During 2019, the Saudi Arabian government (SAG) continued to pursue its ambitious series of socio-economic reforms, collectively known as “Vision 2030.” Aimed at diversifying the Saudi economy away from oil revenues and creating more private sector jobs for a growing and young population, Vision 2030 contemplates the development of new economic sectors and a significant transformation of the economy. Spearheaded by Crown Prince Mohammed bin Salman, the reform program seeks to expand and sharpen the country’s knowledge base, technical expertise, and commercial competitiveness.
To help accomplish these goals and develop nascent industries, Saudi Arabia seeks increased foreign investment and international private sector participation in its economy. As in 2018, the SAG took several steps in 2019 to further improve the Kingdom’s investment climate. Regulatory changes were made to allow foreign investors to own controlling stakes in Saudi companies, a new consolidated authority to protect intellectual property rights was launched, significant investments in infrastructure were made, reforms were introduced to remove guardianship laws and travel restrictions for adult women, and a tourism visa was introduced, opening the Kingdom to non-religious tourism for the first time. To further facilitate investment in priority segments of the economy, the SAG elevated two Saudi authorities to full ministries in 2020: the new Ministry of Investment and the new Ministry of Tourism. Saudi Arabia also held several events in 2019 focused on attracting new foreign investments, including the third annual Future Investment Initiative, the National Industrial Development and Logistics Program, and the Saudi Iron and Steel Conference.
Saudi Arabia’s Capital Market Authority removed the 49 percent ownership limit for foreign strategic investors in companies trading on the Saudi Stock Exchange “Tadawul,” the largest capital market in the Middle East and North Africa (MENA) region. Foreign strategic investors are now able to own controlling stakes in listed enterprises. The Tadawul currently holds ‘emerging market’ status from leading index providers such as the FTSE Russell Emerging Market Index, the S&P Dow Jones Emerging Market Index, and Morgan Stanley Capital International (MSCI). The incorporation of the Tadawul into these funds in 2019 resulted in sizeable foreign capital infusions into the Kingdom, which increased international interest in Saudi markets and economic sectors.
The Saudi Arabian government (SAG) and its new stand-alone intellectual property rights (IPR) agency, the Saudi Authority for Intellectual Property (SAIP), took important steps in 2019 to improve IPR protection. Nearly all IPR institutions and enforcement responsibility have been consolidated into SAIP. Working with other SAG agencies, in 2019 SAIP increased enforcement actions, drafted new IPR regulations, conducted market raids against counterfeit and pirated goods, and launched significant pro-IPR awareness campaigns. In 2019, Saudi Arabia increased in-market seizures of illegal goods and Saudi Customs seized over 3 million counterfeit and illegal goods at its borders and ports. In addition, the illicit satellite and online provider of sports and entertainment content known as “beoutQ” ceased operations in the Kingdom in August 2019.
In December 2019, the Kingdom fulfilled its long-standing objective to publicly list shares of its crown jewel – Saudi Aramco, the most profitable company in the world. The initial public offering (IPO) of 1.5 percent of Aramco’s shares on the Saudi Tadawul stock market on December 11, 2019 was a cornerstone of Crown Prince Mohammed bin Salman’s Vision 2030 program. The largest-ever IPO valued Aramco at $1.7 trillion, the highest market capitalization of any company, and generated $25.6 billion in proceeds, exceeding the $25 billion Alibaba raised in 2014 in the largest previous IPO in history.
Infrastructure remains at the forefront of Saudi Arabia’s ambitions as it pursues its Vision 2030 goal to become the most important logistics hub in the region, linking Asia, Europe, and Africa. By establishing new business partnerships and facilitating the flow of goods, people, and capital, the Kingdom seeks to increase interconnectivity and economic integration with other Gulf Cooperation Council countries. Improvements to transportation, such as the $23 billion Riyadh metro and completion of a new airport in Jeddah in 2019, are intended to support this plan. In addition, Saudi Arabia continues its work to create and expand “economic cities” throughout the Kingdom as hubs for petrochemicals, mining, logistics, manufacturing, and digital industries.
In recognition of the progress made in its investment and business climate, Saudi Arabia’s ranking on several world indexes improved in 2019. The Kingdom jumped 13 places on the IMD World Competitiveness Yearbook 2019, the biggest gain of any country surveyed. Saudi Arabia was ranked the world’s 26th most competitive country, and 7th among G20 countries, supported by improvements to government and business efficiency. Furthermore, the World Bank ranked Saudi Arabia the world’s top reformer and improver in its Doing Business 2020 report. The Kingdom rose 30 places, from 92nd to 62nd, and improved in 9 out of 10 areas measured in the report. Saudi Arabia also climbed three places in the World Economic Forum’s 2019 Global Competitiveness Report rankings, becoming the world’s 36th most competitive economy of 141 surveyed. The Kingdom achieved significant results across each of the 12 index components, ranking first for macroeconomic stability, 17th for market size, and 19th for product market.
On the social front, the Kingdom removed guardianship laws and travel restrictions for adult women as part of its effort to increase female participation in the Saudi economy, which currently stands at only 22 percent. To boost domestic tourism, Saudi Arabia launched a new tourism visa in 2019 for non-religious travelers to visit the Kingdom. Citizens of 49 countries are now able to apply for electronic visas. The SAG also removed the requirement that foreign travelers staying in the same hotel room provide proof of marriage or family relations. The SAG launched its Saudi Seasons initiative in 2019, with 11 tourism ‘seasons’ held in each region of the Kingdom. The program includes events and activities specifically designed to complement the cultural, touristic, and historical touchstones of Saudi Arabia. The Kingdom also continued its work on large-scale tourist hubs being constructed around Saudi Arabia, such as Qiddiya, NEOM, the Red Sea Project, and Amaala, which aim to attract both domestic tourists and visitors from around the world when completed.
Investor concerns persist, however, over the rule of law, business predictability, and political risk. The continued detention and prosecution of activists, including prominent women’s rights activists, remains a significant concern. The ongoing diplomatic rift with Qatar also contributes to uncertainty. Moreover, pressure on Saudi Arabia’s fiscal situation from the sharp downturn in oil prices and demand, as well as the unexpected spending needed to respond to COVID-19 will have a negative impact on the budgets of ministries and state-owned entities. While it is unclear what the specific impact on Saudi’s major development projects will be, fiscal pressure is likely to dampen the SAG’s ambitious plans. Overall budget cuts of 15 percent have already been announced for 2020 and further spending reductions may be imposed.
Despite the launch of SAIP, the protection of intellectual property rights (IPR) also remains a significant concern, particularly for the pharmaceutical industry. Several U.S. and international pharmaceutical companies allege the SAG violated their intellectual property rights and the confidentiality of their trade data by licensing local firms to produce competing generic pharmaceuticals without approval. Industry attempts to engage the SAG on these issues have not led to satisfactory outcomes for the affected companies. Moreover, legal recourse and repercussions for IPR violations remain poorly defined. Primarily for these reasons, the U.S. Trade Representative included Saudi Arabia on its Special 301 Priority Watch List for the second consecutive year.
The economic pressures to generate non-oil revenue and provide more jobs for Saudi citizens have prompted the SAG to implement measures that may weaken the country’s investment climate. In particular, increased fees for expatriate workers and their dependents, as well as “Saudization” polices requiring certain businesses to employ a quota of Saudi workers, have led to disruptions in some private sector activities and may lead to a decrease in domestic consumption levels. Furthermore, the lack of a work-visit visa, and the transition to a high-fee, long-term work visa, which requires a work contract, have hindered expatriate workers, including consultants and senior level private sector officials, from entering the country to advise on new and ongoing projects within their own companies.
Finally, U.S. companies, including those with significant experience in Saudi Arabia, continue to experience payment delays for SAG contracts. It is unclear whether the financial impact of sharply lower oil prices and additional spending on COVID-19 will exacerbate this challenge.
|TI Corruption Perceptions Index||2019||51 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2019||62 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2019||68 of 126||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2018||$11,375||https://apps.bea.gov/
|World Bank GNI per capita||2018||$21,600||http://data.worldbank.org/