The Kingdom of Saudi Arabia, the world’s largest oil producer, is building a modern and diversified economy in line with its Vision 2030.
The post-oil era is fast approaching and Saudi Arabia, the world’s largest oil producer, is ready for the challenge. At the “Saudi Arabia Path to 2030” panel during the 2017 World Economic Forum in Davos, the Kingdom’s delegation projected confidence and positivity as it announced its plans to transform and modernize the economy.
The delegation emphasized the measures the country is taking to create a more market-driven, privatized economy. “Large jumbo jets don’t fly with one engine” Saudi Energy Minister Khalid Al-Falih told the panel, alluding to the Kingdom’s firm commitment to move beyond its dependence on oil.
Saudi Arabia has the largest economy in the Middle East and it is already rolling out various projects and initiatives in line with Vision 2030, the ambitious plan that was announced by the Crown Prince Mohammed bin Salman. The wide-reaching development plan – to build up the private sector and create a thriving economy and vibrant society – will have a profound effect on the region and the global market.
With the diversification from oil production to mining, tech start-ups and entertainment offerings, Saudi is going above and beyond to move the country forward, leaving virtually no sector untouched. Investors at Davos indicated their enthusiasm and optimism about the government’s progress as it works to make Saudi Arabia a more attractive place for investment and innovation.
Privatization and investment
Attracting investment – both domestic and foreign – is key to Saudi’s plan, along with the privatization of government-held sectors. In a strategic move to facilitate foreign investment, Saudi Arabia has adopted new measures that will allow foreign investors to obtain business visas within 24 hours from the Saudi Arabian General Investment Authority (SAGIA). Requests for foreign business delegations will take two days instead of the previous three days, a move aimed to streamline the process and encourage investors to visit the Kingdom.
Privatization in the energy sector is set to make an even bigger impact in the coming years. Aramco, the national oil company, is preparing to go public, with the Kingdom intending to sell up to 5 percent of the company. Not only will the listing advance Saudi’s goal of privatization, a large portion of the initial public offering (IPO) will go to fund the Saudi Public Investment Fund (PIF), a key vehicle to stimulating the Saudi economy.
The privatization and strengthening of other sectors such as healthcare and aviation is also a priority. By 2030, 295 hospitals and 2,259 health centers will be privatized. Saudi plans to privatize 27 of its airports by the middle of 2018, as well as sectors of air navigation and IT services, with the airports to become operating companies. Foreign investments are intended to exceed 75 percent in some airports in order to guarantee a sufficient proportion of foreign operators in the privatization process.
The PIF is set to be the biggest sovereign wealth fund in the world, with $2 trillion worth of assets. The world’s number-one oil producer can now add another distinction to its name: Saudi Arabia is now the number-one technology investor in the world, thanks to the PIF’s contribution to Japanese firm SoftBank’s Vision Fund.
Over the next five years, $45 billion will be invested in SoftBank, which aims to push the Vision Fund to $100 billion, in order to invest in emerging technologies such as artificial intelligence and the Internet of Things (IoT). Tech giants Apple, Qualcomm Inc. and Oracle have confirmed that each of them will invest $1 billion in the Fund. In addition to the SoftBank investment, the PIF has already invested $3.5 billion in car-hailing app Uber, the largest-ever single investment in the company. Car-hailing apps are a popular investment in the Kingdom: in December, the Saudi Telecom Company (STC) announced it had acquired a 10 percent stake ($100 million) in Careem, Uber’s local rival app that is present in 11 countries. Kingdom Holding Company has invested $105 million in the U.S.-based Lyft. Mobily Ventures, meanwhile, has invested in Easy Taxi.
Small and Medium Enterprises
The Government established the General Authority for Small and Medium Enterprises with a $1.1 billion fund to boost the contribution of the private sector to the economy and help create jobs for young Saudis, as well as facilitate funding for small businesses. SMEs are the backbone of economic growth; in Saudi Arabia, they make up 99 percent of all businesses, with 86 percent of them owned by foreigners. The General Authority aims to increase Saudi ownership of SMEs while attracting foreign investment.
In a strategic move by the government, new incentives were initiated for SMEs to establish themselves in the King Abdullah Economic City. Designed to increase economic growth, create new jobs and enhance the country’s competitiveness, King Abdullah Economic City is rapidly expanding. King Abdullah port is the Kingdom’s first privately owned port, and is ranked the fastest-growing in the world. Once fully developed, it will be able to handle 20 million shipping containers and 15 million tons of bulk cargo per year.