence (AI) in particular, can transform how we
www.oxfordbusinessgroup.com/country/saudi-arabia
operate in so many ways. Analysing vast amounts
of data, directly interacting with customers and
helping to improve our control environment are just
a few examples of how technology can be used to
improve how banks operate. Banks have no choice
but to embrace this new technology. The trends are
clear – usage of online and mobile services has grown
significantly, while footfall in traditional branches
is down. Our customers are basically telling us they
want to do banking in a different way – whenever
they want, wherever they want. Saudi Arabia, with its
young tech-savvy population, is no different to more
mature markets in that respect, so we need to be
ready for this change. In order to do so, we recently
rolled out an AI training course for all Alawwal Bank
employees. It was a voluntary course, but I have been
pleased with the significant participation from col-
leagues across the bank. A better understanding by
many of what the new technology can do, and what
it cannot do, is important as we continue to develop
new, smarter and more efficient ways to do business.
How can cybersecurity concerns linked to in-
creased use of technology be reduced? 

NIKOLAJSEN: IT security is a constant battle that will
never end. As banks develop newer and safer tech-
nologies, cybercriminals develop new ways of trying
to circumvent our security. The frequency, impact
and sophistication of cyberattacks are increasing,
but thankfully so is our ability to prevent attacks.
This is partly aided by AI, which allows us to mon-
itor and screen transactions, and detect unusual
patterns in ways that were not previously possible.
We also continuously test and educate staff to be
vigilant and report any attempts from cybercriminals
to gain access to the bank’s systems. There is also
Arabian Monetary Authority, who actively promotes a
cyber-conscious control environment for the sector.

Fintech revolution
Tech solutions are driving the evolution of the sector landscape
Once reserved for ambitious start-ups and indus-
try-leading operators, financial technology (fintech)
has caught the attention of private sector firms and
government planners alike, becoming a regular fea-
ture in budget speeches and development plans. As
fintech plays a larger part in the lives of consumers,
investors have come to recognise its growth potential.
Tech-focused Janus Henderson Global Technology Fund,
for example, has expanded by more than 160% since
February 2013, and by some 30% in 2017 alone.
Fintech is rapidly advancing across global markets.
While the concept was pioneered in developed coun-
tries, the fluidity of international capital and borderless
nature of technology adoption means emerging mar-
kets are catching up quickly. As competition mounts
between jurisdictions, the coming years are likely to see
fintech innovations on a widening geographic front.
However, this will inevitably bring challenges. As large
tech groups move into banking, traditional lenders will
struggle to maintain market share. Meanwhile, regula-
tors must be flexible with fintech to attract investment
while also maintaining their prudential standards or risk
reputational damage. With significant investment and
a rapidly evolving landscape, fintech offers real growth
opportunities, but its uptake by global banks is likely to
follow an unpredictable trajectory.
CONVERGENCE: The fintech industry has seen a con-
vergence of actors cooperating and competing to drive
growth. While the early days of the fintech revolution
were characterised by start-ups taking on and beating
incumbents, in 2018 there is notably more market coop-
eration. Fintech start-ups can benefit from the large
customer bases of established financial institutions,
which in turn are seeking innovative ways to boost pro-
ductivity and gain a competitive edge, at times through
partnerships with nascent fintech counterparts.
COOPERATIVE TREND: Financial institutions’ enthu-
siasm to work with fintech companies varies between
countries, but a recent PwC survey found that at the
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75
Global
Perspective
global level, 45% of respondents had formed such part- While the early days of
nerships in 2017, up from 32% in 2016. In Germany fintech advances were
characterised by start-ups
the level was as high as 70%. Even in less-established
competing with traditional
financial markets, this trend is gaining momentum: banks, more partnerships
South Africa and Indonesia had rates of 64% and 55%, are taking place in 2018.
respectively. Crucially, in all 32 markets surveyed, a
majority of respondents expected an increase in this
type of partnership over the next three to five years.
Strengthening ties between start-ups and estab-
lished institutions does not mean the era of usefully
disruptive competition is over. New players are entering
the ecosystem, and some – such as ICT firms, large
tech companies, social media platforms, e-retailers
and financial infrastructure companies – are adopting
a more confrontational stance on client acquisition.
The growing diversity of fintech actors bodes well
for innovation and product development; however,
traditional institutions are understandably concerned
about the risks these tech-savvy newcomers pose to
their business models. Some 80% of the respondents in
PwC’s survey fear losing business to innovators, particu-
larly in payments, funds transfers and personal finance.
TECHNOLOGY TREE: In addition to competing with
a widening field of participants, financial institutions
must keep pace with the expanding selection of fin-
tech products and services. For banks, lending- and
payment-related products have been the entry point
to the fintech arena, with this being the segment’s main
growth driver. The Fintech100 list for 2017 – a collab-
oration between H2 Ventures and KPMG to analyse
and assess the international fintech landscape – found
that 32 of the top-100 fintech companies were lending
operations, while 21 were based on payments. Together,
these made up the single-biggest category of fintech
services – a status they are likely to retain given the The range of fintech players
continues to diversify, with
lucrative returns available in the lending market.
ICT companies, social media
In terms of underlying technology, effective data use platforms, e-retailers and
forms the basis of business models for the majority of financial infrastructure
fintech firms, and manipulating and analysing large firms entering the market.
THE REPORT Saudi Arabia 2019
76
Financial institutions are datasets is likely to continue to form the foundation
spending of fintech development. In the 2017 PwC survey, some
3x 74% of the large financial firms interviewed stated that
data analytics would be the “most relevant” technology
they planned to invest in over the following 12 months.
more than non-financial
firms on cybersecurity More recently, banks have begun to see artificial
intelligence (AI) as a key area of innovation. Advances
in AI have turned the technology into a top priority for
financial services, with AI start-ups collectively receiving
an average of $1bn in annual funding in 2016 and 2017.
In the banking sector, AI has a broad range of poten-
tial applications, including contract intelligence, which
is used to analyse contracts and extract important data
points; lending opportunity engines, which search for
and select clients most suitable for credit extension;
robo-advisers, used to provide counsel for various
investment activities; and virtual assistants, which can
support customers with various tasks, such as retrieving
account information and resetting passwords.
MOBILE SERVICES: Mobile fintech is another priority.
The cost advantages of mobile apps that allow cus-
tomers to manage their finances without walking into
a brick-and-mortar branch are obvious, and most of
the world’s largest financial institutions have devel-
oped retail-focused mobile platforms. Mobile fintech
has expanded from the basic functionality of the ear-
liest portals to include mobile wallets, peer-to-peer
payments and digital-only banks. The popularity of
such developments has compelled traditional financial
institutions to offer their customers the same services,
with banks sometimes forming partnerships to do so.
As more financial services go remote, digital secu-
rity is receiving greater investment. With high-profile
data breaches having the potential to not only damage
reputations, but also incur monetary losses, financial
institutions are spending three times more than non-fi-
nancial organisations on cybersecurity, according to
a recent report by Kaspersky Lab, a Moscow-based
multinational cybersecurity and anti-virus firm.
FRIEND OR FOE: This increasing diversity and rapid
development have made it difficult for banks to decide
whether these technologies are a threat to business
or a means to increase profitability. In some markets,
however, the challenge to incumbents is unambiguous,
with fintech firms obtaining banking licences and com-
peting directly with established lenders. After a decade
of hardly any new banking licence issuance in the US, for
example, 2017 saw several fintech businesses announce
plans to transform into fully fledged lending institutions.
Varo Money, founded in 2015 with $27m in capital
from US-based private equity firm Warburg Pincus,
applied for a national bank charter in July 2017, having
already developed its banking offer through a partner-
ship with the Bancorp Bank. It has a similar business
model to traditional institutions, based on chequeing
accounts, direct deposits, online bill payments and
debit cards. Unlike traditional players in the US market,
however, it aims to attract customers by waving over-
draft fees, minimum balance fees and ATM charges.
On the other side of the Atlantic, Sweden’s Klarna,
one of Europe’s highest-valued fintech start-ups,
www.oxfordbusinessgroup.com/country/saudi-arabia
obtained a banking licence in June 2017. Its approval
by Sweden’s Financial Supervisory Authority allows the
firm to offer retail banking services, including credit
card provision, across the EU. Traditional banks have
been quick to react to this trend, in part by providing the
financial infrastructure that supports new digital banks,
thereby retaining a stake in this rapidly evolving market.
OUTSOURCING: In other circumstances, where the
creation of new institutions through partnerships is
not the preferred option, banks are joining forces with
fintech firms to enhance their digital offerings under
their existing brands. In doing so, they aim to establish
proprietary digital infrastructure to compete with more
digitally nimble newcomers, frequently across national
and continental boundaries. In October 2013, for exam-
ple, Canada’s Scotiabank inked an agreement with
one of Latin America’s most prominent accelerators,
Argentina-based NXTP Labs, to gain access to fintech
developments in Mexico, Colombia, Chile and Peru.
Bank Islam Malaysia has formed a strategic partner-
ship with Cognizant, a US professional services firm, to
build a new digital platform enabling the bank to boost
its exposure to small and medium-sized enterprises,
and Malaysia’s rural, underbanked population.
Fintech partnerships have proven particularly popu-
lar in emerging markets saturated with modestly capi-
talised lenders, since regulators in these environments
are generally less willing to issue new banking licences.
In more developed markets, some traditional lenders
are going farther, establishing standalone digital banks
to compete with this new breed of competitor. Spain’s
Santander Group, for example, launched Openbank, the
nation’s first completely digital banking institution, in
June 2017. It has similarly grouped its mobile services
– including brokerage, personal financial management,
card control and payments – into a single app, which
it advertises as a virtual branch, offering personal
account managers and on-call access to customers.
WIDENING ACCESS: Whether digital financial services
are implemented via partnerships or within existing
infrastructure, the potential for fintech to engage
unbanked populations places the segment’s develop-
ment high on the agenda of emerging countries. “The
greatest innovation for the banking sector can also
come with enhancing inclusion,” Abubakar Jimoh, CEO
of Nigeria’s Coronation Merchant Bank, told OBG. “The
number of people participating in the formal financial
sector is still grossly inadequate, and that is where
fintech services can aid in the sector’s development.”
REGULATION: Financial authorities, too, are being
compelled to react quickly to new technologies. In most
respects, the burgeoning fintech industry is viewed
by regulators as a positive development. Worldwide,
the fintech segment attracted $31bn in investment in
2017, according to global consultancy KPMG, bringing
the total investment since 2015 to $122bn.
Governments have taken note of this new magnet for
domestic and foreign investment, with central banks
adopting accommodative policies towards fintech
firms. The disruptive power of technology has increased
competition and compelled traditional institutions to

improve their offerings across business lines. This has
been welcomed by regulators, as it enhances consumer
experience and drives growth.
Regulators are also mindful of the prestige attached
to fintech, with financial jurisdictions that lack support
for young tech companies and start-ups potentially
perceived as second-tier investment destinations.
Nevertheless, the growth of the global fintech indus-
try and the absorption of its products by banks from
New York to New Delhi have raised a number of con-
cerns on the part of regulators, especially regarding
consumer protection and market stability. Determining
regulations for high-risk start-ups and advanced tech-
nologies is a complex undertaking, and the prudential
mandate of regulators means protecting the general
public and the wider financial system from technolog-
ical misadventures is a primary responsibility. At the
same time, an overly rigid regulatory framework makes
financial innovation all but impossible, and could deny
markets the possible advantages of new technology.
SANDBOX: Many regulators have therefore taken a cre-
ative approach to the fintech industry. For an increasing
number of them, the answer to the balancing act of
encouraging growth while ensuring stability lies in
creating a regulatory sandbox. The concept is straight-
forward: a separate regulatory entity is endorsed or
operated by the regulator, allowing for limited-scale
testing of new products for a fixed period, during which
the normal regulatory requirements are relaxed or
lifted entirely. For example, a fintech company may be
allowed to test a mobile payment platform on 2000
customers for three months, after which the regulator
judges this performance against a previously agreed
upon set of metrics. The regulator can then make a
decision based on the risks and merits of the innovation.
The regulatory sandbox was pioneered by the UK’s
Financial Conduct Authority in 2015, with the first fin-
tech firms utilising the platform for trials as recently
as 2016. Sandbox tests have included cross-border
and domestic blockchain-based payments solutions,
consumer-oriented mobile applications, securities
management platforms and new lending products.
By early 2017 there were sandboxes at various stages
of development in the US, Singapore, Hong Kong, Malay-
sia, Thailand, Switzerland and the UAE, and several more
have since been established. The European Banking
Federation, for its part, has suggested that a fintech
sandbox be created for the whole of Europe, allowing
companies to trial products on a cross-border basis.
While traditional centres for fintech innovation –
notably the US and the UK – continue to dominate the
industry, the regulatory sandbox concept empowers
other financial industries to establish themselves on
equal regulatory terms. As a result, emerging markets
are becoming more prominent in the global arena, a
trend likely to continue in the years ahead.
MENA: The MENA region has been an early adopter
of this model. Abu Dhabi was the first in the region to
launch a regulatory sandbox, accepting the first five
start-ups to its Reg Lab in 2017. Projects that emerge
successfully from the platform can then establish a
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77
commercial presence in the Abu Dhabi Global Market, The UAE, Jordan,
the emirate’s offshore financial centre. Lebanon and Egypt
While emerging regulatory sandboxes are expected account for around
to fuel experimentation and innovation in MENA, the
region has already made considerable progress in finan-
cial start-ups. Along with the UAE and Jordan, Lebanon
75%
and Egypt – neither of which have sandboxes – account of start-ups in the MENA
region
for around 75% of start-ups in the region.
Egypt’s extensive consumer base, quickly approach-
ing 100m, makes it an attractive destination compared
to the high-net-worth but relatively small markets of the
Gulf, and recent years have seen a steady stream of fin-
tech accelerators established in the country. The most
recent of these – Fekretak Sherketak, which translates
to “Your Idea is Your Company” – was launched in late
2017 by Egypt’s Ministry of Investment and Interna-
tional Cooperation, the UN Development Programme
and the Egyptian investment bank EFG Hermes.
ASIA: Meanwhile, in Asia, China, Singapore and Hong
Kong remain the key drivers of fintech, though other
large economies, such as India and South Korea, are
also exploring major fintech deals. Hong Kong in par-
ticular has warmed to the sandbox concept. In the third
quarter of 2017 the Hong Kong Monetary Authority
upgraded its fintech sandbox, while the Securities and
Futures Commission and the Insurance Authority both
revealed plans to establish sandboxes of their own.
As with the Egyptian example, emerging markets with
large consumer bases are proving to be fertile ground
for fintech activities. At the start of 2018 Indonesia had
more than 150 fintech start-ups, a nearly 80% rise on
2015. In a country in which only 40% of the 250m-strong
population has access to the formal financial system,
banks are using fintech to broaden their customer base.
LATIN AMERICA: Accelerators continue to be the main
drivers of fintech growth in Latin America, helping
channel significant capital to the sector. According to
the Latin America Private Equity and Venture Capital
Association, the region’s fintech industry attracted
$186m in venture capital in 2017, with more than one-
third of inflows directed towards fintech start-ups.
Mexico has established itself as a centre for fintech
innovation, particularly in mobile banking, which has
caught the interest of banks and investment firms
alike. In the second half of 2017, for example, HSBC and
Ignia announced their support for Startupbootcamp
FinTech Mexico City, part of an international network of
fintech programmes extending to London, Amsterdam,
New York, Singapore and Mumbai. While the lack of a
regulatory framework is often seen as an obstacle to
domestic growth, a fintech law passed by the Mexican
Senate in December 2017 is set to boost the industry.
Argentina made a similar legislative advance earlier
in the year when it passed the Entrepreneurs Law. The
new framework replaces old procedures for applica-
tions, approvals and financing, which previously took up In emerging markets,
to one year for businesses to complete. The country is where millions of people
lack access to the formal
already home to many of Latin America’s most notable
financial system, banks
start-up success stories; NXTP Labs, for instance, was are increasingly turning to
launched in Buenos Aires in 2011 and has grown its fintech to broaden their
portfolio to include more than 150 global start-ups. customer bases.
THE REPORT Saudi Arabia 2019
 79

Capital Markets
Sovereign debt setting a track record of investment
Emerging market status upgrade boosts confidence
Legal moves expand market access to foreign players
Derivatives and futures selling to enter the bourse

Rising status
New instruments on offer and increased foreign involvement
are setting the stage for an influx of new investment
The Saudi Stock Exchange (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 influen-
tial indices and a lengthy roster of initial public offering
(IPO) prospects emerging from the Kingdom’s Vision
2030 strategy mean that the near term is likely to be
another lively period for the market.
HISTORY: The modern era of Saudi Arabia’s capital
markets began in the 1930s, when the Arab Automo-
bile Company was established as the Kingdom’s first
joint stock company. In the early years of the informal
market, trading was limited to a handful of firms, but
an oil boom following the Second World War led to a
rapid increase in activity, with 14 public corporations
establishing themselves in the country by 1977. The
authorities decided that it was time for a more formal
basis for trading activity in the 1980s and tasked the
Ministry of Finance (MoF), the Ministry of Commerce
and Industry and the Saudi Arabian Monetary Authority
(SAMA) with establishing a proper exchange infrastruc-
ture. In 1990 SAMA created Saudi Arabia’s first elec-
tronic trading system, known as the Electronic Security
Information System, which linked the central bank with
12 central trading units operated by individual banks.
This resulted in a more streamlined market, increased
trading activity and a narrowing of price spreads.
In October 2001 the exchange implemented a more
advanced system capable of handling larger trading
volumes which, after more expansions and enhance-
ments, is still in place today. The government introduced
the Capital Market Law in 2003, which resulted in the
creation of a number of key institutions, including new
regulators for the market: the Capital Market Authority
(CMA), the Committee for the Resolution of Securities
Disputes (CRSD) and the Appeals CRSD. More recently,
exchange development has centred on opening up the
bourse to non-Saudi participation and bringing stand-
ards and processes in line with global best practices.
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CAPITAL MARKETS OVERVIEW 81
There are 190 companies listed on the main market of the Tadawul
This effort has been rewarded by some of the world’s While primarily an equity
most influential capital markets intermediaries. The exchange, over the past
Tadawul announced in mid-2018 that the MSCI, the decade the Tadawul has
evolved from its starting
leading provider of global equity indices, upgraded the point as a single-asset-
Kingdom to an emerging market from its previous sta- class platform to include
tus of standalone market. Saudi Arabia, which was also a wider array of financial
added to the FTSE Russell Emerging Markets Index as a instruments.
secondary emerging market in 2018, will be included in
MSCI’s Emerging Market Index in two phases with the
May 2019 Semi-Annual Index Review and the August
2019 Quarterly Index Review. The Kingdom is now the
third country in the GCC to be included in the MSCI
Emerging Markets Index, and it is by far the largest,
with a total market capitalisation of more than $500bn.
MAIN MARKET: At the outset of 2019 there were 190
companies listed on the main market of the Tadawul.
Since 2017 they have been divided into 20 sectors,
defined by the Global Industry Classification Standard,
developed by MSCI and S&P Dow Jones Indices, which
include allocations such as energy, materials, capital
goods, retailing, biotech and life science, real estate
investment trusts (REITs), and real estate management
and development. While primarily an equity exchange,
over the past decade the 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 (ETF).
The first ETF listing in the Kingdom was the Falcom
Saudi Equity ETF. It has since been joined in the market
by the Falcom Petrochemical and HSBC Saudi 20 ETFs.
PERFORMANCE: Firming oil prices and the news in
June 2017 that the Tadawul was on the MSCI watch
list for an upgrade to emerging market status helped
make 2018 a positive year for the exchange. The TASI
closed the year at 7826.73 points, an 8.31% gain over
2017. Market capitalisation also rose in 2018, gaining
around 10% to reach nearly SR1.9trn ($506.7bn). In
terms of sectoral activity, media and entertainment
showed the highest gain for the year, rising by nearly
THE REPORT Saudi Arabia 2019
82 CAPITAL MARKETS OVERVIEW
There are a number of major initial public offerings in the pipeline
Between October 2016 32% over 2017, followed by banks (31%) and telecom-
and 2018 Saudi Arabia munication services (27%). The sectors which saw the
raised a total of most retrenchment were real estate management and
$52bn development (-31%), utilities (-26%) and REITs (-22%).
PARALLEL MARKET: The Tadawul and the CMA offi-
cially launched Saudi Arabia’s new parallel market,
through conventional
bonds and sukuk Nomu, in 2017. As in similar markets elsewhere in the
world, Nomu offers listing companies a more lenient
regulatory regime, and is intended to act as a platform
on which smaller firms can raise funds. Consequently,
there are a number of important differences in the list-
ing requirements between Nomu and the main board:
the minimum market capitalisation is set at just SR10m
($2.7m), compared to SR100m ($26.7m); firms must
have an operation history of one year, as opposed to
three; quarterly disclosure requirements are slightly
longer than on the main board; and the minimum free
float is 20% of the company, rather than 30%. As of
early 2019 there were 10 listings on Nomu, double the
amount at the time of its inauguration. Liquidity on the
platform is low compared to the main market, which is
often the case with secondary boards. However, liquid-
ity on Nomu has also been impacted by CMA policies
that aim to protect investors. For instance, only qualified
entities are permitted to invest on the board, including
corporations, government-owned companies, GCC
funds and firms, investment funds and discretionary
portfolio managers, as well as individuals who have at
least SR40m ($10.7m) invested on the Tadawul All Share
Index (TASI), a portfolio size of over SR10m ($2.7m) or
hold the relevant certificates.
DEBT MARKET: One area that is still in the early stages
of development is the bourse’s debt market. The market
has been home to an electronic trading platform for
conventional bonds and sukuk (Islamic bonds) since
2009, but corporate bond and sukuk listings on the
exchange have remained at negligible levels. However,
the government has moved to invigorate the market
by listing a number of its own debt instruments, with
this process completing in 2017. The arrival of these
instruments on the exchange has greatly increased
offerings available to investors in the secondary market:
some 60 of the 65 sukuk listed on the exchange were
government debt instruments as of early 2019.
ACTIVE IN ISSUANCE: The state is also galvanising
the Kingdom’s wider debt market through its regular
sovereign issuances, which provide a useful yield curve
for corporate offerings. In October 2016 Saudi Ara-
bia staged its first international bond sale, attracting
$17.5bn in a heavily oversubscribed offering, which is
the largest of its kind to come from an emerging market.
In April 2017 the country diversified its funding base
still further, with the well-received issuance of its first
dollar-denominated sukuk – sold in two $4.5bn tranches
with tenors of five and 10 years. Since then, the coun-
try has emerged as a major regional issuer of debt,
having raised $52bn through international notes, both
conventional and sukuk, by October 2018. An $11bn
bond sale in April 2018 covered most of Saudi Arabia’s
hard currency needs for the year, and in September

2018 the government completed its external funding
requirements with a $2bn sukuk offering. This is in line
with the MoF’s commitment to “the development of
the sharia-compliant debt capital markets”, as stated by
the Debt Management Office at the time. The Kingdom
began 2019 by raising $7.5bn in an international long-
term debt issuance that attracted $27bn in orders.
In late 2018 the MoF announced intentions to issue
around SR32bn ($8.5bn) in further bonds over the
coming year. Assuming no repayments, that would
bring total government debt to approximately SR678bn
($180.8bn), a comfortable level of around 22% of GDP.
REGULATION: The continued development of the
exchange is being overseen by the CMA, which is given
a broad mandate by the Capital Markets Law, including
oversight of security issuance, listing, trading, settle-
ment and regulatory enforcement. Since 2015 one of
the body’s chief strategic priorities has been opening
the bourse to foreign investment through a qualified
foreign investor (QFI) model, which grants direct access
to the exchange to a limited number of foreign insti-
tutions, such as banks and brokerages.
Since the introduction of the QFI system the CMA
has been gradually lowering the minimum criteria for
QFIs – most recently in January 2018 when the mini-
mum asset value requirement was lowered from $1bn
to $500m. Other such moves have included raising the
limit for a single QFI’s stake in one company from 5%
to 10%; lifting the threshold for total foreign holdings
in a listed entity to 49%; making it easier to register
as a QFI through the removal of the requirement to
have the CMA’s review and approval; and allowing the
automatic qualification of units and managed funds of
applicants without the need for separate applications.
Early entrants into the market included some of the
world’s most prominent asset management brands,
including HSBC Bank, Ashmore Investment Manage-
ment and Blackrock Fund Advisors. The number of QFIs
qualified for investment in the Tadawul grew by 176%
over 2016 to reach 47 institutions, and by the close of
2017 a total of 118 foreign financial institutions had
registered to trade on the exchange.
DEVELOPING THE MARKET: As well as widening the
investor base, the Tadawul and the CMA have been
deepening the market through the introduction of
products. The Kingdom’s first REIT was issued by Riyad
Capital in 2016. Following this, it quickly emerged as a
popular investment tool, with yields in excess of 7%. The
market leader in the instruments is Jadwa Investment,
which launched its first REIT in April 2017 and a second
in February 2018. This made it the first firm to list two
REITs on the Saudi market and the largest manager of
the products in the Kingdom, with more than SR2.3bn
($613.2m) of assets under management. Additionally,
in 2017 the Kingdom transitioned to a T+2 settlement
cycle for all listed securities – replacing the T+0 frame-
work and aligning the bourse with international best
practices – and became the first country in the GCC
region to introduce short selling.
DERIVATIVES ON OFFER: In addition, the exchange
is preparing to introduce derivatives trading for the
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CAPITAL MARKETS OVERVIEW 83
Saudi Arabia has one of the largest capital markets in the GCC, with market capitalisation of over $500bn
first time in the country. In September 2018 global In January 2018 the
index provider MSCI announced that it had reached regulator moved to further
an agreement with the Tadawul to jointly launch a open the market to foreign
participation, lowering the
tradeable index. The market index will form the basis minimum asset value from
for the development of derivatives and futures invest- $1bn to $500m.
ment instruments on the Tadawul – widely considered
as essential to attract international investors to the
market over the long term. According to a Tadawul
statement, the exchange will launch its index futures
instrument, based on the joint MSCI Tadawul 30 Index,
in 2019. The index will thereafter function as a basis for
multiple products in the market, a development which
will represent a significant deepening of exchange
activity – most particularly in the area of hedging
and risk management that is a fundamental aspect of
sophisticated investment practise.
The arrival of derivatives on the bourse is closely
linked to the launch of the exchange’s new Central
Counterparty Clearing House (CCP), details of which
were revealed in 2018. The CCP, established as a closed
joint stock company with a capital of SR600m ($160m),
brings a range of functionalities necessary for complex
trading instruments. These include netting – the off-
setting of the value of multiple positions or payments
due to be exchanged between two or more parties
– which significantly reduces the number of transac-
tions in complex settlements as well as overhead costs.
The CCP will also lower the risk for counterparties to
a trade, as it will be the sole contractual counterparty
when trading on the Tadawul. The arrival of the CCP is
one of the most significant changes in the Tadawul’s
post-trade infrastructure over recent years, opening
the door to a new era of exchange growth based on a
broader range of investment instruments.
FINANCIAL TECHNOLOGY: In more recent times In 2017 the country
transitioned to a T+2
the regulator’s efforts to develop the exchange have
settlement cycle for all
moved into the rapidly evolving financial technology listed securities and also
(fintech) arena. In January 2018 the CMA issued its became the first in the GCC
fintech experimental permit instructions, establishing to introduce short selling.
THE REPORT Saudi Arabia 2019
84 CAPITAL MARKETS OVERVIEW
In 2018 a framework was launched to foster innovation in fintech
The Kingdom’s 12 initial a regulatory framework for the nurturing the use of
public offerings in 2018 fintech within Saudi Arabia’s capital markets, with the
raised regulator receiving its first batch of applications for
$1.5bn new experimental permits the following month. By
July 2018 the authority had issued its first two fintech
licences to Riyadh-based start-ups Manafa Capital and
Scopeer – both of which aimed to launch crowdfunding
investment services on a trial basis. The model for the
platforms allows individual investors to fund small and
medium-sized enterprises in exchange for an equity
stake in those enterprises. The technology is rapidly
growing in popularity in markets worldwide, with new
platforms competing for capital across borders.
Financial innovation has emerged as a strategic bat-
tleground for global markets keen to attract liquidity.
The CMA’s promotion of fintech also speaks to two
ambitions of the Kingdom’s reform programme: deep-
ening its capital markets and creating new employment
opportunities by supporting entrepreneurs. In Octo-
ber 2018 the regulator welcomed applications for the
Tadawul market capitalisation, 2008-18 (SR bn)
2000
1500
1000
500
0 of interest to regional corporates looking to tap into
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Tadawul
www.oxfordbusinessgroup.com/country/saudi-arabia
second batch of fintech experimental permits, stating
a priority for those entrepreneurs that aim to “promote
growth and efficiency in the capital market”.
IPOS: The regulator has also worked hard to increase
the number of listings on the exchange. The Tadawul
was ready to receive the Aramco IPO in 2018, slated
to be the world’s largest on record. However, after
no action was taken by the third quarter of the year,
reports of a possible cancellation began to circulate in
the international press. The government was quick to
deny these rumours, and in late 2018 it was announced
that the much anticipated IPO would occur in 2021.
The Saudi oil giant is not the only IPO candidate in the
region to place its flotation plans on hold. The MENA
IPO pipeline slowed in 2018 as global trade concerns,
regulatory changes and regional politics combined to
dampen IPO sentiment across the Gulf.
In total approximately $2.9bn was raised through
IPOs in the MENA region in 2018, representing a 24.6%
decline over the 2017 total. Despite this, Saudi Ara-
bia was the IPO leader in the region both in value and
volume, raising nearly $1.5bn through 12 offerings.
The government’s privatisation programme, a central
component of the Kingdom’s ongoing process of eco-
nomic reform under the Vision 2030 strategy, is likely
to generate further IPO activity over the medium term.
The National Centre for Privatisation and Public-Private
Partnerships has targeted a number of sectors for
investment, including water and agriculture; transport;
energy, industry and mineral resources; labour and
social development; housing; education and health.
The government intends to offload between SR35bn
($9.3bn) and SR40bn ($10.7bn) of state assets before
2020, including flour mills, desalination plants and
postal services – some of which it will divest itself
through an IPO process (see Economy chapter).
OUTLOOK: The MSCI and FTSE Russell upgrades will
have a positive effect on the Tadawul’s liquidity. The
exchange will benefit from both the passive flows of
capital that inclusion on the index entails, as well as the
heightened interest from active investors who have
been reassured by the process of reform that made the
upgrade possible. These factors have led some analysts
to foresee an estimated $14bn liquidity injection by the
end of 2019 as a result of the development, while other
estimates have reached $40bn, taking into account
both passive and active flows.
However, more important than the immediate liquid-
ity gain is the longer-term stability that the exchange
will enjoy as a result of its broader, more institutional
investor base. In the short term it is possible that the
regulator’s efforts to open up the exchange, which
until now focused on investors, will be extended to
issuers. The CMA revealed in 2018 that it was working
on regulations that would allow it to open up the market
to non-Saudi issuers, either through a dual listing or
a direct primary listing. A Saudi listing would likely be
2018 the country’s deep pools of disposable wealth, as the
Kingdom was home to approximately 176,000 million-
aires in 2017 – the highest number in the Middle East.

Taking the long view
Khalid Al Hussan, CEO, Saudi Stock Exchange (Tadawul), on past
successes and future plans to spur capital growth
How can capital markets help to fulfil Vision 2030?
AL HUSSAN: Vision 2030 underpins the government’s
efforts to modernise the economy, stimulate private
sector growth, diversify away from hydrocarbons, pri-
vatise state-owned enterprises, reform markets and
reduce subsidies. There was early recognition that cap-
ital market reform is the linchpin to unlock the econ-
omy’s potential and stimulate private sector growth.
Over the past two years Tadawul and the Capital Market
Authority have implemented far-ranging reforms to
enhance the market’s effectiveness, foster an attrac-
tive environment for local and foreign investors, and
align its regulatory frameworks with international best
practices. Looking ahead, the goal is to become both
a global destination and source of capital.
In what ways have the changes made to the qual-
ified foreign investor (QFI) programme helped in
broadening investor participation?
AL HUSSAN: The QFI programme is continuously being
updated to broaden access and ease eligibility require-
ments for international investors. For instance, in Jan-
uary 2017 the Saudi market for initial public offerings
(IPOs) was opened to foreign investors. The following
month a parallel market called Nomu was launched
for small and medium-sized enterprises, which is also
open to non-resident foreign investors. We have also
observed the introduction of new asset classes, such
as real estate investment trusts, as well as the launch
of trading in government debt instruments.
How have new asset classes affected liquidity and
inflows of foreign capital?
AL HUSSAN: All three of the world’s leading index
providers – MSCI, S&P Dow Jones and FTSE Russell –
recently decided to upgrade the Kingdom to emerging
market status in their indices. The changes that Tad-
awul has undertaken have not only strengthened the
market’s effectiveness, but also paved the way for
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CAPITAL MARKETS INTERVIEW 85
Khalid Al Hussan, CEO, Saudi Stock Exchange
fulfilling the criteria used by these indices in market
classification. Index inclusion, which will happen in
phases over the course of 2019, will result in significant
investment inflows and expanded opportunities for
investors to gain exposure to the Saudi market. This
will further boost liquidity in what is already one of the
most liquid emerging markets in the world.
In what ways can international index providers help
develop futures contracts and options?
AL HUSSAN: The plan is to launch the first exchange-
traded derivatives product – an index futures contract,
based on a tradeable index jointly developed by Tad-
awul and MSCI – in the first half of 2019. Additional
products will follow, including index options and single
stock futures and options. There are other plans in
the pipeline, including the launch of a market-making
programme, new rules governing mergers and acqui-
sitions, and new listing and issuing rules to make these
processes easier and faster.
Where does Tadawul stand in terms of market cap-
italisation, relative to other markets in the region?
AL HUSSAN: Tadawul’s progress can be monitored
through a range of measures that reflect the market’s
vitality. For example, market capitalisation increased
nearly 45% to $507bn between early 2016 and Septem-
ber 2018, making it the 24th-largest stock market in
the world and the largest in MENA. Tadawul accounts
for nearly half of the market cap and almost 80% of
the trading value of the GCC’s exchanges.
In addition, since the launch of Vision 2030 the
number of international financial institutions joining
the QFI programme has grown from fewer than 50
to more than 720, with hundreds more institutions
in the pipeline. Major institutions have established or
expanded their presence in the Kingdom, the annual
number of IPOs in 2017 and 2018 was more than triple
that of 2016, and this figure is on track to grow in 2019.
THE REPORT Saudi Arabia 2019
86
Inclusion on benchmark
indices requires specific
standards that indicate
to investors that the
participating countries
apply certain regulations
and best practices.
The risks evaluated in
determining a country’s
index category are
generally related to equity
market practices, which
do not directly translate
to how risky or stable the
overall economy is.
Global
Perspective
Indexed growth
Inclusion in global indices often results in a greater flow of funds
to capital markets, but it is just one aspect of the economic picture
The period of easily raising funds from abroad seems
to be coming to an end for emerging markets around
the world. In the new environment of higher interest
rates in the US and increased competition for capital
flows, portfolio managers are becoming more selective
with where they place their money.
One way for developing nations to ensure that their
financial markets can continue to attract foreign funds
and remain sustainably liquid is by being included in
well-regarded benchmark indices. In addition to draw-
ing in fund managers, inclusion on such indices requires
specific standards that indicate that the participating
countries apply certain regulations and best practices.
RECENT UPGRADES: For two countries, 2018 is prov-
ing to be a pivotal year in how they are viewed by the
global financial community. On June 20 stock market
index provider MSCI granted Argentina and Saudi Ara-
bia emerging market status – upgrading Argentina
from a frontier market and including Saudi Arabia in
its indices for the first time. Speculation during the
lead-up to the MSCI announcement resulted in a large
amount of research by banks and brokerages, countless
financial press articles and comments from Luis Caputa,
the previous minister of finance of Argentina.
Confidence in both countries’ capital markets proved
to be well placed with the mid-year move. Prior to this,
FTSE Russell, another global index provider, gave Saudi
Arabia a boost by upgrading it from frontier to emerg-
ing market status on March 28. The announcement
significantly increased the probability of MSCI doing
the same, Fahad Al Turki, chief economist and head of
research at Riyadh-based Jadwa Investment, told OBG.
Argentines, meanwhile, were also optimistic heading
into 2018. The feeling was based on MSCI’s June 2017
report maintaining the country’s frontier market status.
The index provider noted that although Argentina had
already met most of the criteria, the positive changes
instituted regarding market accessibility factors needed
to remain in place for longer to be deemed irreversible.
www.oxfordbusinessgroup.com/country/saudi-arabia
Argentina’s pro-business government subsequently
solidified a majority in the October 2017 mid-term elec-
tions. Even though challenges remain, demonstrated
by a drastic sell-off of the peso between late April and
June 2018, MSCI felt confident that Argentina would not
return to its practices of market interference.
A CLOSER LOOK: Some may wonder why such clas-
sifications are of importance to a country’s financial
environment. FTSE Russell and MSCI have specific
criteria they use to determine whether a country is
classified as frontier, emerging or developed, including
size and liquidity measurements, and market accessi-
bility factors. Frontier nations display characteristics
that, when taken together, translate into a riskier bet
for global investors. However, it is important to note
that the risks evaluated in determining a country’s
category are generally related to equity market prac-
tices, which do not directly translate to how risky or
stable the overall economy is. For example, there are
many countries in the MSCI Frontier Market Index that
boast investment-grade ratings from credit ratings
agencies, meaning their economies are strong enough
that evaluators do not think their sovereign debt is a
risky investment. Indeed, some frontier markets, such
as Kuwait, Estonia and Lithuania, have credit ratings in
the “A” category – better than some countries whose
exchanges qualify for MSCI’s World Index of developed
markets, such as Portugal, Spain and Italy.
Other countries, such as Jamaica, Bulgaria, Zimbabwe
and Palestine, are not included in the MSCI Emerging
Markets or Frontier Markets indices, but are monitored
with their own standalone index that uses the same
emerging or frontier market methodological criteria
concerning size and liquidity.
ARGENTINA & SAUDI ARABIA: Both Argentina and
Saudi Arabia were upgraded to emerging market status
as the direct result of reformist governments work-
ing to open up their country’s financial markets to
global investors and specialised products. Argentina’s

reclassification comes amid President Mauricio Macri’s
efforts to bring the country back to a respected posi-
tion on global markets after repaying sovereign debt on
which it defaulted in 2001 at the height of an economic
crisis. Among other measures, the Macri administration
has removed foreign exchange restrictions and capital
controls, eliminated cash reserves and monthly repatri-
ation limits in the equity market, and abolished lock-up
periods for investments. In addition, in September 2017
the stock market moved from a T+3 trading settlement
cycle, in which trades of listed securities were settled in
three days, to a T+2 cycle of two days. The shift brings
the exchange in line with others around the world.
However, Argentina’s “B” credit rating demonstrates
remaining economic vulnerability.
Saudi Arabia, meanwhile, is undergoing rapid reform
as part of its Vision 2030 economic plan to increase
investment and reduce dependence on oil revenue.
One of the most important recent changes for the stock
market occurred in April 2018, when the country also
migrated to a T+2 trading settlement cycle. Previously,
Saudi Arabia employed same-day execution and settle-
ment. Listed companies are also aligning their account-
ing practices with International Financial Reporting
Standards, enabling their financial statements to be
directly compared to companies in countries with the
same system. Furthermore, the Saudi Capital Market
Authority has eased restrictions for foreign investors
looking to enter the local financial arena.
MATTER OF PRESTIGE: Beyond technical frameworks
and revised regulations, a classification upgrade can
have a ripple effect across the entire economy and
improve a country’s business reputation. “It has impor-
tance as a public relations and marketing concept,”
Robert Abad, founder of US emerging market advisory
firm EM+BRACE, told OBG. “In the old days, emerging
economies were simply synonymous with ‘less devel-
oped’.” Speaking to Argentina’s history, he added, “A
hundred years ago the country was a trading giant and
the eighth-richest country in the world. Being labelled
as a frontier market placed it in the same bucket as
apparently third-tier countries. The emerging market
classification raises Argentina’s status.”
This aligns with the local view of Federico Sidi, the
Argentine equity portfolio manager at Compass Group,
a Latin American advisory firm. “The government is
pushing for this type of recognition as a kind of seal of
quality or trademark,” Sidi told OBG. “It is not just finan-
cial markets – Argentina wants to join the OECD and use
the hosting of the 2018 G20 summit to show the world
how the country has bettered itself.” While agreeing
that Argentina’s global visibility and reputation will likely
improve, Matías Lara Mateos, investor relations officer
at Bolsas y Mercados Argentinos (BYMA), the local stock
exchange, added that the enhanced perception of the
country could reduce national financial risk.
NUMBERS GAME: While positive changes in reputation
are a welcome side effect, the most material result of
an index upgrade is the amount of money a country’s
capital markets can attract. Benchmarks hold con-
siderable power in the global investment landscape:
Bloomberg Terminal Research Homepage: OBGR‹GO›
87
MSCI notes that 99 of the top-100 global investment In April 2018 Saudi Arabia
managers were among its clients as of December 2017, shifted to a T+2 trading
and the firm estimates that its indices are the primary settlement cycle, in which
trades of listed securities
benchmark tools for more than 85% of all internationally are settled in two days. The
focused fund assets. In November 2017 MSCI calculated move brings the exchange
that roughly $12.4trn of assets under management more in line with others
were benchmarked to its equity indices, including around the world.
$1.65trn to its Emerging Markets Index.
Before Argentina’s upgrade, JP Morgan estimated
that $463bn worth of funds were passively tracking
MSCI’s Emerging Markets Index. In April 2018 MSCI
stated that Argentina would likely represent 0.6% of
the index should it be reclassified, translating into
approximately $2.78bn of passive inflows.
Active emerging market investors manage around
$1.2trn, according to JP Morgan, which estimated their
exposure to Argentina at 0.41% as of February 2018.
Assuming these investors stay neutral on their positions
now that Argentina is included in the Emerging Markets
Index, the additional active inflows are expected to be
around $2.7bn. In total, this aligns with the company’s
forecast that Argentina will experience around $5.5bn
of inflows to its stock market after reclassification.
Sidi told OBG that JP Morgan’s inflow estimates are
among the highest he has seen, but it is nonetheless
clear that global emerging market fund managers are
likely to turn their eyes to the South American nation.
“The fact is that a lot of funds are unable to invest in
frontier markets,” he said. “Our understanding is that
hedge funds have taken advantage of the massive
upside in Argentina since 2013, and that most of the
largest long funds are here – but not in such a big way.”
With daily trading volumes on the BYMA in the first
quarter of 2018 averaging $50m, more investor activity
would have a huge impact on liquidity. “Being part of
the emerging market environment again should see
local market volumes pick up significantly,” Sidi added.
Average daily trading volumes are much higher in
Saudi Arabia – around $1bn – as are estimates from
analysts regarding future capital inflows. Saudi Ara-
bia’s NCB Capital estimates that around $39bn will
flow to the Saudi Stock Exchange (Tadawul) as a result
of the MSCI upgrade, with the country set to have a
weight of 2.6% in the index. This figure compares to
the $3.2bn worth of inflows that NCB Capital predicted
in September 2017 in anticipation of the FTSE Russell
reclassification of the Kingdom in March 2018.
Saudi Arabia’s inclusion in the FTSE Emerging Markets
Index will be implemented in five stages between March
and December 2019, and the country will comprise 2.7%
of the index value. Some 99% of the $115bn of assets
under management benchmarked against the FTSE
Emerging Markets Index is passively managed, meaning
the inflows are effectively guaranteed. Argentina has removed
“The promotion into FTSE Russell’s emerging market foreign exchange
category marks a key milestone for Saudi Arabia, and restrictions and capital
rewards the depth and pace of reform that has taken controls, eliminated cash
reserves and monthly
place within the Kingdom’s capital markets in the last
repatriation limits in
few years,” Jadwa Investment’s Al Turki told OBG. Both the equity market, and
Saudi Arabia and Argentina are set to be included in the abolished lock-up periods
MSCI Emerging Markets Index beginning in mid-2019. for investments.
THE REPORT Saudi Arabia 2019
88
Many businesses in
emerging markets are
continuously looking to
attract capital and expand
– regardless of inclusion in
indices – and many follow
best practices that enable
their rapid growth.
Inflows from passive
investor accounts are
concentrated around the
date a country is included
in a new index, while
active managers tend to
anticipate the change
before it is implemented.
Saudi Arabia’s weight in the indices is likely to grow if
national oil company Saudi Aramco executes what some
analysts say could be the largest initial public offer-
ing (IPO) in history. London-based emerging market
investment manager Ashmore estimated in April 2018
that the country’s weight could increase to nearly 5%
in global indices, while FTSE Russell said the Aramco
IPO would likely push it to 4.6%.
TRANSITION TROUBLES: What these inflows mean for
share prices is hard to predict. Where necessary, MSCI
and FTSE Russell stagger the inclusion of individual
countries by gradually increasing their weight in indices,
as will be the case for Saudi Arabia in 2019. However,
while inflows from passive accounts are concentrated
around the inclusion date, active managers tend to
anticipate the change before it is implemented. Often
this means that any market rally comes before the
official inclusion. For instance, Qatar’s index boasted
implied returns of 38% and the UAE index registered
returns of 78% in the 11 months between MSCI’s reclas-
sification announcement in June 2013 and the two
countries’ official inclusion, compared to 12% for the
MSCI Emerging Markets Index as whole.
This is not always sustainable. Pakistan’s stock market
hit a record high after MSCI upgraded it from frontier
to emerging in June 2017; however, by the end of that
year the KSE-100, which measures the performance
of the exchange, posted negative returns in excess of
15% – or 20% in dollar terms – as inflows did not arrive
as expected. With a weight of just 0.1% of the index,
Pakistan is proving to be less attractive to large fund
managers than other markets.
“Pakistan is at risk of being left out of the financing
race, as I do not believe that core global emerging mar-
ket managers are looking at it closely,” Edward Evans,
equities portfolio manager at Ashmore, told OBG.
INTERNAL WORKINGS: While the numbers can be
somewhat volatile surrounding a reclassification
announcement, Al Turki believes that one of the main
benefits of Saudi stocks being included in the MSCI
index is an accepted steady improvement in the effi-
ciency of company operations. “Foreign investors tak-
ing up larger stakes in Saudi companies and holding
management accountable for strategic decisions will
promote improvements in the use of assets in gener-
ating sales and ultimately increase return on equity,” he
told OBG. Improved internal processes will place Saudi
companies in a better position to attract investment
once the government decreases the support it lends
to certain sectors, as is planned, he added.
BEYOND THE BENCHMARK: Although index upgrades
bring many benefits to a country’s financial ecosystem,
it is important to understand that indices do not tell
the whole story about a capital market. In Saudi Arabia,
qualified foreign investors have only been allowed to
participate in the stock market since 2015, but exclusion
from an index does not necessarily mean that a country
or a particular exchange is unsophisticated.
Ashmore’s Evans said he does not place much impor-
tance on index inclusion when he looks at where to
invest. He highlighted that many businesses in emerging
www.oxfordbusinessgroup.com/country/saudi-arabia
markets are continuously looking to attract capital and
expand – regardless of inclusion in indices – and many
follow best practices that enable their rapid growth.
“There is a wider, very attractive universe out there
beyond the indices,” he told OBG. “Exclusively following
an index provider means you are exposed to a very
narrow representation of all emerging markets.”
WIDER SCOPE: These comments lead to a broader a
question about the role of indices in emerging markets.
Jan Dehn, head of research at Ashmore, noted such
markets represent 60% of global GDP, but just 20%
of global finance. “Emerging economies need a huge
amount of finance to update infrastructure,” he told
OBG. “So why not start by trying to solve the index
issue?” The problem, according to Dehn, is the lack of
representation of most developing countries in indices.
This applies to both equity and debt markets.
With most developing countries’ governments relying
far more on domestic than international debt markets
to finance themselves, Dehn has argued that provision
of local bond market indices could be considered a
“public good”. Not only would it improve access to fund-
ing for these governments, but it would reduce risk and
inefficiencies in the financial system. “As an institutional
investor, it is in your interest to have access to as broad
a spectrum of the market as possible,” he told OBG.
“With more comprehensive indices, investors around
the world would benefit from more diversification and
increased investment opportunities.”
Dehn suggested that multilateral organisations such
as the IMF or the World Bank could provide more inclu-
sive indices, and that this would benefit their purpose
of advancing economic and financial development in
emerging and frontier markets.
IN PERSPECTIVE: In addition to index gaps, it should
be highlighted that a particular classification is simply a
reflection of how one private company decides to group
countries for their investors’ information. As nations
like Saudi Arabia and Argentina look to modernise their
capital markets, they must remember that an MSCI
upgrade is a signal of their efforts moving in the right
direction, not the driver of change itself.
“MSCI including Argentina in its Emerging Markets
Index is just one step in the development of the local
market,” Lara Mateos told OBG. “There is a lot of work to
do beyond MSCI’s assessment, with education a major
priority.” Lara Mateos added that Argentina needs
greater financial education so everyday citizens can
learn how to invest and companies can gain knowledge
of the benefits of capital market access. While an MSCI
or FTSE Russell classification can indeed focus attention
on capital markets both domestically and internation-
ally, the regulations implemented to secure the status
are of much greater fundamental importance.
Still, if a country’s upgrade on a popular index can
play even a small role in increasing awareness of local
financial markets, it is worth promoting. To that end,
emerging markets are set to continue striving for rec-
ognition from index providers. With tighter global mon-
etary conditions, meeting the standards required for
index inclusion is a way to gain exposure internationally.
 89

Alternative Investments
The country is a regional leader in mutual fund activity
Legal and regulatory reforms strengthen the market
Industry body seeks to enhance venture capital arena
New funds target transport and logistics sectors
90
At the close of 2017
there were
577
authorised investment
funds, an increase of
16.8% on 2016
The first real estate
investment trust (REIT)
was listed on the exchange
in 2016, and it has quickly
emerged as a popular
investment tool: in 2017,
15 out of the 29 approved
offerings of investment
funds were REITS.
ALTERNATIVE INVESTMENTS OVERVIEW
Saudi Arabia has the deepest and most varied asset pool in the GCC
Vast and varied
An increasingly diverse fund landscape and improving regulatory
foundation are underpinning the sector’s positive outlook
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 invest-
ment pool in the GCC. 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 (PE) opportunities.
While 2018 was a quiet year for dealmaking across the
region, the government’s bold programme of economic
reform is expected to generate new opportunities over
the short to medium term.
MUTUAL FUNDS: Saudi Arabia pioneered mutual funds
in the region nearly 40 years ago, with the National
Commercial Bank (NCB) establishing the first invest-
ment vehicle of this kind in the GCC in 1979. The early
growth of the mutual fund segment was spurred by the
fact that, until the introduction of swap contracts in
2008, they were the only means by which non-resident
foreign investors could gain exposure to the Saudi
Stock Exchange (Tadawul). By 1993 Saudi Arabia had
moved to formalise the industry, establishing a regu-
latory framework that further cemented its position
as a centre of fund activity. By 2015 the Kingdom had
established itself as the biggest fund domicile in the
MENA region by far, accounting for around 77% of the
$35.7bn worth of assets under management (AUM) in
the GCC fund arena. However, the Kingdom’s public
mutual fund assets as a percentage of GDP stood at
4.3% that year, compared to a global average of around
18% and rates as high as 90% in developed economies
such as the US. Therefore, the domestic fund segment
has considerable potential for growth, both in terms
of AUM and diversity of fund types.
Since 2015 the Saudi fund has shown a steady rate
of expansion. According to the latest available annual
report by the Capital Market Authority (CMA), at the
close of 2017 there were 577 authorised investment
funds, an increase of 16.8% on the previous year. Their
www.oxfordbusinessgroup.com/country/saudi-arabia
aggregate AUM stood at SR251.9bn ($67.2bn), repre-
senting a rise of 16.3%. The diversity of fund types has
also increased, from an initial focus almost entirely on
money markets, and local, regional and global equities.
This is in part due to the arrival of exchange-traded
funds (ETFs) on the Tadawul in 2010 and, more recently,
real estate investment trusts (REITs). The Kingdom’s first
REIT was listed on the exchange in 2016, and, thanks to
yields in excess of 7%, it has quickly emerged as popular
investment tool: in 2017 the CMA approved the offering
of 29 investment funds, 15 of which were REITs. Overall,
however, money markets and equities funds continue to
dominate, accounting for 65.9% and 19%, respectively,
of the assets of the 273 authorised public investment
funds in 2017. Real estate funds accounted for 8% of
the total, followed by REITs (3.3%), general funds (3%),
debt instruments (0.7%) and ETFs (0.03%).
A total of 304 private funds, meanwhile, offered
access to similar asset classes, as well as alternative
investment instruments such as commodities, and
hedge and financial derivative funds. In terms of asset
trends, a period of subdued oil prices and regional polit-
ical tensions resulted in a 22.4% decrease in allocations
to Arab equities between 2016 and 2017. The main
beneficiary of this was the European equities segment,
which rose by nearly 50%, with Asian equities seeing a
similar uptick in interest, with allocations up by 31.8%.
KEY PLAYERS: 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.
With AUM of nearly SR130bn ($34.7bn) at the close
of 2017, NCB Capital is one of the biggest asset man-
agement firms in the region. Founded in 2007 as the
investment banking and asset management arm of the
NCB, the company is also the largest sharia-compliant
asset manager globally. Five other asset managers form
a leading group with AUM of more than SR20bn ($5.3bn)
each, all but one of which are subsidiaries of banking
institutions. Alinma Investment is the second-biggest

custodian of assets, with SR34.9bn ($9.3bn) of AUM
at the end of 2017, followed by Samba Capital with
SR33.7bn ($9bn), Al Rajhi Capital with SR27.4bn ($7.3bn),
Riyad Capital with SR25.3bn ($6.7bn) and Jadwa Invest-
ment with SR24.1bn ($6.4bn), the only non-subsidiary at
the top end of the market. Each of these large players
offers a range of fund types to suit varying investment
appetites, from high-risk and high-growth portfolios to
medium-growth instruments, and income equity and
small-cap equity funds. As well as the local players, a
number of blue chip international institutions have
secured licences to offer investment services in the
country, including Lebanon’s Blominvest, Egypt’s EFG
Hermes, the US’ Morgan Stanley and the UK’s HSBC.
The opening up of the Tadawul to foreign investors in
2015 has attracted some of the world’s biggest names
in asset management, including the UK emerging mar-
kets specialist Ashmore Group, which has established
locally as Ashmore Saudi Arabia.
OVERSIGHT: The principal regulator of the Kingdom’s
increasingly diverse asset management industry is the
CMA, while the Saudi Arabian Monetary Authority
(SAMA) oversees the financial system as a whole. Both
locally domiciled and foreign fund managers must be
licensed by the CMA to manage assets. In November
2016 the CMA published its long-anticipated amend-
ments to its investment fund regulations, which inter
alia streamlined the process of establishing a fund,
boosted investor protection, clearly established the
right of foreign nationals to invest in most funds and
took into account the wider range of funds that have
emerged over the past decade. The reforms also signif-
icantly enhanced the flexibility of fund governance by
removing the obligation to establish a fund board and
abolishing the previous limit on the number of investors
that can be approached for a private placement. The
regulatory authority is in the process of a wide-ranging
review of financial services regulations as part of the
Financial Sector Development Programme, one of the
implementation plans of the Vision 2030 strategy (see
Economy chapter). The programme aims to develop
deeper capital markets through more initial public
offerings (IPOs) and security listings, encouraging more
government entities to privatise through IPOs, and
privatising SAMA’s payment system, SADAD.
PRIVATE EQUITY: While the Kingdom has been a
regional leader in fund management, other bands of
the alternative investment spectrum are less developed.
The PE arena, although expanding rapidly, remains
at a nascent stage, accounting for 9% of the MENA
region’s total investment volume in 2016, behind the
UAE (34%) and Lebanon (16%), according to the MENA
Private Equity Association. One reason for this is the
absence of a codified legal system, which makes it dif-
ficult for investors to assess the risk attached to any
given transaction. Additionally, a lack of bankruptcy
legislation has proved problematic for PE investors
when portfolio companies have failed. Lastly, PE firms
face a challenging lack of exit opportunities. IPO exits,
secondary buyouts and leveraged recapitalisation are
relatively rare in Saudi Arabia, leaving trade sales – a
Bloomberg Terminal Research Homepage: OBGR‹GO›
ALTERNATIVE INVESTMENTS OVERVIEW 91
The regulatory authority is in the process of a wide-ranging review of financial services regulations
stake sale to other corporate entities – as the only A number of legal and
viable exit from PE transactions in most cases. All of regulatory reforms,
these hurdles, however, have recently been tackled. The including the launch of a
commercial courts system
launch of a commercial courts system in late 2017, as and the implementation
well as an accompanying “paperless court” project, has of a new insolvency law, is
shortened the period for execution of judicial orders expected to help address
from two months to 72 hours, significantly reducing hurdles in the private
the time and costs associated with business disputes. equity landscape.
By October 2018 the Kingdom’s new commercial court
system was making between 44 and 190 rulings per
day, according to the Ministry of Justice. In October
2018 a new insolvency law came into effect, which has
made it easier for indebted companies to maintain their
operations while rescheduling their debts.
Though the challenge of limited exit mechanisms still
exists, the increasing depth of the Kingdom’s capital
markets is starting to generate solutions. The Tadawul
and the CMA officially launched a new parallel market
in February 2017. As with parallel markets elsewhere
in the world, Nomu offers listing companies a more
lenient regulatory framework aimed at smaller and
less formalised companies, which involves lower mini-
mum capital requirements and less onerous disclosure
demands. These conditions may prove attractive to
smaller companies that have progressed through sev-
eral stages of venture capital funding and are ready to
establish themselves as a public company through an
IPO. Liquidity on the platform remains low compared
to the main market, mainly as a result of the limits
the CMA has placed on the type of investor that can
access it (see Capital Markets chapter). However, as a
structural advance in the PE ecosystem, the arrival of
Nomu is a significant development.
POTENTIAL GROWTH: A number of other factors
underpin the prospects of the domestic PE indus- A parallel market launched
in February 2017 aims to
try. Firming oil prices in 2017 and 2018 have buoyed
support smaller companies
investor sentiment, while the experience of a period by offering lower minimum
of lower oil prices has shifted the investment strat- capital requirements and
egies of the region’s sovereign wealth funds (SWFs) easing disclosure demands.
THE REPORT Saudi Arabia 2019
92
An industry body
established in early 2018
is helping to more clearly
define the regional venture
capital landscape, and
act as a platform for
collaboration and the
sharing of best practices.
ALTERNATIVE INVESTMENTS OVERVIEW
There may be greater demand for general private equities in the future
towards greater alternative asset allocations, including
PE funds. According to a 2018 report by PwC, global
SWFs raised their allocation to alternatives from 19%
to 23% between 2009 and 2016. The 14 SWFs in the
Middle East have traditionally maintained relatively
small alternatives allocations, but in 2011-16 they rose
from 3.7% of total assets to 6.1%. The Kingdom’s young
demographic – with the youth making up 50% of the
population – is another comparative advantage. Added
to this is the risk averse stance of the banking sector,
which has resulted in just 2% of the aggregate Saudi
loan book being directed to SME lending, thereby cre-
ating a funding gap that PE is ideally suited to address.
One of the questions facing the industry as it contin-
ues to grow is the issue of a funding model. Fundraising
in the Kingdom, as elsewhere in the MENA region, can
be challenging for many market participants, due in
large part to the relatively small number of general
partners with an adequately robust track record. Saudi
Arabia therefore follows the regional trend by which
investors generally subscribe to transactions on a deal-
by-deal basis rather than via the traditional blind-pool
structure seen in more developed PE markets. How-
ever, increasing levels of corporate governance in the
Kingdom may see a greater demand for general, or
blind-pool, PE funds in the future.
VENTURE INVESTORS: The line between venture cap-
ital (VC) and PE has sometimes been blurred in the
region, but as the market matures, a distinct VC arena
– focused on young, rapidly expanding companies – is
emerging. The arrival of an industry body is also help-
ing to more clearly define the regional VC landscape:
the Middle East Venture Capital Association (MEVCA)
was established in January 2018, and seeks to further
develop the VC ecosystem by acting as a platform for
collaboration and the sharing of best practices. The
board of MEVCA includes some of the most prominent
VC players in the Gulf region, including Algebra Ven-
tures, Wamda Capital, Jabbar Internet Group, Silicon
Badia, VentureSouq, Womena, B&Y Venture Partners,
STV, WAIN and Raed Ventures.
VC DEVELOPMENT: The concept of VC is a relatively
new one in the country. In the early 2000s there was
negligible VC activity and no formalised investment at
the seed or angel end of the spectrum. Early develop-
ment of the segment was driven by the public sector,
with the creation of the Badir Technology Incubators
and Accelerators Programme by the King Abdulaziz
City for Science and Technology (KACST) in 2007. The
tech-focused initiative is open to Saudi entrepreneurs
with early-stage prototypes or concepts, and provides
a range of services that include business consultancy,
office and laboratory space and assistance with pre-
paring business plans, financial modelling and pitching.
Badir also helps its clients find funding for further
development. Since the creation of Badir, the state
VC apparatus has grown to the extent that it accounts
for much of the start-up infrastructure in the coun-
try. The university network has taken the lead in this
regard, with the King Abdullah University of Science
 ALTERNATIVE INVESTMENTS OVERVIEW 93

and Technology, King Abdulaziz University in Jeddah, the

King Fahd University of Petroleum and Minerals, and
Riyadh’s King Saud University all operating investment
arms. Of these, the VC arm of King Saud University, the
Riyadh Valley Company, has emerged as the most prom-
inent, created with an initial fund of SR100m ($26.7m).
The organisation is established as a private company
and its portfolio of 15 firms is weighted towards the
health care and renewable energy sectors. The com-
pany has also begun to assume a coordinating role
within domestic VC by organising regular conferences
for the MENA VC and PE segments, most recently at
Riyadh’s Kempinski Hotel in December 2018.
PRIVATE INTEREST: While the government plays a
large role in the start-up and VC segment, its activ-
ity has also helped to foster private sector interest.
The Badir Programme for Technology Incubators was
instrumental in the creation of an angel investment
platform on Saudi’s west coast. Sirb, an angel investor
network was formally founded as an initiative of KACST,
in line with Vision 2030’s goal of transforming Saudi
The Kingdom’s young demographic supports growth of private equities
Arabia into a knowledge-based economy. Launched
in May 2012, Sirb bridges the funding gap between on distribution. While the concept of a GCC fund pass- The government has helped
the ideation stage and the Series A investment stage, porting system similar to the European model has been to foster private sector
and the membership of its network includes a range of discussed in the past, the complex process of regulatory interest in the start-up and
venture capital segment,
public and private entities. Elsewhere, the government alignment necessary for its introduction means that as well as join forces with
has joined forces with private sector VC institutions to no short-term solution to this challenge is likely. The private institutions to
provide funding channels. The Riyad Taqnia Fund, for Kingdom’s increasingly diverse fund universe, however, provide funding channels.
example, is a VC vehicle founded by Riyad Capital and is providing institutions and high-net-worth individuals
the Saudi Technology Development and Investment with steady returns and the means with which to take
Company, and established by the Public Investment advantage of the useful economic disruption arising
Fund of Saudi Arabia in 2011. The joint effort is backed from the country’s long-term economic reform process.
by a number of the Kingdom’s leading institutional This, combined with an improving regulatory founda-
investors and focuses on the areas of ICT, energy and tion, underwrites the future expansion of the industry.
sustainability, and advanced materials. The PE and VC segments, meanwhile, are operating
Purely private VC entities began to emerge after against a regional backdrop of weak macroeconomic
2011. Regional accelerators such as Egypt’s Flat6Labs conditions, oil price concerns and enhanced political
and Jordan’s Oasis500 have added to the private risk. Some sectors, however, continue to provide oppor-
start-up and VC ecosystem, while further momentum tunities: according to MENA Research Partners, fintech
has been provided by some of Saudi Arabia’s biggest start-ups in the GCC are expected to attract $2bn in
corporates. One of the most prominent of these is STC private funding between 2018 and 2028, compared to
Ventures, an independently managed VC fund whose $150m worth of investments in the previous decade.
anchor investor is the Saudi Telecom Company. The fund
focuses on technology innovation in Saudi Arabia, the
Real estate investment trusts, 2016-18
GCC, Levant, North Africa and Turkey.
Regional VC activity in 2018 was slower than it had
Value of assets (SR m) No. of funds
been in previous years. While 2015 and 2016 saw 28
deals each, according to the Emerging Markets Private 18,000 18
Equity Association (EMPEA), at the end of the fourth 16,000 16
quarter of 2018 some 26 VC deals had been closed. Nev- 14,000 14
ertheless, the size of the Saudi market and its potential 12,000 12
for further deals continued to attract significant VC 10
10,000
interest, including the largest venture investment in
8000 8
the Kingdom recorded by EMPEA: the May 2018 acqui-
sition by the UAE-headquartered Gulf Capital of a $1bn 6000 6
($266.6m) stake in Geidea, one of Saudi Arabia’s largest 4000 4
financial technology (fintech) companies. 2000 2
OUTLOOK: Some structural blocks remain to fund 0 0
expansion in Saudi Arabia. The lack of arrangements for Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18
the mutual recognition of fund licences between the
Source: CMA
GCC states means that regional funds face constraints

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94
In response to the prospect
of rapid growth in the
transport and logistics
sectors, investment houses
have announced the launch
of a $200m aviation fund
and a $150m logistics and
warehouse fund.
The implementation of
Vision 2030 is likely to
provide a greater array
of specialised fund
opportunities over the
medium term, further
enriching the investment
fund landscape.
ALTERNATIVE INVESTMENTS ANALYSIS
The Kingdom plans to establish itself as a regional logistics centre
Fund drive
Opportunities in sectors targeted by Vision 2030 are broadening
the offering of specialised investment vehicles
One of the most interesting trends in Saudi Arabia’s
alternative investment sphere in 2018 was the broaden-
ing of the range of specialised investment vehicles in the
market. Most of the sector-focused private equity and
venture capital (VC) fund movements over recent years
have targeted the technology sector, with managers
searching for opportunities in scalable tech applications
that offer high long-term returns. The Kingdom’s bold
long-term reform programme, however, is acting as a
useful disrupter of the economic landscape, throwing
up fresh opportunities that domestic financial institu-
tions have been quick to capitalise on.
NEW OPPORTUNITIES: The transport and logistics
sectors have emerged as interesting targets from an
investment perspective. Vision 2030 intends to build
upon the already significant capital flows in the con-
struction of airports, ports and roads by working with
the private sector to enter into new international part-
nerships to complete, enhance and connect infrastruc-
ture domestically and across borders. The end result of
this process will be the establishment of the Kingdom
as a regional logistics hub, using its strategic location to
connect its trading infrastructure with the continents
of Africa, Asia and Europe. Significant sums are already
being spent to this end. The Kingdom’s four interna-
tional airports are currently the recipients of large-scale
investment, with Jeddah’s King Abdulaziz International
Airport and Riyadh’s King Khalid International undergo-
ing expansions (see Trade and Investment chapter). The
Kingdom has also revealed details of how it will develop
its logistics infrastructure, unveiling the blueprint for
its first special economic zone in 2018. The zone will
focus on integrated logistics and be located adjacent
to Riyadh’s international airport.
MARKET REACTION: Investment houses have
responded to the prospect of rapid growth in the trans-
port and logistics sectors. In April 2018 the investment
banking and asset management arm of the National
Commercial Bank, NCB Capital, announced the launch
www.oxfordbusinessgroup.com/country/saudi-arabia
of the NCB Capital Aviation Fund I. The fund, which
attracted $200m in commitments, holds a majority
stake in Peregrine Aviation Topco, a limited managed
vehicle with an $800m portfolio of 21 aircraft, including
narrow- and wide-body jets from Boeing and Airbus.
The global aviation industry has been an attractive
prospect for investors for more than 30 years, offering
consistently generous returns and an opportunity for
those seeking to diversify their portfolios. Prospects
for the Middle East airline industry are particularly
strong in the short term: the International Air Transport
Association (IATA), the trade body of the world airline
industry, estimates that the region’s carriers will achieve
net profits of $800m in 2019, up from $600m in 2018.
This regional expansion chimes with a global trend,
which IATA believes will see the world airline industry’s
net profit rise from $32.3bn in 2018 to $35.5bn in 2019.
Meanwhile, the anticipated logistics boom is being
targeted by HSBC Saudi Arabia, which in January 2019
announced that it had appointed shariah-compliant
investment firm Arcapita as an advisor for its $150m
fund aimed at logistics and warehouse assets in Saudi
Arabia and the UAE. The Bahrain-based Arcapita will
scout for potential assets on behalf of the Saudi bank,
as well as provide asset management services, structur-
ing, due diligence, monitoring and fund administration.
LOOKING AHEAD: The Kingdom’s determination to
transform itself into a centre of innovation will ensure
that investment in tech opportunities will continue to
drive fund growth in the country. At the beginning of
2019 the national oil company, Saudi Aramco, is report-
edly mulling a $1bn VC fund that will focus entirely on
technology firms that complement its operations, as
well as the possibility of opening an office in Silicon
Valley in order to generate deals. The implementation
of the country’s long-term economic strategy, Vision
2030, is likely to provide a greater array of specialised
fund opportunities over the medium term, further
enriching the Kingdom’s investment fund landscape.
 95

Insurance
Health cover accounts for 52.1% of total GWP
Motor segment is set for major for expansion
Insurance penetration shows signs of growth
Cooperative insurance model proves beneficial

Insuring expansion
Stricter regulations help stimulate a burgeoning market
In the wake of the recent oil price decline, Saudi Arabia’s
insurers have operated in a challenging environment.
The sector has faced stability issues since its liberal-
isation over a decade ago, and smaller players in the
market are under increased scrutiny from a regulator
keen to set the industry on a more solid footing. 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 Saudi Arabian Monetary Author-
ity (SAMA), the Kingdom’s central bank, shows that
insurance penetration expanded at a compounded
annual growth rate of 12% between 2014 and 2019.
SECTOR STRUCTURE: As of the first quarter of 2019
there were 32 insurance companies and one reinsur-
ance company licensed to operate in the Saudi market.
However, while the large number of licensed operators
suggests a high degree of market fragmentation, the
sector displays significant premium concentration
among a relatively small number of companies. In 2017
the top-eight insurance companies generated 73% of
gross written premium (GWP), according to SAMA.
The big-three insurers in terms of GWP are Tawuniya,
which claimed a market share of 23.7% in 2017, BUPA
(21.8%) and Al Rahji (9%). Other prominent market
participants include Medgulf (7.5%), Axa (4.2%), Walaa
(3.1%) and Allianz (2.6%). In terms of gross GWP, Saudi
Re, the Kingdom’s sole reinsurer, was the fourth-largest
reinsurer in the MENA region in 2017, with $251.3m.
The company operates in more than 40 markets across
the Middle East, Africa and Asia.
Looking to the wider sector, SAMA licenses 88 bro-
kers and 68 insurance agents, as well as a growing
number of actuaries, loss assessors and adjusters,
and other insurance intermediaries. Under current
Bloomberg Terminal Research Homepage: OBGR‹GO›
INSURANCE OVERVIEW 97
Insurers are required by law to adopt a cooperative insurance model
legislation, foreign nationals can own between 25% and Insurance penetration
49% of a locally licensed insurance company, depending stands at
on factors like the identity of other shareholders. In
addition, non-Saudi nationals are able to own up to
60% of insurance intermediaries.
1.7%
REGULATION: SAMA is the primary regulator of the
insurance sector. The regulator’s General Department
of Insurance Control is mandated with ensuring fair
competition between operators, stability in the market,
protecting stakeholders, and encouraging the market’s
growth and development. It governs the sector accord-
ing to the 2003 Insurance Law and its implementing
regulations. The regulator often publishes circulars
to clarify points of law, and introduces new laws and
regulations which address specific areas of the market.
It also works in close conjunction with the Council of
Cooperative Health Insurance (CCHI), which oversees
the Kingdom’s health insurance system, as well as with
the Capital Market Authority, which is in charge of
regulating the Saudi Stock Exchange (Tadawul), where
much of the industry’s investment activity is targeted.
“The insurance industry is still quite new in Saudi
Arabia compared to other countries, making SAMA
responsible for piloting new regulatory frameworks in
uncharted territory,” Samer Kanj, CEO of Buruj Insur-
ance, told OBG. “However, the emergence of experi-
enced brokers in the local market is expected to sustain
the sophistication and growth of the sector,” he said.
Insurers in the Kingdom are required by law to adopt a
cooperative insurance model. Though Islamic in nature,
the Saudi Arabian cooperative model differs from the
standard takaful (Islamic insurance) model in a number
of important ways. For example, under the coopera- Due to their ability to
tive framework, there is no requirement to segregate invest in a wider range of
policyholder and shareholder funds, and cooperative industries and instruments,
insurers in Saudi Arabia are
insurance companies are not compelled to invest in
better able to formulate
accordance with the principles of sharia. Neither are sophisticated investment
Saudi insurance companies asked to appoint a sharia strategies than many of
supervisory board, which the takaful model – as applied their regional peers.
THE REPORT Saudi Arabia 2019
98
The sustainable growth of
the industry will depend
on its ability to establish
itself on a solvent footing,
deriving profits from sound
underwriting as well as
investment activity.
INSURANCE OVERVIEW
Motor business accounted for 30% of total sector premium in 2017
in most jurisdictions – requires. The Saudi model also
offers a number of advantages to industry participants.
Due to their ability to invest in a wider range of indus-
tries and instruments, insurers in Saudi are better able
to formulate sophisticated investment strategies than
many of their regional peers. Moreover, the fact that the
policyholders fund has full access to the shareholders
fund makes the cooperative model more sustainable
than traditional takaful, and therefore a safer way of
doing business in the eyes of many industry observers.
One of the regulator’s main concerns in recent years
has been industry stability. Since the 2016 rollout of the
Solvency II directive in European markets, regulators
across the GCC have been assessing the implications for
their domestic industries. The risk-based approach that
Solvency II introduces is still rare in emerging insurance
markets, where simple minimum capital requirements
are the norm. In order to remain competitive with for-
eign insurers that have switched to a more efficient
risk-based approach, regional regulators have intro-
duced disclosure and risk-management requirements
which will form a basis for the Solvency II model. In
January 2018 the UAE became the first country in the
region to fully implement a model based on Solvency II.
PERFORMANCE: The Saudi insurance market entered
2018 on the back of a muted performance the previous
year. According to credit rating agency Standard &
Poor’s (S&P), the aggregate net income of the industry
declined by 55% in 2017, while GWP showed a modest
retrenchment. The sector’s slow performance was
largely attributable to weak results posted by two com-
panies: Tawuniya and Medgulf. Both were compelled to
make larger than expected provisions against losses.
Prospects for sector profitability appeared strong
at the outset of 2018, however. This was due to the
introduction of additional benefits under the unified
medical policy from July 1, 2018, as well as the ongoing
efforts of authorities to address the issue of uninsured
drivers. The industry’s aggregate net income for the
first three quarters of 2018 was SR658.2m ($175.5m).
For many Saudi insurers, the year was one of house-
keeping duties: a total of nine insurance companies
restructured their capital in a bid to improve their
solvency to comply with regulatory requirements or
write-off accumulated losses. Five insurers raised their
capital by a combined SR740m ($197.3m), whereas four
reduced their capital by a total of SR382m ($101.8m).
The largest increase came from Medgulf, which dou-
bled its capital from SR400m ($106.6m) to SR800m
($213.3m), and Al Sagr Insurance, which issued bonus
shares in order to raise its capital from SR250m
($66.7m) to SR400m ($106.6m).
HEALTH RULES: The biggest insurance line in the
Kingdom is health cover, which, according to SAMA,
accounted for 52.1% of GWP in 2017. Since 2011 all
private sector employees have been required by law
to have private insurance. The model has since been
tweaked a number of times, most recently in July 2018
when a new Cooperative Health Insurance Policy came
into effect and replaced the framework that had been
 INSURANCE OVERVIEW 99

in place since 2014. Developed by the CCHI, the new

policy introduced a number of compulsory benefits
including the treatment of dental and gum disease,
RSV vaccination for children and the treatment of psy-
chological disorders. The maximum limit of the policy
remains unchanged from the previous 2014 package,
at about SR500,000 ($133,000). In addition to over-
hauling health policy, the government has introduced
new electronic infrastructure for the segment, which
is aimed at reducing fraud and administrative costs.
The new system, launched in 2018, links the CCHI with
insurance companies, claim-management companies,
health service providers and pharmacies. The platform
allows users to carry out functions such as verifying
eligibility for medical treatment, securing approval
for health insurance services, processing health insur-
ance claims and payments, and accessing statistics
and health insurance market performance indicators.
The platform also includes an e-portal through which
patients can review their health records, and a health
practitioner portal for review authorised information.
The biggest insurance line is health, at 52.1% of premium in 2017
GENERAL COVER: General Insurance accounted for
44.7% of sector GWP in 2017. Since the introduction prices and an expansionary budget are good news In addition to overhauling
of a compulsory third-party liability law in 2002, this for domestic insurers. In October 2018 the IMF lifted health policy, the
segment has been dominated by motor business, which its GDP growth prediction for 2019 by 0.5% to 2.4%, government has
introduced new electronic
in 2017 accounted for 30% of sector premium. With 27 further cementing the positive outlook. The sustain- infrastructure for the
insurers offering coverage in the segment, competition able expansion of the industry, however, will depend segment, which is aimed
is intense. The motor insurance arena is relatively open, on its ability to establish itself on a solvent footing, at reducing fraud and
however, showing only a medium degree of concentra- deriving profits from sound underwriting as well as administrative costs.
tion. According to investment house Albilad Capital, investment activity. The regulator’s ongoing reform of
the biggest claim on the motor segment in 2017 was capital standards is central to achieving this outcome.
made by Al Rajhi, capturing 23.7% of the market. Four According to Mahmoud El Madhoun, CEO of Kingdom
other insurers commanded 34.7% of total premium. In Brokerage: “Unlike insurance companies which are
recent years SAMA has made efforts to boost coverage majority listed on the Tadawul, smaller-scale brokerage
and increase underwriting quality of the motor line. In firms are increasingly using the parallel market Nomu.”
2017 the regulator introduced new rules that provided In the longer term, the government will establish con-
for the collection and exchange of motor insurance tracts with insurance providers to provide services,
information between companies. In early 2018 SAMA which may result in an expansion of GWP. However,
signed an agreement with the General Directorate of the fine detail of the contract terms and treatment
Traffic to automatically check insurance records in packages will determine the final profit potential of the
cases where drivers have committed traffic violations. scheme, and are likely to be the focus of much debate
Should it be discovered that the driver is uninsured, the in the industry throughout the next several years.
traffic system automatically adds another violation
to the record of the vehicle. The move is expected
Insurance indicators, 2013-17
to raise the level of insured vehicles to 80%, up from
approximately 60% in mid-2017.
GWP (SR bn) No. of policies (m)
In August 2018 SAMA brought into effect an updated
unified policy for compulsory vehicle insurance, which 40 9
lowers the coverage age from 21 to 18. The new policy 35 8
requires insurers to pay compensation directly to the 30 7
bank account of the beneficiaries. While the amend-
ments are not expected to result in major changes to 25 6
policy prices, lowering the age requirement may result 20 5
in higher numbers of vehicles insured throughout 2019. 15 4
Other forms of general insurance provide much
10 3
smaller contributions to aggregate GWP, with property
and fire (4.7% of the total in 2017), accident and liability, 5 2
(2.9%) and engineering (2.6%) next in size. 0 1
OUTLOOK: The growth prospects of the Kingdom’s 2013 2014 2015 2016 2017
insurance sector are to a large extent linked to the
Source: SAMA
expansion of the economy. Therefore, firming oil

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100
InsurTech is used to
describe new technologies
with the potential to bring
innovation to the insurance
sector and impact the
regulatory practices of
insurance markets.
North America and Europe
had the highest insurance
penetration rates in 2017,
equivalent to 7.1% and
6.5% of GDP, respectively,
followed by Asia and
Oceania with 5.6% each.
Global
Perspective
Digital disruption
InsurTech taps premium growth potential in emerging markets
Two of the biggest trends in global insurance in recent
years are premium growth in emerging markets and the
rising importance of technology across the supply chain.
The latter has come to be referred to as InsurTech, a
potentially disruptive trend that heralds both threats to
and opportunities for incumbents and newcomers alike.
While technological solutions are being applied along
the length of the insurance supply chain in advanced
markets, their focus in emerging markets has primarily
been on driving premium growth. Stronger growth in
emerging and developing economies since the turn of
the century has given rise to a swelling middle class. At
the same time, many lower and some middle-income
countries have managed to largely skip the mass rollout
of fixed-line telephony as the prevalence of low-cost
mobile telephony has seen a surge in mobile phone pen-
etration rates not too dissimilar to those in advanced
economies. In turn, this has facilitated financial inclu-
sion, allowing tens of millions to access formal financial
services for the first time. Kenya’s mobile money system,
M-Pesa, is a notable example, blazing a trail for mobile
banking in developing economies. In fact, Kenya’s mobile
payment system is on par with, or even ahead of, those
in many advanced economies. Over time, the sophisti-
cation and availability of digital financial services has
greatly expanded, from e-payments to microcredits
and, more recently, insurance products.
INSURTECH: According to a report titled “Technology
and innovation in the insurance sector” published in
2017 by the OECD, InsurTech is used to describe “the
new technologies with the potential to bring innova-
tion to the insurance sector and impact the regulatory
practices of insurance markets”. InsurTech, as compared
to financial technology (fintech), is more often related
to service improvements for individuals, as opposed to
businesses. Sector participants sometimes use the term
more broadly to encompass the application of digital
technology to all stages of the insurance supply chain. In
its insurance market outlook for 2018-19, global insurer
www.oxfordbusinessgroup.com/country/saudi-arabia
Munich Re noted that “InsurTech start-ups benefit from
the achievements of fintech companies, as new finan-
cial technologies also allow insurers’ product ranges to
be expanded, alternative sales channels to be created
and additional groups of clients to be reached”. This is
highlighted as being particularly relevant in “underde-
veloped insurance markets by offering simple, innova-
tive and needs-based products digitally, and thereby
developing new markets”. Concrete examples cited
in the Munich Re article include micro-insurance for
health and crop insurance, which can be contracted
and managed via mobile phone.
PENETRATION: The share of insurance premiums in
GDP is closely and positively correlated with GDP per
capita, and varies significantly across regions. Accord-
ing to the “World insurance in 2017: solid, but mature
life markets weigh on growth” report by Sigma, Swiss
Re’s research and analysis arm, North America and
Europe had the highest insurance penetration rates
that year, measured as premiums as a percentage of
GDP, with 7.1% and 6.5% of GDP, respectively. Asia, which
includes the Middle East, and Oceania tied in third place
with 5.6%. While Taiwan (21.3%), Hong Kong (17.9%),
South Korea (11.6%), Japan (8.6%) and Singapore (8.2%)
recorded rates above those seen in North America,
about half of the countries in Asia have rates less than
3% of GDP, with large, populous economies such as
Pakistan and Bangladesh registering rates under 1%.
Latin America and the Caribbean and Africa hold the
most potential for catch-up growth, with penetration
rates of 3.06% and 2.96%, respectively.
PREMIUM GROWTH: The pattern in premium growth,
however, is somewhat different, reflecting both
stronger growth in emerging markets and the catch-up
potential represented by relatively low penetration
rates. In 2017 premiums were flat in North America,
and contracted in Europe and Oceania by 0.5% and
6.2%, respectively. Meanwhile, premium growth in Asia
registered 5.7%, but differed markedly between its

sub-segments. Advanced Asian economies contracted
by 1.1%, while emerging Asian markets and the Middle
East and Central Asia region grew by 14.7% and 5%,
respectively. Premium growth in Latin America and
the Caribbean was a modest 0.1%, reflecting muted
economic activity across the region, particularly in
Venezuela, Argentina and Brazil. Similarly, premium
growth in Africa was weak, at 0.5%, dragged down by
the performance of South Africa, which dominates the
continent’s insurance market, and Nigeria, which expe-
rienced an economic blowback from weak oil prices.
MOBILE PHONES: Mobile phone penetration is almost
universal in advanced countries, and rapidly catching
up in emerging and developing economies. According
to the World Bank, in 2017 there were more than 115
mobile phone subscriptions per 100 people in North
America, Europe, and the East Asia and Pacific region,
while there were more than 100 in the Middle East
and North Africa and Latin America and the Caribbean
regions. Even in sub-Saharan Africa, there were more
than 70 mobile phone users per 100 people.
A similar pattern can be found in the use of mobile
banking services, albeit at much lower levels. Accord-
ing to the World Bank’s 2017 Global Findex database,
the share of the adult population that used a mobile
phone or the internet to access a financial institution
account in the past year was 68% in North America,
36% in Europe and Central Asia, 32% in the East Asia
and Pacific region, 12% in the Middle East and North
Africa region, 10% in Latin America and the Caribbean,
and 8% in sub-Saharan Africa. Although not surveyed
specifically, it could be expected that the penetration
of digital insurance products would be an order of
magnitude smaller across all regions. Moreover, the
extent of mobile phone penetration relative to that
of the use of mobile banking underlines the potential
for growth in the coming years. For bancassurers in
particular, this provides significant opportunities to
cross-sell insurance products, while for pure insurers
there is potential for joint ventures with banks and
technology – notably e-payment – companies.
KEY FIGURES: As for the InsurTech segment itself,
CB Insights, a tech market intelligence platform, esti-
mated total global investment reached $2.3bn in 2017,
following a compound annual growth rate of 45% since
2012. In the first half of 2018 there were $1.3bn worth
of InsurTech deals, putting the year in a good posi-
tion to top the annual record of $2.7bn in 2015. The
bulk of InsurTech deals since 2013 have been made in
developed markets, with the US alone accounting for
58% that year. While leading emerging markets, such
as China and India only recorded shares of 5% and 4%,
respectively, they are beginning to make their presence
felt. Emerging markets share of global InsurTech deals
is increasing, with China and India accounting for 13%
and 10%, respectively, in the second quarter of 2018.
Meanwhile, Israel accounted for 6% and South Africa for
4%. While new, sometimes disruptive, market entrants
are starting to account for a larger share of sales, 83% of
those made between 2012 and 2017 involved an estab-
lished insurer or reinsurer as a sole or joint investor.
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101
BIG TECH: Even if much of InsurTech investment has In 2017 total global
thus far been complementary, rather than disruptive, investment in InsurTech
to incumbent insurers, large technology companies are reached
entering the market, particularly in economies such as
China. For example, Alibaba, sometimes labelled as the
Chinese Amazon, teamed up with Tencent, another
$2.3bn
Chinese technology giant, and insurer Ping An Insurance
to launch China’s first wholly online insurer, Zhong An,
in 2013. Over time, it is likely that the biggest global
tech firms will look to enter insurance markets in other
advanced and emerging economies, either through
their own well-established brands or through joint ven-
tures with established insurers. An August 2018 survey
by US-based marketing research company JD Power
found that one in five US consumers would be willing
to purchase home insurance from Amazon or Google.
EMERGING ASIA: Given the size and growth rate of
its economy and its even faster expanding insurance
sector, it is hardly surprising that China is not only the
top emerging market contributor to global premium
growth, but has been a key driver of overall global
premium growth in recent years in light of a relatively
lacklustre performance in many advanced economies. In
2017 Chinese insurance premiums adjusted for inflation
grew by 16.2% to reach a 4.1% share of GDP. However,
given the extent of convergence with the insurance
penetration rate in more advanced economies by 2030,
the increase in Chinese premiums is expected to moder-
ate thereafter, with other emerging markets taking up
the mantle to drive the expansion of global premiums.
Beyond China, the extent of InsurTech’s impact varies.
Kheedhej Anansiriprapha, executive director at Thai
General Insurance Association, told OBG that “online
insurance sales account for a relatively small proportion
of the market, with only motor and travel products
being purchased online. For life and non-life, agents
and bancassurance will be the vehicles for distribu-
tion in the short to medium term”. By contrast, Mark
Lwin, president and CEO of AIG Philippines Insurance,
explained that some segments have already seen a big
impact. “Technology has had a broad and deep impact
on retail and high-volume insurance segments, such as
life and consumer insurance,” he told OBG. “However,
the commercial segment in the Philippines lags globally
and has not undertaken major investments in ICT or
digitally-enabled products and capabilities.” Thailand is
one of the more developed insurance markets in South-
east Asia, with a penetration rate of 5.3% of GDP in 2017.
This compares favourably to rates in Malaysia (4.8%),
Indonesia (2.4%), Vietnam (2.1%) and the Philippines
(1.8%), suggesting that InsurTech could play an even
stronger role in driving catch-up premium growth in
less-saturated markets such as the Philippines.
LATIN AMERICA & THE CARIBBEAN: Some Carib-
bean islands – notably the Caymans, the Bahamas and
Jamaica – already have reasonably deep insurance
markets with penetration rates that are comparable
to advanced economies. As the highest income Latin
American economy, it is unsurprising that Chile also had
the highest insurance penetration rate at some 4.9%
of GDP in 2017. With the largest economy in the region
THE REPORT Saudi Arabia 2019
102
With the largest population
and economy in sub-
Saharan Africa, yet a
penetration rate of 0.3%
of GDP in 2017, Nigeria
has perhaps the greatest
potential for catch-up
premium growth.
by far and a penetration rate of 4.1%, Brazil accounted
for the biggest source of premiums at around $83.3bn.
Meanwhile, Mexico, which is the region’s second largest
economy, had a penetration rate of 2.2%, suggesting
it has significant catch-up potential.
InsurTech adoption varies across the region. A nota-
ble success in Brazil is Bidu, established in 2011, which
has been a pioneer in selling online insurance to final
consumers, mainly in the non-life segment. It has built
a strong market position by combining savvy use of
technology with offline consultations to maximise the
quality of the consumer experience.
MIDDLE EAST & NORTH AFRICA: Both insurance pen-
etration and digitisation rates vary across the region,
registering higher rates on average in the Gulf than in
North Africa. In the latter, some countries are tapping
into InsurTech to help drive premium growth. Philippe
Vial, administrative director-general of La Marocaine
Vie, a Morocco-based life insurer and subsidiary of
the investment management multinational Société
Générale Group, stated that bancassurance holds a
competitive advantage owing to the contacts that they
have with customers. “These contacts constitute an
asset in that they provide us with personal information
that helps us to better serve our customers,” Vial told
OBG. “The optimisation of these assets is one of our
major priorities in the coming years.”
By contrast, the use of technology in the Algerian
and Egyptian insurance sector is in its infancy, though
it has broken some ground. Youcef Benmicia, CEO of
Compagnie Algérienne des Assurances, an Algerian
non-life insurer, told OBG that the firm has “introduced
e-payments and bank card payments for insurance
premiums, SMS notifications of contract expiry and
online subscriptions for some types of insurance”.
SUB-SAHARAN AFRICA: South Africa’s insurance
market is already relatively saturated, with a penetra-
tion rate of 13.8% of GDP in 2017, higher than most
advanced countries and many other countries in the
region, while Namibia ranked second in the region at
7.6% and Kenya third at 2.6%. However, there is con-
siderable scope for tech-driven catch-up growth in
premiums in West and East Africa. Market players are
confident in the potential of digitisation to drive pre-
mium growth in Ghana, for example. “Digitisation is
needed to help customers apply advanced payment
techniques, such as staggered premium payments,”
Esther Osei-Yeboah, managing director of Imperial
General Assurance, told OBG. “By removing the feeling
of a bulk payment, staggered payments will increase
uptake of insurance products.” With Africa’s largest
population and economy, yet with a penetration rate of
0.3% of GDP in 2017, Nigeria has the most potential for
catch-up premium growth. Adebowale Banjo, general
manager of global distributor of insurance products
AutoGenius, told OBG that WhatsApp coverage has pro-
vided a great way to distribute insurance online, using
a platform Nigerians already understand and trust.

Reassuring trend
New reinsurance programmes are bolstering coverage against
natural disasters in emerging markets
While advanced economies generate the vast majority
of insurance and reinsurance business, emerging
markets are posting higher rates of growth. Com-
plementing this underlying trend is a strong and
expanding interest in catastrophic rerisk, which by
nature tends to pertain to emerging markets. This is
coming alongside fast-paced, sector-transforming
innovation, which could provide a major boost to
industries in less-developed economies.
BY THE NUMBERS: In terms of simple throughput,
insurance remains very much centred in North Amer-
ica, Europe and mature Asian markets. With long
histories of trading risk, a general acceptance of the
relevant products, and massive and increasingly vul-
nerable asset bases that need protection, developed
economies generate steady volumes. According to
insurance group Munich Re, in 2016 North America
paid approximately 31.1% of global premium, Western
Europe paid 28.8% and the more advanced Asian
markets, such as Japan, paid 19.8%.
However, growth rates in emerging markets out-
pace them by far: according to global accountancy
EY, life premium in developing markets rose by 7.8%
in 2014, while advanced markets grew by 4%. Those
rates were 13.2% and 3.4% in 2015, respectively, 20.1%
and 2% in 2016 and 14.9% against 2.1% in 2017. Par-
ticularly strong growth was noted in the life segments
in Vietnam, Malaysia and Indonesia. Regarding non-
life insurance, the growth in emerging markets has
been in the range of 5-8.5% since 2012, while growth
in developed markets has remained around 2%.
These trends are leading to a relative decline in the
share of business in developed insurance markets.
Munich Re has estimated that primary premium in
North America will fall to 27.8% of the world’s total
by 2026, Western Europe to 24.5% and mature Asian
markets to 17.5%. Meanwhile, emerging Asia’s share
will jump from 13.3% in 2016 to 21.4%, the MENA
region’s allocation will rise from 1.3% to 1.8%, and
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103
Global
Perspective
the share held by sub-Saharan Africa will remain Reinsurance in emerging
at 1.1%. International reinsurer Swiss Re forecasts markets is growing by
global reinsurance will increase by 1% over 2016-19; roughly
by comparison, reinsurance in emerging markets is
growing at around 10% per year.
TRENDS: The global reinsurance market on the whole
10%
per year, compared to
is healthy, with capital reaching $605bn at the end 1% globally
of the first half of 2017. However, in the wake of hur-
ricanes Irma, Maria, Harvey and Nate, among other
natural disasters, the long period of relatively low
claims appears to be coming to an end, inevitably
altering the fundamentals of the market. In its “Global
Insurance Trends Analysis” for the first half of 2017,
EY noted this flip in the market, with average event
occurrence rising above the mean. According to the
report, 2016 was the biggest year for catastrophe
(CAT) claims since 2012, with $54bn in insurance
losses reported on $210bn worth of damage, equal
to a coverage rate of 26%; in the first half of 2017
this rose to 42%. Reinsurance returns are already
at or below the cost of capital: ratings agency Fitch
expected return on equity to fall from 8.5% in 2016 to
2.1% in 2017, but forecast it would increase to 7.1% in
2018. The cost of capital for companies, meanwhile,
was projected at 6-7% in 2017.
As reinsurance recovers from a turbulent year,
emerging markets should help drive the rebound.
Although conditions are likely to remain tight, there
is considerable optimism as reinsurers and inves-
tors in related securities look for opportunities in
fast-growing markets in Asia, Africa and the Gulf. Latin
America is not to be ignored, however, as Mexican
insurance authorities reported strong demand from
international markets and healthy pricing in early
2018, despite recent global catastrophes. At present, Around $54bn in insurance
losses were reported on
236 reinsurers are operating in Mexico, serving 113
$210bn of damage in 2016,
insurers – more than two reinsurers for every insurer. making it the biggest year
MICRO-INSURANCE: The growth of reinsurance for catastrophe claims
in the developing world is primarily the result of since 2012.
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104
One of the main avenues economic expansion and increased awareness,
to emerging markets for though regulatory changes are playing a role as well.
reinsurers is through A number of local authorities are working to raise
catastrophe coverage, as
developing countries often
awareness of the benefits of insurance and are calling
need to go abroad to cover for better coverage of risk, which is boosting policy
major disasters, due to demand. The increase in cessions is also being driven
limited domestic capacity. by innovations addressing specific conditions, events
and constraints in various countries.
Micro-insurance, which was targeted as one of
the UN’s Sustainable Development Goals, is one such
innovation. In 2017 an international partnership was
forged between the UN and the global insurance
industry to boost sector activity. Swiss Re estimates
the micro-insurance market could cover 4bn people
worldwide, and reinsurers will be vital to this expan-
sion. As the market increases in size, added capacity
will be needed beyond what domestic businesses
can currently provide, and international players will
be key in bridging the gap.
To date, however, the two markets have barely
connected. While major reinsurance companies are
supportive of the offerings of micro-insurance – in
terms of grants, research and promotion – their exact
participation in the risk-transfer part of the equation
remains unclear. This is partially a structural issue: the
insured amount is usually so low with micro-insurance
that reinsurance rarely kicks in on a per policy basis.
INDEX LINKING: For the most part, reinsurance com-
panies are involved with the micro-segment indirectly
via the index-linked market. These products utilise
parametric triggers, deliver large payouts when the
relevant criteria are met and provide clear visibility
of the basis for any claims, making them well suited
for reinsurance companies.
Many programmes are under way to increase rein-
surance participation in the index-linked market. For
instance, Mongolia’s Agriculture Reinsurance (AgRe),
which provides index-based livestock cover, is sup-
ported by major international players, including SCOR,
Swiss Re and Qatar Re. AgRe was originally formed
with the help of the World Bank in 2005, becoming a
fully fledged corporate entity in 2014. Despite early
losses, the programme has been in positive territory
every year since 2010, according to company data.
In 2015 the International Financial Corporation,
part of the World Bank Group, opened the Global
Index Insurance Facility (GIIF) with Swiss Re as its
technical partner. The GIIF is a donor-funded pro-
gramme to support index-linked insurance in devel-
oping countries. The same year, French insurance
giant AXA announced it would provide reinsurance
capacity for weather-linked products introduced by
the World Bank under the GIIF.
CAT RISK: CAT coverage is a key avenue to emerging
markets for reinsurers. Developing countries often
turn abroad to cover major disasters, as they have
limited capacity due to the size of their economies
and local insurance markets. It is also a product line
where the modes of participation for global reinsur-
ers are straightforward, with ample opportunity for
innovation and product development. The triggers
are transparent, the events are well defined and the
duration of the cover tends to be short.
Although CAT coverage is needed and utilised
everywhere, and most claims are paid in developed
markets, the insurance is particularly suited to emerg-
ing markets. Because of their locations, populations
and lack of infrastructure, these countries tend to be
most affected by weather-related and seismic events.
Thailand, the Philippines, Mexico, Indonesia, Papua
New Guinea and a number of sub-Saharan African
nations, for instance, are all highly vulnerable to nat-
ural disasters and are good candidates for coverage.
Development of the segment is ongoing, but a num-
ber of programmes are already in place. For example,
the Caribbean Catastrophe Risk Insurance Facility
(CCRIF), which is currently owned and operated by
16 governments from the region, was established
in 2007 with international assistance. It is the first
and only regional fund to date that pays out claims
based on statistical parameters rather than actual
losses incurred. Reinsurance is a key component of

the coverage, as it allows for the purchase of CAT
insurance at lower rates than would usually be avail-
able commercially. Payouts from the CCRIF stood at
a total of $100m as of late 2017.
Another such entity is the Pacific Catastrophe Risk
Insurance Company (PCRIC), which covers the Cook
Islands, the Republic of the Marshall Islands, Samoa,
Tonga and Vanuatu. The entity was designed to pool
risk and tap global reinsurance markets to cover key
regional risks, such as tsunamis, earthquakes and
cyclones. Established in June 2016 after the com-
pletion of a pilot programme from 2013 to 2015,
the PCRIC mobilised $45m worth of coverage for the
2017/18 cyclone season, up from $38m a year earlier.
To cover the African market, African Risk Capital
(ARC) was launched in 2014 as a sovereign CAT fund.
It aims to have $1.5bn of coverage available by 2020.
Though it will likely require international support to
do so, the ARC has reported that the response from
the global reinsurance market has been positive so far.
INNOVATION: In addition to traditional reinsurance
arrangements, CAT bonds and CAT swaps are becom-
ing a bigger part of the landscape. Under a swap, the
exposure is transferred to investors in return for a
payment – similar to a bond or a reinsurance agree-
ment, but with less structure. These developments
allow for the quick identification of risk and deploy-
ment of capital, in turn resulting in highly competi-
tive terms. As reinsurance becomes more oriented
towards capital markets, some developing economies
may be better served. For instance, Mexico’s Fund
for Natural Disasters (Fondo de Desastres Naturales,
FONDEN) uses an index based on the Richter scale to
provide reinsurance to cover costs after the coun-
try’s earthquake insurance fund is tapped out. In
2017 FONDEN sold a $360m CAT bond, surpassing
the $290m that was initially planned.
In the Philippines, a parametric disaster line to
cover the 25 most disaster-prone provinces was ini-
tiated in 2017. The fund, valued at P1bn ($19.8m),
received support from the World Bank, with the risk
fully ceded to international reinsurers. In a related
development, the World Bank arranged a $206m CAT
swap line for the country, which will provide coverage
for typhoon and earthquake risk.
At a global level, the World Bank has initiated a
pandemic CAT programme, issuing a $320m bond
and completing $105m worth of swap transactions
in 2017. The pandemic emergency fund will provide
cover for the flu; coronaviruses, such as SARS; filovi-
ruses, including Ebola and Marburg; Crimean-Congo
fever; Rift Valley fever; Lassa fever; and others. World
Health Organisation data on the number of people
affected by an outbreak is used to trigger payments.
The size of the CAT bond market has more than dou-
bled over the past decade. It reached record volumes
in 2017, estimated at $12bn, with more than $30bn
outstanding. There are signs that alternative financ-
ing is outpacing traditional reinsurance, which could
have a major impact on developing economies, given
the speed and flexibility of market-based solutions.
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105
BARRIERS TO RISK: The micro- and index lines The catastrophe bond
have historically faced challenges, and it can be dif- market had an estimated
$30bn
ficult to generate demand for these products. The
Manggarai Water Gate micro-insurance programme,
for example, was established in 2009 with the help
of Munich Re. It paid out a fixed amount when the outstanding in 2017
level at the Manggarai Gate – built to help control
floods in Jakarta – breached a predetermined level.
However, the demand for this type of coverage was
not there: only 50 policies were sold, and as a result,
the programme was discontinued in 2010.
In terms of index-linked initiatives, it is not clear
whether these securities can be fully self-sustaining,
as most depend on multilateral and donor support.
In places such as China and India, markets are able
to finance the risk internally, but in smaller markets,
the mismatch between the potential losses and the
critical mass on the ground is substantial. Island
countries in particular lack the domestic markets to
finance the amount of reinsurance required to cover
inevitable natural disasters.
Poor performance also threatens the sector,
and one major loss can shift sentiment, which can
freeze markets and make risk difficult to transfer.
For instance, an earthquake with a magnitude of
8.1 in Mexico in August 2017 could have wiped out
FONDEN’s financing completely. Although the payout
ended up being a manageable $150m, it nevertheless
highlighted potential problems.
PROTECTIONISM: The rise of protectionism presents
another challenge. The trend towards more open
economies has hit a speed bump in recent times,
as populist sentiment and isolationism rise around
the globe. In insurance markets, these trends have
resulted in new efforts to restrict entry, such as
local incorporation rules and higher capitalisation
levels. Reinsurance is often targeted directly. This
can include mandatory cessions to state reinsurers,
minimum retention levels and high capital require-
ments for overseas cessions. The Global Reinsurance
Forum identified 28 countries or regions that have or
are implementing restrictions on reinsurance. While
a number of developed countries are included – such
as the US, Germany and France – mandatory cession
and other such requirements are more common in
emerging markets. For instance, Kazakhstan and Rus-
sia have been particularly restrictive, with the latter
forming the Russian National Reinsurance Company
in 2016. “The introduction of local requirements is
influencing international reinsurers,” Solomon Lartey,
CEO of Activa International Insurance in Ghana, told
OBG. “The global view of the reinsurer is bittersweet.
For the big players facing natural disasters, they are
getting squeezed from every angle.” Another challenge for
In 2008 Saudi Arabia announced that all foreign reinsurers in emerging
insurance firms operating in the country had to markets is the rise of
become locally incorporated and foreign ownership protectionism. These
trends have resulted in new
was restricted to 30% of the total capital of an insurer,
efforts to restrict entry in
with all risk to be placed with local insurers. A report many countries via local
by insurance ratings agency AM Best concluded incorporation rules and
these rules were ineffective, as informal fronting higher capitalisation levels.
THE REPORT Saudi Arabia 2019
106
Although natural arrangements meant much of the risk was placed
disasters have led to a internationally anyway. To mitigate this, the author-
tightening of the market, ities initiated minimum retention levels, requiring
new technologies and
innovation are assisting
that 30% of premium ceded be kept in the country.
insurers and reinsurers The Saudi net retention ratio has been far beyond
in reaching historically this, at 81% in 2015 and 82% in 2016.
underpenetrated markets. Similar requirements have been introduced in
sub-Saharan Africa: 15% of life cessions and 10% of
non-life cessions in Gabon must go to the Société
Commerciale de Réassurance du Gabon; 15% of all
reinsurance cessions in Uganda must be made to
Uganda National Reinsurance; African Reinsurance
Corporation (Africa Re) is entitled to 5% from under-
writers in the African Union; and in Nigeria 5% goes
to Africa Re and 5% is ceded to the West African
Insurance Companies Association Reinsurance Cor-
poration. Furthermore, Nigeria, Ghana and Uganda
require that all local capacity be exhausted before
placing risk overseas, but due to the small size of
domestic markets this threshold is generally reached.
Protectionism is increasingly evident in Asian mar-
kets as well. So-called voluntary cessions to Malaysia
Re will continue at a rate of 2.5% until the end of
2019 at least. In the Philippines, 10% must be ceded
to the National Reinsurance Company of the Philip-
pines, while in Sri Lanka 30% must be transferred to
National Insurance Trust Fund, up from 10% in 2013.
Thailand has required 5% cessions to Thai Re since
2005, though this has not been enforced since the
damaging 2011 floods. Vietnam, meanwhile, has had
a mandatory 10% local cession since 2016.
Notably, Indonesia, via the Indonesian Financial
Services Authority (OJK), has established a number
of reinsurance rules to encourage more domestic
cession. Motor, health, personal accident, credit, life
and surety risk must remain in the country, though
products for multinational companies underwritten
by international insurers are allowed. Each insurer
must prepare an insurance support strategy, which
sets out a reinsurance and retention plan, while auto-
matic reinsurance agreements must utilise domestic
capacity first – going overseas only if the domestic
market is unwilling or unable to fill the order, as long
as proof of this is provided to the OJK. Furthermore,
foreign insurers taking on risk must be rated above
“BBB”. Indonesia also set up a national reinsurer, Indo-
nesia Re, amalgamating the existing reinsurers in
2015. It was created to keep premium in the domestic
market and may be recapitalised to achieve this goal.
European insurers are worried that the new company
could result in a higher rate of mandatory cession.
While Indonesia is starting to employ protectionist
measures, its economic growth is leading to over-
exposure in the domestic insurance sector. JLT Re,
global provider of reinsurance broking, noted that
although premium grew at a 10% rate from 2011 to
2016, the pace is not fast enough to fully cover the
rise in exposure, placing underwriters at more risk.
Interestingly, Mexico and most Latin American mar-
kets are free of such protectionist measures, except
for Argentina, which has a 15% mandatory cession.
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Mandating retention rates may be difficult, as
insurers in developing countries often do not have
the necessary capital to serve all business. A good
portion of premium required to remain domestic
already ends up overseas; national reinsurers often
have no choice but to turn to international markets.
“A lot of our local players are more distribution organ-
isations or consumer insurers,” Mark Lwin, CEO of
AIG Philippines Insurance, told OBG. “If you look at
retention rates, they are as low as 1-2% or 8% at most
for larger commercial risks. The gap between the
desire to keep premium in the local market and the
capacity to do so is significant.”
RISKS: Local conditions can impose specific chal-
lenges for insurers and reinsurers alike. On the life
side, EY anticipates a tapering of growth in East Asia,
as demand shifts from investment-linked products to
protection products. In terms of non-life business
lines, EY has forecast a pick-up following a period
of slower growth stemming from macroeconomic
concerns, although the rebound will likely be capped
by competitive and regulatory pressures. There are
common structural risks in emerging markets, such
as limited data and underwriting experience; how-
ever, advances in technology should see these areas
improve over time, and some developing economies
already have substantial information available. For
example, PNG has 50 years worth of cyclone data
and Mongolia’s livestock census dates back to 1918.
Distribution is another issue, as extending coverage
to individuals and corporations can be challenging.
Reinsurers becoming more involved at the local level
would help; however, this sort of activity is outside
the normal field of operations and responsibility.
Globally, the reinsurance market is becoming
increasingly concentrated – the top-five players
control 90% of the market – but in some cases, local
markets are becoming too competitive, which can
lead to a mismatch in pricing. In PNG foreign exchange
restrictions have led to reinsurance payment issues,
while in other markets, the fall in local currencies
has led to a decline in the market size in dollar terms,
despite strong business.
LOOKING AHEAD: Reinsurance is changing globally.
Although natural disasters have led to a tightening
of the market, new technologies and innovation are
assisting insurers and reinsurers in reaching histori-
cally underpenetrated areas. Alternative solutions are
likely to create uncertainties as well as opportunities,
but reinsurance in emerging markets appears set
to grow in both absolute and relative terms. While
there are concerns about increased protectionism,
the desire to keep more premium within emerg-
ing economies is likely to bolster development. “It
is up to global players, but they must stop think-
ing that African business is too small,” Lartey told
OBG. “African regulators are talking to each other,
fighting to close every loophole. If multinationals
don’t take action, local players will step in and work
to meet business needs. Eventually, global players
will have to shift to doing more business in Africa.”
 107

Makkah & Medina

Umrah promotion to ease the resource strain of Hajj
Religious pilgrimage helps holy cities to prosper
Hospitality and retail expand alongside tourism
Capacity investments prioritise visitor safety
108
Spending on pilgrimage
to Makkah is projected
to equal
$150bn
in the 2018-22 period
In an effort to increase
participation in the Umrah,
the government has
taken steps to ease the
visa process, including
digitalising the application,
rolling out e-visas and
reducing fees for pilgrims
from some countries.
MAKKAH & MEDINA OVERVIEW
An expansion will let 400,000 people to circulate the Kaaba hourly
Market and mosque
Pilgrimage is seen as increasingly central to the Kingdom’s
economic diversification efforts
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.
The city Makkah is the capital of a region of the same
name. The Makkah region had a population in mid-2017
of 8.6m, up from 6.1m in 2007, according to the General
Authority for Statistics (GaStat). The wider region also
includes Jeddah, one of the busiest ports in the Arab
world and, after Riyadh, the country’s second-largest
city, with a population of 4m. Makkah, meanwhile, is
home to nearly 2m people, and has nearly doubled in
size in the last two decades.
Medina, to Makkah’s north, is likewise an eponymous
provincial capital; in mid-2017 the city had a population
of 1.5m, while the wider Medina region was home to
2.1m people, up from 1.6m in 2007. Such demographic
growth in both cities has put pressure on housing and
infrastructure resources, which the government has
recently attempted to alleviate by undertaking large-
scale development projects.
PILGRIMAGE: Each year both cities attract millions
of religious worshippers participating in one of two
pilgrimages, the Hajj and the Umrah. The Hajj is an
annual, five-day pilgrimage that occurs between the
eighth and 13th days of Dhul-Hijjah, the last month
of the Islamic calendar; in the Gregorian calendar, it
fell between August 19th and 24th of 2018, and is
forecast to happen between August 9th and 14th of
2019, depending on when the moon is sighted. The
www.oxfordbusinessgroup.com/country/saudi-arabia
performance of Hajj is one of the five pillars of Islam,
and every physically and financially capable Muslim
is required to take part in the ritual at least once in
their lifetime. During the five-day pilgrimage, hajjis
(participants in the Hajj) trace the footsteps of the
Prophet Muhammad around Makkah and perform a
number of important rites, such as circling the Kaaba
and walking between the hills of Safa and Marwa,
which both occur within the Grand Mosque complex.
While Umrah entails many of the same practices
as the Hajj, it is not considered an obligation, and the
journey can be performed at any time of the year. In
an effort to attract more mu’tamirs (participants in
the Umrah), and in recognition of the stress that the
Hajj exerts on local infrastructure, the government has
taken several steps to ease the process of obtaining an
Umrah visa, including the digitalisation of the applica-
tion form, the rollout of e-visas and the reduction of
visa fees for pilgrims from select countries.
ECONOMY OF WORSHIP: The economic impact of the
pilgrimages on the economies of Makkah and Medina
is substantial. Recent research by the Makkah Cham-
ber of Commerce and Industry found that 25-30% of
private sector income earned in the area around the
two cities is derived from pilgrimage. Likewise, the
Council of Saudi Chambers estimated that spending
associated with the pilgrimages will together generate
$150bn in income and create 100,000 permanent jobs
related to the Hajj over the 2018-22 period.
In 2016 Crown Prince Mohammad bin Salman bin
Abdulaziz Al Saud unveiled Vision 2030, a long-term
economic plan that aims to reduce the Kingdom’s
dependence on oil by diversifying the economy, par-
ticularly through the development of public service
sectors. Activities associated with Hajj and Umrah
accounted for 20% of non-oil GDP and 7% of total GDP
in 2017. Coupled with the dampened and volatile global
price of oil – Brent crude fell from $115 per barrel in
June 2014 to a low of $29 per barrel in January 2016,

and only recovered to $80 per barrel briefly in the fall
of 2018 – pilgrimage has become a vital component
of Vision 2030, and the government has a launched a
series of projects to boost religious tourism.
RESOURCE STRESSES: Central to the government’s
undertaking is a concerted effort to better ensure
pilgrims’ safety. In September 2015 a crane involved
in the renovation of the Grand Mosque collapsed into
the building, killing more than 100 worshippers during
Friday prayer. Several weeks later, during the Hajj,
a stampede took place in Mina, a neighbourhood in
eastern Makkah that is central to the pilgrimage, that
killed hundreds and injured thousands more. Since
then, national and regional government agencies have
focused on improving crowd control, data collection
and emergency response services, while also expand-
ing the capacities of the holy sites.
According to GaStat, 2.37m people – 1.76m for-
eigners and 613,000 Saudis – took part in the Hajj in
2018, up slightly from the year prior, when Makkah
welcomed 2.35m pilgrims. Those totals significantly
exceeded the decade-low of 1.86m hajjis recorded in
2016, but fell well-short of the 10-year high reached in
2012, when 3.25m people took part. Vision 2030 aims
to attract 5m pilgrims by 2030 through measures like
visa liberalisation and capacity expansion. The gains
made since 2016 are attributed in part to the lifting
of quota restrictions imposed during the expansion
of the Grand Mosque to ensure the safety of visitors.
Alongside its target to increase Hajj visits, the gov-
ernment has placed greater emphasis on attracting
more Muslims to participate in the Umrah, as the
pressure of tourism on infrastructure can be more
evenly distributed across the entire year. In 2017, 12.6m
mu’tamirs visited Makkah, with more than 6.7m coming
from outside the Kingdom. In total the government has
set a target of attracting 15m foreign Umrah pilgrims
by 2022, and by 2030 the government hopes to have
the infrastructure in place to accommodate 30m for-
eign and 20m Saudi mu’tamirs per year.
The drive to expand religious tourism has situated
Makkah and, to a lesser extent, Medina at the centre
of the government’s large-scale development pro-
jects. While much of the country has been adversely
affected by the slowdown associated with the five-
year slump in oil prices, both cities have continued to
prosper, predominantly on the strength of investments
in infrastructure and hospitality. As Nidhal Taibah,
founding partner of the KSA office of EHAF Consulting
Engineers, explained to OBG, “Makkah, unlike the rest
of Saudi Arabia, was not impacted as much by the
economic slowdown, due to the demand created by
the influx of religious pilgrims every year.”
TRANSPORT & INTERNET: In September 2018, under
the purview of Vision 2030, the Public Transport
Authority announced the opening of the high-speed
Haramain High-Speed Rail project, which runs between
Makkah and Medina, via Jeddah, the King Abdulaziz
Airport and King Abdullah Economic City. The train,
which cost SR60 billion ($16bn) to develop, can reach
speeds up to 300 km per hour and is expected to cut
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MAKKAH & MEDINA OVERVIEW 109
The government has prioritised improving safety conditions at sites involved in the performance of Hajj
the transport time between the two holy cities from While much of Saudi
five hours to two. Officials expect it to transport 60m Arabia has been adversely
passengers annually, which should greatly improve affected by the slump in
oil prices, Makkah and
road congestion, particularly during the Hajj. Medina have continued to
Along with this investment in transit, the govern- prosper, due to tourism and
ment has worked to provide high-speed internet investments in hospitality
services to the growing number of internet-savvy and infrastructure.
visitors. In 2018 the Commission for Communications
and IT added 3000 signal towers to the 13,000 existing
sites in Makkah and Medina to facilitate high-speed
data communication. This investment builds upon an
existing network of 3000 public Wi-Fi access points,
as well as the 920 sales outlets run by the country’s
multiple telecoms operators.
CAPACITY GROWTH: The expansion of the Grand
Mosque started in 2011 but halted abruptly in Sep-
tember 2015, following the deadly crane accident, and
the project only resumed in October 2017. The $10bn
development will increase the area from 356,000 to
400,000 sq metres, build out its capacity from 1.5m
to 2.5m worshippers and add two minarets to the 11
towers currently in place. In addition, the King Abdullah
Expansion Structure will accommodate 1.2m more
worshippers over an area of 456,000 sq metres and
add 78 gates, which will improve the flow of people into
and out of the complex and allow as many as 400,000
worshippers per hour to pass through the Mataaf, the
circumambulation area around the Kaaba.
In Medina work began in 2012 to build out the capac-
ity of Masjid an-Nabawi, or the Prophet’s Mosque, to
accommodate as many as 1.6m worshippers. A signif-
icant number of hotels were demolished to make way
for the structure’s expansion, which includes tunnels, The government has set
15,000 toilets and new pedestrian pathways through- a target of welcoming
out the structure. While the demolition phase of the
project has been completed, no further construction 50m
occurred on the site in 2018. Umrah visitors yearly by
VISA REGULATIONS: Due to the Grand Mosque 2030
expansion project, the Saudi government tightly
THE REPORT Saudi Arabia 2019
 110
Careful visa issuance has helped to keep the Grand Mosque filled to a manageable capacity year-round
Two ongoing, mixed-
use mega-projects are
projected to add more than
100,000 new hotel rooms
to the Makkah hospitality
market by 2025.
Between September
2018 and March 2019
the government issued
4.3m
Umrah visas
MAKKAH & MEDINA OVERVIEW
restricts the number of visas given to pilgrims. For Mus-
lim-majority nations, Saudi Arabia sets a quota of 1000
Hajj visas per million Muslims. In 2017, 221,000 hajjis
travelled from Indonesia – home of the largest Muslim
population in the world – with the help of government
subsidies, while 179,000 Pakistanis made the same
trip. Muslims from countries where they do not con-
stitute a majority are not restricted by a quota when
applying for Hajj visas. The number of British Muslims
attending Hajj has steadily risen over the years, rising
from under 1000 in 1968 to as many as 25,000 last
year. An additional 100,000 attend the Umrah annually
from the UK. In many countries the waiting list for a
Hajj visa is years long, and given the limitations on the
number of pilgrims that can be accommodated during
the event, the government has promoted the Umrah
to boost year-round religious tourism.
NEW VISAS: The government has moved to ease the
process by which Muslims obtain Umrah visas and to
expand the permissions those visas grant. In 2018 the
government relaxed the geographical parameters of
the visa, which had previously limited worshippers to
visiting the Makkah and Medina regions, such that
visa-holders can now travel to major cities across the
Kingdom. In recognition of the same limitations, and
in tandem with regulatory reform, travel companies
that have typically served hajjis have begun to promote
the Umrah pilgrimage more vigorously. These public
and private efforts are expected to boost the tourist
industry in Makkah and Medina considerably.
As of early March 2019 – Umrah season began in
mid-September 2018 – the government had issued
4.3m Umrah visas, and more than 3.9m mu’tamirs had
already arrived in the country. Should the pace of visa
issuances be sustained through the second half of
the Muslim year, the number of Umrah visitors will
far surpass the 6.7m foreign mu’tamirs that entered
Saudi Arabia in the previous year. This increase has
come amid efforts to closely monitor the issuance of
www.oxfordbusinessgroup.com/country/saudi-arabia
these visas, as the government works to ensure that
pilgrimage sites do not become too heavily congested,
especially with the work on the expansion of the Grand
Mosque continuing throughout the year.
“The Saudi government manages the flow of visas
very carefully in that they make sure the number of
pilgrims can be absorbed by the Grand Mosque in
Makkah,” Faisal Tahir Khan, founder and CEO of the
global consultant FT Konsepts, told OBG. “They appear
to have successfully created a balance whereby there
is a continuous flow of pilgrims, meaning the Grand
Mosque is neither too full nor too empty at all times.”
MAKKAH HOSPITALITY: Half of the hotel rooms
slated for development in Saudi Arabia will be located
in Makkah, with 23,000 rooms currently under con-
struction and a further 32,000 in the pipeline, accord-
ing to a July 2018 report by Alpen Capital. Many of these
rooms are part of two large-scale developments, Jabal
Omar and Rou’a Al Haram al Makki, that are catering
explicitly to the demands of religious tourists.
The SR20bn ($5.3bn) Jabal Omar development, a
2.2m-sq-metre plot within walking distance of the
Grand Mosque, will comprise 93 commercial units and
38 hotels equipped for 36,000 guests. “This project
will have a big impact on the hospitality market in
Makkah city due to its heavy focus on hotels,” Taibah
told OBG. “As the Jabal Omar site is very steep, it has
not been possible to build malls, but there will be some
commercial infrastructure in the development with a
retail shopping area on the ground floor.”
Phase one comprised the construction of 10 hotel
towers, including Hilton Suites Makkah, Makkah
Marriott Hotel and Hyatt Regency Makkah, and was
completed in mid-2017. Phase two, encompassing an
additional 1033 hotel rooms and all 93 commercial
units, is expected to conclude in early 2019. Foremost
among the additions will be a multi-towered building,
constructed atop a retail podium, that will house the
Four Seasons Hotel, where all 375 guest rooms will
offer unobstructed views of the Grand Mosque and
the Kaaba. “Four Seasons will be the jewel in the Jabal
Omar master development plan,” Yassar Faisal Al-Sharif,
CEO of Jabal Omar Development Company, told local
and international media in October 2017. “It will bring
to life a vision for the ultimate hospitality experience
to enhance Hajj and Umrah pilgrimages.”
Another mixed-use mega-project, Rou’a Al Haram
Al Makki, could transform the local market. The pro-
ject, announced in late 2017 by its financier, Saudi
Arabia’s sovereign wealth fund, will span some 84,000
sq metres, add 70,000 hotel rooms and, according to
an estimate from JLL, contribute SR8bn ($2.1bn) to
the national economy. The first phase is projected to
be fully operational in 2024. Fayyaz Ahmad, national
director of the JLL in Saudi Arabia, told OBG that, “The
Jabal Omar and Rou’a Al Haram Al Makki projects will
significantly increase the supply of rooms in the hos-
pitality sector in Makkah, and are key for the govern-
ment’s targets for religious pilgrims in Vision 2030.”
In 2018 there was a string of other notable hotel
openings in the Al Naseem complex, including the Four

Points by Sheraton Makkah Al Naseem (1140 keys), the
Copthorne (492 keys) and the Millenium Hotel (815
keys). JLL forecasts the number of rooms available in
Makkah to increase to over 51,000 in 2019, up from
40,000 rooms projected at year-end 2018.
Amid this surge in construction, hotel performance
in Makkah has declined slightly. In May 2018 the 62%
occupancy rate was down year-over-year (y-o-y) by
1%, though that figure remained above the national
average. The average daily rate (ADR) – or revenue
per occupied room per night – in Makkah fell from
$138 to $134 over the same period, a y-o-y decline of
3%. This follows a much steeper decline in the sector
in 2017, when ADR fell by 18.7%, due to an oversupply
of rooms – particularly mid-range facilities – and the
fact that 80% of total demand is concentrated in just
two to three months of the year.
MEDINA HOSPITALITY: Medina remains an attractive
alternative to Makkah as a place for worshippers to
stay, and this trend is likely to deepen as the new Har-
amain train speeds travel between the two holy cities.
Several notable hotels opened in Medina in 2018, such
as the Elaf Grand Al Majeedi, which brought 630 rooms
onto the market just 20 minutes from the city’s airport.
Previously an apartment complex, its transformation
into a luxury hotel entailed the construction of two
restaurants and a café, all of which afford views of the
Prophet’s Mosque. In addition, the Millennium Medina
Airport Hotel, a 227-room, five-star facility adjacent to
the same airport, opened in June 2018, complete with
four rooms for business meetings and a selection of
restaurants. Its completion adds to the list of luxury
hotels available to pilgrims staying in Medina.
RETAIL: Even as the tourism sector is likely to grow
as a result of greater Hajj and Umrah pilgrimage, the
government faces a challenge in diversifying its non-
oil economy, such that it does not become solely reli-
ant on religious visitors as sources of revenue. The
retail sector is likely to be an important driver of that
diversification. According to GaStat, 46% of average
Saudi household expenditure is on retail purchases,
concentrated in food and beverage, fashion and
Hajj visitors, 2011-18 (000)
Domestic Foreign
2500
2000
1500
1000
500
0 as it will allow those visiting
2013 2014 2015 2016 2017 2018
Source: GaStat
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MAKKAH & MEDINA OVERVIEW 111
entertainment. Although the sector’s development Retail space in Makkah
is well under way, it is limited by a lack of space suited shopping malls is
to developing large commercial sites – particularly projected to increase by
shopping malls – in the centre of the city, as well as
the difficulties associated with its geography.
“The retail sector has always been essential to Saudi
287%
between 2018 and 2025
Arabia, as it is the lifeline of the local economy,” Taibah
told OBG. “Within Makkah’s central district there is a
restriction on large plots of land to develop commer-
cial projects, especially with regard to parking. That’s
why the government has begun to develop alternative
shopping experiences, where people can go to the mall
without using their private car.”
Makkah has a retail shopping mall supply of 140 sq
metres per 1000 residents, significantly lower than
that of other large cities like Jeddah and Riyadh, accord-
ing to a September 2018 report from Colliers. More-
over, more than three-quarters of the city’s available
retail space is fragmented across souqs (traditional
markets) and line shops, rather than clustered in show-
rooms and shopping malls.
JLL projected the city’s retail stock – listed as 1.26m
sq metres at mid-year 2018 – to add 20,000 sq metres
in the second half of 2018, as the opening of the retail
component of Jabal Omar compensated for the closure
of the Al Awali mall and the Tharawat Boulevard devel-
opment was completed. The firm projected the market
to add another 30,000 sq metres in 2019, mostly on
Retaj Boulevard, which has been touted as Makkah’s
largest open-air commercial strip. Colliers’ analysis
of the mall segment projects more robust growth
assessing the major projects in the local pipeline, the
firm projects the retail space available in malls to grow
from 280,000 sq metres in 2018 to 804,000 sq metres
by 2025, an increase of 287%.
Given that a third of all the religious pilgrims are
domestic and GCC visitors with high purchasing power,
and given government efforts to increase the number
of Hajj and Umrah visitors under Vision 2030, Makkah
has evident potential for the development of shopping
centres. A recent report from Jeddah-based Sajini
Research and Consultancy Centre predicted that
spending by Hajji pilgrims alone will increase from
$4.2bn in 2017 to $5.6bn by the 2022 Hajj.
OUTLOOK: As part of its strategy to diversify the econ-
omy and reduce its dependence on oil revenues, the
government has invested significantly in the pilgrimage
economies of Makkah and Medina as potential sources
of growth. Coupled with regulatory reform intended to
ease participation in the Hajj and the Umrah, spend-
ing on infrastructural capacity, retail space and hotel
accommodations has helped both cities to prosper
amid a tepid and volatile global oil market.
In particular, the promotion of the year-round
Umrah, the expansion of the Grand Mosque and the The high-speed Haramain
development of the high-speed Haramain line should train is expected to provide
help to reduce the burden on the resources of Makkah a significant lift to the
Medina hospitality sector,
and improve pilgrims’ safety. The Kingdom’s focus on
leveraging its unique cultural resources has paid off Makkah to more easily stay
to date, and savvy spending should sustainably expand outside of the city during
those dividends for both cities in the years ahead. their pilgrimages.
THE REPORT Saudi Arabia 2019
112 MAKKAH & MEDINA ANALYSIS
The new line will cut Makkah-Medina travel time by more than half
From here to there
A new high-speed rail line is central to investments meant to
support pilgrims
Once fully operational In a September 2018 inauguration ceremony in Jed-
the Haramain line will dah, King Salman Abdulaziz Al Saud opened to the
carry public Saudi Arabia’s newest train line, the Haramain
12,000
passengers per hour
High-Speed Rail. The new route measures roughly 450
km in length and connects Makkah to Medina via Jed-
dah, King Abdulaziz International Airport (KAIA) and
between the holy cities King Abdullah Economic City (KAEC). It has reached
speeds of up to 300 km per hour and is expected to
cut travel times between the holy cities from five
hours to two, and reduce the 70-km trip from Makkah
to Jeddah to just 21 minutes. From its launch, the train
was scheduled to run eight times per day, Thursday
through Sunday, with plans to expand service in early
2019 to 12 times daily, seven days per week.
CAPACITY: Prior to its opening, the road journey
between Makkah and Medina could take up to 10
hours. Considering the flow of pilgrims between the
cities, particularly during the Hajj, the line will signifi-
cantly improve transport for worshippers performing
pilgrimage. The railway’s construction was undertaken
by a Spanish-led consortium and funded in full by the
Kingdom’s public investment fund using a build-op-
erate-transfer model. At a cost of SR60bn ($16bn),
Haramain has become one of the largest railways in
the Middle East and one of the largest infrastructure
projects in Saudi Arabia. Its planners hope to attract
60m passengers annually, including the millions of
people who make the pilgrimage to Medina.
The railway connects four stations in Makkah,
Medina, KAEC and Jeddah. Additionally, there is a
3.8-km branch from Jeddah to KAIA, ensuring pil-
grims arriving by air can quickly link up with rail lines.
Besides easing highway congestion and improving the
transit experiences of locals and foreigners alike, the
Reduced travel time five new stations should create appealing business
between the holy cities opportunities for both retailers and investors.
is expected to incentivise
more pilgrims to use
The train will comprise 35 cars with a capacity of
Medina as a base during 417 passengers apiece. It will eventually make 10 trips
the Hajj and Umrah. hourly between Makkah and Jeddah and two per hour
www.oxfordbusinessgroup.com/country/saudi-arabia
between Makkah and Medina. Bassam Gholman, the
project’s former director-general, told media in Febru-
ary 2018 that the railway will create more than 2000
local jobs and allow as many as 12,000 passengers
to travel between Makkah and Medina every hour.
ADDED BENEFITS: Among the major advantages of
the reduction in travel time associated with Hara-
main are the flexibility that it will allow pilgrims who
wish to stay outside of Makkah, and the creation of
opportunities to invest in Jeddah businesses that cater
to pilgrims travelling to Makkah, as traffic is redi-
rected to the port city. “Beforehand, it was difficult
to travel between Jeddah and Makkah in one day, but
the Haramain allows people who stay in Jeddah to go
to Makkah and come back the same day,” Faisal Tahir
Khan, founder and CEO of the Jeddah-based global
consultant FT Konsepts, told OBG. “This will mean that
all the pilgrims coming from the GCC – such as Dubai,
Kuwait and Oman – can also stay in Jeddah and enjoy
its rich cosmopolitan life.”
Medina is also due to receive a boost in investment
related to the high-speed train. Congested roads and
long bus journeys may have prevented those making
pilgrimage to Makkah from staying in Medina, but the
reduced travel time between the two could incentivise
more worshippers to use the latter city as a base dur-
ing the Hajj and Umrah. “Previously, nearly all pilgrims
flying into Saudi Arabia used KAIA in Jeddah, due to
its proximity to Makkah,” Fayyaz Ahmad, the national
director of JLL, explained to OBG. “The Haramain train
offers the alternative of flying into Medina, and using
that as a base to travel to Makkah, which will greatly
increase the revenue of the city from pilgrims.”
The new high-speed railway echoes the early 19th
century Hejaz Railway, a 1300-km line connecting
Damascus to Medina that was popular with pilgrims at
the time. While the Haramain line evokes the history, it
also symbolises the Kingdom’s ambition to modernise
and position itself at the forefront of innovation.
 113

Jeddah
Haramain High-Speed Rail commences operations
Supply of tourism real estate continues to expand
Three-phase development of airport under way
Public-private partnerships to boost public transport

Reaching new heights
Improved transport links and growing tourist and entertainment
options characterise the city’s ongoing development
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 that
are 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 plays 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.
COMMUNITY LIVING: In the northern part of the city,
a mixed-use development is being built with the goal
of becoming a community-based centre for invest-
ment and living. Designed by Kingdom Holding – a
firm that is owned by Prince Alwaleed bin Talal bin
Abdulaziz Al Saud – Jeddah Economic City will occupy
more than 5.3m sq metres. Besides having residential
and diplomatic quarters, business zones, commercial
centres, academic institutions and tourist facilities, the
development will also house the Jeddah Tower. Set to
be some 1000 metres tall, and therefore the biggest
skyscraper in the world once complete, the structure
has an estimated cost of approximately $1.4bn and
a gross leasable area of approximately 243,866 sq
metres. Jeddah Tower will comprise a wide range of
hotels, residential apartments, office spaces, luxury
condominiums, the world’s highest observation deck
standing at some 663 metres and tourist attractions.
Speaking to the media in early 2018, Mounib Ham-
moud, CEO of Jeddah Economic Company, said, “As
of 2020... Jeddah is going to be repositioned on the
international scene of modern cities. You speak about
downtown Dubai, and now we’re going to have down-
town Jeddah,” he added. Kingdom Holding signed a
consulting agreement with France’s telecoms operator
Orange Business Services in March 2018 to design the
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JEDDAH OVERVIEW 115
Jeddah is the gateway to the holy cities of Makkah and Medina
ICT infrastructure as well as smart services for the In October 2018 a new
tower and Jeddah Economic City project. Despite set- high-speed railway, the
backs associated with corruption investigations, and Haramain High-Speed Rail,
was launched connecting
amid a broader context of uncertainty and consequent Makkah with Jeddah, King
lack of investment related to the recent economic Abdulaziz International
downturn, the tower’s construction has continued Airport, King Abdullah
and is scheduled to be completed in 2020. Economic City and Medina.
TRAIN & METRO: In October 2018 a new high-speed
railway, the Haramain High-Speed Rail, was launched
connecting Makkah with Jeddah, King Abdulaziz Inter-
national Airport (KAIA), King Abdullah Economic City in
Rabigh and Medina. Trains travelling on the line reach
speeds of up to 300 km per hour, cutting travel time
between Makkah and Jeddah to as little as 20 minutes
and greatly improving transport connections between
the two holy cities of Makkah and Medina. “What is
now possible is that people who live in Jeddah can
go to Medina and come back that same day,” Faisal
Tahir Khan, founder and CEO of FT Konsepts, a general
trading and consultancy company, told OBG. “People
will go to Makkah to perform their Umrah, but they
will live in Jeddah, enjoying the cosmopolitan life, malls,
shopping and so on,” Khan said, referring to the numer-
ous developments that are taking place in Jeddah as a
“snowball effect of investment opportunities”.
Another major railway project, the Saudi Landbridge
project, is currently in the planning and tendering
phase and will link Jeddah with the Saudi capital Riyadh.
After expressing interest in working with the private
sector on the line, the Saudi Railway Company floated
tenders for the project in early 2018.
Work on the railway was originally planned to
commence in 2011 but was shelved after a financial
agreement with a consortium failed. In October 2018
Rumaih Al Rumaih, president of the Public Transport The Saudi Landbridge
project, which is currently
Authority, signed a memorandum of understanding
in the planning and
with China Civil Engineering Construction Corporation tendering phase, plans to
(CCECC) representative Yuan Li for the implementation link Jeddah with the Saudi
of the Saudi Landbridge Project. Expected to be over capital Riyadh.
THE REPORT Saudi Arabia 2019
 116
Jeddah Islamic Port has 10 specialised terminals, including two container terminals and a passenger terminal
Jeddah’s new airport
covers an area of 670,000
sq metres and will
accommodate domestic
and international flights
through 46 gates, with this
to be expanded to 96 gates
at a later stage.
In March 2018 it was
announced that contracts
would be offered to the
private sector for key parts
of a master transport
plan, which would see the
expansion of the city’s
public transport system.
JEDDAH OVERVIEW
1000 km in length and have the capacity to carry 8m
tonnes of cargo per year when complete, the railway
will offer a cost-effective means of transporting goods
across the country from either King Abdulaziz Port in
Dammam on the east coast or Jeddah Islamic Port (JIP).
In late February 2019 it was announced that the Public
Transit Authority had floated tenders for transaction
advisory services on public-private partnership pack-
ages for two segments of the line. Regarding transport
infrastructure in Jeddah city itself, in March 2018 it
was announced that contracts would be offered to
the private sector for key parts of a master transport
plan, which would see the expansion of the city’s public
transport system, including several metro lines, a light
rail, tram, commuter rail, a feeder bus network and a
marine taxi service. The total cost of the master plan,
which was endorsed in 2014, is estimated at roughly
SR45bn ($12bn), with the projects expected to be com-
pleted in 2022 and fully commissioned for use by 2025.
The total length of the redeveloped public transport
network will amount to over 1700 km and connect
many of the city’s key transport hubs, including JIP,
KAIA and the Haramain railway. “The metro component
has been put on hold while the two other major com-
ponents of the project – the bus feeder system and
the water taxi ferry service – are rolled out gradually
over several years alongside a stand-alone suspension
bridge project in the north of the city,” Nidhal Taibah,
founding partner in Saudi Arabia of EHAF Consulting
Engineers, told OBG. “These three works will be under-
taken as public-private partnerships are increasingly
made available to bid on by the private sector at the
appropriate time. Planning of the bus feeder system
has already begun with the Public Transit Authority,
a strategic partner on the project.”
AIRPORT: As the Kingdom’s busiest airport and the
main arrival point for pilgrims travelling to Saudi Ara-
bia by air, KAIA has been undergoing a three-phase
expansion that started in 2006. May 2018 saw the new
www.oxfordbusinessgroup.com/country/saudi-arabia
airport’s soft opening, with domestic flights launching
in December that year and a full opening scheduled
for the first quarter of 2019, according to the air-
port’s website. First opened in 1981, the facility aims
to increase its yearly passenger capacity from 13m to
80m by 2035, and its expansion is expected to play an
important role in driving economic development and
realising some of the goals of Vision 2030, such as
increasing capacity to serve Umrah visitors from 8m
per year to 15m by 2020 and 30m by 2030.
Speaking to press after the soft launch, Abdulhakim
Al Tamimi, president of the General Authority of Civil
Aviation, which supervised the airport’s expansions,
said, “The new KAIA is a major milestone for Saudi Ara-
bia and one that will help meet the goals of Vision 2030
to support and drive the Kingdom’s economic develop-
ment. The airport provides a platform that will allow
the Kingdom to play a greater role as a regional hub
for transport and logistics services, and support the
growing number of pilgrims to the two holy mosques.”
The new airport covers an area of 670,000 sq metres
and will accommodate domestic and international
flights through 46 gates – up from the six gates which
have been in use since the soft opening in May 2018 –
with this to be expanded to 96 gates at a later stage.
Besides a specialised Hajj terminal, the new KAIA com-
prises a five-star hotel, shopping centres and a public
transport system. It is also connected to both Makkah
and Medina via the Haramain High-Speed Rail.
TRADING CENTRE: Jeddah’s regional importance
stems from more than just its proximity to the holy
cities of Makkah and Medina. For centuries, Jeddah has
hosted the largest and busiest seaport in the region,
and the shipping industry has always played a central
role in the city’s economy. Today, this is reflected by
growth at JIP, which was established in 1976 and has
since increased its number of berths from 10 to 58. The
port now has 10 specialised terminals, including two
container terminals, a roll-on/roll-off and passenger
terminal, and a chilled and frozen cargo terminal. JIP
will also be the western terminus of the Saudi Land-
bridge project, connecting Jeddah to Riyadh.
According to the latest full-year data from the
General Authority for Statistics (GaStat), SR310bn
($82.6bn), or 61.6%, of Saudi Arabia’s imports by value
arrived by sea in 2017, 35.3% of which came via JIP. This
is a greater share than any other Customs port in the
country and up from 32% the year previously.
While GaStat does not break down exports by
seaports in its annual reports, in December 2018,
JIP recorded non-oil exports of SR3.1bn ($826.5m),
representing growth of 4.9% year-on-year (y-o-y).
Overall throughput is, however, declining, with JIP los-
ing market share to other regional ports.
Of total non-oil exports, approximately 14.8% passed
through JIP, second only to Jubail Port, which exported
37% of the total. In terms of imports, in December
2018 JIP lead the way, processing goods with a total
value of SR11.8bn ($3.1bn), equivalent to 28.1% of the
overall figure, although this was down from SR12.7bn
($3.4bn) in December 2017, when JIP received 29.8% of

total imports. To reduce congestion at JIP and address
the rising cost of transporting goods from the port
to warehouses, the authorities announced plans to
develop a dry port outside the city centre in 2013.
However, the future of such a project is reliant on the
land bridge being constructed between Jeddah and
Riyadh. “If the freight line goes ahead from Jeddah, it
will create a sufficient impetus for the dry port to be
constructed,” Taibah told OBG. “The Jeddah Develop-
ment and Urban Regeneration Company have pro-
posed three different sites, but planning is on hold
until the land bridge is finalised.”
The new King Abdullah Port (KAP), about 120 km
north of Jeddah in the Western Province, was inau-
gurated by Crown Prince Mohammed bin Salman bin
Abdulaziz Al Saud in February 2019. Its key role in the
Kingdom’s logistics master plan was emphasised; it will
enable higher growth, and translate into wider inter-
modal connectivity. With double-digit growth rates,
KAP is expected to overtake JIP in terms of volume.
REAL ESTATE: JLL’s “The Saudi Arabian Real Estate
Market: 2018 A Year In Review” report indicated that
the city’s office market continued to soften in 2018,
with the vacancy rate rising from 16% in the fourth
quarter of 2017 to 21% in the same period of 2018.
While this is undoubtedly a concern for landlords, the
city’s tenants have been benefitting from lower rents,
with these decreasing by around 19% from SR1164
($310) per sq metre in the fourth quarter of 2017 to
SR947 ($252) in the fourth quarter of 2018. Develop-
ments like the Haramain High-Speed Rail and Jeddah
Metro, as well as the full opening of KAIA in 2019,
are expected to have a positive impact on the level
of demand for office spaces, particularly in locations
that have easy access to those transit hubs.
The residential housing market also saw a decrease
in activity, with the prices of both apartments and villas
falling by nearly 7% y-o-y in the fourth quarter of 2018.
This is also directly correlated to the increasing costs
The Kingdom aims to boost capacity to 30m Umrah visitors by 2030
Bloomberg Terminal Research Homepage: OBGR‹GO›
JEDDAH OVERVIEW 117
Jeddah plays a central role in achieving the Kingdom’s aim of diversifying the economy away from oil
of expat visas, which has seen some 1m blue-collar The total supply in the retail
workers leaving Saudi Arabia. The fourth quarter of segment stands at 1.4m sq
metres. This is expected to
2018 saw the completion of The Golden Tower resi-
increase by approximately
dential project, bringing the total stock of residential 108,000 sq metres in 2019
apartments and villas to 817,000 units. JLL estimates and a further 280,000 sq
that an additional 7000 and 16,000 units are expected metres in 2020.
to be handed over in 2019 and 2020, respectively.
Among these are Emaar Residences’ Abraj Al Hilal 3 in
the integrated community development Jeddah Gate.
Furthermore, contracts for the construction of over
10,000 housing units for beneficiaries of Saudi Arabia’s
Sakani programme – the principal goal of which is to
increase home ownership in the Kingdom to 60% by
2020 – were awarded by the country’s Ministry of
Housing in August 2018. Meanwhile, the retail market
maintained a relative level of stability in 2018, with
the vacancy rate staying flat y-o-y. Total supply in the
segment currently stands at 1.4m sq metres, though
this is set to increase by 108,000 sq metres in 2019
and another 280,000 sq metres in 2020. JLL expected
rents to drop further and vacancy rates to increase
as more supply enters the market.
Another important development that is gathering
pace is e-commerce. Fayyaz Ahmad, country head of
JLL, told OBG that “e-commerce, should it reach critical
mass in the mid-market, has the ability to transform
entire cities. It is almost creative destruction, as entire
concepts will have to be rethought.”
TOURISM & HOSPITALITY: Jeddah is an important
tourist destination for the region. In line with Vision
2030 the government launched its “Destinations for
Muslims” initiative in 2017, encouraging Umrah pil-
grims, traders and state guests from other Muslim
countries to visit different parts of Saudi Arabia out-
side of Makkah and Medina. Meanwhile, the “Travel &
Tourism Economic Impact 2018 Saudi Arabia” report
by the World Travel and Tourism Council revealed that
in 2017 the direct contribution of travel and tourism
to the domestic economy was SR88.2bn ($23.5bn), or
THE REPORT Saudi Arabia 2019
118 JEDDAH OVERVIEW

Jeddah’s hotel supply. For example, two internationally

branded four-star hotels opened in the city in the
third quarter of 2018: the Centro Salama on Medina
Road by Rotana and the 61-room TIME Beach Villas
Resort close to the corniche. Hotel supply is expected
to increase further over the next couple of years, with
a number of international players – including Radisson,
Ibis, Marriott, Sheraton and Hilton – planning to open
new hotels in the city. While the pursuit of tourism
goals under Vision 2030 will likely have long-term ben-
efits from the hospitality industry in Jeddah, growth in
the hotel supply brought with it declines in other key
indicators in November 2018, according to preliminary
data from research company STR. For example, while
supply increased by 8.4% y-o-y, growth in demand
only grew by 3.4% y-o-y, causing occupancy to drop
by 4.3 percentage points to 43.9%. The average daily
rate also fell by 10.1% y-o-y to SR624.69 ($167), while
the average revenue per available room dropped by
some 14% to SR274.35 ($73.14).
ENTERTAINMENT: Expanding the entertainment
Jeddah remains an important tourist destination for the Kingdom
sector is another key pillar of the country’s Vision
In early 2018 it was 3.4% of total GDP, and was expected to rise by 3.9% 2030. To this end, the government set up the General
announced that the Saudi in 2018. The total contribution made by travel and Entertainment Authority in 2016 to “organise, develop
General Cultural Authority tourism to the national economy was even more sub- and lead the entertainment sector to provide exciting
will build Saudi Arabia’s
first opera house in Jeddah,
stantial, standing at SR240.9bn ($64.2bn), or 9.4% of entertainment options, and tailor experiences to the
which could be ready as GDP in 2017. This figure is expected to rise by 4.2% needs of people from all walks of life around Saudi
early as 2022. in 2018. The tourism sector is set to be one of the Arabia”. In Jeddah the entertainment industry received
most promising for investors in the years ahead, with a boost in 2018 with the opening by shopping mall
international tourism forecast to grow by 5.8% per operator Majid Al Futtaim of the city’s first multiplex
year between 2018 and 2022. in the prominent Red Sea Mall. The cinema features
Various new events are also boosting tourism num- 12 screens, including three GOLD by Rhodes – a new
bers. The Winter at Tantora Festival was held in Al Ula dining concept whereby visitors can order meals
between December 20, 2018 and February 9, 2019, directly to their seats – as well as special children’s
with a programme featuring weekly cultural events programmes and an IMAX theatre. In early 2018 it
and musical performances. Meanwhile, the inaugural was also announced that the Saudi General Culture
Saudi International powered by SBIA European Tour Authority will build Saudi Arabia’s first opera house in
event brought golf fans to the Kingdom between Jan- Jeddah, which could be ready as early as 2022.
uary 31 and February 3, 2019. To accommodate this According to Craig Plumb, head of research for the
estimated increase in tourism numbers, there have MENA region at JLL, “The announcement of the Jeddah
been multiple projects brought on-line in recent times, Opera House, and the subsequent development of
as well as further developments under way to expand cinemas and cultural centres will introduce further
investment opportunities for international and local
Jeddah’s real estate supply, 2011-18 (m sq metres) companies, looking to move into new sectors.” He
added that, “Developments in the entertainment, art
and cultural sector will improve the sentiment across
Office space Retail (GLA) all categories of the real estate market.”
1.6 OUTLOOK: Jeddah, along with the rest of Saudi Arabia,
1.4
was faced with a significant slowdown in economic
growth when the price of oil started a prolonged drop
1.2 in mid-2014. However, with prices showing signs of
1.0 recovery since early 2017 and the city working to
0.8 consolidate its role as a regional trade, transit and
tourist hub as envisioned in Vision 2030, the current
0.6
outlook is brighter. With the new KAIA is scheduled
0.4 to open in early 2019, the opening of the Haramain
0.2 High-Speed Rail to the public in October 2018 – which
will soon be extended to include downtown Makkah in
0
2011 2012 2013 2014 2015 2016 2017 Q3 2018 its network – and the ongoing construction of Jeddah
Economic City and Jeddah Tower, the city finds itself
Source: JLL
on the threshold of an exciting chapter in its history.

www.oxfordbusinessgroup.com/country/saudi-arabia
120 JEDDAH INTERVIEW
Mazen Batterjee, Vice-Chairman, Jeddah Chamber of Commerce and
Industry
Competitive advantages
Mazen Batterjee, Vice-Chairman, Jeddah Chamber of Commerce
and Industry (JCCI), on economic opportunities
To what extent have member countries benefitted
from the GCC Customs Union?
BATTERJEE: An analysis of the volume of intra-GCC
trade before and after the GCC Customs Union shows
an increase in the total volume of trade exchange
among GCC countries from $10bn in 1993 to $15bn
in 2002, with an annual growth rate of 6%. After the
establishment of the Customs union on January 1,
2003, the volume of inter-trade exchange increased
at an annual growth rate of 24% up to 2013. According
to information issued by the Secretariat General of the
GCC, the GCC Customs Union has achieved a signifi-
cant increase in the volume of intra-GCC trade from
$6bn in 1984 to $110bn in 2012 and $121bn in 2013.
How can industry diversify its exports through
economic restructuring?
BATTERJEE: There are several ways to reinforce the
growth of Saudi industry, including improving the
business environment, attracting talent, rehabili-
tating economic cities and activating their role, and
establishing special economic zones. Increasing the
energy sector’s competitiveness is also key to diver-
sification, as is the development of the retail sector
and digital infrastructure. Lastly, in order to effectively
restructure the economy, it is key to identify specific
sectors to focus on, fully understand their level of
competitiveness and needs, and learn how to develop
and sustain them to become better at competing
locally, regionally and globally.
What are the active and high-growth industries
that attract investments in Jeddah?
BATTERJEE: Some attractive sectors include: chemical
industries; tourism and recreation; communications
and IT; energy and water; health and life sciences;
minerals and mining; and transport and logistics.
The chamber also plays an important role in attract-
ing foreign investments by hosting exhibitions and
www.oxfordbusinessgroup.com/country/saudi-arabia
receiving delegations from different countries; intro-
ducing them to existing investment opportunities
and to business people interested in pursuing collab-
orations; providing important information and data
that enables investors to conduct market research;
publishing research and studies related to a variety
of sectors and activities; and contributing to the
improvement of the working environment through
serving different economic sectors.
Do you believe port infrastructure duplication has
become a problem on the West Coast?
BATTERJEE: There are expectations for more imports,
exports and re-exports in the future from ports on
the West Coast. People who are aware of several mega
projects currently under way near the West Coast,
starting with projects in Oula, The Red Sea project
and that of Amal and Neom, believe that these de-
velopments will require a large port infrastructure.
Lastly, having more than one port on the West Coast
may lead to competition in achieving the best services.
How can the patent classification system and in-
tellectual property (IP) rights be strengthened?
BATTERJEE: Saudi Arabia has signed several agree-
ments and memoranda of understanding that
enhance cooperation and the transfer of expertise
on the subject of patents, demonstrating the desire
to develop in this field. Alongside notable centres such
as the King Fahd University of Petroleum and Minerals,
the Kingdom has achieved an advanced position.
Going forward, it is key to enhance cooperation
with various agencies around the world to train and
qualify employees, in addition to raising awareness
and educating consumers and business people in
different sectors on the importance of IP rights. The
chamber will strive to cooperate with King Abdulaziz
City for Science and Technology to hold seminars
and courses for those with an interest in these areas.
 121

Energy
State policy further develops downstream industries
Potential upcoming mergers with state-owned entities
The Kingdom ramps up efforts to boost spare capacity
New terminals to increase the volume of crude exports
Renewable sources continue to rise internationally
122 ENERGY OVERVIEW
Oil and gas is estimated to account for half of Saudi exports to 2040
Up the value chain
Emphasis on downstream activities and diversification put the
energy sector on a course for growth
Oil contributed Even as Saudi Arabia lays the groundwork for diver-
$263.1bn sification, the energy sector is expected to con-
tinue to play a leading role in the economy, with
to GDP in 2018 estimates 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 evident by the implementation of the
Organisation of the Petroleum Exporting Countries
(OPEC) supply cuts to stabilise oil prices.
In April 2016 Saudi Arabia unveiled its structural
economic reform package, Vision 2030, to reduce
the country’s dependence on oil revenue while cre-
ating a thriving and diverse private sector that will
create sustainable jobs for Saudi citizens. 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.
SIZE & PERFORMANCE: According to the Gen-
eral Authority for Statistics (GaStat), the oil sector
contributed SR986.7bn ($263.1bn) to GDP in 2018,
or around 34% of the total GDP, worth SR2.9trn
($773.1bn) at current prices. According to an anal-
ysis of the 2019 fiscal budget by Jadwa Investment,
Saudi crude export prices rose by 33% in 2018 to an
average of $68 per barrel, while oil revenues grew by
39% to SR608bn ($162.9bn) from total government
revenues of SR895bn ($238.6bn). The value of Saudi
oil exports increased by 12.7% between December
2018 and the same month in 2017, from SR62.1bn
($16.6bn) to SR70bn ($18.7bn), according to GaStat.
According to BP’s “Statistical Review of World
Energy 2018”, Saudi Arabia had total proven reserves
Natural gas production, of crude oil, condensates and natural gas liquids
which grew by 4.2% from (NGLs) of 266.2bn barrels, or 15.7% of the global
2006 to 2016, reached
111.4bn cu metres in 2017,
total. Venezuela is the only country with larger oil
marking a 6.1% increase reserves. The same report noted Saudi Arabia has
over the previous year. the world’s sixth-largest proven reserves of natural
www.oxfordbusinessgroup.com/country/saudi-arabia
gas, with 8trn cu metres, or approximately 4.2% of
the total. Worldwide, only Russia, Iran, Qatar, Turk-
menistan and the US have larger reserves of natural
gas. In its annual report for 2017, the state-owned
oil company Saudi Aramco reported it controlled
332.9bn barrels of oil equivalent, including crude
oil, condensates, natural gas and NGLs.
BP reported that in 2017 the Kingdom produced
around 11.95m barrels per day (bpd) of crude oil
and NGLs, compared to approximately 12.4m bpd in
2016 and 11.99m bpd in 2015. In 2017 Saudi Arabia
consumed some 3.9m bpd of oil and its refinery
output increased by 5.7% over the previous year to
2.8m bpd. BP data on oil trade found Saudi Arabia
exported 8.2m bpd inter-regionally in 2017, second
only to Russia with 8.6m bpd, and 357.5m tonnes of
crude oil, which was the highest total for any coun-
try in the world and equivalent to around 16.4% of
the global total. In the same year Saudi Arabia also
exported 50.7m tonnes of refined oil products.
In 2017 Saudi Arabia produced 111.4bn cu metres
of natural gas, a 6.1% increase from the previous
year when it produced 105.3bn cu metres. Natural
gas production in the Kingdom grew by 4.2% from
2006 to 2016. All the natural gas produced in Saudi
Arabia is consumed in the country.
STRUCTURE & OVERSIGHT: The oil industry in Saudi
Arabia was established in 1933 when the Standard
Oil Company of California signed the first concession
agreement. Five years later, the first oil in commer-
cial quantities was discovered in 1938 at Dammam.
By 1949 the company was called the Arabian Oil
Company (Aramco) and produced 500,000 bpd. At
the time, it was also conducting test drilling at what
would be the world’s largest onshore oil field, Gha-
war, which is around 240 km in length and more
than 30 km across at its widest point. The country
also began offshore activities with the discovery of
the Safaniya field in 1951. The Ras Tanura Marine

Terminal exported more than a billion barrels of oil
in a year for the first time in 1971.
In 1973 the government of Saudi Arabia purchased
a 25% stake in Aramco, increasing its share to 60% a
year later, before taking full control in 1980. It was
officially renamed as Saudi Aramco in 1988. Ali Al
Naimi was made the company’s first Saudi president
in 1984, also becoming its CEO in 1988. He would also
serve as the country’s oil minister for two decades. In
March 2016 the chairman of the board of directors at
Saudi Aramco, Khalid Al Falih, became the new minis-
ter of energy, industry and mineral resources, while
retaining his position at Saudi Aramco. Amin Nasser
has been the firm’s president and CEO since 2015.
Al Falih plays a critical role in the oversight of Saudi
Arabia’s energy sector and is responsible for deliv-
ering key objectives of Vision 2030, the blueprint
for the transformation and diversification of the
country’s economy. Under the long-term strategy,
Saudi Arabia aims to transition Saudi Aramco from
an oil-producing company to a global industrial
conglomerate through a strategic transformation
programme, while at the same time increasing the
use of local suppliers in the oil and gas sectors from
around 40% to 75%. A key part of the strategy is to list
up to 5% of Saudi Aramco’s shares on the Saudi Stock
Exchange (Tadawul). The initial public offering (IPO)
of the company is expected to attract both Saudi
and international investors, with the proceeds going
to the Public Investment Fund (PIF), the sovereign
wealth fund that will also hold the government’s
remaining share in the company. In the process Saudi
Aramco will be transformed into a holding company
and a number of its subsidiaries will also be listed.
The possibility of a Saudi Aramco IPO was first
announced in early 2016 and it is hoped the shares
will raise $100bn to be invested in diversification
strategies. This would make the company almost
three times the early 2019 value of Apple. In January
2019 Al Falih announced that the IPO would take
place in 2021, with the primary listing on the Tadawul
and a secondary listing on another international
bourse. During the same month Saudi Aramco stated
it would issue bonds to raise capital to help finance
the purchase of a controlling share of Saudi Basic
Industries Corporation (SABIC), the state petrochem-
ical company, in the first half of 2019 (see analysis).
ENERGY POLICY: The pivotal role played by Saudi
Aramco in the country’s wider economy was demon-
strated in 2018 when the Royal Court instructed the
company to buy the PIF’s 70% stake in SABIC, the
Tadawul’s most prominent listed company and the
world’s fourth-largest petrochemicals company, with
a market capitalisation of approximately SR356bn
($94.9bn). It is anticipated that the deal will be closed
in 2019 and raise as much as $70bn for the PIF, pro-
viding the necessary finance for the sovereign wealth
fund to make new strategic investments. The General
Authority for Social Insurance owns a 5.7% stake
in SABIC, with the remaining equity floated on the
exchange and owned by Saudi or GCC investors. The
Bloomberg Terminal Research Homepage: OBGR‹GO›
ENERGY OVERVIEW 123
The state-owned oil company owns three refineries in with a combined capacity of 921m barrels per day
merger with the Middle East’s largest non-oil indus- The state-owned oil firm
trial company will also enable Saudi Aramco to fulfil plans to buy the country’s
the role outlined for it in Vision 2030, which envisions sovereign wealth fund’s
70% stake in the state
it becoming a global industrial conglomerate with petrochemicals company
significant interests beyond oil and gas. in 2019, which will free up
OIL & GAS VALUE CHAINS: It has long been a stra- $70bn for new investments.
tegic aim of Saudi Arabia to optimise the value of its
oil and gas through refining and the use of by-prod-
ucts as feedstock for its petrochemical industries
as domestic demand for crude and refined prod-
ucts increased. An outlook report on Saudi Arabia’s
refining industry produced by Jadwa Investment in
2018 noted that in the 10 years leading up to 2013
domestic demand for crude oil and refined products
surged from 1.5m bpd to 2.2m bpd, representing
an average annual increase of 4%. Factors fuelling
domestic demand included rising living standards,
increased use of automobiles and industrial devel-
opment. Although refining capacity reached 2.5m
bpd by 2013, older Saudi refineries were unable to
meet demand for newer fuel grades, resulting in a
reduction in refined product exports and increase in
the import of diesel and gasoline. Starting in 2014 a
new generation of refineries, built as joint ventures
with international partners, came on-line. By 2017
Saudi refinery capacity reached 2.8bn bpd, with
Saudi Aramco’s share at 1.9bn bpd.
At the same time, the subsidy reforms that were
introduced in the 2016 and 2018 budgets were
designed to dampen domestic demand levels by
increasing prices for petrol, diesel, crude oil, natural
gas and fuel oil. Jadwa Investment noted in its March
2018 outlook that domestic consumption of diesel
fell by around 11% and 16% in 2016 and 2017, respec- The Kingdom’s refinery
tively; although this was partially offset by annual capacity reached
increases in the consumption of petrol, which grew
by 1% and 6% over the same respective years. The
net result for total domestic energy demand was a
2.8bn
barrels per day in 2017
decrease of approximately 5% in 2016 and 1% in 2017.
THE REPORT Saudi Arabia 2019
 124
Although domestic diesel consumption fell in 2016 and 2017, this was offset higher petrol consumption
In 2018 plans were
announced to build a crude
oil-to-chemicals complex
at Yanbu to process around
400,000 barrels per day of
crude oil, producing 9m
tonnes of chemicals and
base oils per annum.
Members of the
Organisation of the
Petroleum Exporting
Countries agreed to a
reduction in output of
1.2m barrels per day for a
six-month period starting
in January 2019.
ENERGY OVERVIEW
REFINERIES: Saudi Aramco owns three refineries:
Ras Tanura, with a capacity of 550m bpd; Riyadh, with
a capacity of 126m bpd; and Yanbu, with a capac-
ity of 245m bpd. Yanbu is home to two 400m-bpd
refineries, Saudi Aramco Mobil Refinery Company
(SAMREF) and Yanbu Aramco Sinopec Refining
Company (YASREF). Saudi Aramco and ExxonMobil
each have a 50% share in SAMREF, while Saudi Ara-
mco owns 62.5% of YASREF with Sinopec of China.
There are two joint-venture refineries in Jubail, with
Saudi Aramco owning a 50% stake in the 305m-bpd
Saudi Aramco Shell Refinery and a 62.5% share in
the 400m-bpd Saudi Aramco Total Refining and
Petrochemical Company. In 2019 Saudi Aramco’s
fourth wholly owned refinery, the 400m-bpd Jazan
refinery, is set to launch operations. The facility is
part of a wider joint venture with Air Products and
ACWA Power to produce power, hydrogen and other
utilities for Saudi Aramco on a 25-year basis at Jazan.
Air Products will hold 55% of the venture with the
remainder shared by Saudi Aramco and ACWA Power.
Saudi Aramco will supply feedstock and will receive
$8bn from the joint venture for the purchase of the
facility when it is completed in 2019.
Saudi Aramco has a 37.5% share in Petro Rabigh,
a refining and petrochemical centre located on the
Red Sea between Yanbu and Jazan. The facility was
established as a joint venture between Saudi Aramco
and Japan’s Sumitomo Chemical in 2005 and at the
time it was the largest single-phase refining and
petrochemical complex in the world. In 2008 an IPO
for the site was held, with the two companies each
reducing their share in the venture to 37.5%. In 2017
the second phase of the development, the $8bn
Petro Rabigh II project, was completed. Adjacent to
the site are two industrial parks that house converter
industries, with a combined area of almost 8 sq km.
On Saudi Arabia’s Gulf coast near Jubail is the
$20bn Sadara complex, which is comprised of 26
www.oxfordbusinessgroup.com/country/saudi-arabia
petrochemicals manufacturing plants with annual
capacity of approximately 3m tonnes. Established
in 2011 as a joint venture between Saudi Aramco
and Dow Chemical, full commercial operations were
launched in September 2017.
In October 2018 Saudi Aramco and SABIC
announced that Yanbu would be the site of a revo-
lutionary crude oil-to-chemicals plant that will pro-
cess 400,000 bpd of crude oil, producing 9m tonnes
annually of chemicals and base oils. In the same
month Saudi Aramco and Total announced plans for
a $5bn petrochemical factory near Jubail. The Amiral
complex will produce 2.7m tonnes of chemicals per
year and is due to open 2024.
Saudi Aramco also has interests in four overseas
plants where its crude oil is refined closer to its
customers. It owns and operates the largest oil refin-
ery in the US, the 630,000-bpd Port Arthur plant in
Texas, through its wholly owned subsidiary Motiva.
Saudi Aramco has shares of 63.4%, 14.9% and 25% in
refineries in South Korea with partner S-Oil, Japan
with Showa Shell and China with the Fujian Refining
and Petrochemical Company, respectively. The four
overseas refineries have a combined capacity of 2bn
bpd, 1.2bn bpd of which is Saudi Aramco’s share. In
2017 Saudi Aramco’s total combined domestic and
overseas refinery capacity was 3.1m bpd.
GLOBAL OIL PRICES: Saudi Arabia plays a leader-
ship role in attempts by OPEC to balance oil prices
by reducing output during periods of lower global
demand. After meetings in early December 2018
OPEC members, including Saudi Arabia and other
oil exporters such as Russia, agreed to a 1.2m-bpd
reduction in output for a six-month period starting
in January 2019. The decision came despite a series
of tweets from US President Donald Trump calling on
both Saudi Arabia and Russia to maintain production
in order to keep prices low for consumers. While
President Trump advocated for low gasoline prices,
The Kingdom plays a leadership role in balancing oil prices worldwide
126 ENERGY OVERVIEW
While oil revenues have some economists suggest that low prices could have
been forecast to reach mixed outcomes for the US, with thousands of jobs
$176.5bn in 2019, this is
relying on the sector. The oil price collapse between
based on a Saudi oil price
of around $70 per barrel June 2014 and February 2016, during which prices
throughout the year. fell from $115 per gallon to $35, resulted in a $149bn
slump in investment in the oil industry in the US.
PRICING FACTORS: In Saudi Arabia global oil prices
have a much more direct impact on GDP, govern-
ment revenues and expenditure. According to Jadwa
Investment’s analysis of the 2019 fiscal budget, the
anticipated oil revenue of SR662bn ($176.5bn) in
2019 outlines an anticipated Saudi oil price of $70 in
2019. According to the US Energy Information Admin-
istration, Brent crude averaged $71.40 in 2018 but
was expected to decline to $61 in 2019. Although the
first three quarters of 2018 saw a strong improve-
ment on Brent crude prices compared to previous
years, rising from $66.65 in January to peak at $85.16
in October, the price slumped in the final quarter,
closing the year on $51.49.
Gains from hydraulic fracturing, or fracking,
allowed the US to overtake Russia and Saudi Arabia
as the largest oil producer in the world in 2018. In
February 2018 US crude oil production surpassed
Saudi Arabia and Russia for the first time in two dec-
ades. In its December 2018 monthly market report,
OPEC estimated demand for the oil produced by its
member countries in 2019 would moderate to 31.4m
bpd, down from 32.3m bpd in 2018. It anticipated
global demand would reach 100.1m bpd in 2019 with
demand for oil from non-OPEC countries estimated
to grow from 60m bpd to 62.2m bpd.
FOREIGN DIRECT INVESTMENT: At the second
Future Investment Initiative, a gathering of senior
global and domestic business and policy leaders held
in October 2018, Saudi Arabia signed $50bn worth
of deals, with Saudi Aramco alone agreeing to $34bn
worth of memorandums of understanding with 15
international firms from eight countries. “These
agreements support investments in strategic sectors
which will further expand the company’s business
portfolio while they contribute to the realisation
of Saudi Vision 2030,” Amin Nasser told press at
the event. “The memorandums of understanding
will contribute to such areas as refining, chemicals,
conversion industries, localisation and related new
investment and training opportunities, and job cre-
ation. They will also help enable a vibrant energy
services sector through the development of the
King Salman Energy City, an anchor project which will
increase the efficiency and reliability of the supply
chain capabilities of the company and that of the
Kingdom’s industrial base.”
Among the multinationals that signed deals with
Aramco were Schlumberger, Halliburton, Baker
Hughes and Total. Total’s agreements included the
start of the front-end engineering and design pro-
cess for the Amiral petrochemicals complex in Jubail,
 ENERGY OVERVIEW 127

as well as for support on Saudi Aramco’s planned

network of retail petrol stations.
EXPLORATION & PRODUCTION: Saudi Aramco
discovered two new oil fields and a new gas reser-
voir in 2017. The new oil discoveries were at Sakab,
south-east of Haradh, and in Rub Al Khali in Zumul,
and the new gas find was in the Sahba field at Jauf.
The firm has focused on improving recovery rates
at existing sites by using advanced well-completion
technologies and de-bottlenecking production sys-
tems. It has also upgraded offshore platforms and
installed new tie-in platforms in the Safaniya field. At
the offshore Zuluf field the firm embarked on a six-
month development to repair and reutilise a gas-oil
separation unit that had been mothballed in 1995.
In 2018 Saudi Aramco aimed to boost crude oil
production by approximately 300,000 bpd at the
Khurais field, and increase output from its Fazran and
Dammam fields in order to expand combined capac-
ity by 100,000 bpd by 2021. In 2017 Saudi Aramco
also invested in improvements to its gas-processing
The Kingdom has set aims to generate 9.5 GW from renewable sources
plants, facilities that handled an average of 12.4bn
standard cu feet per day (scfd) of raw gas during The solar segment is also attracting interest from The state-owned oil firm
the year. In 2019 the Fadhili plant, with a capacity investors in Saudi Arabia, including family businesses aims to boost crude oil
of 2.5bn scfd, is due to commence operations, and with broad portfolios across multiple sectors. “In production by 300,000
barrels per day (bpd) at its
an expansion at the Hawiyah gas plant is expected my opinion, family businesses should be looking Khurais field, and increase
to increase output by 1.1bn scfd. at sectors such as solar energy, as well as tourism output from its Fazran and
INVESTMENT OPPORTUNITIES: The King Salman and entertainment, as more traditional forms of Dammam fields in order to
Energy Park, also known as SPARK, is the cornerstone investment are seeing lower returns,” Adil Dahlawi, expand combined capacity
of Saudi Aramco’s strategy to enable broader eco- managing partner at Mathouq, told OBG. by 100,000 bpd by 2021.
nomic growth in the Kingdom. The new energy city is OUTLOOK: Saudi Arabia may experience some short-
being built on a 50-sq-km site between Dammam and term delays as it seeks to implement far-reaching
Al Hasa and forms a part of Saudi Aramco’s In-King- reforms to its economy, but it seems certain that
dom Total Value Add programme designed to create the energy sector will have a dominant role in fund-
supply chain opportunities for Saudi businesses. ing and forging the change agenda. The 20% year-
SPARK will target manufacturing and service firms on-year fall in Brent prices witnessed in December
offering expertise to support drilling, electrics and 2018 may have served as a reminder that greater
liquid treatments, as well as essential components diversification in both the national fuel mix and the
including pipes, vessels, tanks, valves and pumps. wider economy can cushion future generations of
The first phase is due to be completed in 2021 with Saudis from the market volatility that has proven
expansions continuing to 2035, and the facility is challenging today. Vision 2030’s long-term reforms
expected to result in 100,000 direct and indirect jobs. must weather troughs, as well as peaks, in oil prices.
RENEWABLE ENERGY: In addition to diversifying the
economy there are plans to diversify Saudi Arabia’s Monthly oil exports, 2017-18
energy production mix. Vision 2030 set an initial
target of 9.5 GW generated from renewable energy year-on-year (%)
Value (SR bn)
sources. The King Salman Renewable Energy Initia-
tive, launched in 2016, was created to oversee the 100 100
development and in November 2018 King Salman
attended the ground-breaking ceremony for the 80 80
first solar project under the initiative, the 300-MW
Sakaka power station. ACWA Power is building the 60 60
SR1.2bn ($319.9m) independent power producer,
which is expected to supply 45,000 homes in Al Jouf 40 40
with power when it opens in 2019.
Although a number of anticipated tenders for 20 20
renewable projects failed to materialise in 2018,
in December of that year Al Falih insisted the PIF 0 0
and Japan’s SoftBank are still working closely to Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
17 17 18 18 18 18 18 18 18 18 18 18 18
create the world’s biggest solar project, a $200bn
Source: GaStat
plant capable of producing some 200 GW by 2030.

Bloomberg Terminal Research Homepage: OBGR‹GO› THE REPORT Saudi Arabia 2019

128 ENERGY INTERVIEW
Abdulkarim Alnujaidi, CEO, National Gas and Industrialisation Company
In the mix
Abdulkarim Alnujaidi, CEO, National Gas and Industrialisation
Company, on incremental gains through policy and technology
To what extent can changes in tariffs on Saudi
liquefied petroleum gas (LPG) strengthen con-
fidence among investors in hydrocarbons?
ALNUJAIDI: When there is competition in the market,
there is increased efficiency in the system across
the value chain, and it allows investors to get a fair
return on investment. Higher competition does not
necessarily mean that there will be greater down-
ward pressure on prices, but it will help to make
every marketable product economically feasible on
its own. For the last 20 years LPG tariffs have been
fixed by the government and have not changed,
while production inputs and costs have increased
with rates of inflation of 2-3% on an annual basis.
Hence, without reviewing the current tariffs, it will
be a challenge to create a competitive environment
that promotes investment in the sector. As such, and
as part of the latest step in the development in our
industry, the Electricity and Cogeneration Regulatory
Authority – the body in charge of regulating the
electricity and water desalination industries – has
the main objective of establishing fair competition
among investors and ensuring fairness to customers
by offering the best quality services and products.
What expectations do you have regarding growth
in the supply of energy derived from greener,
renewable sources of energy?
ALNUJAIDI: There is currently no issue in supporting
and meeting the local demand for gas in Saudi Arabia,
and the industrial sector is supported by natural gas
in the industrial cities. In line with the commitment
of making Saudi Arabia’s economic activity more
environmentally sustainable, there is an interest in
using the greenest fuels possible. In comparison to
other fossil fuels like diesel or gasoline, there is a
good opportunity to use LPG as a greener fuel type
to reduce the country’s overall carbon footprint. In
terms of residential consumption, there is a huge
www.oxfordbusinessgroup.com/country/saudi-arabia
initiative under way to increase the usage of solar
energy panels in each household. The goal is for res-
idents to produce the energy they need, rather than
being mere consumers. Nonetheless, the efficiency
of solar energy production is not yet on par with that
of other, traditional sources of energy, and therefore
its impact on LPG demand may be delayed. Based on
their availabilities and costs, one may lose some cus-
tomers to certain types of fuels, but one may also be
able to win over customers who decide to use cleaner
sources like LPG. Natural gas is another more envi-
ronmentally friendly type of fuel that can potentially
be supplemented with the use of LPG. While LPG is
an associated gas that needs to be refined, natural
gas is directly excavated from the ground and can
therefore be distributed to end-users.
How can investment in technologies and infra-
structure ensure steady LPG supply?
ALNUJAIDI: Investment in infrastructure is defi-
nitely a priority. First of all, making sure that storage
is available at the right operational level is key to
avoiding any disruption to the supply. Second, the
continuous availability of assets is crucial, though
maintaining and upgrading the tools used to deliver
those assets is also required. New technologies
should introduce further efficiency, especially in
tracking gas delivery from the source to the locations
of end-users. Indeed, automation can help increase
both the availability and efficiency of assets. It can
also drive value to the consumers and have a positive
impact on prices. Avoiding disruption in production
and distribution is important to the country. Ensuring
the sustainability of LPG supply in the long term will
be made even easier with continuous infrastructure
upgrades alongside technological advancements. In
the history of Saudi Arabia, thanks to government
support, there has never been a supply shortage,
and this will continue to be the case moving forward.

Converging interests
Potential merger with a petrochemical giant would enable the
state-owned oil firm to transition into a global conglomerate
Although economic diversification and a strengthened
private sector are cornerstones of Vision 2030, the
blueprint for the transformation and diversification
of the country’s economy, corporate consolidation and
continued state ownership are features of the planned
merger between Saudi Arabia’s most influential corpo-
rations. If Saudi Aramco’s acquisition of a 70% stake
in publicly listed Saudi Basic Industries Corporation
(SABIC) is successful, the combined business will play
a dominant role in oil, gas, refining, petrochemicals and
a host of other downstream industries. There are 40
manufacturing businesses under the SABIC umbrella,
23 of which are in Saudi Arabia, and the company has
offices in 70 countries around the world. The Public
Investment Fund, the country’s sovereign wealth fund,
owns a $70bn stake in SABIC, and the sale would allow
the fund to divert its finances to other investments.
BILLION-DOLLAR INVESTMENT: In a speech to the
Gulf Petrochemicals and Chemicals Association (GPCA),
Amin Nasser, the president and CEO of Saudi Aramco,
said the SABIC acquisition was part of a wider company
strategy to convert 2m-3m barrels per day (bpd) into
chemicals. The focus on petrochemicals is based on
projections from the International Energy Agency that
the petrochemicals industry will account for one-third
of growth in oil demand by 2030 and for half of demand
by 2050, by which time it is estimated 20m bpd will
be used in petrochemical plants globally. “Saudi Ara-
mco will make the most of those prospects with global
investments in the chemicals space of roughly $100bn
over the next 10 years, in addition to prospective acqui-
sitions,” Nasser said. Saudi Aramco plans to integrate its
global manufacturing and petrochemicals complexes
to enable the company to use new technology, create
chemicals from crude oil, pursue acquisitions and foster
new industries focused on the end-use of chemicals.
The extensive development of Saudi Aramco’s down-
stream business is being paired with new advances
upstream. In addition to the country’s substantial
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ENERGY ANALYSIS 129
In 2019 the main feedstock in the Kingdom’s crackers was ethane
proven reserves of oil, Saudi Arabia is working to The state-owned oil
develop natural gas with an expansion programme company aims to acquire
that is set to attract SR150bn ($40bn) in investment a 70% stake in the
Saudi Basic Industries
over 10 years, boosting production from around 14bn Corporation, which
standard cu feet per day (scfd) to 23bn scfd. In addition controls 40 manufacturing
to conventional gas improvements, Saudi Aramco had businesses and offices in 70
16 drilling rigs concentrated on unconventional gas and countries worldwide.
more than 70 wells completed in 2018.
PETROCHEMICALS: In the 1980s the master gas sys-
tem was built to carry associated gas from the site of
oil production to the industrial cities of Yanbu and
Jubail, laying the foundations for Saudi Arabia’s pet-
rochemicals industry. The two cities are located on
opposite coasts of the country and are the focal points
of the petrochemical segment’s expansion. According
to Jadwa Investment, Saudi Arabia’s chemical capac-
ity grew by 116% between 2005 and 2015, with the
increase driven largely by the abundance of cheap
feedstock, record high oil prices and growing demand
from China. By 2015 exports of petrochemical and
chemical products were valued at SR115bn ($30.7bn),
60% of the value of non-oil exports, while from 2006 to
2014 the net income of listed petrochemical companies
grew from SR5bn ($1.3bn) to SR9.5bn ($2.5bn).
When oil prices peaked between 2010 and 2014,
so too did the prices of many chemicals. With prices
increasing, the low prices charged to Saudi produc-
ers for ethane gave them margins of up to $1332 per
tonne and a cost advantage of around $987 per tonne
compared to Asian producers using naphtha as feed-
stock. In 2019 the main sources of feedstock for Saudi
Arabia’s crackers was ethane, found with methane in The natural gas
associated gas, as well as butane and propane, which expansion programme is
are derived from liquefied petroleum gas. Naphtha is set to attract
a costlier feedstock derived from crude oil refining but
it has the ability to produce more complex chemicals.
Naphtha is used as feedstock at the Sadara complex,
$40bn
of investment over 10
Saudi Aramco’s joint venture with Dow Chemical, and years
at the second phase of Petro Rabigh, the company’s
THE REPORT Saudi Arabia 2019
130
In Sadara and Petro Rabigh
there are manufacturers
setting up adjacent
industrial parks to convert
specialist chemicals into
new products.
ENERGY ANALYSIS
joint venture with Japan’s Sumitomo Chemical. Sadara
began full commercial operations in 2017 and a year
later phase two of Saudi Aramco’s Petro Rabigh refinery
and cracker complex became fully operational in August
2018. Saudi Aramco’s share of naphtha production in
the Kingdom was 123,000 bpd in 2017.
CHALLENGES: Although the potential for growth in
Saudi Arabia’s petrochemicals segment is substantial,
there are notable challenges to expansion both at home
and abroad. The cost advantage for petrochemicals
producers has been partially eroded by increases in
feedstock prices that are the result of subsidy reforms
during which ethane prices increased, from $0.75 per
million British thermal units (mBtu) to $1.75 per mBtu,
at the start of 2016. The government has said feed-
stock prices for petrochemicals will not increase until
after 2020 but petrochemical companies could expect
increases beyond that date.
According to Jadwa Investment, Chinese demand for
petrochemicals fed much of the segment’s boom in the
GCC, with the GPCA estimating that between 2004 and
2014, a decade during which China’s average annual
GDP growth was 10%, GCC exports to China grew by an
average of 14% per year. However, the IMF predicted a
lower Chinese GDP growth of 6% from 2017-21, and in
October 2018 it cut its prediction for 2019 from 6.4%
to 6.2% in light of the ongoing tariff dispute between
China and the US. Over the same period a rapid growth
in the global supply of petrochemicals is expected.
Already, the shale boom in the US has resulted in the
rapid development of petrochemical crackers, with
three new petrochemical plants, capable of consuming
210,000 bpd of ethane combined, completed on the
coast of Texas in 2017. Six additional petrochemical
plants expected to open in 2019 with a collective capac-
ity of approximately 380,000 bpd.
STRATEGIC MARKETS: Saudi Arabia is also playing
a role in developments in the US and other strate-
gic markets in Europe and China. In May 2018 SABIC
announced a joint venture with ExxonMobil to build
a 1.8m-tonne ethane cracker in San Patricio County,
Texas. The plant is expected to come launch in 2021 or
2022. In September 2018 SABIC announced that regu-
latory approvals had been completed for its acquisition
of a 25% stake in Swiss chemical company Clariant for
$2.5bn. Additionally, in 2016 SABIC signed an agreement
to develop a coal-to-olefins plant in China with Shenhua
Group, which was awaiting approval from the National
Development and Reform Commission as of March
2019. This project is important as noted by Yousef Al
Benyan, CEO of SABIC, who said he expects China to
add 21.4m tonnes of ethylene capacity by 2025.
CRUDE TO CHEMICALS: In November 2018 Saudi
Aramco and SABIC announced Yanbu would be the
site of the country’s fully integrated $20bn crude
oil-to-chemicals complex, which the company said is
expected to be the largest of its kind in the world. The
new complex is part of Vision 2030 and will strengthen
the downstream segment by maximising value from
crude oil production and integrating the hydrocarbons
chain, enabling the creation of conversion industries to
produce semi-finished and finished goods, developing
advanced technologies and innovation, and enabling
sustainable development.
The site is expected to be in operation by 2025, con-
verting 400,000 bpd to 9m tonnes of chemicals and
base oils per year, as well as producing 200,000 bpd of
diesel for the Saudi market. It is anticipated the process
will convert 45% of each barrel of oil into chemicals
and will have a 1.5% impact on the country’s GDP. It is
designed to lower the production cost of petrochem-
icals and diversify the feedstock mix in the Kingdom.
PROJECT PIPELINE: Other upcoming projects include
developments in Sadara and Petro Rabigh, where man-
ufacturers are setting up adjacent industrial parks to
convert specialist chemicals into new products.
Sadara, which at the time of completion was the
largest chemicals complex built in a single phase,
announced in May 2018 that it would build two spe-
cial material pipelines to transport ethylene oxide and
propylene oxide from Sadara to PlasChem Park. These
pipelines will be the first of their kind in the region.

Building a cushion
Investments in spare capacity aim to protect Saudi Arabia from
future oil and gas crises
Even as Saudi Arabia’s oil production reached record
levels, with total output hitting 11.1m barrels per day
(bpd) in November 2018, the country is boosting levels
of investment to ensure there is spare capacity to
meet a global supply shock and subsequent increase
in prices. According to Khalid Al Falih, the minister of
energy, industry and mineral resources, the country
will invest $20bn to pump another 1m bpd of crude
in order to maintain spare capacity.
EMERGENCY SUPPLY: The US Energy Information
Administration defines spare capacity as the volume
of production that can be brought on-line within
30 days and maintained for 90 days. Typically, lower
capacity can trigger an increase in oil prices. In recent
years Saudi Arabia has had the world’s largest spare
capacity, of between 1.5m and 2m bpd. In October
2018 that buffer slimmed to 1.3m bpd as the coun-
try began pumping 10.7m bpd, as it has a maximum
output capacity of 12m bpd. The buffer fell further
to 900,000 bpd when output increased in November.
FIELD IMPROVEMENTS: Saudi Aramco was able to
reach record output levels in November 2018 due
to its increased capacity as one of its fields came
on-stream and a bottleneck in another field was
repaired. The company’s 2017 annual report noted it
was on course to boost output from its Khurais oil field
by 300,000 bpd in 2018 to give the field a total daily
output capacity of 1.5m bpd. Khurais, which produces
Arabian light crude oil, was first discovered in 1957. The
latest boost in capacity is the result of an improvement
programme launched in 2012, which developed the
Lower Fadhli field and built new processing facilities
to handle 300,000 bpd of crude, 143m standard cu
feet per day (scfd) of associated gas and 34,000 bpd of
natural gas liquids (NGLs). As part of this programme,
approximately 650 km of pipeline was constructed to
transport crude oil, gas, NGLs and seawater.
As the additional supply from Khurais entered the
market in late 2018, a technical issue at the offshore
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ENERGY ANALYSIS 131
The state-owned oil producer reached record output levels in late 2018
Manifa field, which has the capacity to produce Although the country has
900,000 bpd of heavy crude oil, was solved. The field, had the world’s largest
which is comprised of 27 drilling islands linked by a spare capacity in recent
years, between 1.5m and
42-km causeway, was reportedly hit by a technical 2m barrels per day, the
issue in 2017. Reuters reported that corrosion of the buffer fell in late 2018 due
water injection system used to maintain pressure in to increased output.
the reservoir was reducing output and that costly
repairs would potentially require a shutdown period. It
was reported that the repairs resulted in a combined
increase in production of 550,000 bpd from Khurais
and Manifa in the fourth quarter of 2018.
In Saudi Aramco’s 2017 annual report the company
noted it made two new oil field discoveries in 2017
at Sakab and Zumul. However, the report did not give
an indication of the capacity of the two fields or of
how long the development of the new sites could
potentially take. In his message in the annual report,
Al Falih said that the oil industry globally had lost $1trn
in planned investments since the 2014 fall in oil prices,
despite the growth in global demand, which rose by 1m
bpd to 1.5m bpd, as well as the declining returns from
some of the world’s more mature oil fields. “Significant
new investments are required in additional capacity
and expanded and upgraded infrastructure, as well as
the development of pioneering technology to make
petroleum energy more sustainable and accessible,”
he wrote. “Saudi Aramco is committed to playing its
unique part in meeting the world’s energy needs today
and tomorrow by continuing to invest wisely through-
out the cycle and across the value chain.”
NEUTRAL ZONE: If a diplomatic bottleneck can be
eased, Saudi Arabia can also tap its half-share in an The additional supply
additional 500,000 bpd of production in the neutral from the Khurais field
zone it shares with Kuwait. The offshore Khafji field coming on-stream and the
was shut down in October 2014 and the onshore Wafra completion of repairs at
the Manifa field resulted
field ceased production in May 2015. Khafji is owned
in a combined boost in
by Saudi Aramco Gulf Operations Company and Kuwait production of 550,000
Gulf Oil Company (KGOC), while Wafra is operated by barrels per day in the
KGOC and Saudi Arabian Chevron. The shutdowns fourth quarter of 2018.
THE REPORT Saudi Arabia 2019
 132 ENERGY ANALYSIS

D&M’s assessment was based on 54 reservoirs that

make up 80% of Saudi Aramco’s reserves. These res-
ervoirs were found to contain around 213.1bn barrels
compared to Saudi Aramco’s own estimate of 210.9bn
barrels. The audit was limited to booked oil and gas
reserves and did not include more recent discoveries
including unconventional gas deposits.
CRUDE BURNING: The volumes of crude oil Saudi
Arabia has available to export abroad are also affected
by levels of domestic consumption. Historically, the
country’s power stations have burned crude oil in
the summer months as an extra feedstock to meet
peak demand for air conditioning. However, a key
part of upstream strategy is the development of nat-
ural gas fields that can provide a replacement source
of feedstock for those power plants and industrial
users. Data from the Joint Organisations Data Initia-
tive (JODI) shows Saudi consumption of crude oil in
power generation fell in recent years as the new gas
came on-stream. At its summer peak, the use of oil can
typically rise by 600,000 bpd, but JODI figures show
Economies of scale, carbon intensity and accurate reporting have all boosted the sector’s profitability
it fell to 430,000 bpd by 2017. JODI data also showed
In 2018 the energy were caused by disputes over flaring regulations that stockpiles of Saudi crude fell by 95m barrels, or
sector contributed and Kuwait’s objection to having an international oil 29%, from October 2015 to April 2018 as produc-

34% company operating in the zone. Talks between the

two countries over the operation of the fields began
in the summer of 2018; however, these appeared
tion decreases from the Organisation of Petroleum
Exporting Countries (OPEC) were implemented. This
suggests that as Saudi Arabia complies with new OPEC
to GDP
to stall in October after a meeting between Saudi production cuts from January 2019 there will be ample
Crown Prince Mohammed bin Salman bin Abdulaziz Al storage to hold spare capacity.
Saud and Sheikh Sabah Al Jaber Al Sabah, the emir of Developing a deeper oil and gas spare capacity is
Kuwait, failed to reach an agreement. S&P Global Platts a priority of Saudi officials to protect the sector and
reported that many observers believed the dispute the economy as a whole from potential supply shocks
would only be solved through international arbitration and subsequent price instability, especially as in 2018
unless a sudden drop in the level global oil supply the energy sector contributed an estimated 34% of
prompted the two sides to return to negotiations. the country’s GDP. Substantial investment in spare
AUDIT REPORT: Saudi Arabia’s ability to meet spare capacity and reports that the country’s oil and gas
capacity needs was given a boost in January 2019 with reserves are larger than previously estimated support
the publication of an independent auditor’s report on these efforts and put Saudi Arabia’s energy sector in a
Saudi Aramco’s proven reserves of oil and gas, which position of strength should a future supply shock arise. 
increased the estimated total by over 2bn barrels.
The audit, conducted by Texas consulting firm DeG-
olyer and MacNaughton (D&M), was commissioned
as part of Saudi Aramco’s preparations for an initial
public offering that is now slated to take place in 2021.
The audit found the company had proven reserves of
263.1bn barrels of oil, 2.2bn barrels more than the
estimates of the 2017 annual report. It also put total
reserves of natural gas at 319.5trn cu feet, compared
to the figure of 302.3trn cu feet that was previously
reported. When the neutral zone total was included,
D&M estimated oil reserves of 268.5bn barrels, com-
pared to an earlier figure of 266.3bn barrels.
In a statement Al Falih welcomed the findings and
said they underscored three important aspects of
the country’s hydrocarbons sector: that world-lead-
ing economies of scale make the fields the lowest
cost globally; the carbon intensity of Saudi Arabia’s
oil is among the lowest in the world; and the findings
underline the accuracy of the country’s reporting.
“This certification underscores why every barrel we
produce is the most profitable in the world,” he said. The country’s 54 reservoirs hold an estimated 213.1bn barrels of oil

www.oxfordbusinessgroup.com/country/saudi-arabia

Staying cool
Kamal Pharran, CEO, Saudi Tabreed, on the expansion of the
district cooling industry and its role within the energy mix
How can district cooling (DC) optimise the King-
dom’s energy and power generation requirements?
PHARRAN: Air conditioning consumes up to 70% of
all energy used in the Kingdom. There is a need for a
large-scale, sustainable cooling solution that is energy
efficient and cost effective, reduces carbon emissions,
and saves millions of oil barrels and billions of riyals.
DC is an effective and sustainable solution for energy
optimisation. By implementing DC, up to 50% of the
upfront capital needed for electricity generation and
its associated infrastructure can be saved, power con-
sumption can be reduced by up to 40% throughout
the life cycle of the DC assets, and a 50% saving in
electricity use can be achieved, when compared to
conventional cooling and air conditioning systems. With
the combined efforts of 72 DC plants across the gulf
region, over 2bn KWh of energy is saved annually – the
equivalent of eliminating 986,000 tonnes of carbon
emissions from the atmosphere.
What can be done to increase the share of DC within
the Kingdom’s renewable energy mix?
PHARRAN: Going forward, DC is being offered with
solar power solutions for off-grid projects, which can
provide substantial savings. Government-backed com-
petitive financing rates under non-recourse project
finance would further support the industry’s growth,
while securing rights of way for chilled water net-
works would strengthen the industry and increase its
exposure. Lastly, aligning corporate growth strategies
with Vision 2030 targets, as well as using outsourcing
mechanisms via long-term build-own-operate (BOO)
and build-operate-transfer (BOT) frameworks for
mega-projects, creates an environment that is condu-
cive to increasing the share of DC within the energy mix.
How attractive is Saudi Arabia to investors?
PHARRAN: There is a strong appetite among the inter-
national community to invest in the future of Saudi
Bloomberg Terminal Research Homepage: OBGR‹GO›
ENERGY INTERVIEW 133
Kamal Pharran, CEO, Saudi Tabreed
Arabia. Long-term BOO and BOT frameworks can result
in a significant reduction in cost, since the expertise
comes from specialised and experienced DC developers,
thus removing the need for consultants. A mandate is
already in place by the Electricity and Cogeneration
Regulatory Authority to implement DC in greenfield
governmental and semi-governmental projects with a
threshold of 15,000 tonnes of refrigeration and above
in cooling capacity. The Arriyadh Development Author-
ity is also studying DC zoning in Riyadh. Areas that meet
the requirements for density and size must adopt DC
solutions or connect to an existing DC scheme nearby.
What are the major challenges facing Saudi Arabia’s
DC industry under public-private partnerships?
PHARRAN: The industry is not currently as mature as
that of the UAE, and challenges remain at every stage
of the development process. Financing is linked to the
developer’s creditworthiness, and the BOO and BOT
framework is currently structured for only a single off-
taker. This can make the financing of a project challeng-
ing if a single, reputable off-taker cannot be sourced.
Meanwhile, there is no framework available for
financing DC projects without off-taking. The banka-
bility of projects remains a challenge, particularly when
looking at long-term refinancing without off-taking. DC
regulations also do not cover the billing and payment
collection process, meaning that the responsibilities
for developers and end-users are unclear, undefined
and yet to be regulated, which ultimately affects the
process of collecting revenue.
Lastly, the availability of water connection points
for DC plants is another challenge, since the size of
the Kingdom and the remote nature of certain areas
means that the resources required are not always read-
ily available. One key strategy for mitigating these chal-
lenges is to create alliances with different stakeholders,
and adopt an outsourcing strategy through long-term
BOO and BOT frameworks for large-scale DC projects.
THE REPORT Saudi Arabia 2019
134 ENERGY ANALYSIS
In late 2018 oil made up around 76.9% of total merchandise exports
Going abroad
New terminals to boost energy exports from Saudi Arabia
A 2.4m-sq-metre industrial Saudi Arabia’s ability to influence global oil prices relies
mega-project set to not only on its production capacity but also on its ability
begin operations in 2019
to quickly and efficiently export hydrocarbons products
includes port facilities
for a 400,000-barrel-per- to its trading partners. From ports on the Red Sea and
day refinery, as well as the Gulf, Saudi Aramco operates the world’s largest oil
petrochemical and steel and gas export facilities, including the world’s biggest
industries. oil terminal at Ras Tanura in the Eastern Province, in
addition to the Yanbu port on the Red Sea.
NEW TERMINALS: In October 2018 Saudi Aramco
added an additional 3m barrels per day (bpd) of export
capacity with the commissioning of the Yanbu South
Terminal. The new facility on the country’s west coast
has a tank farm as well as offshore facilities for the
storage and loading of Arab Light and Arab Super Light
crude oil. “The successful start-up of Yanbu South Ter-
minal is another milestone in reinforcing Saudi Aramco
position as the world’s leading integrated energy and
chemicals producer, operating in a safe, sustainable,
reliable and environmentally friendly manner,” Abdullah
Al Mansour, executive head of pipelines, distribution,
and terminals for Saudi Aramco, said in a statement.
Further south on the Red Sea coast, Saudi Aramco is
overseeing the construction of another terminal. On a
2.4m-sq metre site, the $18bn Jazan Port is part of the
Jazan Economic City mega-project that is due to begin
operations in 2019. China Harbour Engineering Com-
pany was awarded the SR342m ($91.2m) contract to
construct the breakwater and three wharfs at the facil-
ity that will serve the new 400,000-bpd Saudi Aramco
refinery, as well as petrochemical and steel industries.
EXPORT PARTNERS: In the past, Saudi Arabia’s crude
oil has met demand from Europe, the US, Japan and
In October 2018 the China, with the latter two relying heavily on imports
Kingdom exported from the world’s largest exporter. The Kingdom has
1.1m
barrels per day of oil to
been sensitive to disruptions in supply and through the
Organisation of Petroleum Exporting Countries (OPEC)
worked to stabilise prices. In December 2018 the share
the US of oil exports in total merchandise exports was approx-
imately 76.9% of total exports, or SR70bn ($18.7bn). In
www.oxfordbusinessgroup.com/country/saudi-arabia
October 2018 China imported SR14.8bn ($3.9bn) of
Saudi goods – both oil and non-oil – while Japan and
India imported goods worth SR11.6bn ($3.1bn) and
SR10.9bn ($2.9bn), respectively. The US imported goods
worth SR10.3bn ($2.7bn). In October 2018 Saudi Arabia
was exporting 1.1m bpd of oil to the US, according to
the US Energy Information Administration, up from
847,000 bpd in June 2018, with Saudi Arabia maintaining
its position as the country’s largest source of oil imports
after Canada, which exported 4.1m bpd to its southern
neighbour in October 2018.
OPEC CUTS: October 2018 also saw the value of Brent
crude’s price peak at $85.63 before falling to $51.93 at
the end of the year. In January 2019 Saudi Arabia, other
OPEC members and partners including Russia reduced
output by 1.2m bpd for the first six months of the year
to rebalance market prices. Saudi Arabia had pledged
to reduce crude oil output to 10.3m bpd in that month,
down from 11m bpd in November 2018, with Khalid
Al Falih, the minister of energy, industry and mineral
resources, reporting output at the start of the year had
been 10.2m bpd. Al Falih said exports had been reduced
to 7.2m bpd in January 2019 and would fall further to
7.1m bpd in February. The announcement from Saudi
Arabia came as Brent crude recorded a second week
of gains, by 9%, highlighting the ability of the country’s
export volumes to rebalance global prices.
The importance of the oil and gas sector is evident
in export data from the Joint Organisations Data Initi-
ative, which found oil and gas exports increased to an
all-time high of 40.8m tonnes, up 37% from 2017. The
value of Saudi oil exports increased by 12.7% between
December 2018 and the same month in 2017, from
SR62.1bn ($16.6bn) to SR70bn ($18.7bn), according
to the General Authority for Statistics. Investment in
additional export capacity coupled with the cuts to
stabilise international market prices highlights the
importance of maintaining a balance that is conducive
to growth in the sector and across the wider economy.
 136
Emerging markets
accounted for
63%
of new global
investment in
renewables in 2017
Technological innovation,
proactive climate change
policies, heightened
consumer awareness
and stronger corporate
commitment have all
helped to boost renewable
energy. However, perhaps
the most important
factor to its growth is the
decreasing costs.
Global
Perspective
Cheaper and greener
As costs decline, renewable sources are seeing an inexorable
rise, particularly among developing economies
Although the world remains largely dependent upon
fossil fuels for power generation, a gradual transition
towards renewable sources has been taking place since
the 1990s, underpinned by multilateral deals such as
the Kyoto Protocol, the Doha Amendment and, more
recently, the Paris Agreement. Investment and devel-
opment in renewable technologies has historically been
led by developed countries, however, in recent years
the renewable energy industry has been expanding in
emerging markets. In 2017 these markets accounted
for 63% of new global investment in renewables.
TAKING THE LEAD: Emerging markets exceeded
developed economies in terms of onshore wind capac-
ity growth for the first time in 2013, and in terms of
solar photovoltaics (PV) growth in 2016. Total installed
wind and solar capacity in emerging markets is set to
overtake that of developed markets: the credit rating
agency Moody’s estimates that, by the end of 2018,
emerging economies will boast total installed wind and
solar capacity of 307 GW and 272 GW, respectively,
accounting for 51% and 53% of global capacity.
While China is the primary driving force behind the
rapid growth of emerging markets’ use of renewable
energy, the contribution of other countries is consid-
erable. The five countries with the highest renewa-
ble energy investment as a percentage of GDP are all
emerging or developing economies, according to the
multi-stakeholder Renewable Energy Policy Network
for the 21st century: Marshall Islands, Rwanda, Solomon
Islands, Guinea-Bissau and Serbia.
Going forward, sub-Saharan Africa constitutes the
world’s largest untapped market for electrification,
and consequently represents a huge opportunity for
renewable energy. The International Energy Agency
(IEA) estimates that over the next 20 years the majority
of regions without electricity will gain access through
decentralised solar PV systems and micro-grids.
DECLINING COSTS: Technological innovation, pro-
active climate change policies, heightened consumer
www.oxfordbusinessgroup.com/country/saudi-arabia
awareness and stronger corporate commitment have
all helped to position renewable energy as a viable
replacement for fossil fuels. However, perhaps the most
important factor driving emerging markets towards
developing renewable energy is its decreasing cost. A
report published by the International Renewable Energy
Agency (IRENA) indicates that a number of renewable
technologies are now cost-competitive with traditional,
fossil fuel power plants. In 2017 the global weighted
average price of electricity from hydropower sources
was $0.05/KWh and the cost of on-shore wind was
$0.06/KWh, while the cost of bioenergy and geother-
mal was $0.07/KWh. This is compared to a cost range
for fossil fuel-fired power generation for G20 countries
of between $0.05/KWh and $0.17/KWh.
Solar power is expected to see stronger growth than
wind in emerging markets. By the end of 2019, Moody’s
expects emerging markets to possess 353 GW of solar
power capacity (2.6 times the 2015 level) and 349
GW of wind capacity (1.5 times the 2015 level). While
solar PV is not yet competitive with fossil fuels, with
a current average cost of $0.10/KWh, the cost of this
source has fallen by 73% since 2010. Moreover, IRENA
expects that all renewable technologies, including
solar PV, will fall within the fossil fuel cost range by the
end of 2020, with most being at the lower end. Solar
PV saw record low prices in Dubai, Abu Dhabi, Saudi
Arabia, Chile, Mexico and Peru in 2016-17. In Mexico,
a total of three long-term energy auctions were held
between 2015 and 2017, with the average bid price
for solar PV falling 54% from $44.90/MWh in the first
auction held in March 2016, to $20.53/MWh at the
third in November 2017. Mexico uses long-term energy
auctions to attract investment and encourage compet-
itiveness and efficiency in the market. Mexico’s clean
energy certificates (CELs) were created as a measure
of the country’s clean energy progress and deemed to
be a major factor leading to these considerable price
cuts. Energy suppliers receive a CEL for every MWh

of electricity produced from clean technology. Going
beyond certificates, IRENA has identified a range of
key factors that should promote low auction prices,
among them a favourable regulatory and institutional
framework; low off-take and country risks; a strong
local civil engineering base; a favourable tax regime;
low project development costs; and a wealth of natural
and manufacturing resources.
In tandem with declining costs, efforts are being
made to promote the use of green debt instruments to
finance the development of clean energy projects. For
example, the Association of South-East Asian Nations
(ASEAN) has agreed a set of ASEAN Green Bond Stand-
ards, a set of voluntary guidelines intended to enhance
the transparency, consistency and uniformity of ASEAN
green bonds, while reducing due diligence cost and
helping investors to make informed decisions. The hope
is that standardisation will boost confidence in the
green finance asset class and channel investments
towards clean energy projects to help meet rising
demand across the region. “Standardisation creates
more visibility and more recognition for the product.
If the ASEAN Green Bond becomes a benchmark for
such issuances, then more parties may use these stand-
ards,” Seth Tan Keng Hwee, executive director of Sin-
gapore-based Infrastructure Asia, told OBG.
GLOBAL GOALS: This trend of increased investment
in renewable energy is set to continue, prompted by
a number of global and regional agreements with
137
ambitious climate change goals. The most recent and Key factors that promote
wide-reaching of these agreements, the Paris Agree- low auction prices include
ment, aims to keep the global increase in temperature a favourable regulatory and
institutional framework;
to below 2⁰C above pre-industrial levels. As of Novem- low off-take and country
ber 2018 some 184 parties to the original convention risks; a strong local civil
have ratified the agreement, out of 197 (196 states engineering base; a
plus the EU), including all the countries covered by OBG. favourable tax regime; low
Under this agreement each country or region is project development costs;
and a wealth of natural and
responsible for setting its own targets and deadlines. manufacturing resources.
For example, the EU’s 2030 Climate and Energy Frame-
work stipulates that renewables must represent at
least 27% of EU energy consumption by 2030 (up from
approximately 16.4% in 2015). Similar or more ambitious
plans are to be found in emerging markets.
Across Africa and the Asia-Pacific region, for exam-
ple, targets exist that are considerably higher than
those of the EU. Stand-out targets in Africa include
Kenya, which aims to raise the current rate of 70%
renewables to 100% by 2020. Nigeria is one of the
continent’s largest producers of oil and gas, yet has set
itself the target of deriving 30% of its electricity from
renewables by 2030. By this time Nigeria also hopes
to have increased the percentage of the population
with access to electricity from 57.7% in 2018 to 90%.
With regards to the Asia-Pacific region, Sri Lanka
aims to derive 60% of its energy needs from renewa-
bles – primarily wind – by 2030. Thailand was an early
pioneer of solar deployment in South-east Asia, but
more recently it announced a five-year moratorium
138
As of 2017 on new solar and wind procurement, citing upward
10.3m pressure on wholesale electricity prices. Nevertheless,
some Thai private sector companies remain focused on
the development of rooftop solar and the promotion
people work in the
global renewables of innovative power distribution channels that blur the
sector distinction between producer and consumer.
“If we look at it from a commercial perspective,
energy production by individuals and businesses is very
attractive for all parties,” Bundit Sapianchai, president
and CEO of BCPG, told OBG. “As individual producers
sell to the national grid they will also reduce demand,
as they depend to some extent on their own energy
source. This structure therefore reduces the govern-
ment’s need to invest in building large-scale power
plants to meet the growing demand for electricity.”
Other countries could look towards Latin America
for strategies that may help meet their ambitious tar-
gets. For instance, Colombia’s power comes largely
from hydro sources, at 65%, with other renewables
accounting for a more modest 6%. The country has set
a 30% target for these alternative renewable sources
by 2030. To achieve this target, Colombia will host its
first auction in January 2019, offering 10-year power
purchase agreements with the overall aim of adding
some 1 GW of renewable power capacity.
The state of affairs in Mexico is of particular interest.
The country aims to increase renewables from 21% of
its mix in 2018 to 35% by 2024 and 50% by 2050. To
meet these targets, Mexico introduced a differentiated
auction system for energy, capacity and clean energy
certificates that aims to capture relative values of dif-
ferent technologies by both location and production
profile. Moreover, contracts are offered for a 15- to
20-year period to provide investors with stability.
POWERING JOB CREATION: The increased role of
renewables can also drive job creation. IRENA’s “Renew-
able Energy and Jobs - Annual Review 2018” found that
in 2017 some 10.3m people around the world work
directly or indirectly in the renewable energy sector, a
5.3% increase on the previous year. While employment
remains concentrated in China, which has 43% of total
jobs, a growing number of emerging markets are start-
ing to derive socio-economic benefits from renewables.
Saudi Arabia, like Nigeria, is one of the world’s larg-
est oil producers, yet it aims to meet 10% of its power
requirements via renewables by 2023. The kingdom
plans to invest $7bn over the 2018-19 period to build
some 4000 MW of renewable capacity. In addition
to diversifying its economy and power supply, Saudi
Arabia’s strategy is to prioritise local industry and
the generation of local jobs. The unemployment rate
among Saudi nationals rose to 12.9% in the first quarter
of 2018, and around 25% among people aged 15-24.
The kingdom hopes that by creating an entirely new
solar power sector, and establishing itself as a leader
within it, new domestic jobs will be created. “If we are
able to move down the supply chain by manufacturing
solar generation components, including PV panels and

inverters, rather than simply building power plants using
equipment from China or India, then that approach will
definitely create job opportunities for young Saudi
men and women,” Anwar Al Itani, vice-chairman of the
Renewable Energy Committee of the Riyadh Chamber,
told OBG. This intention to advance local industry was
made very clear during the tender process for the
300-MW Sakaka PV project in the Al Jouf region. The
project was awarded to a consortium led by local power
company ACWA, despite there having been a 24% lower
bid made by a consortium of UAE’s Masdar and France’s
EDF Énergies Nouvelles. It required a minimum of 30%
of expenditure to be allocated to domestic suppliers,
and this percentage is expected to increase.
As of 2018 renewables employment remains limited
in Africa, with data available for only a few countries.
Egypt estimates it now has 3000 people working in
solar PV, following a record year for investment in the
sector: the European Bank for Reconstruction and
Development estimates a total of $2bn was invested
in Egyptian solar projects in 2017, primarily for the
development of the 1.8-GW Benban Solar complex.
Africa’s largest solar PV project to date was the
155-MW Nzema plant in Ghana, which created an esti-
mated 500 jobs during construction, 200 permanent
operations jobs and over 2100 indirect jobs, through
sub-contracting and demand for goods and services.
The highest level of employment is found in South
Africa, which with the help of local legislation has gen-
erated close to 35,000 renewable energy jobs.
CONNECTIVITY TO THE GRID: Renewable energy
is also an increasingly viable solution for connecting
people to electricity in emerging markets. Papua New
Guinea plans to increase electricity access significantly,
from less than 20% of the population in 2018 to 70%
by 2030. As part of this objective, PNG Power is imple-
menting a pilot rooftop solar power project with the
International Finance Corporation (IFC) in Port Moresby,
which aims to use rooftop solar to generate 2% of peak
demand for electricity in the capital. IFC is also working
with Origin Energy PNG to roll out a pay-as-you-go
model that will allow customers to pay for solar systems
on a monthly basis, giving them access to light, radio
and cell phone charging from a rooftop panel. Similar
strategies are being rolled out in sub-Saharan Africa,
with companies such as M-Kopa increasing accessibility
via pay-as-you-go models in Kenya and Uganda.
In Nigeria, the government, supported by the World
Bank, has launched a five-year, $350m Nigeria Electrifi-
cation Project to help finance electrification solutions
for rural populations. Regulation has also been updated
to facilitate licensing and registration for mini-grid
developers. Such measures have helped accelerate
the development of the off-grid market, according to
David Umezurike, CEO of renewable energy services
supplier Solar Force. “Mini-grid regulation, eligible
customer regulation and rural grid regulations have
emerged in the past few years, substantially increasing
opportunities for alternative off-grid energy solutions.
The sector has attracted both local and international
companies,” Umezurike told OBG. Indeed, given that
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139
more than 600m people do not have access to elec- The potential for off-grid
tricity in sub-Saharan Africa, off-grid renewable energy jobs is high in Africa,
has huge potential. The African Development Bank has particularly as energy
access improves and
estimated that in order to achieve universal access
domestic supply chain
to electricity, roughly 40% of all the continent’s new capacities are developed.
connections will need to come from off-grid solutions.
To this end, 2018 saw the creation of the Africa
Mini-grid Developers Association, the aim of which
is to achieve 100% electrification of Africa by 2030. It
plans to establish a Results-Based Financing fund to
help mini-grids scale up. Market appetite for mini-grid
is growing, in part thanks to Odyssey Energy Solutions,
a software platform connecting investors with mini-
grid developers. In August 2018 it announced that it
had amassed a pipeline of over 550 projects seeking
an estimated total investment of more than $500m.
FOSSIL FUELS & OTHER CHALLENGES: Cheaper
conventional energy sources such as coal or gas are still
appealing to numerous countries, since they ramp up
power generation capacity and thereby meet growing
demand. Indonesia is one such country. It aims to derive
23% of its power needs from renewables by 2025, but
this is then expected to slip back to 20.4% in 2027, as
new coal-fired and gas-fired generation capacity comes
on-stream. With annual production levels of around
485m tonnes, Indonesia is one of the world’s largest
producers of coal. The Indonesian government has
stated that the cost of renewables remains too high and
supply is insufficiently reliable relative to coal. Indeed,
in March 2018 the government capped the price of
domestic coal at $70/tonne for two years to maintain
electricity tariffs at the same level and ensure that the
population has access to affordable electricity.
SKILL GAPS: Elsewhere, the development of renew-
ables can be impeded by limited homegrown talent
or financing. Ghana, for example, has considerable
renewables potential and has set itself a target of
deriving 10% of its energy needs from renewables by
2020. However, the financing terms and conditions
available in the country for renewable energy projects
make it difficult for local companies with relatively weak
balance sheets to find the capital to invest. In a bid to
address such issues, neighbouring country Côte d’Ivo-
ire adopted a decree in November 2018 ratifying the
establishment of the Africa Finance Corporation (AFC).
This ratification will enable Côte d’Ivoire to derive more
benefits from the AFC’s transaction structuring and
project development expertise, and will open access to
AFC funds, which will in turn enable more investment
in infrastructure, most notably in the energy sector.
In Peru, meanwhile, where most electricity produc-
tion comes from hydro and natural gas sources, the
challenges differ. “The change for a greener future To achieve universal
should be triggered by the regulation of distributed electricity access in
Africa
40%
generation. As present, self-generated energy cannot
be sold back to the national grid. We are confident that
this regulation will promote conditions for fair compe-
tition and would foster autonomous green energy pro- of new connections will
duction in isolated and remote areas, which are to date need to come from off-
not connected to the national grid,” Rik de Buyserie, grid solutions
CEO and country manager of ENGIE Peru, told OBG.
THE REPORT Saudi Arabia 2019
 141

Utilities
Important utility-scale renewable project under way
Focus on developing renewables and nuclear power
Privatisation process could generate as much as $300bn
Investment opportunities in water treatment plants

New dynamism
Public investment and private sector activity support energy
and water capacity, and a shift away from dependence on oil
Amid ongoing reform of subsidies, the gradual pri-
vatisation 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.
OVERSIGHT: Significant changes have taken place
to the organisation and regulation of the utilities
sector in recent years. In May 2016 a royal decree
dissolved the Ministry of Water and Electricity, which
had previously overseen the sector. The electricity
segment – in addition to petroleum and industry –
now fall under the portfolio of the newly revamped
Ministry of Energy, Industry and Mineral Resources
(MEIMR), while the responsibility of water passed
to the newly established Ministry of Environment,
Water and Agriculture (MEWA).
As of February 2019 the minister responsible for
the MEIMR was Khalid Al Falih – also the chairman
of the board of directors of Saudi Aramco – while
Abdulrahman bin Abdulmohsen Al Fadhli heads
MEWA. MEWA consists of the Directorate of Water
Affairs and the Directorate of Water Services, both
of which have a broad range of responsibilities, from
the management of non-renewable and renewable
underground water, to the organisation and man-
agement of reused and treated wastewater.
The state plays a central role in the power sec-
tor, as the outright owner of the National Water
Company (NWC) and the holder of a 74.3% stake in
the Saudi Electricity Company (SEC). Furthermore,
Saudi Aramco owns a 6.9% stake in SEC, with the
remaining 18.8% of shares listed on the Saudi Stock
Exchange. According to the most recent figures
from the Electricity and Cogeneration Regulatory
Authority (ECRA) – which oversees the provision
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UTILITIES OVERVIEW 143
There are ambitious plans to expand seawater desalination facilities
of power and desalinated water in Saudi Arabia – Saudi Arabia is the
SEC operated 40 power stations with a combined world’s largest water
capacity of 58.2 GW in 2017, or 66% of total installed desalination market,
generation capacity. The firm is also responsible for with installed
the transmission, network maintenance, and supply capacity of
to commercial and residential customers, with a total
of 9.3m customers as of September 2018, according 5m
to SEC figures. The NWC is in charge of water supply cu metres per day
and sanitation in Riyadh, Jeddah, Makkah and Taif, as of 2018
with regional directorates under MEWA controlling
the supply in other areas.
Saudi Arabia is the largest water desalination mar-
ket in the world, with installed capacity of 5m cu
metres per day as of 2018. There were 29 plants pro-
ducing desalinated water that year, 17 of which were
owned and operated by the Saline Water Conversion
Corporation (SWCC), a state-owned company which
also operates the Kingdom’s water transmission net-
work. Many desalination plants are also cogeneration
facilities that produce electricity.
All companies generating electricity or desali-
nating water, along with independent water and
power providers (IWPPs), are overseen by ECRA. The
Water and Electricity Company (WEC) was initially
established in 2003 as a joint operation by SEC and
the SWCC, but its operation has since been taken
over by the Ministry of Finance and the remit of its
responsibilities was expanded. The mandate of the
WEC includes the tendering of projects in desalina-
tion, cogeneration, water storage, dam construction,
and the purchase and sale of water and electricity.
The energy required for the desalination process
is supplied by Saudi Aramco, which also serves as
the sole supplier of natural gas to the Kingdom’s The energy required for
households and businesses. Although a gas network desalination is supplied by
state-owned Saudi Aramco,
supplies major industrial cities, most domestic and
which also serves as the
small-scale commercial consumers rely on deliveries. Kingdom’s sole supplier of
STRUCTURE: According to the 2018 household natural gas to households
energy survey, published by the General Authority for and businesses.
THE REPORT Saudi Arabia 2019
144 UTILITIES OVERVIEW

announced it was investing $45bn in the SoftBank

Vision Fund, and unveiled plans for the PIF and Soft-
Bank to collaborate on a number of large-scale solar
industry projects in Saudi Arabia valued at $200bn,
which aim to manufacture 200 GW of photovoltaic
energy capacity by 2030.
UTILITIES POLICY: Vision 2030 – the Kingdom’s
blueprint for economic and social reform – contains
commitments to ensure the public is served by effi-
cient and high-quality energy and water services.
The document also highlights the need to reform
feedstock and end-user prices so market costs of
generating electricity and desalinating water are
reflected in household bills, albeit with provisions
that continue to protect low-income citizens. In
addition to rationalising the Kingdom’s large sub-
sidy bill, this should stimulate investment and boost
competitiveness in the utilities sector.
Announced in June 2016, the National Transfor-
mation Programme (NTP) 2020 lays out targets for
different government departments, as well as a com-
In 2018 the public utility recorded peak energy demand of 61,700 MW
prehensive set of goals and measurable key perfor-
Government planners Statistics (GaStat), 93.3% of households in the King- mance indicators to be achieved by 2020. Since its
are aiming to increase dom use butane gas, of which 74.6% rely on butane inception the NTP has launched 433 initiatives and
the country’s installed cylinders and 25.4% on storage tanks. The National established 37 strategic objectives and 92 key per-
renewable energy
generation capacity to 3.45
Gas and Industrialisation Company is responsible for formance indicators to facilitate the Saudi reform
GW by 2020 and as high as the filling, marketing and wholesale distribution of process and bring the country closer to achieving
9.5 GW by 2023. propane and butane cylinders nationwide. the objectives outlined in Vision 2030.
In 2017 the government established the Renew- While the document has undergone a series of
able Energy Project Development Office (REPDO), a revisions, it has maintained its overall commitment
new division of MEIMR, with the mandate to support to the sustainable use of natural resources and to
the adoption and expansion of renewable energy improving the quality of utilities services. The most
sources. REPDO is led by a committee that includes recently revised document, which was published in
representatives from Saudi Aramco, SEC, ECRA and October 2017, outlines targets for the improvement
the King Abdullah City for Atomic and Renewable of the water desalination system, the reduction of
Energy, and pursues the target of increasing renew- water pollution and the improvement of water dis-
able energy capacity to 3.45 GW by 2020 and 9.5 tribution, along with a broad commitment to the
GW by 2023. The Public Investment Fund (PIF), the improvement of electricity provision.
sovereign wealth fund, has also been responsible for “One of the water sector’s key strategic objectives
driving renewable energy strategy, notably through under Vision 2030 is to improve financial efficiency,
a major investment in a new technology fund devel- which translates into achieving full cost recovery.
oped by SoftBank of Japan. In October 2018 the PIF The successful implementation of privatisation pro-
grammes for water and wastewater generation and
distribution will enhance the sector’s efficiency,”
Electricity generation, 2010-17 (TWh)
Awaadh Al Otaibi, CEO of domestic water treatment
company Miahona, told OBG.
400
TARIFFS & SUBSIDIES: Subsidy and tariff reforms
350 are a cornerstone of ongoing efforts to improve
the investment environment and rationalise state
300
finances in Saudi Arabia. The first of these was a
250 series of electricity price reforms implemented in
200 2015. Households using less than 4000 KWh per
month were unaffected by the rise, but prices for
150 consumers using between 4000 and 6000 KWh rose
100 from SR0.12 ($0.03) to SR0.20 ($0.05) per KWh, while
consumption above 6000 KWh was priced at SR0.30
50
($0.08) per KWh. While these changes led to 100%
0 price increases for some consumers, the final tariff
2010 2011 2012 2013 2014 2015 2016 2017 remained low by international standards, according
to figures from the Arab Petroleum Investments
Source: BP
Corporation (APICORP), a Saudi development bank.

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 146
Power generation grew by an average of 6.6% per annum in 2006-16, though this slowed to 1.7% in 2017
In December 2017 the
government launched a
programme to reimburse
households for the rise in
their utilities bills and for
higher fuel prices. Some
$7.2bn was paid out under
the scheme in 2018.
UTILITIES OVERVIEW
Meanwhile, the implementation of water price
reforms – originally announced in late 2016 – expe-
rienced a series of delays following public opposition
to the initial draft of the changes. In response, the
government announced that subsidy reform would
be a gradual process and a system of compensa-
tion would be implemented to protect lower-income
households. This approach received support from the
IMF in its October 2017 report on the Saudi economy.
Following this, in December 2017 the government
launched a programme to reimburse Saudi house-
holds for the increases in their utilities bills and for
higher fuel prices, with diesel prices rising by 16.2%
in 2018, according to APICORP. To be eligible for
the scheme, beneficiaries must be Saudi citizens
permanently residing in the Kingdom. While the 2018
budget expected SR14bn ($3.7bn) in new revenue as
a result of these reforms, these gains were initially
offset by the SR30bn ($8bn) allocated to the com-
pensation scheme. That year some SR27bn ($7.2bn)
was ultimately paid out as part of the programme,
which is set to extend to at least 2019. While the
increase in tariffs has boosted income for Saudi
utilities companies, the same firms are also facing
the removal of subsidies on inputs used in power
stations and desalination plants.
SUPPLY: Electricity output has increased dramati-
cally in recent years, rising from 204.4 TWh in 2007
to 375.6 TWh in 2017, according to figures from
global energy giant BP. Power generation grew by an
average of 6.6% per annum in the decade to 2016,
though this slowed to 1.7% in 2017.
According to the most recent data from ECRA,
there were 80 power plants operating in Saudi Arabia
in 2017 with a combined capacity of 88.7 GW. Of this
number, 40 are directly owned by SEC, with a capacity
of 58.2 GW, while two plants with total capacity of
2 GW are owned by the municipal firm Power and
Water Utility Company for Jubail and Yanbu. Three
www.oxfordbusinessgroup.com/country/saudi-arabia
IWPPs also operate within the market: Jubail Water
and Power Company (2.9 GW), Shuaibah Water and
Electricity Company (1.2 GW), and Shaqaiq Water
and Electricity Company (1 GW). In addition, there
are four independent power plants (IPPs) with a
combined capacity of 9.3 GW, along with 11 other
organisations operating power plants. Saudi Aramco
operates eight, the SWCC runs seven and Tihama
Power generation company oversees four facilities
as part of a joint venture that provides power for
four Saudi Aramco refineries. According to APICORP,
a further 16.9 GW of generation capacity is set to
come on-line between 2018 and 2020. SEC is building
7.5 GW of this additional capacity, and the remaining
new plants will be built as IPPs or as facilities for
Saudi Aramco or the SWCC.
These new plants will employ a range of primary
fuel sources, with 34% of capacity derived from oil,
29.2% from natural gas, 23.6% from reprocessed
hydrocarbons by-products, 11.5% from facilities com-
bining gas and solar, and 1.8% from solar alone. In July
2018 the first of these power plants came on-line.
The Waas Al Shamal combined gas and solar plant,
which was built by SEC for SR3.8bn ($1bn), has added
1.4 GW of new installed generation capacity.
DEMAND: On September 2, 2018 SEC recorded peak
demand across its network at 61,700 MW – up a mar-
ginal 0.6% on the previous year – coinciding with the
beginning of the new school year and high daytime
temperatures. According to ECRA, peak demand rose
by 10.7% from 54,100 MW in 2014 to 59,900 MW
in 2015, before dropping by 2.2% to 58,600 MW in
2016, then growing by 4.8% to 61,400 MW in 2017.
Meanwhile, national electricity consumption rose
by 5% in 2015 to 295,000 GWh. It then registered
a more modest uptick of 0.7% to 297,000 GWh in
2016 and 0.3% to 298,000 GWh in 2017, according
to the most recent figures from GaStat. A number of
variables appear to be at play in the slowing growth
Electricity output rose from 204.4 TWh in 2007 to 375.6 TWh in 2017

of energy demand between 2015 and 2017 – not just
the rationalisation of electricity usage, but also the
impact of the removal of subsidies and slower growth
of the economy in 2017 (see Economy chapter).
Saudi Arabia has historically relied on underground
sources and reservoirs for its water, as it possesses
no permanent running surface water and on average
only experiences around 100 mm of rainfall a year.
A system of wells and irrigation channels known as
falaj supplied farms and settlements in the past, with
the mining of fossil subsurface water accelerating as
the country developed. Centre pivot irrigation, which
uses water pumped from an underground aquifer,
has since become more widespread.
The pace of population and economic growth,
however, has long outstripped the capacity of these
resources to meet demand. As a result, the country
has increasingly moved towards developing supply
from desalination plants, particularly for domestic
consumption. According to the latest figures from
ECRA, there were 29 desalination plants with a com-
bined capacity of 7.7m cu metres per day as of 2017.
The most significant player in the market is the SWCC,
which operates 17 plants with a total capacity of
4.6m cu metres per day, equivalent to roughly 60%
of the national total. In addition, the Kingdom has 17
facilities that produce steam for a range of industrial
applications, with a combined capacity of 16,200
tonnes per hour. Saudi Aramco owns most of these,
operating eight steam plants with shared output of
4500 tonnes per hour, or 28% of the total.
According to the most recent figures from MEWA,
total water consumption from all sources and for
all sectors grew from 22.3bn cu metres per year in
2013 to 23.4bn cu metres per year in 2017, though
consumption reached its highest level in 2015, at
24.8bn cu metres per year. This consumption pat-
tern is consistently dominated by agriculture, which
increased from 18.6bn cu metres per year in 2013 to
19.2bn cu metres per year in 2017, reaching a high of
20.8bn cu metres in 2015. However, municipal con-
sumption – which includes residential usage – also
rose steadily over the period, from 2.7bn cu metres
per year in 2013 to 3.2bn cu metres per year in 2017.
Industrial consumption, for its part, expanded stead-
ily between 2013 and 2016, rising from 890m cu
metres per year to 1.02bn cu metres per year, before
stabilising to 1bn cu metres per year in 2017. Tracking
this pattern, average annual per capita consumption
of water increased from 249 litres in 2013 to 270
litres in 2016, before dropping slightly to 265 litres
in 2017, according to data from GaStat.
INFRASTRUCTURE DEVELOPMENT: In order to
adequately meet demand from a rising number of
customers and improve the efficiency of its existing
network, SEC is making substantial investment in its
distribution. The utility had approximately 9m cus-
tomers in December 2017, an increase of 492,000
customers on the previous year, according to its
most recent annual report. Accordingly, its distri-
bution network expanded by some 6.4% that year,
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UTILITIES OVERVIEW 149
The National Renewable Energy Programme’s first utility-scale project reached financial close in late 2018
with the addition of around 37,000 km of overhead Saudi Arabia has historically
networks and ground cables. The overall capacity of relied on underground
its network transformers similarly increased by 7.2%, sources and reservoirs for
its water, as it possesses no
while the distribution of transformers grew by 5.9%. permanent running surface
In December 2018 SEC announced plans to invest water and on average only
SR100bn ($26.7bn) in infrastructure over the follow- experiences around 100
ing five years through a range of projects intended mm of rainfall a year.
to expand electricity supply, transmission and dis-
tribution. SEC is not alone in its plans to accelerate
investment. NWC announced in December 2017 that
it had invested SR1.3bn ($347m) in 40 new water
and sewage projects as part of efforts to meet NTP
targets. It also outlined a further 33 projects with
a total value of SR845m ($225m). WEC is similarly
undertaking investment in desalination, water and
wastewater projects, coupled with investment aimed
at improving the efficiency of its overall network. In
September 2018 WEC announced five public-private
partnership projects that are set to deliver an addi-
tional capacity of 3.4bn cu metres of water per day.
FOREIGN INVESTMENT: In January 2018 the Saudi
Arabian General Investment Authority (SAGIA) –
the government agency responsible for overseeing
foreign direct investment – announced that utili-
ties would be one of the core sectors targeted for
increased investment, with renewable energy pro-
jects taking particular precedence. In an effort to
attract strategically important international invest-
ment in this arena, the government has pledged guar-
antees in the form of off-take agreements. These will
be signed with renewables developers, providing 20
years of power purchase assurance for wind projects Water consumption from
and 25 years for solar projects. all sources and for all
CLEAN ENERGY: International interest in the coun- sectors grew from 22.3bn
try’s developing renewables industry is evident; for cu metres per year in
2013 to 23.4bn cu metres
example, five out of seven qualified bids for the 300-
per year in 2017, though
MW solar photovoltaic project at Sakaka in Al Jouf consumption reached its
were reportedly 100% internationally financed. The highest level in 2015, at
SR1.2bn ($320m) project was ultimately awarded to 24.8bn cu metres per year.
THE REPORT Saudi Arabia 2019
 150
In December 2018 the
government announced
that it intended to facilitate
the building of two nuclear
power stations in the short
term and a further 14 such
facilities over the coming
three decades.
UTILITIES OVERVIEW
Water consumption is consistently dominated by the agriculture sector
Sakaka Solar Energy Company, a consortium that is
70% held by Saudi’s ACWA Power and 30% held by
AlGhihaz Renewable Energy Company. The engi-
neering, procurement and construction contract
for the build was awarded to a consortium com-
posed of India’s Mahindra Susten and the Chinese
industrial equipment and renewables company Chint
Group. Developed as an IPP, the project achieved
financial close in November 2018, marking the first
utility-scale renewable energy project to be devel-
oped under REPDO’s National Renewable Energy
Programme, which was launched in 2017. Further util-
ities investment opportunities are also in the offing.
In February 2018 SAGIA announced it was seeking
$11bn to upgrade the water utilities network, with
$10bn of this earmarked for desalination projects
and the other $1bn for new sewage treatment plants.
The drive to attract domestic and international
investment in both renewables and capacity
expansion underpins the Kingdom’s goal of increas-
ing renewable energy capacity to 3.45 GW by 2020
and 9.5 GW by 2023. To meet these objectives,
REPDO is set to launch tenders in 2019 for 4.1 GW of
new renewable capacity, divided between 3.3 GW of
solar projects and 800 MW of wind. In January 2019
REPDO awarded Saudi Arabia’s first commercial wind
contract – the SR1.9bn ($507m), 400-MW Dumat Al
Jandal project in Al Jouf – to the French energy giant
EDF and Abu Dhabi’s renewables investment group
Masdar. The deal included a 20-year procurement
agreement at an energy cost of $2.13 per KWh.
NUCLEAR ENERGY: Nuclear power plants form
another important plank of the Kingdom’s commit-
ment to cleaner energy sources. In December 2018
the government announced that it intended to facili-
tate the building of two nuclear power stations in the
short term and a further 14 such facilities over the
coming three decades. The country hopes to have 17
GW of installed nuclear capacity by 2032, enabling
it to meet 15% of total projected electricity demand
that year. These announcements followed a 12-day
review of the country’s hard and soft nuclear infra-
structure undertaken by the International Atomic
Energy Agency, which concluded that the country
is well placed to build its first nuclear power plant.
OUTLOOK: Nearly three years after the publica-
tion of the guiding NTP strategy, the government is
forging ahead in pursuit of the goals to substantially
expand energy and water output to meet growing
demand from businesses and consumers. These
efforts include an emphasis on clean energy and
infrastructure upgrades to improve network efficien-
cies. At the same time, the government has demon-
strated its determination to liberalise the utilities
market and introduce market prices through the
elimination of subsidies, stimulating both domestic
and international investment. While some aspects
of the energy reform agenda have been subject to
delays and amendments, there are signs of renewed
momentum towards liberalisation during 2019.

Private matters
Reforms attract private sector interest and foreign investment
In order to achieve its objectives of broadening the
energy mix and diversifying the economy away from
oil dependence, the government is pursuing reform
of the energy sector. Vision 2030, the Kingdom’s
long-term economic diversification and develop-
ment programme, foresees a greater role for the
private sector in the provision of electricity and
water. To these ends, the country has moved towards
the elimination of subsidies, thereby establishing
market prices for end-users. It has also carried
out a gradual privatisation of state assets and has
undertaken adjustments to improve the investment
environment for foreign companies.
ELECTRICITY GENERATION: Saudi Electricity
Company (SEC) was developed under a model that
utilised the Kingdom’s hydrocarbons wealth to subsi-
dise utilities consumption. As part of this framework,
electricity generation was primarily achieved by
burning crude oil, while revenue generated from
hydrocarbons was used to keep prices for end-users
at a fraction of the market price.
State-owned energy giant Saudi Aramco pro-
vided the feedstock, with settlement on a non-cash
basis via gradual transfers of accrued payables
to a government account. The promise of cheap
feedstock – which included natural gas as well as
crude oil – made it viable for independent power
producers (IPPs) to enter the market, with a single
government-owned entity providing the input at one
end of the energy generation process, and another
government-owned entity as the end user.
SEC has equity in many of these plants, which
gives it a share of approximately three-quarters of
electricity generation in the Kingdom. After the idea
of restructuring and selling off assets belonging to
SEC was first put forward in 2009, the Electricity and
Cogeneration Regulatory Authority (ECRA) subse-
quently published the Electricity Industry Restruc-
turing Plan in 2010. This laid out the necessary steps
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UTILITIES ANALYSIS 151
The public utility has a roughly 75% share of electricity generation
for this process, unbundling the industry’s main The country has moved
activities – generation, transmission and distribution towards the elimination
of subsidies, thereby
– and moving it from a vertically integrated struc-
establishing market prices
ture to an environment that encourages greater for end-users. It has also
private sector participation and competition. carried out a gradual
In the years since, SEC has undergone periodic privatisation of state
restructuring, creating National Grid – a spin-off assets and has undertaken
adjustments to improve the
transmission company – in 2012. In 2014 Energy
investment environment for
Trading and New Ventures, another subsidiary, was foreign companies.
created to handle SEC’s commercial relations with
power producers and customers, with the additional
role of establishing links with the strategic partners.
Progress towards market liberalisation has been
more gradual in the intervening years, though the
government began to remove energy subsidies at
the end of 2015 in order to shift consumption costs
closer to a true reflection of market prices.
”
In 2017 the government expressed
confidence that privatisation could
generate $200bn in income across 16
sectors, including utilities
”
INVESTMENT STRATEGIES: Vision 2030 acknowl-
edged there were a number of ways in which key
utility assets could be transferred from government
ownership to the private sector. These approaches
include privatisation, in which citizens have the
option to buy shares in existing companies floated
on the Saudi Stock Exchange; and public-private
partnerships (PPPs), whereby greenfield projects are
developed using private sector finance supported by
long-term power and water purchase agreements.
When the large-scale plans for privatisation were
first unveiled in 2017 the Saudi government was con-
fident that the privatisation process could generate
as much as $200bn in income across 16 different
THE REPORT Saudi Arabia 2019
152 UTILITIES ANALYSIS

assets by 2020. These include the sale of the Ras Al

The world’s largest
desalination plant is under
development, with at least
600,000 cu metres of daily
output to be sold at a price
of $0.53 per cu metre.
Water produced by desalination plants, 2012-17 (m cu metres)
2012
2013
2014
2015
2016
2017
0 500
Source: GaStat
The role of independent water and power producers is well established
economic sectors, including utilities, in addition to
the $100bn it hoped to raise through the flotation
of a 5% stake in Saudi Aramco.
In August 2017 the National Centre for Privatisa-
tion and PPP (NCP) was established to oversee and
facilitate the liberalisation agenda laid out in Vision
2030. The NCP’s mandate includes supporting work
towards marketisation performed by government
departments, agencies and companies in key sec-
tors including both power and water. In 2018 the
NCP was also responsible for coordinating public
consultation on the drafting of the Private Sector
Participation Law, which is designed to provide the
legal foundations for all stakeholders in PPP con-
tracts across multiple sectors.
PRIVATISATION PLANS: In April 2018 the Council
of Economic and Development Affairs released a
delivery plan for the NCP’s privatisation programme,
the aim of which is to raise between SR35bn ($9.3bn)
and SR40bn ($10.7bn) by selling off five government
1000 1500
Khair desalination and power plant, and the produc-
tion arm of the Saline Water Conversion Corpora-
tion, a state-owned company that operates the bulk
of desalination plants in the Kingdom as well as the
national water transmission network.
The outcome of these privatisation initiatives is
expected to impact the manner in which further
government entities are sold off. This could include
the long-awaited initial public offering (IPO) of Saudi
Aramco. In January 2019 the government announced
that the IPO would take place in 2021, in a move
which would lay the groundwork for the sale of
equity in other public utilities companies.
INDEPENDENT PRODUCERS: The structure and the
position of both IPPs and independent water and
power providers (IWPPs) is fairly well established in
Saudi Arabia. According to the most recent available
figures from ECRA, four IPPs had a 10% share of
installed power generation capacity in 2017, while
three IWPPs contributing an additional 5% of capac-
ity. Furthermore, the four IWPPs operating at the
end of 2017 contributed 28% of the total installed
water desalination capacity.
In December 2018 Riyadh-based energy invest-
ment company ACWA Power and domestic industrial
conglomerate Saudi Brothers’ Commercial Company
were awarded the contract to develop Rabigh 3,
which will be the world’s largest desalination plant
when complete. The state-owned Water and Elec-
tricity Company has agreed to purchase output of
600,000 cu metres per day at a price of $0.53 per
cu metre from the facility, which is being developed
under a 25-year, build-own-operate contract.
CHALLENGES: While progress is being made to
stimulate greater activity in the utilities market,
some obstacles are still in place for the ongoing
process of liberalisation. If feedstock prices are to
rise to market levels, power stations and desalina-
tion plants could also see their costs rise – and so,
too, would many of Saudi Arabia’s heavy industries
such as those manufacturing petrochemicals and
steel. The reform process and resulting feedstock
price increases could face opposition from partially
state-owned enterprises in these sectors. In addi-
tion, some international credit ratings agencies
have highlighted that the proposed restructuring of
SEC may have negative implications for the utility’s
existing debts and credit position.
In June 2018 Standard & Poor’s (S&P) affirmed the
“A-” credit rating of SEC, but identified their credit
ratings outlook as poor, stating that there was a
one-in-three chance of a downgrade in the following
one to two years given that structural changes to
SEC would lower the likelihood of direct govern-
ment support and contribute to the utility’s less
dominant role in the Kingdom’s energy system. S&P
further stated that the removal of subsidies com-
2000 bined with the increase in electricity tariffs could
put downward pressure on demand as consumers
in the country begin to use power more efficiently.

www.oxfordbusinessgroup.com/country/saudi-arabia

Generating momentum
Fahad Al Sudairi, Acting CEO, Saudi Electricity Company (SEC),
on the re-positioning of the electricity industry under Vision 2030
How will connecting Saudi electricity networks to
neighbouring countries affect efficiency?
AL SUDAIRI: Since Saudi Arabia has a surplus in terms
of its electricity supply, the excess can be exchanged
with neighbouring countries who have less supply at
specific times of the day. This supports the growth of
Saudi Arabia’s inter-regional trade activity and stim-
ulates economic development. The current scope of
these initiatives extends solely to other, nearby Gulf
nations. Initiatives are currently under way to expand
the international connectivity of the Kingdom’s elec-
trical grids. An agreement was reached in January
2019 to develop a new power connectivity project
between Saudi Arabia and Jordan. The 170-km power
link between Eastern Amman and Qurayyat will sup-
port the development of a common Arab market for
electricity exchange, and reduce the risk of sudden
outages or continuous charges for electricity generated
by renewable plants during poor weather conditions.
To what extent will downstream entities be impact-
ed by increasing power generation efficiencies?
AL SUDAIRI: An integrated system between electricity
companies and the energy sector is already in place.
The Electricity and Cogeneration Regulatory Author-
ity (ECRA) is co-supervised by the Ministry of Energy,
Industry and Mineral Resources and the Electricity
Regulatory Authority, and is focused on delivering
fuel-efficient power generation solutions without
affecting downstream distributors or customers. In
the long term the system aims to raise the efficiency
of the national economy, strengthen non-oil sectors
and rationalise the consumption of natural resources.
The Kingdom is keen to support its citizens under
Vision 2030 and to absorb any differences in electric-
ity tariffs in the process of increasing fuel efficiency,
while also ensuring a sustainable electricity supply is
maintained. The steps taken by ECRA in this regard also
aim to improve service quality, increase productivity
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UTILITIES INTERVIEW 153
Fahad Al Sudairi, Acting CEO, Saudi Electricity Company
and create a more competitive environment, as power
generation efficiency continues to increase.
What structural changes are taking place to prepare
for the privatisation of power generation?
AL SUDAIRI: Administrative, technical and financial
teams have been assigned to work on the development
of a new company, which will begin operations in the
next few years. The purpose of this restructuring is to
achieve greater economies of scale through increased
flexibility and opportunities for foreign investment.
The Build and Employ National Abilities strategy
further develops policies and procedures to support
the inclusion of local manufacturers, contractors and
small and medium sized enterprises, through a bidding
system that gives a pricing preference of 10% to these
entities when they implement local content strategies.
How can electricity networks be further optimised
to underpin localised industrial growth?
AL SUDAIRI: Several large-scale electrical projects
are currently under way. These projects are designed
to support the economic development targets laid
out under Vision 2030. Considering the Kingdom’s
growing demand for electricity, the introduction of
nuclear power to the energy mix will help to achieve
the base-load electricity required as localised industrial
production continues to expand. Meanwhile, the Gen-
eration and Optimisation Centre monitors the reliability
and efficiency of electricity facilities, which represent
more than 70% of total power generation assets. Lastly,
new payment initiatives have also been implemented,
which aim to increase the ease of financing electric-
ity for Saudi businesses. The revolving credit facility
agreement, signed in November 2018 between SEC and
eight international banks, provides two tranches for
financing. The first allows for a maximum of $1.6bn and
is payable within three years, and the second allows for
a maximum of $573m and is payable within five years.
THE REPORT Saudi Arabia 2019
154 UTILITIES INTERVIEW
Mohammed Al Mowkley, CEO, National Water Company
Liquid assets
Mohammed Al Mowkley, CEO, National Water Company, on
harnessing technology and private investment to boost efficiency
How are public-private partnerships (PPPs) im-
proving efficiency in the water supply chain?
AL MOWKLEY: The PPPs currently in the procure-
ment stage for sewage treatment plants are similar
to the contracts that have been used for desalination
plants. This means that the market will be familiar
with the risk allocation, contract terms, offtake
agreement and government guarantees provided
through the Ministry of Finance. Participation in the
two contracts tendered to date suggests that market
sentiment is strong. Furthermore, there is potential
in the short to medium term for the privatisation
of existing brownfield assets, such as groundwater
production facilities and sewage treatment plants.
Although the sector is not currently ready for the
privatisation of water and sewage networks – due
to the higher risks involved – this will be addressed
during the first phase of PPPs for the distribution
sector. With the appropriate risk allocation and com-
mercial model, private sector participation incen-
tivises both service quality and efficiency. This is
more straightforward for a greenfield site, where
the private sector is in full control of the factors
affecting quality and performance. However, for
the distribution services sector, customer expecta-
tions and behaviour come into play, and uncertain-
ties regarding the condition and performance of
underground assets also have to be factored in. This
requires a careful consideration of risk allocation
and a more collaborative approach between public
and private sector partners.
What measures are being taken at brownfield
and greenfield sites to reduce operational costs?
AL MOWKLEY: The effective utilisation of cur-
rent assets in conjunction with the repurposing
of brownfield water infrastructure projects is not
enough. A growing urban population is increasing the
demand for water. Therefore, it is equally important
www.oxfordbusinessgroup.com/country/saudi-arabia
to earmark and prioritise greenfield projects to bal-
ance the available supply with the forecast demand.
The privatisation of brownfield and greenfield assets
under PPP procurement models incentivises innova-
tion and cost optimisation. Furthermore, to improve
energy efficiency through pump scheduling, tech-
nology is being introduced to measure consumption
rates and enable the real-time monitoring of pres-
sure and flow in the network. The emphasis is on
asset utilisation, productivity and service standards.
Water pricing is focused on encouraging customers
to conserve water to reduce demand and costs.
What upgrades are required to reduce leakages?
AL MOWKLEY: There is an overall focus on invest-
ing in water distribution and sewerage networks.
Supervisory control and data acquisition (SCADA),
along with geographic information systems, are also
being used to identify and address leaks. Operational
planning and the tracking of key performance indica-
tors with regard to the availability and distribution of
water is another area we are working on. Water leak-
ages can be detected and reduced by using pressure
management systems in conjunction with SCADA,
then using network replacement programmes based
on asset conditions and performance data.
How is water conservation and waste reduction
being prioritised in new infrastructure projects?
AL MOWKLEY: Water conservation is being achieved
through addressing leakages, encouraging custom-
ers to reduce consumption, enforcing the use of
grey water by updating the Saudi Building Code, and
promoting the adoption of treated sewage in lieu
of potable water for the commercial and industrial
sectors. New PPP projects will also provide high-
er-quality, lower-cost treated sewage products,
which should encourage greater uptake of this
resource, thereby reducing overall consumption.

Striking a balance
Infrastructure projects support increased water capacity and a
more sustainable utilities network
Saudi Arabia has no permanent running surface
water and experiences an average of 100 mm of
rainfall per year, with this largely concentrated in
the south-western mountains during the summer
months. Traditionally, the country relied on wells
drilled into non-renewable subterranean aquifers
and surface run-off for its freshwater needs, and
the agriculture sector in particular remains reliant
on these resources. However, over recent decades
water desalination has become increasingly cen-
tral to provision; approximately 60% of municipal
households relied on water from coastal desalina-
tion plants as of 2017, according to the Ministry of
Environment, Water and Agriculture (MEWA).
The desalination process is, however, expensive
and consumes very high volumes of energy, which –
owing to the Kingdom’s energy mix – largely derives
from fossil fuels. Government subsidies long hid
these costs from end-users, which in turn contrib-
uted to rising per capita daily consumption levels.
These peaked at 270 litres in 2016, according to fig-
ures from General Authority for Statistics (GaStat).
In order to address these issues and strike a
more favourable balance between sustainability
and supply, the government is undertaking a number
of measures to address the growing demand for
water, while at the same time attempting to reduce
per capita daily usage. Vision 2030 – the Kingdom’s
long-term economic diversification and develop-
ment roadmap – similarly establishes a number of
goals aimed at increasing the proportion of the
population that is connected to the national water
network, both for the supply of fresh water and for
the disposal of grey water and sewage.
AGRICULTURAL USE: Researchers at the King Fahd
University of Petroleum and Minerals calculated that
in 2016 there were reserves of between 259bn and
761bn cu metres of non-renewable groundwater in
the Kingdom’s aquifers, with rainfall contributing
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UTILITIES ANALYSIS 155
Saudi Arabia has no permanent running surface water and little rainfall
886m cu metres a year to the system and 1.45bn cu Agriculture accounted
metres of run-off rainwater collected by 302 dams for 82% of the 23.4m
each year. By comparison, the country produced cu metres of water that
was consumed in 2017.
1.06bn cu metres of desalinated water that year. Roughly 78% of this total
Beginning in the 1970s Saudi Arabia started to was derived from non-
expand its agriculture sector in pursuit of food renewable groundwater.
security, but in the subsequent three decades 80%
of its non-renewable subterranean aquifer system
was depleted. While agricultural policy has since
changed, with fish farming and fruit cultivation
replacing water-intensive cereals, additional mod-
ifications are likely needed to create a more sus-
tainable water utilisation strategy.
According to MEWA, agriculture accounted for
82% of the 23.4m cu metres of water consumed in
2017, while municipal usage comprised 13.7% and
industry made up another 4.3%. Roughly 78% of this
water was derived from non-renewable ground-
water – only slightly less than in 2013, when the
figure stood at 80% – though overall output and
consumption have both risen.
DOMESTIC USE: According to the 2018 house-
hold energy survey published by GaStat, 78% of the
population is connected to the public freshwater
network, while 20.1% are reliant on tanker deliveries
for their household water needs and 1.71% depend
on wells. Despite these connection rates, 62.3% of
the population drinks only bottled water, with just
18.3% using the public network’s water supply and
18.8% using tanker deliveries for drinking water.
Some 61.5% are connected to the public sanitation
network, while 38% use septic tanks and 0.5% use
a private sanitation network. Safely and hygieni-
cally disposing of waste from the country’s septic As of 2018, 78% of the
tanks has caused consistent logistical issues for the population was connected
to the public freshwater
Kingdom. For example, between the mid-1990s and
network, while 20.1% were
2008 an estimated 800 tankers dumped 40,000 reliant on tanker deliveries
cu metres of untreated wastewater every day in Al and around 1.71%
Misk Lake, located at Wadi Bani Malik, 40 km east depended on wells.
THE REPORT Saudi Arabia 2019
 156
Per capita daily water consumption levels peaked at 270 litres in 2016, driven in part by legacy subsidies
The volume of treated
sewage rose from 66%
in 2011 to 77% in 2014,
and is expected to hit
80%
in 2019
UTILITIES ANALYSIS
of Jeddah. Geochemical samples taken of the sur-
rounding groundwater in 2016 – eight years after
dumping at the site ceased – found considerable
contamination of the groundwater, rendering the
site unsuitable for irrigation or agriculture purposes.
WASTE INVESTMENTS: The government has been
making efforts to address these water-treatment
issues; the volume of treated sewage rose from 66%
in 2011 to 77% in 2014, and is expected to reach 80%
by 2019, according to MEWA. This is being supported
by a drive to expand the Kingdom’s wastewater pro-
cessing infrastructure, with the number of sewage
treatment plants expected to rise to 204 in 2019.
In December 2018 the National Water Company
(NWC) announced it had almost completed a SR72m
($19.2m) project to connect homes in the southern
Hada district of Jeddah to the national sewage sys-
tem. Some 27 km of new pipelines were being laid to
connect roughly 1770 properties to the network. In
the same month the NWC completed three sewage
projects with a combined value of SR358m ($95.4m)
at Yanbu in the Medina region. The new facilities
serve 6000 properties and included three pumping
stations, 87 km of expulsion lines and two lift sta-
tions. Furthermore, in November 2018, 18 new water
and sanitation projects were inaugurated in Tabuk
Province, at a combined value of SR1.45bn ($387m).
These included nine sanitation schemes with a cost
of SR850m ($227m), 214 km of sewage networks,
7720 domestic sanitation connections, as well as
1270 km of drinking water networks and around
14,200 residential water connections. In addition,
four dam projects were unveiled in the region, with a
storage capacity of 5.9m cu metres; along with four
new desalination plants, which will have a combined
capacity of 120,000 cu metres per day.
PRIVATE SECTOR: To achieve its infrastructure
expansion objectives, the Water and Electric-
ity Company (WEC) has turned to public-private
www.oxfordbusinessgroup.com/country/saudi-arabia
partnerships (PPPs). The state-owned utility com-
pany first invited expressions of interest in its water
and sanitation projects in December 2017, through
two independent sewage treatment plant (ISTP)
proposals, which are similar to independent water
and power projects in terms of organisation and
ownership structure. They are to be developed under
a 25-year sewage treatment agreement with the
WEC that is guaranteed by the state, with the sewage
capacity to be provided by the NWC.
The first two projects being developed under this
model are the 300,000-cu-metre-per-day plant in
Dammam and the 500,000-cu-metre-per-day Jed-
dah Airport ISTP 2, which will be built adjacent to
a pre-existing 350,000-cu-metre-per-day sewage
treatment plant. The latter was originally tendered
in 2012 and again in 2015 using an engineering,
procurement and construction (EPC) project, before
being reopened to bidders as a PPP in December
2017, marking a shift that could herald greater pri-
vate investment in water treatment.
“Privatisation initiatives are gaining momentum
under Vision 2030,” Essam Zahra, CEO of the private
domestic firm National Water Works Company, told
OBG. “However, there needs to be a more of a push
towards establishing PPP contracts, rather than
traditional EPC contracts in order to sustain growth.”
Efforts to foster private sector activity and inter-
national investment are bearing some fruit. In July
2018 the WEC announced it had received bids for the
Dammam ISTP from seven international consortia,
and in late January 2019 it awarded the contract
to the Dubai-headquartered global utilities player
Metito. The Jeddah Airport ISTP 2 project, however,
was ultimately awarded to a local actor. The WEC
issued a request for bidding to nine pre-qualified
consortia in April 2018 and inked an agreement in
February 2019 with a consortium led by the Power
and Water Utility Company for Jubail and Yanbu.
The number of sewage treatment plants should reach 204 in 2019

Cutting costs
Khaled Al Qureshi, CEO, Water and Electricity Company, on
reducing waste and energy consumption in the water industry
How has the tendering process for independent wa-
ter projects (IWPs) lowered water production cost?
AL QURESHI: The first IWP tendering process involved
the Rabigh plant, which has a capacity of 600,000 cu
metres per day and is the largest reverse osmosis plant
in the region. The successful bidder was a consortium
led by ACWA. This was followed by the Shuqaiq-3
reverse osmosis (RO) IWP, where a consortium led by
Maurbeni was the successful bidder. There are also two
other projects in progress: Jubail 3 IWP and Yanbu IWP.
A new lower cost of water production for desalination
plants is being created for these projects.
Competition is the main factor driver causing pro-
duction costs to fall. The winning bid for Rabigh was
SR1.99 ($0.53) per cu metre, which is a 30% decrease
in cost. Shuqaiq-3 was even lower at SR 1.95 ($0.52)
per cu metre. These are some of the lowest costs ever
recorded in the world for desalinated water. As part of
the bidding process, we capped electricity usage at
3.5KWh per cu metre, which bidders are not permitted
to exceed. For sewage treatment plants, which do not
use as much energy as desalination facilities, we man-
dated other requirements during the tendering process
and focused on cutting costs, such as the amount of
sludge generated at the end of the process that needs
to be disposed at a landfill. The reduced cost of service
of the plants will be witnessed directly by the market,
with a decrease on drinking water prices by 20-25%.
As both international and local players adopt similar
processes the region is likely to be impacted by even
lower costs of water production globally.
How can technology-led innovation further opti-
mise energy consumption?
AL QURESHI: Most greenfield desalination projects
are adopting RO as their technology platform of choice,
replacing other thermal-based processes such as mul-
ti-stage flash. RO will remain the preferred technology
as it can work as a standalone process or in combination
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UTILITIES INTERVIEW 157
Khaled Al Qureshi, CEO, Water and Electricity Company
with power. Standalone RO desalination plants offer
the electricity company greater flexibility, since the
power plant does not need to operate at higher levels
to meet water demand during winter months.
The industry also continues to innovate to optimise
its energy consumption. This can be achieved by using
water flows – such as the brine that is returned to the
sea – and waste water flows to generate electricity.
The concept is not new, but its widespread application
is, and if properly developed the industry could make
great progress in this area, to the point that sufficient
electricity could be generated from micro-turbines to
supply the entire plant. Strategically locating plants in
order to take advantage of gravity when generating
electricity from brine and treated sewage effluent is
on the rise. Lastly, motor and pumping loads use a large
amount of energy, and innovations in these areas can
result in significant improvements in energy efficiency,
which in turn will help to lower production costs.
What kind of agreements would improve investor
confidence in the water industry?
AL QURESHI: Public-private partnerships and off-take
agreements are attractive to investors, especially those
seeking long-term, stable earnings. The challenge is
that there are limited incentives to improve operating
efficiency over the long term. There need to be more
built-in incentives to encourage developers and owners
to improve their efficiency, and to share savings with
the utility on an agreed formula. This way, both devel-
opers and investors have an opportunity to increase
their returns over the life of the project.
Leadership in Energy and Environmental Design
(LEED) projects are also attractive for investors as
they tend to focus on improved building designs that
reduce energy consumption. LEED projects focus on
innovation in areas such as lighting and motor loads
used to operate pumps. New designs and applications
in these areas can help to reduce operational costs.
THE REPORT Saudi Arabia 2019
 159

Industry
Increased private sector involvement is essential
Adapting to the Fourth Industrial Revolution
Creating more opportunities for small businesses
Automotive segment offers significant potential

High expectations
In combination with a range of mega-projects, ambitious and
far-reaching reforms are set to revitalise the sector
The sweeping changes announced in Vision 2030 aim
at giving rise to a reinvigorated and prosperous private
sector, driving growth through broad industrial devel-
opment. By the time the G20 summit convenes in Riyadh
in 2020, four years after the Vision 2030 announce-
ments, 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 indi-
cators (KPIs) outlined in the NTP’s second iteration,
dubbed NTP 2.0. However, driving and managing struc-
tural change can be challenging, particularly when
some of those reforms rely on market forces and on
stimulating investors who are typically cautious when
confronted by uncertainty. Whether they be Saudi
citizens or international businesses, the pace of reform
means investors have had to evaluate the value prop-
osition of establishing a business in the Kingdom, as
factors such as land availability, labour costs, levies,
legal frameworks and fuel prices have all been subject
to change. Nevertheless, there are clear opportunities.
Mega-projects such as the Sadara Petrochemicals Com-
plex 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. Further-
more, in 2019 the government indicated a significant
increase in capital expenditure, up 20% from SR205bn
($54.7bn) in 2018 to SR246bn ($65.6bn).
STRUCTURE & OVERSIGHT: Coinciding with the pub-
lication of Vision 2030, there was a restructuring of
government ministries by royal decree in May 2016,
and since then some new agencies and funds have
been formed to coordinate and drive certain reforms
in the sector. The Ministry of Energy, Industry and Min-
eral Resources (MEIM) supervises industry and mining
as well as oil, gas, petrochemicals and electricity. The
minister, Khalid Al Falih, is also chairman of the board of
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INDUSTRY OVERVIEW 161
More private sector involvement is key to reinvigorating industry
directors at oil company Saudi Aramco. Before the 2016 Mega-projects are
reshuffle the industry brief was handled by the Ministry producing raw materials
of Commerce and Investment (MOCI). The MOCI still that can spawn new
manufacturing plants, while
exists and is responsible for a range of state services, the consumer habits of a
including the development and oversight of commercial growing, young and affluent
laws, registration of commercial entities, regulation of population are creating
domestic markets, approval and licensing of govern- fresh markets for innovative
ment contractors, and oversight of trademarks and service industries.
intellectual property. The consolidation announced in
2016 underlined the close ties many industries have to
the energy sector, but also acknowledged the diversifi-
cation of Saudi Aramco’s business to include chemicals
as well as crude oil and gas.
Prior to recent reforms, a number of supreme coun-
cils oversaw many aspects of government policy, but in
January 2015 these were folded into a streamlined body
called the Council of Economic and Development Affairs
(CEDA). CEDA is chaired by Crown Prince Mohammed
bin Salman bin Abdulaziz Al Saud, and the 23 places on
its board are occupied by leading ministries as well as
by members of the Council of Ministers. In June 2016
the role of the Ministry of Economy and Planning was
amended to give it responsibility for monitoring and
assisting 16 ministries in delivering the objectives of
Vision 2030, as well as helping the private sector to
play a role in achieving those goals.
INDUSTRIAL INVESTMENT: The Saudi Arabian General
Investment Authority (SAGIA) is an essential gateway
for all international investment in the Kingdom. SAGIA
can provide potential investors with market intelligence;
connections to local businesses, such as suppliers;
and coordinate site visits and meetings with ministers
and other key stakeholders. The Saudi Authority for
Industrial Cities and Technology Zones (MODON) is
responsible for the development and managing of gov- In 2019 the government
indicated a significant
ernment-owned industrial land and property. There are
increase in capital
3290 factories and 6161 licensed contracts collectively expenditure, up 20%
employing 387,000 people at its existing sites, with from $54.7bn in 2018 to
investment in MODON’s industrial cities valued at a $65.6bn for the year.
THE REPORT Saudi Arabia 2019
 162
The Kingdom’s rapidly expanding population is both a driver of growth and a challenge to be managed
Vision 2030 aims to
create economic growth
fostered by an education
system that is closely
aligned to industry’s needs,
feeding into a business-
friendly society in which
entrepreneurs are able to
create jobs across a broad
range of sectors.
The non-oil private
sector’s contribution to
GDP was
$266.6bn
in 2017
INDUSTRY OVERVIEW
total of SR500bn ($113.3bn). MODON runs 35 industrial
city sites and is also developing two technology zones.
Meanwhile, the Saudi Industrial Development Fund
(SIDF) was established in 1974 as a state financial insti-
tution to provide medium- and long-term loans to foster
the development of industrial projects. SIDF also plays a
key role in assisting small and medium-sized enterprises
(SMEs) in the Kingdom through Kafalah, the SME loan
guarantee scheme. In 2017 a National Development
Fund (NDF) was established to oversee bodies including
SIDF, the Agricultural Development Fund, the Social
Development Bank (SDB) and the Human Resources
Development Fund. The Kingdom’s sovereign wealth
fund, the Public Investment Fund (PIF), is a major share-
holder in many state-owned enterprises, and it has
plans to step up its investment portfolio in the country.
In October 2018 the head of the PIF told the Future
Investment Initiative in Riyadh that the domestic-to-in-
ternational ratio for its investments was 10:90, but that
there were plans to make this 50:50 by 2030, by which
time the PIF aims to have increased its total assets from
$400bn to $2trn. The PIF and NDF planned to spend
SR83bn ($22.1bn) and SR50bn ($13.3bn), respectively, in
the country in 2018, in addition to capital expenditure
outlined in that year’s fiscal budget.
POLICY: Industrial policy as outlined in Vision 2030 aims
to create economic growth fostered by an education
system that is closely aligned to industry’s needs, feed-
ing into a business-friendly society in which entrepre-
neurs are able to pursue opportunities and create jobs
across a broad range of sectors. Cutting government
red tape and the privatisation of some government
services are also seen as key measures if the country is
to attract talent and investment. The NTP has targets
for 2020 based around eight themes, two of which
have implications for industry, namely, labour reform
and bolstering the private sector. The NTP’s chapter
on labour reform lists four strategic objectives, eight
main KPIs, 10 subindicator KPIs and 24 initiatives, while
www.oxfordbusinessgroup.com/country/saudi-arabia
the chapter on bolstering the private sector has seven
strategic objectives, 15 main KPIs, 41 subindicators
and 74 initiatives. Employment reforms are designed
to enhance the role of women in the workplace, help
disabled people find jobs, and improve the Kingdom’s
ability to attract and retain talent.
Under the umbrella of Vision 2030, 12 Vision Real-
isation Programmes were to be developed to deliver
on specific aspects of the strategy, among them the
National Industrial Development and Logistics Pro-
gramme (NIDLP). In 2018 new details about the func-
tion and scope of the NIDLP were revealed. It was said
to be anticipating SR1.7trn ($432.2bn) of investment
through measures that would integrate the mining,
energy and logistics industries. In April 2018 CEDA took
a step towards realising the ambitions contained in
Vision 2030 by approving the Privatisation Programme
Delivery Plan, which aims to raise SR35bn ($9.3bn) to
SR40bn ($10.7bn) by 2020 through the privatisation
of five state-owned entities. The National Centre for
Privatisation was established to oversee this process.
The five areas identified for privatisation were: the
Saline Water Conversion Corporation’s desalination
assets, including the Ras Al Khair station; four state-
owned flour mills; all Saudi sports clubs; Saudi Post;
and a number of transport projects.
PERFORMANCE: The non-oil private sector’s con-
tribution to GDP grew each year from 2011 to 2018.
At constant prices, its contribution was SR811.6bn
($216.4bn) in 2011 and reached SR1trn ($266.6bn) by
2017, according to data from the General Authority for
Statistics (GaStat). In real terms, the private sector’s
strongest annual growth in recent years was in 2011,
when it reached 8.1%. Following this, growth eased to
5.62%, 7% and 5.38% in 2012, 2013 and 2014, respec-
tively. In 2015, 2016 and 2017 growth dropped to 3.41%,
0.07% and 1.20%, as the impact of the fall in oil prices
filtered through to state expenditure.
The private sector’s contribution to GDP at cur-
rent prices also grew between 2011 and 2017, from
SR852.3bn ($227.2bn) to SR1.2trn ($319.9bn). At cur-
rent prices, annual increases were necessarily larger;
growth peaked at 13.52% in 2011, before declining
each year to 1.15% in 2016, and then picking up slightly
to 1.26% in 2017. By the third quarter of 2018 non-oil
private sector growth reached 4.3% year-on-year at
current prices and 2.1% in constant prices. This equated
to a contribution of SR261.1bn ($69.6bn) at constant
prices and SR328bn ($87.4bn) at current prices. In that
quarter manufacturing accounted for 12.9% of GDP
at current prices. The sector’s contribution can be
subdivided to show petroleum refining at 3.8% and
other manufacturing at 9.1%. Meanwhile, crude oil
and natural gas contributed 30%, while other types of
mining and quarrying accounted for 0.4%.
RESOURCES: Saudi Arabia’s industrial development has
been driven by the need to optimise the value of crude
oil and natural gas reserves, and to cater for a popula-
tion that has grown rapidly over the last 45 years, from
7m in 1974 to 33.4m in 2019. The availability of cheap
and abundant crude oil, as well as significant quantities

of natural gas, led to downstream development of the
refining, petrochemicals and plastics industries, while
both oil and gas made the development of heavy metal
industries both viable and profitable.
The comparative value of each segment of industry
can be illustrated by the export revenue they generate.
In 2017 oil and oil-based exports were worth 77% of
the total value of exports, or SR640bn ($170.6bn) out
of SR831.9bn ($221.8bn). However, goods produced
as a by-product of the oil industry accounted for 61%
of the value of all non-oil exports. In terms of interna-
tional export categories, plastic and rubber articles
accounted for 33.7% of non-oil exports, while the prod-
ucts of chemical industries generated 27.6% of non-oil
export revenue. Base metal exports contributed 7.8%
of total non-oil exports. The value of exports, both oil
and non-oil, was boosted by rising prices for crude oil
and petrochemicals products in the first three quarters
of 2018, although prices fell in the final quarter of the
year. The country’s largest listed company, Saudi Basic
Industries Company (SABIC), saw a 20% increase in gross
profits in the first nine months of the year when com-
pared to the same period in 2017. SABIC is the world’s
fourth-largest petrochemicals business and had sales
of SR128.9bn ($34.4bn) in the first three quarters of
2018, 17.8% higher than the equivalent period in 2017.
The picture was more mixed for listed companies
serving the domestic market. Almarai Foods reported a
4.7% fall in operating profit, to SR2.46bn ($6.6bn), and
a 7.9% fall in consolidated profit, to SR2bn ($533.2m) in
2018. It partly attributed this decline to rising costs of
alfalfa imports and lower sales of milk and juice in light
of reduced expatriate numbers in the Kingdom. Savola
Group, Almarai’s leading shareholder and a conglomer-
ate with businesses in the food and food retail segment,
saw its net profit fall by 99% in the first three quarters
of the year, to SR5.6m ($1.5m), down from SR1.1bn
($293.2m) in the same period in 2017. Although rising
oil and petrochemicals prices in the first three quarters
boosted overall economic output in Saudi Arabia, the
industrial sector’s performance against some of the
most ambitious targets for 2020 outlined in the NDP
were more muted. In the seventh theme of the NDP,
focused on enabling the private sector, for example,
progress has been patchy. The 2016 baseline and 2020
targets for foreign direct investment (FDI) inflows as a
percentage of GDP were 1.3% and 1.46%, respectively,
but data for 2017 released by the UN Conference on
Trade and Development showed FDI had fallen to 0.8%
of GDP. According to the World Bank’s “Doing Business
2019” report, Saudi Arabia made some progress against
its NDP target of improving its 2018 score of 62.5 to
79 in 2020, achieving an increase to 63.5, which ranked
it in 92nd place out of 190 countries. “Doing Business
2019” measures how easy it is for a locally founded
business in Riyadh to start trading and operate effec-
tively in its dealings with government agencies, the
legal framework and financial bodies. The report noted
the Kingdom improved in seven out of 10 indicators:
starting a business, dealing with construction permits,
getting electricity, registering property, protecting
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INDUSTRY OVERVIEW 163
Abundant crude oil has driven the development of the refining, petrochemicals and plastics segment
minority investors, trading across borders and enforc-
ing contracts. Although a bankruptcy law was passed
in August 2018, this was not reflected in the country’s
2019 ranking of 168th of 190 for resolving insolvency.
LOGISTICS: Another key theme of the original Vision
2030 plan is for Saudi Arabia to leverage its location
at the crossroads of three continents, and in the pro-
cess, boost its ranking in the World Bank’s Logistics
Performance Index (LPI), from 49th out of 159 in 2014
to 25th by 2030. In 2018, however, its position slipped
to 55th. The country’s best performance in the LPI
was in 2012, when it was ranked 37th. According to
the latest report from the World Bank, the country’s
scores on six indicators declined between 2012 and
2018, among them Customs clearance, infrastructure,
logistics competence and timeliness.
The World Economic Forum’s “Global Competitive-
ness Report 2018”, published in October 2018, showed
Saudi Arabia’s rank had slipped to 39th out of 140 coun-
tries, compared to 30th out of 137 in 2017 and 29th
out of 138 in 2016. The report noted that Vision 2030
reforms should increase private sector dynamism once
completed and also foster greater innovation capa-
bility. In December 2018 Emirates NBD noted that its
purchasing managers index (PMI) fell to 54.5 from 55.2
in November. The accompanying report stated that the
average PMI score in 2018 had been 53.8, compared
to an average of 58 over the previous eight years, the
weakest average annual performance in that period.
The output score in December was 58.2 compared to
the 2018 average of 57.6, and new orders were 58.4,
higher than earlier in 2018. Emirates NBD, one of the A key theme of the Vision
largest banking groups in the Middle East, reported 2030 plan is for Saudi
that new export orders were weak, at 50.3, suggesting Arabia to leverage its
domestic demand was driving the bulk of new orders. location at the crossroads
of three continents,
EMERGING & TARGET INDUSTRIES: Although the
and in the process,
main economic thrust of Vision 2030 is diversification, boost its ranking in the
consolidation also became a feature of the strategy in World Bank’s Logistics
2018, with the news that Saudi Aramco was to acquire Performance Index.
THE REPORT Saudi Arabia 2019

the PIF’s majority stake in SABIC for $70bn. The state-
owned oil company already has significant interests
in petrochemicals, but the move appears to signify an
even more meaningful diversification for the company.
While the deal would initially raise significant funds for
the PIF, the combined company is likely to return to
the fold in the near future; the PIF is expected to take
control of Saudi Aramco before an initial public offering
planned for 2021 in order to use revenue from the sale
of a 5% stake to fund new investment in the economy.
Both Saudi Aramco and SABIC have set corporate
targets to increase the proportion of goods and ser-
vices they buy from businesses in the country. In 2015
Saudi Aramco established its In-Kingdom Total Value
Added (IKTVA) initiative with the aim of sourcing 70%
of its supplies from Saudi businesses by 2021, and at its
fourth annual IKTVA Forum and Exhibition in November
2018 it signed deals worth $27.5bn with Saudi firms.
Although SABIC has not published the proportion
of supplies it buys within Saudi Arabia, the company
did establish a Local Content Business Development
Unit in January 2017, and during the course of that
year it developed 12 downstream business initiatives
and invested SR2.3bn ($613.2m) in 22 new business
opportunities. Industrial parks have been built adjacent
to both Petro Rabigh and Sadara, Saudi Aramco’s major
petrochemicals joint-venture sites, so new downstream
businesses can be established to convert a wider range
of materials into consumer products, some of which
have never been manufactured in the region.
MODON is also focusing on the development of new
industries at its industrial parks, and among its recent
developments is a 4.5m-sq-metre site designed to
capitalise on the phosphate mine in Waad Al Shamal.
The site also plays host to the first power plant to use
a gas turbine manufactured in the Kingdom, a General
Electric (GE) 9E, built at the firm’s factory in Dammam.
The Dammam plant is a joint venture between GE and
Dussur, formerly known as the Saudi Arabian Industrial
Investments Company. The PIF owns 50% of Dussur, and
Saudi Aramco and SABIC each hold a 25% stake. The
downstream developments being pursued by Saudi Ara-
mco and SABIC are creating opportunities for vertical
diversification of the economy, but horizontal diversifi-
cation is also taking place. In the 2019 budget SR36bn
($9.6bn) of government spending was earmarked for
Vision 2030 initiatives in sectors including housing,
mining, manufacturing and entertainment. “Military
manufacturing and utilities are two non-oil sectors that
are likely to grow in the near future,” Abdullah Alkhor-
ayef, CEO of Alkhorayef Commercial, told OBG. “This will
mostly be driven by the localisation of Saudi Arabia’s
extensive defence relationships with the UK and the
US, as well as the unprecedented energy requirements
of mega-projects like NEOM,” he added.
NEOM CITY: In January 2019 local media reported that
construction work on the $500bn NEOM city devel-
opment would begin in the first quarter of 2019, with
the first phase due to be completed by 2020 and the
seaside city to be fully finished by 2025. An ambitious
project set to cover an area almost the size of Belgium,
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INDUSTRY OVERVIEW 165
Downstream businesses are being established to convert a wider range of materials into consumer products
the city’s name is a combination of the Greek prefix neo In the 2019 budget $9.6bn
(meaning “new”) and the letter M, an abbreviation of of government spending
the Arabic word mustaqbal (meaning “future”). The was earmarked for
Vision 2030 initiatives in
announcement was a welcome development for indus- sectors including housing,
tries supplying the construction sector in the Kingdom. mining, manufacturing
In a report on the cement industry published in Febru- and entertainment.
ary 2018, Riyad Capital, a Saudi investment bank, noted
production and dispatches of cement peaked at 61m
and 60m tonnes, respectively, in 2015, but that from
2014 to 2017 net income fell by a compound annual
growth rate of 32%, with revenue down 17%, prices per
tonne down 11% and almost SR50bn ($13.3bn) wiped
off the value of listed cement companies. In 2018 the
downward trend continued; dispatches fell by 4.1% to
45.28m tonnes, the lowest annual volume since 2010.
Construction is already under way at another of the
Kingdom’s so-called giga-projects, the entertainment
city Qiddiya, a 334-sq-km project being built 40 km from
Riyadh. The foundation stone was laid in April 2018, the
first phase is due to open in 2022 and final comple-
tion is slated for 2035. In the same month the General
Entertainment Authority announced that the project
would inject $65bn into the Saudi economy by 2030.
INNOVATION & RESEARCH: The World Intellectual
Property Organisation ranked Saudi Arabia 61st in its
2018 Global Innovation Index (GII), a fall of six places
when compared to the previous year. The GII compared
126 countries and found that, relative to other coun-
tries in North Africa and western Asia, Saudi Arabia
performed above average in innovation inputs such
as human capital and research, infrastructure, market
sophistication and business sophistication. Saudi Arabia In January 2019 it was
is ranked 104th in the world in the innovation efficiency reported that construction
ratio, which measures how well inputs into research are work on the $500bn
translated into outputs; the Kingdom’s ranking declined NEOM city development
was set to begin. The
from 96th in 2017 and 85th in 2016. The country’s
announcement was a
overall rank for creative outputs is 83rd, while it is in welcome development
115th place for trademarks by origin and 103rd for for industries supplying
industrial design by origin. The GII report noted that the construction sector.
THE REPORT Saudi Arabia 2019
 166
Ongoing, large-scale construction projects are set to pump billions of dollars into the economy by 2030
In December 2017 the
Ministry of Energy, Industry
and Mineral Resources
announced that a new
export bank with capital of
$8bn would be established.
INDUSTRY OVERVIEW
one reason behind Saudi Arabia’s lower ranking was that
there was a lack of available data on, for instance, gross
domestic expenditure on research and development
(R&D) as a percentage of GDP, which meant a score
could not be given for that category. Another aspect
of the Kingdom’s innovation ecosystem that might
prevent research and good ideas being transformed
into new products and services is a comparative lack
of venture-capital (VC) funding for start-ups. The IMF
noted in August 2018 that Saudi Arabia accounted for
8% of VC investment volumes in the MENA region in
2016. The GII report did highlight that the PIF’s fund
of funds has capital of SR4bn ($1.1bn) and that small
businesses can raise credit through SIDF and the SDB.
START-UPS: The Kingdom is also set reap the benefits
its of international investment in technology and start-
ups. In May 2017 the PIF put $45bn into SoftBank’s
Vision Fund, and then in 2018 pledged to match that
amount in a second fund also focused on the technol-
ogy sector. According to an article published in Octo-
ber 2018 on business newssite Quartz, Saudi bodies
had spent at least $6.2bn on Silicon Valley investment
rounds over the previous five years, equivalent to a
dozen investments a year since 2012. From 2008 to
2017 Saudi Aramco made 16 investments in the US,
with four of them being in tech; the PIF made six, four
of them in tech; Kingdom Holding made two, one in
tech; and Riyadh’s Vision Venture Capital made one tech
investment. Eight of these Saudi investments in the US
were in industrial manufacturing, six were in machine
learning and virtual reality, six were in chemicals and
materials, three were in aerospace, and two were in
leading rideshare platforms Uber and Lyft.
Thus, while smaller start-ups may find funding for
innovation comparatively hard to secure, Saudi Ara-
bia’s bigger companies are investing widely in R&D.
In its 2017 annual report SABIC noted it had 2150
employees around the world working on 690 research
projects at 21 different research centres. In 2017 the
www.oxfordbusinessgroup.com/country/saudi-arabia
company’s scientists and engineers submitted 741
new invention disclosures and 992 new patents were
granted. SABIC and Saudi Aramco are also using new
technology to develop a $20bn crude-oil-to-chemicals
plant at Yanbu, the first of its kind in the industry. The
chemicals company Tasnee’s Technology and Inno-
vation Unit developed five titanium products, three
petrochemicals products and three plastics products in
2017, and a trading company was established to market
and develop new plastics products. The company also
worked with NIPRAS Centre in Jubail to test plastic prod-
ucts. The company’s spending on R&D increased from
SR124,000 ($33,100) in 2016 to SR132,000 ($35,200)
in 2017. Research projects in 2017 included work on the
development of a soil enhancer for the rationalisation
of irrigation water and a plant to produce basalt fibre.
Tasnee has also using been using new technology
to build two new facilities in Saudi Arabia. In the first
half of 2019 its subsidiary joint venture with Advanced
Metal Industries Australia and Japan’s Toho Titanium
will start operating a $500m, 15,600-tonne-per-year
titanium sponge facility at Yanbu that uses titanium
tetrachloride as feedstock. “We have already started
to make trial products,” Mutlaq Al Morished, CEO of
Tasnee, told OBG, but the official opening of the plant
was delayed by technical issues with the first furnace
of the ilmenite smelter that will produce the feedstock.
INVESTMENT INCENTIVES: The NTP’s seven strategic
objectives for the private sector are: facilitate doing
business; attract foreign investment; develop the digital
economy; develop the retail sector; increase the contri-
bution of SMEs; increase the contribution of productive
households to the economy; and encourage business
interest in sustaining the national economy. In addition
to these strategies, the government has created new
bodies to drive change and help industry. In December
2017 the MEIM announced two key developments for
the industrial sector: a new export bank with capital of
SR30bn ($8bn) was to be established; and SIDF’s capital,
Major companies are investing heavily in research and development
168 INDUSTRY OVERVIEW

SR11bn ($2.9bn) in loans in 2017, a 33% increase on the

previous year, 56% of which went to SMEs.
“In order for SMEs to grow, we need to streamline our
export-facilitation tools, support leaner manufacturing
processes and strengthen private equity investment,”
Mohammed Alharthy, CEO of Middle East Fiber Cable,
told OBG. “Saudi Arabia is home to domestic companies
in multiple sectors that deserve to be recipients of
greater strategic investments.”
REGULATIONS: The government has also been trying
to smooth the process of company registration for
entrepreneurs in the Kingdom. SAGIA’s Tayseer initi-
ative, representing officials from 20 ministries, was
established to drive Vision 2030 reforms to improve
the business landscape in the private sector. Tayseer’s
goals are: enforce directives to improve the business
climate; increase the efficiency of government services;
improve communication with the private sector; and
increase the Kingdom’s performance in international
indices comparing business environments. One of its
initiatives is Meras, an e-portal that is designed to ena-
Higher prices for oil and gas exports in 2018 helped boost revenue
ble companies to be formed in one day, along with
The government has which had been SR500m ($133.3m) at its formation, streamlining all necessary government approvals and
launched an e-portal to had increased to SR65bn ($17.3bn). The export bank is fees. In addition, in February 2018 MOCI announced
enable companies to be
to have a particular focus on industry and mining, and that Saudi women would no longer require permission
formed in one day, along
with streamlining all will help Saudi companies and international firms oper- from a male family member to start a business.
necessary government ating in the Kingdom to find overseas markets for their EXPORTS: Higher prices for Saudi oil, petrochemicals
approvals and fees. products. In July 2018 SIDF increased its lending limits, and plastics products in the first three quarters of 2018
with more generous terms for investors contributing helped boost revenue and improve the balance of trade,
to the development of cities and promising regions. but international prices for those commodities declined
MODON has industrial parks in many of these regions. in the fourth quarter. As of March 2019 the impact of
The lending limit for standard projects was increased those declines on export revenue for the year was still
to SR300m ($80m), while companies working on major not fully apparent. However, those sectors constitute
city schemes can now borrow up to SR1.2bn ($320m). the lion’s share of Saudi exports, and price changes
Listed companies working on projects in Hail, Al Jouf, thus have a profound impact. The latest GaStat data
Tabuk, Jazan, Najran, Al Bahah and Asir can apply for a for November 2018 shows that plastics and rubber
loan of up to SR1.8bn ($480m) while the limit for private articles accounted for 33.8% of non-oil exports, while
firms working in those areas is SR400m ($106.6m). chemical products constituted 32.2%. Vehicles and
In addition to these measures, the new rules extend transport contributed 7.8%, and equipment and base
loan repayment periods from 15 to 20 years, while the metals accounted for 8.1% of non-oil exports.
proportion of the project that can be financed through Compared to November 2017 the value of over-
SIDF was increased from 50% to 75%. SIDF approved all non-oil exports increased by 8.4%, or SR1.6bn
($426.6m), but these figures were skewed by a SR1.34bn
Top-5 non-oil exports, November 2018 (SR m)
($357.2m), or 25.4%, increase in the value of chemical
exports. Non-oil exports in November 2018 were valued
at SR18.96bn ($5.1bn). However, the increase in oil
Plastics & rubber 777 export prices meant that the contribution to overall
Chemicals & allied export revenue made by non-oil goods declined from
industries 1607 23.5% in November 2017 to 21.3% in November 2018.
In the third quarter of 2018 the value of base metal
Base metals
1671 product exports increased by 23.6%, from SR3.9bn
Vehicles & transport
($1bn) in the third quarter of 2017 to SR4.8bn ($1.3bn).
equipment Jadwa Investment, a closed joint stock company head-
Machinery, mechanical 6950 quartered in Riyadh, noted this may have been the
& electrical result of the formation of a SR5bn ($1.3bn) export
equipment 6623 support initiative by the MOCI that was targeting metal
and mining industries. In the third quarter of 2018
Saudi Arabia exported SR58.6bn ($15.6bn) worth of
non-oil goods, with SR45.3bn ($12.1bn) going by sea,
SR3.7bn ($986m) by air and SR9.6bn ($693m) by land.
Source: GaStat
Total non-oil exports in the period increased by 32.2%.

www.oxfordbusinessgroup.com/country/saudi-arabia
 INDUSTRY OVERVIEW 169

The five leading non-oil export destinations by value

were China, the UAE, Singapore, India and Belgium,
with these countries accounting for 44.4% of all non-oil
exports. China and the UAE’s respective shares for the
period were 15.8% and 13.5%.
EMPLOYMENT: The labour market in Saudi Arabia has
been the subject of structural reform for a number of
years, with ongoing attempts to reduce dependence on
expatriate labour, particularly in the private sector, and
thereby increase Saudi employment. The Nitaqat quote
system both incentivises and penalises companies by
applying quotas for different economic sectors, and
the programme effectively made some retail sectors
Saudi-only employers. The NTP’s aim was to reduce
Saudi unemployment to 9% by 2020, although this
target was relaxed to 10.5% by 2022 by the Ministry
of Labour and Social Development. In the first and
second quarters of 2018 the rate remained at 12.9%,
then dropped slightly to 12.8% in the third quarter.
The female Saudi unemployment rate also dropped, to
30.9% in the third quarter. In early 2018 new expat levies
The Saudi labour market is undergoing extensive structural reforms
were introduced, six months after the implementation
of fees on the dependants of expat workers. In July the start of 2017. From the second quarter of 2017 to the More foreign businesses
amount was SR200 ($53.32) per dependant, but this second quarter of 2018 GaStat data shows worker pro- and entrepreneurs are
amount is set to increase each year. GaStat data shows a ductivity in the manufacturing sector increased from applying to start new
ventures, with 2018
significant differential between Saudi and expat wages, SR165,000 ($44,000) to SR178,000 ($47,500). However, marking a 99% increase
with a Saudi working in the trade sector earning SR4707 while significant numbers of expat workers may be in the number of
($1250) a month compared to SR1743 ($464) for an leaving the Kingdom, the number of foreign businesses licensed investments.
expat worker. Figures from the first quarter of 2018 and entrepreneurs applying to start new ventures is
showed that while expats were leaving the country, they increasing, according to SAGIA, which recorded a 99%
were not necessarily being replaced in the workforce by increase in the number of licensed investments in 2018.
Saudis. The number of jobs in both manufacturing and The authority said there was a 103% rise in licensing of
trade has fallen, although both sectors employed more wholesale and retailing ventures, and a 74% increase
Saudis in the second quarter of 2018 than they did in in manufacturing and processing licences.
the first quarter of 2017. In that time, the manufacturing OUTLOOK: The continued diversification of down-
industry shed 81,422 jobs (8% of the workforce), with stream industries, as well as government targets for
84,199 expats leaving and 2777 Saudis entering. The the development of new sectors, are creating new
trade sector lost 177,193 jobs (7% of the workforce), opportunities in the Kingdom. However, when making
as 229,136 expats left and 51,943 Saudis started. In their calculations, investors are also taking into account
October 2018 Jadwa Investment estimated that some the impact of considerations related to labour costs,
1.1m expats had left the Kingdom’s job market since the feedstock subsidies and domestic consumer demand.
170 INDUSTRY INTERVIEW
Khalid Al Salem, Director-General, Saudi Authority for Industrial
Cities and Technology Zones
Unity in diversity
Khalid Al Salem, Director-General, Saudi Authority for Industrial
Cities and Technology Zones (MODON), on enhancing existing
industrial activities and exploring new cluster opportunities
What are some of the key advantages of investing
in Saudi Arabia’s industrial cities?
AL SALEM: As the largest economy in the MENA region,
Saudi Arabia has a huge internal market. Our industrial
cities offer added value, as many of them are located
amidst the Kingdom’s most important cities. This means
that investors who choose to invest in the country will
gain access to a centrally located, vibrant market, which
serves as one key advantage in regards to enhancing
domestic trade. As the Kingdom is located on the main
east-west trade route, investors also enjoy easy access
to the global market via its three most active ports:
Jeddah Islamic Port, the new King Abdullah Port and
King Abdulaziz Port in Dammam.
MODON supervises 35 industrial cities, including 200
sq km of development land. As an industry enabler,
the core emphasis is on developing diversified agree-
ments and memoranda of understanding, which are
structured to make it easier to do business in targeted
industries such as food manufacturing, agriculture,
construction, mining and logistics.
How are investors benefitting from the low oper-
ational costs in Saudi Arabia?
AL SALEM: Operational costs are surprisingly low and
serve as a great incentive to invest here. For example,
MODON offers distinct economic advantages for indus-
trial, technical, service, and residential and commercial
projects. Competitive annual rents are available for the
development of industrial land, sometimes as low as
SR1 ($0.27) per sq metre. Electricity rates can also start
as low as SR0.18 ($0.05) per KW, while water for indus-
trial use starts at a rate of SR2.5 ($0.66) per cu metre.
The government is supporting the development of
industrial cities, and has established a system to help
investors make use of many financing opportunities via
government financing funds and banks which lend to
industrial projects. There are also other programmes
that support export trade through the provision of
www.oxfordbusinessgroup.com/country/saudi-arabia
export guarantees, including Saudi Customs exemp-
tions for raw material and machinery imports.
How can high value-added industries underpin non-
oil growth in the long term?
AL SALEM: Diversification is vital for sustainability.
While oil and gas will continue to be essential pillars
of the Saudi economy, strategic investments and long-
term proposals are being implemented to expand and
grow various non-oil sectors.
In line with Vision 2030, the National Industrial Devel-
opment and Logistics Programme has over 300 initia-
tives and focuses on transforming Saudi Arabia into an
industrial powerhouse and a global leader in logistical
services by overseeing and guiding growth in four key
sectors: industry, mining, energy and logistics. MODON
is involved in 29 initiatives. More than 50% of these
initiatives develop and enhance the infrastructure of
industrial cities, while the rest develop incubators and
an industrial oasis that is targeting small and medi-
um-sized enterprises (SMEs).
In what ways can industrial-oriented SMEs be fur-
ther integrated into local industrial cities?
AL SALEM: Further integration will come from con-
tinued dialogue with SMEs, as we continue to develop
the right ecosystem for them to thrive. For instance,
we have established a 10-day timeframe for land allo-
cation licensing. This should have a very positive effect
on SMEs, as these businesses usually cannot afford to
wait months to begin their operations.
SMEs are a very important component of economic
diversification. In order to encourage start-ups and
SMEs, we are collaborating with public and private
bodies to develop an incubation system in the industrial
and logistics sectors. An initial system has already been
constructed in Dammam through the assistance of
the Prince Sultan Fund, and we certainly expect more
collaborations like this to be established in the future.

Revolutionary potential
The Fourth Industrial Revolution (4IR) is already having an
impact, the question now is how best to leverage it
The 4IR has been described as a SR1trn ($266.6bn)
opportunity for Saudi Arabia, but experts are warning
that the Kingdom’s industries will have to adapt rapidly
if they are to make the most of it by 2030. Following
on from mechanisation, mass production and digitisa-
tion of production, the next step change in industrial
development will be to manage the combined impact
of several concurrent technological changes, among
them artificial intelligence (AI) and machine learning,
the internet of things, augmented and virtual real-
ity, nanotechnology, robotics, 3D printing, quantum
computing and energy storage.
According to Klaus Schwab, founder of the World
Economic Forum (WEF), who coined the term 4IR in
a book published in 2016, the changes presaged by
these technologies are unprecedented in their scope,
velocity and systems impact. In Saudi Arabia, a summit
held in December 2017 addressed questions related
to the opportunities and hazards associated with
4IR, and attempted to assess how the Kingdom can
capture the opportunities presented by these forces
of technological development, and harness them in
the name of the economic and social transformations
being driven by Vision 2030 development programme.
LIGHTHOUSE MOMENT: In January 2019, at the
annual WEF summit in Davos, Switzerland, the organ-
isation recognised a milestone in the 4IR in Saudi
Arabia, underlining the assertion that it is not sim-
ply a vision for the future, but a reflection of what
is already happening in some places. The notion of
engineers dressed in wearable technology and using
drones to cut the time it takes to collect vital safety
data by 90% may sound like science fiction, but, as
the WEF acknowledged, this is already in practice at
Saudi Aramco. Its Uthmaniyah Gas Plant (UGP) has
been declared a “lighthouse” manufacturing facility
by WEF, the only one of its kind in the Middle East.
The term lighthouse is used to describe early-adopt-
ing manufacturers that are implementing the most
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INDUSTRY ANALYSIS 171
The Kingdom’s industries need to adapt rapidly to new technology
cutting-edge 4IR technologies and processes. The New manufacturing
UGP was originally commissioned in 1981 but has technology could
recently adapted to advanced analytics and AI. increase non-oil GDP by
A report by management consultancy AT Kearney up to
suggested the cumulative impact of 4IR manufactur-
ing technology could increase non-oil GDP by up to
4% a year from 2017 to 2030, by generating an addi-
4%
a year from 2017 to
tional SR1trn ($266.6bn) in output through changes 2030
in the pace of production in the Kingdom. The report
explained how 4IR technology could have a significant
impact throughout the value chain, affecting man-
ufacturing, engineering and support, warehousing,
logistics, transport and retail.
STRATEGIC CHALLENGES: However, the Fourth
Industrial Revolution Saudi Leadership Summit, organ-
ised by AT Kearney and held in Riyadh in December
2017, acknowledged that a number of challenges must
be addressed if Saudi Arabia is to make the most of the
technological advances taking place around the world.
While adopting and adapting to these develop-
ments may help the Kingdom achieve some of the
goals in Vision 2030, both agendas face the same
obstacles. The meeting discussed the need to encour-
age innovation and entrepreneurship, unlock the
potential of small and medium-sized enterprises
(SMEs), foster localisation of production and improve
education to nurture the skills of the country’s young
population. One of the more optimistic predictions in
AT Kearney’s scenario for Saudi Arabia is that the 4IR
could lead to the creation of 3m new jobs by 2030. This
is very much in line with the goals of Vision 2030; in
2016 Riyadh-based joint stock company Jadwa Invest-
ment calculated that for the unemployment rate of
Saudis to drop from 11.9% to 7% by 2030, the economy
would have to develop roughly 3m jobs in 15 years.
However, academics studying the impact of aspects
of the 4IR, including the automation of various job
functions, have painted a rather different picture. A
2013 paper from the University of Oxford predicted
THE REPORT Saudi Arabia 2019
 172
Employed Saudis will
need to learn new skills
if they are to adapt to
technology. This is likely to
be true for both unskilled
workers and government
or white-collar staff.
INDUSTRY ANALYSIS
that 47% of jobs in the US were at risk from auto-
mation. The implication for the Saudi job market is
that many of the occupations most at risk as the 4IR
develops are low-skilled, low-paid, repetitive tasks,
which are for the most part undertaken by expatriate
workers. If those roles are automated, new functions
in other fields will need to be developed that match
the skills of young Saudi citizens. From the start of
2017 to the second quarter of 2018, 1.1m expatri-
ates left the kingdom as fees for workers and their
dependents increased. At the same time, however,
the Saudi unemployment rate remained at 12.9%,
suggesting the removal of foreign workers from
the labour market was not necessarily creating an
equivalent number of jobs for citizens. Employed
Saudis will also need to learn new skills if they are to
adapt to technology. This is likely to be true for both
unskilled workers and government or white-collar
staff, whose professional tasks involve repetitive
tasks or fact-checking, with some functions within
the fields of law and accountancy among those at
risk from automation globally.
INNOVATION NATION: If Saudi Arabia is to profit from
the pioneering examples of some of the countries
that have invested most in second- and third-gener-
ation technology, it will need to develop innovative
businesses that are capable of leading change. Saudi
Aramco has shown it can do this at its UGP facility,
and as a globally competitive energy and chemicals
business, it is expected to continue to innovate. Saudi
Aramco’s In-Kingdom Total Value Added Programme,
which aims to support the development of tier-two
and tier-three suppliers for its business within the
Kingdom, could also prove essential if localised
manufacturing is to replace some of the products
and services the energy giant has previously bought
from international suppliers. However, many of the
world’s most disruptive technologies are developed
by small start-up companies that can profit from
challenging the status quo in established industries.
A 2018 IMF report noted that in Saudi Arabia, SMEs
contribute 20% of the country’s GDP but receive just
2% of bank loans, suggesting more support could be
given to grow the sector. International reports on
innovation have also shown a disconnect between
the investment Saudi Arabia makes in establishing
platforms for innovation and the actual outputs of
those clusters or enterprises.
In 2016 the World Intellectual Property Organisa-
tion’s global innovation index ranked Saudi Arabia as
61st out of 126 nations overall, and placed it 104th
for its efficiency in translating innovation inputs into
outputs. Notwithstanding this, there are clear signs
that Saudi Arabia is looking to and investing in the
future. For example, in 2019 construction is slated to
start on the $500bn NEOM mega-project, a new smart
city that is being built to take advantage of many of
the advances and processes enabled by the 4IR.

Pedal to the metal
Increased production capacity ties in with steadily rising demand
Ambitious plans to develop and expand automotive
manufacturing are being drawn up, with a view to
capitalising on the increasing availability of raw
materials and a strong domestic market for cars
and trucks. In August 2018 the Ministry of Energy,
Industry and Mineral Resources (MEIM) announced
that the Kingdom “is currently developing a city
for the automotive industry and providing many
benefits to investors in this sector”.
The announcement added that the availability of
aluminium sheets, liquefied aluminium, rubber and
plastics at competitive prices would be a strong
value proposition for automotive manufacturing
firms. The industry’s requirements will draw on the
resources of multiple segments overseen by the
MEIM, including petrochemicals, and the mining
and smelting of aluminium, enabling the ministry
to drive the diversification of the economy.
In the same month the Saudi international con-
glomerate Abdul Latif Jameel (ALJ) signed a mem-
orandum of understanding with the Japanese
company Kosei Aluminium and the Saudi govern-
ment’s National Industrial Clusters Development
Programme (NICDP) to explore the possibility of
manufacturing aluminium automotive wheels and
other components in the Kingdom. The NICDP
revealed that the plans would include the develop-
ment of a factory in Ras Al Khair Industrial City. A
press release from ALJ said the project would aim
to produce automotive components for worldwide
markets. It is the first Saudi Arabian venture in large-
scale automotive components manufacturing for
export, and is very much in line with Vision 2030
plans to diversify the economy.
The agreement also draws on ALJ’s expertise
in the sector. The company’s eponymous founder
formed the business in 1955 and established the
Kingdom’s Toyota distributorship. Toyota would go
on to become the most popular brand in the Saudi
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INDUSTRY ANALYSIS 173
Greater availability of materials and components will spur growth
auto market, with a 35% share in 2018, according to The in-country availability
PwC. ALJ has also run Toyota and Lexus dealerships of aluminium sheets,
liquefied aluminium,
in China for 20 years, selling a cumulative total of
rubber and plastics
100,000 cars by the end of 2018. at competitive prices
ALUMINIUM ASSETS: The development of an auto- constitutes a strong value
motive manufacturing cluster in Ras Al Khair forms proposition for automotive
part of the long-term strategy of Saudi Arabia’s manufacturing firms.
aluminium industry. The development of the mine-
to-market ecosystem was completed in 2014. It
consists of a bauxite mine at Al Ba’itha in the Al
Qassim region, which is connected by rail to Ras
Al Khair, 90 km north of Jubail on the Gulf, where
an alumina refinery, aluminium smelter and rolling
mill have all been built. These facilities, which cost
SR40bn ($10.7bn) to construct, are owned by a joint
venture established in 2009 between the Saudi
Arabian Mining Company (Ma’aden), the national
mining and minerals company, and US-based Alcoa.
The Public Investment Fund, a sovereign wealth
fund owned by Saudi Arabia, holds 65.44% of shares
in Ma’aden with the rest floated on the Saudi Stock
Exchange. According to Ma’aden’s 2017 annual
report, the rolling mill has an annual capacity of
430,000 tonnes of food-, automotive- and construc-
tion-grade aluminium sheets. The mill is owned by
a subsidiary, Ma’aden Rolling Company, of which
Ma’aden owns 74.9% of the equity, with the remain-
ing share being held by Alcoa. It produced 153,000
tonnes of flat-rolled products in 2017.
PLASTIC PARTS: While Saudi Arabia’s rapidly
growing mining industry is able to supply compa-
nies making metal car parts, another recently built
mega-project is producing the raw materials needed
for many of the plastic components in modern vehi-
cles. The Sadara Petrochemicals Complex in Jubail The development of an
automotive manufacturing
Industrial City II is a joint venture between Saudi
cluster in Ras Al Khair
Aramco and the Dow Chemical Company. It consists forms part of the long-term
of an integrated complex of 26 chemical-manu- strategy of Saudi Arabia’s
facturing facilities with an annual capacity of 3m aluminium industry.
THE REPORT Saudi Arabia 2019
174
An increase in the number of firms producing metal components will enrich the production ecosystem
In the third quarter of
2018 vehicles and vehicle
parts worth $1.4bn were
exported from Saudi
Arabia, up 46.4% on the
same period in 2017,
and constituting 8.9%
of non-oil exports.
INDUSTRY ANALYSIS
tonnes of product, some of which is being produced
in the Middle East for the first time. The 12-sq-km
PlasChem Park adjacent to the facility is a greenfield
site that has been created for businesses converting
Sadara’s output into a range of products.
In 2017 Saudi National Automobiles Manufac-
turing (SNAM) and Sadara signed a co-operation
agreement for the 1-sq-km auto cluster within the
park. Its tenants will include original equipment
manufacturers as well as tier-one and tier-two auto-
motive parts manufacturers. It was revealed that the
cluster will include a press and facilities for welding,
spraying, assembly and warehousing, as well as a
test track and an administration building. SNAM’s
president underlined the importance of building a
sustainable automotive industry ecosystem, and of
using locally sourced parts as far as possible.
Also located in Jubail is the Kemya factory, a $3.4bn
joint venture between SABIC and ExxonMobil that
began producing elastomers in 2016. The elastomer
plant has the capacity to produce 400,000 tonnes
annually of halobutyl rubber, polybutadiene and
styrene butadiene rubber, ethylene propylene diene
monomer rubbers, thermoplastic elastomers and
carbon black. SABIC has five decades of experience
working with car manufacturers around the world,
and its products are used in bodywork, exterior and
interiors fittings, glazing and lighting.
ECOSYSTEM: The availability of cheap raw materials
and components makes Saudi Arabia a potentially
attractive location for automotive production. How-
ever, given the just-in-time management philosophy
in the industry, which requires a reliable supply on
demand for all components, automotive manufac-
turers have to be confident that all the pieces of
the jigsaw are in place before investing.
Toyota says that 30,000 parts and components
are used in the manufacture of each of its vehicles,
with 550 parts in the engine alone. In addition to the
www.oxfordbusinessgroup.com/country/saudi-arabia
robots that work on the assembly line at a Toyota
plant, technicians are required to carry out 2000
safety checks on each car before it leaves the pro-
duction line. To meet these needs, the MEIM and the
NICDP must coordinate with multiple stakeholders
to ensure manufacturing capability is developed
and skilled staff are available.
LOCAL MARKET: Data on new vehicle sales and reg-
istrations compiled by the International Organisa-
tion of Motor Vehicle Manufacturers shows 548,250
new vehicles were registered or sold in Saudi Arabia
in 2017. This ranks the Kingdom 24th in the world
in terms of sales volume. There are only two coun-
tries with higher sales volumes that do not have
an automotive manufacturing industry: Australia,
where 1.2m were sold, and Belgium, with 634,111
new registrations. However, both have manufac-
tured cars in the past, and Belgium is a significant
exporter of vehicles and manufactures components.
Also of note is the fact that both countries also have
smaller populations than Saudi Arabia. According to
a 2017 industrial survey published by the General
Authority for Statistics (GaStat), there were 339
businesses engaged in the manufacture of motor
vehicles, trailers and semi-trailers in Saudi Arabia
in 2017, including five firms that employ more than
250 people. There are four factories in Saudi Arabia
producing trucks for Mercedes, Man, Volvo and
Isuzu. In the third quarter of 2018 vehicles and vehi-
cle parts worth SR5.2bn ($1.4bn) were exported, a
figure that is up 46.4% on the same period in 2017
and that constituted 8.9% of all non-oil exports. In
the same period SR20.6bn ($5.5bn) of vehicles and
vehicle parts were imported, up 4.7% on the third
quarter of 2017 and constituting the second-largest
import category, valued at 16.1% of all imports. In
2017 as a whole the Kingdom exported SR17.8bn
($4.7bn) of vehicles and imported SR79bn ($21.1bn).
”
The lifting of the prohibition on female
drivers is expected to result in 3m women
motorists by 2020, and increase new car
sales by 9% per annum until 2025
”
FEMALE DRIVERS: In a report published in March
2018, PwC predicted a significant boost for investors
in Saudi Arabia’s auto market after the lifting of the
prohibition on female drivers, which is expected to
result in 3m women motorists by 2020. The report
predicted new car sales would increase by 9% per
annum until 2025, compared to 3% per annum in the
four years before the change in the law.
However, the legal change may also result in those
women using the same family vehicles they had
previously been driven in by employed male driv-
ers. In the second quarter of 2018 GaStat reported
that there were 1.36m drivers employed by Saudi
households, representing 56.1% of a total of 2.4m
domestic servants currently working in the Kingdom.

Local talent
Government schemes dovetail with large corporate initiatives
to create new jobs and opportunities for citizens
With record public expenditure of SR1.1trn ($293.3bn)
in 2019 and government stimulus packages for the
private sector, schemes devised under Vision 2030 to
boost employment levels of Saudi workers and create
new opportunities for local businesses look set to bear
fruit. A range of planned infrastructure projects are
set to begin construction. At the same time, major
industrial companies are delivering on pledges to
increase reliance on local companies in their supply
chains. “Saudi unemployment is higher than at some
times in the recent past, but with structural changes in
the economy we are starting to see changes in the job
market,” Adil Dahlawi, managing partner of financial
consultancy firm Mauthouq, told OBG. “Saudis are in a
wider variety of jobs — in retail, for instance — and we
are seeing changes in the attitudes of young people
to jobs and to the private sector.”
INFRASTRUCTURE PROJECTS: In 2018 a four-year,
SR72bn ($19.2bn) private sector stimulus plan was
announced. According to research conducted by Saudi
investment management and advisory firm Jadwa
Investment, SR24bn ($6.4bn) worth of expenditure
was raised in its first year. It also reported that over
the four-year period SR35bn ($9.3bn) of these funds
would be directed towards the real estate sector,
providing a welcome boost for companies supplying
the construction industry. This would comprise SR21bn
($5.6bn) for residential housing loans and SR14bn
($3.7bn) for efficient building technology projects.
The stimulus plan also included a SR10bn ($2.7bn)
allocation to mega-projects, SR5bn ($1.3bn) for an
investment programme, SR5bn ($1.3bn) for an export
bank and SR2.8bn ($746.5m) for capital projects to
support small and medium-sized enterprises (SMEs).
QUALITY OF LIFE: The aim of this government-funded
investment is to deliver on Vision 2030’s goals of
sustainable diversification and development of the
economy to enable the growth of local firms and the
creation of private sector jobs for citizens. In May 2018
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INDUSTRY ANALYSIS 175
The Quality of Life Programme aims to create 346,000 new jobs by 2020
the Council of Economic and Development Affairs Between 2018 and 2020
(CEDA) launched the Quality of Life Programme (QLP)
2020, with the aim of improving the quality of life of $34.7bn
citizens while also generating job opportunities. The worth of funding has
QLP is to be funded by some SR74bn ($19.7bn) worth been allocated to
of direct investment and SR50.9bn ($13.6bn) from the improving the quality
government, complemented by SR23.7bn ($6.3bn) of of life and employment
private sector investment. Indirect investment will take opportunities for Saudis
the total expenditure to SR130bn ($34.7bn) by 2020.
CEDA has pledged that the projects launched under
the QLP will use 67% local content. CEDA also aims to
create 346,000 jobs and generate SR1.9bn ($506.5m)
in non-oil revenue by the programme’s completion in
2020. QLP projects include: the Al Qadiya Entertain-
ment City, to be built 40 km from Riyadh; the Red Sea
Smart City project; the Al Diriyah Gate heritage and
hospitality project near Riyadh; the Historic Jeddah
project; and the Royal Commission for Al Ula, a nat-
ural heritage and tourism site 300 km to the north
of Medina. In addition to its efforts to stimulate the
construction sector, the QLP is expected to encourage
employment and involvement in a range of sporting,
entertainment and cultural activities. Among the new
developments to be completed by 2020 are a water
park; three theme parks; 16 family entertainment cen-
tres; an arts and culture island in Jeddah; 45 cinemas;
16 theatres; 42 libraries; the Royal Arts Complex in
Riyadh; and 492 sports facilities. Under the QLP there
will be a marketing drive to increase use of sports facil-
ities from 8% to 55%, with an emphasis on encouraging
female participation in school sports. Some 325,000
girls are expected to participate in classes that will
be run by 7500 teachers at 1500 schools with gyms.
In 2019 construction also began on the first phase of In 2019 construction began
NEOM, a $500bn city planned to be built on the Red on the first phase of NEOM,
a $500bn city planned to
Sea by 2025. Crown Prince Mohammed bin Salman bin
be built on the Red Sea by
Abdulaziz Al Saud has said two or three towns will be 2025, which will contain
built a year at the site. NEOM will provide homes for homes, tourist attractions
families, activities and accommodation for tourists, in and industrial centres.
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Major industrial companies are delivering on pledges to increase reliance on local firms in their supply chains
A driving force behind
local content development
beyond new mega-
projects are the heavy
industries that have been
developed to capitalise on
the country’s oil, gas and
mineral resources.
INDUSTRY ANALYSIS
addition to centres devoted to creativity and innova-
tion in industries ranging from biotechnology to those
related to water, food and energy.
HEAVY LIFTING: A driving force behind local con-
tent development in the Kingdom beyond these new
mega-projects are the heavy industries that have been
developed to capitalise on the country’s oil, gas and
mineral resources. Saudi Aramco, Saudi Basic Indus-
tries Corporation (SABIC) and the Saudi Arabian Mining
Company (Ma’aden) have all made pledges to focus
on increasing the involvement of Saudi businesses
in their respective supply chains as well as helping to
foster the development of new conversion companies
owned by citizens to manufacture consumer goods
inside the Kingdom. More than 400 companies sup-
plying 24 commodities were part of Saudi Aramco’s
In-Kingdom Total Value Added (IKTVA) programme
in November 2018. Among them are international
firms that have formed partnerships in the Kingdom
while adhering to the localisation goals of the IKTVA
programme. IKTVA’s overall aim is to increase Saudi
Aramco’s local content to 70% by 2021, by which time
it hopes to see 30% of products manufactured by its
suppliers sold abroad. Baker Hughes, a GE company,
employs 2560 staff in the country, including 1400
Saudis – 36% of whom are women in science and
engineering positions. In Saudi Arabia, Baker Hughes
operates 10 manufacturing, assembly, maintenance
and research and development facilities, collectively
spending SR300m ($80m) annually with 1350 local
suppliers. The world’s leading oil and gas technology
company Schlumberger is also one of Saudi Aramco’s
IKTVA partners. It hired more than 730 Saudis in 2018
and in addition began construction of a new complex
at the King Salman Energy Park.
The Arabian Drilling Company (ADC) has hired 2400
Saudis since 2015, and its spend on local procure-
ment increased from 42% in 2014 to 72% in 2017. AZR
Technologies is the first Saudi company to provide
www.oxfordbusinessgroup.com/country/saudi-arabia
Saudi Aramco with oil and gas wellhead downward
inspection services. It has localised 70% of wellhead
inspection roles and sources 65% of its materials in
the local market. Innovative Software, which pro-
vides solutions to the energy market, meets 85% of
its procurement needs in the local market and 80%
of its staff are Saudi. In 2018 the first GE gas tur-
bine manufactured in the Kingdom began operating
at a new power station at Waad Al Shamal mining
city. In January 2017 the petrochemicals giant SABIC
launched its Local Content Business Development Unit,
which in turn created a programme called Nusaned
to deliver on the objectives of Vision 2030. Described
in the company’s annual report as the “first localisa-
tion engine that connects all industrial development
stakeholders in Saudi Arabia to partner under one
umbrella and creates a proper ecosystem for success,”
Nusaned uses a four-stage process to take business
ideas from concept to realisation. In 2017 SABIC also
supported 15 new investments to drive localisation
that resulted in SR568m ($151.4m) in investment and
332 new jobs for Saudis, as well as the introduction of
15 new qualified local manufacturers. SABIC has also
been encouraging its overseas suppliers to invest in
manufacturing opportunities in the Kingdom. In 2017
the Japanese firm Ebara, which makes pumps, opened
a new factory in Dammam. Saudi Arabia’s petrochemi-
cals and desalination plants have imported more than
5000 of Ebara’s pumps in the past. In February 2018
local media reported that a memorandum of under-
standing had been signed between the SABIC Nusaned
programme and the Council of Saudi Chambers (CSC)
local content promotion initiative to help increase
private sector investment in industrial activity and
create new opportunities for young people.
MINING OPPORTUNITIES: Ma’aden is driving the
development of Saudi Arabia’s Northern Region and
developing new value chains from mining to manu-
facturing as it exploits the Kingdom’s mineral wealth.
Its local content strategy focuses on procurement,
recruitment, training, research and development,
supply chain management and local investment. The
company defines local content as the total contri-
bution Ma’aden, its contractors and suppliers make
to national economic and social development. The
company has informed all contractors and suppliers
that at least 12% of their employees should be from
the region; 10% of the contract price should be spent
on local goods and services, and 1% of the contract
should be devoted to local community initiatives such
as the development of SMEs, scholarships, recycling,
or infrastructure and ecology projects.
Although the development of local talent and busi-
ness has long been an aspiration for Saudi Arabia’s
rulers, Vision 2030 has had the effect of galvanising
stakeholders across a range of industries to focus on
making this a measurable short- and medium-term
goal. The Kingdom’s larger businesses will continue
to pursue international partnerships, but they will
increasingly focus on ensuring these alliances create
jobs and opportunities for Saudi citizens and SMEs.

Starting small
A key role is played by small and medium-sized enterprises (SMEs)
in fostering new job opportunities and economic growth
The role of SMEs is being re-evaluated in the light of
Vision 2030, which has made boosting their contribu-
tion to GDP a key part of its strategy to create opportu-
nities in a thriving economy. A new government agency,
the SME Authority (SMEA), was created in October
2015 to champion small businesses. SMEA notes that
while in many advanced economies SMEs contribute
70% of GDP, the Kingdom’s smaller firms generate 20%.
Many small businesses in Saudi Arabia are hampered
by complex regulatory procedures, weak capacity and
poor access to commercial finance. According to the
IMF, SMEs receive 5% of credit and 2% of bank loans;
SMEA aims to increase the latter figure to 20% by 2030.
EMPLOYMENT: In addition to the GDP contribution
made by exports, SMEA sees the development of small
businesses as an opportunity to address Saudi unem-
ployment, particularly among young people and those
living in regions with the highest unemployment rates.
In Saudi Arabia, SMEs are defined as businesses that
employ 249 or fewer staff and have less than SR200m
($53.3m) in annual revenue. According to data from
the General Authority for Statistics (GaStat), in the
second quarter of 2018, of the 4.5m people working
in the private sector, 2.6m worked for SMEs and 1.9m
worked in companies with over 250 employees. Of
this total, 32% were working for micro-enterprises,
employing five people or less; 26% worked for small
companies, with between six and 49 people; 14% were
employed by medium-sized companies, with between
50 and 249 staff; and the remaining 28% worked for
large companies, with over 250 employees.
REVENUE: In the second quarter of 2018 combined
revenues of micro-enterprises decreased by 3.8%
compared to the same period of 2017 to SR175.3m
($46.7m), while small companies had combined revenue
of SR166.8m ($44.5m), up 5.8% on the same period
the year before. Medium-sized businesses saw the
most significant growth, recording a 9.7% increase
from the second quarter of 2017 and revenue of
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INDUSTRY ANALYSIS 177
In 2018, 32% of Saudis worked for private sector micro-enterprises
SR115m ($30.7m). Meanwhile, large businesses posted In 2017 small and
SR419.7m ($111.9m), up 18.6% on the second quarter medium-sized
of the previous year. The data showed that large firms enterprises accounted
accounted for 46% of revenue, medium-sized busi- for
nesses for 13%, while small and micro-enterprises
contributed 20% and 21%, respectively.
A GaStat survey of Saudi Arabia’s industrial sector
99.5%
of industrial businesses
conducted in 2017 and published in 2018 analysed the
role of businesses based on the number of employees,
without giving details on revenue. The survey included
manufacturing firms as well as oil, gas and petrochem-
icals businesses, and companies operating in the water
and sewerage sector. In the industrial sector, the survey
found that SMEs accounted for 99.5% of the 113,000
businesses, with only 640 firms employing 250 staff
or more. SMEs employed 803,000 people in the sector,
66% of the total, while larger firms employed 409,000
people in 2017. Across the broader jobs market in the
Kingdom, 72% were employed by private sector com-
panies, 18.6% were foreign domestic servants and 9.4%
worked for the civil service. Among the 3.1m Saudis
working in the second quarter of 2017, 37.3% worked
for the civil service and 62.3% in the private sector,
according to GaStat’s labour market survey, which did
not include citizens in the military or security services.
GaStat’s 2017 survey also showed that 69% of those
employed in the industrial sector were expatriates.
Saudi citizens were more concentrated in the oil and
energy downstream area than in the manufacturing
industries, which typically employ more people. In total,
around 391,000 people worked in factories that man-
ufacture metals or non-metallic mineral products and
food, accounting for 32% of the industrial workforce, In the second quarter of
but of these only around 75,000 were Saudis. 2018, of the 4.5m people
Meanwhile, the energy subsector – which includes working in the private
sector, 2.6m worked for
crude oil extraction, petrochemicals, plastics and rub-
small and medium-sized
ber, coke and refining – employed 17% of the work- enterprises, and 1.9m
force. This figure is equivalent to a total of 209,000 worked in companies with
people, including around 124,000 Saudi citizens. over 250 employees.
THE REPORT Saudi Arabia 2019
 178
The government’s aim is to increase bank lending given to small businesses from 2% to 20% by 2030
Between 2007 and 2017,
$39.5bn
worth of loans for
industrial development
projects were approved
In November 2018 the
government launched
seven strategic projects in
renewable energy, atomic
energy, water desalination,
genetic medicine and the
aircraft industry.
INDUSTRY ANALYSIS
SAUDI INDUSTRIAL DEVELOPMENT FUND: A key
source of project finance and credit in the industrial
sector is the Saudi Industrial Development Fund (SIDF).
In its 2017 annual report published in 2018, SIDF noted
that over a 10-year period it had approved SR148bn
($39.5bn) in loans, disbursed SR102bn ($27.2bn) and
had received repayments totalling SR64bn ($17.1bn).
In 2017 it approved 137 loans with a combined value of
SR10.6bn ($2.8bn), 56% of which were for smaller pro-
jects of under SR15m ($4m), enabling greater access
to credit for SMEs. Of the 47 projects supported by
SIDF in 2017, 16 were for factories making consumer
products, another 16 were for chemicals plants, six for
engineering factories and six for companies making
building materials, with the remaining three projects
in other industries. SIDF also provides backing for
SMEs through the Kafalah loan guarantee scheme. In
2016 the scheme helped 1711 SMEs access SR1.8bn
($479.9m) in loans. Of this total, the manufacturing sec-
tor received 284 guarantees worth SR192m ($51.2m).
In 2018 SIDF raised the percentage of any project cost
it was prepared to back from 50% to 75%, and extended
the repayment period from 15 to 20 years.
CHANGING LANDSCAPE: In an overview of the econ-
omy in its annual report for 2018, SIDF notes that eco-
nomic reform in Saudi Arabia is resulting in a changing
business landscape that, in turn, may change the type
of finance fledgling industrial firms need to access.
The report points out that in all countries industriali-
sation is influenced labour quality, natural resources,
energy cost, transportation and availability of capital.
It adds that with new economic reforms such as the
introduction of levies on expatriate workers and fees
for their dependents, low-cost expatriate labour is no
longer readily available in Saudi Arabia.
“Consequently, the industrial base within the
Kingdom needs to shift from a low-cost, expatri-
ate-labour-based model to a more capital- and tech-
nology-dependent one – following an example like
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research and development (R&D) industries – that will
provide superior job opportunities for Saudi nationals,”
the report stated. Local companies are already becom-
ing aware of this changing landscape. “The historical
supply chain and logistics solutions in the region has
run through intermediaries – often family-operated
companies. This, however, is set to change, as ICT rev-
olutionises all facets of the industry,” Kurt Droeshout,
advisor at distribution company Abudawood, told OBG.
SUPPLY CHAIN: For businesses that rely on techno-
logical knowledge or R&D rather than functioning on a
low-cost labour model, efforts by major corporations
to help promote local businesses and the involvement
of SMEs in their supply chains could offer hope. The
largest of these corporations, the petroleum and nat-
ural gas producer Saudi Aramco, set itself a target
through the In-Kingdom Total Value Added (IKTVA)
programme established in 2015 to source 70% of its
supplies from the domestic market by 2021.
“SMEs are currently being given the opportunity to
achieve tremendous growth. Saudi Aramco’s IKTVA
programme is an example of a localisation initiative
Saudi SMEs can benefit from,” Mohammed Alhar-
thy, CEO of Middle Eastern Fiber Cable, told OBG. In
December 2018 Saudi Aramco’s CEO and president,
Amin Nasser, announced that it had achieved a local
supply level of 51% and was communicating this intent
to its international suppliers operating in the Kingdom,
who were following suit. “International suppliers now
see IKTVA as the win-win it is,” he said in a speech
at the launch of IKTVA’s 2018 forum and exhibition,
adding, “I want to see the same excitement from Saudi
private sector suppliers, particularly SMEs, which are
the cornerstone of our success.”
START-UPS: In order to create the foundations for
new SMEs, the Kingdom is also investing in its youth
population. In November 2018 Crown Prince Moham-
med bin Salman bin Abdulaziz Al Saud launched seven
strategic projects in renewable energy, atomic energy,
water desalination, genetic medicine and the aircraft
industry during a visit to King Abdulaziz City for Science
and Technology (KACST). He also launched four new
incubators under KACST’s Badir Technology Incubators
and Accelerators Programme in Dammam, Qassim,
Madinah and Abah, bringing the total number to eight.
Since its inception in 2008 the Badir programme has
served more than 300 start-ups, and encouraged a cul-
ture of innovation and entrepreneurship among young
Saudis. At the end of 2017 the companies involved had
amassed total revenue of SR620m ($165.3m).
KACST’s strategic decision to focus on promising
sectors such as renewable energy is an approach that
is shared by other entrepreneurs who are looking to
create new business opportunities in the country. “If
we are able to move down the supply chain by man-
ufacturing solar generation components, including
photovoltaic panels and inverters, domestically rather
than simply building power plants using equipment
from China or India, we will create more jobs for young
Saudis,” Anwar Al Itani, vice-chairman of the Renewable
Energy Committee of the Riyadh Chamber, told OBG.

Broad horizons
Government reforms are taking place to improve infrastructure,
and redress regional and gender imbalances
The comprehensive reforms taking place across Saudi
Arabia’s economy include strategies to nurture the
development of a broader industrial sector, while also
improving the employment prospects and living stand-
ards of citizens. Particular focus is being paid to indus-
tries that can provide opportunities for young Saudi
citizens and residents of regions with high unemploy-
ment. Companies helping to address these issues can
access a range of incentives including soft long-term
loans, loan guarantees for small and medium-sized
enterprises (SMEs), cheap industrial land and ready-
built factories on government-owned estates. Accord-
ing to data from the General Authority for Statistics,
in the third quarter of 2018 Saudi unemployment was
at 12.8% overall – 30.9% for women and 7.5% for men.
However, the employment prospects for Saudis living in
some regions are more limited. In the northern Al Jouf
region, which borders Jordan, 20% of men and 41.6% of
women were unemployed, with an overall rate of 26.6%.
Meanwhile, in the Northern Borders region the rates
were 9.8% for men, 41.8% for women and 17.9% overall.
In the Qassim region, in the centre of the country, they
were 9.7% men, 33.1% women and 15.9% overall.
INCENTIVES: A range of government agencies are
attempting to redress the regional and gender imbal-
ances in employment and wealth. Since it was founded
in 2001, the Saudi Authority for Industrial Cities and
Technology Zones (MODON), has invested SR500bn
($133.3bn) in developing industrial cities and zones,
with a combined area of 182m sq metres and housing
businesses that employ 387,000 workers. Among these
sites are a number of MODON Oasis zones, which cater
for women-only businesses with parks established in
Al Ahsa, Jeddah, Qassim, Al Jouf and Yanbu.
Working alongside MODON to develop and encour-
age investment is the National Industrial Clusters Devel-
opment Programme (NICDP). The programme focuses
on regional zones and covers a range of industries
including automotives, chemicals, pharmaceuticals
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INDUSTRY ANALYSIS 179
In the third quarter of 2018 unemployment was at 12.8% overall
and biotechnology, minerals and metal production. The The government has
NICDP offers significant training and employment-re- invested
lated tax concessions to investors operating in the six
less-developed regions of the country: Al Jouf, North- $133.3bn
ern Borders, Al Baha, Najran, Hail and Jazan. The Saudi in developing industrial
cities and zones since
Industrial Development Fund (SIDF), which provides
2001
long-term project finance, has also increased its focus
on industrial activity in these regions. In 2017, 45% of
the 137 loans approved were in these areas, accounting
for 26% of the total value of SR10.5bn ($2.8bn).
In previous years just 14% of approved loans worth
15% of the total was for projects in these areas. Loan
terms have also been extended from 15 to 20 years,
with SIDF offering to grant loans to cover 75% of total
project cost rather than 50% in other areas of the coun-
try. In 2017 SIDF approved two new loans in Jazan and
Hail worth SR13m ($3.5m) and SR16m ($4.3m), respec-
tively, as well as two worth a combined SR7m ($1.9m) in
Qassim. There were also loans for four projects in Asir
and one each in Jouf, Tabuk and the Northern Borders,
with a combined value of SR191m ($51m).
LOGISTICS PROJECTS: Saudi Arabia is also invest-
ing in initiatives to improve travel within the King-
dom and across its borders. In January 2019 Crown
Prince Mohammed bin Salman bin Abdulaziz Al Saud
announced infrastructure and industrial develop-
ment projects that would attract SR1.6trn ($426.6bn)
in private sector investment over a decade through
the National Industrial Development and Logistics
Programme. In the first phase, an expected SR70bn
($18.7bn) will be invested in projects that local media
described as “ready for negotiations” in the industrial, There has been an
mining, energy and logistics sectors. A second phase emphasis on funding
promises a further $50bn worth of projects targeted at industrial development
military, chemical and small business sectors. At a press projects in six less
developed zones of
conference marking the launch of the new investments
the country, which
the minister of transport, Nabeel Al Amoudi, said 60 received 45% of the 137
initiatives will be launched in the logistics sector, among loans allocated by the
them five new airports and 2000 km of railway track. government in 2017.
THE REPORT Saudi Arabia 2019
180
Global
Perspective
Into high gear
Economies around the world are preparing for the opportunities
and challenges brought about by the next industrial revolution
The Fourth Industrial The global economy is entering the Fourth Industrial
Revolution is presenting Revolution (4IR), or Industry 4.0, based on the applica-
emerging markets with
tion of new digital and automated technologies in pro-
opportunities such as
improved productivity, duction processes and service delivery. These changes
as well as risks, namely are presenting emerging markets with opportunities
reshoring and the such as improved productivity, as well as risks, namely
displacement of human reshoring and the displacement of human labour by
labour by automation.
automation. Wealthier emerging markets, such as
the Gulf states, that have the resources to invest in
new technologies, and those with better established
manufacturing sectors, such as countries in South-
east Asia, appear best placed to reap the benefits of
the 4IR. Many of these economies are putting in place
strategies to manage and encourage the transition
towards Industry 4.0. Meanwhile, other regions have
shown signs of so-called premature deindustrialisation.
In particular, Latin America and Africa seem more vul-
nerable to threats arising from technological changes
and at greater risk of being left behind. To avoid such a
fate, they need to adopt new innovative strategies that
will allow them to leapfrog existing stages of industrial
and infrastructure development.
BACKGROUND: Klaus Schwab, founder and executive
chairman of the World Economic Forum (WEF) and
author of the book The Fourth Industrial Revolution,
states that the world has already gone through three
industrial revolutions. The first involved water- and
steam-powered mechanisms, followed by electrici-
ty-powered mass production. The third industrial rev-
olution is referred to as the digital revolution.
Schwab argues that the world is currently entering
the fourth industrial revolution, which is “characterised
The first industrial by a fusion of technologies that is blurring the lines
revolution involved water- between the physical, digital and biological spheres”.
and steam-powered There are a number of emerging technologies expected
mechanisms, the second to play significant roles in the upcoming revolution,
involved electricity-
powered mass production,
including robotics, artificial intelligence (AI), the inter-
and the third is known as net of things (IoT), machine-to-machine (M2M) commu-
the digital revolution. nication, virtual reality and 3D printing, among others.
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ROBOTICS: Arguably the most consequential area of
4IR-related technology in terms of its impact on labour
markets and manufacturing jobs is robotics and other
automated processes. Klaus Prettner, professor of eco-
nomics at the University of Hohenheim in Germany, told
OBG that the use of robotics and automated processes
in manufacturing started to take off in the 1990s and
has been expanding rapidly, posting annual growth
rates of around 12%. “Until recently robots were used
largely for work that was too dangerous or difficult
for humans, but now the technology is improving and
becoming more cost-effective, allowing it to be used
for an ever-wider range of applications,” Prettner said.
Use of the technology is generally concentrated in
automotives, electronics and electrical equipment, and
machinery production. While robots have generally
struggled to work with smaller parts that made them
less suitable for other industries, this is now starting
to change, and so-called lights-out manufacturing fac-
tories that can operate without human presence are
already in existence, namely in North-east Asia.
3D PRINTING: Also known as additive manufacturing,
3D printing is the computer-controlled production
of three-dimensional objects from digital models.
The technology is now widely used to create a range
of products, from prototypes to highly customised
mechanisms, in a manner that is more efficient and
cost-effective. An example is the manufacturing of
hearing aids, which need to be individually moulded
to the ear of the wearer. “Hearing aids used to be pro-
duced manually, which was a complicated process, but
now manufacturers can simply scan the ear and use
a 3D printer to make the product,” Prettner told OBG.
As a result of such useful applications, 3D printing has
witnessed a significant boom since 2008. However, as
the technology matures, growth rates will likely level off.
VIRTUAL REALITY: Similar to the use of 3D printing for
prototype production, virtual reality is particularly use-
ful for the process prior to actual production, allowing

designers to explore and interact with virtual renditions
of their products and to identify any design flaws and
safety issues. This is particularly valuable in industries
producing large, complex and expensive goods. The
technology is already being used for such purposes
in the aviation manufacturing industry, for example.
AI, IOT & M2M: AI, IoT and M2M communication are at
an earlier stage of development than robotics, making
their impact on industry harder to gauge. AI is not as
widely deployed in the service sector as anticipated;
nonetheless, it could have numerous applications in
manufacturing and related activities, such as in the
field of autonomous vehicles, which combines AI and
IoT technologies. “Autonomous vehicles, should they
take off, have enormous potential to drastically change
logistics and supply chains,” Prettner told OBG. He fore-
cast such vehicles to be available on a large scale within
10-15 years. IoT can also enable machine parts in both
industrial components and in consumer products to
automatically send alerts when they malfunction or
need replacing, further improving industrial efficiency.
PACE OF CHANGE: While Schwab has argued that
technological change is taking place at an exponential
and unprecedented pace, other observers differ in
opinion regarding the likely extent to which 4IR will
transform the international industry and the speed
at which this will happen. Prettner told OBG that the
impact of 4IR-related technologies would be felt gradu-
ally. “There won’t be a real revolution in the foreseeable
future,” he said. “While such technologies may work to
reverse the decline in productivity growth that has been
witnessed in recent decades, this will probably not bring
them back to the levels seen in the mid-20th century.”
Some observers argue that change could be even
slower. US economist Robert Gordon observed that
there are major barriers to designing robots that can
take over many roles currently performed by humans,
and that the pace and impact of change was much
higher between 1980 and 2005 than it is today.
Efforts to automate industrial processes have not
always gone smoothly. In April 2018 Elon Musk, CEO of
electric car manufacturer Tesla, told local media that
the company had engaged in “excessive automation”
at its facilities, and that this partly contributed to its
failure to meet production targets. He added that sala-
ries for engineers to maintain robots could sometimes
outweigh the savings involved in their use.
RISKS: For emerging markets, one of the most prom-
inent risks from automation is the reduced need for
lower cost and unskilled labour, making it less attractive
for industry to outsource production away from their
main consumer bases. This risks exacerbating a trend
already under way in some regions – notably in parts
of Latin America and Africa – towards what economist
Dani Rodrik has referred to as premature deindustri-
alisation. The process has been driven by various fac-
tors, including rising competition from China; however,
increased automation in developed economies such
as the US, which lessen the attractiveness of cheaper
labour in developing countries, also appears to be a con-
tributing factor. A March 2018 report by the Overseas
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181
Development Institute (ODI) found that even in the The Thai government’s
relatively low-tech furniture manufacturing industry, Thailand 4.0 strategy
operating robots in the US could become cheaper than is driving the country’s
technological development
paying workers in Kenya by 2033. Prettner cited new by creating technology
highly automated production facilities built in Germany clusters and robotics
by Adidas for the manufacturing of trainers – a product centres, as well as
generally produced by low-wage workers in Asia– as an supporting the growth of
example of Industry 4.0-enabled reshoring. innovative start-ups.
SOUTH-EAST ASIA: Of the emerging markets covered
by OBG, Thailand is arguably leading the way in terms
of technological development, thanks in large part to
its already high level of industrial growth. For example,
it is the sixth-largest vehicle producer in the world.
In 2016 the government launched the Thailand 4.0
strategy, with the goal of developing innovative and
high value-added industries in order to achieve high-in-
come status. The strategy includes the development
of technology clusters and start-ups based around 4IR
technologies such as robotics, IoT and biotechnology,
and overlaps with the Eastern Economic Corridor strat-
egy to create growth hubs in three eastern provinces.
4IR-type activity is already developing rapidly in Thai-
land. In 2014 it shipped 2646 multipurpose industrial
robots, up 13% on the previous year, according to the
“Executive Summary World Robotics 2017 Industrial
Robots” report by the International Federation of
Robotics. The figure is expected to increase to 5000
in 2020. A 2016 study by Citi GPS found that the pay-
back period for investment in robotics in the country
fell from around five years in 2013 to three years in
2017, further encouraging the trend. Thailand hosts
at least four robotics research centres, and is home to
the Institute of Field roBOtics, which offers robotics
and automation engineering degrees.
Although Thailand is actively working on its transition
into an increasingly digitalised world, more still needs
to be done to ensure that the country maximises its
potential. “There will always a threat from technolog-
ical disruption, but as we move into Thailand 4.0, the
manufacturing sector that has underpinned Thailand’s
growth will benefit from a stronger competitive edge,”
Porametee Vimolsiri, former secretary-general at the
National Economic and Social Development Board, told
OBG. “However, in order for Thailand to upgrade its
economy, further foreign direct investment is needed,
which will require additional efforts to link multination-
als with domestic innovators and local firms.”
A key requirement for any country transitioning
to the 4IR will be reforming education and training
systems to provide workers with skills that are still
valuable under the new paradigm, such as the ability
to programme automated systems.
“We are pushing for change to education to develop
A key requirement for any
digital manpower, such as AI and cybersecurity spe-
country transitioning to the
cialists, among others,” Nuttapon Nimmanphatcharin, Fourth Industrial Revolution
CEO of Thailand’s Digital Economic Promotion Agency, will be reforming education
told OBG. “Universities are also developing curricula and training systems to
focused on topics such as AI, though there will also provide workers with skills
that are still valuable under
be a need for more informal and on-the-job forms of
the new paradigm, such as
training, and an important step will be to encourage the ability to programme
educational institutions to work with multinationals.” automated systems.
THE REPORT Saudi Arabia 2019
 183

Security, Defence &

Aerospace
Growing percentage of budget directed to sector
Trade agreements continue be mutually beneficial
Vision 2030 encourages strong local development
Increased localisation of advanced manufacturing

Stronger together
Focus on local providers of advanced manufacturing in the
Kingdom leads to greater investments and a more united front
As the world’s largest military spender per cap-
ita, Saudi Arabia is also examining ways to balance
the books by maintaining the balance of power in
the Middle East. At the same time, it is examining
ways to balance its books by ensuring that a grow-
ing 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, or SR294bn
($78.4bn), was earmarked for defence and security.
This was the highest allocation given to any sec-
tor, with education and health receiving SR193bn
($51.5bn) and SR172bn ($45.9bn), respectively. 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. In January 2019 the IMF
cited ongoing geopolitical tensions in the Middle
East as part of the risk matrix behind a downward
revision of global growth forecasts. These tensions
include the ongoing risk of state-sponsored acts
of cyberdisruption, and in late 2017 Saudi Arabia
established a National Cybersecurity Authority to
take the lead on the response to these threats.
SECTOR GROWTH: Although Saudi Arabia does
not publish a breakdown of the division of its mil-
itary and security sector expenditures, from 2016
onwards the Ministry of Finance has provided the
total allocation for the sector in fiscal budget
statements. Budgeted allocations increased from
SR282bn ($75.2bn) in 2016 to SR288bn ($76.8bn)
in 2017 before peaking at SR311bn ($82.9bn) in
2018. In the three years recorded, actual spend-
ing was higher than the original allocations. This
amounted to spending of SR305bn ($81.3bn),
SR334bn ($89bn) and SR324 ($86.4bn) in 2016,
2017 and 2018, respectively. In each year the military
and security sector had the highest allocation for
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SECURITY, DEFENCE & AEROSPACE OVERVIEW 185
The aerospace segment is a major target for increased investment
budget expenditures, accounting for 25% of the In the 2019 fiscal
total in 2016 and 32% in 2017 and 2018. The 2019 budget
allocation of SR294bn ($78.4bn) was 5.5% lower
than the budgeted amount in 2018 and 9.6% below
that year’s actual spending.
27%
of spending was
MILITARY SPENDING: According to a December earmarked for defence
2018 report by the Stockholm International Peace and security
Research Institute (SIPRI), Saudi Arabia is the world’s
third-largest military spender behind the US and
China, and is the largest spender on arms in the
Middle East. SIPRA estimates that from 2008 to
2015 military spending in the country grew by 74%
to reach SR339bn ($90.4bn). In addition, spending
in 2017 was equivalent to 10% of GDP, while the
world’s top-15 spending military powers averaged
approximately 4.2%. According to data from SIPRI,
in 2017 Saudi Arabia’s military expenditure dwarfed
that of any other country in the Middle East. It esti-
mates that the Kingdom spent about $69.4bn, com-
pared to $18.2bn by Turkey, $16.5bn by Israel and
$14.5bn by Iran. Within the GCC, spending by the
UAE is not disclosed, but Oman, Kuwait and Bahrain
spent $8.7bn, $6.8bn and $1.4bn.
According to the SIPRI Arms Transfer Database,
Saudi Arabia was the second-largest arms importer
globally from 1998 to 2017, and witnessed a sharp
increase in numbers between 2013 and 2017. During
that period 61% of arms imports came from the US,
23% from the UK, 3.6% from France and 2.4% from
Spain. Switzerland and Germany each supplied 1.8%,
while Italy, Canada and Turkey supplied 1.5%, 1.4%
and 1.3%, respectively. Additionally, Sweden supplied
1.1% and the Netherlands 0.5%.
In November 2018 the US State Department
revealed a 13% increase in its overall global arms Saudi Arabia is the world’s
third-largest military
sales, along with a 33% increase in the depart-
spender behind the US
ment’s government-to-government sales, up from and China, and is the
$41.93bn in 2017 to $55.66bn in 2018. There was largest spender on arms
also a 6.6% increase in direct commercial sales, up in the Middle East.
THE REPORT Saudi Arabia 2019
 186
Vision 2030 aims to localise spending on military equipment from 2% in 2017 to more than 50% by 2030
In August 2018 the US
State Department revealed
that Saudi Arabia was its
largest foreign military
sales (FMS) customer,
stating that there were
about $100bn in active
FMS cases at that time.
SECURITY, DEFENCE & AEROSPACE OVERVIEW
from $128.1bn to $136.6bn. Notable sales to Saudi
Arabia included a $6.5bn contract for littoral combat
ships and a $1.6bn deal for Patriot missile defence
systems. In August 2018 the US State Department
revealed that Saudi Arabia was its largest foreign
military sales (FMS) customer, stating that there
were about $100bn in active FMS cases at that time.
A report on UK arms exports, published by the
House of Commons, revealed that from 2010 to 2017
Saudi Arabia was the largest importer of arms from
the country, accounting for 46% of total exports,
and between 2007 and 2016 the UK was the world’s
second-largest arms exporter. According to Brit-
ish media, from 2007 to 2017 the UK delivered 72
Typhoon aircraft, and in March 2018 Saudi Arabia
signed a memorandum of intent to buy 48 more
under a deal worth a potential further £10bn.
DEFENCE FORCES: There are a number of branches
of the Saudi defence forces that operate under
different ministries. Crown Prince Mohammed bin
Salman bin Abdulaziz Al Saud is the minister of
defence. In February 2018 new commanders were
appointed to key positions under the Ministry of
Defence (MoD), which administers the Royal Saudi
Land Army (RSLA), the Royal Saudi Air Force (RSAF),
the Royal Saudi Naval Forces (RSNF), the Royal Saudi
Air Defence Forces (RSADF) and the Royal Saudi
Strategic Missiles Force (RSSMF). In addition to
MoD forces, the Saudi Arabia National Guard (SANG)
operates as a separate entity under its own min-
istry. It was founded by the late King Abdullah bin
Abdulaziz Al Saud as a dedicated security force.
The Ministry of the Interior (MoI) operates the bor-
der guard, but the MoI’s counterterrorism role was
handed to the Presidency of the State Security.
This is a new body created in 2017 by King Salman
bin Abdulaziz Al Saud, which includes the General
Directorate Investigations as well as three special
forces branches and an aviation wing. Saudi Arabia
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does not disclose information about the numbers of
people serving in the branches of its armed forces,
but in 2015 the International Institute of Strategic
Studies estimated that there were roughly 277,000
people serving: 75,000 in the RSLA; 13,500 in the
RSNF; 20,000 in air defence; 2500 in the RSSMF;
and 100,000 members of SANG.
Saudi Arabia’s armed forces are not configured
as an international expeditionary force, but instead
trained to defend the country from regional and
internal threats. It has been leading a coalition of
states in a military intervention in Yemen since early
2015. In addition to air strikes and ground opera-
tions, Saudi Arabia and its allies have conducted
a naval and aerial blockade of the country. MoD
strategic leadership functions are shared by the
Presidency of Staff, which is responsible for training,
equipping and deploying forces as well as arrang-
ing logistical support. The Joint Force Command is
responsible for enhancing operational readiness and
leading combat operations, responding to a variety
of ongoing threats at the regional level. The MoD
defence development programme seeks to create
modern and high-quality armed services, while at
the same time improve spending efficiency and
promote localisation of military manufacturing.
OFFSETTING POLICY: In 1984 Saudi Arabia was
the first GCC country to introduce an offset policy
as a means by which to attract technology, skills
and jobs for Saudis as part of the deals with major
international firms selling the country arms. It was
considered a tool to boost domestic investment and
industrial development. Notable examples of this are
the Al Yamamah Programme with BAE systems, the
Peace Shield Programme with US manufacturers and
the Al Sawary programme with France. Vision 2030
acknowledged in 2016 that the net benefits of these
efforts had been disappointing, as more than 30
years after the offset programme was established,
just 2% of military equipment was manufactured in
Saudi Arabia. At that time there were seven Saudi
defence firms and two research centres.
In 2017 Saudi Arabia Military Industries (SAMI),
which is a state-owned defence company, was cre-
ated to help deliver Vision 2030’s goal of ensuring
that more than 50% of arms bought by the armed
forces are manufactured in the Kingdom by 2030.
In August 2017 the government also created the
General Authority for Military Industries (GAMI), a
financially and administratively independent entity
that will be chaired by Crown Prince Mohammed Bin
Salman. GAMI’s core responsibilities include devel-
opment of the military industries sector and the
monitoring of its performance in meeting various
national development goals.
CONTRACTORS: Saudi Arabia has long-standing
associations with the world’s leading arms manu-
facturers, many of whom have permanent support
teams based in the Kingdom. “Saudi Arabia’s defence
partners are committed to the goals of Vision 2030,
including Saudiisation and localisation targets,”

Tarik Solomon, director of international business
development at Shamis Technologies, told OBG.
The 2017 Riyadh summit, at which King Salman
met US President Donald Trump, resulted in arms
agreements worth $110bn, with the US State
Department announcing in October 2018 that $14bn
of those deals had been confirmed. In addition to
orders for hardware, the US State Department brief-
ing stated that: “In June 2017 the US approved the
continuation of a blanket order training programme
that includes flight training, technical training, pro-
fessional military education, specialised training,
mobile training teams and English language training,
valued at $750m.” The announcement also listed four
deals signed in 2017 and 2018 that were worth a
potential further $34bn (SR127.5bn) for US manu-
facturer Lockheed Martin. These include $930m for
26 AN/TPQ-53 radar systems, $525m for a persis-
tent threat detection system, $6bn for a four-ship
multi-mission surface combatant programme, and
$13.5bn for Terminal High Altitude Area Defence
systems. Although these deals were put in place
during President Trump’s term in office, in January
2017 Saudi Arabia began to take delivery of the first
Boeing F-15SA fighter aircraft purchased as part of
a $60bn deal originally made with Saudi Arabia in
2011, while former US President Barack Obama was
in power. BAE Systems is another major international
producer with operations in Saudi Arabia. The UK
company, responsible for the Typhoon aircraft, has
operated locally since 1966, employing 6100 people
in the Kingdom, 68% of whom are Saudi citizens.
RESEARCH & DEVELOPMENT: Since the announce-
ment of Vision 2030, a number of international
companies have made commitments to increase
the proportion of Saudis they employ and train.
One challenge is that many of these companies do
not wish to lose control of the intellectual prop-
erty inherent in their systems. Vision 2030 noted
The Kingdom averaged about $69.4bn on military spending in 2017
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SECURITY, DEFENCE & AEROSPACE OVERVIEW 189
A growing number of Saudi companies have become partners to international aerospace manufacturers
that there were only two research centres in the
Kingdom that specialise in developing new military
expertise. The King Abdulaziz City for Science and
Technology (KACST) runs the National Centre for
Sensors and Defence Systems Technology. It aims
to develop advanced technology in radar and elec-
tronic warfare, establishing advanced factories and
laboratories. It will also proceed to draw together
experts in defence systems, modelling, simulation
and defence information systems.
In 2008 the Prince Sultan Advanced Technology
Research Institute was created by King Saud Univer-
sity and the RSAF. It conducts research and training
for civilians and military personnel, and has labora-
tories dedicated to the development of autonomous
vehicles, communications, electro-optics, micro-
wave and antenna systems, and electronic warfare.
PROCUREMENT POLICY & PROCESS: The Saudi
Arabian General Investment Authority (SAGIA) pub-
lishes and periodically reviews a negative list of busi-
ness functions that foreign companies are unable to
undertake within the Kingdom. In December 2017 it
published a list which included the manufacturing
of military equipment, devices and uniforms, as
well as catering services for military bases, private
security and detective work. However, international
companies and contractors have been able to carry
out ancillary services after selling military systems
to the government, including maintenance, repair
and overhaul (MRO), training, spare parts, mounting
and installation of equipment and technical support.
The legal firm Dentons suggests that in the future,
SAGIA’s restrictions on defence manufacturing may The 2017 Riyadh
not apply to joint ventures with SAMI if those ven- summit resulted in arms
tures were formed to promote Vision 2030 defence agreements worth $110bn
between the US and
localisation initiatives. One sign of change in the
Saudi Arabia, with the US
procurement process was the 2017 publication of announcing in October
a draft government tender and procurement law, 2018 that $14bn of those
which included dozens of measures such as the deals had been confirmed.
THE REPORT Saudi Arabia 2019
 190
A new factory has been inaugurated that will manufacture aircraft components using composite materials
A growing number of Saudi
companies have become
partners to international
aerospace manufacturers,
offering maintenance,
repair and overhaul
services to both military
and civil aircraft.
SECURITY, DEFENCE & AEROSPACE OVERVIEW
possible creation of a more highly advanced gov-
ernment procurement strategy unit.
DOMESTIC SECURITY: Saudi Arabia’s security forces
face ongoing threats from terrorist forces, with
threats on Jihadist websites and social media urging
attacks against Westerners, as well as on military
and transport targets. From mid-2016 to mid-2018,
11 members of the Saudi security services were
killed and more than a dozen were injured in seven
separate incidents spread across the country. Mis-
siles from Houthis fighting in Yemen have been fired
into southern Saudi Arabia, however, in a limited
number of cases they have been intercepted over
Riyadh and shot down by the RSADF.
AEROSPACE: If the Kingdom is to manufacture
more than half of its military equipment by 2030,
the localisation of defence aircraft manufacturing
must play a key role. A growing number of Saudi
companies have become partners to international
aerospace manufacturers, offering MRO services to
both military and civil aircraft. “Local engineering
capability is currently supporting the localisation
process within the defence sector,” Fawaz Moham-
med Sharabi, CEO of GDC Middle East, told OBG.
In 2018 Crown Prince Mohammed Bin Salman
inaugurated a new factory that will start manu-
facturing aircraft components from 2020 using
composite materials that are stronger than metal
and lighter than aluminium. According to the Associ-
ated Press, the global composite materials market is
expected to grow at a compound annual growth rate
of 4.1% until 2023, when it will be worth an estimated
$38bn. Therefore, the new factory being built as
part of the TAQNIA Aerostructure Programme will
help the Kingdom tap into a lucrative and growing
market. “When the factory first opens we will be
able to make parts that are 9 metres long, and with
the opening of the next building in 2022 we will be
capable of making individual components that are
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up to 38 metres in length,” Muneer Bakhsh, who is
leading the project for TAQNIA, told OBG. In 2019
TAQNIA is recruiting staff for the new factory, and
Bakhsh is positive about the availability of Saudi
talent. “There are a lot of Saudis out there, both men
and women, who are highly qualified with aerospace
and engineering degrees from the best universities
in the world, and these are the people I am looking
for to be a part of this exciting new venture for the
Kingdom,” he said. The new plant is a wholly owned
Saudi venture that will be capable of making com-
ponents for fixed-wing and rotary-wing civilian and
military aircraft, as well as unmanned aerial vehicles.
The project is being supported by KACST, which also
operates a space programme and has launched 13
satellites since 2000. In 2018 two new satellites,
Saudi 5A and Saudi 5B, were launched into space
from China. The satellites will be managed from a
control centre at KACST and will provide relevant
government agencies with high-resolution imagery.
The General Authority of Civil Aviation (GACA)
has stated that the skies above Saudi Arabia are
becoming increasingly busy with civilian aircraft. It
reported a 7.4% increase in airline passenger traffic
in 2018, with more than 98m people passing through
the Kingdom’s airports in that year alone.
AVIATION REGULATION: GACA is the regulator for
civil aviation and is linked to the Ministry of Trans-
port. It oversees the country’s civilian airports and
airlines, and issues commercial licences to the full
range of companies offering aviation services. These
include airlines, aerial photography companies, bag-
gage handlers and training companies. GACA is also
overseeing the expansion of Saudi Arabia’s airport
system. In 2018 the King Abdulaziz International
Airport in Jeddah had its soft opening. It is expected
to become the country’s busiest air transport centre,
with an 810,000-sq-m terminal and the capacity to
handle 30m passengers annually. Upgrades were
also completed at Tabuk Regional Airport, while
stone-laying ceremonies took place at four new
airports at Jazan, Al Jouf, Al Qurayyat and Qunfudah.
PRIVATISATION: In 2011 the Saudi Civil Aviation
Holding Company (SAVC) was formed to promote
privatisation in the sector, and in response to Vision
2030, a royal decree was issued in 2016 to proceed
with privatisation of all GACA investment assets.
SAVC is working to deliver this goal while also boost-
ing the contribution made by the aviation sector to
the country’s GDP from SR30.2bn ($8.1bn) in 2016
up to SR50bn ($13.3bn) in 2021.
There are 27 international, regional and domestic
airports in Saudi Arabia, and SAVC’s privatisation
programme for these will be completed in stages.
In 2016 Riyadh Airports and Saudi Air Navigation
Services were established to oversee King Khalid
International Airport in the lead-up to privatisation.
FOREIGN INVESTMENT LEGISLATION: GACA rules
stipulate that any company offering air travel ser-
vices can have a maximum of 49% foreign ownership,
while international companies are permitted to own
192 SECURITY, DEFENCE & AEROSPACE OVERVIEW

NCA would have regulatory as well as operational

Many international defence contractors offer cybersecurity solutions
In the fourth quarter and operate ground support businesses such as
of 2017 government those that provide air bridges, catering, training or
entities had been the baggage handling services. There are a number of
target of joint ventures in aerospace manufacturing, the most
responsibilities in the protection of networks, IT
systems and data services. Part of its remit is to hire
qualified Saudi citizens, build partnerships with the
public and private sectors, and to invest in height-
ened cybersecurity measures.
The most high-profile cyberattack occurred in
2012 when the Shamoon virus shut down Saudi
Aramco’s computer systems. In January 2017
state-controlled television channel Al Ekhbariya
revealed that the Ministry of Labour had been hit
by a cyberattack, though no data was breached,
and that Sadara Chemical had experienced network
disruption. In addition, in October 2018 UK media
reported that Russian hackers were believed to
be behind an August 2017 explosion, targeting an
emergency shutdown system that was supplied by
French firm Schneider Electric.
In October 2018 the NCA issued a core cybersecu-
rity controls document outlining minimum standards
for all national agencies. The NCA stressed the reg-
ulations applied equally to public and private sector
entities, adding that it was its mandate to develop
policies, mechanisms, standards and regulations
to protect networks, systems and electronic data
including national infrastructure. The NCA said it

48%
of cyberattacks
notable of which resulted from the US Peace Shield
offset scheme and which currently trades as Alsalam
Aerospace Industries. Boeing Industrial Technical
would be measuring compliance with its directives.
Concurrently, the Ministry of Communications and
IT published a cybersecurity threat report in 2018
Group owns 50% of the equity, while state-owned stating that the Kingdom had been exposed to ter-
Saudi Arabian Airlines owns 25%, Gulf Investment rorist cyber warfare, which had aimed to disrupt
Corporation 10%, and two listed Saudi companies, vital services in the country. It said that in the fourth
Saudi Advanced Industries Company and Tasnee, quarter of 2017 government entities had been the
holding about 10% and 5%, respectively. target of 48% of cyberattacks, while energy and
CYBERSECURITY: In October 2017 a royal decree telecoms sectors to 15% and 11%, respectively.
announced the creation of the National Cyberse- PRIVATE SECTOR ROLE: Although private security
curity Authority (NCA), with minister of state and work is on SAGIA’s negative list, cybersecurity advice
cabinet member Musad Al Aiban appointed as its is offered by a variety of international software
chairman. The board of directors includes the pres- companies in Saudi Arabia, and there are regular
ident of state security, chairman of general intelli- cybersecurity conferences in the Kingdom as well
gence, deputy minister of the interior and assistant as in neighbouring GCC countries. In fact, Micro-
minister of defence. Local media reported that the soft publishes an annual threat assessment based
on the prevalence of malware, worms and trojans
Arms imports to Saudi Arabia by supplier, 2013-17 (%) found by its software on computers in different
countries. Its 2018 report revealed that 25.7% of
1.3 1.1 Saudi computers had malware, compared to the
1.4 0.5
US 1.5 global average of just 18.3%. Many of the interna-
UK 1.8 tional defence contractors operating in the Kingdom
1.8
France 2.4 also offer cybersecurity solutions. In 2018 the US
3.6 company Northrop Grumman signed a memoran-
Spain
dum of understanding with the Saudi Federation
Switzerland
for Cyber Security and Programming in order to
Germany 23 sponsor annual cybersecurity competitions and
Italy 61 raise awareness of this issue.
Canada OUTLOOK: Defence and security received the high-
Turkey est budget allocation of all sectors in Saudi Arabia,
with 27% of spending. This is set to work concur-
Sweden
rently with the development of advanced manufac-
Netherlands
turing, putting the Kingdom in an ideal position to
increase the localisation of its manufacturing base
Source: Stockholm International Peace Research Institute
and continue to expand the aerospace segment.

www.oxfordbusinessgroup.com/country/saudi-arabia

Sharing resources
Andreas Schwer, CEO, Saudi Arabian Military Industries,
on the best ways to secure effective and mutually beneficial
partnerships with foreign investors
What steps need to be taken when transferring
knowledge and technology to new partners?
SCHWER: Transfer of technology and knowledge
sharing are usually coupled with direct investment
in Saudi Arabia. Foreign partners need to be assured
that, upon sharing their technologies, they will receive
a return on their investment.
Due to the sensitive nature of the defence industry,
we also need to ensure that the knowledge shared
with the Kingdom does not end up in the hands of
competitors. This can be achieved by adhering to
international data security standards and intellectual
property rights (IPR) frameworks. It is also impor-
tant to ensure that the government of the foreign
company cannot retract permissions or terminate an
ongoing contract. With this in mind, partnerships that
include government-to-government frameworks are
preferred, since they provide long-term access to IPR.
How can the aerospace industry be enhanced
through international industrial partnerships?
SCHWER: Saudi Arabia’s aerospace industry has
entered a new phase of growth, laying the founda-
tions for the development of a thriving ecosystem.
Strategic partnerships with international entities are
bringing the benefits of new technology and attract-
ing further investments. For example, the Kingdom
enjoys strong strategic ties with the UAE. Recent deci-
sions will further strengthen these links by building
partnerships and leveraging shared resources and
expertise, such as making use of facilities in the UAE
for developing maintenance, repair and operation
products for Saudi Arabian companies. In exchange,
these products can also be supplied to the UAE. We
are optimistic that its growing aerospace industry
will significantly contribute to the Kingdom’s GDP and
help realise the country’s goals of localising half of its
military spending and creating new job opportunities
for its citizens, in line with Saudi Vision 2030 goals.
Bloomberg Terminal Research Homepage: OBGR‹GO›
DEFENCE INTERVIEW 193
Andreas Schwer, CEO, Saudi Arabian Military Industries
To what extent can the Kingdom’s raw materials be
used to support producers of military equipment?
SCHWER: It is highly important that the Kingdom’s
existing raw materials be leveraged, in order to
enhance production capabilities. Steps are being
taken to ensure local resources and facilities are
used across the entire supply chain, rather than being
limited to the final assembly stage. When foreign
partners are involved, they are invited to support
local industries by establishing production lines and
manufacturing processes within Saudi Arabia.
In addition, it is a contractual requirement for for-
eign partners to bring their existing supply chains
into the Kingdom, allowing for the production of
components to begin immediately, with no compro-
mise on quality. This encourages local companies to
participate, as they can benefit from access to the
foreign partner’s expertise, technology, production
components and materials. While it may take some
time to set up a local supply chain, once the capabili-
ties are in place, the process is greatly enhanced and
greater efficiencies can be achieved.
How will the role of international defence firms
and foreign investors evolve in the long term?
SCHWER: Foreign companies are expected to begin
setting up local production lines, at first in the mil-
itary industry, and then in the commercial market.
In support of these efforts, the investment frame-
work requires further enhancement to encourage
increased activity. Since the development of local
production lines by foreign firms will largely be driven
by guaranteed military contracts, these companies
stand to benefit from a reduced level of risk, relative
to those they would face if they were entering the
Saudi market from a purely commercial standpoint.
These factors present exciting opportunities for for-
eign firms, and also generate more attractive condi-
tions for investors in the local commercial market.
THE REPORT Saudi Arabia 2019
194 SECURITY, DEFENCE & AEROSPACE ANALYSIS
Saudi Arabian Military Industries launched operations in 2017
Eyes on the future
Agreements with international manufacturers result in a rising
number of joint ventures and investment opportunities
2%
Agreements made with international manufactur-
ers of military hardware could result in thousands
of military procurement of skilled jobs for Saudi citizens and substantial
needs are met by local investment in the Kingdom. The deals comprise the
Saudi businesses first steps of a plan to create a domestic defence
industry capable of supplying more than half of its
annual demand for advanced weapons systems,
aircraft, ships, tanks and communications systems.
With an impending deadline of 2030, the cur-
rent state of military manufacturing in the King-
dom makes the task more challenging, as just 2% of
military procurement needs are met by local Saudi
businesses. Two companies, both of which are wholly
owned by the state, will be instrumental in forging
links with international companies and fostering
the growth of advanced manufacturing. The first is
the Saudi Technology Development and Investment
Company (TAQNIA), which was formed in 2011 with a
mission to localise technology in Saudi Arabia and to
commercialise the outputs of research development
centres such as the King Abdulaziz City for Science
and Technology (KACST). TAQNIA has subsidiary
companies and divisions focused on aeronautics,
space, defence and communications.
The second, Saudi Arabian Military Industries
(SAMI), was created in 2017 as a holding company
with four main units: aeronautics, land systems,
weapons and missiles, and defence electronics.
When SAMI was first launched, the authorities
announced it aimed to contribute more than SR14bn
($3.7bn) to the Saudi economy and create 40,000
jobs by 2030. In 2018 it signed two agreements
that have the potential to create 2000 direct jobs
for Saudis between them, as well as an additional
10,000 indirect jobs in the Kingdom.
SPANISH SHIPS: A significant proportion of defence
expenditure between 2013 and 2017 has been used
to modernise and bolster the Royal Saudi Naval
Forces. In 2014 it signed a deal to buy 33 patrol
www.oxfordbusinessgroup.com/country/saudi-arabia
boats from Germany at a cost of €10m to €25m
per unit. It also purchased three large patrol boats
from France in 2015 for €250m, and four advanced
frigates from the US in 2017 for $6.5bn. The com-
bined cost of these projects was SR28bn ($7.5bn).
In April 2018 a new deal was signed for the
purchase of five corvettes from Spain for $2.2bn
(SR8.2bn). However, this agreement was substan-
tially different from the others, as it was intended
to mark SAMI’s first steps towards the increased
localisation of naval procurement.
In 2018 a joint venture was created between SAMI
and shipbuilding company Navantia that would outfit
the fourth and fifth AVANTE 2200 vessels after they
are delivered. The programme will run from 2018 to
2022. The joint venture SAMI Navantia Naval Indus-
tries is responsible for combat system integration
and installation; system engineering; system archi-
tecture; software development; hardware design
and testing; verification; prototyping; simulation;
and through-life support. It was announced that the
contract would generate 6000 direct and indirect
jobs, including 1100 direct jobs, 1800 in auxiliary
industry and more than 3000 in the supply chain.
BOEING AGREEMENT: In March 2018 Crown Prince
Mohammed bin Salman toured Boeing’s Seattle
manufacturing facility. During that visit, Boeing and
SAMI signed an agreement to establish a joint ven-
ture to perform maintenance repair and overhaul
(MRO) tasks on both fixed-wing and rotary military
Boeing aircraft. Saudi Arabia bought 72 Boeing F-15S
fighters in the 1990s, and from 2016 began replacing
them with 154 F-15SA jets, which are an advanced
version of the original aircraft. This development
follows another substantial Boeing purchase. In
2017 Saudi Arabia signed a $3.2bn contract for 244
of Boeing’s AH64E Apache attack helicopters and
in 2018 Boeing was awarded a $24.7m contract to
supply Royal Saudi Land Forces with new Chinook

helicopters. It was announced that the new joint
venture would be the sole provider of sustainment
services across Boeing’s military aviation platforms
in Saudi Arabia. It was also announced that the new
company would increase the localisation of MRO
of military aircraft in the Kingdom as well as trans-
ferring the technology to install weaponry on the
aircraft and helping to localise the supply chain
for spare parts. The Boeing joint venture agree-
ment is expected to create 6000 jobs and training
opportunities in the Kingdom, creating revenues of
$22bn by 2030. “The memorandum of agreement
will enable SAMI and Boeing to play a key role in
leading and laying the foundational framework for
Saudi’s defence sector industrialisation, in line with
the goals of the Kingdom’s National Transformation
Programme and Vision 2030,” Andreas Schwer, CEO
of SAMI, told OBG. “In addition to local sustainment
capabilities, the inevitable partnership between
the two companies could explore the creation of
intellectual property as well,” he said. Schwer joined
SAMI from German Company Rheinmetall Group,
where he created a number of joint ventures in key
export markets including the Middle East.
RHEINMETALL: In November 2018 media reported
that SAMI had made a $1bn bid for a 49% stake in
one of Rheinmetall Group’s joint ventures in South
Africa. Rheinmetall Waffe Munition owns 51% of the
equity in Rheinmetall Denel Munition, which makes
SECURITY, DEFENCE & AEROSPACE ANALYSIS 195
a range of ammunition including artillery shells, with Joint ventures between
the remaining stake held by the South African state- the government and
owned firm Denel. Neither company commented international firms are
creating new jobs and
on the report, but the acquisition would give SAMI training opportunities in
control of an important source of munitions as well the Kingdom.
as an opportunity to share manufacturing capability.
BLACK HAWK: In May 2017 – the same month that
SAMI was formed – the US defence giant Lockheed
Martin was commissioned to provide Saudi Arabia
with $28bn of integrated air and missile defence
systems, fixed-wing and rotary aircraft.
In a company announcement, Marillyn Hewson,
CEO of Lockheed Martin, stated: “We are especially
proud of how our broad portfolio of advanced global
security products and technologies will enhance
national security in Saudi Arabia, strengthen the
cause of peace in the region, and provide the foun-
dation for job creation and economic prosperity in
the US and in the Kingdom. These agreements will
directly contribute to Vision 2030 by opening the
door for thousands of highly skilled jobs in new
economic sectors.” The agreement includes a letter
of intent, signed by Lockheed Martin and TAQNIA, to
form a joint venture supporting the final assembly
and completion of 150 S-70 Black Hawk helicopters.
The joint venture is anticipated to create 450 jobs
in Saudi Arabia and another 450 in the US. It may
also help support thousands of jobs in Saudi Arabia
as the helicopters are maintained and modernised.
 197

ICT
Infrastructure partnerships advance 5G preparation
Deployment of e-government services gathers pace
Next-generation network testing conducted in 2018
Local employment in the sector critical to future plans
Start-ups targeted for economic growth and new jobs

Securing the future
ICT applications are being tapped to modernise all sectors of
the economy, with an emphasis on information protection
Like other sectors of the economy, development of
Saudi Arabia’s ICT industry is being deeply influenced
by the government’s Vision 2030 strategy that empha-
sises 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 the sector regulator, the Communications
and Information Technology Commission (CITC), said it
had carried out a study to estimate the value of spend-
ing on ICT services. It concluded that spending 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. The CITC
states that the sector contributes around 6% to the
Kingdom’s total GDP and 10% to non-oil GDP. Private
sector estimates suggest that ICT spend rose by a fur-
ther 8% to nearly $40bn in 2018.
MOBILE & INTERNET: Saudi Arabia has a very high
mobile phone penetration rate. There were 43m mobile
phone subscriptions in mid-2018, according to the
CITC, representing a penetration rate of 132%. As with
other countries in the Gulf, many people in Saudi Arabia
have more than one phone or hold multiple SIM cards.
The balance of mobile phone contracts is still heavily
skewed towards pre-paid, which equalled 71.5% of all
subscriptions in mid-2018.
There was also 3.34m fixed-line connections in the
country at the time, of which 1.74m were residential,
representing a household penetration rate of 31.6%,
and 1.6m were business lines.
While most broadband connections are now mobile,
Saudi Arabia still has a relatively high proportion of
fixed-line hook-ups. Many of these are digital sub-
scriber lines connected through telephone cables,
but recently there has been an increased trend towards
Bloomberg Terminal Research Homepage: OBGR‹GO›
ICT OVERVIEW 199
In mid-2018, 71.5% of all mobile phone subscriptions were pre-paid
fibre-to-the-home/fibre-to-the-premises connections ICT contributes around
6%
that offer greater speed and capacity. Overall, about
80% of the population has internet access, according
to a November 2018 report distributed by media firm
to total GDP and 10% to
Business Wire. The Kingdom is committed to providing non-oil GDP
internet to the entire country, specifically in remote
areas. Since 2007 the government has been working
via the Universal Service Fund to connect thousands
of localities to telephony and internet services not
originally provided by commercial operators.
The recent performance of the mobile sector has
been mixed. The total number of subscribers peaked
at 53m in 2014 and 2015 but then trended down in
subsequent years to a low of 40.2m at the end of 2017
before picking back up to 43m in the second quarter of
2018. The slump in 2016 and 2017 has been attributed
to various factors, including the general slowdown in
the economy, a reduction in the expatriate population
and the introduction of obligatory fingerprint registra-
tion for SIM card ownership.
Contract composition has also been changing. Pre-
paid customers still account for the bulk of mobile
phone contracts, but the post-paid segment has started
to grow. In the first quarter of 2018 post-paid cus-
tomers stood at 11.2m, or 27% of the total, according
to a July 2018 sector report by Aljazira Capital. This
translated to growth of 10.9% year-on-year.
OPERATING ENVIRONMENT: Regulations governing
mobile telephony operators have undergone changes
in recent years. A new law was implemented in January
2016 requiring anyone buying a SIM card to be finger-
printed for registration. The biometric data is shared
with the National Information Centre and used for About 80% of the
security purposes, and a maximum of two SIM cards population has internet
are allowed for each ID holder. The initial impact of access, whether it be
through mobile devices,
the measure was a drop in subscriber numbers and a
or fixed-line connections
shift away from pre-paid contracts; those with post- via digital subscriber lines
paid accounts had already provided detailed personal or fibre-to-the-home
information when securing a mobile phone contract. hook-ups.
THE REPORT Saudi Arabia 2019

Another big change came in late 2016 when the
government announced plans to award unified licences
to Zain Saudi Arabia and Mobily, two of the top-three
mobile operators, allowing them to offer not just mobile
telephony but also fixed-line and internet services.
Previously, only state-owned Saudi Telecom Company
(STC) – the largest mobile provider – had been allowed
to operate with a unified licence. One factor in the
decision to grant unified licences was the desire to
give operating companies a better business case for
investing heavily in new services, such as 5G. However,
a subsequent application by fixed-line operator GO
Telecom to offer unified services was turned down. A
further change to the mobile environment was the deci-
sion in September 2017 to lift the ban on voice-over-in-
ternet-protocol (VoIP) services, such as those provided
by Skype, Viber and Whatsapp.
Like other companies in the Kingdom, mobile phone
operators must meet Saudiisation targets – the require-
ment to employ a minimum number of Saudi citizens in
different roles, which carries consequences if not met.
In October 2018, for example, the CITC said it had sus-
pended Mobily from selling its services to new pre-paid
and post-paid customers because of its failure to meet
Saudiisation requirements for senior management. The
Saudi Stock Exchange (Tadawul) said trading of Mobily
shares had also been suspended. However, both the
CITC and Tadawul suspensions lasted for only one day
since the CITC lifted the ban after Mobily submitted
evidence showing its commitment to Saudiisation.
Prior to the suspension, five of the company’s 12-strong
senior management team – including the CEO – were
expatriates, according to the company’s website.
ROYALTIES: In a separate development at the end
of 2018 STC, Mobily and Zain said they had reached
an agreement with the government on a new way to
calculate royalty fees. Previously, royalty fees had been
set at 15% of net revenue from mobile services, 10%
from fixed-line and 8% from data services. Backdated
to January 1, 2018, the operators proposed this be
replaced by a single 10% royalty on net income from
all telecoms services. STC said the change would have
a positive effect on its financial results for the fourth
quarter of 2018, while Zain said it would represent a
savings of SR220m ($58.7m) for the first nine months
of 2018. However, Mobily said the royalty fee changes
implied taking on an additional annual cost of SR450m-
600m ($120m-160m) for a few years beginning in 2019,
and that it would pay an additional annual licence fee
equal to 1% of its net telecoms revenue. Still, the three
companies noted that the agreement resolved disputes
over previous royalty payments. As part of the deal, all
three agreed to upgrade their fixed and mobile network
infrastructure – including for 5G preparation – over the
next few years in support of Vision 2030.
MARKET SHARE: Indeed, STC, Mobily and Zain are
the main telecoms players in Saudi Arabia. Detailed
market share information for these three is not readily
available, but in its mid-2018 analysis Aljazira Capital
estimated that STC controls 52-54% of the market in
terms of the number of subscribers. With data released
Bloomberg Terminal Research Homepage: OBGR‹GO›
ICT OVERVIEW 201
The mobile phone penetration rate is 132%, as many people have multiple SIM cards or more than one device
by Zain at the end of the first quarter of 2018 stating a
subscriber base of 8.4m, this implied a market share of
18%. That in turn suggested that Mobily’s market share
for the same period stood at 28-30%. Looking at market
share by revenue, STC was estimated to lead with 60%
of segment revenue in 2017, followed by around 25%
for Mobily and 16% for Zain. The three players saw an
increase of 4.1% in average revenue per user (ARPU)
during 2017, reversing a declining trend since 2012. The
increase is likely a reflection of the fact that all players
were allowed to increase their data charges that year.
STC: STC is the largest telecoms operator in the Middle
East by value, with market capitalisation on the Tadawul
of SR32.3bn ($8.6bn). Although it is a majority state-
owned company, it is listed on the stock exchange with
some private shareholders. Before 2005 it operated as
a monopoly, being the only licensed telecoms operator
in the Kingdom. In the years since then, STC has had to
adapt to a surge in demand, very rapid technological
change and increasing competition from new players.
Profits quadrupled to reach a record level in the
four years to 2006, but income trended downward as
competition entered the market: in 2013 profits were
43% below the 2006 peak. While this period was nev-
ertheless marked by heavy capital spending, including
on the acquisition of international operating licences
in Indonesia, India and South Africa, profitability in the
domestic market remained low. In 2015-17 the company
implemented a turnaround plan that brought a measure
of stability and achieved a steady improvement in profit.
The trend continued after the appointment of a new
CEO, Nasser Al Nasser, in early 2018. As of 2018 mobile
Al Nasser has indicated that STC will support Vision providers pay a
2030 and promote investment in areas likely to increase
data consumption. In January 2018 he announced an
expansion strategy called DARE that aims to make the
10%
royalty fee on net
company one of the world’s top-15 telecoms players income from all
in the next five years. The name is an acronym for dig- telecoms services
itisation, accelerating asset performance, reinventing
THE REPORT Saudi Arabia 2019
202 ICT OVERVIEW

Etisalat holding 27.45% of the equity in the provider.

Mobily began offering services in 2005 after being
granted the Kingdom’s second mobile phone operating
licence to end the monopoly previously held by STC.
Mobily achieved a net profit of SR80m ($21.3m) in
the fourth quarter of 2018, the first period in the black
since the second quarter of 2016. Overall, the compa-
ny’s net loss decreased by 82.7% in 2018 to record a
full-year loss of SR123m ($32.8m) compared to SR709m
($189m) in 2017. This performance was helped by a
4.5% rise in revenue to SR11.86bn ($3.2bn) in 2018.
However, the company’s capital expenditure nearly
doubled in 2018, reflecting the continuation of its
network modernisation programme and the acqui-
sition of new spectrum early that year. Previously, the
company reported a 9.7% decrease in revenue in 2017
to SR11.35bn ($3bn). The fall that year was attributed
to the lifting of the ban on VoIP applications, falling
interconnection revenue and the adverse impact of
the fingerprint registration law. Financial and debt
servicing costs were also high in 2017.
There were 43m mobile subscriptions in Saudi Arabia in mid-2018
ZAIN: Zain Saudi Arabia was the third mobile phone
A majority state-owned customer experience, and expanding the scale and company to obtain an operating licence in the country,
telecoms provider is scope of the business. He acknowledges that the plan starting from 2008. With headquarters in Kuwait, Zain
planning to build 12 new is ambitious, given that revenue is under pressure due Group is present in eight countries across the MENA
data centres across Saudi
Arabia before 2022, which
to competition and a reduction in the number of expa- region and has over 6000 employees.
will support digital services triates living in the country. Al Nasser believes market In Saudi Arabia its relatively small market share of
in cloud computing, growth will be flat over the next three years, thus the around 18% has restricted Zain. Its subscriber base
cybersecurity, data analysis focus will be on improving margins through increased dropped from 8.2m at the close of 2017 to 8.1m at
and smart cities. efficiency while investing in new areas. The transition end-2018, and the second half of the year was char-
to 5G will play a critical role in this. The company is acterised by consolidation and debt restructuring. The
planning to build 12 new data centres across Saudi July 2018 report by Aljazira Capital stated the company
Arabia before 2022, which will support digital services had announced that it would reduce its capital from
in cloud computing, cybersecurity, data analysis and SR5.8bn ($1.5bn) to SR3.6bn ($959.8m) in order to
smart cities. “This will make [STC] the largest provider write off accumulated losses of SR2.2bn ($586.5m).
of infrastructure in the Middle East for cloud computing Zain then planned to issue shares on the Tadawul worth
services,” he told local media in October 2018. In 2018 SR6bn ($1.6bn) to secure capital of SR9.6bn ($2.6bn).
the company reported a 6.5% increase in net profit Financial results for 2018 show a jump in net profit from
to SR10.79bn ($2.9bn), with a 2.6% improvement in SR11.5m ($3.1m) in 2017 to SR332.4m ($88.6m), with
revenue for a top line equal to SR52.07bn ($13.9bn). revenue rising by SR225m ($60m) to SR7.53bn ($2bn).
MOBILY: Etihad Etisalat is a local private mobile opera- MVNOs: There are also three mobile virtual network
tor trading under the Mobily brand name, with the UAE’s operators (MVNOs) in the country: Virgin Mobile KSA,
Lebara KSA and Axiom Telecom. Smaller companies buy
access to existing networks at a wholesale price instead
Individuals using the internet, 2010-17 (%)
of building their own communications infrastructure.
Virgin Mobile said its subscriber base had reached
90
over 2.8m by the end of 2017 and was expected to hit
80 3.5m by the close of 2018. The company is experienc-
70 ing strong revenue growth and positive performance
in earnings before interest, taxes, depreciation and
60
amortisation, and net profit. Virgin Mobile launched
50 its MVNO service in September 2014 and has been tar-
40 geting young customers in the Kingdom. In April 2018
the company won an award for Best Digital Customer
30
Experience in the country at the Middle East G-Summit.
20 GROWING ADOPTION: The sector is looking to develop
10 new technologies as part of an overarching drive to
0 digitalise a range of economic and government activ-
2010 2011 2012 2013 2014 2015 2016 2017 ities. Such digitalisation and the investments necessary
to enable it is a vital part of opening up new revenue
Source: ITU
streams and creating a knowledge-focused economy.

www.oxfordbusinessgroup.com/country/saudi-arabia
204 ICT OVERVIEW
Biometrics are being used to identify travellers entering the country
Spend on public cloud A 2018 white paper by the International Data Cor-
services is predicted to poration highlights the growing use of cloud services
rise by in Saudi Arabia, predicting that spend on public cloud
365% services will rise by 365% from SR427.7m ($114m) in
2017 to SR1.57bn ($418.6m) in 2022. The analysis also
estimates that the adoption of cloud services will create
from $114m in 2017 to
$418.6m in 2022 approximately 55,000 new jobs between the close of
2017 and end-2022. “Vision 2030 is encouraging the
private sector to develop efficient, cost-saving cloud
technologies,” Khalid Al Shangiti, CEO of local IT infra-
structure solutions provider Ebttikar, told OBG. “Cloud
technologies may be optional now, but by 2022 private
companies and small and medium-sized enterprises will
need to develop cloud systems in order to compete.”
While digital adoption is expanding within the public
and business spheres, individual use of new technolo-
gies is gathering pace as well. A September 2018 report
by US-based hardware company Linksys noted that
the number of devices in regional homes is growing.
About 85.4% of respondents from the Middle East said
they owned at least one smart TV, with over a quarter
(27.9%) owning multiple smart TVs. One-quarter of
respondents said they used their smart TVs to access
subscription-based services, such as TV series, movies
and live-streamed sporting events. In addition, the use
of voice assistants such as Amazon Echo, Amazon Alexa
and Google Home are on the rise. Other popular devices
included remote connections to home security cameras
and smart lighting systems – used by just under 40% of
respondents. About half of the people surveyed said
they owned a smart doorbell, while around a quarter
said they used smart thermostats.
INTERNATIONAL SUPPORT: International companies
have been working with the government to aid the
development of digital systems in a number of areas.
In late 2018 Cisco Saudi Arabia announced that it had
signed various memoranda of understanding with dif-
ferent state departments to carry out a country digital-
isation acceleration programme, smart city initiatives
and a virtual education project. “Digitalisation will play
an important role as the Kingdom focuses on diversify-
ing its economy and achieving its ambitious Vision 2030
agenda, launched in April 2016,” Salman Faqeeh, man-
aging director of Cisco Saudi Arabia, told local media.
“The memorandum outlines a multi-pronged approach
though which Cisco will help accelerate Saudi Arabia’s
digital agenda and position the country for long-term
prosperity in the digital age.” The company is looking
to focus its efforts on four priority areas: health care,
education, smart cities and cybersecurity.
At the end of 2018 Cisco was collaborating with the
Saudi Electricity Company to develop smart grid and
smart metering systems, which could save up to 60% on
energy costs. In the education sector the tech firm was
working on virtual connections between teachers and
remote students, and a total of 14 virtual classrooms
had been set up in seven cities in the Kingdom. Cisco
was also working with STC on the rollout of 5G.
Another strategic partner is Stockholm-based
tech multinational Ericsson. Michele Vitale, a senior
 ICT OVERVIEW 205

programme manager at the company, told OBG that

60-70% of the firm’s business in Saudi Arabia is con-
cerned with the rollout of wireless networks, 20%
relates to digital services and the remaining 10% or so
is providing operators with service management. He
noted that the company’s performance tends to follow
cycles, with ups and downs connected to how com-
munication technology is adopted around the world.
As the rollout of 4G and 4.5G networks slows, the
new big business driver is the adoption of 5G. The pro-
cess began in Saudi Arabia in 2019 and is expected to
gather pace from 2020 onward. Ericsson-made equip-
ment is being used by mobile operators such as STC
for the establishment of 5G in the country, and the
Swedish firm’s annual revenue is likely to grow by 20% or
even 30% in the peak roll-out years of the early 2020s.
Vitale then expects the pattern of earlier tech waves
to repeat, with revenue growth falling off before the
next phase of disruptive innovation.
E-GOVERNMENT: A high priority is being placed on ICT
for government services, in particular on the develop-
State agencies are partnering with private firms on security software
ment of e-government systems for citizens and busi-
nesses. The authorities have established an official a high level of maturity, with around 4000 separate The government’s drive to
e-government programme known as Yesser, which government services at different stages of the migra- make services available
online has reached a high
reports to the National Committee for Digital Trans- tion process at the end of 2018. Many of the services
level of maturity, with
formation. Yesser has four main goals: to raise public have “connected” status, meaning it is possible to carry around 4000 public sector
sector productivity and efficiency; to provide better out all steps of the process online, while others are systems at different stages
services to the country’s individuals and businesses; to described as “interactive”, which means that part of the of the digitalisation process
increase return on investment; and to provide accurate process is online yet physical presence at a government at the end of 2018.
and timely information. “The government is making a department or agency is still required at some stage. Al
concerted effort to increase local private sector par- Draehim mentioned the university enrolment process
ticipation through public-private partnerships,” Yasser as a good example of an efficient e-government ser-
Alobaidan, CEO of digital services firm Jawraa, told OBG. vice. Students applying for a place at university need
“Improving centralised e-government services and only to provide their national ID number. The system
enterprise resource planning systems will also enable immediately links to the Ministry of the Interior (MoI)
more efficient allocation of resources and improve the to verify ID details, as well as to the national academic
ease of doing business for the private sector.” database and the Ministry of Education to retrieve high
Majid Al Draehim, research and innovation manager school grades and qualifications. The entire process
at Yesser, told OBG that there is high demand from can be carried out in a matter of seconds.
Saudi citizens to make more government services avail- Among Yesser’s priorities for 2019 is the inaugu-
able online. The e-government initiative has reached ration of a new national e-government portal, which
 206
International partners are active in Saudi Arabia both supplying infrastructure and mapping future needs
The development of smart
cities is an area that
requires special attention
to cybersecurity, as the
absence of well-defined
security standards and
regulations could turn
projected benefits into
major problems.
ICT OVERVIEW
will provide a single sign-on for all citizens wanting to
access government services. Another is to rational-
ise and integrate software licences across different
government departments and agencies, and to align
information architecture and capabilities. Work is also
being carried out on projects focused on open data,
e-participation and the application of new technologies
such as blockchain. According to Al Draehim, a much
more streamlined way of doing business is emerging,
delivering more speed and efficiency, and capturing
significant cost savings. A particularly popular e-gov-
ernment app is Absher, which was created by the MoI
for a large variety of transactions. The app is useful for
making payments to government departments; setting
up appointments; managing identity cards, passports
and driving licences; paying traffic fines; and completing
residence and visa requirements. According to the MoI,
there were more than 11m Absher users in early 2019.
PRACTICAL APPLICATIONS: One example of a new
e-government initiative is the introduction of biome-
trics for international travel. In May 2018 the General
Directorate of Passports (Jawazat) said it had begun
using eye-scan technology and was piloting facial rec-
ognition to identify travellers entering the country,
as well as to track those who might have overstayed
their visas. Using the system to facilitate easy travel is
one way to increase foreign investment in the country,
according to Sulaiman bin Abdul Aziz Al Yahya, the
director of Jawazat. “We cannot attract investors while
our services are poor or procedures are complicated,”
he told local media. Jawazat takes fingerprints from
all people entering the country. It was estimated that
almost all 12.2m legal expatriates living in Saudi Arabia
had registered their fingerprints by May 2018. The
adoption of biometric systems coincides with the move
to introduce tourist visas and allow visitors on three-
month visas to extend them to six months. According
to Gloria Guevara Manzo, president and CEO of the
World Travel and Tourism Council, the implementation
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of biometric technology at border checks was the sin-
gle-biggest opportunity for the tourism sector in 2018.
Cybersecurity is another important issue in Saudi Ara-
bia, as hacks have occurred on both public and private
networks. In October 2018 the National Cybersecurity
Authority said it had issued new internet safety guide-
lines, establishing minimum technical standards to be
observed by government agencies. The standards were
described as mandatory for all public and private sector
agencies that own, operate or host national infrastruc-
ture deemed to be sensitive. Furthermore, in September
2018 STC signed an agreement with Anomali Company,
a US-based IT firm, to build an information-sharing
platform to track cyberthreats. The platform will be
used to protect STC and its subsidiaries, deploying the
latest cybersecurity technologies and analysing data
in an attempt to anticipate, provide early warnings for
and neutralise external attacks.
The development of smart cities is another area that
requires special attention to security. According to
Trend Micro, a Japan-based cybersecurity and defence
company, the absence of well-defined security stand-
ards and regulations could turn projected smart city
benefits into major problems. Speaking at the Smart
Transformation Summit in Riyadh in April 2018, Moataz
bin Ali, vice-president of the Middle East and North
Africa at Trend Micro, said that smart city systems rely
heavily on the internet of things, and this increases the
attack surface available to hackers. “These attacks not
only compromise big data, but also disrupt govern-
ment services and hold systems ransom,” he said. It is
therefore vital to develop secure data processing and
infrastructure. A 2017 Trend Micro report noted there
had been an estimated 8.8m ransomware threats in
Saudi Arabia out of a global total of around 1.6bn. The
education sector was the most affected, followed by
government and telecoms.
OUTLOOK: While the race to establish 5G networks will
lead to even greater competition among the Kingdom’s
mobile providers, it will be a primary medium through
which Saudi Arabia can advance its technological goals.
Digitalising government services, upgrading infrastruc-
ture and creating an environment with an emphasis on
secure technology should support global firms and local
players in achieving the long-term goal of a diversified,
knowledge-based economy, while providing more jobs
and new revenue streams over the medium term.
Saudi Arabia has considerable influence over the
growth of the regional ICT market due to a number of
factors, including the fact that the Kingdom has the
largest stock market and TV stations in the region,
and its citizens post the greatest number of tweets of
any country in the Arab world, as well as being highly
active on other social media platforms. A favourable
regulatory environment also plays a role. “The future of
tech companies in EMEA resides in emerging markets
like Saudi Arabia. While Western markets can be hostile
to tech companies, they are welcomed in Saudi Arabia,”
Sam Blatteis, a former Google executive who is now
CEO of The MENA Catalysts, a regional public policy
advisory and research firm, told local press in April 2018.

Modern approach
Nasser Al Nasser, Group CEO, Saudi Telecom Company (STC),
on the major developments in the telecoms sector
To what extent are IT managed services and
cloud technology evolving and progressing the
digital transformation of Saudi Arabia?
AL NASSER: The whole country is going through a
massive digital transformation. The traditional way
of doing business is changing rapidly. Retail has been
radically changed by analytics and automation, the
automotive industry has been revolutionised by
artificial intelligence and robotics, and now con-
sumer behaviour is also shifting to reflect the age
of digitisation. To accommodate these changes,
technologies such as the internet of things, artificial
intelligence and cloud computing, together with a
comprehensive cybersecurity ecosystem, will see
astronomical growth under Vision 2030. The inau-
guration of new data centres, one of which is the
largest data centre in the region, will also be a key
step in supporting both civil and industrial entities
during the digitisation process, and technologies
such as cloud are at the heart of this.
Why should data localisation be prioritised in
the Kingdom, and what opportunities will this
present in the future?
AL NASSER: For service providers, the demand
for localised and secure data has led to growth in
demand for cloud services, analytics packages, the
internet of things and other technologies. As such,
service providers can offer a complete portfolio of
managed services that cater to the needs of any
customer. From a consumer perspective, mobile
payment solutions have grown tremendously, with
up to 90% of all transactions being carried out dig-
itally through mobile applications or self-service
machines. There are still more avenues to explore
with regard to digitalising local services, which is
reflected through customer feedback. Internally,
many companies are investing in training new
employees through various graduate programmes
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ICT INTERVIEW 207
Nasser Al Nasser, Group CEO, Saudi Telecom Company
and programmes for women. Considering Saudi Ara-
bia’s large youth population and the fact that young
people tend to invest heavily in mobile services, it
is important to target young people and to engage
with them through various programmes.
The ICT sector will become a major employer in the
years to come as the development of local content
continues to expand, so it is highly important to
provide a platform for young people to acquire the
skills and competencies necessary for employment
within the sector in the long term.
What kinds of infrastructure initiatives and
reforms are currently being undertaken to
improve fixed infrastructure?
AL NASSER: Through the National Transformation
Programme there are extensive plans to invest in
fixed infrastructure. A key challenge within the
Kingdom today is that new mobile applications are
consuming a lot of bandwidth. The government
has created two key initiatives as a result. The first
is to award more spectrum to telecoms operators.
Accordingly, operators are investing in their respec-
tive networks to capitalise on this, and are also
incrementally enhancing the quality and speed of
services. The second revolves around the develop-
ment of fibre-to-the-home optical solutions, as by
2020 this high-speed technology will serve more
than 2m households nationwide.
Having more spectrum in the wireless domain,
coupled with a greater degree of fixed infrastruc-
ture, will alleviate the pressure placed on telecoms
operators, and will support the development of
better and faster services. The sharing of infrastruc-
ture is also recently on the rise, and moving forward
this will be a game of efficiencies. As competition
between operators is becoming increasingly focused
on services provided than on passive infrastructure,
all parties will be poised to benefit from sharing.
THE REPORT Saudi Arabia 2019
208
The government is
making a major financial
commitment to supporting
the rollout of 5G, seen as a
key technical component of
the country’s Vision 2030
development programme.
Between May 2017 and
May 2018 the sector
regulator allocated 160
MHz of additional spectrum
in the 700-MHz, 800-MHz
and 1800-MHz bands
to the country’s mobile
operators for future 5G use.
ICT ANALYSIS
Al Khobar was the first city to undertake 5G service tests in May 2018
High five
The rollout of 5G networks is set to support the large volume of
connections required by new technologies
The advent of 5G mobile service in Saudi Arabia
offers a major leap forward in communications
quality, which is critically important to the King-
dom’s plans to modernise and develop a diversified,
globally competitive economy. A 5G network will be
faster, able to handle more data and can do so with
lower latency – the delay in processing large num-
bers of real time data transactions. It will also allow
for the connection of a greater number of devices.
However, a key reason for establishing 5G infra-
structure goes beyond offering better service to
human subscribers: it is widely hailed as the tech-
nical gateway to the vast growth in machine-to-
machine links associated with the coming Fourth
Industrial Revolution. According to US-based tech-
nology conglomerate Cisco, more than 50bn devices
will be connected to the internet worldwide by 2020,
and there will be 1trn embedded sensors by 2022.
A large proportion of these connections will be
machine-to-machine, rather than involving humans.
RISE OF THE MACHINES: A number of innovations
are likely to drive sharp growth in machine-to-ma-
chine interactions. One of them is the rise of smart
cities, where a wide range of services will be based
on remote sensors relaying information on traffic,
weather, parking, medical services, logistics tracking,
and power and utility usage, among other things,
which all requires industrial-level data processing.
Autonomous vehicles, for example, need to be
able to receive and transmit data captured by their
sensors – an example of the growth of the internet
of things (IoT). Augmented reality, virtual reality and
artificial intelligence applications will also need 5G
infrastructure. Mobile operators are welcoming the
various uses of IoT because they require increased
data handling and transmission at a time when
revenues from traditional telecoms services such
as voice communications have hit a plateau, or in
some cases, are declining. 5G technology offers the
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significant increase in capacity necessary to handle
the projected rise in demand for data.
The transition to 5G networks will not be without
its challenges, however. It requires very high levels of
infrastructure investment and technical cooperation
between different stakeholders, and most experts
believe there will be a multi-year period where 4G
and 5G technologies will overlap.
UK analytics firm GlobalData, for instance, esti-
mates that by the end of 2020 only 0.5% of all mobile
data will be carried on 5G networks. Telecoms com-
panies will therefore face a double pull on their
budgets, as they will need to invest capital in 5G
infrastructure development while covering the cap-
ital amortisation and operating costs of the earlier
wave of 4G expenditure.
STATE SUPPORT: The government is making a major
financial commitment to supporting the rollout
of 5G, seen as a key technical component of the
country’s Vision 2030 development programme.
Abdullah Al Swaha, the minister of communications
and information technology, has stressed Saudi
Arabia’s intention to become a world leader in 5G.
Between May 2017 and May 2018 the Communica-
tions and Information Technology Commission, the
sector regulator, allocated 160 MHz of additional
spectrum in the 700-MHz, 800-MHz and 1800-MHz
bands to the country’s mobile operators for future
5G use. In May 2018 temporary licences for the
3.6-GHz to 3.8-GHz band were given to operators
to conduct 5G trials until the end of 2019. Al Khobar
was the first city to undertake 5G service tests that
month, with plans that this activity would turn into
full licences and spectrum awards by mid-2019.
Indeed, in November 2018 Al Swaha said commercial
5G service would begin the following year.
PARTNERSHIPS: In October 2018 the second-larg-
est mobile provider, Mobily, announced it had
signed a memorandum of understanding (MoU)
 ICT ANALYSIS 209

with Chinese telecoms company Huawei, under

which the two companies agreed to collaborate
on the introduction of 5G in the Kingdom. Specifi-
cally, the companies will work together on Network
2023, a five-year plan to upgrade Mobily’s existing
infrastructure, with Huawei acting as an adviser for
network planning and for the shift to an increased
volume of cloud-based operations. Maziad Al Harbi,
the chief technical officer of Mobily, told local media
that collaboration with Huawei would ensure Saudi
Arabia remained at the forefront of the latest trends
and technologies in 5G.
Huawei gave a statement on the agreement as
well, saying that it aimed to play a leading role in
helping Saudi Arabia implement intelligent and
agile telecommunications development to meet
its Vision 2030 target of becoming a diversified and
knowledge-based economy. Mobily has also worked
with another global communications technology
company, Ericsson of Sweden, to prepare for 5G.
Ericsson supplied Mobily with a standalone end-
The Gulf countries will be among the first adopters of 5G worldwide
to-end 5G system for a demonstration at the Mall
of Arabia in Jeddah in August 2018. help deploy 4.5G and 5G networks, advise on 5G net- Saudi telecoms providers
The mobile industry’s main player, Saudi Telecom work strategy and help to “cloudify” its operations. are partnering with
multinational tech
Company (STC), is forming alliances with interna- REGIONAL SCOPE: The Gulf countries are poised
companies to provide
tional tech companies as well, announcing part- to be among the first adopters of 5G worldwide. In infrastructure, develop
nerships with Huawei, Nokia and Cisco. Under the December 2018 the GSMA – the trade body that 5G roadmaps and expand
terms of its agreement with STC, Nokia will offer represents international mobile phone operators cloud operations.
its technology to help establish hundreds of base – welcomed a decision by the Arab Spectrum Man-
stations in southern and western Saudi Arabia. The agement Group to reserve the 3.3-GHz to 3.8-GHz
STC-Huawei agreement focuses on innovation and spectrum for mobile broadband to help accelerate
joint efforts to create a 5G roadmap. The partner- the rollout of the 5G network.
ship with Cisco, for its part, will see the US company According to “The Mobile Economy: Middle East
assist STC to “transform its network to unlock the and North Africa 2018” report by the GSMA, various
commercial potential of ultra-modern 5G mobile Arab countries including Saudi Arabia, Qatar and
networks”. Ericsson, meanwhile, is also an important the UAE will launch 5G services in 2019, allowing
equipment supplier to STC (see overview). innovative new applications and boosting economic
Zain, the third-largest provider with a market growth. Bahrain, Oman and Kuwait are projected to
share of around 18%, is also gearing up for the tran- be not far behind. GCC countries already have some
sition. In February 2018 it announced a MoU with of the highest data consumption rates in the world,
Huawei, under which the Chinese tech giant would making 5G a real opportunity for further expansion.
210 ICT INTERVIEW
Mohammed AlShaibi, CEO, Tamkeen Technologies
Tech smarts
Mohammed AlShaibi, CEO, Tamkeen Technologies, on
developing digital content and in-country IT capabilities
In the context of digitisation, how are new tech-
nologies disrupting the ICT sector?
ALSHAIBI: The multiplication of digital marketplaces
is certainly an important growing trend in Saudi Arabia
and the GCC region. Indeed, online platforms will be
needed across the board, and especially in sectors such
as construction and real estate, to optimise both effi-
ciency and the delivery of service providers. Another
trend is the internet of things, through which all sorts
of utilities, in particular electricity, can be optimised.
Such technology can monitor consumers’ habits and
measure their daily housing energy consumption in
order to improve efficiency at every step in the pro-
cess, from distribution to consumption.
In what ways can open-source technologies be
further integrated into IT infrastructures?
ALSHAIBI: Compared to regular enterprise resource
planning technologies, open-source technologies offer
a great variety of opportunities, especially in terms
of cost-effectiveness. That being said, one challenge
is that Arabic versions of open-source software are
not yet fully supported. There is surely an opportunity
here for Saudi Arabia to take a leading role. It all comes
down to finding our own competitive advantage. For
instance, Egypt has managed to establish itself as a
call centre hub in the MENA region and beyond. Saudi
Arabia could replicate such a model, focusing on devel-
oping Arabic content alongside open-source software.
With regard to cloud computing, how can data be
more localised in the Kingdom?
ALSHAIBI: An increasing number of private sector
companies and government bodies are moving to
cloud-based services. Truth be told, getting into the
cloud is relatively easy, but getting out of it is another
story. Moving large volumes of data and information
from one platform to another is a difficult task, espe-
cially from one service provider to another. In addition,
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customers are rightly concerned that their data and
information might be spread across a variety of loca-
tions and countries. This is one reason why focused
data localisation is important.
Many government entities in Saudi Arabia already
have data storage capabilities within their own prem-
ises and facilities. When it comes to data centres and
the localisation of information, the rule of thumb is
that less is more. The aim is to centralise and consoli-
date data centres in few specific locations. This would
also reduce the risk of cyberthreats in Saudi Arabia
from third parties around the world. Overall, however,
the cloud infrastructure in the Kingdom, from online
services to physical storage locations, is strong.
How can education be further tailored to meet
the needs of the ICT job market?
ALSHAIBI: Spurred on by a young population – with
a high percentage under 30 years old – Saudi Arabia
is becoming a very tech-savvy nation. Additionally,
in the context of technology-driven jobs, there has
been a shift in terms of work environment and how
people approach work. Home offices are becoming
popular, while services such as Uber and Airbnb have
been taking off dramatically. Overall, providing jobs
to young people is a high priority, moving forward.
Indeed, there is a very high percentage of graduates,
especially among women. The real question is how to
promote technology-focused training to established
workers who already have qualifications outside the
technological field. There is definitely potential for
them to go through a transition period and acquire
an additional set of skills. In this regard, Saudi Arabia
has been putting effort and resources into getting up
to speed with the technological knowledge require-
ments of the current job market. Last but definitely not
least, Arabic language-based jobs and Arabic language
services will be in high demand, and growth is to be
expected in this area over the short to medium term.

Emerging employment
Growing the domestic workforce and preparing for jobs of the
future are key to sector plans
While encouraging greater use of ICT to make the
economy more competitive, the Saudi authorities
are also eager to see jobs created in the sector.
There is, however, some uncertainty regarding how
the impact of new technologies on employment
will play out. Broadly speaking, there are at least
three key points that should be considered. The
first is whether the country can educate and train
its workforce well enough and quickly enough to
allow it to compete effectively in the new digital
world. The second is what impact that world – and, in
particular, the upheavals caused by the Fourth Indus-
trial Revolution (4IR) – will have on employment, as
automation, robotics and other smart technologies
are expected to replace humans in some capacity in
a number of sectors. Third is whether Saudi Arabia
can achieve net employment gains amid the ensuing
disruption by adopting the new technologies.
LABOUR SNAPSHOT: The Kingdom’s labour force
as a whole is characterised by relatively low partic-
ipation and high unemployment rates. According to
the General Authority for Statistics (GaStat), the
unemployment rate was 6% in the third quarter of
2018, down slightly on the 6.1% registered in the first
quarter. While this is not far off the average unem-
ployment rate experienced in developed economies,
the unemployment rate among Saudi nationals – as
distinct from expatriate residents – is much higher.
GaStat data shows that citizen unemployment stood
at 12.8%, unchanged from the beginning of 2018.
Unemployment was higher yet among Saudi women,
at 30.9%, compared to 7.5% for Saudi men.
EXPECTED GAINS: Initial estimates suggest that
ICT development can generate significant new
employment in the Kingdom. A white paper on Mid-
dle East markets by consultancy International Data
Corporation (IDC) released in late 2018 suggested
that Microsoft’s technology ecosystem and work to
expand the use of cloud services could create more
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ICT ANALYSIS 211
The Kingdom requires a mix of local and foreign talent in the sector
than 63,400 jobs in the country by the end of 2022,
with 55,000 of those positions relating to cloud 55,000
operations. This ties into the overall direction and new jobs related to
goals of the Vision 2030 strategy, but also to specific cloud services are
efforts by the Communications and Information expected in the country
Technology Commission, the sector regulator, and between 2018 and the
additional initiatives to utilise the cloud in the bank- end of 2022
ing, health care, transport and education sectors.
The remaining 8400 new positions will apply
to companies and individuals who “sell, service,
deploy or otherwise work with Microsoft products”.
The Microsoft ecosystem already supported some
71,250 workers in 2017, according to the research.
IDC predicted that spending on cloud ser-
vices across the board would rise from SR427.7m
($114.1m) in 2017 to SR1.57bn ($418.7m) in 2022,
with total ICT spending in the Kingdom reaching
SR43.97bn ($11.7bn) by that year. In 2022 the IT
sector is expected to employ over 270,000 people.
A 2018 report by global consultancy firm Accen-
ture titled “Pivoting with AI: How artificial intelli-
gence can drive diversification in the Middle East”
also paints an encouraging picture about the eco-
nomic impact of new technologies on Saudi Arabia.
The firm’s research suggests that the adoption of
artificial intelligence (AI) systems has the potential
to boost the Kingdom’s gross value added (GVA) by
$215bn by 2035. AI is set to have the greatest impact
on public services, manufacturing and professional
services, with GVA gains of $67bn, $37bn and $26bn,
respectively, between 2018 and 2035.
SKILLS INVESTMENT: In September 2018 Zafir Artificial intelligence is
Junaid, regional manager for Saudi Arabia, Bahrain expected to have the
and Pakistan of US-based analytics company SAS, greatest impact on public
told local media that there are attractive opportuni- services, manufacturing
and professional services,
ties for tech investment in Saudi Arabia. However, he
with gross value-added
noted, “In the current environment, it is imperative gains of $67bn, $37bn
that Saudi Arabia invests heavily in national IT skills and $26bn, respectively,
and capabilities to help the market innovate and between 2018 and 2035.
THE REPORT Saudi Arabia 2019
 212
Saudi Arabia aims to create a high-tech hub similar to Silicon Valley that can compete regionally with Dubai
3D printing is an area
of opportunity, as the
Kingdom can combine the
emerging technology with
the materials it requires –
particularly when it comes
to building up its own
defence industries.
ICT ANALYSIS
develop more valuable and impactful products and
services”, adding, “the education sector is crucial
as a future investment area to build an ICT skills
base and ensure a sizeable pool of expertise that
will help take the nation and its strategies forward”.
This sentiment is echoed by Yasser Alobaidan, CEO
of digital services firm Jawraa, who believes the right
instruction can help build up a domestic talent pool
for the sector. “Education has the power to make
future generations much more digitally enabled.
Enhancing science, technology and mathematics
curricula will directly contribute to the local devel-
opment of AI, blockchain and internet-of-things
solutions,” he told OBG.
TECH HUB: One of Saudi Arabia’s sector-related
goals is to create its own high-tech hub similar to
Silicon Valley in the US. While this is an ambitious
aim, the country has been adopting policies that
will support the development of such a hub, which
is planned to compete at a regional level with Dubai.
The Kingdom benefits from a youthful, tech-savvy
consumer base, has already attracted a significant
number of global tech firms and has made a com-
mitment to further developing digital technologies.
To ensure the regional centre is sustainable, Saudi
Arabia will need to attract an inflow of both local
and foreign IT workers and entrepreneurs. Achieving
that will require a number of initiatives – and bal-
ance. On the one hand, officials must work to step
up the education and training of Saudi nationals in
the tech sector, and on the other hand continue
to attract professionals from abroad. Complete
reliance on either is not recommended, as inter-
action and knowledge transfer between the two
groups is considered optimal from an expertise and
cultural standpoint. Speaking to local media in May
2018 John-David Lovelock, chief forecaster at US
research firm Gartner, said it will take Saudi Arabia
four years to nurture local junior tech talent, but
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much longer to develop a cohort of what he calls
IT “visionaries”. The government will also need to
continue to improve the ease of doing business and
increase the quality of infrastructure.
AREAS OF OPPORTUNITY: While the timeline it
takes to grow a large pool of local talent may be
subject to debate, the evidence nonetheless points
to a net growth of jobs in the ICT sector in Saudi
Arabia. However, the wider outlook for jobs depends
on what happens in the rest of the economy. At the
global level there is consensus among economists
that the 4IR will both create and destroy jobs; the
net outcome between the two forces and the type
of jobs that will be available remain hard to predict.
One perspective voiced by Bob Willen, Middle
East partner and managing director at AT Kear-
ney, is that Saudi Arabia’s relative lack of a strong
industrial tradition might be a positive thing for the
country rather than a negative, and provide it with
a short-cut to the future. “You could say that Saudi
Arabia has missed some of the earlier industrial
revolutions, but I would rather say they have the
opportunity to leapfrog those processes,” Willen
said at a tech forum in Riyadh in late 2017. “It pre-
sents them with a lot of potential – rather than
go through the whole painful process, they can be
flexible in what approaches they adopt.”
One example of such an approach is the high-tech
mega-city called NEOM, a greenfield undertaking in
the north-west that will emphasise AI, robotics and
smart city technologies. The Kingdom can also pick
out new dynamic areas of comparative advantage.
Saudi Arabia may be able to lead in 3D printing, for
example, because it can combine this emerging
technology with the materials it requires – abundant
supplies of plastics and petrochemical derivatives.
There may also be an overlapping need between
Saudi Arabia’s desire to build up its own defence
industries and its growing capabilities in 3D printing.
The Kingdom benefits from a youthful, tech-savvy consumer base

Small but mighty
Officials work to create a supportive environment for start-ups
The government believes there is an important
role for innovation, start-ups, and small and medi-
um-sized enterprises (SMEs) in its push to modernise
the economy. In line with this, the Saudi Arabian
General Investment Authority (SAGIA) is seeking to
do two things: improve the ease of doing business
for firms of all sizes, and encourage and support
young entrepreneurs to launch start-up companies
– both with the hope to enlarge the private sector’s
contribution to GDP and generate jobs.
DOING BUSINESS: The annual “Doing Business”
report published by the World Bank examines the
relative cost, time, complexity and legal framework
of 10 basic business factors in almost every coun-
try and territory of the world. In the 2019 edition,
released in October 2018, Saudi Arabia’s overall
rank was 92nd out of 190 countries. SAGIA aims
to see the country place among the world’s top-20
performers, and moves are being made to accom-
plish this: according to the report, Saudi Arabia
introduced a raft of reforms to improve the ease
of doing business in the four categories of getting
electricity, protecting minority investors, trading
across borders and enforcing contracts.
“This year Saudi Arabia had the largest number
of reforms in the region,” Mazin Al Zaidi, head of
innovation and entrepreneurship at SAGIA, told
local media in October 2018. “For the environment
to become healthy, a lot has to be done, and we are
working on it. We are heading in the right direction.”
START-UPS: While working to simplify business
procedures for all companies, SAGIA is specifically
encouraging local start-ups. An initiative focused
in this direction is the TAQADAM Startup Accelera-
tor, run by the King Abdullah University of Science
and Technology (KAUST) in partnership with the
Saudi British Bank. It offers a six-month intensive
programme to help scientists create commercially
valuable technologies. Speaking to local media in
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ICT ANALYSIS 213
The majority of start-ups are based in Jeddah, Riyadh and Al Khobar
late 2018 Hattan Ahmed, head of the Entrepre- A six-month intensive
neurship Centre at KAUST, said the initiative was programme exists to
seeing positive outcomes, particularly in energy help scientists create
commercially valuable
and artificial intelligence. technologies. The initiative
One start-up that has been developed through the is seeing positive outcomes,
programme provides laser lights to allow crops to be particularly in energy and
grown indoors. Another, Sadeem Wireless Sensing artificial intelligence.
Systems, has created what it describes as an “urban
real-time flood monitoring system” designed to
save lives. The company won an award at the 2017
Gulf Information Technology Exhibition in Dubai.
Meanwhile, a company called Cura has launched
a health platform that enables patients to consult
one of 1600 online doctors using real-time chat
and live video calls. Cura has a contract with the
Ministry of Health as a telemedicine provider serving
an estimated 300,000 citizens through 10 contact
centres. In automotive care, Morni is a young firm
offering an interactive mobile app that provides
roadside assistance in Saudi Arabia and the Gulf.
A number of Saudi Arabian companies appeared in
a list of the top-50 start-ups to watch in the Middle
East, compiled and published by US business maga-
zine Forbes in early 2018. Sixth on the list was Halay-
alla, a sports and entertainment booking platform;
Near Motion, a customer engagement tool founded
in 2015, ranked 26th; and Maharah, a booking app
for home maintenance, ranked 34th. Forbes also
published a list of 100 Saudi start-ups in 2017. The
companies were created by 182 entrepreneurs,
of whom 29 are women. They cover 23 different
industries, with most based in Jeddah (39), Riyadh
(37) and Al Khobar (10). A telemedicine start-up
Banking is a particularly popular area for start- allows patients to consult
ups, with financial technology (fintech) solutions one of 1600 online doctors
using real-time chat and
often being first provided by non-bank institutions.
live video calls. The firm has
“The fintech market is growing steadily in Saudi a contract with the Ministry
Arabia, with digital payments recording a transac- of Health serving an
tion volume and value that is 17 times higher than estimated 300,000 citizens.
THE REPORT Saudi Arabia 2019
214 ICT ANALYSIS

start-ups and to encourage businesses that could

expand globally. According to MAGNiTT, a database
for start-ups in the MENA region, disclosed funding
for Saudi Arabia-based start-ups grew from $18.8m
in 2016 to $39.8m in 2017.
Government officials are trying to create a sup-
portive environment for entrepreneurship to attract
both innovate ideas and the funding to support
them. One way of doing this is through the Saudi
Technology Development and Investment Company
(Taqnia), which aims to create networks to help
individual entrepreneurs. State-controlled compa-
nies are also doing their part. In May 2017 mobile
operator Saudi Telecom Company said it would set
up a $500m venture capital fund – the largest in the
country – to invest in tech start-ups.
INNOVATIVE INGREDIENTS: A 2018 report by
global consultancy OC&C and commissioned by
Google titled “Tech entrepreneurship ecosystem in
the Kingdom of Saudi Arabia” is part of a series that
also looked at Turkey, Russia, South Africa, Nigeria
Disclosed funding for Saudi Arabian start-ups reached $39.8m in 2017
and the UAE. The authors concluded that seven
The National the GCC average. It is the perfect environment for inputs define to what degree tech start-ups will
Transformation Programme fintech start-ups to be successful,” Ayman Alfallaj, succeed in a given country: financial capital, talent,
has allocated $1.2bn CEO of business services company Thiqah, told OBG. networks, culture, regulations, ICT infrastructure
across nine ministries and
government agencies
Examples of such local providers are PayTabs and and market potential. They noted that Saudi Arabia
to support start-ups, PayFort (see Banking chapter). has the largest economy in the region with a GDP
technology transfer, the COMPOSITION & FUNDING: Driving the desire of $646bn, of which around 50% comes from the oil
empowerment of women to encourage start-up businesses is the idea that and gas sector. The post-2014 oil slump posed a seri-
and capacity building. SMEs could make more of a contribution to Saudi ous challenge to the sustainability of the country’
Arabia’s growth and development, as they are the welfare state, where nearly 70% of the workforce is
engine of the private sector. According to Salman Al employed in the public sector. One of the problems
Suhaibaney, CEO of Morni, about 10% of companies that a more entrepreneurial approach hopes to
operating in the Kingdom are large corporates, with address is high unemployment among women and
the remaining 90% consisting of SMEs. Despite their youth, as the unemployment rate for those aged
numerical dominance, SMEs are contributing only between 20 and 29 is 29%, according to the report.
a small share to GDP, thus supporting this class of The long-term development strategy Vision 2030
business will do much for economic expansion, he makes entrepreneurship a critical lever for finding
told local media in October 2018. new sources of economic growth and employment
Al Suhaibaney added that there are still relatively for citizens in the private sector, with resources
few entrepreneurs in the Kingdom, but there is a already being made available. The National Transfor-
concerted effort under way to support high-impact mation Programme has allocated SR4.4bn ($1.2bn)
across nine ministries and government agencies to
Frequency of purchases from online shoppers*, 2017 (%) support start-ups, technology transfer, the empow-
erment of women and capacity building. While OC&C
acknowledges the progress made, it also details
Once a week or more 3 14 shortcomings of the current environment. The
Once every two weeks ecosystem is described as nascent; contributions
Once a month from knowledge sectors to the economy are low;
12 there are comparatively few tech start-ups; and
Once every two months
9 very few companies have exited the start-up phase
Once every three months
with valuations of over $100m, and none valued at
Once every 4-6 months 25 over $1bn. This is expected to change, however, as
Less than once investments are made over time.
every 6 months Most start-ups are focused on software-as-a-ser-
16
vice offerings and e-commerce – models that have
proven successful in many other markets. The tech
21 scene is beginning to show signs of evolution, how-
ever. Entrepreneurs out of Thuwal, with many being
associated with KAUST, are trying to create a larger
Source: CICT *people who made a purchase within the last 12 months
variety of deep tech-driven business propositions.

www.oxfordbusinessgroup.com/country/saudi-arabia

Bridging the divide
The ever-expanding digital economy is creating widespread
opportunities in emerging markets
As more commercial transactions move online and
the digital economy continues to expand into every
facet of the traditional analogue economy, businesses
are gaining access to new channels to reach existing
clients and expand their market share with competitive
digital offerings. For consumers, the digital growth
promises easier access to and more information about
the products and services they consume, which tends
to encourage more competitive pricing. In emerging
economies the uptake of leapfrog technologies has in
some cases allowed sectors to skip stages in develop-
ment, moving directly to digital solutions rather than
having to invest in vast networks of hard infrastructure.
DIGITAL DIVIDE: While no country can currently offer
universal coverage, the gaps in the quantity and quality
of mobile network access in some emerging economies
lags behind that of more advanced markets. It can be
particularly challenging in countries with low rates of
urbanisation or challenging terrain, which complicates
the extension of physical networks. It will be key moving
forward to recognise that alongside investments in hard
infrastructure, policymakers need to build the legisla-
tive and institutional frameworks necessary to sustain
digital growth. The Gulf region has been among the
most forward-looking in this regard, as countries like
the UAE have paired the digitalisation of state services
with the establishment of regulatory environments
favourable to digital innovation across the economy.
EXHIBIT A: Building on the early success of pilot pro-
jects in Africa and elsewhere, Kenyan mobile network
operator Safaricom partnered with Vodafone to bring
M-Pesa to market in 2007. This service allows anyone
in Kenya with a mobile phone to use it as an electronic
wallet, letting users borrow and transfer money, pay
utilities, and deposit and withdraw funds via agents,
thereby bringing such services to large swathes of
the population not served by conventional banking.
This coincided with a surge in cellular subscriptions
in the country, from 30 per 100 people in 2007 to
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215
Global
Perspective
86 in 2017, and by mid-2018 M-Pesa was processing For emerging economies
1.7bn transactions annually for 20m users. In late the development of
2018 M-Pesa was preparing to enter Ethiopia, which digital channels has in
some cases allowed
is twice the size of Kenya and has been one of the fast- sectors to skip stages in
est-growing economies of the past decade. This follows development seen in other
its successes in Tanzania, Egypt, Afghanistan, India and countries, moving directly
several markets in Eastern Europe. The M-Pesa model to digital solutions rather
has spread and given rise to copycat services from than having to invest in
vast networks of hard
traditional banks and mobile network operators alike. infrastructure.
In developing economies with relatively poor ICT
infrastructure and a sparse network of bank branches,
cellular growth has allowed financial service providers
to reach more clients. Moreover, once the investment
in digital has been made, the marginal cost of each
new client is much smaller than that associated with
physical infrastructure. Indeed, in Kenya the number of
ATMs in operation has fallen by about a third, as much
of the population has switched to using mobile money.
EMERGING BUSINESS OPPORTUNITIES: Building on
the success of mobile money, a wider range of sophis-
ticated financial services is being made available to
emerging market consumers. InsurTech, for example, is
becoming increasingly important in emerging insurance
markets. In the second quarter of 2018 China, India,
Israel and South Africa together accounted for a third
of its deals globally, and its growth projections for the
coming decades are highest in large, emerging markets.
While digital trends in many emerging markets trail
those of their advanced peers, faster economic and
demographic growth make them more likely to remain
important growth drivers for years to come, particularly
Alongside the requisite
in transport and logistics. In some cases ride-sharing hard infrastructure
apps have filled a market gap created by inefficient investments, there is also
public transport. In late 2018 Uber named Argentina its a need for policymakers
fastest-growing market, despite the country’s economic to put in place soft
infrastructure, such as the
difficulties and the company not offering services out-
legislative and institutional
side Buenos Aires, citing the capital city’s lack of public frameworks necessary to
transit options as the driver of demand. Meanwhile, sustain growth in the
India has become Amazon’s fastest-growing market. digital economy.
THE REPORT Saudi Arabia 2019
216
The MENA region enjoys However, even as the biggest names in global tech
a higher rate of mobile profit from growth in emerging markets, they are not
subscriptions than the alone in capitalising, as these markets have given rise
world at large, with 112
cellular subscribers per
to their own competitor firms. Alibaba is the domi-
100 people. nant player in China’s online retail market and is rapidly
expanding across Asia to compete directly with Ama-
zon. Since 2015 Alibaba’s online sales have surpassed
those of Amazon, eBay and Walmart combined. While
the population densities in Alibaba’s markets give it an
advantage, digital firms are not relying solely on demo-
graphics to drive revenue. The Chinese ride-sharing app
Didi Chuxing began an aggressive global expansion in
2018, entering Brazil, Mexico, Taiwan, Japan and Aus-
tralia, where it will compete with Uber head-to-head.
SUB-SAHARAN AFRICA: In sub-Saharan Africa mobile
subscriptions reached 75 per 100 people in 2017. That
rate varied widely among countries covered by OBG,
from 70 in Tanzania and 75 in Nigeria to 127 in Ghana
and 131 in Côte d’Ivoire, against a global average of 104.
Even those markets with relatively developed ICT
infrastructure are not resting on their laurels. In Côte
d’Ivoire the National Agency for Universal Telecommu-
nications Services is in the process of deploying a 7000-
km fibre-optic network to rural areas. “Optical fibre
allows more bandwidth than copper, and it is a more
stable technology to use, considering Côte d’Ivoire’s
climate,” Serge Kouakou, general manager of Orange
Business Côte d’Ivoire, told OBG. “Service reliability
should increase and rural populations will gradually
access better internet and telecoms services.”
ASIA: Countries in the Asia-Pacific region generally
benefit from well-entrenched ICT infrastructure and
high rates of mobile subscriptions. Among countries
covered by OBG, that rate exceeds the regional aver-
age of 119 subscriptions per 100 people in Thailand
(176), Indonesia (174), Sri Lanka (135), Malaysia (134)
and Vietnam (126), while falling slightly short in the
Philippines (110) and Myanmar (90).
Having opened its mobile segment to foreign invest-
ment in 2013, Myanmar is playing catch-up, though it
has made great strides in recent years. “Telecommu-
nications is a textbook example of development in
Myanmar, where companies can receive their licence,
connect to the network and start operations within a
year,” Lin Roye, deputy managing director at Myanmar
Fibre Optic Communication Network, told OBG. “It has
become a little more challenging recently, since the
permit system for extending the fibre-optic network
has been decentralised to regional governments, which
do not always understand its importance.”
Myanmar demonstrates the difficulty of extending
infrastructure to remote areas and the role of new
market entrants in improving services and driving down
prices. For instance, a subsidiary of Vietnam’s Viettel
Group became Myanmar’s fourth provider in 2018 and
began offering bundled internet services. Within eight
Countries in the GCC months s its market share had grown to 4%, and the firm
were among the first to is exploring options to offer mobile money services.
recognise the potential
of digitalisation and the
MIDDLE EAST & NORTH AFRICA: The MENA region,
importance of designing like the Asia-Pacific, enjoys a higher rate of mobile
appropriate legislation. subscriptions than the world at large, with 112 cellular
www.oxfordbusinessgroup.com/country/saudi-arabia
subscribers per 100 people. Rates are highest among
members of the GCC, ranging from 122 in Saudi Ara-
bia to 211 in the UAE, and are marginally lower in the
Maghreb states, which are clustered in the low 120s.
Countries in the GCC were among the first to recog-
nise the potential of digitalisation and the importance
of designing appropriate legislation. Bahrain launched
the region’s first 4G LTE network in 2013 and enacted a
nationwide law on personal data protection in July 2018.
In September 2018 Abu Dhabi Global Market rolled
out a digital sandbox to provide an environment for
financial institutions and financial technology (fintech)
players to accelerate services innovation and increase
financial inclusion. Several GCC states have also been
at the forefront in trying to tax the digital economy.
Algeria has tried to foster ICT start-up clusters and,
through the Algiers Smart City initiative, use digital
solutions to lift living standards in the city. “The project
has been developed as an answer to three fundamental
challenges: a fairly isolated technology ecosystem, lim-
ited technology transfer and low confidence in growing
tech giants,” Riad Hartani, strategic technology advisor
to the Algiers Smart City project, told OBG.
LATIN AMERICA & THE CARIBBEAN: Some countries
in the region have mobile penetration rates on par
with those of advanced economies. Among countries
covered by OBG, Argentina and Trinidad & Tobago
exceeded 140 in 2017, followed by Colombia (127) and
Peru (121). Mexico stood at 89, below the regional aver-
age of 107. Several have led the way in experimenting
with soft infrastructure and policy to foster, regulate
and tax the digital economy. In 2018 Mexico became
one of just a few countries worldwide to promulgate
a dedicated fintech law. The new legislation regulates
firms operating in the crowdfunding, online payments
and cryptocurrency segments, includes measures to
guard against money laundering and shortened the
registration and approval process for fintech firms.
PATH AHEAD: Catch-up economic growth and hard
ICT infrastructure development in emerging markets
should position them to drive global digital growth
for years to come. While the dissemination of tools
and trends from historically developed economies will
continue to play an important role in this growth, dig-
ital firms from emerging markets should increasingly
compete with those of more advanced economies for
market share, even on their own turf.
Simultaneously, emerging economies have been
pioneers in developing soft infrastructure in areas
like digital taxation, and there is a strong incentive
for these countries to further this trend. Speaking to
OBG, Cameron MacLeod, founder of the Global Civic
Innovation Centre, explained that “just as large portions
of the developing world used mobile phones to leapfrog
landline technology, artificial intelligence, drones, 3D
printing, biotech and other exponential technologies
are set to provide the world’s least-developed regions
with the opportunity to apply these innovations at a
faster and more scalable rate than in the developed
world, with its entrenched legacy infrastructure.”
This is the logic underpinning the Algiers Smart City.
 217

Transport
Substantial expansion of transport infrastructure
Commitment to privatisation and private funds
New airports in planning or under construction
Special economic zones to boost investment levels

Extensive overhaul
Expanding transport infrastructure and special economic zones
to attract foreign and domestic investment
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 to make the country a
regional and international logistics centre. To achieve
this goal, they envisage working closely with leading
global logistics companies via public-private part-
nerships (PPPs). One aspect of the new approach is
the increased promotion of special economic zones
(SEZs) in different parts of the country, creating
industrial clusters with multi-modal freight links to
a range of international destinations. Progress is
already being made. “Foreign direct investment (FDI)
and domestic investment levels are increasing, in
particular with regard to big-ticket infrastructure
items that will boost intermodal transport capacity.
We expect to see healthy growth in all transport
verticals over the coming decade,’’ Osama Abdouh,
CEO of Metro Jeddah Company, told OBG.
TRANSPORT STRATEGIES: Saudi Arabia’s transport
industry is one of the key sectors of the economy
targeted by the government’s Vision 2030 strategy,
which calls for wide-ranging diversification and mod-
ernisation. In essence, the government is seeking
to develop the Kingdom as a major logistics centre
within the wider MENA region. Saudi Arabia’s loca-
tion between the Gulf and the Red Sea makes it an
important destination for freight flows from the US
and Europe, and the region is of course strategically
important as an oil and gas exporter.
It is estimated that some 252m tonnes of goods
were handled by Saudi Arabia in 2016. Of that total,
around 95% was carried by sea, 3% by air and 2% by
road. This significant freight flow is expected to be at
the centre of reform, modernisation and ownership
changes as the Kingdom seeks to move goods in a
more rapid and efficient manner. The authorities
are keen to develop PPPs. The Saudi Ports Authority
(SPA) is seeking to privatise all nine ports currently
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TRANSPORT OVERVIEW 219
An improvement in seaport quality and efficiency is a general priority
under its control. In addition to generating pub- The authorities are aiming
lic revenue, the aim of privatisation is to achieve to make the country a
greater efficiency and even more competitive tariffs regional and international
logistics centre. To achieve
through innovations such as 24-hour operation and this goal, they envisage
automated container handling. working closely with
NINE-POINT PLAN: In early 2018 the government leading global logistics
outlined a nine-point logistics transformation strat- companies via public-
egy. The first priority was to automate and re-en- private partnerships.
gineer the import-export process. The goal is to
reduce the time, cost and variability of importing
and exporting goods. Significant headway has already
been made in this respect — for example, through
the automation of various goods-handling processes.
The time taken for Customs declarations to be
cleared at maritime ports has been halved to 2.2
days, while at airports it has been reduced to 1.2
days. Customs declarations can now be submitted
electronically and prior to arrival in port, and Customs
offices are open on a 24-hour basis. Officials say that
paperwork related to import-export processes has
been reduced by as much as 75%.
The plan also called for investment in digital sys-
tems. These are intended to improve the security,
transparency and control of trade movements.
Importers can track the status of their shipments
in real time. Recent initiatives include the creation
of an online port community system to offer secure
information exchange, and a dedicated digital pay-
ments platform for Customs fees and duties.
The third point the authorities are working on is a
transport infrastructure plan, focused on infrastruc-
ture quality, safety and efficiency. The plan outlines
key investments such as the Saudi Landbridge Pro-
ject (a railway connecting the east and west coasts It is estimated that
of the country) and two new rail corridors (Ras Al
Khair to Dammam in the east, and Yanbu to Jazan in
the west). Future priorities may include the develop-
252m
tonnes of goods were
ment of multi-modal freight terminals. Eliminating handled in 2016
air cargo bottlenecks is the fourth action point. The
THE REPORT Saudi Arabia 2019
 220 TRANSPORT OVERVIEW
International traffic is set to surge as the tourism sector develops, leading to increased inbound demand
overall objective in this regard is to boost airfreight
capacity from the relatively low 800,000 tonnes per
annum (tpa) at present to 6.8m tpa by 2030. With
this end in mind, various projects are under way to
modernise airports and expand or create associated
freight terminals. The fifth plank is a pledge to meet
international regulatory standards. Transport indus-
try regulation is being updated to bring it closer to
international benchmarks, considered a necessary
move as more international players begin to operate
on the local market; licences for road transport and
warehouse operators are already under review.
An improvement in seaport quality and efficiency
is the sixth focus point. A number of top global port
operators already hold concessions in Saudi Arabia,
among them Singapore-based PSA International,
Dubai-based DP World and Hutchison Ports from
Hong Kong. The priorities under this heading include
making the country’s ports more specialised, reform-
ing governance systems and updating the terms of
concessions granted to the port operators. The long-
term aim is to separate port regulation and port
ownership, with the creation of a single national reg-
ulatory body as one option under discussion. “Some
95% of cargo arrives by seaport and then continues
on land,” Michael Wuebbens, managing director of
local marine services firm Huta Marine, told OBG.
“Seaports are the driver of any changes we will see
in transport investments in the Kingdom.”
The seventh point calls for reform of the rail indus-
try. In 2017 rail regulation and ownership were sep-
arated, with the regulatory function vested in the
The government is
Public Transport Authority (PTA). The government
aiming to raise up to
has plans to award more operations and mainte-
$10.7bn nance contracts to international rail companies. It
has also expressed an interest in financing future
from its privatisation
programme through rail infrastructure through PPPs.
2020 The eighth point signals the importance of making
a concerted attempt to engage the private sector.
www.oxfordbusinessgroup.com/country/saudi-arabia
Across the different transport modes the govern-
ment is increasingly interested in awarding private
operating concessions, with a view to achieving mod-
ern and efficient transport services that minimise
the financial burden on the public sector.
The ninth and final point in the plan is to develop
SEZs, which are widely regarded as an excellent
means to reduce the costs of and barriers to creat-
ing new businesses and development poles around
the country. It is envisaged that the SEZs will have
their own light-touch regulations and tax incentives,
offering increased ease of doing business. They will
also offer Customs-bonded areas and efficient mul-
ti-modal transport connections.
PRIVATISATION DRIVE: As part of its modernisa-
tion programme, the government has been seeking
to privatise some state-controlled companies and
activities, and in general to promote PPPs. In mid-
2018 the authorities published a draft law regulating
PPPs, designed to improve transparency, boost the
construction sector and ease pressure on govern-
ment finances. The draft was tailored to help attract
foreign investment in infrastructure mega-projects
in utilities, transport and real estate.
The government is aiming to raise SR35bn-40bn
($9.3bn-10.7bn) from the privatisation programme
running up to 2020, which will also create as many as
12,000 new jobs. The programme prioritises 14 PPPs
which are thought to be capable of raising a com-
bined SR24bn-28bn ($6.4bn-7.5bn). Moving further
into the future, there are more ambitious aims for
the overall privatisation programme, which is hoped
will raise $200bn by 2030, as part of Vision 2030.
The draft law provided an element that had been
missing – a legal framework to govern PPPs. Given
the Kingdom’s pressing need for new investment, the
draft law was seen to have the potential to unlock
financing and foreign participation. International
pensions funds and sovereign wealth funds are likely
to be interested in opportunities generated by the
programme, in particular with regard to projects in
real estate, affordable housing, schools, hospitals,
airports and railways. The draft states that foreign
investors will be able to recover losses “incurred as
a result of any change in the law or unlawful action,
or the failure of public authorities to take an action
which they should have taken, which caused loss to
the primary party”. It establishes that foreign citizens
may own property anywhere in the Kingdom, with the
exception of the holy cities of Makkah and Medina,
although land may be leased in those two cities for
the length of any PPP contract.
It also provides for a committee to adjudicate
disputes. A clause that especially captured investor
attention outlined the possibility for exemptions to
labour laws that set minimum quotas for hiring Saudi
nationals. Foreign firms have previously expressed
concern over the effect of these quotas in sectors
where there may be shortages of skilled labour.
SPURRING INVESTMENT: The draft PPP law was in
part a response to the fall in FDI inflows, which hit a
 TRANSPORT OVERVIEW 223

14-year low in 2017. The government also announced

further plans to ease regulations and encourage more
companies to enter the Saudi market. FDI peaked at
$7.5bn in 2003, but dropped to just $1.4bn in 2017.
As part of efforts to reverse the trend, in late 2018
the ministerial Cabinet was reported to have relaxed
rules for investment in the services sector, opening
segments including staff recruitment, audio and
video, road transport and real estate services to
foreign companies. Private foreign investment in
these sectors had not previously been allowed.
The Saudi Arabian General Investment Authority
announced that, in order to stimulate foreign inter-
est, it was also considering issuing longer-duration
foreign investment licences and streamlining the
authorisation process. It said the time taken to com-
plete the authorisation process was being cut from
53 hours to less than four.
In addition, instead of one-year licences, companies
will be able to choose one- to five-year renewable
licences, and they will only need to present two doc-
New technology is streamlining training processes in the aviation sector
uments to register, instead of eight as was previously
the case. There are still a number of areas where FDI Saudi Arabia, but it handles approximately 20% less A number of new airports
is not allowed, among them printing and publishing, airport traffic than Jeddah. are being planned or are
and the upstream oil and gas sector. A number of new airports are being planned or under construction. Among
them is the King Abdullah
PUBLIC TRANSPORT: While the private vehicle are under construction around the country. Among airport, which is estimated
remains the main form of transport in most Saudi them is a SR2.5bn ($666.5m) project being built 30 to cost $666.5m and handle
urban centres, the authorities are beginning to put km north of the city of Jazan. According to the Gen- 3.6m passengers a year.
significant public transport infrastructure in place. eral Authority for Civil Aviation, the airport is to be
One sign of the new approach can be seen in Riyadh, called King Abdullah and will be able to handle 3.6m
a city of 6m people, where municipal authorities have passengers a year. There are plans to modernise and
signed two major contracts with RATP, the French upgrade a range of existing airports as well, including
state-owned public transport company. One is a those in Abha, Al Ahsa, Al Qassim, Arar and Hail. A new
12-year, €1.7bn contract to operate a bus network, terminal is being built at the King Khalid International
and the other is a 12-year, €2bn contract to operate Airport in Riyadh, and there are also plans for new
two out of six planned metro lines. airport developments in Al Qunfudah, Farasan Island,
The first buses are expected to begin operating Taif, Riyadh North and Riyadh South.
in the city during the course of 2019. RATP Dev, a PASSENGER TRAFFIC: One consequence of the
subsidiary of the main company, is expected to hire expected growth in air travel is that there will be
around 3500 people in Saudi Arabia, of whom 2500 more demand for pilots and technicians. Speaking
will operate the bus service. Following a change in at a meeting of the MENA Business Aviation Associ-
the rules allowing women to drive, RATP says that at ation in September 2018, Bander Khaldi, managing
least 100 of its bus drivers will be female. Another
city addressing mobility issues is Dammam, which in Cargo traffic at industrial ports, 2017 (m tonnes)
November 2018 launched the first phase of a public
transport plan. The city authorities also launched
an online licensing platform for the registration of Imports Exports
drivers and vehicles. The PTA announced that its 200
overarching goal was to provide “safe, efficient, inte-
grated and green public transport”.
150
AIRPORTS: There are 26 airports in Saudi Arabia
offering commercial services. The busiest among
them are Jeddah, Riyadh, Dammam and Medina, all 100
of which handled in excess of 5m passengers in 2017.
Not all of them publish detailed up-to-date statistics,
but Medina, the smallest of the top four, which is 50
operated by TAV Airports of Turkey, reported 19%
growth in 2017, reaching 7.8m passengers. Jeddah,
0
the busiest airport in the country, was reported to 2013 2014 2015 2016 2017
have handled 34m passengers in 2017, an increase of Source: GaStat
9% on the preceding year. Riyadh is the largest city in

Bloomberg Terminal Research Homepage: OBGR‹GO› THE REPORT Saudi Arabia 2019

 224
Transport industry regulation is being updated as more international players enter the local market
Passenger traffic through
airports rose by 8%
to 91.8m in 2017, and
projections suggest
that future growth
could accelerate into
double-digit increases.
TRANSPORT OVERVIEW
director of the National Aviation Academy, said it was
estimated that the country would need an additional
8800 pilots and 11,700 aviation technicians by 2024
as a result of attrition replacement and fleet growth.
New tech solutions are designed to play a key role
across the segment. “Distance learning, and technol-
ogy more broadly, have facilitated higher demand in
the industry, and made it more practical for pilots to
manage their own time and obtain specific accredi-
tations. Technology also allows us to pool resources
more efficiently,” Ismael AlKoshy, managing director
of the Prince Sultan Aviation Academy, told OBG.
Passenger traffic through Saudi Arabia’s airports
rose by 8% to 91.8m in 2017, and projections suggest
that future growth could accelerate into double-digit
annual percentage increases. International traffic is
expected to surge as the country develops its tourism
sector, leading to increased inbound demand. Inter-
national traffic was up 14% in 2017 and 12% in the
first half of 2018. At present there are approximately
640,000 domestic weekly passenger seats available
in Saudi Arabia and 1.4m scheduled international
seats. A new terminal at King Abdulaziz International
Airport outside Jeddah started operations in a phased
manner in 2018. The total construction cost was
estimated at SR36bn ($9.6bn). The airport is one
of the main gateways for pilgrims coming to Saudi
Arabia to visit the holy cities of Makkah and Medina.
The capacity of the new terminal will be 80m pas-
sengers by 2035. The main terminal covers 15 sq km,
and has 46 air bridges for passengers to board and
disembark aircraft. The airport complex includes a
five-star hotel, shopping centres, an advanced com-
munications centre, and a railway station for the new
high-speed passenger train to Makkah and Medina.
It will host around 60 domestic and international
airlines, including national flag carrier Saudia.
CARRIERS: Since 2017 the number of domestic
carriers has more than doubled, from two to five.
www.oxfordbusinessgroup.com/country/saudi-arabia
Saudia, including its new budget subsidiary flyadeal,
is the dominant presence, with a 70% market share
of domestic air travel. Until late-2016 Saudia and
privately owned competitor Flynas were the only
two players, operating a duopoly in domestic avi-
ation. However, new arrivals are set to provide a
competitive challenge. SaudiGulf, based in Dammam,
is focusing on the top end of the market and plans
to add new aircraft in the 2019-21 period. Another
new arrival, Nesma, is based in the small city of Hail,
where it operates 12 routes with ATR 72 turboprops,
although it also competes on the Riyadh-Jeddah route
with Airbus A320s. At the budget-carrier end of the
market, the battle for market share is being fought
between flyadeal and Flynas.
In terms of international aviation, Saudia has a 36%
share of seat capacity, followed by Flynas with 7%,
and Nesma and SaudiGulf, each with under 1%. The
rest of the market is divided among foreign airlines,
led by EgyptAir, Emirates Airlines and flydubai. In
2018 Saudia was offering services to 79 international
destinations, whereas Flynas covered 22. The inter-
national air travel sector in Saudi Arabia is heavily
influenced by religious pilgrimage.
HAJJ TRAVEL: Many pilgrims use charter rather than
scheduled flights. The Hajj is celebrated over a period
of over a week each year, determined by the Islamic
calendar, while pilgrims travelling to Saudi Arabia
for the Umrah do so on a year-round basis. Saudia
alone carried an estimated 3m passengers on Hajj
and Umrah charter flights in 2017.
By liberalising visa policies and expanding visitor
infrastructure, the government aims to increase total
pilgrim arrivals from under 7m in 2017 to around 30m
by 2030. The fact that EgyptAir has a significant share
of the Saudi international aviation market reflects the
importance of pilgrimage from the Arab world’s most
populous country. Saudia, meanwhile, is planning to
add capacity in flights to many of the major Muslim
Various new airports are being planned or are under construction
 226
Maritime sector performance has been strong, and throughput at the biggest four ports rose by 6.5% in 2017
Passenger totals increased
by 8% to 35.5m in 2017,
a number that includes
both scheduled and
chartered flights. Based
on expasion of the aircraft
fleet, the Kingdom aims
to carry a total of 45m
passengers by 2020.
TRANSPORT OVERVIEW
countries such as Indonesia. Company officials have
stated that an order for eight new Boeing 787-10s is
intended to increase available seats on flights to and
from Indonesia and several other markets in Asia.
CAPACITY CONCERNS: Saudi Arabia increased its
passenger totals by 8% to 35.5m in 2017, a number
that includes both scheduled and chartered flights.
Based on expansion of the aircraft fleet, it aims to
carry a total of 45m passengers by 2020. The airline
has been focusing on increasing its international
business, by adding frequencies and destinations.
Although it operates various hubs, its main oper-
ations are increasingly focused on the new interna-
tional airport at Jeddah. Saudia is positioning itself
to benefit from the Kingdom’s economic reforms,
and is planning to expand its fleet from the current
150 aircraft to 200 by the end of 2020. As part of its
programme for renewing its fleet, the company took
delivery of 28 new aircraft in 2016 and a further 33
in 2017. Saudia has orders for eight Boeing 787-10s
and 35 planes from the A320neo family.
Saudia Cargo, the state-owned airline’s airfreight
subsidiary, is pursuing ambitious expansion plans. In
September 2018 the company said it was expanding
its freight-handling facilities at both King Abdulaziz
International Airport and King Khalid International
Airport in Riyadh. In Jeddah, capacity will be increased
to 530,000 tpa, and in Riyadh, it will be boosted to
820,000 tpa. Saudia Cargo also announced it would
be joining the SkyTeam global airline alliance, and that
it would be extending its international network, and
adjusting its schedules to optimise its Asia, Europe
and Africa freight connections.
Fawaz Al Fawaz, chairman of Saudia Cargo, told
local media that in 2017 that company revenue had
grown by 10.9% and the volume of cargo carried rose
by 12.6%. Private carrier SaudiGulf has expressed
some concern that the rapid expansion of domestic
carriers could lead to overcapacity. In August 2018
www.oxfordbusinessgroup.com/country/saudi-arabia
its CEO, Samer Majali, told international media that
there may be a period of consolidation and ration-
alisation. However, he added that government plans
to triple the size of the Hajj and Umrah pilgrimages,
and expand and diversify other forms of tourism
were positive indications for the sector. The company
operates four A320ceos, but is planning to incorpo-
rate six to eight A320s/A321s in 2019, with similar
numbers to be added in 2020 and 2021.
PORTS: As air cargo accounts for a relatively small
share of trade, the authorities have been keen to
expand existing port infrastructure, since they
believe there is potential to develop the Kingdom
as a major regional and global logistics centre.
There is also interest in the economic potential of
the maritime sector because, unlike other non-oil
activities such as tourism and construction, running
ports provides a flow of steady year-round business
without major seasonal variations, it also provides
significant employment opportunities for skilled and
white-collar labour. However, certain questions about
the future remain to be answered, in particular as
regards trans-shipment. Saudi ports will face compe-
tition from the major UAE ports of Jebel Ali and Port
Khalifa, and there is a danger that a combination of
ambitious expansion plans across the two countries
could generate a degree of overcapacity.
That said, the overall performance of the maritime
sector in recent years has been strong, despite vari-
ations at different ports. In 2017 throughput at the
country’s biggest four ports rose by around 6.5%.
Various factors were behind this.
While relatively low oil prices had affected cargo
demand, big petrochemical players such as Dow
Chemical and Total were coming into the region.
There were also signs that a higher ease of doing
business ranking and improved Customs regulations
could encourage greater use of the Kingdom’s ports.
It is estimated that $2.5trn worth of goods, or 25%
The Saudi Landbridge Project is to run from Riyadh to the Red Sea
 TRANSPORT OVERVIEW 227

of global trade, flows through the Suez Canal and

along Saudi Arabia’s Red Sea coast. The Kingdom has
set itself the goal of capturing a larger share of that
traffic for trans-shipment to onward destinations
through its ports. “Port activities are a sort of bell-
wether for the economy at large, and we expect an
increase in activity at the end of 2019 as state-spon-
sored, big-ticket capital expenditures kick in,” Jens
Floe, CEO of Red Sea Gateway Terminal, told OBG. At
present Saudi ports process a total of 7m twenty-foot
equivalent units (TEUs) and 11,000 ships a year.
CARGO: In order to attract more trade, the passage
of cargo needs to be as efficient and frictionless
as possible. Various trade facilitation initiatives are
under way, including the Al Faseh Customs clearance
project, designed to reduce the time required to clear
shipments to under 24 hours.
Dammam’s King Abdulaziz Port in the Gulf is the
country’s top export hub for commerical goods. Its
capacity has been expanded to a capacity of 1.5m
TEUs, mainly to serve cargo needs in the Eastern
Public-private partnerships are taking place to carry out rail projects
Province and central Saudi Arabia. Total cargo vol-
ume passing through King Abdulaziz Port dropped port’s aging infrastructure, which makes it increas- King Abdullah Port is the
significantly by 20% in 2018. ingly less attractive for shipping lines due to low country’s newest and
most ambitious port. It
Jeddah Islamic Port on the Red Sea has a handling cargo handling efficiency and restricted port access
is located alongside King
capacity of 4.15m TEUs, and serves as the country’s for large vessels. Multibillions of Saudi riyals would Abdullah Economic City
main logistics hub. It meets the import-export needs be needed to upgrade or re-construct the terminal and is designed as a trans-
of the western provinces of Hejaz and Jizan and the infrastructure at Jeddah Islamic Port in order for it to shipment hub.
capital, Riyadh. Jeddah Port is also linked to the new meet shipping line requirements and provide efficient
35,000-sq-m cargo terminal at the nearby airport. terminal services. Given the scope and cost of these
Despite it being the country’s primary logistics upgrades, industry experts believe that expansions
hub, however, Jeddah Islamic Port is facing several to Jeddah Islamic Port are unlikely.
challenges. Cargo throughput at Jeddah fell in 2018 King Abdullah Port (KAP) is the country’s newest
by 2.5% to 44.65m tonnes in the first 10 months of and most ambitious port. It is located alongside King
the year, while container handling dipped 3.2% to Abdullah Economic City (KAEC), an urban mega-de-
3.35m TEUs. Taking a look at its performance from velopment project which launched in 2010 and was
a bigger timeframe, since 2015 to the end of 2018 originally due for completion in 2020. The port is
cargo throughput at Jeddah dropped by approxi- designed as a trans-shipment hub and is currently
mately 20%. This was due to two main reasons. The handling capacity of 5m TEU, in addition to some 10m
first is traffic restrictions due to the port’s location tonnes of dry bulk, break-bulk cargo and roll-on/roll-
in the centre of Jeddah. The second reason is the off (ro-ro) traffic. Officials say there are plans to raise
 228
The authorities believe there is potential to develop the Kingdom as a regional and global logistics centre
In October 2018 the IMF
estimated that GDP growth
would reach 2.2% that
year and rise to 2.4% in
2019. Exports of goods
were expected to grow by
around 2.0%, with imports
up a stronger 3.3%.
TRANSPORT OVERVIEW
that figure much further, with the port designed for
a final throughput capacity of 20m TEUs. The final
completion is expected to take place after 2030.
While most of the ports in Saudi Arabia are aged and
not well suited for modern shipping purposes, KAP
is designed with features such as ro-ro technology
and deep ports of 18 metres. Thus, KAP is expected
to eclipse other terminals, such as the Jeddah Islamic
Port, and significantly expand operaitons. Since the
official inauguration of KAP on February 11, 2019,
combined port volumes from KAP and the Jeddah
Islamic Port grew from 4m containers to 6.5m in
early 2019, and this figure is set to increase as the
newest port grows in prominence.
Another strong performer was Jubail Commercial
Port on the Gulf Coast. The levels of cargo handled
by this port increased by over 20% to 11.89m tonnes
in the first 10 months of 2018. As well as increased
bulk cargo, Jubail saw its container traffic volume
rising by 9% to 600,000 TEU over the same period.
RAILWAYS: In 2011 the Al Shoula consortium, com-
prising 12 Spanish companies, including Renfe, Talgo,
and two Saudi firms, won the €6.7bn contract to
build the Haramain High-Speed Rail line, which now
provides a direct connection between Jeddah and
the two holy cities of Makkah and Medina.
After some delays and cost overruns, the project,
one of the largest of its kind in the Middle East, was
opened in September 2018. The 453-km line has
five stations and was designed to carry trains with a
maximum speed of 320 km per hour. It has an annual
capacity of 60m passengers. Chinese and Saudi con-
tractors carried out most of the civil engineering
work. The contract includes the supply of 36 Talgo
350 trainsets, tracks and electrification. Renfe and
ADIF of Spain are operating the line for an initial
12-year period. This project is expected to facilitate
pilgrimage to the holy cities, widely seen as a step-
ping-stone to building a wider tourism industry. The
Hajj and the Umrah generate billions of dollars in
revenue for Saudi Arabia in pilgrims’ lodging, trans-
port, gifts, food and fees. Officials hope that the rail
service will stimulate growth at the KAEC, located 100
km north of Jeddah. Progress is also being made to
extend the rail link to the new air terminal in Jeddah.
In October 2018 it was announced that US-based
rail services company Greenbrier had entered a
$270m joint venture with the Saudi Railway Com-
pany (SAR) to carry out rail projects and supply rail
wagons. As part of the deal, Greenbrier will provide
$100m in new rail cars, lift equipment and other
machinery, as well as operating freight terminals. SAR
will contribute locomotives, access to the rail network
and other services. The two companies have been
working together since 2015, when SAR placed an
order with Greenbrier for 1200 tank wagons to carry
molten sulphur and phosphoric acid – feedstock for
fertiliser production – by rail.
OUTLOOK: In the context of major changes to the
Saudi Arabian freight and passenger transport sys-
tem, prospects for the near future suggest continuing
growth, although there is some uncertainty over the
pace expansion will take place at. Short-term growth
is expected to largely be tied to the fortunes of the
wider economy. In October 2018 the IMF estimated
GDP growth would reach 2.2% that year and rise to
2.4% in 2019. Exports of goods were expected to have
grown by 2.0%, with imports up a stronger 3.3%. This
will have an impact on overall demand for transport
services. It is worth noting that in some areas such
as air travel, which is achieving greater penetration
among the population, growth will be significantly
higher. Notwithstanding this, in light of the prolif-
eration of significant logistics and infrastructure
investment projects, for which the authorities are
currently trying to attract international capital, medi-
um-term growth in the sector could remain depend-
ent on foreign investor sentiment in the coming years.
A range of different types of infrastructure is being put into place

Better links
Nabeel Al Amoudi, Minister of Transport, on expanding and
integrating the Kingdom’s rail, road and air networks
What sectors will benefit most directly from the
integration of road and rail networks?
AL AMOUDI: Integration provides more options in
terms of mobility and transportation, and this has a
positive impact on the movement of goods across a
variety of sectors in the country. In particular, the pet-
rochemical, mining, defence, manufacturing, heavy
industries and other industrial sectors will all be able to
take advantage of this integration and achieve greater
commercial and time-related savings. By reducing the
amount of time spent on inter-city roadways, fuel con-
sumption will be cut back and greater efficiencies will
be achieved, thus having a positive effect on both the
national economy and society at large.
In 2018 the Saudi Railway Company transported
around 9m tonnes of metals, which ordinarily would
have required a huge amount of heavy goods vehicles
to carry all the materials. Instead, hundreds of thou-
sands of litres of diesel fuel were saved, and harmful
emissions, road erosion, maintenance costs and the
number of accidents were also reduced.
What ancillary services are needed to support the
expansion of national airport facilities?
AL AMOUDI: Several additional services are needed in
order to complement the expansion of the Kingdom’s
airport facilities and the increasing volume of passen-
ger traffic. These include ground services, baggage
handling, airport operations, facilities management,
public transportation services and special airports
systems. The General Authority for Civil Aviation is also
working on converting domestic airports that receive
international flights into wholly international airports
licensed by the International Civil Aviation Organisation.
In addition, five new airports will be constructed
in Al Qurayyat, Al Qunfudhah, Fursan, Hail and Taif,
as part of the recently announced National Industrial
Development and Logistics Programme. These new
airports are to be designed in accordance with a Unified
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TRANSPORT INTERVIEW 229
Nabeel Al Amoudi, Minister of Transport
Airports Model Plan, which takes into consideration
passport control, Customs areas, and the origin of inter-
national flights. In 2018, an annual growth rate of 7.6%
in passenger traffic was achieved, with more than 99m
passengers being serviced by the Kingdom’s airports.
How can the privatisation of rail services increase
efficiencies and lower operational costs?
AL AMOUDI: The private sector is more flexible in
terms of its management and operation. This is why
the government seeks to further include the private
sector in its operations, management activities and
investments, with rail services being no exception. As
is reflected in Vision 2030, the Kingdom is increasingly
relying on the private sector and giving it a greater
degree of responsibility with regard to the implemen-
tation and management of development projects. By
2020, we aim for privately owned companies to par-
ticipate in the development and operation of at least
5% of road networks, 50% of rail networks and 70% of
the Kingdom’s port operations.
How are the authorities promoting uptake in the
use of public transport?
AL AMOUDI: In collaboration with many other munic-
ipal authorities, the Public Transport Authority (PTA)
is promoting the development of a modern bus net-
work within medium- and large-sized cities across the
Kingdom. In March 2018 the PTA launched a campaign
aimed at encouraging the adoption of a public transport
culture in Saudi Arabia. This campaign was launched
together with a modern fleet of bus services in Riyadh
and Jeddah, designed to replace an informal and anti-
quated service. The new bus fleet, coupled with the
campaign, delivers the message that public transport
is safe, has a positive impact on the economy and the
environment, and reduces traffic congestion. The out-
come of this campaign has been very successful, with
millions of passengers now using the bus networks.
THE REPORT Saudi Arabia 2019
230 TRANSPORT INTERVIEW
Rumaih Al Rumaih, President, Public Transport Authority
Driving connections
Rumaih Al Rumaih, President, Public Transport Authority
(PTA), on improving freight and passenger flow efficiency
How can the country’s intermodal transport options
be leveraged to boost trade?
AL RUMAIH: Saudi Arabia is a cornerstone and a bridge
connecting three continents: Asia, Africa and Europe.
One of the main objectives of Vision 2030 is for Saudi
Arabia to become a global logistics hub. The country
can leverage its geographical location and benefit from
both the Red Sea and the Gulf. On the logistic perfor-
mance index, Saudi Arabia is currently ranked 55th out
of 160 countries, and the target is to be number one in
the region. Given Saudi Arabia’s massive landmass, the
challenge is to efficiently connect all possible means of
transportation, both passenger and freight, to the ben-
efit of end-users. The east, north and central regions
are already well connected; what remains to be done to
join all transport solutions together is connecting the
west, including port cities such as Jeddah and Yanbu.
To this end, the land bridge project is due to connect
Jeddah to Riyadh through a 1000-km railroad. One of
the main objectives for this project is to assess how
it will be built and operated. Saudi Arabia is keen to
involve the private sector in infrastructure projects –
not primarily for financing, but for efficiency purposes.
For instance, the build-operate-transfer scheme in the
context of privatisation and public-private partnerships
lends itself particularly well to Saudi projects.
How attractive is Saudi Arabia’s maritime infra-
structure, including for transit?
AL RUMAIH: The main global shipping lines have com-
mitments with various ports around the world. In Saudi
Arabia for instance, King Abdullah Port managed to
bring Maersk Line to increase and facilitate trans-ship-
ment activities. As a large share of the world’s traffic
goes through the Red Sea, Saudi Ports in the west of
the country can be very attractive. Services and support
infrastructure provision is very important to foreign
shipping lines. Saudi Arabia has worked hard in this
regard, and now provides connected zones as well as
www.oxfordbusinessgroup.com/country/saudi-arabia
increased efficiency at its ports. Indeed, it is not only
about hardware, but also about soft infrastructure.
This includes improving processes, such as Custom
clearance, which Saudi Customs has done successfully.
Saudi Arabia has now ensured the provision of a proper
environment for the private sector to operate on an
efficient and competitive basis.
To what extent can digitalisation positively disrupt
and transform the transport industry?
AL RUMAIH: Digitalisation and new digital platforms
are at the heart of the transport sector. For instance, all
trucks in Saudi Arabia are now monitored by automatic
vehicle location, and the weight of each truck can also
be monitored in real time. These new technologies allow
the government to better regulate traffic and driver
misconduct, which will improve efficiency, delivery time
and safety. Truck drivers can no longer drive or use the
truck more than they should. A particular area where
Saudi Arabia was lagging behind was in tracing and
tracking. Now, with the digital platforms and equipment
that will be placed in every truck, owners are able to
monitor and track their freight in real time.
What future projects are expected to change Saudi
freight and passenger flows?
AL RUMAIH: The year 2018 marked the inauguration
of the Haramain High-Speed Rail between the Holy
cities of Makkah and Medina. This was a major achieve-
ment for the Kingdom, including for pilgrims keen on
travelling between the two cities. Construction on the
Riyadh Metro, managed by the Riyadh Development
Authority (RDA) is advancing, and the public is engaged
and ready for the service. RDA also launched a station
naming rights auction for the entire metro network,
from which it has already raised over SR1bn ($0.27bn).
By the end of 2019, we should witness a few lines come
into operation. All this will make a great difference
in terms of how people plan and live their daily lives.

Attractive proposition
New special economic zones (SEZs) offer a range of fiscal and
logistics benefits to companies
A key element of the Vision 2030 strategy is the
establishment of SEZs offering fiscal and other
incentives in competitive locations for promising
sectors, among them ICT, logistics, tourism, and
industrial and financial services. The SEZs are
intended to capitalise on Saudi Arabia’s location,
fewer than seven hours’ flying time from major cities
across three global regions: Europe, Asia and MENA.
INTEGRATED LOGISTICS BONDED ZONE: A new
SEZ is to be set up adjoining the King Khalid Inter-
national Airport in Riyadh, which will offer inte-
grated logistics services and regulations designed
to attract multinational companies. A government
decree issued in late 2018 approved the regulatory
framework for an Integrated Logistics Bonded Zone
(ILBZ) at the airport, to be operated by the General
Authority for Civil Aviation, and regulated by the
Saudi Arabian General Investment Authority. The SEZ
offers a wide range of support services, including
warehousing and fulfilment, inventory management,
maintenance and repair, and testing and assembly.
Companies setting up operations in the ILBZ are
promised a range of incentives. There will be no
restrictions on foreign borrowing or the repatria-
tion of either profits or dividends. Likewise, there
will be no restrictions on the private ownership
of assets, including intellectual property. Precise
details of direct and indirect tax incentives had yet
to be finalised at the time of the announcement.
NEOM CITY: Plans for NEOM, a $500bn special zone
city with a significant logistics component, contin-
ued to advance during the course of 2018. The pro-
ject’s name is a combination of the Greek prefix neo
(meaning “new”) and the letter M, an abbreviation
of the Arabic word mustaqbal (meaning “future”).
The ambitious project is set to be built over an area
almost the size of Belgium and will have cross-bor-
der dimensions, with links to neighbouring Jordan
and Egypt. The Public Investment Fund is providing
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TRANSPORT ANALYSIS 231
A range of large-scale projects are drawing in private sector investment
finance for the first stages of the project, located A key element of the
on the Red Sea coast near the border with Jordan. Vision 2030 strategy is
Funding streams are also expected from the gov- the establishment of
special economic zones
ernment and private sector entities. offering fiscal and other
Nadhmi Al Nasr, chief executive of the project, incentives in competitive
has described it as “the largest international spe- locations for sectors
cial zone in the world in terms of size and scale of including ICT, logistics,
investment”. Official sources said work had begun tourism, and industrial
and financial services.
during the course of 2018, with the project’s first
airport scheduled to be completed before the end
of the year, and scheduled flights expected to com-
mence in early 2019. NEOM is ultimately planned to
have more than one airport, one of which will be a
dedicated international terminal.
A significant number of local and international
companies have been involved or expressed interest
in NEOM. According to media reports, locally based
construction company Saudi Binladin Group had
secured some of the infrastructure contracts for the
project. UAE-based retail company Lulu Group said
it intended to invest in NEOM as part of a planned
move into Saudi Arabia, while German technology
company SAP was said to be promoting its smart
cities systems for the development.
SPARK: In December 2018 Crown Prince Moham-
med bin Salman bin Abdulaziz Al Saud inaugurated
another new SEZ, to be known as the King Salman
Energy Park (SPARK). Located in the Eastern Prov-
ince between Dammam and Al Ahsa, the intention is
for SPARK to host up to 300 commercial units built
over an area of 50 sq km. Construction will be carried
out in three phases, with the first covering 12 sq km
and due for completion by the end of 2021, at an
investment cost of around $1.6bn. When all stages
are completed, SPARK is expected to contribute Plans for NEOM, a $500bn
around $6bn to the national economy per year, and special zone city with
a significant logistics
employ up to 100,000 people directly and indirectly. component, continued
State oil company Saudi Aramco will develop, to advance during the
operate and manage the new city’s infrastructure course of 2018.
THE REPORT Saudi Arabia 2019
 232
A significant number of local and global firms have expressed interest in large, upcoming logistics projects
Special economic zones in
the Gulf have focused on
leveraging an abundance
of low-cost land and labour
to overcome the absence
of a major domestic
market through export.
TRANSPORT ANALYSIS
in partnership with the Saudi Authority for Industrial
Cities and Technology Zones. A total of 12 agree-
ments and memoranda of understanding were
signed for development of the park with a range
of energy companies including Schlumberger, Hal-
liburton, Baker Hughes GE, Oilfields Supply Centre,
Saudi Information Technology and the Al Rushaid
Group. The energy park will target activities in five
areas — one of which is industrial manufacturing,
such as electrical equipment, liquids and chemicals.
Others include a dry port with an annual capacity of
8m tonnes, a Saudi Aramco drilling and well-main-
tenance area, training centres, and a residential,
commercial and recreational area.
At the inauguration ceremony, Khalid Al Falih, the
minister of energy, industry and mineral resources,
who is also chairman of the board of directors of
Saudi Aramco, said the city’s aim was to unlock the
full potential of the Kingdom’s energy resources in
line with the country’s transformation plan. He con-
firmed that it would have the status of an SEZ, with
companies operating within the zone able to benefit
from regulatory, fiscal and non-fiscal support.
SEZ TAXONOMY: It is worth considering the govern-
ment’s efforts in light of the international context
for special zones. A report by consultancy Oliver
Wyman points out that there are now some 4300
SEZs in 130 countries around the world, employ-
ing an estimated 68m workers. While some have
made critical contributions to the economic suc-
cess of their host countries, many – possibly a
majority – have failed. The report identified four
different types of SEZs. Type I are special manu-
facturing zones; type II are special service zones;
type III are sector-specific zones; and type IV are
more advanced transnational and extra-territorial
zones. On the whole, GCC countries have developed
SEZs that correspond to types I and II, although
Saudi Arabia’s recently announced projects fit into
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type III, since they include new technology fron-
tiers, research and development, and tourism. The
NEOM city SEZ could arguably be classified as type
IV, because of its transnational links. In an interview
with local media, Anshu Vats, a partner at Oliver
Wyman, said that SEZs in the Gulf have focused on
leveraging an abundance of low-cost land and an
affordable labour force to overcome the absence
of a major domestic market through export.
Interest in developing them spiked as govern-
ments responded to the slump in oil prices — which
fell to $30 a barrel in 2016 — by pursuing rapid eco-
nomic diversification strategies. Oil prices subse-
quently recovered to around $70 a barrel, but the
host governments have continued pursuing SEZ
strategies. “[W]e can understand the need for
creating these zones as the appeal is clear: knowl-
edge-based economic development with high value
added,” Vats said. However, he added that global
competition has complicated matters. “Selecting
which sectors to rely on and designing the right
value proposition will constitute an SEZ’s success.”
COMPETITION: There are various regional sources
of competition for Saudi Arabia’s SEZ projects. In
February 2019 Kuwait announced that it was going
to move ahead with the first phase of its $100bn
Silk City proposal. A further plan has been outlined
to merge this project with another, a separate inte-
grated economic zone on five uninhabited islands.
Partly because of competition from Saudi Arabia,
Kuwait has sought to align its project with China’s
Belt and Road Initiative of international transport
infrastructure investments. In addition, following
Saudi Arabia, Kuwait is pursuing technology-rich
companies by connecting to a new global cable link.
Its strategy is to develop a locally based, regional
financial centre focused on the northern Gulf area.
Here, too, it will be in competition with Saudi Arabia,
which is pursuing plans for its own financial hub.
Saudi Arabia is less than seven hours’ flight from three key regions

Logistics gateway
Abdullah Aldubaikhi, CEO, Bahri, on the benefits that new
technologies and policy reforms will bring to maritime transport
To what extent is the maritime shipping sector able
to cope with rising demand?
ALDUBAIKHI: The maritime shipping sector saw some
capacity management activity in the first half of 2018
in an effort to ease excess cargo in the market. As
a result, we have seen an improved supply-demand
balance. However, the ongoing recovery of the global
economy and the growth of emerging and developing
economies are expected to drive further momentum
in domestic and international trade, which will lead to
a significant shipping capacity crunch in the coming
years, particularly in the Middle East market. Similarly,
rising global demand for energy will lead to an increased
supply of very large crude carriers.
Commodity prices also drive global demand for crude
oil. Therefore, all producing countries or companies are
subject to price volatility, both on the upside and the
downside, which eventually impacts shipping activities.
In what ways can new technologies improve effi-
ciency in maritime transportation?
ALDUBAIKHI: New technologies such as big data,
analytics, artificial intelligence and internet of things
continue to transform the maritime logistics and trans-
portation industry. It is now possible to uncover action-
able insights from millions of data points, increase
efficiency in operations by speeding up decision-making
and ensure the optimum utilisation of resources.
Applications and devices powered by these tech-
nologies can reduce costs by effectively managing
resources, tracking assets and goods in real time, and
improving routes by identifying redundancies and risks
beforehand. These innovative technologies will also
benefit customers by cutting costs and delivery time.
How can fleet management be optimised to max-
imise voyage earnings?
ALDUBAIKHI: It is critical to optimise scheduling
through voyage management, whether for spot
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TRANSPORT INTERVIEW 233
Abdullah Aldubaikhi, CEO, Bahri
cargo or contractual cargo. Bahri opts for a balanced
approach to avoid the challenges presented by high
exposure and over-reliance on contracted volumes or
spot business. Fleet or voyage operations are a pivotal
function within shipping, handled by skilled profession-
als with seagoing and cargo operations experience. One
key performance indicator is the reduction of idle time,
which all shipping companies strive for. This is reliant on
optimum voyage management and scheduling.
How can logistics players benefit from the country’s
intermodal transport options?
ALDUBAIKHI: Saudi Arabia is uniquely positioned as a
logistics gateway linking Africa, Asia and Europe. The
Kingdom has focused on initiatives aimed at capitalising
on this geographic advantage as part of its economic
diversification efforts. Reinforcing the country’s lead-
ership position in the regional logistics and transpor-
tation sector has been identified as a key objective of
Saudi Vision 2030. As a result, we have seen an array
of reforms taking shape in the country, including the
restructuring of regulations, market liberalisation and
the participation of the private sector. The Kingdom has
a vast network of roads and railways to take advantage
of, connecting its various seaports to both domestic
and international markets. New developments, such
as the Saudi Landbridge project to link the east and
west coasts of the Kingdom, and two railway lines,
which will connect with the GCC countries in the east
and link Yanbu and Jeddah in the west, are aimed at
strengthening the existing infrastructure. With these
prospects, intermodal freight transport is poised for
a major leap in the coming years.
With an enhanced technical and regulatory infra-
structure, the country can build on its integrated
transport system to achieve its maritime goals. Saudi
Arabia will also benefit from embracing and promoting
digital technologies across all aspects of operations to
improve the quality, safety and efficiency of the sector.
THE REPORT Saudi Arabia 2019
234
In July 2018 it was reported
that the Ministry of
Transport had awarded a
total of 23 new road-
building projects with
a value of $461.3m.
The road system covers
more than
68,000 km
TRANSPORT ANALYSIS
In some urban areas vehicle traffic is reaching a saturation point
Royal roads
A substantial increase in road-building has improved
connectivity and generated employment
In recent years Saudi Arabia has been extending
and upgrading its national road and highway net-
work to meet the combined demands of a growing
population, urbanisation, economic growth and a
sharp increase in motor vehicle use.
There has been major public and private invest-
ment in multi-modal transport spanning railways,
metros, traffic systems, buses, bridges and roads.
The road system now covers more than 68,000
km in total. Given extremely high temperatures,
the authorities have had to ensure road-surfacing
materials are carefully selected to protect against
deformation. High mountain ranges – especially in
the south-west of the country – have also required
specialised construction techniques.
PRIVATE SECTOR INPUT: One important innovation
is that the Ministry of Transport (MoT) is considering
the use of a public-private partnership (PPP) model
for new road projects. This idea is understood to
have been proposed in a report commissioned by
the MoT on the potential for wider privatisation of
transport projects. One suggested target was to
introduce six PPP-funded toll roads in or around
the capital Riyadh by 2020.
The minister of transport, Nabil Al Amoudi, told
local media in December 2018 that the idea was
still under consideration. An initial step would be
to submit potential road toll rates for regulatory
approval. There have been contemporaneous efforts
to improve the PPP framework and make it more
attractive for foreign participants.
These have included better guarantees for inves-
tors, an appeals committee to adjudicate disputes
and potential exemptions from some restrictive
labour legislation (see overview).
In July 2018 it was reported that the MoT had
awarded a total of 23 new road-building projects
with a value of $461.3m. They were located in various
parts of the country, with seven in Makkah and six
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in Riyadh. A further four were in Assir, two in the
Eastern Province, and one each in Al Bahah, Hail,
and Tabuk. While investment in expanding the road
network will continue apace, the authorities also
recognise that in some urban areas vehicle traffic
is reaching a saturation point, largely thanks to a
marked increase in motor vehicle usage in recent
years. In part as an attempt to allay this, the Riyadh
Metro system will initially carry 1.16m passengers a
day, rising to 3.6m after a number of years. At the
same time, the new bus system will carry about
900,000 passengers a day, linking wider parts of
the city to the metro network.
RIDE-HAILING SERVICES: One factor that may
make a significant contribution to changing patterns
of vehicle use is the spread of ride-hailing services.
Among various companies operating in this sector,
US-based Uber has moved into Saudi Arabia; accord-
ing to Bloomberg, the Saudi government owns more
than 10% of the firm through direct and indirect
holdings. By mid-2018 Uber was operating in 18 cit-
ies across the country: Jeddah, Medina, Makkah, Taif,
Yanbu, Jizan, Asir, Al Bahah, Tabuk, Riyadh, Qassim,
Hail, Kharj, Dammam, Khobar, Ahsa, Qatif and Jubail.
Uber’s arrival coincided with a change in local
legislation allowing women to drive for the first time.
To take advantage of this opportunity, the company
launched Masaruky, a women’s mobility initiative,
designed to respond to their needs both as Uber
drivers and as customers. Surveys conducted by
the company showed that 31% of Saudi women were
interested in driving to earn money. Uber was also
considering a new feature that would allow female
ride-hailing customers to express a preference for
being served by women drivers.
Uber has stated that Saudi Arabia is one of their
largest markets in the Middle East, Europe and
Africa, and that they have more than 200,000 part-
ners on board in the country. Additional services

(such as Uber Eats, a food delivery service) are also
being introduced, initially in Riyadh.
REGIONAL CONNECTIONS: Saudi Arabia and Bah-
rain are working on a major $3bn-4bn PPP project
to build the King Hamad Causeway, linking the two
countries and running parallel to the existing King
Fahd Causeway. The main aim of the new 25-km
connection is to allow crossings by passenger and
freight trains and vehicles, thereby relieving pres-
sure on the existing causeway.
In late 2018 the two countries’ governments said
they were launching a tender for consultancy ser-
vices. Work on the bridge was scheduled to start
in mid-2021 and continue for approximately three
years. A tender for the main construction work is
to be issued in the first half of 2019.
In neighbouring UAE, Abu Dhabi has been offering
its first big PPP motorway project, a 25-year con-
cession to upgrade, finance, operate and maintain
the 327-km Mafraq-Al Ghweifat highway linking
the emirate to Saudi Arabia. The project is valued
at around $2.7bn. There has been interest from a
number of consortia, including Macquarie Group of
Australia, Strabag of Austria and China Communi-
cations Construction Company. The announcement
of the preferred bidder was expected in early 2019.
There have also been reports that long-standing
plans to build a bridge or causeway linking Saudi
Arabia and Egypt may be moving forward. The pro-
posal was first made by King Salman bin Abdulaziz
Al Saud during a visit to Egypt in April 2016. At the
time, the idea was to support increased trade flows
between the two countries, as well as facilitate
travel by Egyptian pilgrims for the Hajj.
For its part, Egypt is also said to be interested in
increasing population density in the strategic Sinai
Peninsula. The project would allow for the passage of
vehicles, freight and passenger trains, and the bridge
would connect Saudi Arabia’s north-western coastal
A sharp increase in motor vehicle use has led to a rise in congestion
Bloomberg Terminal Research Homepage: OBGR‹GO›
TRANSPORT ANALYSIS 235
The Ministry of Transport will be spending $206.1m on eight projects to improve road safety in 2019
city of Tabuk to the Egyptian tourist resort city of
Sharm El Sheikh, on the souther tip of the Sinai.
ROAD SAFETY: Progress has also been made on
tackling Saudi Arabia’s high rate of road traffic acci-
dents. It is estimated that road traffic accidents
cause around SR4.4bn ($1.2bn) of material losses
every year. Speaking in late 2018, Mohammed Mesfer
Al Aboud, director-general of the safety department
at the MoT, said there had been a 33% reduction in
deaths caused by road traffic accidents during the
year, to 13,221. This represented an annual death
rate of 8 per 100,000 inhabitants, a major reduction
on the 26 per 100,000 registered in 2015. Al Aboud
said that the main causes of death on the roads have
traditionally been reckless driving, distraction, tyre
blow-outs, collisions with camels and a lack of safety
equipment on vehicles. He attributed part of the
improvement to the black points system, by which
drivers are penalised for violating traffic and safety
regulations and can potentially lose their licences.
He calculated that the new system was delivering
a financial saving of SR165m ($44m).
In November 2018 the MoT had also announced
it would be spending SR773m ($206.1m) on eight
projects to improve road safety. Among the projects
are a new National Road Safety Centre, the purchase
of various types of road traffic equipment and the
introduction of rumble strip projects designed to
alert drivers to changing conditions. Some of the
money was also earmarked to implement recom-
mendations made as part of an engineering and
consultancy services review carried out in 2017.
This had identified a number of traffic accident The aim of the new, 25-km
black spots and called for an update of the ministry’s King Hamad Causeway
safety documentation and policies. Further safety between Saudi Arabia and
measures are planned, including safety facilities at Bahrain will be to allow
crossings by passenger and
animal crossings, protective barriers for lampposts freight trains and vehicles,
and improved street lighting. There will be 23 pro- thereby relieving pressure
jects in total, with a total cost of SR2.2bn ($586.5m). on the existing causeway.
THE REPORT Saudi Arabia 2019
236
Civil aviation authorities
and airlines are investing
in airport infrastructure,
route expansion and fleet
capacity to ensure the
sector will be ready to meet
long-term demand.
The global commercial
airline industry was
expected to have made
a profit of
$38.4bn
in 2018
Global
Perspective
Skybound
Rapid expansion of global aviation industry propels investment
The aviation sector is experiencing rapid growth
worldwide, propelled by booming tourism industries,
lower air fares and the push for greater connectivity
in an increasingly globalised economy. Middle-class
expansion has also spurred growth in air travel, as more
people are able to afford flights for holidays or busi-
ness-related travel. According to Boeing, commercial
airlines experienced annual average passenger growth
of 6.2% between 2012 and 2017. The manufacturer
also estimated that by 2036 an additional 41,000
plane deliveries will need to be fulfilled in order to
meet service needs for both passengers and cargo.
To accommodate these developments, civil aviation
authorities and airlines are investing in airport infra-
structure, route expansion and fleet capacity, among
other efforts. However, the speed at which the industry
is growing poses challenges, particularly in regard to
human resource needs, safety and congestion, leading
to concern that the industry is expanding too rapidly.
Significant investment will be needed in aviation to
ensure it will be ready to meet long-term demands.
FULL THROTTLE: The International Air Transport Asso-
ciation estimated that the global commercial airline
industry would see profits increase from $34.5bn in
2017 to $38.4bn in 2018. Growth in emerging mar-
kets will likely continue to be driven by the low-cost
carrier (LCC) segment, which in recent years has trans-
formed air travel from a luxury to an affordable means
of transportation. Since 2008 fares have decreased by
an approximate average of 0.9% per year, in large part
due to the impact of LCCs on market competition. This
has enabled a greater number of people to choose
air travel, particularly those in growing middle-class
economies where disposable income is on the rise.
CHALLENGES & POTENTIAL: However, air travel
remains cost prohibitive in some regions, namely Africa,
where the LCC segment has yet to take hold and there
are few options to fly between countries. As of Feb-
ruary 2018 foreign airlines covered 80% of air travel
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throughout the continent. The largest African country
by land coverage, Algeria has 36 airports, and between
2015 and 2016 it recorded an increase of 9.1% in com-
mercial flights. Nevertheless, the sector remains chal-
lenged by the high costs of infrastructure upkeep and
minimal investment in tourism. There is great potential
for growth throughout the continent, and a recent
agreement signed by 23 African countries aims to give
it the boost it needs. The Single African Air Transport
Market, launched in January 2018, is expected to reduce
bureaucratic intervention and air fares, increasing the
number of direct international flights. It also provides
a framework for easing visa requirements, which will
likely trigger tourism growth in the signatory markets.
While air travel has become more accessible, the
rapid expansion in services has also led to air traffic
congestion, delays and concerns about the industry’s
impact on the environment. This has prompted new ini-
tiatives, including reforms to the regulatory framework
for carbon dioxide emissions and design solutions to
improve fuel efficiency. To combat the rise of airspace
congestion, the UAE recently launched a new air traffic
control system, which is an industry first. Developed
by the General Civil Aviation Authority, the Airspace
Restructuring Project was launched in December 2017.
The new system adopts performance-based navigation,
through which it relies on satellites and aeroplane com-
puters to guide aircraft along their routes, rather than
transmissions from terrestrial beacons.
FRIENDLIER SKIES: May 2018 brought an end to
long-standing tensions between US and Gulf carriers
with the signing of the Partnership for Open and Fair
Skies (POFS) policy. Previously, Gulf carriers faced push-
back from US industry figures who have argued that
they are at a disadvantage due to alleged government
financial support for airlines like Emirates, Qatar and
Etihad. According to the POFS, government subsidies
for the Gulf carriers violated the open skies agreement
with the US, and the carriers were unfairly benefitting

from fifth freedom routes, which allow flights operated
by Gulf carriers to depart from a foreign country.
However, governing bodies in the Gulf have denied
the accusations, maintaining that airlines do not receive
unfair government subsidies. Representatives of various
US carriers and aviation associations argued that these
conditions could potentially threaten US jobs and afford
the Gulf carriers an unlawful competitive advantage.
Therefore, under the POFS agreement, UAE carriers
will disclose their accounting records and refrain from
adding fifth freedom routes to US airports in the future.
AIRCRAFT PERSPECTIVE: Aircraft manufacturers
are set to enjoy sustained growth over the coming
years as airlines around the world respond to rising
demand for new routes and bigger fleets. Demand for
narrow-body aircraft will primarily come from the LCC
segment, while major carriers will continue to diversify
their fleets with long-haul aircraft like the Airbus A380
and the Boeing 787 Dreamliner.
In 2017 narrow-body aircraft comprised 64% of the
global fleet; by 2036 it is forecast at 75%. Boeing has
estimated that 38% of orders for commercial aircraft
will come from Asia Pacific in 2017-36. However, doubts
were raised in early 2019 – notably about the 737 Max
line of Boeing aircraft – following two high-profile
crashes. There were suspicions among some air traf-
fic safety regulators across Asia, Europe and Africa,
which banned the model from flying pending further
investigation, though as of mid-March 2019 there was
no conclusive information available.
For Airbus, business in the Gulf has sustained its
A380 programme, with Emirates signing an order for
20 aircraft in 2018. The deal could see Emirates order
an additional 16 craft, bringing the value of the trans-
action to roughly $16bn. Airbus’ biggest aircraft, the
A380, has a passenger capacity of 575 and has become
an increasingly popular choice for long-haul flights.
However, only 13 airlines have purchased the A380,
and many of the world’s airports do not have runways
that are long enough to accommodate it. New devel-
opments – such as Turkey’s Istanbul New Airport, which
237
will have capacity for 90m annual passengers once fully Air cargo transport is
operational – will also contribute to increased demand. forecast to increase by a
Air cargo transport was forecast to increase yearly by yearly average of
an average of 4.2% until 2036, according to Boeing. This
has triggered demand for more dedicated freighters
and passenger planes with larger cargo holds. With
4.2%
until 2036
unprecedented numbers of aircraft orders on the
books, the lead-up until then will see approximately
$6trn in manufacturing deals. However, major Western
companies may lose significant orders in the wake of
US President Donald Trump’s decision on May 8, 2018
to pull out of the Joint Comprehensive Plan of Action,
otherwise known as the Iran Nuclear Deal. Airbus and
Boeing were among the manufacturers that previously
signed a total of $38bn in orders from Iranian carriers,
all of which will face cancellation if sanctions are reim-
posed. Regardless, aircraft manufacturers are poised
to enjoy continued growth over the long term as the
aviation industry continues its rapid expansion.
NEW HEIGHTS: Facing annual passenger increases
and higher competition in global tourism and aviation
markets, countries around the world are investing
in air transport infrastructure to boost capacity and
accommodate growing fleets. While many airports
are refurbishing runways or extending them to accom-
modate wide-body aircraft, others are embarking on
bigger feats, with some aiming to position themselves
as regional hubs for passenger or freight transport.
TRAINING ZONE: As airlines continue to expand with
new routes and growing fleets, the industry is strug-
gling to meet demand for qualified personnel, particu-
larly in positions that require meticulous training and
adherence to strict international standards.
According to 2017 Boeing estimates, the global com-
mercial aviation industry will require an additional 2.1m
pilots, maintenance staff, cabin crew members, air
traffic controllers and other workers by 2036. While
this presents a positive opportunity for job growth,
greater investment in education will be needed to
ensure emerging markets can meet demands with local
staff, instead of relying on international recruitment.
 239

Real Estate & Construction

White land tax opens up opportunities for development
Homeownership boosted by mortgage market liquidity
Reforms improve efficiency of approval and licensing
Mega-projects expected to aid economic diversification
240
As of 2018 the total
capital value of real
estate investment trusts
listed on the Saudi Stock
Exchange stood at
$1.9bn
In September 2018
Cabinet approved the
conversion of the State
Property Department, the
government entity which
oversees the real estate
sector, into a general
authority called the General
Real Estate Authority.
REAL ESTATE OVERVIEW
The government plans to invest over $100bn in housing by 2023
Home run
Reforms and housing investment feed into real estate pipeline
Although growth in Saudi Arabia’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 fortunes
around. All eyes have been on the impact of the gov-
ernment’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.
SIZE & PERFORMANCE OF SECTOR: The real estate
sector struggled in 2018. While the Knight Frank Global
House Price Index recorded a global average increase
of 4.7%, Saudi’s property market registered a 1.3%
decrease in prices in the first six months of 2018, rank-
ing it 55th out 57 countries surveyed. This followed on
from a soft 2017, when sale prices and transaction
volumes came under pressure due to the lack of market
liquidity. In 2017 the value of the real estate index on
the Saudi Stock Exchange (Tadawul) decreased by
6.4% as the economy came under pressure from weak
oil revenues and a growing budget deficit. Despite
pressure on real estate prices, however, the total value
of the real estate sector still grew by 4% in 2017 and
comprised around 5% of GDP, or $37.2bn. According
to a report by Saudi financial services firm Falcom,
total real estate transactions between September
2017 and February 2018 showed a 14% year-on-year
increase to SR106.2bn ($28bn).
STRUCTURE & OVERSIGHT: The real estate sector
underwent some significant structural changes in
2018. In September 2018 Cabinet approved the con-
version of the State Property Department, the govern-
ment entity which oversees the real estate sector, into
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a general authority now called the General Real Estate
Authority (GREA). The change is aimed at enhancing
efficiency, with GREA to oversee management of state
property assets, formulate broader real estate policies,
and promote business development with the private
sector. Other prominent players in the sector include
the Public Investment Fund (PIF), which is overseeing
state funding for major construction projects in the
country, including housing.
Regulations relevant to the real estate sector include
the real estate mortgage and financing laws, which
were introduced in late 2014. These laws comprise
five separate pieces of legislation dealing with reg-
ulatory issues such as mortgage creation, oversight
and default, which has ensured greater financial sta-
bility in this sector. In order to diversify the economy
and further open the real estate market to smaller
investors, the Capital Market Authority introduced
new rules in 2016 allowing for the formation of real
estate investment trusts (REITs) on the Tadawul. As of
February 2018, the total capital value of listed REITs
sat at approximately SR7.2bn ($1.9bn).
GENERAL TRENDS: Saudi’s real estate sector has
undergone significant change since 2016 as the gov-
ernment has reigned in spending and increased taxes
in the face of weaker oil revenues. This continues to
weigh on consumer sentiment, and rents for residential
and commercial space have largely remained flat since
2016, while property prices have decreased. Since
2017 the government has introduced several taxes
for the real estate sector aimed at increasing state
revenue and encouraging property development. The
full effects of the introduction of a 5% value-added
tax (VAT) charge on new commercial and residential
property sales, which came into force January 1, 2018,
are still unclear. The VAT applies to any real estate sales
transaction but residential rents and first-time home-
buyers up to a purchase value of SR850,000 ($227,000)
are exempt. Real estate sales are expected to see an

increase in price in the coming year as sellers are likely
to simply add the tax to the value of the property rather
than cover the cost themselves.
MAJOR DEVELOPERS: Saudi’s real estate sector and
the wider construction industry have historically been
dominated by large local conglomerates which often
have strong relationships with the government and
royal family. The country’s major real estate devel-
opers include Saudi Binladin Group, Al Akaria, Dar Al
Arkan, Jabal Omar Real Estate, Makkah Construction
and Development, and Kingdom Real Estate Develop-
ment. The government has major stakes in most of the
large real estate developers, including a 70% share in
Al Akaria and 35% in Binladin Group. Most are publicly
listed and have looked to initial public offerings (IPOs)
in recent years to raise funds for expansion.
For example, in December 2017 Dar Al Arkan, the
country’s largest publicly traded real estate developer,
with assets worth SR2.7bn ($714m), announced that
it would sell a 30% stake in its property management
unit through an IPO. In 2018 there was a significant
increase in profits for several of Saudi’s major develop-
ers off the back of a slew of sales linked to large-scale
development projects. For example, Al Akaria posted a
SR30.3m ($8.2m) profit in the second quarter of 2018,
a 46.2% increase from the same period in 2017. Mean-
while, Dar Al Arkan’s net profits surged from SR10.9m
($2.9m) to SR108.6m ($28.9m) over the same period.
RESIDENTIAL: The government has plans to invest
over $100bn in housing by 2023 as it seeks to build
1m homes and increase the home ownership ratio
from 47% to 70% as part of its Vision 2030 strategy.
Around $15.7bn in funding is expected to come from
state coffers and the rest through public-private part-
nerships (PPPs). PPPs in the housing segment currently
account for around 54% of the $42.9bn of PPPs, and
are expected to drive growth in the coming years.
Income from the white land tax is reportedly already
helping to fund some of the state’s ambitious resi-
dential construction projects, including the SR100m
($26.7m) Al Uyaynah Housing Project in Riyadh.
Affordable financing is offered through partnerships
between private companies and the state-owned
domestic mortgage lender, the Real Estate Develop-
ment Fund (REDF), which has $49bn in funding. This
is also expected to help ease the cost of borrowing,
which has been recognised as one of the major barriers
facing first-time home buyers.
The residential supply market in Riyadh remained
largely unchanged from 2017 to 2018, with 1.26m units
in the market. Similarly, Jeddah’s residential supply is
also largely unchanged at 813,000 units, Dammam at
347,000, and Makkah with 384,000. Residential sales
prices and rentals softened in 2017 and 2018, decreas-
ing by 3% and 4%, respectively, in Riyadh, for example.
Further downward pressure is expected in 2019. Con-
struction prices for villas range from SR1700 ($453)
per sq metre for a low-asset class unit, up to SR6200
($2107) per sq metre for a residential compound unit,
according to a report by global real estate company
Century 21. Apartments range from SR2000-4500
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REAL ESTATE OVERVIEW 241
($533-$1200) per sq metre. In encouraging signs for In October 2018 the
investors, 2018 saw the government start to contract government signed
foreign companies to undertake several major residen- contracts worth $4.4bn
with Japanese and Chinese
tial development projects. Mohammed Badat, chief firms to build over 18,500
commercial officer at Bidaya Home Finance, a Saudi houses and over 8000
home financing institution, told OBG, “Saudi’s Minis- apartments.
try of Housing (MoH) has done a fantastic job with
launching and organising new housing projects, both
off plan and already completed, across the Kingdom.”
In October 2018 the government signed contracts
worth $4.4bn with Chinese and Japanese firms, includ-
ing deals to build over 18,500 houses and over 8000
apartments. A month later it had inked contracts to
build an additional 19,000 homes.
AFFORDABLE HOUSING: Continued government
focus on providing more affordable housing to drive
up home ownership among Saudi nationals is set to
boost the country’s wider real estate sector, particu-
larly in the capital Riyadh. Around 1.6m Saudi nationals
are currently on waiting lists for government housing
programmes and the government wants to build 1m
low-cost homes over the next five years.
In line with the National Transformation Programme,
the MoH aims to increase home ownership for nation-
als from 47% to 52% by 2020 through boosting afforda-
ble residential supply. A continued focus on this sector
of the market was evident in 2018, when the MoH
secured eight new PPP agreements and distributed
105,174 affordable residential products by May, and
was expected to reach its target of 300,000 residential
products by the end of the year.
MORTGAGE FINANCING: A major shortage of afforda-
ble housing in Saudi is in part tied to limited com-
petitive offerings in the home loans market, which
remains small by international standards, sitting at
around SR290bn ($77.3bn). The Kingdom’s mortgage
penetration has previously been estimated at around
8% of non-oil GDP. However, the government expects
the value of the home loans market to reach SR500bn
($133bn), or 15% of non-oil GDP, by 2030. As is the
case across most of the region, mortgages in Saudi
Arabia mainly come from commercial or state banks,
and there is a limited number of private non-banking
financial institutions (NBFIs), although this is expected
to increase over the coming decade.
Home loan interest rates are often too high for
low- to middle-income earning Saudis and the waiting
list for government-backed interest-free loans is long.
To deal with this issue the government established
the Saudi Real Estate Refinance Company (SRC) in
2017. The SRC has been tasked with refinancing 20%
of Saudi’s primary home loans market, and since its
inception has signed memoranda of understanding
to provide banks and home finance companies with The value of the home
slightly less than SR6bn ($1.6bn) of financing. Increas- loans market is expected
ing the availability of long-term, fixed-rate residential to reach
mortgages (LTFRs) will be key to growing the home
loans market and expanding access to mortgages and $133bn
in August 2018 SRC began offering LTFRs of 15-20 by 2030, making up 15%
years through banks and other financial institutions. of non-oil GDP
With SRC’s intervention in the market, LTFRs could
THE REPORT Saudi Arabia 2019
242 REAL ESTATE OVERVIEW
An additional account for 50-60% of Saudi’s mortgage market, up
415,000 from its current level of one-third.
INFORMAL HOUSING: Informal housing accounts
sq metres of gross for large parts of cities such as Makkah and Jeddah. A
leasable area in Riyadh 2012 UN report estimated that around 1m people in
are planned for 2019 Jeddah live in 50 unplanned settlements across 16% of
the city’s surface area. In Makkah there are around 16
unplanned settlements where 40% of the city’s popu-
lation of 2.2m people live, according to another report.
Since at least 2007 the government has been focus-
ing on upgrading informal settlements in Makkah,
Jeddah and other cities across the Kingdom through
redevelopment projects. The government has also
partnered with the UN Human Settlement Programme
to develop a sustainable urban development pro-
gramme focused on quality of life, economic com-
petitiveness and environmental protection.
Major development projects for informal housing
areas include the Jabal Al Sharashef Redevelopment
plan in Makkah, which consists of formal housing and
commercial districts close to the city’s holy sites.
COMMERCIAL: The commercial real estate mar-
ket in major cities such as Riyadh, Dammam, Jeddah
and Makkah has remained largely steady since 2017.
According to JLL, the supply of commercial real estate
space in Riyadh was flat in 2018, at 3.9m sq metres
of gross leasable area (GLA). Jeddah also remained
largely unchanged at 1m sq metres of GLA, Dam-
mam at 870,000 sq metres, and Makkah at 264,000.
Nevertheless, vacancy rates in some cities, particu-
larly Riyadh, decreased in 2018. In the capital, vacancy
rates for commercial property halved from 16% to
8% between the second quarters of 2017 and 2018.
Rents for commercial property remained broadly the
same in 2018, sitting at SR1289 ($343) per sq metre
in Riyadh, compared to around SR988 ($263) in Jed-
dah, SR1014 ($270) in Dammam, and SR551 ($147) in
Makkah. However, rent prices are expected to decrease
slightly in 2019 as supply increases. JLL estimates that
total commercial real estate space will increase to over
4m sq metres in Riyadh, off the back of construction
projects such as the Business Front on Airport Road,
the Majdoul tower on King Fahad Road, among others.
LEISURE & RETAIL: In contrast to commercial real
estate space, the retail segment has witnessed strong
growth since 2017, particularly in Riyadh and Dam-
mam. The hotel segment, meanwhile, showed little
change in the number of rooms in 2018, while occu-
pancy rates edged up slightly and prices per night
remained largely flat. Around 250,000 sq metres of
retail GLA space entered the market in Riyadh and
77,000 sq metres in Damman in 2017, up from 100,000
sq metres and 25,500 sq metres, respectively, in 2016.
In Riyadh another 250,000 sq metres is estimated
to have entered the market in 2018, with a further
415,000 sq metres in the pipeline for 2019.
Total retail GLA in Riyadh is forecast to hit 2.4m sq
metres by 2020, up from around 1.7m sq metres in
 REAL ESTATE OVERVIEW 243

2018. Current retail GLA in Damman is around 1.1m

sq metres and could rise to above 1.2m sq metres by
2020. Retail space is being boosted by a strong pipeline
of large projects, particularly in Riyadh where the Jood
Commercial Centre, Granada Centre Extension and the
Al Maather Square Extension, among others, will add
nearly 180,000 sq metres in floor space.
According to JLL, demand for retail space from the
food and beverage segment — including international
brands like the Cheesecake Factory and P.F. Chang’s
— are driving a lot of this growth. However, JLL has
raised an alarm about the possibility of oversupply
in the market, which is already having an impact on
vacancy rates, which have seen an increase from 9%
to 12% in Riyadh between the second quarter of 2017
and the second quarter of 2018. Oversupply has also
affected rental rates, which decreased by between
1-9% in shopping malls over the same period.
INDUSTRIAL: The government’s push to increase
industrial contribution to GDP to 20% by 2020 is
paving the way for growth in warehouse, factory and
The white land tax was introduced in 2017 to boost land availability
manufacturing space. As of the end of 2015, the last
year for which the Ministry of Commerce and Invest- plot in northern Riyadh, the largest real estate trans- The government’s push
ment has complete data, there were 7036 factories in action in the country’s history. The 434,000-sq-metre to increase industrial
the country, a significant increase from 5814 in 2010. plot of land is located at a prime spot in northern contribution to GDP to
20% by 2020 is paving
In 2015 around 43% of factories were in Riyadh and Riyadh, opposite the King Abdullah Financial District, the way for growth in
industrial space in the city totalled around 25.2m sq which is itself still under development. warehouse, factory and
metres. The government forecast that industrial space OUTLOOK: Looking ahead, a strong housing devel- manufacturing space.
would increase to 35.4m sq metres by 2018, rising at opment pipeline is likely to be the primary driver of
a compound annual growth rate of 8.8%. Occupancy the country’s real estate sector in 2019. This will be
rates, at least in Riyadh, have historically been high, underpinned by greater access to mortgages as more
hovering around 92-100%. In terms of construction private debt providers enter the market to meet strong
costs for industrial real estate space, warehouse costs demand, particularly for cheaper housing options
can range SR1500-2500 ($400-$667) for warehouses developed through government PPP initiatives. The
and SR1500-3800 ($400-$1013) for manufacturing industrial real estate segment also looks to be a safe
space, according to a 2018 report by Century 21. bet as the government continues to focus on diver-
DEVELOPMENT: The government is targeting 7% sifying its economic output base. Although it might
annual growth in the real estate sector, and is aiming still be too early to assess the impact of the 5% VAT
for real estate and construction to eventually contrib- on some commercial and residential properties, any
ute 10% of GDP as part of its Vision 2030 development associated increases in property prices due to this tax
programme. The real estate sector is set to be a major are likely to be cancelled out by increased competition
focus of Vision 2030, which sets out ambitious plans to in the market as a slew of developments come into play.
launch real estate projects of all kinds, from residential
to commercial and entertainment.
Real estate activities, 2014-18 (%)
Apart from increasing access to housing, which is
set to be a major government focus over the next
GDP growth GDP contribution
decade, real estate linked to tourism is also set to
undergo major expansion. Construction of hotels and 12
other leisure-related real estate is one of the key aims
10
of the Vision 2030 programme as the government is
seeking to increase capacity for Muslim pilgrims in the
8
country’s holy cities from 8m to 30m visitors by 2030.
LAND: The introduction of a white land tax in March 6
2017 is already increasing the availability of land for
development in Saudi. The law requires the owners of 4
undeveloped lands that were allocated for residential
or commercial usage to pay a 2.5% tax if they do not 2
begin developing it within 12 months.
0
The tax has already prompted some landowners to 2014 2015 2016 2017 2018
sell major tracts of land to the government. For exam-
Source: GaStat
ple, in October 2018 the PIF purchased a $578.6m land

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244 REAL ESTATE & CONSTRUCTION INTERVIEW
Majed Al Hogail, Minister of Housing
Building value
Majed Al Hogail, Minister of Housing, on improving access to
housing and boosting public and private development
To what extent will the rollout of new mortgage
schemes bolster investor confidence?
AL HOGAIL: Two new mortgage schemes have led
to massive market growth in 2018. First, interest
subsidies have increased the affordability of home
financing to end beneficiaries. Second, a mort-
gage guarantee scheme has boosted accessibility
to home financing for private sector employees,
self-employed people and entrepreneurs, military
personnel who retire prematurely, and senior citi-
zens who are close to retirement. Many innovative
new offerings have also been introduced as part
of the Sakani programme, provided by the Ministry
of Housing and the Real Estate Development Fund
(REDF) to allocate residential products across Saudi
Arabia. For example, the down payment guarantee
programme reduces the down payment required for
new homes from 15% to 5%. In addition, the military
scheme provides an interest-free loan from the REDF
to military personnel covering 20% of property value,
including the down payment. As a result of these
schemes and programmes, the mortgage market saw
growth of 64% in 2018. Growth in the fourth quarter
of 2018, compared to the first quarter of the same
year, increased by 98%. This increase in demand has
already led to a slight increase in property prices, and
we have seen medium-sized developers increasing
their activities and investing in the development of
new projects as a result. We expect this growth to
continue to accelerate in 2019, leading to a huge
boost in investor confidence. We are on track to
deliver our home ownership target by 2020 and,
according to GaStat, as of mid-2018 we had already
achieved 60.49% of the target.
How can public-private partnerships (PPPs)
streamline housing schemes and reduce costs?
AL HOGAIL: In 2017 we started to shape the PPP
model by introducing an ambitious programme called
www.oxfordbusinessgroup.com/country/saudi-arabia
Shrakat. Since its inception, Shrakat has recruited 66
local and international real estate developers, who
have significant potential in terms of striking new
deals with developers and landlords. This programme
has added value across the board by giving citizens
access to over 140,993 diversified home solutions
and attractive financing.
In addition to this, private developers have gained
increased access to the general population, resulting
in a reduction in investment risks and an increase
in value. This PPP model will also enhance the real
estate sector by incentivising developers who are
using advanced building technologies. In 2018, the
model introduced procedures that reduced the cost
and time of construction by applying a number of
building technology initiatives.
What kinds of public development can add the
greatest value in urban areas?
AL HOGAIL: A key target of Vision 2030 is to develop
sustainable cities that fulfil citizens’ requirements in
all aspects of their lives by using spatial advantages
of cities while taking into consideration the eco-
nomic, social and environmental impacts. Land use
charges, uncomfortable sidewalks and a shortage
of green areas are key challenges currently facing
the Kingdom’s city centres. To solve this, initiatives
were launched under Vision 2030 and the National
Transformation Programme to increase the quality
of life by upgrading the physical environment.
This overarching strategy is being worked on in
partnership with other governmental agencies, with
the purpose of identifying a successful approach to
redevelopment that is in accordance with modern
standards and best practices. By using examples
from other countries as a source of inspiration and to
attain knowledge, the obtained benefits can be max-
imised and city centres can gradually be transformed
so that they are more pleasant for the community.

Eager to innovate
Mega-city developments set to diversify the range of offerings
The ambitious $500bn mega-city NEOM — derived
from the Greek word neo (new) and the Arabic word
mustaqbal (future) — project is an energiser for the
construction sector and provides a promising long-
term pipeline of opportunities for investors. These
include Qiddiya, an $8bn entertainment complex
three times the size of Florida’s Disney World; and a
34,000-sq km luxury tourism development along the
Red Sea. The government anticipates that mega-pro-
jects like NEOM can move the country away from
oil dependence by creating a new economy under-
pinned by tourism, technology and entertainment.
This strategy fits into the framework of the Vision
2030 development plan, which aims to transform
Saudi Arabia into a global investment powerhouse
as well as a regional trading hub. With this strategy
in mind, NEOM has been positioned to straddle the
borders of Saudi Arabia, Jordan and Egypt, and, with
a whole host of international experts involved, aims
to set the benchmark for futuristic cities which
transcend national boundaries.
LOCATION: NEOM will cover approximately 26,500
sq km and comprise a city and economic zone con-
structed in Tabuk, close to the border region of Jor-
dan and Egypt and the Red Sea. More than twice the
size of neighbouring Qatar, the area was reportedly
chosen due to its strategic location and proximity
to international shipping routes. First announced
in 2017, NEOM is a long-term project expected to
take between 30 to 50 years to complete, with the
first phase due by 2025. Currently, apart from a
communications tower and a Saudi Border Guards
post, the area is mostly uninhabited and largely cut
off from the rest of the country. As such, one of the
first phases of the project is to build a major interna-
tional airport as well as roads connecting the area.
LONG-TERM VISION: NEOM is envisioned as a
futuristic city built using the most advanced tech-
nology and artificial intelligence. The government
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REAL ESTATE ANALYSIS 245
The government anticipates mega-projects will create a new economy
has also posited NEOM as a more open and liberal The NEOM mega-city
future community where business and innovation project is valued at
$500bn
will be prioritised. As NEOM will be designed and
constructed from scratch, the government intends
to integrate the latest innovations in infrastructure,
power generation and mobility.
Crown Prince Mohammed bin Salman bin Abdu-
laziz Al Saud has previously described NEOM as a
“civilisational leap for humanity”, promising that
“everything will have a link with artificial intelligence,
with the internet of things.” NEOM is expected to
lead the way in terms of widespread deployment of
drones, driverless cars and robotics. It will also run
entirely on wind and solar power, according to initial
plans. Planners reportedly envisage the NEOM tech
hub to be at the forefront of developments in gene
therapy, genomics, stem cell research, nanobiology,
arid and seawater farming, and bioengineering.
INTERNATIONAL EXPERTS: The prospect of build-
ing the most technologically advanced city in the
world from scratch has attracted the interest of
numerous high-profile engineering, architecture
and technology firms and figures. Within months
of the government officially announcing NEOM’s
development plans in October 2017, the project
had already appointed global industry figures to its
advisory board. At least 19 prominent international
figures have all been linked to the project, including
Apple’s chief of design, Jonathan Ive; Norman Foster,
the architect; Carlo Ratti of MIT’s Senseable Cities
Lab; Ideo president and CEO, Tim Brown; former Uber
CEO, Travis Kalanick; and Ernest Moniz, a former US
Secretary of Energy. Virgin Group founder, Richard
Branson, was also brought in early on as one of the
directors of the project.
INVESTMENT INTEREST: Since its unveiling in Octo-
ber 2017, foreign investment interest in NEOM has
been gaining traction. Saudi Arabia’s Public Invest-
ment Fund (PIF), which is overseeing and funding
THE REPORT Saudi Arabia 2019
246
Local construction companies have already secured major mega-city project construction contracts
Mega-projects are set
to boost nine currently
underdeveloped primary
sectors: transport; biotech;
food; manufacturing;
media; entertainment;
technological; digital
sciences; and real estate.
REAL ESTATE ANALYSIS
a major economic development drive across the
country, has led from the front in engaging with
international partners. The PIF has been working
closely with Japanese multinational Softbank to
develop solar power capacity to support NEOM and
the country more widely. In March 2018 Softbank
and the Saudi government signed a memorandum
of understanding to invest $200bn in solar power
development, which would include $15bn in NEOM’s
solar power capacity. That same month, the Egyptian
and Saudi governments agreed to set up a $10bn
joint fund in a deal crucial to the cross-border devel-
opment of the project. Further afield, major Indian
businesses are also reportedly actively trying to
secure contracts and investment opportunities in
NEOM in various sectors such as railways, hospitality,
tourism, airport, housing, IT and entertainment.
KEY FOCUS INDUSTRIES: The city will reportedly
focus on developing nine primary sectors: transport;
biotech; food; manufacturing; media; entertainment;
technological; digital sciences; and real estate. The
government is hoping companies setting up shop in
the mega-city operating in these sectors will gen-
erate an annual income worth $100bn by 2033,
thereby boosting non-oil GDP.
Most of these sectors are currently underserved
and under-represented in the country. NEOM is
expected to create a large proportion of the 1.2m
jobs the government hopes to create by 2030. NEOM
is also set to help increase the construction sector’s
contribution to total GDP — which in 2017 sat at
around 4.6% — to as much as 10% by 2030.
CONSTRUCTION POTENTIAL: Local construction
companies like Saudi Binladin Group, the country’s
largest, have already secured major NEOM-related
contracts. In February 2018 the government report-
edly awarded the company a contract of an undis-
closed value to build one of five palaces for the royal
family in NEOM. Slated to be 33 times larger than
www.oxfordbusinessgroup.com/country/saudi-arabia
New York City, NEOM’s population would need to
reach around 1.4m people for the city to meet its
ambitious annual income and output targets. This
entails a huge pipeline of real estate projects, not
to mention roads and other critical infrastructure.
Plans to build a bridge connecting NEOM to Egypt
and the rest of Africa will also require a significant
construction undertaking. Construction companies
able to incorporate innovative technology to pro-
duce zero-carbon housing and other buildings will
be prioritised, according to government statements.
In anticipation of numerous construction projects,
local cement producers have started raising their
output. In July 2018 Bloomberg reported that local
producers Tabuk Cement and Hail Cement had
increased production by 20% and 55%, respectively,
in the first half of 2018.
OBSTACLES: Despite the opportunities that lie
ahead, the government has a growing list of strug-
gling mega-developments. These include the King
Abdullah Economic City, a metropolis and port
located south of NEOM’s planned location, which has
only attracted 10,000 residents in 10 years against
a projected population of 2m. Furthermore, chal-
lenging macroeconomic conditions weighed down
by a slump in global oil prices have hindered the
Vision 2030 agenda. However, a recent recovery in
oil prices, together with the unveiling of reforms and
moves at privatisation, bode well for Saudi Arabia’s
economy in the year ahead. Up until now the gov-
ernment has met its targets for NEOM’s develop-
ment and managed to secure $56bn in countrywide
investments at the high-profile Future Investment
Initiative in October 2018. To buck the trend and see
NEOM — arguably the world’s most ambitious con-
struction project — as well as other mega-projects
like Qiddiya, through to the end, the government will
need to provide further reassurances and incentives
to foreign businesses to keep investment flowing in.
Companies settling in NEOM are expected to generate $100bn by 2033

Building traction
The construction sector consolidates gains ahead of anticipated
bumper year in 2019
In 2018 consolidation marked Saudi Arabia’s construc-
tion sector, following a difficult 2017 when the gov-
ernment shelved or paused many unfinished projects.
Growth in 2018 was modest at around 4% and the value
of contracts awarded was still well below the record
years of 2013 and 2014. The year also saw the fall of
one of the country’s largest and most successful con-
struction companies, Saudi Binladin Group. In addition,
the sector is increasingly being opened up to further
competition. Overseeing the Saudi Public Investment
Fund (PIF), the largest project developer in the country,
Crown Prince Mohammed bin Salman bin Abdulaziz
Al Saud has continued to play a major role in sector
reform in 2018, announcing privatisation plans and
bold development projects. Backed by increased devel-
opment and infrastructure spending, the construction
pipeline for 2019 and beyond is extremely positive with
700 new projects set to come on-line in 2019.
SECTOR SIZE: As of October 2018 the total value of the
Kingdom’s ongoing construction projects had reached
$284bn. In terms of combined value across the GCC,
Saudi Arabia accounts for 45% of construction pro-
jects in the region. Overall, growth in the construction
sector as of October 2018 stood at 4.1% year-on-year,
likely boosted by the $14bn in infrastructure spending
set aside in the 2018 state budget. The total value of
construction contracts awarded in 2018 is forecast to
hit $26.3bn, and then climb significantly to $44.1bn in
2019. The construction sector’s contribution to total
GDP, which in 2017 sat at around 4.6%, is expected to
increase to as much as 10% of GDP by 2030.
Although a strong pipeline bodes well for the com-
ing years, the sector’s current performance is still
well below the record $78.1bn of contracts that was
awarded in 2013. The value of Saudi contract awards
has varied widely over the past decade as state spend-
ing fluctuated. A recent low point in terms of contracts
awarded was reached in 2016, with just $20bn awarded.
In 2017 this figure rose to $27bn and this was expected
Bloomberg Terminal Research Homepage: OBGR‹GO›
CONSTRUCTION OVERVIEW 247
The construction sector contributed approximately 4.6% to GDP in 2017
to remain fairly consistent in 2018. The government As of October 2018, the
continues to be the principal source of the vast majority total value of Saudi’s
of new construction project tenders in the country. ongoing construction
PERFORMANCE: In recent years, the government has projects had reached
had to cancel several planned construction projects
as part of efforts to reign in the widening fiscal deficit
$284bn
amid decreased oil revenues. In 2017 the government
announced it would shelve billions of dollars’ worth of
construction projects, many of which had advanced by
less than 25%. Fiscal pressures and changing govern-
ment priorities have had a significant knock-on effect
for the construction sector’s performance. Few new
projects outside of oil and gas have been started in
recent years, and most others have been concentrated
in the capital Riyadh. “Everything was put on hold,”
Nagib El Alam, vice-president of Construction at Saudi
Arabian Trading and Construction Company (SATCO), a
Saudi civil construction contractor, told OBG. “Projects
were re-evaluated and restudied and reprioritised in
line with Vision 2030,” El Alam added.
Going forward, the government is set to prioritise
several construction segments for investment, includ-
ing hospitals, schools and housing. In addition, tradi-
tional economic sectors – such as hydrocarbons – as
well as relatively new segments, such as technology,
entertainment and tourism, are also being prioritised.
Housing construction is set to be a major focus for
the government as it seeks to meet its development
targets laid out in Vision 2030. Notably, this includes a
target of 70% home ownership in the country, up from
its current level as of 2018 at 47%.
Despite recent project cuts, the construction sector
is still expected to achieve a compound annual growth
rate of 3.1% between 2017 and 2022. This growth is in The construction sector
part supported by the government’s $3.5bn allocation is expected to achieve a
compound annual growth
for road and bridge construction projects as well as
rate of 3.1% between 2017
investment in gas infrastructure, including a $590m and 2022, supported by
gas pipeline construction project. Multibillion-dollar $3.5bn of road and bridge
projects focused on tourism, including the NEOM and construction projects.
THE REPORT Saudi Arabia 2019
248 CONSTRUCTION OVERVIEW
The Saudi Public Qiddiya mega-projects, are also buffering the con-
Investment Fund is struction pipeline. NEOM, a bold cross-border smart
the Kingdom’s largest
city, is expected to bring in around $500bn worth of
project developer with
pre-execution pipeline total investment alone.
investments worth $534bn, STRUCTURE & OVERSIGHT: Saudi Contractors
including in construction. Authority (SCA), a newly formed government author-
ity, is the primary institution responsible for regulating
Saudi Arabia’s construction industry. Formed in 2017,
the SCA has been tasked with increasing mergers and
acquisitions, addressing labour issues, drafting rules for
the industry, and publishing industry data and supply
statistics on behalf of the government.
The PIF, the Kingdom’s sovereign wealth fund, invests
across numerous sectors including infrastructure and
housing development. Under its 2018-20 develop-
ment programme, the PIF expects to create around
260,000 construction jobs. Crown Prince Mohammed
bin Salman is also a prominent figure in the country’s
construction sector and has played a key role in reform
efforts. He leads the PIF and has been credited with
shaking up the construction sector through opening it
up to more competition and breaking up the historically
dominant construction conglomerates in the country.
Additionally, he has been instrumental in bringing about
a number of recent reforms to foreign ownership laws
which now allow foreign companies to own 100% of
projects in most industries, including construction.
MAJOR CONSTRUCTION COMPANIES: Saudi Ara-
bia’s construction sector is dominated by several large
government-owned funds and around a dozen or so
prominent contractors. The PIF is the country’s and
the GCC’s largest project developer, with pre-execu-
tion pipeline investments worth $534bn, a number of
which are in construction. The PIF is one of the seven
Saudi entities in the GCC’s top-10 largest project own-
ers. Others include the King Abdullah City for Atomic
and Renewable Energy (KA-CARE) investment fund
and Saudi Aramco. As of 2018, KA-CARE’s develop-
ments were valued at $70bn and Aramco’s at $36bn.
Beyond these large multibillion-dollar players, smaller
funds such as the Al Akaria Saudi Real Estate Company
(SRECO) and Alinma Investment Company (AIC) are
also very active in the construction sector. In October
2018, SRECO and AIC established a joint $400m fund to
build hotels and commercial premises in Riyadh. Most
construction contractors operating in the Kingdom are
local and depend almost entirely on government con-
tracts. According to SATCO’s El Alam, “Around 98-99%
of contracts still come from the government as the pri-
vate sector remains wary due to the current economic
situation.” Construction permits are typically issued by
the corresponding municipal authority and can cost
around SAR7800 ($2080) in Riyadh, for example. The
family-owned Saudi Binladin Group, which has been
the preferred government contractor for decades, is
the dominant player in the market and was formerly
worth approximately $7bn. Saudi Binladin Group’s larg-
est contracts include the ongoing $26.6bn expansion

project at the Grand Mosque in Makkah. However, the
company appears to have fallen out of favour with
the government. Saudi Binladin Group is currently
in the process of being slimmed down, restructured
and renamed after members of its management were
swept up in an anti-graft drive. Nevertheless, it remains
the largest construction contractor in the country.
Other major local construction contractors include
Al Rashid Trading & Contracting Company, Al Arrab
Trading & Contracting, Al Bawani, El Seif Engineering
Contracting Company, and Al Fouzan Trading & General
Construction Company. There has also been an uptick
of involvement by large foreign contractors, including
from Russia and China. In October 2018 Russian Rail-
ways announced that it would submit an application
to build a high-speed rail link between the holy cities
of Makkah and Medina. Various companies from Japan,
the US and China are also being contracted to build
housing and to improve the efficiency and technology
of construction methods in Saudi Arabia.
PUBLIC PROCUREMENT: There are three government
procurement methods: public procurement compe-
titions, direct purchases and specific purchases. The
majority of the acquired purchases are under the cat-
egory of public procurement competitions. In the past,
the Kingdom has faced issues in delivering mega-con-
struction projects, including delays, high costs and
low customer satisfaction. Some studies have shown
that around 70% of public projects in Saudi Arabia
are delayed. One factor that might be causing these
performance issues is the traditional low bid contract-
ing system in Saudi Arabia, or the Saudi procurement
system. In Saudi Arabia owners often select contractors
mainly based on the lowest price.
To address these shortcomings, in 2017 the Saudi
Arabian General Investment Authority (SAGIA) part-
nered with the US Department of Commerce to assess
its public procurement system, with the aim of aligning
it with international standards. As of November 2018,
planned reforms to the public procurement system
were still under discussion.
Although Saudi’s 2006 Government Tenders and
Procurement Law sets a level playing field for local and
foreign companies to tender for projects, Article 5 of
the same law states that priority will be given to locally
manufactured goods, products and services. As such,
local construction contractors are typically given prior-
ity throughout the tendering process whenever there
is no difference between their offers and the foreign
company’s offers. There is no central tender board
in Saudi Arabia, and each government department
has its own contracting authority. Pre-qualification is
used to identify contractors who have the necessary
experience, know-how and resources to successfully
carry out a particular scope of work or project.
The specific requirements for pre-qualification for
government tenders vary between different govern-
ment agencies and also from project to project. One
of the major requirements is that companies bidding
for public tenders have a commercial registration;
foreign contractors require a licence from SAGIA.
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CONSTRUCTION OVERVIEW 249
The sector is dominated by several large government-owned funds and around a dozen prominent contractors
Regulations are generally flexible for foreign contrac-
tors, particularly in relation to infrastructure tenders.
In these cases, foreign companies can secure a tem-
porary licence from SAGIA without having a physical
presence in the country. Apart from the major tender
for the high-speed rail link, the government is also
looking to international companies to bid on other
major infrastructure development projects. In June
2018 the government invited five international com-
panies to bid for a $745m contract to build a 60-km
canal along the Qatari and Saudi border. Other current
tenders targeting foreign companies include upgrade
projects for power stations.
BUILDING MATERIALS: Cement sales in Saudi in 2018
were some of the lowest compared to the last five
years, largely due to oversupply. Most cement compa-
nies recorded a 6% year-on-year decrease in revenues
in the second quarter of 2018 and an average earnings
decrease of approximately 10%. This followed a sharp
contraction of 57% in earnings and fall in dividend yields
to 4.7% in 2017 against a three-year average of 6.1%.
Conversely, steel prices recorded a 12% year-on-year
increase in the first quarter of 2018, while cables rose
by 19% and wood by 5% over the same period, amid
increased demand across the globe.
According to a report by Trade Arabia, 15 cement
companies recorded a decline in sales volume in the
second quarter of 2018, led by Riyadh Cement (-44.1%)
and Cement City (-37.5%). However, Tabuk Cement
(+82.4%) and Hail Cement (+28.7%) recorded major
sales boosts off the back of increased production of
20% and 55%, respectively, in the first half of 2018,
reportedly linked to the NEOM mega-project. In 2017 In order to improve the
the residential segment held the largest cement market quality of mega-project
share in Saudi Arabia, accounting for over 62% of the delivery, the Saudi Arabian
General Investment
market. Riyadh Capital, a local investment bank, has
Authority partnered with
said that the cement segment is on a modest path the US Department of
to recovery but that companies are likely to see flat Commerce to assess its
or modest improvements in margins and earnings public procurement system.
THE REPORT Saudi Arabia 2019
 250 CONSTRUCTION OVERVIEW

the construction sector’s growth potential. Although

In 2019, 700 new projects are set to launch, setting the sector up for medium- to long-term growth
More than in the next 12 months. According to Riyadh Capital,
the sector is forecast to grow at an annual average of
6.1% between 2018 and 2022, this could be revised
downwards given current labour law trends.
MAJOR PROJECTS & DEMAND DRIVERS: With 700
new projects set to launch in 2019, the Saudi con-
struction industry is poised for medium to long-term
growth. Apart from tourism and residential-focused
mega-projects like NEOM and Qiddiya, demand from
the petrochemicals and minerals sectors is also driving
a promising pipeline of construction work.
In October 2018 the PIF inked $50bn in agreements
and memoranda of understanding (MoUs) with local
and foreign firms during the Future Investment Initia-
tive summit in Riyadh. Construction contracts to build
a copper and zinc smelter, a petrochemical complex in
Jazan, and a refinery at King Salman Global Maritime
Industries Complex, were among the largest projects
agreed upon. Transport infrastructure, including $3.5bn
in government allocation for roads and bridges, as well
as separate contracts for a rail network, are among the
other main drivers of demand.
OUTLOOK: The Kingdom’s construction sector is on a

$44bn
in construction
contracts are expected
to be awarded in 2019
most production will feed local demand in the short
term, as the export market remains challenging due
to stiff price competition in neighbouring countries
and oversupply in the region in general.
Despite weakening demand for cement in 2018,
the outlook for the short to medium term is positive.
Technavio, a global technology research and advisory
firm, has forecast a compound annual growth rate for
cement demand of over 5% for the period 2018-22,
with the key driver of growth being the Vision 2030
development programme. Infrastructure developments
associated with religious tourism, health care and real
estate, in addition to the development of the NEOM
and Qiddiya mega-projects, are set to underpin this.
STAFFING: As of end 2018 the construction sector
employed around 150,000 private sector workers. Con-
struction in Saudi has been one of the sectors hardest
hit by the recent exodus of expatriate workers. In 2017
the government introduced expat dependent fees
and then in early 2018 implemented a series of expat
levies. These reforms are part of the government’s
broad policy of Saudiisation, which aims to increase
the number of local employees in key sectors.
As part of this policy, the government is increasing
the costs of hiring expats in an effort to incentivise
local firms to hire locally. Around 221,000 expats left
the country in the first quarter of 2018 alone, 126,000
of which were formerly employed in the construction
sector. At the time, the total number of foreigners
who had left the market since the start of 2017 stood
at around 796,000. In February 2018 several heads
of chambers of commerce and industry called on the
government to exempt the private sector from full
Saudiisation, citing concerns that many businesses
in construction and other sectors may be forced to
close down as a result. A July 2018 report by BMI
Research warned that labour shortages and strict
implementation of a 100% Saudiisation policy threaten
steady road to recovery following several challenging
years amid a scaling back of government investment.
With a rebound in global oil prices strengthening state
revenues, the government is once again upping its
investments in a pipeline of mega projects related to
infrastructure, petrochemicals, transport and housing
projects. More than $44bn in construction contracts
are expected to be awarded in 2019 and foreign com-
panies with technical knowledge and skills are well
positioned to win bids for complex projects related to
petrochemicals, power and canal construction.
Although potential labour shortages driven by visa
requirement changes and Saudiisation pose opera-
tional challenges, the government is likely to address
this problem. Under Crown Prince Mohammed bin
Salman’s lead, positive changes to foreign ownership
laws and ongoing privatisation plans have set the stage
for promising sector growth in the coming years as the
country looks to meet its ambitious Vision 2030 targets.
No. of construction workers, 2016-18 (000)
Foreign Saudi
1200
1000
800
600
400
200
0
Q2 2016 Q4 2016 Q2 2017 Q4 2017 Q2 2018
Source: GaStat

www.oxfordbusinessgroup.com/country/saudi-arabia

To lend a hand
Reforms and financing revitalise the government’s affordable
housing programme
The government is undertaking promising reforms
and investing in new developments in order to bolster
the volume of affordable housing available on the
market, in turn increasing the homeownership ratio
among nationals from its current level of 47% to 70%
by 2030, as the government seeks to meet demand
and accommodate a burgeoning young population.
To achieve this, the Ministry of Housing (MoH) is
working alongside the Public Investment Fund (PIF),
Saudi Arabia’s $230bn sovereign wealth fund, as well
as foreign companies through public-private partner-
ships (PPPs), to build 1m affordable homes by 2023.
Positive reforms in the financial sector are also lower-
ing the costs of borrowing and barriers to accessing
mortgages for first-time home buyers. In 2018 alone,
the government was on target to build 300,000 new
houses and is well on its way to achieving its target
of 52% homeownership by 2020.
DEMAND OUTPACING SUPPLY: An estimated total
of 1.6m Saudi nationals are currently on waiting lists
for government housing programmes, and demand
for affordable housing is only growing. In 2015 the
MoH estimated that it would need 3.3m more houses
by 2025 to keep up with the Kingdom’s growing pop-
ulation, which is set to increase at an annual rate of
2.5% to reach 37m by 2025, up from 31m in 2015.
Most of the population is under the age of 30 and
a 2017 report by HSBC highlighted the challenges
facing millennials in purchasing their first home,
with slow salary growth and house price inflation
the greatest barriers. The authorities are focused
on alleviating such challenges facing young buyers
in the country’s housing market.
REFORMS: Several recent reforms, including the
white land tax and regulatory changes to mortgage
requirements are creating a strong platform for the
government’s bold homeownership growth targets.
The white land tax of 2.5% on unused plots, which
was introduced in March 2017, has already prompted
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CONSTRUCTION ANALYSIS 251
The population is set to grow by 2.5% annually, reaching 37m by 2025
the sale of some major tracts of land to be used for A white land tax of
housing development. Much of this land is in cities
such as Riyadh, Makkah and Jeddah, where the limited
availability of land has led to widespread informal
2.5%
on unused plots was
housing settlements. For example, as much as 40% introduced in
of land in Riyadh had previously been identified as March 2017
unused, and therefore liable for tax.
Other major reforms have addressed the weak-
ness of the country’s mortgage market. The govern-
ment only introduced a law in 2013 which allowed
commercial banks to offer mortgage financing for
the first time. As such, the mortgage market is still
nascent, small, and dominated by commercial and
state banks. Moves by the Saudi Arabian Monetary
Authority (SAMA) to increase the mortgage limit for
housing loans from 75% of value in 2016 to 85% in
2017 and then to 90% in early 2018 are expected to
make home loans more accessible. The emergence
of six non-banking financial institutions (NBFIs) to go
along with the 13 commercial banks in the country,
is also making the mortgage market more compet-
itive. Mohammed Badat, chief commercial officer
at Bidaya, a Saudi home financing institution told
OBG, “Commercial banks currently control around
90% of the yearly incremental retail mortgage busi-
ness-to-consumer market.” However, assistance from
the government is helping NBFIs increase their offer-
ing to first-time home buyers.
RESTRUCTURING & REFINANCING: Financial prod-
ucts tailored to first-time buyers and greater financ-
ing for private lenders are just some of the positive
structural changes taking place in Saudi’s housing
market. The Real Estate Development Fund (REDF),
a $49bn government lending fund which reports to An estimated total
the MoH, has created several affordable housing of 1.6m nationals are
currently on waiting lists
products over the past few years to facilitate greater
for government housing
homeownership. Some of these products include programmes and demand
generous subsidies for consumer mortgages, such for affordable housing is
as the Subsidised Finance Programme, which covers only growing.
THE REPORT Saudi Arabia 2019
 252
In order to boost mortgage market liquidity, the government has set aside $32bn to finance subsidised loans
The length of the
approval and licensing
process for new housing
schemes was reduced to
60
days through reforms
and cutting of red tape
CONSTRUCTION ANALYSIS
mortgages of up to SR500,000 ($133,300) and can be
applied for at commercial banks or NBFIs like Bidaya.
Under the down payment guarantee, a first-time
home buyer is only liable to make 5% down payment
on the value of the home, with the REDF covering a
further 5% as a down payment guarantee to make
the mortgage transaction more affordable.
“This is a fantastic product,” Bidaya’s Badat told
OBG, noting that by involving commercial banks and
NBFIs the product had reduced mortgage application
waiting times where “previously there used to be huge
queues of a minimum of two years for beneficiaries
who had applied for loans.”
The Saudi Real Estate Refinance Company (SRC),
created in 2017, has been tasked with increasing
liquidity in the mortgage market, primarily for NBFIs
which do not have access to as much capital as com-
mercial banks. With funding of SR5bn ($1.3bn), which
is set to increase to SR13bn ($3.5bn), SRC is helping
NBFIs finance their lending. All in all, the government
has set aside SR120bn ($32bn) to finance subsidised
loans. Bidaya and SRC recently signed a SR1.5bn
($400m) agreement to finance a long-term fixed-
rate (LTFR) loan scheme.
“In a rising rate economy, which we are in currently,
SRC came in with a product where they have fixed
the rate for 20 years, which NBFIs like Bidaya can
take advantage of,” Badat told OBG. “This is some-
thing mortgage lenders have been waiting for over 10
years.” In addition, SRC is actively purchasing mort-
gage portfolios from NBFIs, including 20-year LTFR
mortgages. These measures further provide some
level of assurance to lenders.
HOUSING DEVELOPMENTS: While regulatory
changes are hitting all the right notes, the govern-
ment is also on a major investment drive to build
affordable housing developments. In February 2018
the government unveiled a SR120bn ($32bn) new
housing programme, much of which is focused on
www.oxfordbusinessgroup.com/country/saudi-arabia
housing construction. Since then, the government has
signed a host of different PPPs, some worth billions
of dollars, for international companies to construct
houses in the country. By May 2018 the housing min-
istry had secured eight new PPP agreements and
distributed 105,174 affordable residential products
with a target of 300,000 by 2030.
Major contracts include a multibillion-dollar
agreement with US-based consortium Global Busi-
ness Ventures, which in March 2018 won a licence
to build 25,000 housing units for a major mixed-
use residential development in Riyadh. This follows
on from reports in 2017 that the government was
enticing South Korean, Chinese and US companies
with over $100bn in affordable housing construction
contracts. Companies using the latest technology
to build low-cost, semi-prefabricated houses are
also being prioritised. For example, in August 2017
Red Sea Housing Services Company, a Saudi Pub-
lic Joint Stock Company, signed a memorandum of
understanding with US multinational engineering
firm AECOM to fast-track construction of modular
affordable houses as the government looks to close
the affordable housing gap.
GROWTH PROSPECTS: Attractive new borrowing
regulations and government financial backing are
finally giving Saudi nationals access to loans, which is
in turn increasing demand for new housing develop-
ments. While the government has announced major
spending on affordable housing developments in the
past, the current set of plans look more comprehen-
sive. Greater availability of land, attractive PPP offer-
ings and reforms aimed at cutting red tape, such as
a reduction in the approval and licensing process for
new housing schemes from 730 to 60 days, bode well
for the coming years. As such, residential construction
developments, including affordable housing projects,
offer significant investment and growth prospects in
the country’s real estate and construction sectors.
The government is on a big investment drive to build affordable housing

Sustainable urbanisation
As urban populations undergo rapid growth around the globe,
city planners are striving to create efficient spaces
In 2008, for the first time in history, more than half
of humanity was living in urban areas. Perhaps the
most remarkable observation about this trend is
the speed at which it has happened: as recently as
1900 urban areas accounted for 13% of the global
population. Towns and cities are seen as the cruci-
bles of opportunity for many rural dwellers.
The UN estimates that by 2030 urban areas will
host 60% of the world’s population – up from 54.5%
in 2016 – with the pace of urban growth especially
rapid across Africa and parts of Asia. Urban areas are
home to more than 470m people in Africa, account-
ing for 40% of the continent’s population, up from
14% in the middle of the 20th century.
GROWING PAINS: In 2016 there were 512 cities
around the world with at least 1m inhabitants,
more than 100 of which were in China. By 2030
this number is set to increase to 660, with around
40 being categorised as mega-cities home to more
than 10m inhabitants, including Bogotá, Bangkok,
Dar es Salaam and Ho Chi Minh City.
All cities, even those in prosperous and stable
countries, face challenges, from providing adequate
housing, sanitation, transport and energy, to com-
bating pollution and inequality. Not surprisingly,
however, these issues are magnified in developing
and emerging countries, where limited resources
and weak institutions can struggle to cope with
eventualities such as waves of migrants or the
effects of climate change. Nonetheless, oppor-
tunities abound for municipal authorities and the
construction industry to create urban areas that are
sustainable, dynamic, healthy and safe.
BUILDING INNOVATIONS: The construction sector
is not generally considered a frontrunner in embrac-
ing innovation. The basic techniques of construct-
ing brick and timber buildings date back centuries
and – often for sound economic or aesthetic rea-
sons – they have tended not to evolve dramatically.
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253
Global
Perspective
However, this tendency is changing, spearheaded The UN has estimated
by the advent of lighter, stronger and more flexible that by 2030
materials, along with innovative techniques such as
modular construction and 3D printing.
While large projects are increasingly complex,
60%
of the world’s
industry players can use tools like building informa- population will
tion modelling (BIM), robotics and the internet of live in urban areas
things to ease their undertaking. These can improve
efficiency and bring down costs, while also enhanc-
ing quality and sustainability, which will be important
considerations as many urban areas need to be
resilient against earthquakes and extreme weather,
such as tropical storms, flash floods and heatwaves.
TECHNOLOGY & PROJECT MANAGEMENT: The
process by which buildings are constructed and
woven into wider infrastructure is of the utmost
importance, with projects becoming increasingly
complex and challenging to deliver.
The IHS Herold Global Projects Database esti-
mates that some productivity has declined since
the early 2000s; large infrastructure projects, for
example, cost on average 80% more than the original
budget and run more than 20 months late. Many are
also delivered with defects, which suggests project
management teams have failed to cope with rising
complexity and external risks.
Technology can play a role in developing more
streamlined construction and infrastructure
schemes, and in recent years BIM has been at the
forefront. It combines 3D-modelling software with
layers of data on every detail along a project’s time-
line, providing architects and engineers with a rela-
tively simple way of rigorously testing and analysing
designs. BIM has been widely adopted across Europe, The number of cities with
the US, South Korea, Singapore and the Gulf. In the at least 1m inhabitants is
set to increase from 512
UK the government requires all centrally procured
in 2016 to 660 by 2030,
contracts to achieve BIM Level 2. around 40 of which will be
Take-up has unsurprisingly been slower in emerg- categorised as mega-cities
ing markets, but in 2017 Dubai became the first home to over 10m people.
THE REPORT Saudi Arabia 2019
254
Smart cities are now
firmly on the radar
around the world, but
older metropolises are
also embracing digital
technology to improve
service delivery and overall
quality of life.
Africa has the highest
urban growth rate in
the world, at
4.5%
public authority to mandate the use of BIM for most
of its large-scale building projects. The neighbouring
emirate of Abu Dhabi also uses BIM, which has nota-
bly been employed on the $3bn Midfield Terminal
Building by Abu Dhabi Airports Company.
SMART CITIES: The miniaturisation of sensors and
the evolution of the internet means that informa-
tion on almost all aspects of urban life – from air
and water quality, to the movement of people and
objects, weather, road and rail traffic, and energy
generation and consumption – can be measured in
real time. By linking houses, public buildings, fac-
tories, vehicles, power stations, traffic signals and
street lighting, cities can be smart and responsive
to the needs of residents. Developments in smart
metering, solar photovoltaic technology and battery
storage are leading to more local energy generation,
which should facilitate the shift to cleaner, more
efficient and quieter electric vehicles.
Qatar has embraced the smart city concept as it
prepares to host the 2022 FIFA World Cup in Lusail.
On the outskirts of Doha, the city is being developed
with smart technology, incorporating sustainability
measures to enhance residents’ quality of life. “Lusail
City was the first in Qatar to endorse the Global
Sustainability Assessment System principles, and to
rate all buildings according to their sustainability and
performance,” Nabeel Mohammed Al Buenain, group
CEO of real estate developer Qatari Diar, told OBG.
The city will offer residents and visitors integrated
smart transport and communications services, over-
seen by a central management facility.
Meanwhile, in the renovated Msheireb area of
Doha, several services offer a smart experience.
“These include navigation, people counting, help
desks, online payments, CCTV, fire alarms and infra-
structure network applications,” Ahmad Mohamed
Al Kuwari, CEO of IT firm MEEZA, told OBG.
In the face of a rapidly urbanising population, the
concept of smart cities is also being developed in
numerous African nations, including Kenya’s Konza
Technological City, 60 km outside of Nairobi and
extending over 2020 ha of land. Dubbed “Silicon
Savannah”, the project is part of Vision 2030, the
country’s national development strategy, and is
slated to see a combined $15.5bn in investment. Due
for completion after 2030, the project is expected
to create 100,000 jobs and generate $1bn annually,
according to the Konza Development Authority.
Another example is the Eko Atlantic project in
Nigeria, bordering Lagos’s Bar Beach coastline and
spanning 10 sq km. Though the pace of work has
been slowed by the domestic economic climate,
the project is expected to attract 150,000 daily
commuters and host a range of amenities upon
completion, including high-end housing that will
accommodate up to 250,000 residents.
The New Administrative Capital, Egypt’s new cap-
ital unveiled in 2016, is also working to integrate
smart networks. Expected to be delivered by 2022,
the city is located 50 km from Cairo and will extend
www.oxfordbusinessgroup.com/country/saudi-arabia
over 700 sq km. It aims to help alleviate conges-
tion, provide homes to 5m people and host some
of the country’s main public institutions. In late
2017 another smart city was announced in Aswan,
near Egypt’s Western Desert, to help accommodate
the city’s growing population. The development
will extend over 1620 ha and will include housing,
recreational facilities and green areas.
CHALLENGED URBANISATION: Smart cities are
now firmly on the radar around the world, but older
metropolises are also embracing digital technology
to improve service delivery and quality of life. Bue-
nos Aires, for example, has recently surveyed its
infrastructure and developed an application – the
SAP HANA platform – to speed up administrative
processes. The city of 16m inhabitants has 372,625
trees, 91,000 street lights, 50,700 pavements,
30,000 storm drains and 27,000 roads. Previously,
certifying maintenance and repair work was very
time-consuming and tedious, requiring thousands
of sheets of paper to be printed and filed.
For other cities in emerging markets, however,
talk of big data for urban planning and smart infra-
structure may seem far removed from the reality
of urban sprawl, traffic congestion, air pollution,
flooding and sanitation problems.
Yangon, Myanmar’s largest city, illustrates these
challenges. Following six decades of military rule and
international isolation, the city lacks an effective
public transport system and suffers from chronic
congestion. “During the last decades the expansion
of the city was not followed by the modernisation
of its infrastructure, and this is now putting pres-
sure on both city management and public services,”
U Phyo Min Thein, chief minister of the Regional
Government of Yangon, told OBG.
MISALIGNED DRIVER: Housing construction has
been a key growth driver in Yangon since reforms
began in 2011, but developers have focused on the
upper-tier segments, due to the paucity of accom-
modation and Myanmar’s position as a frontier mar-
ket in a dynamic region. In 2013 rents in central
areas soared above those in Bangkok and even parts
of Manhattan. However, this resulted in an oversup-
ply of high-end units and not enough affordable
housing for average families.
Similarly, rapid urbanisation and the adoption of
smart networks has been challenging across Africa.
At 4.5%, the continent has the world’s highest urban
growth rate, and by 2050 more than half of the
population is set to be living in cities, representing
an important demographic shift.
While there has been progress in developing some
of the main urban centres, infrastructure works
often lag behind on the back of slow structural
transformation, a historical dependence on natu-
ral resources and weak levels of industrialisation.
Inadequate urban planning and underinvestment
in infrastructure has seen informal settlements
proliferate, as is the case in Lagos, Africa’s most
populous city. With over 21m people and growing

at 3.2% per year, Lagos has experienced unprece-
dented urbanisation, leading to the development of
slums. However, as the government aims to turn the
city into the “Dubai of Africa”, settlements are grad-
ually being cleared, as was the case for Ilubirin and
Otodo-Gbame, bordering the waterfront, in 2016.
Despite challenges brought by population growth
and the lack of accommodating infrastructure, the
city acts as an economic engine, accounting for over
35% of GDP and 62.3% of non-oil GDP in 2010, per
the UN Economic Commission for Africa.
GROWTH POTENTIAL: This is a testament to the
potential cities have as drivers of transformation
and economic growth. In addition to developing
infrastructure, promoting economic efficiency,
improving urban density and ensuring social inclu-
sion, the success of Africa’s urban centres will
depend on their ability to create employment for
the continent’s ever-growing youth population. With
more than half of Africans under the age of 18.5,
and 19% between 15 and 24 years old, this repre-
sents both a significant challenge and a potential
opportunity should it be tapped effectively.
A report produced by the African Development
Bank, the OECD and the UN Development Pro-
gramme in 2016 calls for policy reforms to make
the most of the “urbanisation dividend”, and for
African countries to spend the equivalent of 5-7%
of GDP per year on infrastructure. According to
the report, two-thirds of the investment needed
in urban infrastructure through to 2050 has yet
to be made, suggesting substantial opportunities
lie ahead. The future of Africa certainly hinges on
the ability to efficiently manage and develop city
landscapes, and the capacity to turn major centres
into engines of sustainable growth.
MASTER PLANS: Experiences show that creating a
sustainable city requires more than a dynamic con-
struction sector. In Myanmar’s case, the municipal
authorities are developing a master plan drawing
on lessons from other regional cities, but progress
could be constrained by a lack of skills, weak insti-
tutions, legal uncertainty and limited financing.
Plans are also afoot for the Yangon New City Pro-
ject, a 12,140-ha development to alleviate conges-
tion and reduce informal settlements. The project
is supported by multilateral organisations and is
expected to make extensive use of public-private
partnerships. However, sustained work is required
to strengthen the tax system and replicate interna-
tional best practices in harnessing private finance
to improve public services.
CURBING SPRAWL: In devising plans for the sus-
tainable development of Yangon, Abidjan, São Paulo,
or smart cities on the outskirts of Cairo and Jeddah, a
significant challenge is sprawl. Architects and urban
planners have come to recognise a key distinction
between expansion and sprawl: cities have expanded
throughout history and will continue to do so, but
sprawl is a fairly recent and undesirable phenome-
non. It refers not only to low-density suburbs, but
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255
also to the development of sterile apartment blocks, New principles of urban
which have sprouted up in large numbers. planning will be necessary
In her seminal text, The Death and Life of Great to avoid sprawl, combat
traffic congestion, and
American Cities, the writer and activist Jane Jacobs ensure an ideal and
argued that the dramatic growth of car traffic sep- sustainable population
arates city dwellers from each other and the natural density in cities.
environment. This, she claims, creates cities that
lack the cross-fertilisation and interactions that
allow humanity to thrive. In addition to facilitating
sprawl, private cars have brought traffic congestion
and a resultant loss in productivity and increase in
stress, mental illness and non-communicable dis-
eases stemming from inactivity, and other health
conditions linked to air pollution.
Jan Gehl, an urban architect, wrote about the
importance of providing safe places to walk or
cycle and enjoy outdoor spaces. Others refer to the
“Goldilocks density”, at which buildings are densely
populated enough to provide retail and services to
vibrant main streets, but are not built so tall that
people are removed from the streetscape. Buildings
of six or seven storeys allow the sun to penetrate
to street level, making it easier for ground-floor
cafes to spill out onto the street, creating a sense
of community and vibrant street life. Such buildings
can also accommodate a large number of people:
traditional Parisian districts house up to 26,000
people per sq km, while Barcelona’s Eixample district
reaches 36,000 inhabitants in the same surface area.
URBAN PRINCIPLES: Some of the principles for
solving sprawl and building sustainable cities that
are likely to be taken up as city authorities work to
manage their expanding populations include the
preservation of natural ecologies, historical sites
and architecture as a way to imbue urban communi-
ties with a sense of identity. The benefits of creating
opportunities for mixed-use infrastructure as well
as mixed-income communities to prevent monolithic
neighbourhoods divided by wealth is also likely to
shape urban planning in cities across the globe.
In terms of urban transport, investment in
high-quality and affordable mass transit systems,
and a focus on matching city density with trans-
port capacity, is key to keeping cities moving. The
increasing take-up of smart infrastructure is likely
to make this job easier. The convergence of streets
to allow for multiple modes of transport on a single
path may likewise become popular if it enhances the
potential for mass transit systems to gain traction in
previously car-dominated areas. At the same time,
an emphasis on walkability and bicycle access to
reduce road congestion is being seen as important
for both the health of the environment and urban
dwellers, as well as a sense of community.
The model of urban planning that extended from
modernism and its vision of the city as a machine
has proved extremely popular throughout the past Investment in high-quality
and affordable mass transit
half century – and it endures. But there is now a
systems, and a focus on
growing realisation that if urban areas are to be matching city density with
lively, safe, healthy and truly sustainable, they will transport capacity, is key to
need to develop a different form and complexion. keeping cities moving.
THE REPORT Saudi Arabia 2019
 257

Education & Training

Almost 40% of citizens are of school or university age
Mid-term targets are in place to overhaul system
Private education sector to post significant gains
Plan to improve recruitment and training of teachers
258 EDUCATION & TRAINING OVERVIEW
The education sector is being increasingly called upon to reinvent itself
Reinvention drive
As part of broader modernisation efforts, education is being
brought in line with global trends
40%
As Saudi Arabia seeks to modernise and diversify
its economy by moving away from a reliance on
hydrocarbons and identifying opportunities created
of the total population
are of school or by rapid technological change, the education sector
university age is increasingly being called upon to reinvent itself.
STRUCTURE & OVERSIGHT: The Ministry of Educa-
tion (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 respon-
sible for training, including the Technical and Voca-
tional Training Corporation (TVTC). The Education
Evaluation Commission monitors the performance
of both the MoE and the 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.
Other important ongoing initiatives include the
King Abdullah Scholarship Programme launched in
2005, which funds Saudi citizens to study at inter-
national universities, and the King Abdullah bin
Abdulaziz Public Education Development Project,
launched in 2006, which is designed to modernise
the curriculum by incorporating scientific and tech-
nological developments, improving teacher training
and applying the highest international education
practices. The state-owned Tatweer Education Hold-
ing Company implements this programme.
BY THE NUMBERS: According to General Authority
for Statistics data in 2018, of a population of 33.41m,
8.22m or 24.6% are aged 14 years and younger. Those
Under Vision 2030 the in the 15-24 year-old group amount to 4.89m and
emphasis on improving make up 14.6% of the total. These figures suggest
access to quality that almost 40% of the total population are of school
education will enable or university age. The education system has four
the population to meet
rising labour market
main levels: pre-primary (ages 3 to 5 years); primary
demands and contribute (aged 6 to 11); secondary (aged 12 to 17); and ter-
to a thriving economy. tiary (aged 18-22). Compulsory education lasts nine
www.oxfordbusinessgroup.com/country/saudi-arabia
years, from the ages of six to 14. According to UNE-
SCO, the literacy rate among 15- to 24-year-olds was
99.2% in 2013. The school-age population consists
of 1.75m students in pre-primary, 3.26m in primary
and 2.85m in secondary, making for a total of 7.86m.
A further 2.44m students are receiving tertiary level
education. The number of out-of-school students
has also been trending down, as the latest compa-
rable figures from 2013 show that 68,358 children
and 49,179 adolescents are out of school, indicating
reductions of 75% and 64%, respectively, since 2009.
As of 2017 gross enrolment ratios, which refer to
the number of students enrolled expressed as a
percentage of the corresponding population, were
close to 22% in pre-primary, over 100% in primary
and secondary, and 69% in tertiary education. Of the
approximately 7.7m school students, 6.7m (87%) are
in public schools and 1m (13%) are in private schools.
There are over 30,000 schools in the Kingdom, of
which 86% are public and 14% are private. In the
2013-17 period the number of public schools grew
by 1%, and the number of private schools by 13%.
EDUCATIONAL PERFORMANCE: Expanding the
education sector is one of the main priorities of
Saudi Vision 2030, a national plan launched in 2016
by Crown Prince Mohammed bin Salman bin Abdu-
laziz Al Saud with the overall goal to reduce the
Kingdom’s dependence on oil, diversify the economy
and develop key sectors such as health, education,
infrastructure, recreation and tourism. Under Vision
2030 the emphasis on improving access to quality
education will enable the population to meet rising
labour market demands and contribute to a thriving
economy. To move towards these Vision 2030 objec-
tives, the government also launched the National
Transformation Programme 2020, which identi-
fies some key mid-term objectives to be pursued
by the MoE. One goal is to upgrade curricula with
the aim of driving up maths and science scores by

21% and reading scores by 7% by 2020. Of concern
to the authorities is the fact that Saudi students
have performed relatively weakly in globally-applied
assessments, such as the Trends in International
Maths and Science Study (TIMMS). Saudi Arabian
TIMMS scores dropped between 2011 and 2015
by 7% in maths and by 10% in science at both the
fourth- and eighth-grade levels. In both maths and
science Saudi Arabian students also scored below
the international and regional benchmark.
The Progress in International Reading Literacy
Study (PIRLS), which measures the reading profi-
ciencies of 10-year-olds across 50 countries, ranked
Saudi Arabia in 44th place. Saudi fourth graders
scored 430, below the PIRLS Scale Centerpoint score
of 500. At an international education conference in
Hong Kong in December 2017, Ahmed bin Moham-
med Al Eissa, former minister of education, said that,
“Education is key to the success of Vision 2030. Our
current education system is a product of the past,
not an enabler of the future. A tradition of simply
transmitting existing knowledge is no longer ade-
quate. We need to rethink education from preschool
through to graduate schools.”
KEY CHANGES: Officials noted that in 2018 Saudi
Arabia would for the first time participate in the
OECD’s education test, known as the Programme
for International Student Assessment. The MoE
announced that the agreement had been signed
with the OECD to “explore opportunities to further
deepen cooperation in the design and implementa-
tion of education reform in Saudi Arabia”. The min-
istry was also reported to be working on a project
with the National Association for the Education of
Young Children in the US, focusing on early child-
hood development and curriculum design.
An important element of the new approach is a
greater emphasis on critical thinking, believed to
be an essential skill for future economic and social
development. Regarding this new style of curricu-
lum, Al Eissa told local media that, “It is giving the
students a chance to participate, to question, to
open their eyes to different ideas. This is the way
that students will engage and... develop their own
critical thinking skills and communication skills.”
The authorities have also set a target of achieving
100% literacy by 2024. Although literacy is already
at 94.4%, high by historical and regional standards,
the MoE is aiming to completely eradicate illiteracy
by increasing enrolment, opening adult education
centres across the Kingdom, and introducing neigh-
bourhood learning programmes and educational and
literacy campaigns in remote parts of the country, in
addition to offering financial incentives to encour-
age adults to enrol in courses.
Another objective formalised in the National
Transformation Programme 2020 is to improve the
recruitment, training and development of teachers
by increasing the time spent on continuous profes-
sional training every year. The number of students
participating in extracurricular activities is to be
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EDUCATION & TRAINING OVERVIEW 259
increased from 15% in 2016 to 55% by 2020, and The authorities have set
enrolment in kindergartens is to be brought up from a target of achieving
13% to 27%. While the authorities are seeking to
increase the skills of local teachers, they are also
working to boost the number of Saudi nationals
100%
literacy by 2024
employed in the education sector, thereby reducing
the reliance on expatriate teachers.
In November 2018 the Council of Ministers
announced the government would be not renew-
ing employment contracts for approximately 71%
of the expatriates working in the education and
health sectors, and instead hire qualified nation-
als to replace them. According to estimates by the
authorities, there were around 1.23m public sec-
tor employees in the Kingdom, of whom 95% were
Saudi citizens. These figures indicate that there
were approximately 60,000 foreign nationals work-
ing in the public sector, a number which is set to be
reduced as existing contracts expire.
EDUCATION BUDGET: At a time of some fiscal
pressure caused by several years of low oil prices,
the announcement of the Kingdom’s education
budget for 2018 was taken as an indication that
the sector continues to be seen as a high priority.
In fact, education spending has grown at notably
rapid rates in recent years. In the last decade it has
almost doubled from SR105bn ($28bn) in 2008 to
the budget of SR192bn ($51.2bn) set for 2018. The
2018 total included SR14.7bn ($3.9bn) for the Two
Holy Mosques’ Overseas scholarship Programme,
which supports Saudi students who attend pres-
tigious overseas universities.
Also in the total was a SR9bn ($2.4bn) allocation
for Tatweer Education Holding, which is tasked with
delivering the education component of Vision 2030.
Additionally, SR1.4bn ($373.2m) was allocated for
women’s colleges. According the World Bank, edu-
cation spending was 5.14% of GDP, and constituted
19.3% of the total government budget in 2008. How-
ever, as of 2017, education accounts for 25% of the
Kingdom’s overall budget.
GROWTH POTENTIAL: Saudi Arabia is the largest
education market in the GCC region. According to
Riyadh-based consulting company Strategic Gears,
the K-12 private sector market was valued at $5bn
in 2017 in terms of annual sales, while the UAE’s
market is valued at $4.3bn, Kuwait at $1.2bn and
Oman at $1bn. Despite the size of the market in
Saudi Arabia, private institutions make up a relatively
small proportion of it, with approximately 87% of
students attending public schools.
As the Kingdom seeks to shift the balance
between public and private education, the volume of
the expansion in terms of student numbers, schools While the authorities are
and fee revenue is likely to be significant. This is seeking to increase the
exemplified by Vision 2030 and the MoE’s overarch- skills of local teachers,
ing goal of raising education quality, as the private they are also working to
boost the number of Saudi
education sector is expected to grow to $12bn by
nationals employed in the
2023. Meanwhile, according to a report by Research education sector, thereby
and Markets, the higher education sector grew at a reducing the reliance on
single-digit percentage compound annual growth expatriate teachers.
THE REPORT Saudi Arabia 2019
 260
Saudi Arabia is the largest education market in the GCC, with 87% of students attending public schools
The higher education
sector grew at a single-digit
percentage compound
annual growth rate during
the 2012-17 period, largely
driven by the establishment
of new universities.
EDUCATION & TRAINING OVERVIEW
rate during the 2012-17 period, largely driven by
the establishment of new universities. The report
notes that private sector investment in education
is greatly encouraged in the Kingdom.
In the international schools category, mainly in
relation to expatriate children, Saudi Arabia has
seven international schools per 1m inhabitants,
compared to the GCC average of 31 per 1m. Dubai
has a total of 281 international schools, while Abu
Dhabi has 151, Riyadh has 83 and Jeddah has 82.
HIGHER EDUCATION: The London-based Times
Higher Education (THE) University Rankings, which
are published annually and cover over 1000 uni-
versities around the world, ranked Saudi Arabia’s
King Abdulaziz University (KAU) as the GCC’s best
university in 2018. KAU was also positioned in the
second tier of global rankings, which includes those
placed 201st to 250th. Alfaisal University, located in
Riyadh, placed in the fifth tier (501st-600th). THE
highlights that universities in Saudi Arabia have
generally embraced the global trend towards digital
and technological changes in higher education.
“The Kingdom is moving up in different rankings,”
Sultan Meo, a professor at KAU, told local media.
“The Gulf governments, including Saudi Arabia, have
invested heavily in higher education and research
during the last decade,” he added.
TEACHER TRAINING: In contrast to other countries
in the GCC, where both public and private schools
are struggling to recruit the teacher numbers
that they need, in Saudi Arabia there is a surplus
of graduates from local colleges and universities
with teaching degrees. “The ratio of students to
teachers is quite low,” Al Eissa told local media, “We
have more teachers than we need, and the waiting
list for those who are looking to get a job in the
education sector is too high.”
He added that the government was working on
plans to improve teacher skills, and another option
www.oxfordbusinessgroup.com/country/saudi-arabia
under consideration was to only hire graduates with
more advanced qualifications – such as master’s
degrees in education rather than just bachelor’s
degrees. If chosen, the new approach would be
applied within two years. The MoE was also funding
1000 teachers per year to travel abroad for training
in countries like the US, UK, Canada, Finland, Aus-
tralia and New Zealand. This programme, designed
to upgrade and modernise teaching methods, is
scheduled to continue until 2030.
E-LEARNING: In 2017 the MoE launched a pro-
gramme known as Future Gate, which is designed
to promote digital learning in schools. During the
same year a pilot project was conducted across 150
schools. One important aspect of the project is that
students and teachers are given handheld tablets
to use as a source for educational materials.
The pilot initiative was expanded to 1500 schools
in 2018. The MoE has confirmed that the aim is to
eliminate all K-12 textbooks by 2020, and bring all
teaching materials online. This technological change
is conceived of as being part of a shift from teach-
er-centred to student-centred instruction. In March
2018 the government also announced a decision
to create a National Centre for e-Learning (NCeL).
NCeL’s role is to monitor the quality of e-learning
in education and to support a knowledge-based
economy in line with Vision 2030.
In 2016 the government, through the Ministry of
Commerce and Investment, signed a memorandum
of understanding with Cisco for the US technology
company to develop a Country Digitisation Accel-
eration programme that is aligned with Vision 2030
and designed to apply digital technology in four
main areas: health care, education, smart cities and
cybersecurity. Cisco said it would work with the MoE
to introduce virtual connections between teach-
ers and students to improve educational methods
and classroom experience. In October 2018 Salman
Faqeeh, managing director of Cisco Saudi Arabia,
told local media, “Cisco has introduced an innova-
tive virtual education solution to remote areas in
No. of students, 2017 (000)
Male Female
3000
2500
2000
1500
1000
500
0
ary
y e ry rs
inar
Prim diat nda helo
Prel
im rme Seco Bac
Inte
Source: GaStat

different provinces in collaboration with the MoE.
Since the beginning of the current academic year,
some 14 virtual classrooms have been set up in
seven cities around the Kingdom. This includes one
broadcasting centre in Jeddah.”
INDUSTRY-ACADEMIA COLLABORATION: One
of the issues facing the Saudi education system
across both vocational and academic streams is
whether it is producing students with the right set
of skills to meet the needs of employers. “Skill gaps
are inevitable in a rapidly changing marketplace, and
those institutions that are nimble and flexible when
it comes to accommodating new skills will thrive,”
Mohanad Dahlan, CEO of Saudi Arabia’s University
of Business and Technology, told OBG.
The successful modernisation of academic insti-
tutions greatly depends on their ability to adapt to
the rapid changes that are taking place in terms of
technology and the business environment. Naif Al
Obaid, a former head of the Saudi Arabian branch of
Education for Employment, a charitable organisation
focused on youth training, also told OBG that there
is often a degree of mismatch between the two, and
that there is a subsequent need for initiatives that
improve collaboration between the academic and
business worlds. Education for Employment oper-
ates a number of partnerships, one of them being
a programme run together with the US financial
company Citigroup, which is designed to equip young
EDUCATION & TRAINING OVERVIEW 261
people in urban contexts with career-readiness tools The successful
through a form of apprenticeship. modernisation of academic
A wide range of other collaborative relationships institutions greatly
depends on their ability to
continue to be increasingly available within the dig-
adapt to the rapid changes
ital sphere. There is also an extensive network of that are taking place in
collaborations between the Saudi Arabian author- terms of technology and
ities and a variety of international universities and the business environment.
research centres. Over the past several years Saudi
Arabia has invested significantly in funding scholar-
ships for Saudi students and also helped to support
a number of research projects.
For example, in 2018 the state-owned oil com-
pany Aramco pledged $25m for a five-year research
agreement with MIT. Babson College, a private busi-
ness school in the US, contributed to setting up the
Saudi Arabia-based Prince Mohammed bin Salman
College of Business and Entrepreneurship. Other
recipients of similar agreements include George
Washington University and Harvard.
OUTLOOK: The growth outlook for the Saudi Ara-
bian education sector is driven by demographic
change and an expanding economy, with the overall
aim of satisfying the increasing need to adjust and
adapt to high-quality technological change. Deliv-
ering the education component of Vision 2030 will
no doubt be a challenge given the speed of change
across the global economy, but it is clear that the
political will and the budget allocations necessary
to achieving these targets are already in place.

Impending expansion
A growing population and changing mindsets are set to boost
the private education segment
Saudi Arabia’s private education sector is expected
to post significant gains in the short to medium term,
matching trends being witnessed across the region.
Indeed, a number of recent developments indicate
that private sector players in education are turning
their attention to Saudi Arabia. In October 2018 UAE-
based GEMS Education signed a $800m agreement
with Hassana, the investment arm of the state-owned
General Organisation for Social Insurance in Saudi Ara-
bia. Under the terms of the deal, GEMS is to develop
schools for 130,000 students over the next 10 years,
a project which is expected to generate over 16,000
jobs. Hassana also signed a $1.6bn agreement with
UAE-based NMC Health to build a network of medical
facilities, including for training, across the Kingdom.
Bloom, an Abu Dhabi-based property developer that
builds and runs schools, also said in October 2018 that
it was in advanced discussions with partners to build
and operate schools and nurseries in Saudi Arabia.
The Saudi-based National Company for Learning and
Education even conducted an initial public offering
(IPO) for 30% of its shares, which raised $66m.
HIGH DEMAND: One factor helping open the door
wider for private education is a shift in parental atti-
tudes across the Gulf countries, with a greater desire
to give their children better career preparation and
choices. A study of private school fees conducted by
Edarabia, an education guide, showed that there are
significant variations across the Middle East, with the
average cost of education for a child ranging from
$168,000 in Egypt to $400,000 in Dubai. Despite these
figures, a report from Alpen Capital concluded that
high fees have not been discouraging families from
choosing private schooling. Sameena Ahmad, man-
aging director of Alpen Capital, says education pro-
viders are taking advantage of a booming market in
the Gulf as governments seek to reduce their direct
expenditure on education through privatisation. The
value of the private education market in the country
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EDUCATION & TRAINING ANALYSIS 263
Major regional players in private education are entering the Kingdom
is expected to more than double over the next few One factor helping open
years, according to Strategic Gears, a Riyadh-based the door wider for private
consultancy firm. This growth is perceived to be due education is a shift in
parental attitudes across
to three main factors: an increasing population, the the Gulf countries, with a
government’s Vision 2030 strategy and changing greater desire to give their
mindsets among parents. According to their report, children better career
between 2018 and 2025 Saudi Arabia will need to preparation and choices.
cater to 2.1m new school students, and 534,000
of those will find places in private schools. It also
estimates that private education’s share of the total
number of students will rise from 13% in 2018 to 15%
in 2025, which will also require the construction of
over 980 new private schools.
ENHANCED OPTIMISM: These optimistic growth
forecasts are echoed by Basil Al Ghalayini, CEO of
BMG Financial Group, who expects increased activity
for the sector in the form of mergers, acquisitions,
joint ventures and partnerships. Private funds could
be channelled through at least three routes: interna-
tional schools; locally based Ahlia schools, which are
privately owned institutions that follow the national
curriculum; and schools that the government currently
runs but intends to privatise in the near future. He
expects the privatisation of some government-run
schools to be carried out in a range of different ways,
including direct transfers and IPOs.
The Ahlia schools may be particularly attractive as
a business proposition. According to a report by the
Boston Consulting Group, such institutions “open up
a very attractive compromise for Saudi students who
still want the national curriculum in addition to the
enriched offerings of private schools – all in a very
Saudi-centred cultural environment”.
Another area that has the potential to see growth is
the international schools segment. Saudi nationals are Saudi nationals are
now allowed to enrol in
now allowed to enrol in international schools, which
international schools,
were previously reserved for expatriate residents’ chil- which were previously
dren. Local enrolment in private international schools reserved for expatriate
grew from 33% to 39% between 2015 and 2018. residents’ children.
THE REPORT Saudi Arabia 2019

Digital classroom
Investment in education technology surges as markets around
the world recognise its transformative potential
In an era marked by profound technological disruption
and intense global competition in new frontier indus-
tries, emerging markets are striving to improve and
adapt their education systems to meet the demands of
the modern economy and the needs of their citizens.
As such, innovative solutions are being developed to
address barriers within traditional education systems.
Education technology (edtech) is gaining traction
worldwide as an invaluable teaching and learning tool.
However, the global edtech movement has been
somewhat uneven, its implementation delayed in some
developing countries due to infrastructure deficits
and tight budgets. Nevertheless, the surge in invest-
ment in the last few years indicates the substantial
potential for edtech to enhance the quality of educa-
tion around the world in a variety of ways.
APPETITE FOR INNOVATION: Edtech companies in
developed countries came into prominence in the
early 2000s. In the US, the subsector’s advent was
made possible by the country’s well-developed ICT
networks, large economy and successful innovation
hubs, such as Silicon Valley. In 2018 the US edtech
market was estimated to be worth more than $8.38bn,
according to the Software and Information Industry
Association. In Europe, the centre for edtech is the
UK, home to at least 1000 edtech companies, 200 of
which are based in London.
Although the US and the UK are the world’s edtech
leaders, Asia has quickly become its fastest growing
laboratory. With the largest school-age population,
Asia is home to over 600m K-12 students and is the
emerging global centre for online education. Many
Asian countries have placed a premium on education,
and both governments and parents are willing to
spend a substantial amount of money on educational
services, particularly in developed markets in the
region. For instance, parents in Singapore spend more
than $70,000 each year, on average, to educate their
children, while more than 70% of secondary school
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265
Global
Perspective
students in Hong Kong, Taiwan and South Korea hire In 2018 the US
private tutors. While parents in the emerging markets education technology
of Asia have less discretionary spending power, these market was estimated to
countries have a great deal of potential to utilise their be worth
burgeoning innovation ecosystems to develop new,
cost-effective edtech solutions to improve learning $8.38bn
outcomes. For example, Indonesian edtech company
Ruangguru was tipped by the country’s Minister of
Communications and Information to grow into a uni-
corn valued over $1bn in 2019, as it rolls out its one-
stop learning services app across South-east Asia.
SCHOOLS DEMAND: In addition to the US, the UK
and Asia, there is also a growing edtech sector in the
Middle East. A 2016 education report by regional
investment bank Alpen Capital suggests that more
than 50,000 schools are needed across the Gulf to
accommodate an expected 20% increase in the stu-
dent population to around 15m by 2020. India-based
market intelligence firm Ken Research forecasts that
the education market in Saudi Arabia alone will expand
at a compound annual growth rate of 12.3% over the
next three years, reaching a value of $15bn in 2021.
Forbes estimates there are 270 edtech start-ups
in the Middle East, some of which have tapped into
gaming, machine learning and artificial intelligence
(AI) to transform the learning environment. However,
despite its great potential, there has been a lack of
edtech investments in the region compared to other
regions, such as Asia. According to Forbes, less than
1% of global funding for tech start-ups in 2017 went
to countries in the Middle East, while approximately
22% went collectively to China and India, highlighting
a need for more diversified investments in the future.
The edtech movement is also steadily expanding E-learning revenues in Latin
in Latin America and Africa. E-learning revenues in America grew by 14.6%
Latin America grew by 14.6% each year between each year between 2013
and 2016 to $2.2bn, so that
2013 and 2016 to $2.2bn, so that by 2018 it was the by 2018 it was the world’s
world’s fourth-largest edtech market in terms of rev- fourth-largest edtech
enues, after North America, Western Europe and Asia. market in terms of revenues.
THE REPORT Saudi Arabia 2019
266
In 2017 global Markets in the region have particularly benefitted
investment in learning from their proximity to the US, which has allowed
technology companies them to speed development of learning solutions.
reached a record Meanwhile, access to mobile internet has dramatically
$9.56bn increased in Africa over the years. More than 60% of
its population, which equates to approximately 700m
people, are mobile subscribers – 300,000 of whom
use mobile internet. As a result, mobile learning has
started to gain momentum in Africa as a way for edu-
cation to reach the masses.
GROWING INVESTMENT: Given the huge potential,
it is therefore not surprising that there is an influx of
investment in edtech. Looking forward, education
stakeholders in less developed markets are increas-
ingly viewing technology as a means to bridge gaps
in education infrastructure and teaching resources.
“There will be a large number of opportunities for
investors in online platforms because they are more
cost-efficient than opening new physical school
branches and are thus set to generate high returns
in the future,” Azhar Sunayo, director of Primagama
Tutoring Institution in Indonesia, told OBG.
US-based research institute Metaari reports that
global investment in learning technology companies
reached a record $9.56bn in 2017, breaking the pre-
vious record of $7.3bn in 2016. In particular, there
has been a significant increase in investments made
in edtech companies that specialise in augmented
reality, AI, neuroscience and cognitive science.
Another consistent trend over the past three years
is the enormous amount of money being invested in
edtech companies in Asia, particularly China. Out of
the 16 companies that attracted more than $100m
in investment in the first 10 months of 2017, seven
were from that country alone.
While the US and the UK still account for the major-
ity of edtech investments in the world, there is also
increasing investment activity in emerging regions
such as Latin America. The International Finance Cor-
poration has spearheaded over $450m in investments
to online learning institutions in Brazil and the Pacific
Alliance countries, namely Chile, Colombia, Mexico and
Peru. Although Brazil appears to be the biggest market
in the region, investors are increasingly interested in
Pacific Alliance members because of their common
language, educational uniformity and higher GDP.
Due to a growing level of investments, a number
of Latin American countries are already making pro-
gress with the implementation of e-learning at the
corporate level. According to a survey carried out by
US-based Kaagan Research Associates, approximately
41% of companies in Mexico and Brazil use e-learning
solutions to train their staff in marketing, technical
documentation and customer support. This is closely
followed by Colombia (39%), and Argentina and Chile
(30%). The firm also found that among the 58% of
companies in the region which do not use digital solu-
tions, 32% would eventually utilise them in the future.
GOVERNMENT SUPPORT: There has been widespread
support for the adoption of new technology in edu-
cation systems globally. In Asia, several governments
www.oxfordbusinessgroup.com/country/saudi-arabia
have taken steps to adopt e-learning tools as part of
wider efforts to transition into digital economies. For
example, the authorities in Thailand are looking to
improve the country’s English proficiency by using AI
to assess students’ writing and speaking skills online.
It also launched a free mobile app called Echo English
to encourage its citizens to practice conversational
English through games. Elsewhere, the Department of
Education in the Philippines recently launched a new
K-12 curriculum that stipulates the inclusion of Media
and Information Literacy as a core subject in public
schools. The aim of the move is to equip students
with the skills needed to succeed in a digital economy.
Governments in the Middle East likewise see educa-
tion as a key to progress and economic development,
allocating as much as 19% of their budgets to the sec-
tor – well above the global average. The UAE Ministry
of Education has indicated its willingness to support
e-learning initiatives as tools to improve education
delivery in a market that is expected to expand by
60% to be worth $7.1bn in 2023, while the Ministry
of Education in Egypt announced in October 2018
that 2500 secondary schools had been connected to
fibre-optic internet or Wi-Fi, as part of its plans to give
every student studying at that level a tablet computer.
In Latin America, governments are also investing a
substantial amount of resources in edtech to improve
learning outcomes. To expand education access in
rural areas, the Mexican government is implementing
a distance learning programme called Telesecundaria,
which will provide lectures to secondary students
through a network of satellite televisions. “While only
50% of the population in Mexico has internet access,
this figure is quickly increasing due to the government
reforms in telecommunications,” Jose Antonio Que-
sada, director of the Egade Business School, told OBG.
“These initiatives make online programmes possible
and can be used to complement existing learning tech-
niques.” In fact, several US-based companies travelled
to Latin America in 2018 to explore the possibility of
establishing more edtech programmes in the region.
TRANSFORMATIONAL POTENTIAL: Indeed, as digital
methods of teaching and learning proliferate across
the globe they are having a democratising effect
on education by widening access to it. Online pro-
grammes are being leveraged in a number of emerg-
ing economies in Asia to address disparities in both
education access and quality. “Technology allows us
to keep the quality of education consistent between
different cities because it enables us to teach two or
more classes at the same time. Therefore, no one can
say that students in Yangon are far more advanced
than students in Mandalay or Myitkyina,” U Tin Maung
Win, managing director of the International Language
and Business Centre Myanmar, told OBG.
Massive open online courses (MOOCs) have also
become accessible throughout Indonesia, enabling
users to learn anytime and anywhere. In a similar
way, edtech has provided much-needed support for
teachers working in refugee camps in the Middle
East. For instance, the non-profit platform Edraak,

which provides MOOCs in Arabic, was launched in
2018 for refugee children in Jordan, Egypt and Syria.
The platform allows students to access sequential
learning materials and enables teachers to create
more interactive, engaging learning experiences.
ENGAGEMENT: With the advent of data analytics,
customised strategies may now be formulated to
better address students’ various learning needs and
enhance engagement through personalised learning.
In the higher education sector software applications
such as learning management systems allow students
to move through materials at their own pace, giving
learners who need it more time to process informa-
tion. In Brunei Darussalam, Universiti Brunei Darus-
salam has teamed up with local technology start-up
Mindplus Education to create a more tailored learning
experience for students online and in the classroom.
In Latin America, schools such as Universidad Coop-
erativa de Colombia and Aliat Universidades in Mex-
ico have used edtech to personalise assessments,
whereby students can evidence learning through vid-
eos, multimedia presentations or online storybooks.
Researchers maintain that integrating technology
makes learning more exciting and interesting for the
pupils. Indeed, the wide range of learning channels
available, including mobile, multimedia, peer-to-
peer and game-based learning apps, means content
is becoming increasingly immersive. Instructors are
able to utilise polls, videos, interactive texts and virtual
reality tools to address the issue of disengaged and
distracted students. For example, Nairobi-based online
platform Kukua endeavours to empower African chil-
dren with basic reading and maths skills by combining
traditional literacy methods with games and animated
entertainment. Codemi, an online learning manage-
ment system in Indonesia, takes a similar approach,
gamifying the learning process and providing rewards
to engage and motivate its users.
Digital technology has also provided opportuni-
ties for schools to directly engage students’ parents.
This is important, given that researchers agree that
parental involvement correlates positively with stu-
dents’ academic performance. Edtech start-ups in the
Middle East are developing interactive platforms for
parents to converse with teachers in real time. Abu
Dhabi-based tech start-up SchoolVoice is a mobile
app that keeps parents updated about school events,
exams and their childrens’ academic performance.
In addition to improving parent-teacher interac-
tions, technological advances have also provided
opportunities for students to fully collaborate and
connect with one another. EduPOW, an online pub-
lishing platform based in Malaysia, offers education
courses that enable users to share knowledge on a
diverse range of topics including arts, health, music
and language. A healthy dose of collaboration may help
enhance learning, as researchers found that students
involved in online discussions felt more connected and
reported high levels of course satisfaction.
Aside from widening access and offering custom-
ised, interactive learning experiences, edtech has
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267
helped cut the cost of education delivery by, for exam- Software such as learning
ple, reducing the need for printed materials. Online management systems,
content can also be easily updated – and efficiently and peer-to-peer and
game-based learning
distributed – without relying on manual resources. apps can increase student
Moreover, with advanced analytics to keep track of engagement and improve
students’ progress, educators are able to reduce the learning outcomes.
time spent on manual grading and record-keeping.
AFRICA CHALLENGE: In spite of its advanced state of
development in several parts of the world, edtech is
very much in its infancy in Africa, with most countries
in the region only just beginning to incorporate digital
learning into education. Adopting modern technology
can be capital intensive, thus very few public schools
utilise computers. Many universities and professional
companies prefer traditional face-to-face and dis-
tance learning methods. Internet penetration has
also been very slow to gain ground, as only 21.8%
of the continent had permanent access to the web
in 2017, and mobile broadband penetration lags far
behind other continents. Consequently, there remains
relatively little investment in learning technology,
and start-ups are struggling to compete for funding.
However, in spite of the lack of infrastructure and
investment, state-led initiatives to implement edtech
have begun to emerge. For instance, the government
in South Africa has started funding the delivery of
tablets and internet access in its schools and is explor-
ing the possibility of delivering online programmes
for students. Following the introduction of ICT into
the school curriculum in 2007, successive Ghana-
ian governments have invested significant amounts
in procuring computers and establishing computer
laboratories in several secondary-level institutions.
Similarly, in 2013 Kenya’s Ministry of Information, Com-
munications and Technology implemented a Digital
Literacy Programme, which aimed to provide some
1.2m digital devices to the country’s primary schools.
Meanwhile, faced with the collapse of public ser-
vices in the wake of the Ebola crisis, the government
of Liberia has trialled the use of government funds
to place students in schools operated by for-profit
education providers, many of which make extensive
use of edtech platforms. After pupils in the initial
trials comfortably outperformed other students, the
for-profit providers were given more schools to oper-
ate. The long-term outcome of this experiment will
be keenly followed by other regional governments
facing substantial financing and capacity constraints.
PROSPECTS: Technology has successfully penetrated
education systems around the world and is rapidly rev-
olutionising the sector, making learning more accessi-
ble, engaging and efficient. While developed countries
took the lead in investment and innovation during
the early stages of edtech development, emerging
markets are rapidly catching up, as governments and Technology can cut the
the private sector seek cost-effective solutions to cost of education delivery
overcome infrastructure and funding gaps. and increase efficiency,
as it reduces the need
With the general improvement in ICT infrastructure
for printed materials and
and the ubiquity of smartphones and digital devices enables teachers to spend
across the emerging world, edtech is expected to less time on manual grading
become a leading industry in the years to come. and record-keeping.
THE REPORT Saudi Arabia 2019
 269

Health & Life Sciences

Government spending on health continues to increase
Rising demand for health care and pharmaceuticals
Growing interest in healthy lifestyle and eating habits
Plans for major privatisation of hospitals and services
270
Health and education
accounted for the
largest share of the
2018 budget, at over
36%
The National
Transformation Programme
aims to raise private sector
participation in the health
industry from 25% in 2016
to 35% by 2020.
HEALTH & LIFE SCIENCES OVERVIEW
Saudi Arabia is a significant importer of medical equipment and devices
Good prognosis
Public and private expenditure continues to rise in response to
increasing demand for medical services and specialist care
Saudi Arabia’s health sector currently faces a com-
bination of demand-led growth and major struc-
tural change as the government seeks to privatise
hospitals and other medical service providers. The
interplay of these two forces is likely to influence
the sector in the coming years.
STRUCTURE & OVERSIGHT: The national health care
service is owned and operated by the government
through the Ministry of Health (MoH) and other gov-
ernment and semi-public entities. Altogether heath
and education spending accounted for the largest
share of the 2018 budget, at over 36%. The MoH is
directly responsible for around 60% of total health
care services, with the remaining 40% provided by
semi-public entities and the private sector. Among
the semi-public entities are dedicated medical ser-
vices for the National Guard and for employees at
Saudi Aramco, the state-owned oil company. The
government has indicated its desire to privatise a
significant proportion of the health service, including
the operation of hospitals.
Since 2016 two primary strategy documents have
been guiding health care policies: the National Trans-
formation Programme (NTP), which runs until 2020;
and Vision 2030. The former calls for increased pri-
vate 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. NTP objectives include raising private
sector participation in health from 25% in 2016 to
35% by 2020, increasing and improving medical facili-
ties, raising the number of internationally accredited
hospitals, doubling the number of primary health
care visits per capita from two to four, developing a
strategy to reduce smoking and obesity, and estab-
lishing digital health care systems.
The authorities have recognised a need for more
robust health sector performance indicators. The
MoH is seeking to introduce a system prepared by
www.oxfordbusinessgroup.com/country/saudi-arabia
the National Centre for Performance Measurement
(Adaa). The centre was created in 2016 to meas-
ure progress under Vision 2030. At the end of 2018
Adaa was reported to be working on 40 indicators
to assess the performance of seven therapeutic
areas: emergencies, clinics, surgeries, hospitalisation,
intensive care, radiology and laboratories.
Saudi Arabia is a significant importer of medi-
cal equipment – around 98% of all medical devices
are imported at an estimated total value of $1.8bn
per annum. The main source of imports is the US,
accounting for 21% of total imports. There is some
local manufacture, but it is mainly limited to con-
sumables such as bandages, gloves, syringes and
furniture, including non-electrical hospital beds.
The government is keen to promote local manufac-
ture of both medical devices and pharmaceuticals.
“Opportunities for increasing the local manufacture
of pharmaceutical products can be supported by
offtake agreements between the public and private
sector,” Fahad Al Shebel, CEO of the National Unified
Procurement Company, told OBG.
”
Since 2016 two primary strategy doc-
uments have been guiding health care
policies: the National Transformation
Programme; and Vision 2030. The former
calls for increased private sector participa-
tion in the health sector, while the latter is
an overall strategic plan for the country
”
HEALTH INDICATORS: With an estimated popu-
lation of 33.6m in 2018, the Kingdom is the sec-
ond-largest Arab country. Expatriates make up about
one-third of the population, while 30.4% are under
the age of 15 and roughly half are under the age of
35. The growing population and growing incidence
of non-communicable diseases (NCDs) has created

significant financial and operational challenges.
Demographic change is playing an important part
in the food consumption, lifestyle, and health and dis-
ease profiles of Saudi Arabia’s population. According
to data from the World Health Organisation (WHO),
the Kingdom has one of the world’s highest rates of
obesity, with 59% of Saudi adults considered phys-
ically inactive, 68% overweight, 34% suffering from
NCDs due to obesity and 14% diabetic. According
to current projections, 2.5m people are expected
to be diabetic by 2030. The MoH estimates that the
current proportion of the population suffering from
diabetes is significantly higher, at 25%.
The Kingdom’s median age of 29.8 years is almost
10 years younger than the average for developing
countries. As the population ages, the median age
is predicted to rise to 34.7 by 2030. An important
shorter-term factor impacting the health sector
is Saudiisation – the policy of increasing the over-
all proportion of jobs held by Saudi citizens and
reducing reliance on expatriates. The expatriate
population dropped by 6% year-on-year in the first
quarter of 2018 to 10.2m, with around 1m leaving
between 2017 and 2018. The number of expatriates
is predicted to fall by an estimated 5m between
2016 and 2025 as the government seeks to reduce
its dependence on foreign workers.
HEALTHY DIET: Taking these trends into account,
one conclusion is that both government and public
opinion will demonstrate growing interest in healthy
lifestyles and eating habits. In September 2018 the
Saudi Food and Drug Authority launched a healthy
food strategy, which included voluntary commit-
ments from the local subsidiaries of major food
manufacturers such as Kellogg’s, Mars, Coca-Cola,
PepsiCo and Nestlé to cut the sugar, salt and fat con-
tent of their products. Kellogg’s said the company had
launched a new version of its Coco Pops breakfast
cereal with 40% less sugar, specifically for the GCC
regional market, while Mars said it was lowering the
saturated fat content in its chocolate products and
reducing the sodium content by an average of 20%
across its entire food portfolio by 2021. Nestlé also
conducted nutritional research that identified a way
to achieve up to a 30% sugar reduction in breakfast
cereals aimed at children and teenagers.
The healthy food strategy was launched after
research showed that a large proportion of the
population does not heed healthy eating recom-
mendations. According to the Saudi Health Interview
Survey, a household questionnaire conducted in
2013 across all administrative regions of the King-
dom, dietary guideline recommendations are met
by only 5.2% of respondents for fruits, by 7.5% for
vegetables, 31.4% for nuts and 44.7% for fish. The
researchers concluded that programmes to improve
dietary behaviours “are urgently needed to reduce
the current and future burden of disease”. Alaa Adel,
general manager for the Middle East department
of Cerner, a US-headquartered health IT company,
told local media in September 2018 that it will be an
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HEALTH & LIFE SCIENCES OVERVIEW 271
Research has found that a large proportion of the population does not adhere to healthy eating guidelines
uphill struggle to combat obesity in the Kingdom. Between 2015 and
“The problem is that fast food is quick, many people 2018 the proportion of
prefer the taste of unhealthy options, and hectic citizens over the age of 15
participating in exercise at
work schedules or sedentary lifestyles do not leave least once a week increased
much room for exercising,” he said. from 13% to 23%.
EXERCISE & LIFESTYLE: One response by the gov-
ernment has been to promote healthier lifestyles
and exercise. The General Sports Authority (GSA)
conducted the first national sports survey in 2015.
This sought to determine how many people regularly
participate in sporting activities. For the purpose of
the survey they were defined as “individuals who
engage in a specific type of physical activity, i.e.,
planned, structured and repetitive, for the main
purpose of improving health and maintaining fitness
at least once a week”. The survey found that only 13%
of the country’s inhabitants aged 15 years and over
said they exercised at least once a week. The survey
was repeated in the first quarter of 2018, showing
significant progress, with the proportion exercising
at least once a week rising to 23%. A separate survey
carried out by the General Authority for Statistics
found that 16.5% of citizens aged 15 and over said
they are active for at least 150 minutes per week.
To increase the proportion of citizens who exercise
regularly, the GSA has taken on raft of initiatives.
It has sought to encourage more gyms in urban
areas, including women-only gyms. It also organ-
ises mass-participation public events, such as the
Riyadh marathon and the Neighbourhood League of
Football, which has 800 teams and 30,000 players.
DISABILITY-ADJUSTED LIFE YEARS: International In response to the
health organisations such as the WHO use the con- government’s healthy food
cept of disability-adjusted life years (DALYs) to strategy released in 2018,
measure the burden of disease. DALYs measure the several major food and
drink manufacturers have
relative magnitude of losses of healthy life associated
committed to reducing the
with different causes of disease and injury. According sugar, salt and fat content
to research conducted in 2010, the leading causes of of their products for the
DALYs were major depressive disorders, road traffic Saudi market.
THE REPORT Saudi Arabia 2019

injuries and diabetes. Notably, Saudi Arabia has one
of the world’s highest rates of traffic accidents. The
Kingdom has seen an increase in the incidence of
NCDs, which are estimated to account for over 78%
of total deaths. The latest available data, released
in 2016, indicates that other major contributors to
DALYs include neck and back pain, migraine, diabetes,
and depressive and anxiety disorders.
EXPANDING DEMAND: A range of projections by
different bodies all point to expanding demand for
medicine and health care. A white paper published in
2018 by retail brokerage Colliers said that if the pop-
ulation continues growing at its current compound
annual growth rate (CAGR) of 2.65%, it will reach
77.2m by 2050. According to the more conservative
World Bank annual growth forecast of 1.02%, the
population will reach closer to 45.1m by the middle
of this century. If the higher of the two forecasts
is correct, the country will need up to $37.3bn of
new health care investment by 2030, the paper said.
A total of at least 50,000 new hospital beds and
40,000 more doctors would also be required. The
requirement for hospital beds could be even higher
if the ratio of 2.23 beds per 1000 members of the
population increases closer to the world average,
which currently stands at 2.7 beds per 1000.
An important conclusion of the report is that over
the next three decades there will be a sharp increase
in demand as on average approximately 80% of an
individual’s health care treatment typically occurs
after the age of 40-50. This is mainly due to the
spread of lifestyle-related diseases such as diabetes,
coronary and other obesity-related illnesses. As life
expectancy continues to rise, so too will the need
for long-term health care.
PUBLIC SPENDING: According to statistics from the
MoH, the government budget allocated SR67.8bn
($18.1bn) to the health sector in 2017, representing
an increase of 7.6% on the preceding year. Com-
bined spending on health and social development
accounted for 14% of the total budget in 2017. In
comparison, the largest share of the budget was
allocated to military, security and regional admin-
istration, at 32%, followed by education with 23%.
The combined budget for health care and social
development was reported to have increased by
10.5% in 2018 to reach SR147bn ($39.2bn).
The government budget for 2019 was announced
in December 2018. According to press reports, it
totalled SR1.1trn ($293.3bn), up by 7.3% on the
preceding year, and was designed to propel growth
and lower the fiscal deficit. Officials have stated
that the budget was formulated on the prediction
that GDP would grow by 2.6% that year, after an
expansion of 2.3% in 2018 and a contraction of 0.9%
in 2017. Notably, the 2019 budget was the first time
planned spending on education exceeded spending
on military and security. Combined public spending
for health care and social security also increased, to
SR172bn ($45.9bn), or 15.6% of the total. According
to US agency Export.gov, total health care spending
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HEALTH & LIFE SCIENCES OVERVIEW 273
Around 50,000 new hospital beds and 40,000 more doctors will be needed by 2030 to meet increasing demand
in Saudi Arabia – including public and private sec- The 2019 budget
tors, as well as current and investment spending – is allocated
around $34.4bn per annum, equivalent to 5.3% of
GDP. Within this total, $7.4bn is allocated to pur- $45.9bn
chasing medicines and consumables. to health and social care
HEALTH POLICY: The sector features prominently in
both the NTP and the longer term development plan,
Vision 2030, which call for increased investment in
primary care, e-health and training. Widened health
insurance coverage is seen as an important source
of extra funding for the system. In addition to these
overarching strategies, the government is pursu-
ing a health care investment plan, which identifies
40 different areas that require funding, including
service provision, education and training, medical
device manufacturing, pharmaceuticals manufac-
turing, support services, and digital information
management. In September 2018 Tawfiq Al Rabiah,
minister of health, outlined some of the challenges
the administration was facing. He estimated that
overall the value of the sector’s activity was around
SR150bn ($40bn). The minister also identified some
of the major issues as being the rising cost of health
services, the scarcity of qualified staff, demographic
changes, the impact of an ageing population and the
spread of chronic diseases. According to the minis-
ter, an important goal is to separate regulation and
policy formulation from operational management.
Through privatisation and restructuring, achieving
this separation would enable the MoH to “focus on
its fundamental role of formulating policies and
legislation to guarantee the quality and standards of
health services”. Existing reforms focus on a range of The population is predicted
objectives, including developing preventive health, to increase by a compound
promoting healthy eating, increasing service quality, annual growth rate of
2.65% to reach 77.2m by
and developing a culture of competition, transpar-
2050, in which case an
ency and performance management. estimated $37.3bn worth of
In line with the aims of the NTP, private compa- health care investment will
nies are likely to play a more important role in the be required before 2030.
THE REPORT Saudi Arabia 2019
274 HEALTH & LIFE SCIENCES OVERVIEW

data confirming that their employees are insured.

This is integrated with other government databases
and systems, such as the National Information Cen-
tre, in order to ensure compliance.
Electronically confirming membership of a com-
pany health insurance scheme is now part of the pro-
cess by which expatriates are granted residency, or
visa renewal and extension. According to a report by
the Saudi Press Agency (SPA), as of the end of 2018
a total of 10.8m citizens were covered by company
health insurance. This total included over 1m Saudi
employees and 1.8m of their dependants, and more
than 6m expatriates and 1.9m of their dependants.
The SPA said that as a result of tightened enforce-
ment, it was expected that another 2m people would
receive health insurance coverage from their employ-
ers during the course of 2019.
The employer-funded health insurance market is
providing big opportunities for the private sector.
In late 2018 international insurance group AXA said
it was launching specially tailored “prestige” and
Medical consultations can now be conducted online or over the phone
“prestige plus” plans for the Saudi market. The plans
It is estimated that sector’s future. “The private sector has been in include comprehensive cancer benefits, and cover
between 2017 and 2035 anticipation since 2016, but with large-scale public for kidney dialysis and for life-threatening congenital
the population aged sector investments being pushed through, and the conditions. The company said that the combination
between 40 to 59 will
grow by 150%, and the
increasing attention to public-private partnerships, of mandatory health insurance and a large expatri-
population over the age amid stabilising oil prices, we can begin to be more ate community made the Kingdom a key market for
of 60 will grow by 300%, optimistic about our outlook,” Dr Ahmed Serag, gen- its health insurance products. It was also seeking
increasing demand for eral manager and country chair for Saudi Arabia of to offer multi-layered insurance to appeal to both
specialist care services and France’s pharmaceutical company Sanofi, told OBG. global and local employers.
health insurance.
INSURANCE: Company health insurance schemes are GROWING MARKET: According to the government’s
now obligatory in Saudi Arabia. In December 2018 Council of Cooperative Health Insurance and a 2018
the Council of Cooperative Health Insurance said report by UK-based property consultant Knight Frank,
it was introducing new punitive measures for any there are around 27 insurance companies offering
company that fails to offer a health insurance plan health coverage in the Kingdom. The total number of
to its employees and their families. Under existing beneficiaries covered by health insurance is around
regulations companies are required to insure staff 11m, slightly higher than the SPA estimate. Of the
members and their dependants. Companies that total, the majority are expatriates. However, some
do not offer this are liable for fines equal in value analysts believe that the pool of health insurance
to the insurance of each member of staff and can beneficiaries could widen by another 5m with the
be denied access to government services such as IT inclusion of Saudi civil servants and their families.
networks. Companies must also provide electronic It is estimated that gross premiums totalled $5bn in
2015, up by 20% on the preceding year. The report
concluded that there are significant growth oppor-
Percentage of population suffering from chronic diseases, 2017 (%)
tunities in the health sector. It noted that between
2017 and 2035 the population aged 40 to 59 will
70
grow by 150%, while the population over the age
60 of 60 will grow by 300%, meaning that there will be
more demand for health services and specialist care,
50 in turn increasing demand for insurance.
DIGITAL SYSTEM: The authorities are seeking to
40
improve the Kingdom’s health care by adopting dig-
30 ital information systems. Plans include developing
a standard e-Health card for all citizens, creating
20 comprehensive patient digital records, and building
systems that are capable of delivering online pre-
10
scriptions and health insurance claims and improved
0 management. The NTP sets a target of increasing
15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 60-64 65+ the proportion of patients that have a digital health
record from virtually 0% in 2016 to 70% by 2020.
Source: GaStat
According to industry estimates, annual spending

www.oxfordbusinessgroup.com/country/saudi-arabia

on developing digital information platforms for
health is estimated at approximately $500m and
this is expected to double in the near future.
Some of the operational problems currently expe-
rienced in the public health system could indeed
benefit from new, data-based technology. Saudi
Arabia currently has long waiting times for some
types of treatment, high appointment no-show rates
and underutilisation of some resources. Cerner’s
Adel told local media that there are digitally based
technological solutions to some of these problems.
“If we can increase the percentage of care delivered
outside the four walls of the hospital using the availa-
ble technology and by relying more on primary health
care centres, we should see natural improvement in
these challenges,” he said.
Physician e-visits – which are conducted over the
phone or through video conferencing software – may
help to speed up the treatment process, with the
added benefit that a virtual waiting room reduces
the risk of cross-contamination between patients.
According to Adel, having a single patient file shared
across different health care providers offers signif-
icant potential to increase the efficiency and coor-
dination of health care services.
PHARMACEUTICALS: Demand for medicines is
expected to increase rapidly over the next few
years based on projected population growth fig-
ures, rising living standards, growing incidences of
lifestyle-based NCDs, development of medical infra-
structure and increased medical insurance coverage.
The rising importance of disorders related to body
sugar levels will drive the growth of the diabetic
medicines segment. Demand for drugs to treat car-
diovascular diseases is also likely to rise. In 2016 total
medicines sales were estimated at $5.2bn, up by
6% on 2017. More recent estimates describe Saudi
Arabia as the largest pharmaceuticals market in the
MENA region, with sales of around $7.6bn in 2017.
Branded prescription medication accounts for over half of total sales
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HEALTH & LIFE SCIENCES OVERVIEW 275
Saudi Arabia is the largest pharmaceuticals market in the MENA region, with sales of $7.6bn in 2017
UK-headquartered research company Future Mar- The pharmaceuticals
ket Insights has predicted that the pharmaceuticals market is predicted to
market will increase at a CAGR of 9% in 2016-26, increase at a compound
reaching a value of $12.2bn by the end of that period. annual growth rate of
However, projections by other leading players are
more conservative. A report by BMI Research sug-
gests the market will grow at a CAGR of 4.6% between
9%
between 2016 and 2026
2018 and 2022. The report notes that “given Saudi
government spending has tended to correlate with
global oil prices over the last decade, we expect that
health care market growth, and thereby pharmaceu-
tical market growth, will be supported by stronger
oil market dynamics from 2018 onwards”.
Branded prescription drugs account for over half
of total sales. However, generic medicines are also
set for growth as health care insurance providers
recommend their use to keep costs under control.
Around 80% of sales are conducted through retail
pharmacies, with the remainder coming from hospi-
tal pharmacies. The key firms operating on the local
market include Saudi Arabia-headquartered Tabuk
Pharmaceutical Manufacturing and Saudi Pharma-
ceutical Industries and Medical Appliances Corpora-
tion (SPIMACO), as well as international companies
such as Pfizer, GlaxoSmithKline and Novartis. The
government’s decision to allow 100% foreign direct
investment in the sector has boosted the interest of
international companies in the local market.
INTERNATIONAL STANDARDS: In April 2018 the
office of the US Trade Representative placed Saudi
Arabia on the watch list of its “Special 301 Report”,
which aims to identify countries that do not provide
adequate and effective protection of intellectual
property rights. Partly in response to these concerns,
the government has announced the creation of the Annual spending on
developing digital
Saudi Intellectual Property Authority and a revision
information platforms
of regulations that is designed to bring the country for health is estimated
more in line with the WTO’s Agreement on Trade-Re- at $500m and is likely to
lated Aspects of Intellectual Property Rights. double in the near future.
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 276
Company health insurance schemes are now obligatory in Saudi Arabia for all employees and their dependants
The National
Transformation
Programme aims to
locally produce
40%
of pharmaceuticals by
2020
New regulations have
increased the number
of pharmaceuticals that
require a prescription,
which is likely to affect
sales in the short term but
increase patient confidence
in the long term.
HEALTH & LIFE SCIENCES OVERVIEW
Domestic pharmaceuticals production has been
on the rise, mainly for generic and over-the-counter
(OTC) medicines. A number of local companies have
licensing agreements with international compa-
nies. The domestic industry has limited research
and development capabilities. According to industry
sources, uncertainty over future prices can hold
back investment decisions. The government seeks to
provide incentives for local manufacture, including
import tariff exemptions, interest-free credit and
subsidised utilities. The NTP aims to locally produce
40% of pharmaceuticals by 2020.
CHALLENGES: Pharmaceutical industry executives
had mixed reviews for the sector’s market perfor-
mance in 2018 and the outlook for 2019. There had
been some turbulence and uncertainty in the market
in 2018 due to regulatory changes, such as the Sau-
diisation policy, which requires that a minimum of
40% of pharmaceutical company sales and marketing
staff be Saudi nationals. There have been concerns
that it may be difficult to recruit the required quota
of suitably trained Saudi staff due to the fact that
the job is perceived as difficult, requiring up-to-date
technical knowledge of new medicines and details
of health trial results. As a result, many Saudis may
be deterred from a career in the pharmaceuticals
industry. In the hospital and institutional sector phar-
maceutical sales are largely relationship-driven, and
a high staff turnover – either on the sales side or
the medical side – can be disruptive.
Meanwhile, tighter regulations also had a neg-
ative short-term impact on pharmaceutical sales.
For example, the OTC sale of many antibiotics has
been prohibited, impacting approximately 30% of
all such medicines, which now require a prescrip-
tion. However, some executives have suggested that
despite some short-term damage to sales figures,
the decision will ultimately be positive in the long
term, as it would reduce and prevent the overuse
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or incorrect use of antibiotics, and in turn help to
strengthen patients’ confidence in the effectiveness
of appropriately prescribed medicines.
Despite the immediate setback, there is evidence
that the industry will soon bounce back from the
dip in sales. According to Ahmed Elshaarawy, global
marketing director of SPIMACO, over the longer term
the decision to limit antibiotics to sale by prescription
will be a positive change for Saudi Arabia. However,
the decision, along with a general trend of increasing
regulation and underlying uncertainty in the sector,
pointed to sales remaining relatively unchanged in
2019. “As the outlook for sales is flat, it is better
for us to try and work on the bottom line – cutting
costs – rather than on the top line – boosting total
income,” Elshaarawy told OBG.
OUTLOOK: Although there may be some short-term
challenges, the outlook for health services in Saudi
Arabia looks positive in the long term. Short-term
external risks include uncertainty over oil prices and
the global economy, both of which are expected to
grow moderately. There are also some concerns that
regulatory changes, including Saudiisation, localisa-
tion of pharmaceuticals manufacturing, and price
reductions for certain services and medicines could
have a negative effect on the industry.
Despite this, there are strong long-term positives.
The combination of a growing population and con-
cern over lifestyle-related NCDs means that under-
lying medical demand is set to rise for at least the
next decade. The government has made it clear that
it needs increased foreign participation and invest-
ment to be able to meet that demand. Research
shows that the country will need a major expansion
of the number of hospital beds and physicians. The
government’s spending on health has been increas-
ing in the high single-figure percentage range, and
private expenditure, which is increasingly funded
by medical insurance, can also be expected to rise.
Local production of generic and over-the-counter medicines is rising

Upping the quality
Hisham bin Saad Aljadhey, CEO, Saudi Food and Drug
Authority (SFDA), on localisation of food and drug capabilities,
and capacities in the Kingdom
In which segments can food manufacturing be lo-
calised in the context of halal production?
ALJADHEY: A good example of supply chain localisation
is the production of dairy products. Despite the coun-
try’s lack of water resources, there have been major suc-
cesses in that sub-sector; from reaching self-sufficiency
to becoming an exporter to neighbouring countries.
There remain are a lot of other opportunities, especially
for fish products. Consumption of fish in Saudi Arabia
is relatively low, and for nutritive and health purposes
– especially considering the benefits of an increased
omega-3 intake – we would like to see this change. To
this end, we could definitely benefit from a boost in
aquaculture activities on the Red Sea coast.
How can food manufacturers be encouraged to cut
down on salt, sugar and fat?
ALJADHEY: In the context of Vision 2030, one of the
main objectives is to improve health standards for food
consumption. For a long time, food was thought of in
the context of security and self-sufficiency. Nowadays,
safety and ensuring good quality of food are becoming
more important. We now think of food as a way of
preventing diseases, and the goal is to provide better
nutrition intake for the consumer.
In line with the World Health Organisation’s recom-
mendations, Saudi Arabia has launched many initiatives
to reduce the amount of salt, sugar and fat consumed.
In terms of fat, major steps have already been taken in
2018 to eliminate trans fats from our daily consumption,
and by 2020 the objective is to reach 0% trans fats in
all food consumed in the Kingdom, including from food
imports. There are also restrictions on added sugar in
the manufacturing of fresh juices and label require-
ments for packaging. The amount of salt is limited to 1%
for all bread products, and this standard will be applied
to many other products in the short term as well. Lastly,
by 2020 new labelling will be put in place, which will
highlight the percentages of important ingredients. In
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HEALTH & LIFE SCIENCES INTERVIEW 277
Hisham bin Saad Aljadhey, CEO, Saudi Food and Drug Authority
terms of outdoor eating, whether in restaurants, coffee
shops or fast-food chains, as of January 1, 2019 it has
become mandatory to indicate the number of calories
for each item and dish on the menu. This was one of
the most important decisions that the government
made recently in order to create awareness around
caloric intake and change food habits in the long term.
How can cardiovascular, diabetes and obesity issues
be addressed over the longer term?
ALJADHEY: These types of health issues are the ones
most commonly linked to food consumption. The Min-
istry of Health and the SFDA are working hand-in-hand
to tackle those problems. Lately, there has been a big
focus on high blood pressure, which is largely linked to
salt consumption. For preventive purposes regarding
other diseases such as cancer, a lot has been done to
ensure that pesticides, chemicals and microbiological
products are not used in the food production process.
In 2019 the aim is to lower all the food contaminants
that can be a threat to people’s health to 3%.
What can be done to incentivise investment and
jump-start the local production of drugs?
ALJADHEY: In 2018 slightly over 30% of the coun-
try’s medication was manufactured locally; by 2020
the objective is 40%. The approval process for drug
registration has been fast-tracked through an elec-
tronic system, improving the experience for investors,
research and development, and drug discovery. There
is also a strong procurement process in place through
the National Unified Procurement Company, which is
increasing and prioritising purchases from local pro-
duction, thereby giving an incentive to international
players to manufacture locally. A pharmaceutical track-
and-trace system has also been put in place which is
expected to save SR3bn ($300m) annually from frauds
and other discrepancies. The whole supply chain has
been sanitised and cleared of fraudulent activities.
THE REPORT Saudi Arabia 2019
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The government hopes
that privatisation
will increase sector
efficiency by
25%
by 2021
In 2018 the government
issued an order to begin
the creation of clusters
of regional hospitals,
allowing patients to access
services outside their
locality, and encouraging
the implementation of new
technology and training.
HEALTH & LIFE SCIENCES ANALYSIS
By 2030, 290 hospitals and 2300 health centres are to be privatised
Attractive market
The government prepares for a major privatisation plan, with
significant interest from local and foreign providers
In February 2018 the Ministry of Health (MoH)
announced plans to establish a holding company and
five regional subsidiaries to enable privatisation of
the sector. Under the plan, the MoH would transition
to becoming a regulator rather than a direct provider
of health services. The aim of the restructuring was
initially to have 15 hospitals and 100 primary health
care centres operating in a competitive market. Once
the new structure is in place, this would position the
government to transfer ownership of the hospitals to
private companies. In the longer term a total of 290
hospitals and 2300 primary health centres are planned
to be privatised by 2030. Officials also spoke of the
possibility of forming clusters of regional hospitals
that could each come under the supervision of a sin-
gle operator. In early 2018 Tawfiq Al Rabiah, minister
of health, issued an order to establish one such unit,
grouping four hospitals and 11 health centres under the
supervision of a consultative council at King Abdullah
Medical City in Makkah. “Patients are now able to use
medical cities located outside their place of residence.
This will encourage the implementation of high-quality
technology and training among clusters of hospitals
and health centres, allowing them to cater to a larger
number of patients,” Dr Mahmoud Al Yamany, CEO of
King Fahad Medical City in Riyadh, told OBG.
PLAN OF ACTION: The MoH also announced plans to
create an electronic health information system, which
will link all primary health centres, pharmacies, and
public and private hospitals. In April 2018 the MoH
confirmed that under the privatisation plan, citizens
would continue to receive free health care, and private
operators would also have to meet minimum standards
of service quality and efficiency. It is hoped that the
combination of restructuring, privatisation and compe-
tition could increase overall efficiency by 25% by 2021.
As of early 2019 the exact timing of the sector pri-
vatisation programme had not yet been defined. In
December 2018 Mohammed Al Tuwaijri, the minister
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of economy and planning, said that the first raft of
privatisation projects, ranging from grain storage to
health care and water desalination, would eventually
be worth a total of $200bn and will be finalised over
a six-month time scale. Although he did not specify
which, the minister reported that the government had
received expressions of interest from Asian and Euro-
pean companies. The health sector is one of the most
attractive areas for privatisation opportunities under
the Vision 2030 programme. As part of the Kingdom’s
efforts to increase foreign investment, foreign inves-
tors will be allowed 100% ownership of hospitals and
other entities, and current restrictions – such as those
preventing hospital owners from investing in other
health care institutions – will be relaxed.
PRIVATE INTEREST: Many private sector providers see
Saudi Arabia as an attractive market. Prasat Manghat,
CEO of UAE-based NMC Health, told local media in late
2018 that the company aims to increase its presence in
the Kingdom. It entered a joint venture with Hassana
Investment, a subsidiary of the Saudi state-owned Gen-
eral Organisation for Social Insurance (GOSI), to provide
medical facilities, aiming to increase the number of beds
from 1500 to 6000 over the next five to seven years.
NMC and GOSI are planning to invest SR6bn ($1.6bn)
and create 10,000 jobs over the next five years. Accord-
ing to Manghat, the Gulf region offers significant
opportunity for private health providers, but Saudi
Arabia – the region’s largest market – is particularly ripe
for investment. Within the region, health insurance is
set to expand from a very low base. Manghat attributed
this to the large population under the age of 20, who
may soon be interested in parenthood, as well as the
ageing population created by rising life expectancy
rates. In 2018, 8% of the region’s population was over
65 years of age. “From any health care perspective,
whether it is ageing, changing lifestyles and their asso-
ciated disorders, or reproduction, there is likely to be a
big uptake in health care and medical services,” he said.

Investing in health
Advancing medical technology leads to improved patient care
and cost savings
Rising health care costs, ageing populations and
changing lifestyles in emerging economies are stoking
demand for medical technology (medtech) solutions.
These entail not just smart devices that remotely mon-
itor and transmit biometric data, but any instance of
technology that helps to deliver health services. These
initiatives are happening everywhere, but there are sig-
nificant differences in the speed and scale of medtech
adoption across emerging markets.
UBS Investment Bank estimates that the emerging
market health care sector will grow 6.3% annually over
the next decade – double the speed of developed
markets – as governments make up for historic under-
investment. Emerging markets routinely spend less
than 10% of GDP on health care, contrasted with close
to 15% spent by developed countries, but are working
to reduce the deficit. Ageing populations are a catalyst,
and the UN estimates that by 2030, the 65-and-over
demographic in emerging markets will rise to 15% of
the population, up from 10%.
Concurrent with the rise in elderly patients needing
care, diagnosis of non-communicable diseases (NCDs)
is expected to increase. This is due to urbanisation
and sedentary lifestyles accelerating the incidence
of cancers, cardiovascular and chronic respiratory
diseases, and diabetes. NCDs demand longer and more
expensive treatment programmes than many other
illnesses. Therefore, emerging markets are investing
in cost-effective medtech solutions to improve root
cause analysis and patient care, while simultaneously
reducing the rate of readmissions.
DIGITAL REVOLUTION: Digitisation is a critical first
step towards achieving medtech synergies, facilitating
the adoption of standard health care industry practices
in order to reduce waste and improve analysis.
In many countries in Africa, however, obtaining a
patient’s medical records can often be difficult. The
process has inspired solutions such as the KEA Medicals
digital health platform, under which 50,000 patients
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279
Global
Perspective
from six African countries currently maintain their The emerging market
medical information, having created Universal Medical health care sector will
Identity (UMI) accounts. Once signed on, each patient grow by 6.3% annually over
the next decade – double
receives a printed QR code that embeds their UMI the speed of developed
code, which allows doctors to scan their patients for markets – as governments
information at the point of delivery. Some 1700 medical make up for historic
professionals are connected to the network. underinvestment.
Such innovations, while effective, are no substitute
for government-led programmes to digitise medical
records, otherwise known as electronic health record
(EHR) systems. Mexico aims to implement EHR across
its hospitals by 2020, and recently announced the acti-
vation of HarmoniMD, a cloud-based EHR system, at
Fundación de Cáncer de Mama (FUCAM), a breast can-
cer foundation that provides specialist care services.
This will put in place a digital system, which is expected
to improve understanding of disease incidence, vacci-
nation rates and other health occurrences.
FOUR SHIFTS: Once health systems have completed
the transition to digital, Deloitte identifies four result-
ing shifts: from acute to preventative care and from
hospitals to home care; from monitoring single biom-
etric indicators to AI-enabled processing of multiple
indicators; from intuitive approaches based on typical
patients to personalised treatments optimised by big
data-driven algorithms; and from specialised silos of
knowledge to centralised, widely available systems.
US-based market research company BCC Research
estimates that the global medical devices market will
grow to $674.5bn by 2020, up from $521.2bn in 2017.
Emerging markets are earmarked to increase their
share of these revenues from less than a quarter to
more than one-third. This has been driven by innova- The global medical
tions in smart technologies enabling higher rates of devices market
home care for patients, and by a push towards multi- could grow to
functional devices deholistic biomedical data, conse-
quently lowering costs for industry and end-users. In
$674.5bn
practice, these devices enable projects like Khon Kaen by 2020
Smart Health in Thailand, an integrated smart health
THE REPORT Saudi Arabia 2019
280
Traditional innovators
like pharmaceuticals,
hospitals and medtech
giants are increasingly
partnering with bulk
buyers, including health
insurers and government
entities, accelerating a
shift towards centralised
repositories of health data.
initiative centred on Khon Kaen Provincial Hospital.
The project incorporates a smart ambulance service
that uses GPS to coordinate patient pick-up, coupled
with real-time video and data transmission to prep
the hospital ahead of patient delivery. It also includes
a sensor platform that monitors the activity and con-
dition, including the blood pressure and sugar levels,
of elderly residents with chronic diseases, enabling
them to remain at home. The data is then integrated
with the patient’s EHR information.
Khon Kaen employs a multi-stakeholder approach
to patient care, which is increasingly the norm amid
an ongoing redefinition of the health care value chain.
Traditional innovators like pharmaceuticals, hospitals
and medtech giants like GE Health care and Medtronic
are increasingly partnering with bulk buyers, including
health insurers and government entities, accelerat-
ing a shift towards centralised repositories of health
data. These traditional stakeholders are also vying
for business with tech companies that make smart
predicative analysis and monitoring tools. VC Rock
Health reports that digital health companies in the US
alone raised almost $6bn in 2017, and had secured a
further $6.8bn by the end of the third quarter of 2018.
Diagnosis of diseases was the heaviest funded value
proposition, followed by disease monitoring. Savvy
governments, such as that of Dubai, are consequently
directing state-backed startup accelerators, such as
Dubai 100, towards development of health care.
This digital revolution encompasses a shift towards
measuring patient outcomes rather than only drug
sales. Japan provides a good example along these
lines. A 2017 study by the Economist Intelligence Unit
shows how use of medtech devices for screening and
treatment of various diseases provided significant net
savings – in the case of diabetes treatments more than
$1000 per patient per year – to the health care system
through greater labour force productivity, reduced
mortality and morbidity rates, and decreased down-
stream health care costs overall.
RISKS & CHALLENGES: The path to medtech adoption
is often impeded by cultural, structural and regulatory
factors. In the UAE, the sector is undergoing a wave of
consolidation and specialisation, in reaction to over-in-
vestment in hospitals during the first half of the decade.
Health care providers are focusing on their bottom line.
“The health care sector in the UAE needs to develop
their focus on providing value-added health care,”
Majid Kaddoumi, vice-president and regional manag-
ing director, Central and Eastern Europe and MEA for
Medtronic, told OBG. “For the most part, health care
providers think about reducing costs, without putting
any thought into the overall outcome for the patients.”
Additionally, the benefits resulting from adoption
of AI-enabled procedures are not always immediately
apparent. According to David Hadley, CEO of Medi-
clinic ME in the UAE, productivity gains are currently
outweighed by doctors having to maintain existing
notes while also entering data into hospital systems.
“Little by little, though, the amount of stored data will
serve more to help doctors rather than just giving them
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more work. The biggest potential is expected to be in
diagnostics,” Hadley told OBG.
There is also justifiable caution regarding the notion
of transferring medical data to centralised gatekeepers.
It was revealed in August that Hova Health, a Mexican
telemedicine company, left the data of 2.37m patients
exposed online. Patient names, personal ID codes for
Mexican citizens and residents, insurance policy num-
bers, dates of birth, and addresses were all available
without password protection. However, the breach
involved a simple misconfiguration of a MongoDB data-
base, rather than a targeted cyberattack.
Another challenge is that information is not currently
shared as effectively, seamlessly or securely as it could
be, according to Michael Schelper, CEO of Cerner in
the UAE. “However, this has a solution: blockchain.
This technology will allow for decentralising the own-
ership of data and letting individuals own their own
data, which in turn will allow for it to cross borders
in an efficient way,” he told OBG, cautioning that this
technology is still in the early stages of development.
LEADERSHIP: Asia is the fastest-growing region in the
global medtech market, fuelled by the confluence of
ongoing public health care reforms, a rapidly expanding
private sector and revenues from a thriving medical
tourism industry. UBS notes that China and India are pri-
mary engines of emerging market health care growth.
The former committed to a reform programme that, if
successful, will develop a $1.29trn health care industry
by 2020. This marks a sevenfold increase from 2011.
Both countries experience a discrepancy between the
standard of health care provided in urban and rural
areas, and in a bid to bridge this divide, are committed
to improving preventative programmes and growing
the availability of mobile health care.
Regarding public health care, Thailand’s programme
to transform itself into an innovation-driven digital
economy – under its Thailand 4.0 vision – has resulted
in a new e-Health strategy. This strategy maps national
development for the decade to 2027. Targets include
EHR adoption, the provision of high-quality telemed-
icine systems, medtech innovation and smart health
care provision in rural areas, which are driven by a focus
on digital education for all health care stakeholders.
Telemedicine and mHealth programmes are already
deployed as pilots. However, the strategy identifies ICT
hardware as an area of potential weakness, particularly
when it comes to servers. It also notes the absence of
legislation ensuring the privacy of personal data on
EMR systems and several other deficiencies.
In Indonesia, the government is making inroads into
providing universal health insurance operated by an
authorized body, the Healthcare and Social Secu-
rity Agency (BPJS Kesehatan), with approximately
three-quarters of the population now covered by
the scheme. Yet there is still a wide education gap
among much of the population. “It is important to
note that most Indonesians are health care illiterate,
do not believe in primary prevention, and do not really
understand how insurance works. It is only after they
are sick and need high cost health care, such as an

operation, that they would pay the premium in hopes
that they could get the benefit right away,” said Ronny
Adhipurna, president director of Medikaloka, a Jakar-
ta-based health and wellness centre that provides
care before and after hospitalisation to millions of
Indonesians who travel to Singapore and Malaysia for
medical reasons. However, according to Ade Tarya
Hidayat, president of AbadiNusa Group, an exporter
of sphygmomanometers and other medical equip-
ment, there are signs of improvement. “Technology
increasingly plays a role in almost all processes, includ-
ing patient registration, data monitoring, lab tests
and self-care tools. More hospitals are implementing
e-health records, telemedicine and tele-consultation,
where patients and physicians are able to interact
online and share the same portal technology to access
medical records,” Hidayat told OBG.
This progress has been uneven, and Indonesian
patients often need to travel to Singapore or Malaysia
for treatment. “Foreign investment specifically aimed
at developing specialty hospitals, the manufacturing
of medical consumables and disposable products, and
better training initiatives for local doctors will certainly
make Indonesia a more reliable and appealing treat-
ment destination,” Hidayat added.
MEDICAL TOURISM: Medical tourism is a key incentive
for private hospitals to improve infrastructure and
accelerate the trend of centralised purchasing, ware-
housing and decision-making that Deloitte identifies
as a key shift in the transition to digital health care.
Many patients in Asia are attracted by relatively low
costs, shorter wait lists and gaps in national health
care insurance coverage at home.
In 2016 medical tourism in Asia Pacific accounted
for 10m patients and approximately €16bn in revenue.
According to the medtech-focused consultancy TforG,
the market is expected to grow by 16% annually for the
next three years. Thailand vies with India for regional
leadership, followed by Singapore and Malaysia, all of
whom are actively engaged in establishing themselves
as medical tourism destinations.
This demand, coupled with rising middle-class
incomes and higher spending on health care, is fuel-
ling strong appetite for medtech. Private providers
are competing to lower costs and improve provision
through technology. Combined, South-east Asia and
India account for 10% of the global medtech market
and growth is forecast at a robust 7.5% going forward.
According to the “EY Private Equity Briefing: South-
east Asia” report for June 2018, products including
consumables, diagnostic imaging and lab devices are
expected to see growth of 8-10% in most markets.
This presents an opportunity for private equity to step
in and consolidate a fragmented device distribution
industry, offering buyers several more cost-efficient
solutions and wider medtech portfolios.
MIDDLE EAST REFORMS: The Middle East is set to
experience the benefits of investment in digitisation as
the introduction of mandatory insurance programmes
and e-health systems set the stage for machine learn-
ing to improve patient outcomes. For example, the
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UAE’s Vision 2021 emphasises the importance of pre- Medical tourism is a key
ventative medicine in reducing cancer and lifestyle-re- incentive for private
hospitals to improve
lated diseases. The government has set aside more than
infrastructure and
$500m to fund a diverse assortment of innovations in accelerate the trend of
priority sectors, including health care. centralised purchasing,
The country has already spent approximately $232m warehousing and decision-
on funding advancement of digital health care between making.
2014 and 2016, and aims to become a regional leader
in the delivery of smart medtech. “The National Unified
Medical Record Project, now renamed MyCare, is an
important initiative that aims to make available individ-
ual data to all health care providers,” Schelper told OBG.
“Proper data management will lead to a decrease in the
cost of health care by improving preventive medicine
and well-being. This, in turn, will drive down the high
cost of insurance premiums.”
In Qatar, the public sector is responsible for deliv-
ering the vast majority of health care services, and
the country is facing a typical set of emerging market
health challenges. “We are experiencing an increase
in the prevalence of largely preventable lifestyle dis-
eases, among them obesity, heart disease and Type
2 diabetes,” Hanan Mohamed Al Kuwari, managing
director of Hamad Medical Corporation, a non-profit
health care provider, told OBG in 2018.
Consequently, Qatar’s National Health Strategy 2018-
22 and Public Health Strategy 2017-22 each focus
largely on preventative care. The former sets a series
of 2022 targets, including building a national knowl-
edge platform and data warehouse that will improve
access to data, enabling intelligent analysis of popu-
lation health, and establishing a system of clear legal
frameworks to facilitate data access.
Elsewhere, Saudi Arabia’s Vision 2030 is poised to
drive implementation of advanced medtech inno-
vations at selected treatment facilities. King Faisal
Specialist Hospital and Research Centre (KFSH&RC)
is the first health system outside of North America to
achieve Stage 7 on the ambulatory Electronic Medical
Record Adoption Model by HIMSS Analytics, which is
a system of scoring outpatient facility environments.
KFSH&RC has also implemented a patient portal that
is able to deliver real-time medical advice to patients
while integrating wearable devices that are designed
to monitor their progress on an ongoing basis.
Overall, the trend of increasing specialisation in
the region is considered to be driving higher quality
that can potentially counter problems associated with
high costs, particularly when supported by potential
income from medical tourism. “Medical tourism has
a huge growth potential in Dubai,” Dubai Healthcare
City Authority’s executive director, Omar Oumeish, told
OBG, outlining a detailed plan to create a one-stop
digital shop for medical tourists that will help fund
ongoing high-value research and development.
It is also expected to incentivise the venture capi- The UAE spent
tal necessary to boost industry development. “Med-
ical tourism is definitely a segment to be exploited
and quality is the best way to do it,” Maha Aboughali,
$232m
on funding digital health
business development and marketing director of care in 2014-16
Moorfields Eye Hospital Dubai, said in a statement to
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 282
Health care was classified
as the second-fastest
expanding technology
sector in Latin America in
2017, growing by 250% in
terms of the number of
deals and by 731% in value.
OBG. “However, cost is a very big challenge because
travel and accommodation costs in Dubai are very high
in comparison to other medical tourism destinations.”
LATIN AMERICAN PROGRESS: According to a
recent study by the US-based Population Reference
Bureau, by 2030, 81% of deaths in Latin America and
the Caribbean will be caused by the four major NCDs:
cardiovascular disease, cancer, diabetes and chronic
respiratory diseases. Governments are racing to
address this challenge, and have increased per capita
health expenditures throughout the region, with Bra-
zil’s increase of 31% between 2008 and 2014 being at
the lower end of the spending spectrum.
These state expenditures are being supplemented
by private equity and venture capital investments. In
2017 health care was classified as the second-fastest
expanding technology sector in Latin America, rising
250% by number of deals and 731% by value, as per
the Latin American Private Equity and VC Association.
A burgeoning market for medtech startups is emerg-
ing in Brazil. Entrepreneurs are looking to capitalise on
the void created by the market, which spends $42bn
annually on private health care, but which loses more
than a third of that to inefficiencies. Their work is being
assisted by a government initiative to digitise health
records in more than 40,000 public health clinics by
the end of 2018. This will generate savings of $6.8bn.
The initiative will help address a shortfall of more than
150m out of 208m Brazilians who did not have elec-
tronic medical records as of the end of 2017. However,
weak public finances and a lack of trained personnel are
contributing to failures to meet the steadily increasing
demand for health care services.
Mexico, for example, despite being a leading global
destination for high-end medical tourism, has the
fewest trained nurses per capita in the OECD, while a
preponderance of public health care providers inhibits
the sharing of data and resources. Fortunately, the
country is on the cusp of a telecoms revolution ena-
bled by the government’s Red Compartida telecoms
network, which provides a wholesale mobile network
upon which various operators can provide services,
including mobile health solutions.
Politicians are also increasingly open to supporting
struggling public health systems with private sector
investments. A good example of this is Brazil’s decision
to open its hospitals to private investors in 2016. For-
eign suppliers of medtech devices are also in play due
to gaps in local provision, with breathing aid technology,
x-ray technology and vital sign medical equipment
demanded in Mexico, Colombia and Brazil.
At the inaugural Digital Health Forum Mexico in
March 2018, Julio Sánchez y Tepoz, general commis-
sioner of Mexico’s Federal Office for Protection Against
Sanitary Risks, the regulatory body for health technol-
ogy, emphasised the government’s commitment to
deregulating the space for medical devices.
AFRICAN POTENTIAL: In Africa, a lack of basic hygiene
remains the leading cause of death, going some way to
indicate the depth of the challenges facing the conti-
nent’s health care sector. Mass onset of NCDs threatens
www.oxfordbusinessgroup.com/country/saudi-arabia
to overwhelm infrastructure that is already spread
thin, and enhances the need to implement preventa-
tive health care models. Nonetheless, while there are
opportunities for investment in local health care, led
in most cases by private provisions made to expatriate
populations, there continue to be substantial barriers
to further development in the area.
As a result of sustained investment in health care,
a commitment that was confirmed in its Finance Law
for 2019, Algeria is well-positioned to benefit from
medtech. Legally mandated free universal health care
was also implemented. This commitment allows the
Ministry of Health to support a contract for the pro-
vision and maintenance of radiotherapy equipment
with Varian Medical Systems, under its Plan Cancer
2014-2019 programme, according to Director-General
of the company, Mourad Belkheyar.
Infrastructure is already well-developed and pro-
vides national coverage, an element that is unique in
Africa, Haissam Chraiteh, director-general of Sanofi
Aventis Algeria, stated. “Local authorities are building
an ecosystem that takes into account all the dimensions
related to the health sector, including production of
pharmaceuticals, prevention, training, research and
clinical studies [while] incentivising international part-
ners to expand their footprint,” Chraiteh told OBG.
Given its high regulatory standards, Algeria has the
potential to act as a regional hub for health care, but
there remain a variety of obstacles.
There is also a noteable absence of consistently
standardised data. “In the long-term, as e-medicine and
digital transformation reshape the sector worldwide,
Algeria can count on a health sector that is already
strong enough to incorporate and take advantage of
these new technologies,” Chraiteh said.
Elsewhere, Côte d’Ivoire hosts a health care sector
ready for medtech invigoration, but suffers from a lack
of skilled labour, supply shortages and accessibility
issues. “To cater to the new needs of patients, health
care facilities will have to develop multidisciplinary care
services,” Eric Djibo, president and director-general,
International Polyclinic Sainte Anne Marie, told OBG.
“Specifically, existing facilities are equipping themselves
with technologies relevant to the new types of diseases
the country is faced with, and facilities under construc-
tion must take this change into account.”
Côte d’Ivoire enjoys universal health coverage, but
the system currently only benefits a selection of the
population and its scope is limited to an identified set
of essential care. However, there are plans to progres-
sively expand it as the government continues to pursue
health and public finance reforms.
This reform entails the building of several new hos-
pitals over the course of two years, all of which will
incorporate centralised data systems and advanced
medical equipment, according to Dr Meite Djoussoufou,
general manager of CHU Cocody in Abidjan. There are
some doubts that the programme, which includes a
rollout of the Couverture Maladie Universelle (universal
health care) card, will have sufficient funding consider-
ing the obstacles preceding private sector involvement.
 283

Tourism & Entertainment

Development of new travel destinations under way
Relaxed visa regulations to attract foreign visitors
Plans to boost employment opportunities for nationals
Business and conferences segments gain new traction

Breaking new ground
Officials usher in a new era of domestic and international travel
by developing leisure and entertainment offerings
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 coun-
tries in the world. However, the tourism and enter-
tainment 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 and ushered in a
series of multibillion-dollar investment projects to
build new resorts, hotels and cultural attractions.
However, development is set to pose both oppor-
tunities, and competitive and cultural challenges.
STRUCTURE & OVERSIGHT: The two main bodies
tasked with overseeing the Kingdom’s tourism sector
are the Ministry of Hajj and Umrah, which manages
annual pilgrimages to Medina and Makkah, and the
Saudi Commission for Tourism and National Herit-
age (SCTH), which is tasked with general tourism
organisation, development and promotion.
In May 2016 the General Entertainment Authority
(GEA) was established with the goal of developing
and promoting the domestic entertainment industry
while keeping with the customs and traditions of
the country. Early GEA activities, including events
and concerts, have proven successful, with their
initiatives reportedly creating some 20,000 jobs
within the first seven months of operation.
PERFORMANCE: According to the “Travel & Tour-
ism Economic Impact 2018 Saudi Arabia” report,
published by the World Travel and Tourism Council
(WTTC), the direct contribution of travel and tour-
ism to GDP was SR88.2bn ($23.5bn) in 2017, repre-
senting 3.4% of all economic activity. This figure is
expected to grow by 3.7% per year to hit SR131.3bn
($35bn), or 3.6% of GDP, by 2028. The sector’s total
contribution to GDP, meanwhile, reached SR240.9bn
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TOURISM & ENTERTAINMENT OVERVIEW 285
Authorities began issuing online tourism visas in December 2018
($64.2bn) in 2017, or 9.4% of GDP, and was projected Travel and tourism’s
to rise to SR399.5bn ($106.5bn), comprising 10.9% total contribution to
of economic activity in 2028. economic activity
Domestic travellers account for the largest stood at
share of tourism spending at 57% of the total; thus,
attracting international visitors remains a key objec- $64.2bn
tive for the government. Total visitor exports in 2017 in 2017
reached SR49.5bn ($13.2bn). This figure was fore-
cast to grow by 4.4% in 2018 to SR51.7bn ($13.8bn),
and by 3.9% per annum over the next decade to
reach SR75.8bn ($20.2bn) in 2028.
The sector has also drawn in considerable invest-
ment. Travel and tourism attracted some SR90.8bn
($24.2bn) in 2017, or 15.6% of total investment in
the Kingdom. Again, WTTC projections show figures
continuing to increase, with funding expected to rise
by 6% per year to hit SR170.4bn ($45.4bn) in 2028,
at which time it will comprise 19.9% of all funding.
To compare at the global level, Saudi Arabia ranked
19th out of 185 countries surveyed by the WTTC in
2017 in terms of travel and tourism’s contribution to
GDP in absolute value terms. It placed 27th in terms
of the total number of jobs directly generated and
31st in terms of revenues from visitors. However, the
Kingdom scored lower when the relative impact of
travel and tourism is assessed, indicting a significant
room for expansion. Saudi Arabia ranked 95th in
terms of its direct contribution as a proportion of
GDP (3.4%), 55th in terms of the direct contribution
to employment (5.3%) and 123rd in terms of visitor
exports (5.8% of total exports).
TOURISM POLICY: Tourism and travel is one of the The Ministry of Hajj and
priorities of Vision 2030, details of which were made Umrah oversees annual
public by the then-Deputy Crown Prince Mohammed pilgrimages to Medina and
bin Salman bin Abdulaziz Al Saud in April 2016. The Makkah, while the Saudi
central tenet of Vision 2030 stresses diversification Commission for Tourism
and National Heritage is
away from hydrocarbons as the preferred route to tasked with general tourism
achieving a thriving economy. This will be done by organisation, development
reducing the Kingdom’s dependence on oil and gas and promotion.
THE REPORT Saudi Arabia 2019
 286 TOURISM & ENTERTAINMENT OVERVIEW

The RCU is charged with surveying 22,500 sq km

The Red Sea Project was the first major tourism development announced after the launch of Vision 2030
There are more than
and developing public service sectors such as health,
of desert area in the north-west that is home to
thousands of archaeological findings, including an
ancient ghost town and elaborate tombs. The region
is expected to be open to visitors within four years’
time and to have the capacity for 1.5m visitors every
year by 2030. To compare, Petra, an archaeologi-
cal site in neighbouring Jordan, currently attracts
around 460,000 annual visitors, while Egypt hosts
5.4m visitors per year across all its sites. Under a
10-year cooperation agreement with the French
government, the RCU will develop hotels, transport
infrastructure, and a culture and art museum.
Saudi Arabia’s archaeological offerings also
include four UNESCO World Heritage sites, which
Vision 2030 has set a target of more than doubling
by 2030. The Nabataean city of Mada’in Saleh,
prized for its palaces sculpted into rock formations,
is located in the northern section of the Medina
region and dates back to at least the 9th century
BCE. Mada’in Saleh is currently closed to visitors;
however, the authorities are planning to reopen
the city when the commission decides how best to

4000
registered
education, infrastructure, recreation and tourism.
Transforming the role of tourism in Saudi Arabia
is a major task, which brings with it opportunities
archaeological sites and challenges. Until recently, the only foreigners
across the Kingdom admitted into the Kingdom were either on business,
visiting families or coming for the Hajj and Umrah
pilgrimages to Makkah and Medina, presenting lim-
ited options for travel beyond the holy sites.
The first steps towards tourism development have
already been taken. Among them, the authorities
have begun liberalising the visa process to include
tourists as an official category of visitors. Con-
siderable work has also been done on developing
new attractions for travellers. The visa changes
were phased in gradually over 2018. In April the
first tourist visas became available through official
government-licensed tourist agencies, then in the
following December authorities began issuing tour-
ist visas via an online platform to visitors wanting
to attend sporting events and concerts.
The online platform came as the country was
preparing to host the 2018 Saudia Ad Diriyah E-Prix
races in December, marking the first time such an
event was held in the Kingdom or the Middle East.
Prince Abdulaziz bin Turki Al Faisal Al Saud, deputy
chairman of the General Sport Authority, welcomed
the development, telling local media that “This is
truly a game-changing moment for Saudi Arabia,
and one that we can share with the world”.
ANCIENT CIVILISATIONS: In terms of cultural and
historic attractions, there are more than 4000
registered archaeological sites across the King-
dom. The Arabian Peninsula has been inhabited for
thousands of years, and numerous civilisations have
left their mark over that time. Among the major
opportunities is the development of the Kingdom’s
largest-ever archaeological survey. In July 2018 the
Royal Commission for Al Ula (RCU) was created.
balance the influx of traffic with the need to protect
and preserve the monuments.
Other UNESCO World Heritage sites include the
early primitive rock art sites in the Ha’il region, His-
toric Jeddah and the former capital of the Saudi
dynasty, the At Turaif District in ad Dir’iyah.
RED SEA PROJECT: The beginning of 2019 saw con-
struction start on the Red Sea Project, the first
major tourism development announced since the
launch of Vision 2030. The project will encompass
160 km of sandy coastline and cover 34,000 sq km
across a lagoon with 50 natural islands. Beach-front
resorts, hotels and residential units will allow travel-
lers access to various natural sites and leisure activ-
ities. The project is being overseen and funded by
the Public Investment Fund (PIF) – one of the world’s
largest sovereign wealth funds – and is expected to
open to visitors in 2022. According to PIF, tourism
represents the second-most important sector in the
Kingdom, and the Red Sea Project is set to spearhead
the diversification of the leisure industry.
As with other tourism projects, the government
has set up an international board of directors to
oversee construction and development, as well as
attract foreign direct investment. Speaking in Octo-
ber 2018 to industry media John Pagano, the CEO
of the Red Sea Development Company, said that
attractions would include a nature reserve, scuba
diving in coral reefs and heritage sites.
AMAALA: Part of the Kingdom’s ambitious plans to
develop the Red Sea will involve the offering of high-
end experiences, such as the ultra-luxury resort
Amaala. Located further north along the coast from
the Red Sea Project, the Amaala will cover an area of
3800 sq km and is aimed at attracting the top 2.5m
global leisure travellers to the so-called “Riveria of
the Middle East”. Partially funded by PIF, the devel-
opment will add four 18-hole golf courses, 2500

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 TOURISM & ENTERTAINMENT OVERVIEW 287

luxury hotel keys, and 700 villas and apartments

to the country’s hotel stock.
Amenities will include a dedicated airport, year-
round mooring for yachts, and boutique luxury
cruises and diving trips to coral reefs. The site will
also use galleries, atelier workshops and an art acad-
emy to showcase the works of artists and musicians
from Saudi Arabia and the Middle East.
Nicholas Naples, the CEO of the Amaala Project,
told local media in September 2018 that the pro-
ject’s developers aim to reposition the luxury and
high-end tourism concept with a special emphasis
on “wellness, healthy living and meditation”.
AMUSEMENT PARKS: In late April 2018 construc-
tion began on the Qiddiya project, an entertainment,
sports and cultural precinct located 40 km south-
west of Riyadh. The 334-sq-km site has plans for
six entertainment clusters, including a theme park,
sport arenas, motor tracks, water and snow sport
facilities, vacation homes and venues to host cultural
activities. Phase one is scheduled for completion
Officials are working to reopen the Mada’in Saleh archaeological site
in 2022, and by 2030 the project is expected to
generate approximately 57,000 jobs and contribute Future tourism arrangements will need to engi- In April 2018 construction
about SR17bn ($4.5bn) to GDP. neer a balance over issues such as dress codes and began on the Qiddiya
project, an entertainment,
According to PIF, the Qiddiya project aims to behaviours so that they are seen as acceptable and
sports and cultural precinct
attract 17m entertainment visitors, 12m for shop- respectful to both the hosts and the visitors. In a located south-west of
ping and 2m visitors for hospitality by 2030. In com- statement on its Red Sea plans, PIF implied that the Riyadh. The 334-sq-km
parison, the world’s most visited amusement park, dress code and other conservative social rules might site has plans for six
Magic Kingdom at Walt Disney World in Florida, be relaxed in resort areas, which will be governed entertainment clusters.
attracted 20.4m visitors in 2016; followed by Disn- by independent legal frameworks more comparable
eyland in California, with 17.9m visitors; and Tokyo with international standards.
Disneyland in Japan, with 16.5m. DOMESTIC ENTERTAINMENT: Part of government
CULTURAL SENSITIVITIES: An important area for policy is focused on developing the domestic tourism
the Kingdom’s tourism authorities to address will be and entertainment sector. The first steps in this
the risk of a cultural clash between the lifestyles and direction have coincided with far-reaching reforms,
behaviour of larger numbers of incoming tourists including permitting women to drive and lifting a
and religiously conservative sectors of the domestic 30-year ban on cinemas. The GEA says it has plans to
population. Women in Saudi Arabia are required spend up to $64bn on developing the entertainment
to wear headscarves and abayas (long cloaks) in sector alone, in line with a more liberal approach
public, and until June 2018, they were not allowed to entertainment, but without clashing with the
to drive. Drinking alcohol is also strictly prohibited. country’s conservative cultural traditions. In 2018
288
Attractions along the Red Sea include nature reserves, coral reefs, and cultural and heritage sites
Development of the
domestic tourism and
entertainment sector is
expected to generate
$4.4bn in revenue and
create 70,000 additional
jobs by 2030.
TOURISM & ENTERTAINMENT OVERVIEW
GEA-sponsored events included non-gender-segre-
gated live concerts and the opening of Riyadh’s first
cinema. According to Flanders Investment and Trade,
the cinema segment could generate 1000 direct jobs
and contribute SR1bn ($266.6m) to GDP by 2020.
The GEA reportedly organised an estimated 5000
culture and entertainment-related events during
the course of 2018, including some provided by
international companies such as the US’ Disney and
Marvel, and Canada’s Cirque du Soleil.
Amr Banaja, CEO of the GEA, said the authority
aims to generate SAR16.5bn ($4.4bn) in revenue
and create 70,000 jobs within the entertainment
industry by 2030. “We believe we have a captive and
young audience; we have social acceptance now,”
Banaja said in an 2018 interview with local media.
“In 2019 we can test these assumptions. The demand
is there; we now want to test the monetisation.”
In addition to talking to international investors,
the GEA is also offering training and loans to small
and medium-sized Saudi companies in an effort to
develop a locally based and sustainable entertain-
ment industry. Banaja recognised that the increase
in entertainment activity and non-gender-segre-
gated events needed to take into account local cul-
tural and religious sensitivities. “There are religious
and cultural norms where we definitely would not
cross the line,” Banaja told local media. “We want
to be relevant in what we offer, but we also need to
take into account local cultural norms.”
Developing major domestic entertainment
attractions may have the added beneficial effects
of encouraging more Saudis to travel domestically,
rather than spending their money in foreign desti-
nations. By one estimate, as many as 250,000 Saudis
travel to Bahrain on any given weekend.
RELIGIOUS TOURISM: A series of new government
initiatives also hopes to double the number of pil-
grims visiting the country from 19.1m in 2017 to
www.oxfordbusinessgroup.com/country/saudi-arabia
30m by 2030. The government is already engaged
in these efforts; a third expansion of the two holy
mosques is currently under way, while projects such
as the Makkah Metro will help transport pilgrims
more efficiently around religious sites. The latest
efforts, however, are intended to encourage pil-
grims to extend their stay. In September 2018 it was
announced that travellers holding a 30-day Umrah
visa would be permitted to spend 15 days travelling
outside Medina and Makkah.
To further these efforts, Saudi Arabia will need to
extend its leisure and hospitality offerings beyond
luxury-focused attractions. Many of the pilgrims
come from countries with relatively low income
levels, and therefore may not have the financial
capacity to extend their stay and visit other sites.
In 2016 just over 2m religious visitors came from
Kuwait, which has a per capita GDP of over $20,000.
Otherwise, the bulk of pilgrims come from countries
with much lower levels of income, such as Pakistan,
Indonesia and Bangladesh.
EMPLOYMENT: Vision 2030’s economic diversifica-
tion goals to promote tourism will provide key oppor-
tunities for job growth. Travel and tourism directly
and indirectly employed an estimated 322.6m people
in 2018, meaning that nearly one in 10 workers in
the country was employed in the industry, according
to the WTTC. Over the next decade, this figure is
expected to increase to 413.6m jobs and account
for 11.6% of total employment countrywide.
The expected 40% increase in domestic tourism
by 2020 means Saudi officials will need to train
adequate human resources. In October 2018 the
Ministry of Labour and Social Development and
the SCTH signed an agreement to train unemployed
workers in hospitality management.
The programme targets an estimated 60,000
Saudi nationals currently receiving social security
payments. Those joining the programme would be
Historic Jeddah is one of four UNESCO World Heritage sites nationwide
 TOURISM & ENTERTAINMENT OVERVIEW 289

offered free housing, as well as subsidised water,

electricity and medical insurance.
TECHNOLOGY IN TOURISM: As the government
pushes on with its plans for developing the tour-
ism sector, officials have expressed enthusiasm
for incorporating technology to make the visitor’s
experience as seamless as possible.
A pilot programme started in 2018, for example,
allows religious pilgrims from Indonesia and Malay-
sia to file biometric data in their home countries
before travelling to Saudi Arabia. This allows them
to pass through passport control in a quicker and
easier manner. Naji Mohammed Al Qahtani, direc-
tor-general of IT at the Ministry of Interior (MoI),
told local media that the pilot programme had been
successful in reducing the queuing time for finger-
prints at airport arrival terminals during peak Hajj
and Umrah travel seasons.
The ministry is looking at ways of rolling out the
programme to include other nationalities, with plans
to eventually extend the service to non-religious
Local attractions are expected to encourage more domestic travel
tourists. The MoI was also considering other initia-
tives to speed up arrivals procedures, including the sector helps fill a share of the new rooms being There were over
creation of a centralised online platform to share
customs, immigration, police and security data.
The SCTH is also embracing tech solutions by part-
built, the Saudi Exhibitions and Convention Bureau
is running the Envoy Programme to encourage
government and business officials to engage with
140
hotels under
nering with Dubai-based ride-hailing app Careem to international bodies and promote Saudi Arabia as construction as of
help users better plan their visits to popular sites. a conference destination. early 2019
A tourism guide service will be built into the app, OUTLOOK: Saudi Arabia’s tourism sector is set
offering information about visitor attractions. to witness significant activity in the years ahead,
NEOM: Additionally, large-scale innovation and especially as the development of major attractions
technology projects are set to have an effect on pushes ahead, and the range of entertainment and
tourism. The launch of a $500bn private industrial leisure activities continues to expand. A January
zone dubbed NEOM was announced in October 2017. 2018 report published by BMI Research indicates
Stretching over Saudi Arabia, Jordan and Egypt, the that tourism receipts could increase by 5.8% per
project aims to bring investors, businesses, consult- year between 2018 and 2022.
ants and innovators at every stage of development Key to the sector’s success will be the ability to
to a place where they can work and live. It is intended effectively market the Kingdom as a tourism des-
that the NEOM project will also host 16 economic tination. To this end, high-profile events such as
sectors, including tourism, which will develop inter- the Formula E Championship race in and several
nationally competitive economic activities. prominent developments along the country’s Red
BUSINESS TRAVEL: As part of the wider economic Sea coast bode well for tourism’s future success.
reforms under way, officials say they are placing
particular emphasis on developing business travel,
Tourism indicators, 2013-18E
particularly the meetings, incentives, conferences
and exhibitions (MICE) segment.
Employment (000) Direct contribution to GDP (%)
The MICE industry reportedly grew by 16% in 2017,
with around 4.5m attendees taking part in more 650 10
than 10,000 business events. Meanwhile, business 635 9
travel spending was estimated at SR23.9bn ($6.4bn) 620 8
in 2018, representing around one-fifth of all trav- 605 7
el-related expenditure in the country, according to 590 6
the WTTC. Most of the events are held in the capital 575 5
city of Riyadh, although authorities are keen to bring 560 4
MICE events to different parts of the country. 545 3
At the beginning of 2019 an estimated 50 four- 530 2
and five-star hotels were under construction, which 515 1
will add a combined capacity of 11,000 high-end 500 0
rooms. Meanwhile, across all hotel categories, there 2013 2014 2015 2016 2017 2018E
were over 140 hotel projects under construction,
Source: WTTC
offering 55,810 extra beds. To ensure that the MICE

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290 TOURISM & ENTERTAINMENT INTERVIEW
Amr Banaja, CEO, General Entertainment Authority
Laying the groundwork
Amr Banaja, CEO, General Entertainment Authority (GEA), on the
role of the public sector in building a new entertainment industry
What are the key elements that have been able to
jump-start the entertainment industry?
BANAJA: In the context of Saudi Vision 2030 the enter-
tainment sector aspires to be at the forefront of eco-
nomic diversification. However, this is a new sector in
the Kingdom, and there is still much to be done.
First, the process needs to be streamlined across
all government entities to ensure that the end benefit
is achieved and licensed business owners are served
properly. As such, while the GEA focuses on its regu-
latory role, there are many other entities involved in
the process, such as the General Sports Authority, the
General Culture Authority and all municipalities across
the Kingdom. The second step has been to identify the
main entertainment offerings and activities, which
have been divided into seven segments with multiple
subsegments. Some projects, like live events which are
supplied extensively by the GEA, are developed over
the short term, while others, such as theme parks,
waterparks, entertainment clusters and cities, take
longer. Lastly, funding is an important element. There
are a number of enablers playing an important role –
one of them is the Public Investment Fund (PIF). The
PIF has established an entertainment company, built
venues and launched a giga-project called Qiddiya,
which focuses on entertainment for a mass audience.
Whether it is a local small and medium-sized enterprise
(SME) or a large-scale foreign investor partnering with
PIF, the private sector is set to play a large role.
How attractive is recreational infrastructure de-
velopment to the private sector?
BANAJA: Saudi Arabia is lacking entertainment infra-
structure such as theme parks, waterparks, muse-
ums, opera houses, sporting venues and recreational
sports and family entertainment centres. There are
many opportunities for the private sector to meet this
demand. There is also the potential to form partnerships
with local investors from larger projects like Qiddiya or
www.oxfordbusinessgroup.com/country/saudi-arabia
smaller-scale projects including street festivals and live
shows. Establishing an authority is proof to investors
that Saudi Arabia is laying the groundwork for a nascent
and fast-developing entertainment sector. In order to
minimise risks linked to any potential investment, the
GEA is making sure that there is a clear legal framework
and licensing process in place.
What partnerships are in place to ensure the long-
term success of the entertainment industry?
BANAJA: Memorandums of understanding have been
signed with international partners such as Six Flags, and
we are also in advanced talks with Disneyland. Other
players such as Marvel, National Geographic and Cirque
du Soleil have already explicitly expressed interest in
Saudi Arabia. A Formula E racing event is also set to take
place in Ad Diriyah. For this particular event, fans from
all over the world will be able to apply for an instant
online visa, like visitors to the 2018 World Cup in Russia.
Prior to this, obtaining a visa had been complicated.
However, it is not just a matter of bringing Western
culture to Saudi Arabia. A focus has been placed on local
content development, and a large number of variables
are taken into account while building entertainment
infrastructure. Saudi Arabia is a vast and diverse coun-
try; every city is unique and offerings must be adapted
to each of the different region’s interests.
How can the local population acquire skills that can
be applied to the entertainment sector?
BANAJA: One of our primary objectives is to build a
sustainable sector and to ensure that locals are ready to
take on newly created jobs. This is a common challenge
for entertainment sectors in many countries. Saudi
Arabia’s advantage is that its population is young and
tech-savvy. This is essential because not only are event
managers needed, but also lighting and sound techni-
cians. Programmes are being developed to ensure that
local training is directed towards the current skills gap.

Room to manoeuvre
The hospitality sector is expanding and evolving to support
growing numbers of international travellers
Aided by easier and cheaper travel, global tourism has
experienced two decades of almost uninterrupted
growth. According to the World Bank, the number of
international departures more than doubled between
1997 and 2017, from 687m to 1.57bn per annum.
With the global middle class estimated by the
US-based think tank Brookings Institution to be
expanding by as many as 160m people per year, it is
perhaps unsurprising that almost half of the growth in
tourist numbers was accounted for by departures from
low- and middle-income countries, which advanced
from 121m in 1997 to 564m in 2017. There was also
significant growth in the number of arrivals to low-
and middle-income countries, increasing from 163m
to 515m over the same period, underlining the rapid
development of their tourism industries.
With more people on the move than ever before,
there is a clear need for sufficient tourist infra-
structure. Notwithstanding the rise in accommoda-
tion-sharing platforms like Airbnb, most travellers
still choose to stay in hotels. In 2018 global account-
ancy firm Deloitte projected growth of 5-6% in gross
bookings, to reach an all-time high of $170bn. Addi-
tionally, STR Global, an international hotel market
data and benchmarking firm, reported in 2018 that
the number of hotel rooms globally had increased by
17.7% since 2008 to reach 17m in 2018. These rooms
were provided across more than 184,000 hotels, an
8.4% increase on 2008 levels. The fact that the rate of
increase in the number of rooms is more than double
the rate of increase in hotels indicates that the average
hotel size has been growing.
INVESTMENT LANDSCAPE: Cross-border hotel
investment accounted for $10bn in 2017, around
15% of the global total ($62.5bn). Of this, nearly 90%
was accounted for by hotel investments in Europe
($4.5bn) and North America ($4.4bn), with South
America and Asia (excluding mainland China) receiv-
ing about $800m each. Asian investors are expected
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291
Global
Perspective
to account for the largest proportion of hotel assets Asian investors are
in the near term, even as the flow of outbound cap- expected to account for
the largest proportion of
ital from China slows. In particular, South-east Asian
hotel assets in the near
investors are becoming increasingly important players term, particularly as South-
in the international hotel market. east Asia becomes an
In addition to the traditional approach of direct increasingly central player
hotel acquisitions, new channels for investors to gain in hotel investment.
exposure to the hospitality sector have become more
prevalent in recent years. There have been notable
increases in both debt financing and merger and
acquisition activity. In its “Hotel Investment Outlook
2018” JLL noted that this has opened up the sector to
more non-traditional players, such as insurance com-
panies, pension funds and private equity firms. They
have been attracted by the relatively high yields on
offer, given the low interest rate environment that pre-
vailed for the much of the past decade. Such investors
accounted for 71% of total hotel sector investment in
2017, up from 62% in 2014, a trend that JLL expects to
continue as the asset class matures further.
MIDDLE EAST & AFRICA: According to data from JLL,
hotel room construction across the Middle East and
Africa picked up in 2017, an acceleration second only
to that seen in mainland China. This positive develop-
ment can be attributed to notable economic growth
in the region and the rise of the middle class, leading
to increased demand for travel.
Sub-Saharan Africa has experienced rapid expan-
sion in hotel room supply, which has heightened com-
petitive pressures in the region’s hospitality sector. JLL
forecasts $1.7bn in hotel investment in sub-Saharan
African in 2019, with investment sales expected to
come in at $400m for the year.
In North Africa, Morocco has been leading the Annual international
charge both in terms of visitor numbers – with an esti- departures doubled to
mated 12.5m in 2018, up more than 10% on the previ-
ous year – and hotel infrastructure. In Marrakech, for
example, a number of new high-end resorts and hotels
1.57bn
between 1997 and 2017
are offering luxury accommodation, encouraging
THE REPORT Saudi Arabia 2019
292
In 2018 global hotel
occupancy rates rose to
66%
Technology has brought
important gains to the
hotel sector. Online booking
platforms allow hoteliers
to reach a wider pool of
potential customers and
boost occupancy by offering
discounted rates.
visitors to prolong their stay. M Avenue, for example,
is a new $100m multi-use project close to both the
airport and the Palais de Congrès, which will include a
168-room hotel run by Portuguese company Pestana
as well as 88 private residences operated by the Four
Seasons. It is slated to open at the end of 2019. Other
new hotels in the city either planned or under con-
struction belong to global companies such as W Hotels,
Ritz-Carlton and Park Hyatt.
EMERGING ASIA: JLL’s report points to a sharp diver-
gence between hotel room construction trends in
mainland China, which accelerated in 2017, and the
rest of the Asia-Pacific region, which saw a decelera-
tion, noting that emerging regions were seeing a slow-
down in new development. However, Vietnam is one
country where demand for, and supply of, new hotel
rooms seems to be continuing at a rapid pace. With
an estimated 15.5m foreign tourist arrivals in 2018,
Vietnam has experienced a surge in overseas tourists
since 2010. Between 2010 and 2017 the number of
hotels operated by international chains has more than
doubled, from 30 to 79, with more in the pipeline.
Global real estate service provider Savills estimates
that an additional 30,000 rooms will be delivered by
the end of 2019. Despite surging visitor numbers, there
are concerns that the building boom could generate
future competitive pressures.
Concerns have been raised about oversupply in
the hotel market in Thailand, which has emerged as
the most popular international tourist destination in
South-east Asia, welcoming more than 35m overseas
visitors in 2017. This problem has been compounded
by the proliferation of unlicensed and unregulated
accommodation; the National Statistics Office esti-
mates that there are 457,000 official hotel rooms,
with an additional 500,000 rooms offered in illegal
hotels and unregulated residences.
LATIN AMERICA: Mexico has the most developed
hospitality sector in Latin America, boasting 392,000
hotel rooms at the end of 2017 – ahead of Brazil’s
257,000 and Argentina’s 60,000. Chile, Colombia and
Peru are also increasingly on the radar of international
hotel investors. Carlos Trujillo, executive president of
the Mexican Association of Tourist Developers, told
OBG that the that the range of high-quality products
and services in the industry is limited by infrastructure
constraints, echoing challenges seen in less devel-
oped hospitality sectors across Latin America. “The
Mexico Tourism Board is working on bringing more
high-purchasing-power tourists or premium tourism
to the country, but infrastructure limitations need to
be tackled and overcome to provide the resources that
high-end tourism demands,” Trujillo said.
DISRUPTIVE BUSINESS MODELS: Hotels have faced
growing competition from accommodation-sharing
technology platforms, like Airbnb, as well as more
established alternatives, such as timeshares. Research
by JLL suggests that accommodation-sharing listings
tend to be higher in cities which also have high hotel
occupancy rates. An increasing number of cities are
imposing restrictions on accommodation-sharing, but
www.oxfordbusinessgroup.com/country/saudi-arabia
in cities where such platforms have already gained a
foothold, there has not been a noticeable impact on
hotel performance, according to data from JLL. This
suggests that hotels and shared accommodation may
not necessarily compete for the same market.
Technology has also brought about important
gains. Online booking platforms such as Expedia and
Hotels.com allow hoteliers to reach a wider pool of
potential customers and boost occupancy by offering
discounted rates. Oyo is a pertinent emerging market
example; since its establishment in India in 2013 it
has developed into South Asia’s largest hotel chain by
number of rooms offered. Oyo is a web-based plat-
form that brings together a large number of small,
independent budget hotels under a single brand with
common standards. Hotels joining the franchise can
then access some of the economies of scale enjoyed
by the larger hotel chains. Typically, hotels have been
able to offer more attractive rates, and double or even
triple their occupancy after partnering with Oyo. By
September 2018 Oyo boasted a network of roughly
211,000 rooms in 349 cities, having established a large
footprint in India and China, while also expanding to
Indonesia, Malaysia, Nepal, the UAE and the UK.
PROSPECTS: Globally, the hospitality sector tends
to be cyclical, driven by both macroeconomic trends
and its own internal dynamic – strong demand leads
to high occupancy and positive financial performance,
which in turn triggers a supply response leading to an
increase in available rooms. This puts occupancy rates
and financial performance under pressure, dampening
investment and causing the cycle to repeat. The last
major downturn was in 2009-10, in the aftermath of
the global financial crisis. In 2018 global occupancy
rates rose to around 66% and hotel room construc-
tion also accelerated, suggesting that the sector is
currently in the latter stages of the cycle.
Despite this, global hotel investment in the first
nine months of 2018 reached $43.3bn, down 5% on
the same period in 2017. The slowdown can be seen
across all regions with the exception of the Americas,
which posted a 9.2% gain. With the global economy
facing headwinds in the 2019-20 period, there could
be knock-on effects on business travel and disposable
income, feeding through to weaker performance in the
hospitality sector. This may cloud the hotel investment
picture over the medium term, particularly in markets
that have already become saturated. Global trade
disputes, higher interest rates and a slowdown in the
pivotal Chinese economy are three factors that could
curtail transaction volumes in the future. Reasons for
optimism remain, however.
In the longer term the UN World Tourism Organ-
isation forecasts that the number of international
tourist arrivals will reach 1.8bn by 2030, which would
constitute average growth of 3.3% per year between
2010 and 2030. Continued growth in income levels in
emerging and developing economies, coupled with
further expansion of the global middle class, is likely to
underpin longer-term demand for hotel rooms globally,
notwithstanding any near-term cyclical headwinds.
 293

Tax
Value-added tax introduced for goods and services
Kingdom expands network of double taxation treaties
New zakat regulations move to a fully taxed economy
Transfer pricing regulations take effect across sector

Path forwards
Updated legislation guides zakat and taxpayers in navigating
the regulatory framework
Corporate income tax rules are governed by the
Income Tax Law (Tax Law), which came into force in
2004. The Tax Law is supplemented by implementing
regulations (by-laws). 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 ques-
tions containing its interpretation or position on
regulations. The GAZT generally takes a substance-
over-form approach in dealing with tax matters as it
normally suits them more. The GAZT often scrutinises
transactions and challenges taxpayers if they view
transactions as being motivated by non-commercial
tax reasons. In some cases the GAZT may base their
judgement on the documentation alone; for example,
the virtual permanent establishment (PE) concept.
TAXATION SYSTEM: Saudi Arabia’s direct taxation
system includes corporate income tax, withholding
tax and zakat. Corporate income tax is assessed on
the share of profits of the foreign partner in the
local company and a non-resident who conducts
business in Saudi Arabia through a PE.
The corporate tax rate is 20%, apart from activities
related to oil and hydrocarbons production, where
the tax rate ranges from 50% to 85%. Non-residents
providing services in Saudi Arabia without having a
PE or branch are subject to withholding tax ranging
from 5% to 20% depending on the nature of services.
Zakat is a religious levy on Saudi/GCC nationals and
Saudi companies that are wholly owned by Saudi/GCC
nationals. The zakat rate is 2.5% and applicable on the
higher of the adjusted taxable profits or the zakat
base which comprises equity, loans and provisions
reduced by deductible investments and fixed assets.
VALUE-ADDED TAX: Since January 2018 val-
ue-added tax (VAT) has been in place at a single
rate of 5% on the majority of goods and services. The
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TAX OVERVIEW 295
Taxation has supported the Vision 2030 goal of economic diversification
GAZT continues to develop its capacity to administer
taxes, which is crucial to ensure the key principles
of taxation are adhered to and support the Vision
2030 goal of economic diversification. The Kingdom
now boasts 140,000 VAT taxpayers and an addi-
tional 150,000 would have likely registered by January
2019. VAT has raised over SR49bn ($13.1bn) in 2018,
exceeding the original target by over 60%.
The introduction of VAT followed the implemen-
tation of excise in June 2017, followed by the intro-
duction of transfer pricing in February 2019 and
new zakat regulations in March 2019. The Kingdom
is rapidly moving towards a fully taxed economy.
The VAT system in the Kingdom is based on the
GCC Agreement, Saudi VAT Law and the Saudi imple-
menting regulations. These documents outline the
legal basis for determining, inter alia, the nature,
location, timing and value of supplies.
Certain supplies of goods and services are zero
rated and exempted from VAT to provide some relief
to consumers. Examples include: the leasing of res-
idential real estate, the supply of medicines and
medical goods, educational services to nationals,
etc. Similarly to other VAT jurisdictions worldwide,
taxpayers that make exempt supplies are restricted
in their ability to deduct tax incurred on purchases.
Mostly, the compliance requirements for VAT tax-
payers have been kept relatively straightforward with
the obligation to file monthly returns, or quarterly
if the turnover is below SR40m ($10.7m), by end of
the following month of the tax period. The returns
contain summary-level numbers of turnover and VAT
on output and input transactions.
That said, taxpayers that operate in complex indus-
tries – for example, banking, asset management,
insurance and telecommunications – can find report-
ing requirements extremely challenging.
To address this concern, the GAZT has published a
number of guides on topics such as financial services,
THE REPORT Saudi Arabia 2019
296 TAX OVERVIEW
health care, the digital economy, economic activity
and real estate. Rulings have also been issued to
taxpayers that have applied for clarifications. The
GAZT is very active in terms of conducting audits,
issuing assessments for contraventions and ques-
tioning approaches adopted by taxpayers in terms of
specific transactions leading to an increased number
of disputes with the GAZT.
February 2019 marked the beginning of VAT com-
pliance for this year. To ensure accurate compliance
for the new year, taxpayers must consider the legis-
lative provisions taking effect in 2019 such as:
• Transitional provisions: Relief provided to taxpay-
ers to zero-rate domestic supplies made in 2018
(subject to specific conditions), where the contract
was entered before May 30, 2017, has now been
withdrawn. From January 2019, such supplies are
now subject to VAT at 5%.
• Outstanding payments to vendors: The legislation
imposes a condition on the taxpayers who have
deducted input VAT to make a payment to the
vendor within 12 months from the date of the
supply in order to retain this deducted input VAT. If
the payment remains outstanding, the taxpayer is
obliged to reduce the input VAT deduction claimed
earlier to the extent the consideration has not
been paid to the vendor.
BAD DEBTS: VAT legislation provides relief to taxpay-
ers to reduce output tax to the extent consideration
is not received for a taxable supply previously made.
Taxpayers are eligible for relief 12 months from the
date the supply was made.
According to the Tax Law, a foreign partner’s
(shareholder’s) share in a resident capital company
and a non-resident who does business in the King-
dom through a PE are subject to corporate income
tax in the Kingdom at a flat rate of 20%. According to
Article 3 of the Tax Law, a company will be considered
a resident company if it is formed under the Saudi
companies’ regulations, or if its central management
is situated within the Kingdom.
Companies which are wholly owned by Saudi
nationals are subject to zakat instead of income
tax. Companies owned by Saudi and non-Saudi
(and non-GCC) nationals pay tax on the portion of
income attributable to non-Saudis (and non-GCC)
and zakat on the portion of income attributable to
Saudi nationals. Residents from countries belonging
to the GCC (Bahrain, Kuwait, Oman, Qatar and the
UAE) and companies from these countries doing
business in Saudi Arabia are subject to zakat and not
income tax. In determining the tax/zakat profile, the
Saudi tax authorities apply a look-through approach
to determine whether the upstream shareholding
structure at any point exists outside of the GCC. As
per the amendment to the by-laws vide Ministerial
Resolution No. 1727 on February 10, 2018, in deter-
mining indirect ownership the GAZT can look through
the structure up to the second level. However, based
on discussion with the GAZT and their practices, they
may not restrict the look through up to the second
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level. If at any point the shareholding structure exits
the GCC, they will consider that for tax purposes.
PERSONAL TAXES: Saudi Arabia does not impose
personal income taxes on wages and salaries. From
a corporate tax point of view, salaries, wages or
any benefits paid to a shareholder or any of their
relatives, a partner is not a deductible expense for
tax purposes.
TAX RESIDENTS: A natural person is considered
a Saudi resident if one of the following conditions
is met:
• He/she has a permanent place of residence in
Saudi Arabia and resides in Saudi Arabia for at
least 30 days in a tax year; or
• He/she resides in Saudi Arabia for at least 183
days in a tax year without having a permanent
place of residence.
A company is considered resident in Saudi Arabia if
one of the following conditions is met:
• It is formed in accordance with Saudi Arabia’s
Companies Regulations; or
• Its central management is located in Saudi Arabia.
INCOME SUBJECT TO TAX: Income subject to tax
is gross income and includes income, profits, gains
of any type and any form of payment arising from
carrying out activity. Gross income includes capital
gains and incidental income but excludes certain
exempt income. The Tax Law provides that income
derived from the following types of activities and
sources is considered taxable in Saudi Arabia:
• Any activity carried out in Saudi Arabia;
• Immovable property or lease of immovable prop-
erty located in Saudi Arabia including capitals gains
from the disposal of shares or similar interest in
such property;
• Capital gains from the disposal of shares held or
partnership in resident company;
• Sale or licence for use of industrial or intellectual
property or software;
• Dividends, management and directors’ fee paid
by resident company;
• Any payments made by a resident company to its
head office or to an affiliated company in respect
of services;
• Amounts paid by a resident against services per-
formed in Saudi Arabia completely or partially;
• Exploitation of natural resources;
• Income derived by a PE connected with Saudi
Arabia;
• Interest charge and insurance/re-insurance pre-
mium with certain conditions; and
• Income from technical or consultancy services
rendered to a resident person in the Kingdom or
such services are related to an activity carried out
in Saudi Arabia.
CORPORATE TAX RATES: Corporate income tax on
resident taxpayers are charged a flat rate of 20%
including the income that originates from natural
gas investment activities. However, income tax rate
on hydrocarbons products ranges from 50% to 85%
depending on the amount of capital that is invested.

Non-residents providing services in Saudi Arabia
without having a PE or branch are subject to with-
holding tax ranging from 5% to 20% depending on
the nature of services.
ZAKAT: Zakat is an obligatory payment required
from Muslims according to sharia law and forms one
of the five pillars of Islam. In most Muslim countries
the payment of zakat has been left to the individuals,
whereas in Saudi Arabia, the collection of zakat is
governed by regulations. Zakat in the Kingdom is
assessed on Saudi and GCC nationals and on compa-
nies wholly owned by those nationals or their equity
interest in companies with foreign (non-Saudi/GCC)
participation.
ZAKAT BASE: Zakat is assessed on the basis of
earnings and holdings. All earnings from business,
industry, personal work, salaries, property, monetary
acquisitions of whatever kind or description, includ-
ing commercial or financial transactions, dividends
and generally all income on which sharia law has
levied a zakat, is subject to zakat. All holdings that are
intended for sale are also subject to zakat. Holdings
not intended for sale are not subject to zakat.
There are certain rules that apply to the method
of calculating the zakat liability. In general, zakat is
levied at a fixed rate of 2.5% on the higher of the
adjusted zakatable profits or the zakat base – which
generally comprises equity, loans and provisions
reduced by deductible investments and fixed assets.
On March 14, 2019 the Ministry of Finance issued
new zakat regulations replacing previous zakat reg-
ulations. The new regulations are effective for fiscal
years beginning on or after January 1, 2019. Some of
the key observations include the following:
• Specific article on definitions has been included,
such as the definitions of zakat payer, assessments
and resident.
• The zakat rate of 2.5% is applicable on the Hijri
calendar year (i.e., lunar year, 354 days), however,
if a zakat payer is following Gregorian calendar
year (365 days) they will be required to pay zakat
based on the number of days which would result
in an increased zakat rate proportionately.
• Zakat will be payable on the higher of the zakat
base or zakatable profits.
• The introduction of concept of a PE for zakat pur-
poses also, which was previously tax subject only.
Accordingly, a PE of a non-resident Saudi or GCC
national would be subject to zakat if any two of the
three conditions laid down in the regulations are
met, i.e., board of directors holds regular meetings
in Saudi Arabia; or executive decisions are made in
Saudi Arabia; or non-resident PE earns more than
50% of its revenue from Saudi Arabia.
• Listed companies are subject to zakat, except for
the founding shareholders.
• Appeal procedures have also been updated requir-
ing zakat payers to pay the zakat liability on the
undisputed amounts and in addition, for an appeal
to be accepted in form, a zakat payer is required
to pay a minimum of 10% to a maximum of 25% of
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TAX OVERVIEW 297
Non-residents providing services without a permanent establishment or branch are subject to withholding tax
the assessed zakat liability or provide a bank guar-
antee equal to 50% of the assessed zakat liability.
• Limited relief has been granted to real estate and
insurance/re-insurance businesses in the form
of deduction of long-term projects under devel-
opment (certain conditions apply) and statutory
deposits.
• Addition to zakat base of long-term loans and
similar balances has been restricted to long-term
assets deductible for zakat purposes.
• Lower of accumulated brought forward losses as
per audited financial statements or the GAZT’s
assessment is allowed.
• Net book value of fixed assets as per audited finan-
cial statements will be allowed as a deduction from
the zakat base.
• An adjustment to the value of transactions
between related parties would be made if the
transaction is not at arm’s length.
ADVANCE TAX: Taxpayers are required to make
an advance payment of corporate income tax for
the year in three instalments, i.e., by the end of
the sixth, ninth and 12th month. Each instalment
of advance payment of tax is equal to 25% of tax
liability of the prior period reduced by the with-
holding tax deducted at the source during the prior
period. However, the taxpayer is not required to pay
advance taxes if the instalment calculated is less
than SR500,000 ($133,000).
If a taxpayer foresees that the current year taxable
income (gross revenue) will be lower than the previ-
ous year by at least 30%, the taxpayer may request
the GAZT to reduce the advance tax due under the
second and third instalments proportionally.
WITHHOLDING TAX: The Tax Law imposes direct
withholding tax on payments for services from an
in-Kingdom source to non-resident parties.
In accordance with Article 68 of the Tax Law and
Article 63 of its by-laws, a taxpayer has to withhold
THE REPORT Saudi Arabia 2019
 298 TAX OVERVIEW
Capital gains realised by a non-resident partner in a Saudi resident capital company is subject to tax
and pay to the GAZT withholding tax on payments
made to non-residents. The taxpayer is required to
file a monthly withholding tax return (WTR) online
within 10 days of the end of the month in which the
payment was made to the non-resident. Failure to
settle the withholding tax would result in a delay fine
of 1% for every 30-day delay in payment.
For transactions with related parties, the date of
recording the transaction is construed as the date
of payment if transactions are settled through an
account rather than making payments.
Withholding tax is computed at flat rates ranging
from 5% to 20% (depending on the nature of services)
on payments made to non-residents. For example,
for a payment of SR100 ($26.66) at a flat rate of 5%,
the withholding tax would be SR100 ($26.66) x 5%
= SR5 ($1.33).
In addition, a taxpayer is required to file an annual
WTR within 120 days from the end of the fiscal year.
For proprietorships, the annual WTR should be sub-
mitted within 60 days of the end of the fiscal year.
The GAZT may request information relating to pay-
ments made to non-residents at the time of assess-
ment. The records such as copies of the contracts,
etc., as well as supporting documents with respect to
withholding tax should be maintained for a minimum
of 10 years after payment. If the subject is still under
the review of the department or the competent
authorities, maintenance of such records should be
continued until the finalisation of such review or the
issuance of a final decision by the Appeal Committee.
CAPITAL GAINS TAX: The capital gains tax (CGT)
applies on disposal of certain assets in Saudi Ara-
bia. According to Article (1)(2b) of By-laws to the
Income Tax Law (BITL), capital gains realised by
a non-resident partner from disposal of share or
part thereof in a Saudi resident capital company is
subject to tax as the disposal is considered a Saudi
source of income under Article 5(3) of the Income
www.oxfordbusinessgroup.com/country/saudi-arabia
Tax Law. The non-resident seller is required to file
the CGT return and pay due tax at the rate of 20%
on the realised capital gains (unless the sale relates
to listed securities that qualify for exemption). Any
capital gains realised from the sale of shares by a
Saudi resident company is subject to tax/zakat, on
the basis of year-end results.
Article 16 of BITL provides that the disposing part-
ner should inform the GAZT of the sale transaction
and pay the due tax on the resulting capital gains
within 60 days of the sale transaction date. The seller
is primarily responsible for paying CGT, however, in
case of failure, the seller and purchaser are jointly
liable with the seller to pay any amount that is due
to the GAZT as a result of a sale transaction. Delay
in settling the required CGT will result in late filing
penalties and delay fines.
Capital gains realised by a resident taxpayer is
added to the tax base and subject to tax on the
overall position for the year. Further, in an amend-
ment made to the tax laws, a disposal of assets (the
definition of asset includes shares) between whol-
ly-owned group companies (directly or indirectly
owned by same parent company) is disregarded for
tax purposes provided the assets remain within the
group for at least two years after the transfer. Where
this relief is claimed, the transfer is considered as
made at book value for tax purposes. The language
employed in the law is broad enough to take a view
that it may cover all wholly owned groups and not
just groups or entities within Saudi Arabia.
EXEMPT INCOME: Based on the amendments
to Saudi Tax Laws dated September 20, 2017, tax
exempt income includes:
• Capital gains realised from the disposal of securi-
ties traded on the stock markets inside and outside
of Saudi Arabia, if such securities are traded on
the Saudi Stock Exchange, regardless of whether
the disposal was executed through a stock market
inside or outside Saudi Arabia or through any other
means; subject to the conditions set out below:
• Sale transaction is performed in accordance with
the Capital Market Law in the Kingdom; or
• If the investment disposed of did not exist before
July 30, 2014.
Cash or in-kind dividend due on investments made
by a Saudi Arabian resident capital company in a
Saudi Arabian resident company or a non-resident
company is also not taxable, provided that:
• The ownership in the investee company is 10%
or more; and
• The period of ownership is one year or more.
LOSS CARRY FORWARD: Loss-making capital com-
panies are allowed to carry forward tax losses indef-
initely. However, an adjustment of maximum 25% of
the current year’s taxable profits can be utilised in
a given tax year.
Based on the amendments made to the Tax Law
on September 20, 2017, the capital companies are
now allowed to carry forward their losses regardless
of a change in the ownership or control, provided

they continue to undertake the same activity. The
amendment is effective from January 1, 2018.
RETURN FILINGS: Resident zakat/taxpayers includ-
ing PEs are required to file annual tax/zakat decla-
ration in Arabic within 120 days of the end of the
financial year of the company. In case of a foreign
shareholding, tax return is also required to be cer-
tified by a Saudi-certified public accountant. Under
the current Tax Law, no extensions are granted.
A tax return is required to be supported by audited
financial statements, the social insurance payment
certificate, break-up of purchases made during the
period, annual withholding tax and other detailed
account of affairs.
The GAZT implemented the online electronic filing
system (ERAD) in 2016. As per the ERAD system, it is
mandatory for all zakat/taxpayers, including mixed
companies (companies owned by Saudi and foreign
shareholders) and fully owned foreign companies to
submit their tax/zakat returns electronically. The
online filing system requires all types of zakat/tax-
payers to submit their annual corporate tax returns,
zakat returns, withholding tax returns and other
statutory declarations through ERAD.
TAX FORM: Recently, the GAZT updated the tax form
thereby reducing the disclosure requirements appli-
cable to the taxpayers, e.g., removal of vendor-wise
disclosure of property rentals required in the pre-
vious form, which is now replaced by a requirement
to disclose the total amount of rental expense only.
Additionally, Transfer Pricing By-laws (TP By-laws)
have been introduced in Saudi Arabia effective for
tax periods ended December 31, 2018 and onwards.
These by-laws require a Disclosure Form for Con-
trolled Transaction (DFCT) to be submitted along
with the annual tax return. The DFCT has been incor-
porated in the GAZT portal as part of the tax return.
The form requires a taxpayer to disclose inter alia
the details of controlled transactions entered into by
a taxpayer during the year and the transfer pricing
method adopted by taxpayers to determine the value
of such transactions.
DELAY FINES & PENALTIES: The GAZT imposes
delay fines if there is a delay in submitting the tax
declaration and late settlement of income tax beyond
the prescribed deadline as well as penalties where
there is a tax evasion.
Failure to file a tax return or pay the due amount
on time results in a fine amounting to the greater of:
• 1% of the gross revenue to a maximum penalty of
SR20,000 ($5330) or according to the following
rates:
• 5% of the underpayment of tax if the delay is for
up to 30 days after the due date;
• 10% of the underpayment of tax if the delay is
more than 30 days and no more than 90 days after
the due date;
• 20% of the underpayment of tax if the delay is
more than 90 days and no more than 365 days; or
• 25% of the underpayment of tax if the delay is
more than 365 days after the due date.
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TAX OVERVIEW 299
In addition to the penalties mentioned above, 1% of
underpayment of tax for each 30 days of the delay
is added in the following cases:
• Delay in payment of tax payable per the return; or
• Delay in payment of tax payable per the GAZT
assessment.
A penalty for tax evasion is imposed at a flat rate
of 25% on the additional tax assessed if a taxpayer
intentionally conceals facts or information from
the GAZT that would have resulted in an increase
in the tax liability.
ASSESSMENT & STATUE OF LIMITATION: A final
assessment is raised by the GAZT after a full and
thorough review of the declaration submitted to
the GAZT. This review may result in further details
being requested by the GAZT before raising a final
assessment.
The Tax Law, however, provides that a declaration
will be considered as finalised/accepted as filed by
the taxpayer in the case that five years have elapsed,
from the date of filing the declaration, without the
GAZT requesting any additional information or rais-
ing an assessment.
The Tax Law empowers the GAZT to:
• Raise an additional tax assessment within five
years of the statutory filing deadline to rectify
errors in the application of regulations;
• Raise an additional tax assessment within 10 years
of the statutory filing deadline correcting material
errors in the declaration or the assessment; and
• Raise an additional assessment at any time with
the taxpayer’s consent.
RESOLUTION COMMITTEES: Article 66 and 67 of
the Income Tax Law provides for the constitution,
jurisdiction and functions of appeal committees.
In July 2017 Royal Decree No. M/113 was issued to
amend Article 67 regarding such appeal committees.
As per the amendment, new appeal committees
consist of two levels, i.e., preliminary level and high
level, where a higher level appeal of a committee’s
decision would be considered final without having
further right to appeal. Accordingly, zakat/taxpayers
will not have the option to file an appeal before the
Board of Grievances (BoG). Further, there is a risk
that any pending cases with BoG may no longer be
heard by the BoG.
Following the changes to the law, the GAZT issued
a circular subsequently to clarify that until the forma-
tion of new appeal committees, original procedures
provided in Article 66 and 67 shall remain effective.
After the formation of new appeal committees, a
time limit to file an appeal against the assessment
or revised assessment raised by the GAZT would be
reduced from 60 days to 30 days.
The new appeal committees were recently formed,
however, they are still not functional and going
through the set-up stage. The GAZT has sent all pend-
ing objections to the new committees. Further, the
new committees also approached tax/zakat payers
and requested them to file through emails availa-
ble copies of the appeal documents in some cases.
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300 TAX OVERVIEW
Additionally, the Ministry of Finance has issued
Ministerial Resolution No. 2753, dated April 30, 2018,
announcing the formation of Dispute Resolution
Committees (DRC) which is in effect from the date
of issue. DRCs are composed of six members includ-
ing the chairman who are competent in the field of
tax and zakat. The purpose of the DRC is to resolve
disputes resulting from an assessment or revised
assessment raised by the GAZT. The aggrieved tax-
payer may request the DRC to require the GAZT to
present their case before the DRC.
The DRC shall review and notify the taxpayer of
acceptance or rejection of the taxpayer’s case within
30 days of request. In response to the request, the
GAZT may opt to offer a settlement to the taxpayer
or move the DRC to present their case. After the
acceptance of case, the DRC shall decide the case
within 60 days of acceptance, extendable to a further
60 days with the taxpayer’s consent.
In case the DRC rejects the case or fails to render
recommendations within the stipulated timeframe
or if the taxpayer disagrees with the DRC’s decision,
the appeal case shall be considered pending and the
appeal procedures shall continue.
PERMANENT ESTABLISHMENTS: A PE is defined
as a permanent place of the non-resident’s activ-
ity through which it carries out business, in full or
in part, including business carried out through an
agent. The following are considered a PE:
• Construction sites, assembly facilities, and the
exercise of supervisory activities connected there-
with;
• Installations, sites used for surveying natural
resources, drilling equipment, ships used for sur-
veying for natural resources as well as the exercise
of supervisory activities connected therewith;
• A fixed base where a non-resident natural person
carries out business;
• A branch of a non-resident company licensed to
carry out business in the Kingdom;
• A dependent agent mentioned above is defined
in the by-laws as someone who has any of the
following powers:
• To negotiate on behalf of non-resident;
• To conclude contracts on behalf of non-resident;
• Maintains stock of goods owned by the non-resi-
dent on hand in Saudi Arabia to supply customers
on behalf of non-resident;
• An insurance/re-insurance agent (with or without
powers to negotiate); or
• A place from which a non-resident carries out
insurance and/or reinsurance activity in the King-
dom through an agent is considered a PE of the
non-resident even though the agent is not author-
ised to negotiate and conclude contracts on behalf
of the non-resident.
A place is not considered a PE of a non-resident
in Saudi Arabia if used in the Kingdom only for the
following:
• Storing, displaying or delivering goods or products
belonging to the non-resident;
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• Keeping a stock of goods or products belonging
to the non-resident for the purpose of processing
by another person;
• Purchasing goods or products for the sole purpose
of collection of information for the non-resident;
or
• Carrying out other activities of preparatory or aux-
iliary nature for the interests of the non-resident.
The Tax Law and the by-laws do not provide any
period or threshold of onshore presence that would
result in activities of a non-resident entity to qualify
as a PE in Saudi Arabia.
However, the GAZT has recently begun applying
the concept of a virtual PE where offshore services
are provided even without the physical presence of
a non-resident in Saudi Arabia.
FORCE OF ATTRACTION: The force of attraction rule
envisages that when an enterprise is said to have a
PE in another country, it exposes itself to taxation
of income that it earns from carrying on activities in
that other country, whether or not through that PE.
The reason for this contention is that the Tax Law
states that income is from a source in the Kingdom if
it is attributable to a PE of a non-resident located in
the Kingdom, including income attributable to sales
in the Kingdom of goods of the same or similar kind
as those sold through such a PE, and income arising
from the rendering of services or the performance of
other activity in the Kingdom of the same or similar
nature as activity performed via such a PE.
TAX TREATIES: Saudi Arabia has double tax treaties
currently in force with Algeria, Austria, Azerbaijan,
Bangladesh, Belarus, China, the Czech Republic,
Egypt, Ethiopia, France, Greece, Hong Kong, Hun-
gary, India, Ireland, Italy, Japan, Jordan, Kazakhstan,
Kyrgyzstan, Luxembourg, Malaysia, Malta, Mexico,
the Netherlands, North Macedonia, Pakistan, Poland,
Portugal, Romania, Russia, Singapore, South Africa,
South Korea, Spain, Syria, Sweden, Tajikistan, Tunisia,
Turkey, Turkmenistan, Ukraine, the UK, Uzbekistan,
Vietnam and Venezuela. The treaty with the UAE
will be effective after completion of necessary
ratification procedures. Other treaties have also
been concluded with Morocco and Switzerland, but
await ratification. The expansion of Saudi Arabia’s
tax treaty network (especially over the past years) is
indicative of the Kingdom’s desire to increase bilat-
eral trade with its major trading partners.
MULTILATERAL INSTRUMENT: The OECD has taken
an initiative to prevent base erosion and profit shar-
ing, i.e., international tax planning with the intention
of shifting profits to low-tax or no-tax jurisdictions.
Saudi Arabia has recently signed this convention
becoming the 84th country to be part of the con-
vention to encounter tax evasion.
WITHHOLDING TAX REFUND: After the accession
to the World Trade Organisation, the Saudi tax treaty
network grew rapidly. In order to curb any misuse of
treaty benefits for withholding taxes purposes, the
GAZT issued Circular No. 3228/19, dated 23-Rabi
al-thani 1431H (corresponding to May 23, 2010),

which provided for the payment of withholding tax at
the rates prescribed in Saudi tax regulations first and
claiming the refund of overpaid taxes based on the
provisions of tax treaties later. However, the GAZT
subsequently issued Circular No. 5068/16/1434,
dated 30-Rajab 1434H (corresponding to June 9,
2013), advising certain amendments in the proce-
dure of claiming tax treaties’ benefits as provided in
the GAZT’s previous Circular No. 3228/19.
Based on the GAZT’s circular later, the Saudi Ara-
bian entity making taxable payment to a non-res-
ident service provider can apply the provisions of
effective tax treaties (i.e., not settle withholding tax
on payment to non-resident parties from a treaty
country or apply a reduced rate) if it complies with
the following requirements:
• Reporting of all payments to non-resident parties
(including those payments which are either not
subject to withholding tax or subject to withhold-
ing tax at a lower rate as per the provisions of
effective tax treaties) in the monthly withholding
tax returns (on a prescribed format);
• Submission of a tax residency certificate issued by
the tax authorities in the country where the ben-
eficiary is residing. Such tax residency certificate
should confirm that the beneficiary is resident in
that country in accordance with the provisions of
Article 4 of the treaty and the amount paid is sub-
ject to tax in that country. Such forms should be
in the prescribed format (Form Q7/B). The afore-
mentioned document should be attested by the
Saudi Embassy in the country of non-resident and
the Ministry of Foreign Affairs in Saudi Arabia; and
• Submission of an undertaking from the Saudi
entity that it would bear and pay any tax or fine
due on non-resident payees due to an error of
submitted information or a computational error
or misinterpretation of the provisions of tax treaty
(Form Q7/C), attested by the Chamber of Com-
merce.
The aforementioned Circular No. 5068/16/1434
also specified that the Saudi Arabian entities who
cannot comply with the aforementioned require-
ments may follow the procedure provided in the
previous circular, i.e., Circular No. 3228/19.
Saudi tax laws provide that the taxpayer is entitled
to a refund of any overpayment made under the
provisions of the Tax Law within five years of the
year for which the overpayment was made.
INTEREST EXPENSE LIMITATION: The Tax Law does
not provide any limitation to debt-equity ratio and an
entity can be formed with minimum required capital
and funded by debts. However, interest expense is
limited to the lower level of the actual expense or a
resultant of the following formulae interest income
plus 50% of taxable income before an interest income
and interest expense. Any disallowed interest as a
result of this limitation is a permanent loss and does
not form part of the accumulated losses. Interest
expense limitation is not applicable to banks. Interest
paid by a branch to its head office is not considered
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TAX OVERVIEW 301
A zakat/taxpayer is required to report all private sector contracts of $26,700 or more within three months
a deductible expense, except in the case of a branch
of a bank.
CONTRACT REPORTING: Under the Income Tax
Law, all persons (natural or legal) and government
agencies are required to provide the GAZT with
information pertaining to contracts with a value
exceeding SR100,000 ($26,700) that they entered
into with the private sector.
A zakat/taxpayer is required to report all the
contracts it concludes with the private sector of
SR100,000 ($26,700) or more within three months of
the signing of the contract. The GAZT also reserves
the right to obtain data on any other contracts of less
than SR100,000 ($26,700) or any other information
relevant to tax.
Based on the amendments to the Tax Law dated
September 20, 2017, the GAZT’s right to receive
information now extends to the provisions of inter-
national agreements.
SOCIAL INSURANCE: Social insurance contribution
is collected by the General Organisation for Social
Insurance (GOSI). The social insurance is levied on
salaries within the following rates: the minimum
and maximum amounts used to calculate GOSI are
SR1250 ($333) and SR45,000 ($12,000).
WAGE PROTECTION SYSTEM: The Ministry of
Labour (MoL) has implemented a wage protection
system (WPS) in Saudi Arabia. Under the WPS, enti-
ties are required to disburse salaries to their employ-
ees using a standard wages or payroll electronic
file provided by the MoL. Each entity is required to
submit a completed wages or electronic payroll file
to its bank in Saudi Arabia for the disbursement of
salaries to its employees. A copy of the electronic
file provided to banks in Saudi Arabia is also required
to be filed with the MoL.
ANNUAL FINANCIAL STATEMENTS: Effective 2018,
all businesses are required to prepare annual finan-
cial statements under the International Financial
THE REPORT Saudi Arabia 2019
302 TAX OVERVIEW
Reporting Standards (IFRS), as adopted by the
Saudi Organisation for Certified Public Accountants
(SOCPA). Saudi banks and insurance companies have
already been preparing their financial statements
under IFRS.
ARABIC BOOKS: According to Income Tax Laws and
by-laws, all zakat/taxpayers are required to maintain
necessary commercial books and accounting records
locally inside Saudi Arabia in Arabic to support their
tax declarations.
The GAZT re-emphasises the need to keep neces-
sary books of accounts in Arabic inside Saudi Arabia
by all companies, branches of foreign companies
and individuals, with the exception of filers under
deemed profit method. The GAZT may not accept any
return from any company, branch or individual that
does not keep books of accounts in Arabic.
Furthermore, the GAZT is reluctant to receive any
responses to their queries if the response includes
extracts from the ledger or journal vouchers in a
language other than Arabic.
The Ministry of Commerce and Investment (MCI)
has issued a circular to the SOCPA to re-emphasise
that auditors should comply with the requirement
of issuing a limited review report certifying that an
audit client is maintaining the books and records
in Arabic.
SPECIAL ZONES: Saudi Arabia has announced the
establishment of new special integrated logistics
zones. The first such zone will be situated at King
Khalid International Airport in Riyadh. Other similar
zones would be established after approval by the
Council of Economic and Development Affairs. The
zones intend to provide preferential tax treatment
for specified activities to be carried out in the zones.
Key features of the preferential tax treatment
include:
• Non-residents conducting activities directly
related to specified goods inside the zone shall
not be treated as having a PE in the Kingdom;
• Goods situated inside the zone will be under Cus-
toms suspension – therefore Customs duties and
VAT should not apply while goods remain in the
zone;
• VAT will not be charged on the supply of goods in
the zone; and
• Temporary transfer of goods between the main-
land and the zone for the purposes of repair and
maintenance shall not be subject to VAT.
Specified activities what would enjoy preferential
tax treatment include:
• Repair maintenance or routine processing, etc.
of goods;
Social insurance contribution
Category of employee Pension
Employee Employer Employer
Saudi national 9% 9%
Non-Saudi national - -
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• Sorting, repackaging and similar actions in rela-
tion to goods, including simple manufacturing
processes;
• Import, export and re-export;
• Logistics and after-sales services; and
• Certain recycling activities.
CUSTOMS & EXCISE TAXES: World Customs Organi-
sation has adopted the SAFE Framework of Standards
to Secure and Facilitate Global Trade since 2005 to
act as a deterrent to international terrorism, secure
revenue and promote trade facilitation worldwide.
One of the main features of this framework is the
Authorised Economic Operator (AEO) programme,
under which Customs authorities can accredit busi-
nesses that have high-quality internal processes to
prevent the tampering of goods in international
transport.
As Saudi trade with the rest of the world is growing
rapidly, it has developed its own AEO programme to
facilitate stakeholders involved in the import and
export of goods. The Saudi AEO programme lists
certain requirements for a business to be part of
AEO such as the existence of a robust electronic
record keeping system, financial solvency, effec-
tive policies and procedures related to the safety
of goods, staff training, etc. A business recognised
by AEO has various advantages over non-recognised
businesses, which include a dedicated fast lane in
Customs clearance, priority over non-AEO shippers,
reduced physical inspection, use of AEO logo and a
dedicated Saudi Customs account manager. This list
of requirements and advantages is not exhaustive.
Further to the government’s vision to transform
Saudi Arabia into an international logistics hub, Saudi
Customs is implementing an audit after clearance
initiative programme. The aim of this programme
is to ensure that importers comply with Customs
regulatory requirements. The Customs audit focuses
on a wide range of issues including examining the
transaction value, bank statements, sales contracts,
inventory papers, financial statements, non-finan-
cial records, payment terms, total imports, tariff
headings and Customs duty payments. In case of
non-compliance, Customs authorities may impose
penalty up to twice the amount of Customs duty
due on an imported consignment.
EXCISE: Excise Tax was introduced into the Kingdom
in June 2017, based on the GCC Unified Agreement for
Excise Taxes. The law states that businesses which
undertake any of the following activities must reg-
ister for excise tax purposes:
1. Import of excisable goods;
2. Production of excisable goods; and/or
Unemployment Occupational hazards Total
Employee
1% 1% 2% 22%
- - 2% 2%

3. Acquisition of excisable goods under a duty
suspension arrangement.
The Excise Tax Executive Regulations, published in
June 2017, provide additional guidance regarding the
application of the law and taxpayers’ responsibilities
in terms of registration and compliance. The excise
duty rate is 50% on soft drinks and 100% on energy
drinks and tobacco products. Excise taxes on goods
released for home consumption are calculated based
on the retail prices of the released goods, listed per
warehouse, less any eligible deductions (e.g., excise
tax paid on the importation of excisable raw mate-
rials). As of the first quarter of 2019, the GAZT is
reviewing the excise regime with a view to expanding
the tax to additional products.
TRANSFER PRICING: In December 2018 the GAZT
issued the draft Transfer Pricing (TP) By-laws. On
February 15, 2019 the GAZT formally released the
final version of its TP By-laws. On its website, the
GAZT has also posted various frequently asked ques-
tions and their respective answers. In early March
2019 TP guidelines were released through the GAZT.
The TP guidelines have a wider approach and repre-
sent the GAZT’s view on how it wants to apply the
TP By-laws in the Kingdom. Notably, the GAZT has
become increasingly active in the field of TP.
EFFECTIVE DATE: In the final version of the TP
By-laws, there is no specific mention of any report-
ing in respect of the year ended December 31, 2018,
which was still the case in the draft version. How-
ever, the GAZT addresses this question as part of
their frequently asked questions. TP documentation
requirements are applicable to the reporting year
ended on December 31, 2018 and all subsequent
reporting years. The answer further clarifies that the
GAZT also retains the right to seek documentation
with respect to the transactions that are under-
taken during the years prior to 2018. However, in
all cases, the taxpayer would be allowed at least 30
days in order to submit the requisite information
and documentation.
PERSONS SUBJECT TO TP REGULATIONS: The TP
By-laws are applicable on all taxable persons, as
defined in the Income Tax Law. This includes entities
that are jointly owned by GCC and foreign (non-GCC)
shareholders (mixed entities). Companies that are
owned 100% by GCC nationals, and are subject only to
zakat, are not subject to TP documentation require-
ments relating to Master File, Local File and DFCT.
Such entities are subject to requirements relating
to the filing of a country-by-country report (CbCR),
provided they meet the threshold requirement for
global gross revenues being in excess of SR3.2bn
($853.1m).
TRANSACTIONS SUBJECT TO TP REGULATIONS:
From a Saudi perspective, all controlled transac-
tions should be documented. A controlled trans-
action is any transaction between related parties
or parties under common control. Individuals are
considered related parties if they are relatives (up
to the fourth degree) or partners in a partnership.
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TAX OVERVIEW 303
Excise taxes on goods for home consumption are calculated based on the retail prices of the released goods
To determine if an individual is related to a juridical
person, the GAZT uses the concept of control. If the
individual is able to control the juridical person, they
should be considered as related.
Two juridical persons are related for Saudi TP pur-
poses if one person has effective control over the
other, or a third person has effective control over
both juridical persons. The GAZT provides a long
list of examples of how effective control could be
established between persons. Ultimately, the GAZT
concludes that effective control can be established
by governance, funding or business.
This approach is extremely wide and is not fully
aligned with the OECD guidelines. Under the GAZT
approach, any exclusivity agreement will lead to the
conclusion of a related party scenario and potential
TP documentation requirements. Another impor-
tant aspect is that the TP regulations also include
domestic transactions.
TP METHODS: In Article 7 of the TP By-laws, the
GAZT list the approved methods, which are identical
with the five OECD TP methods. The GAZT highlights
the fact that there is no hierarchy that the taxpayer
should follow when applying a TP method. Taxpayers
may even use a non-approved method if they can
demonstrate that the non-approved method deliv-
ers better results than the traditional TP methods.
DOCUMENTATION REQUIREMENTS: Documenta-
tion requirements vary with the tax status. While
taxpayers or mixed companies are subject to docu-
mentation obligations as defined by the new OECD
approach, zakat payers are subject to CbCR reporting
obligations only.
The DFCT is required to be filed along with tax
returns for the year ended December 31, 2018.
This is on the basis that the filing requirement – a
procedural matter – arises after the issuance of
the TP By-laws. The GAZT retains a right to seek
additional information in support of a tax return.
THE REPORT Saudi Arabia 2019
304 TAX OVERVIEW
Within the DFCT the following detailed information
needs to be submitted:
• Details of all controlled transactions undertaken
for or without monetary consideration, such as
barter arrangements;
• A list of all shareholders. For listed entities, infor-
mation of all shareholders directly owning more
than 5% of shares would need to be disclosed; and
• Where there has been an internal reallocation of
functions, assets and risks within a group, the same
needs to be reported as part of the DFCT for the
reporting year relevant to the change.
The DFCT shall form part of an annual tax declaration
and be submitted electronically by every person
engaged in controlled transactions, irrespective of
their value. Along with DFCT, taxpayers would also
be required to produce an auditor’s certificate con-
firming that the TP policy of a multinational enter-
prise (MNE) has been consistently applied by and in
relation to the taxpayer.
TP DOCUMENTATION: The GAZT has adopted the
new OECD three-tier approach for preparing TP doc-
umentation. Taxpayers need to prepare: (i) master
file; (ii) local file; and (iii) CbCR, if applicable.
The master file should contain information on the
global business operations and TP policies of the
MNE group to which the taxable person belongs.
In respect of any intangibles, the master file should
provide for identity of legal and de facto owners of
intangibles.
The local file should contain detailed information
on all controlled transactions of the taxable person
and should also contain information in respect of any
business restructuring – transfers of risks, functions
or tangible or intangible assets directly or indirectly
impacting the taxpayer in Saudi Arabia – in the cur-
rent year or in the preceding year.
The requirement to maintain a master file and local
file is not necessary for the following:
• Natural persons; and
• Small-sized enterprises, which are entities with an
arm’s-length value of controlled transactions not
exceeding SR6m ($1.6m) in a 12-month period.
COUNTRY-BY-COUNTRY REPORTING: The CbCR
and the notification need to be submitted by mem-
bers of an MNE group with consolidated group
revenue exceeding SR3.2bn ($853.1m) as per con-
solidated financial statements of the MNE group.
Where CbCR is being filed in another country that
has signed the multilateral instrument and the qual-
ifying competent authority agreements, the filing of
the notification to the GAZT should suffice. However,
if the foreign country systematically fails to provide
a copy of CbCR to the GAZT, then the local constitu-
ent entity is required to provide a copy of the CbCR
submitted in the foreign jurisdiction.
DEADLINES: The DFCT needs to be filed together
with the annual tax declaration not later than 120
days after the end of the financial year.
The GAZT may seek a taxpayer to provide a copy
of their master file or local file or any part thereof
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at any time by issuing a notice of not less than 30
days. As mentioned above, only in respect of the
financial year ended 2018, taxpayers will be given
an additional extension of 60 days for providing a
master file or local file or any part thereof.
For controlled transactions undertaken during
the years prior to 2018, the GAZT may also require
any information or documentation.
FOREIGN ACCOUNT TAX COMPLIANCE ACT: In line
with its efforts to improve international tax compli-
ance and transparency, the Kingdom signed several
exchange of tax information agreements. The For-
eign Account Tax Compliance Act Intergovernmental
Agreement Model 1 (IGA) with the US to exchange
information on US accounts and the OECD’s Multi-
lateral Convention on Mutual Administrative Assis-
tance in Tax Matters (Multilateral Convention), which
covers various means of exchanges including the
Common Reporting Standard Multilateral Competent
Authority Agreement (CRS MCAA).
Under the Model 1 IGA, Saudi Arabia would annu-
ally exchange information on financial accounts held
by US specified persons and maintained by Saudi
financial institutions. This agreement is non-recipro-
cal, i.e., the US will not exchange similar information
with Saudi Arabia.
Contrary to the signed IGA, under the CRS MCAA,
Saudi Arabia has concluded a wide range of recipro-
cal exchange agreements. For the 2018 tax year, 62
countries will receive information from Saudi Arabia
on financial account holders who are tax residents in
those countries and have bank accounts maintained
by Saudi financial institutions, while 86 countries will
send the same information to Saudi Arabia on Saudi
tax residents that have financial accounts outside
the Kingdom. Under the CRS, tax residency – not
nationality – matters, as a person, individual or entity
can have more than one tax residency.
INFORMATION REPORTED: For individual Saudi
tax residents, the Kingdom will receive the name,
address, tax identification number (TIN), date and
place of birth, account number, name of financial
institutions where the account is held and the bal-
ance or value of the accounts.
For entity Saudi tax residents, the Kingdom will
receive the name, address, TIN, account number,
name of financial institutions where the account
is held and the balance or value of the accounts.
In case this entity is a passive entity and controlled
by a reportable person, the Kingdom will receive, in
addition to the above-mentioned entity details, the
name, TIN, and date and place of birth for each con-
trolling person. A controlling person is determined
as per the local anti-money laundering rules.
In each of these cases, income such as gross inter-
est, gross dividends or other income, gross pro-
ceeds and full or partial surrenders that are paid
to the corresponding accounts will be exchanged.
OBG would like to thank KPMG for its contribution to
THE REPORT Saudi Arabia 2019

Marked transparency
Wadih AbouNasr, Head of Tax, KPMG KSA Levant Cluster, on
moving closer to alignment with global taxation trends
With the recent introduction of transfer pricing (TP)
regulations, Saudi Arabia edges closer to the alignment
with global taxation trends. As of February 15, 2019,
the General Authority of Zakat and Tax (GAZT), issued
the final approved TP By-laws. The by-laws are based
on the OECD model and are an integral part of the base
erosion and profit sharing initiative first announced by
the G20 in 2015. The approval of the TP By-laws comes
only a year after the introduction of value-added tax
(VAT) on January 1, 2018, which represented one of the
key fiscal measures to help diversify sources of income
away from the hydrocarbons industry. Furthermore, the
signing of the multilateral instrument agreement paves
the way for the start of an exchange of information
with other tax authorities. This designates the Kingdom
as one of the leaders in the GCC region in introducing
measures on transparency and compliance, helping to
fight tax evasion using offshore accounts.
The newly introduced TP By-laws will align the King-
dom with the global economy but will also allow the
GAZT to have a better understanding of inter-company
transactions and how such transactions may impact the
taxable base of such an entity or their branches in Saudi
Arabia. This measure will allow for a potential increase in
tax revenues without introducing new taxes, by making
sure that cross-border and related party transactions
are executed at fair market value and that the value
creation in the Kingdom is taxable in accordance with
the applicable tax rates of the country. Furthermore,
the GAZT will have access to the country-by-country
reporting (CbCR) of certain entities operating in the
Kingdom, especially when they are part of a significant
multinational group. CbCR will allow the GAZT to assess
their global tax footprint in relation to their taxable
income locally. Similarly, Saudi-based entities need to
ensure such information is available to the tax author-
ities who signed the bilateral agreement on CbCR.
The signing of the Foreign Account Tax Compliance
Act Intergovernmental Agreement (IGA) with the US,
Bloomberg Terminal Research Homepage: OBGR‹GO›
TAX VIEWPOINT 305
Wadih AbouNasr, Head of Tax, KPMG KSA Levant Cluster
and more recently the signing of the Multilateral Con-
vention on Mutual Administrative Assistance in Tax Mat-
ters Agreement, which includes the Common Reporting
Standard Multilateral Competent Authority Agreement,
puts the Kingdom at the forefront in the GCC region in
fighting tax evasion and the use of offshore investment
vehicles. Saudi Arabia has signed reciprocal agreements
to provide 62 countries with detailed account infor-
mation, including balances and numbers; and income,
which includes interest, dividends, proceeds and other
types of income of foreign tax residents with bank
accounts in Saudi Arabia. It will receive information
on Saudi tax residents with foreign accounts from 86
countries. Under the IGA, similar information is reported
to the Internal Revenue Service on accounts relating
to US citizens with accounts in the Kingdom.
The GAZT has developed a modern system of dealing
with taxpayers, signalling certainty and transparency.
In 2018 the Ministry of Finance introduced the Dispute
Resolution Committee to assist in quick settlements of
tax disputes, following the establishment of the two-
level appeal committee system. Regular publication of
guides on VAT, tax and zakat – which is payment under
Islamic law used for charitable or religious purposes –
and other taxes by the industry sector and profession
signal the GAZT’s intention to be client-centric.
Saudi Arabia has long been the engine of growth of
the GCC and MENA region. The 2019 budget represents
the largest budget to date, amounting to expenditures
of SR1.1bn ($293.3m) to stimulate growth. With the
national transformation and realisation of Vision 2030,
the country must find alternative sources of income
and adopt measures to attract foreign investors and
ease doing business for both local and foreign investors,
as well as introduce measures to make the tax system
transparent, stable, certain and fair. With recent devel-
opments, Saudi Arabia is more aligned than ever with
the worldwide trends in taxation, signalling that it is
serious about its tax measures and open for business.
THE REPORT Saudi Arabia 2019
 307

The Guide
A rundown of various hotel options across the country
Useful contact information for government bodies
Phone numbers for embassies, legal services and more
Local knowledge for leisure and business travellers

Comfortable stay
RIYADH
AL MASHREQ BOUTIQUE HOTEL
Ouroubah and Prince Turki Road Intersection
PO Box 33554, Riyadh 11458
T: (+966) 11 283 4777
F: (+966) 11 283 4744
www.almashreqboutiquehotel.com
info@almashreq.sa
Rooms: 69 rooms, including 18 junior suites and 2
royal suites.
Business & Conference Facilities: 4 meeting rooms
and the Al Hamra Ballroom, with all natural daylight
and garden views free Wi-Fi, leather seats, premium
amenities, private offices, business centre.
Health & Leisure Facilities: Spa and gym, Moroccan
hamman, massage room, sauna, steam room, jacuz-
zi, swimming pool relaxation lounge and ladies gym.
Guest Services: Airport and city limousine service,
car hire, airline ticketing, valet parking and security.
Dining: Ewaan (all-day dining), Ward (modern Leb-
anese), Tea Lounge (with premium tea, salads and
sandwiches), Al Mashrabiya (outdoor with live cook-
ing stations).
VIVIENDA, GRANADA
Granada Area, Eastern Ring Road,
As-shuhada street, Riyadh 13216
T: (+966) 11 511 8000
F: (+966) 11 511 8001
vivienda.com.sa
reservations-granada@vivienda.com.sa
Rooms: 48 villas, each spanning 300 sq metres.
Business & Conference Facilities: Multi-functional
V-Lounge, with entertainment and dining areas, pri-
vate office space, garden and a buffet station.
Health & Leisure Facilities: Gymnasium with the lat-
est cardiovascular equipment, steam room and out-
door swimming pool.
Bloomberg Terminal Research Homepage: OBGR‹GO›
THE GUIDE HOTELS 309
Al Mashreq Boutique Hotel
Guest services: Chauffeur and taxi services, private
parking, butler service.
Dining: Bice Italian restaurant available for break-
fast, lunch and dinner, and in-room dining available
24 hours a day.
RAFA HOMES
3353 Al Mizan Street, Riyadh 13314
Vivienda, Granada
T: (+966) 11 498 1821
F: (+966) 11 454 7922
Rooms: 212 fully furnished apartments located at 7
different branches around Riyadh, comprising 169
single rooms and 43 double rooms.
Business & Conference Facilities: Business centre,
fax and photocopying services available.
Guest Services: 24-hour front desk, news stand, 24-
hour room service, free indoor parking, Wi-Fi, full
kitchen facilities including refrigerators and micro-
waves, hairdryers and personal safes.
Dining: Cafe open 12 hours a day.
ASCOTT RAFAL OLAYA RIYADH
7706 Sahafa, Olaya Street,
Riyadh 13321
T: (+966) 11 408 8700

F: (+966) 11 408 2700
www.the-ascott.com
enquiry.riyadh@the-ascott.com
Rooms: 234 units, comprising studio, one-bedroom
and two-bedroom suites.

Business & Conference Facilities: Business centre,
conference and banquet facilities.
Health & Leisure Facilities: Separate male and fe-
male leisure facilities, outdoor pool and deck, fully
equipped gym, steam, sauna and day spa. Indoor and
outdoor children’s play areas, guest lounge.
Guest Services: 24-hour guest services.

Dining: Lebanese speciality restaurant, US-style res-
taurant, cigar lounge with indoor and outdoor seat-
ing, lobby cafe, pool bar. Rafa Homes
THE REPORT Saudi Arabia 2019
 310 THE GUIDE HOTELS
FRASER SUITES RIYADH
Intersection Olaya Street and Khurais Road,
Riyadh 11524
T: (+966) 11 263 9333
 royal suites, 18 cabana rooms.
riyadh.frasershospitality.com/en
reservations.riyadh@frasershospitality.com
Rooms: 95 units, including 10 studio deluxe twin,
Fraser Suites Riyadh
36 studio executive king, 20 one-bedroom de-
luxe suites, 20 one-bedroom executive suites, 2
one-bedroom suite penthouses, 5 two-bedroom
deluxe suites and 2 two-bedroom suite penthouses.
Business & Conference Facilities: 2 meeting rooms.
Health & Leisure Facilities: Rooftop pool, 24-hour
fully equipped gym, sauna and steam facilities (all
for use by men only), massage service (charges ap-
ply), children’s play area.
Guest Services: 24-hour reception, 24-hour se-
curity, concierge services, high-speed internet ac-
cess, daily housekeeping, 24-hour room service, dry
cleaning and laundry services, prayer room.
Dining: All-day restaurant (international cuisine on
the sixth floor, overlooking the pool, buffet break-
fast and dinner served daily), lobby lounge (open to
both guests and the public, offering snacks and bev-
erages), 24-hour room service.
HYATT REGENCY RIYADH OLAYA
Olaya Street, Al Olaya, PO Box 10341, Riyadh 11433
T: (+966) 11 288 1234 
 Health & Leisure Facilities: Health club, pool, sauna,
F: (+966) 11 288 1235
riyadholaya.regency.hyatt.com
riyadh.regency@hyatt.com
Hyatt Regency Riyad Olaya Rooms: 261 appointed guest rooms, including 40
suites across 28 floors.
 JEDDAH
Business & Conference Facilities: Four meeting
rooms with adjoining social spaces and an outdoor
terrace. Al Louloua, the main ballroom on the ground
floor, is devoted to larger events and weddings, of-
fering separate access for guests.
Health & Leisure Facilities: Sokoun Spa Fitness Cen-
tre offers an extensive range of massage therapies
and the latest therapeutic body treatments. The fit-
ness centre features the latest equipment for health
and recreation, from cardiovascular exercise ma-
chines to strength-training equipment.
Guest Services: Complimentary Wi-Fi, spa and
meeting rooms, 24-hour concierge, ATM, 24-hour
in-room dining, valet parking, laundry, business cen-
tre and airport limousine service.
Dining: 56th Avenue Diner (US-style diner) and Az-
ure (fusion of Turkish and Greek dining inspired by
Aegean cuisine), Tea Lounge.
INTERCONTINENTAL RIYADH
King Saud Road, PO Box 3636, Riyadh 11481
T: (+966) 11 465 5000
F: (+966) 11 114 053697
www.intercontinental.com/riyadh
Intercontinental Riyadh reservations.icriyadh@ihg.com
www.oxfordbusinessgroup.com/country/saudi-arabia
Rooms: 275 rooms, including 140 standard rooms,
39 junior suites, 5 large executive suites, 2 royal
suites, 56 club rooms, 10 presidential suites, 5 club
Business & Conference Facilities: 13 meeting and
event rooms and 2 main halls. Business centre in-
cludes workstation, fax machine, express courier
service and car pickup.
Health & Leisure Facilities: Fully equipped gym,
jacuzzi, Moroccan bath, massage, sauna, pool,
squash courts, floodlit tennis courts and 12-lane,
10-pin bowling. InterContinental Riyadh Palms Golf
club has a 9-hole executive grass golf course.
Guest Services: Free Wi-Fi, 24-hour laundry service,
24-hour room service, valet parking.
Dining: Mondo, Al Bustan, Golf restaurant, Addiwan
Lounge, Al Baylasan Café, Al Nakheel Café.
RADISSON BLU HOTEL RIYADH
Al Mubarakiah Plaza, King Abdul Aziz Street,
Riyadh 11415
T: (+966) 11 479 1234

F: (+966) 11 478 7615
www.radissonblu.com/hotel-riyadh
reservations.riyadh@radissonblu.com
Rooms: 294 rooms.

Business & Conference Facilities: 14 meeting rooms
and business centre.

steam room.

Guest Services: 24-hour front desk, valet parking,
laundry, free Wi-Fi.

Dining: Brasserie, Olivio’s, Shogun, Cafe Vienna.
THE RITZ CARLTON, JEDDAH
PO Box 13344, Jeddah 21493
T: (+966) 12 231 4444
F: (+966) 12 607 0619
www.ritzcarlton.com/Jeddah
www.facebook.com/theritzcarltonjeddah/
Rooms: 224 rooms, including 164 deluxe rooms, 30
royal suites and 30 executive suites.
Business & Conference Facilities: Total of 20 ven-
ues including grand ballrooms, junior ballrooms, and
amphitheatre. Total function space of 62,000 sq me-
tres, 2 grand ballrooms with capacity of 1851 sq me-
tres each, 2 junior ballrooms with capacity of 716 sq
metres each, 18 meeting rooms including ballrooms
and board rooms.
Health & Leisure Facilities: Fitness centre and spa
Guest Services: Room service, baggage storage, ve-
hicle hire, 24-hour concierge, currency exchange,
gift shop, valet service, laundry, safe deposit boxes
and Club Lounge for club guests.
Dining: Reyhana restaurant (Asian, Arabic and Med-
iterranean), Saltz restaurant (à la carte), Karamel
lounge (desserts, snacks and beverages).
 312
Park Hyatt Jeddah
Assila Hotel
Citadines Al Salamah Jeddah
Ascott Sari Jeddah
THE GUIDE HOTELS
PARK HYATT JEDDAH
Al Hamra District, Southern Corniche, PO Box 5863,
Jeddah 21432
T: (+966) 12 263 9666
F: (+966) 12 263 9777
jeddah.park@hyatt.com
Rooms: 142 rooms, including 4 park suites, 4 execu-
tive suites, 6 prince suites and 1 royal suite.
Business & Conference Facilities: Business phone
service, express mail, fax, meeting rooms, high-
speed internet, office hire, photocopying and print-
ing, secretarial services, 3 ballrooms, audio-visual
equipment.
Health & Leisure Facilities: 7 event spaces, 1300 sq
metres of space for business functions, use of event
planners and culinary team. The largest space is 756
sq metres.
Guest Services: Room service, babysitting service
upon request, children’s activities, baggage storage,
vehicle hire, 24-hour concierge, gift shop, valet ser-
vice, laundry, local area transport, multilingual staff,
safe deposit boxes and facilities for guests to book
tours or area sites.
Dining: Nafoura restaurant, Andalusia restaurant
(Moroccan), room service.
ASSILA HOTEL
Prince Mohammed bin Abdulaziz Street, PO Box
11688, Jeddah 21391
T: (+966) 12 231 9800
www.roccofortehotels.com
reservations.assila@roccofortehotels.com
Rooms: 147 rooms, 63 suites, 94 residential suites.
Business & Conference Facilities: 348-sq-metre
ballroom, (can be divided into 2 separate rooms) for
up to 288 guests, 17-sq-metre pre-function lobby
for up to 125 guests, dedicated meeting floor with
11 meeting rooms for up to 120 delegates, business
centre, valet service and on-property car park.
Health & Leisure Facilities: 25-metre rooftop pool, 7
treatment rooms, 2 gyms, squash courts, saunas and
steam rooms, hairdresser, relaxation rooms.
Dining: Aubergine restaurant, CoCo’Ba chocolaterie
and bakery, Il Caffé and lounge, Twenty Four buffet
restaurant, Pampas restaurant, poolside lounge.
CITADINES AL SALAMAH JEDDAH
Prince Sultan Street, As Salamah, Jeddah 23524
T: (+966) 12 611 1846
Toll Free: 800 244 0080
www.ascottmea.com
enquiry.jeddah@the-ascott.com
Rooms: 129 rooms.
Business & Conference Facilities: Business corner,
secretarial services, Wi-Fi connectivity.
Health & Leisure Facilities: Children’s play area,
swimming pool, fully equipped gymnasium, prayer
room, restaurant, residents’ programmes.
www.oxfordbusinessgroup.com/country/saudi-arabia
Guest Services: 24-hour reception, airport transfer
service, basement car park, daily housekeeping ser-
vice, doctor on call, laundry and dry cleaning.
Dining: Society Craft and Eatery Café.
ASCOTT SARI JEDDAH
Sari, Al-Zahra’a, Jeddah 23424
T: (+966) 12 692 6299
Toll Free: 800 244 0080
www.ascottmea.com
enquiry.jeddah@the-ascott.com
Rooms: 52 rooms.
Business & Conference Facilities: Business centre
services, meeting room, Wi-Fi connectivity.
Health & Leisure Facilities: Fully equipped gymnasi-
um, prayer room, residents’ lounge, restaurant, pool
and outdoor deck.
Guest Services: 24-hour reception, airport transfer
service, outdoor car park, daily housekeeping ser-
vice, doctor on call, laundry and dry cleaning service.
Dining: Society Craft and Eatery Café.
SOFITEL JEDDAH CORNICHE
North Corniche, Jeddah 21553
T: (+966) 12 613 9000
M: (+966) 56 368 6430
Rooms: 27 rooms, 4 opera suite, 2 royal suites, 2
prince suite, 22 prestige suite, 34 junior suites.
Business & Conference Facilities: 11 meeting
rooms, 8 executive boardrooms, 1 auditorium facil-
ity for business or leisure use. The 2000-sq-metre
pillarless dome ballroom is equipped with a range
of technology and features for both weddings and
conferences.
Health & Leisure Facilities: A temperature controlled
pool, a separate spa with steam room, sauna, jacuzzi,
and fitness centre for men and women.
Guest Services: Room service, children’s activities,
luggage storage, vehicle hire, barber shop, 24-hour
concierge, currency exchange, valet service, laundry,
local transport, multilingual staff, safe deposit box-
es.
Dining: Le Voyageur restaurant (international buffet
with live cooking stations and views of Jeddah wa-
terfront), Astro Terrace Lounge (all-day lounge with
set menu and views of Jeddah waterfront).
ASCOTT TAHLIA JEDDAH
Al Andalus District, Prince Mohammed bin Abdulaziz
Street (Tahlia Street), PO Box 2840, Jeddah 21461
T: (+966) 12 283 2322
Toll Free: 800 244 0080
www.ascottmea.com
enquiry.jeddah@the-ascott.com
Rooms: 125 rooms, including 4 penthouses.
Business & Conference Facilities: Audio-visual
equipment, business centre services, meeting
rooms, Wi-Fi connectivity.

Health & Leisure Facilities: Children’s playroom,
smoking lounge, fully equipped gymnasium, prayer
room, outdoor shisha and cigar lounge, residents’
lounge, residents’ programmes, restaurant, pool and
outdoor terrace.
Guest Services: 24-hour reception, airport transfer
service, babysitting service, basement car park, daily
housekeeping service, laundry and dry cleaning ser-
vice.
Dining: Society Craft & Eatery Cafe, Kenza Cigar
Lounge.
MAKKAH
CONRAD HOTEL MAKKAH
Jabal Omar Ibrahim Al Khalil, PO Box 19923, Makkah
21955

T: (+966) 12 530 8777
 MÖVENPICK HOTEL AL KHOBAR
F: (+966) 12 530 3999
conradmakkah.com
Rooms: 438 rooms with Haram and partial Kaaba
views.
Business & Conference Facilities: 2 contemporary
meeting rooms with space for up to 100 people.
Health & Leisure Facilities: VIP Lounge, Al Kawthar
Lounge, Al Hailal Cafe.
 Business & Conference Facilities: 1600-sq-metre Al
Guest Services: Butler service, tour programmes,
airport pickup and drop-off, limousine services and
car rental, airline booking service, luggage follow-up
with airlines, restaurant booking service, newspa-
pers.
Dining: Al Meraj restaurant, Prime restaurant.
MEDINA
LE MERIDIEN MEDINA
Khalid Bin Al Walid Road, Medina 41441
T: (+966) 14 846 0777
 haraja by Vineet (Indian cuisine), The View Lounge
F: (+966) 14 846 0019
www.lemeridien.com/medina
THE GUIDE HOTELS 313
Rooms: 190 rooms, with 70 single standard rooms,
86 double standard rooms, 26 executive suites and
8 royal suites.

Business & Conference Facilities: Business centre
with computers, fax machines and photocopier; 4
banquet halls with capacity for approximately 400
people and audio-visual equipment; and 3 meeting
rooms. The largest event space spans around 500
Softitel Jeddah Corniche
sq metres.
Guest Service: Free Wi-Fi connectivity, free parking
available, valet service, shuttle service to the Grand
Mosque, concierge service, luggage storage, dry
cleaning and laundry service, 24-hour front desk
service.
AL KHOBAR
Prince Turki Street, Al Khobar 34422
T: (+966) 13 898 4999/810 9800
F: (+966) 13 895 1779
www.movenpick.com/al-khobar
hotel.alkhobar@movenpick.com
Rooms: 143 rooms and suites, with views of the city
skyline and the Gulf shore.

Maha Banquet Hall for meetings and weddings of
up to 1200 people, 282-sq-metre Al Massah confer-
ence room, business centre.
Health & Leisure Facilities: Fully equipped fitness
centre, spa with a selection of treatments, sauna,
steam room and indoor pool.

Guest Services: 24-hour front desk, on-site car hire,
on-site medical assistance, currency exchange ser-
vices, gift shop, news stand, hairdressing salon, dry
cleaning and laundry services.
Dining: The Blue (all-day international cuisine), Ma-
(breakfast, sushi) and Le Cafe (snacks, light meals,
tea and coffee). Ascott Tahlia Jeddah
314 THE GUIDE LISTINGS

Public sector hours are around 7.00am to 3.00pm. Pri- All three of the Kingdom’s mobile operators – Saudi
vate sector hours vary, and businesses often close at Telecom Company, Mobily and Zain – as well as Virgin
1.00pm and reopen from 4.00pm to 8.00pm. It is useful Mobile and Lebara offer pre-paid SIM cards, which
to note the short closing periods during prayer times. are easily obtained. Calls are relatively inexpensive.

GOVERNMENT Labour & Germany E-Goverment Programme, Saudi Industrial Property

MINISTRIES Social Development (011) 277 6900 Yesser Authority
Civil Service (011) 200 6666 Greece (011) 452 2372 (011) 874 9020
(011) 402 6666 Municipal & (011) 480 1974 High Commission for the Saudi Organisation for
Commerce & Investment Rural Affairs Ireland Development of Arriyadh Certified Public Accountants
(011) 401 2222 (011) 456 9999 (011) 407 1530 (011) 488 3331 (011) 401 9244
Communications & National Guard Italy Royal Commission for Jubail & Saudi Press Agency
Information Technology (011) 491 2222 (011) 488 1212 Yanbu – Headquarters (011) 419 3333
(011) 452 2222 Transport Japan (011) 264 9000 Saudi Red Crescent Authority
Culture & Information (011) 874 4444 (011) 488 1100 Royal Commission for Jubail & (011) 280 5555
(011) 401 4440 Jordan Yanbu – Jubail Security Development &
Defence EMBASSIES (011) 488 0071 (013) 341 3000 Planning Agency
(011) 478 9000 Afghanistan Kuwait Royal Commission for Jubail & (011) 441 9688
Economy & Planning (011) 480 3457 (011) 488 3500 Yanbu – Yanbu Small & Medium-Sized
(011) 401 1444 Algeria Lebanon (014) 321 6301 Enterprises Authority
Education (011) 488 7171 (011) 480 4070 Saudi Arabian General (011) 294 4457
(011) 404 6666 Argentina Mexico Investment Authority The Development
Energy, Industry & Mineral (011) 465 2600 (011) 480 8822 (011) 203 5555 Commission of Makkah Al
Resources Australia Morocco Saudi Arabian Monetary Mukarramah & Mashaaer
(011) 478 7777 (011) 250 0900 (011) 482 8941 Authority (012) 540 4040
Environment, Water & Austria Netherlands (011) 463 3000
Agriculture (011) 480 1217 (011) 488 0011 Saudi Arabian Olympic COUNCILS
(011) 417 2000 Bahrain Oman Committee Council of Competition
Finance (011) 488 0044 (011) 482 3120 (011) 482 1832 (011) 440 6666
(011) 405 0000 Belguim Spain Saudi Authority for Council of Saudi Chambers
Foreign Affairs (011) 488 2888 (011) 488 0606 Accredited Valuers (011) 218 2222
(011) 406 7777 Brazil Syria (011) 273 7777 Saudi Health Council
Hajj & Umrah (011) 488 0018 (011) 488 7481 Saudi Broadcasting (011) 457 9300
(011) 402 6225 Canada Turkey Corporation Shura Council
Health (011) 202 3288 (011) 482 0101 (011) 442 8400 (011) 482 1666
(011) 564 9999 China UAE Saudi Development Bank Supreme Judicial Council
Housing (011) 483 2126 (011) 488 1227 (011) 479 7200 (011) 288 4333
(011) 451 7139 Denmark UK Saudi Export Development
Interior (011) 488 0101 (011) 481 9100 Authority FUNDS
(011) 401 1111 Egypt US (011) 874 2000 Agricultural Development
Islamic Affairs, Dawah & (011) 481 0464 (011) 488 3800 Saudi Food & Drug Fund
Guidance Finland Authority (011) 211 8888
(011) 473 0401 (011) 488 1515 AUTHORITIES (011) 203 8222 Human Resources
Justice France Capital Market Authority Saudi Geological Survey Development Fund
(011) 405 7777 (011) 434 4100 (011) 205 3000 (012) 619 5000 (011) 218 6500

www.oxfordbusinessgroup.com/country/saudi-arabia
 THE GUIDE LISTINGS 315

Credit cards are widely accepted, and ATMs can be Saudis pride themselves on their hospitality, and
found even in remote places. It is possible to withdraw it is impolite to begin business without engaging
riyals from foreign bank accounts from ATMs, but a in small talk first. In formal meetings it is common
local bank account is needed to exchange currency. to be offered a small cup of qahwa (Arabic coffee).

Public Investment Fund Military Industries Saudi Management Marsana Rent a Car Middle East Airlines
(011) 401 6041 Corporation Association (012) 640 0555 (011) 461 4670
Real Estate Development (011) 405 8487 (011) 467 4001 Shary Oman Air
Fund Presidency of Saudi Stock Exchange (011) 456 5555 (011) 473 3133
(011) 282 9000 Meteorology & Environment (011) 218 9999 Sixt Royal Jordanian
Saudi Fund for Development (012) 653 6000 (092) 000 0991 (011) 218 0850
(011) 279 4000 Saline Water Conversion CONSULTANCY & Saudi Arabian Airlines
Saudi Industrial Development Corporation ACCOUNTANCY EMERGENCIES (092) 002 2222
Fund (011) 463 1111 SERVICES Ambulance Turkish Airlines
(011) 477 4002 Saudi Aramco PwC 997 (800) 811 0478
(013) 872 2222 (011) 211 0400 Directory Assistance
CHAMBERS OF Saudi Basic Industries Deloitte 905 AIRPORTS
COMMERCE Corporation (011) 282 8400 Fire King Abdulaziz International
Eastern Province Chamber of (011) 225 8000 EY 998 Airport (Jeddah)
Commerce & Industry Saudi Grains Organisation (011) 273 4740 Police (092) 002 2222
(013) 857 1111 (011) 210 3333 KPMG 999 King Fahad International
GCC Saudi Ports Authority (011) 874 8500 Traffic & Accidents Airport (Dammam)
(011) 483 4037 (011) 405 0005 993 (013) 883 1000
Jeddah Chamber of Saudi Railways Organisation LEGAL SERVICES King Khalid International
Commerce & Industry (013) 871 2222 Abuhimed Alsheikh Alhagbani AIRLINES Airport (Riyadh)
(012) 239 8000 Saudi Standards Organisation Law Firm Air Arabia (092) 000 2016
Riyadh Chamber of (011) 252 9999 (011) 481 9700 (011) 481 8666
Commerce & Industry Saudi Telecom Company Al Jaadan Law Firm Air France HEALTH CARE
(011) 404 0044 (011) 452 0909 (011) 250 6500 (800) 897 1474 Al Hammadi Hospital
Saudi-German Development Technical & Vocational Khoshaim & Associates Cathay Pacific (011) 462 2000
& Investment Company Training Corporation (011) 461 8700 (800) 844 0350 Dallah Hospital
(011) 476 2511 (011) 289 6666 Latham & Watkins Emirates (092) 001 2222
Saudi-US Business Council (011) 207 2500 (800) 844 2000 Dr Sulaiman Al Habib
(011) 474 2555 INDUSTRY Etihad Airways Olaya Medical Complex
Supreme Economic Council ASSOCIATIONS & CAR HIRE (800) 844 7893 (011) 462 2224
(011) 480 3744 COMMISSIONS Al Jazirah Vehicles Agencies EygptAir King Abdulaziz Medical City
Communications & IT (011) 240 9944 (011) 484 7300 (Riyadh)
GOVERNMENT Commission Autoworld flynas (011) 801 1111
CORPORATIONS (011) 461 8000 (011) 492 8080 (092) 000 1234 King Faisal Specialist
General Organisation for Saudi Commission for Avis Gulf Air Hospital
Social Insurance Tourism & National (012) 685 0629 (013) 510 9595 (092) 001 2312
(011) 808 7777 Heritage Europcar Kuwait Airlines King Saud Medical City
King Abdulaziz City of Science (011) 880 8855 (092) 000 0153 (011) 233 1121 (011) 435 5555
& Technology Saudi Economic Association Hertz Lufthansa Kingdom Hospital
(011) 488 3555 (011) 467 4141 (092) 000 5561 (800) 844 7661 (011) 275 1111

Bloomberg Terminal Research Homepage: OBGR‹GO› THE REPORT Saudi Arabia 2019

316 THE GUIDE
Facts for visitors
Useful information for business and leisure travellers
MANNERS: There are social expectations for inter-
actions between unrelated men and women, which
it is polite to follow when visiting Saudi Arabia. Busi-
nessmen should wait for a woman to offer her hand
to shake in a meeting. In other situations, keep a
respectful distance. Hand-shakes between men are
common. Saudis pride themselves on their hospitality,
and it is impolite to begin business without engaging
in small talk first. In formal meetings it is common to
be offered a small cup of qahwa (Arabic coffee). One
should accept the first cup, but have no more than
three before indicating you have had enough by rock-
ing the cup from side to side. To avoid offence, use the
right hand when receiving gifts, eating and drinking.
VISAS: Nationals of non-GCC countries and some Arab
nations need visas. Business visas require a letter of
sponsorship from the firm being visited. The Saudi
counterpart lodges an application and is issued a
receipt, which is forwarded. The applicant presents this
receipt, along with two passport-sized photographs,
a completed application form, a copy of the letter of
sponsorship and a fee to their local embassy or consu-
late. The process varies by country, and an electronic
application code from the Ministry of Interior’s website
may be required. Check with your local embassy or
consulate in advance as to variations. Single-entry, as
well as three- and six-month multiple-entry visas can
be issued. Work and residence visas are also available,
as are visas for family members. These require a letter
of authorisation from the Ministry of Foreign Affairs,
a medical report authorised by the applicant’s foreign
office, a copy of the contract and employment terms,
and copies of qualifications for employment.
CURRENCY: The Saudi riyal is pegged to the US dollar
at SR3.75:$1. Credit cards are accepted across the King-
dom, and ATMs can be found even in remote places. It is
possible to withdraw riyals from foreign bank accounts
from ATMs. One must have a local bank account to
change currency, but many hotels exchange cash.
www.oxfordbusinessgroup.com/country/saudi-arabia
LANGUAGE: Arabic is the official language. English is
widely spoken, but a grasp of basic Arabic salutations
will be useful. Signs are in Arabic and English.
ELECTRICITY: There is a mix of UK-style, three-pin,
two-pin and US-style plugs, as well as both 120 V and
220 V. Electric adaptors and converters are essential.
COMMUNICATIONS: All three of the Kingdom’s mobile
operators – Saudi Telecom Company, Mobily and Zain
– as well as Virgin Mobile and Lebara offer pre-paid
SIM cards, which are easily obtained. Domestic calls
and those within the GCC region are relatively inexpen-
sive. Internet connection quality is variable. Wireless
hotspots are available in most cities.
TRANSPORT: Taxis are metered and plentiful in most
of the larger cities, and transport apps Uber, Careem
and Easy Taxi are also available. Domestic flights are
offered by Saudi Arabian Airlines and low-cost provider
flynas. Both airlines provide internet booking. There
are trains connecting Riyadh to the Eastern Province,
as well as a High-Speed Rail Service connecting Mak-
kah, Medina and Jeddah. The Saudi Public Transport
Company also provides local bus services.
BUSINESS HOURS: The working week is Sunday to
Thursday, but some companies are open on Saturday
morning as well. Public sector hours are approximately
7.00am to 3.00pm. Private sector hours vary, and busi-
nesses often close at 1.00pm and reopen from 4.00pm
to 8.00pm. It is useful to note the short closing periods
during prayer times. There are a total of five calls to
prayer each day, with four taking place during business
hours. Businesses will close briefly during prayer times,
which last up to 30 minutes. Prayer times vary through-
out the Kingdom and from day to day, but exact times
are listed daily in local newspapers.
HEALTH: A full range of medical services is availa-
ble in all major cities. Foreigners should take health
insurance, as it is unlikely their home country will have
reciprocal relations with Saudi Arabia. Foreigners who
seek to reside permanently must have health insurance.