Governments all over the world are seeking to encourage foreign investment to help alleviate the negative effects of the COVID-19 pandemic and regenerate their productive capacity, but Saudi Arabia stands out as one of the most compelling markets for foreign investors – and it is a country where European companies will find they have much to offer.
Long known as one of the world’s top oil-producing countries, in recent years Saudi Arabia has embarked on a drive to diversify its economy. In 2016 it launched an ambitious blueprint, called Vision 2030, which set an ambitious growth target for the private sector’s contribution to gross domestic product, projected to rise from 40% to 65% by 2030.
Vision 2030 places a high priority on attracting foreign investment into non‑oil economic sectors to improve the sustainability and diversity of the national economy. The Kingdom is already working on the privatisation of up to 16 government‑run sectors, including education, energy, the environment, water, agriculture, tourism, health, housing, labour and social development, municipalities, communication and information technology, and transportation.
To help increase private sector involvement in the economy, the Council of Ministers passed the Private Sector Participation Law (PSP) in March, creating a better framework for both foreign and domestic investors in the Kingdom’s privatisation programmes and public‑private partnerships (PPPs).
The PSP Law provides Saudi government financial and regulatory support for privatisation schemes, including land ownership rights, financial guarantees, tariff subsidies, tax benefits, custom duty preferences, foreign exchange and interest rate protections, as well as help in obtaining the required permits and approvals.
The government is also trying to make it easier for employers in Saudi to attract and retain foreign staff. It recently relaxed the kafala (work sponsorship) system, which prevented migrant workers from, among other things, opening bank accounts, changing jobs or leaving the country without permission of their kafeel (sponsor).
On 11 October, Crown Prince Mohammed bin Salman announced details of a new National Investment Strategy (NIS) to provide Saudi and international private-sector investors with even more opportunities. It sets out comprehensive investment plans for sectors, including manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure and health care.
The NIS will also drive investment in the Kingdom by enhancing the business environment, increasing competitiveness, instigating key regulatory and legislative measures, connecting investors with investment opportunities, establishing special economic zones in priority sectors, offering incentive packages for selected projects and attracting regional headquarters.
“Investment is without a doubt one of the main routes for us to achieve the ambitions and aspirations of Vision 2030, among them economic development, diversification and sustainability; technology transfer and localisation; infrastructure development; better quality of life; job opportunities and the upskilling of our human resources, leaving a legacy of prosperity for future generations,” he said.
The Kingdom is planning for more than SAR12 trillion to be injected into the national economy through investment activity by 2030. The Shareek programme of public and private sector partnership initiatives will inject SAR5 trillion; Saudi’s sovereign wealth fund, the Public Investment Fund, will contribute SAR3 trillion; while a further SAR4 trillion will be generated by investments under the NIS, of which some SAR2 trillion is expected to be foreign investment.
According to the latest World Bank Gulf Economic Update (GEU), firmer global oil demand will support Saudi Arabia’s economic recovery with GDP growth expected to reach 2.4% in 2021. Medium-term growth is projected to average 3% over the forecast period.
Saudi Arabia is undergoing momentous domestic reform and this is creating substantial investment opportunities in the Saudi economy for European companies. The Kingdom is looking to work with partners from Europe’s public and private sectors to create a modern Saudi Arabia.
The Saudi government aims to significantly increase the €61 billion of annual trade with Europe. Currently, 28% of all imports to Saudi Arabia come from European countries, while a little under 10% of non-hydrocarbon-based Saudi exports go to EU countries. It sees partnerships with European companies as a rich source of economic diversification and is therefore making it much easier for European companies to come to invest in Saudi Arabia.