GENERAL AUTHORITY FOR STATISTICS (GASTAT)
Data from the GASTAT shows significant new economic trends in Saudi Arabia:
GDP GROWTH:
- Q1 2023: 3.8%
- Q2 2023: 1.2%
- Q3 2023: 4.5% contraction (attributed to voluntary sharp oil production cuts)
NON-OIL SECTOR GROWTH:
- Q3 2023: 3.6%
- Q2 2023: 6.1%
- Q1 2023: 5.4%
These numbers show the national transformation policy is working and that the government is diversifying its source of income from oil. As stated by the Minister of Finance, Mohammed Al-Jadaan, “the country is not just looking at GDP numbers anymore.” The country is looking at real progress and investment in its economy, whilst moving toward non-oil areas. In addition to being able to say that it has produced the highest growth rate in the world last year at 10.3%, the current Saudi economy has led G20 countries as the second-highest growth rate economy to date in 2022.
The report from the IMF concluded its assessment of Saudi Arabia’s robust economic growth and resilient fiscal position, evident by the projected average growth rates for non-oil GDP of 5% in 2023 and overall GDP growth of 4% in 2024, as well as reasonably stable inflation rates of around 2%.
DIVERSION OF OIL RELIANCE
The government’s continuing engagement with legislative changes and regulatory reform will provide a remarkable foundation and important catalyst for economic stimulation and diversification. This is a highly successful strategy to encourage private participation in the economy via privatisation, developing strategic partnerships, and foreign investment locally. The following examples illustrate:
- Saudi Arabia announced an $800 billion investment in tourism, and over SAR 50 billion to develop more than 21 entertainment destinations across the country. Saudi Arabia plans for tourism to contribute 10% to GDP and accommodate one hundred million tourists by 2030.
- The Saudi Agricultural Exhibition 20223 signed 16 agreements on the first day, which will be worth $800 million in investments in the sector. The Minister of Industry and Mineral Resources indicated that the Kingdom is on its way to attracting industrial investments of SAR 1 trillion by 2030. Foreign investments of SAR 1.6 billion in new licenses to date – primarily in the fields of manufacturing of food products, non-metallic minerals, rubber and plastic products and paper and paper products – a few key areas.
- As part of an effort to stimulate the economic diversification of Saudi Arabia and position the Kingdom as a favourable destination for investment and logistics globally, the Saudi Government announced its commitment to develop 60 logistics zones by 2030.
- The Saudi Arabian Central Bank also undertook a full review of its fintech strategy and is seeking 525 fintech companies that will add over SAR 13 billion to GDP by 2030. Investments in the information technology and education technology sector may reach SAR 103 billion by 2025.
- In addition to this, the Kingdom has recently passed updates to the Code of Law Practice about licensing regimes, which allow foreign law firms to apply for a license to practice law in the Kingdom with 100% foreign ownership. Since this announcement, the Ministry of Justice reports that 15 law practice licenses have been issued to foreign law firms to date.
PUSH ON SETTING UP A REGIONAL HEADQUARTERS (RHQ)
The implementation of the Regional Headquarters policy, enabling multinational companies to transfer their headquarters to the Kingdom (before 2024) and capitalise on the government contracting benefits, is closely aligned with the aims of Vision 2030. It offers an exciting opportunity to attract foreign investment from multinational companies, supported by value creation and diversifying the Kingdom’s economy away from oil dependency.
As of the end of Q3 2023, the Kingdom announced the issuance of more than 180 RHQ licenses, indicating a growing interest in this strategic approach. In return, the government has set several incentives for RHQ licenses, including:
- 10-year Saudization exemption, provision of spouse work permit
- Extension of the dependent age limit to 25 years old
- Visa limit exemption
- Waiver of professional accreditation
- Tax exemption
The Ministry of Investment, Saudi Arabia (MISA) has recently also implemented additional incentives for RHQ licenses, including a mechanism to issue a one-year premium residency (renewable) specifically for the executive personnel of an RHQ — namely Chairman, Chief Executive Officer, and General Manager, with coordination of the Premium Residency Centre.
These significant investments and business incentives represent a landmark moment in energising new opportunities for multinational corporations across a variety of industries, while further advancing the growth of the non-oil sectors of the economy.
SAUDIZATION
In the midst of Saudi’s rapid advancements in giga-projects, like the $500 billion city of NEOM, as well as the significant investments across all sectors which are all integral to the economic growth of the Kingdom, there have been significant and concurrent labour market reforms in the Saudi labour market to promote the active involvement of Saudi nationals in the private sector, which is the centrepiece and aim of the Saudi Vision 2030 to empower Saudi youth through Saudization. The Saudi nationalisation programme, called Nitaqat, has been a cornerstone of effective development and engagement to maintain a sustainable national workforce and to service the current shortfall of skilled labour in the kingdom.
According to the Ministry of Human Resources and Development, the Saudization initiative has created jobs for 500,000+ male and female Saudi nationals in the private sector since 2019. The Saudization initiative is visibly expanding to cover new professions and activities such as project management, shipping and freight brokerage services, procurement, and sales, to name a few. The localisation rates are 60% in health specialisation professions, 60% in aviation sector professions, 100% in customer service professions, 70% in seasonal fun cities and family entertainment centres, and 100% in entertainment cities in enclosed commercial complexes.
In addition, the introduction of alternative working arrangements such as freelance, flexible and remote work options for Saudi nationals is intended to increase Saudi nationals’ contributions to the economy; creating a participatory economy contributes to GDP growth while reducing the reliance on the shadow economy too. However, special economic zones in the Kingdom are still exempt from the Saudization requirement to allow for the establishment of international companies in particular industries at the initial stages of their transition to the Kingdom.
These implemented Saudization reforms, in line with Vision 2030 goals, have lowered the average unemployment rate of Saudi nationals to a record 8% in both 2022 and 2023, according to an IMF report. The decline in the unemployment rate is the result of enabling and engaging the young Saudi population through improved access to quality education, training and employment opportunities, and finding ways to build the Saudi workforce through a Saudization framework.
TAKEAWAY
The plans and programs that have commenced as a result of the reform agenda being progressed by the Saudi Arabian government under the Vision 2030 opportunity have had fundamental changes to the economic landscape of the nation.’ The new economic landscape will help build an ambitious nation, create a thriving economy and build a capable and vibrant society that can imbibe change in the world, decrease dependence on oil resources and create financial independence for the future of the country.
To better understand Saudi Vision 2030 and to participate in the economic growth of the KSA, Creation Business Consultants would be happy to work with you to undertake the necessary steps required for commercial registration in Saudi Arabia. Our team of experts will put their industry experience to help with the registration process, so that you can continue to operate your business and receive a significant return on investment in KSA.
Contact a member of our team for your free expert consultation on your Saudi Arabia entity: email [email protected] or call Saudi Arabia +966 56 865 2329, UAE +971 4 878 6240 today.
