IMPRESSIVE STATISTICS FOR DEPRESSING TIMES
2009-2010 was a time of crisis - for most of the world. Saudi Arabia, of course, is a different case. According to the 2009 UNCTAD World Investment Report, while foreign direct investment (FDI) dropped 37% globally, it went down by a mere 7.5% in Saudi Arabia, stabilizing at $35.5 bn. Simultaneously, the country rose from 13th to 8th position in the list of leading FDI recipients with 141 green-field FDI projects listed. In the World Bank's “Ease of Doing Business” index for 2011, Saudi Arabia rose two places to 11th position – rising a whopping 56 places in the five years since 2005. For several consecutive years, the kingdom has been nominated as the best place to do business in the Middle East. Meanwhile the Saudis themselves have been busy investing abroad in markets that have become attractive exactly due to the financial crisis: Saudi foreign investment in 2009 increased by 23% year-on-year to $6.5 bn. In all, the country owns foreign assets worth over $300 bn.
Investment opportunities in KSA are everywhere. It feels as if the country has woken from a very long sleep and is frantically making up for lost time. Its sound economy, always protected by the government’s umbrella of oil revenues, investment in the kingdom has been steadily climbing for decades. But the ascension to the throne in 2005 of King Abdullah, a determined economic reformer, has greatly accelerated matters. Last year alone, Saudi Arabia attracted FDI worth $35.5 bn, mainly originating in the United States, with a record of $5.8 bn invested throughout the year. Total investment through joint ventures amounts to $300 bn (SAR1.13 trillion). The fact that the kingdom remains the world's leading oil exporter – additionally holding the largest proven reserves – and has become an important global player in minerals and gas only increases its attractiveness to investors. Moreover, KSA is well on the way to become the number one global producer and exporter of petrochemicals.
COUNTLESS REASONS TO INVEST
Saudi Arabia is strategically located between Africa, Asia and Europe. A crossroads of trade routes since time immemorial, it has access to the Gulf and the Indian Ocean in the east, and to the Red Sea and the Mediterranean in the west. As a brochure by SAGIA (Saudi Arabian General Investment Authority) points out tersely: ”From Saudi Arabia you can reach 250 million consumers with a three-hour flight.” The availability of low-cost fuel remains one of the main attractions - for energy-intensive industries as well as those requiring feedstock. Unskilled labour is easily imported and locally available skills are improving thanks to a sharp increase in the government’s education expenditure. The opening of many new universities and training institutions, including the King Abdullah University of Science and Technology (KAUST) and Princess Noora University, the largest women's university in the world, are vivid examples of the government's drive to boost education and job training.
Then again, the size of the domestic market is itself a decisive element. The population of Saudi Arabia stands at around 27 million and is growing at a rate of 2,9% per annum. The CIA World Fact Book puts per capita GDP for 2009 at $23,300. Credits and loans, currently a headache in much of the world, is easily available and at very competitive rates. With an oil production of 3,000 bpd, Saudi pockets annual oil revenues of around $160 bn at current price levels. The country’s membership of the World Trade Organisation (WTO) since 2005 and of the G20 since 2008 have provided it both with stronger international links and a better negotiating position.
The country's main entry points, Riyadh and Jeddah airports, are being expanded and upgraded, as are the sea ports. New ports are being constructed as required, one of them a minerals port to serve Ras Al-Zur Industrial City - reportedly poised to become “the next phosphate capital of the world”. A railway line has been put in place to connect Ras Az-Zur to the new port and another is expected to link the two industrial cities of Yanbu by the Red Sea and Jubail on the Gulf coast, both of which are also being expanded.
Another major source of foreign investment is the privatization process that has been going on for some years now. Some key sectors remaining under state control will soon be privatized, including the ports, the transport sector and power generation. National carrier Saudi Airlines is one of a number of state-run companies already in the process of privatization.
STATE EXPENDITURE TO ATTRACT PRIVATE INVESTMENT
In 2009, a year of global belt-tightening, Saudi Arabia announced its highest ever budget. The ninth Five-Year Development Plan, approved by the Council of Ministers in July 2010, will see the government spend US$373bn (SR1.4 trillion), sixty times more than its predecessor. Priorities: infrastructure, industry, education and health care. The goal is to increase the non-oil sector as a proportion of the economy and to reduce by four points the current unemployment rate of over 9%.
SAGIA has been a key player in upgrading the investment environment in the kingdom. The agency has been executing the government scheme to increase private sector participation in development, acting both as a mediator between government and investors and as a strategic planner. Currently it is directing the bulk of foreign investment toward four new economic cities, part of a wider plan to transform the country into a “knowledge society” in order to reduce its dependency on oil. According to the CIA World Fact Book, the oil sector still accounts for some 80% of government revenue, 45% of GDP and 90% of export earnings. Says Abdullah al-Dabbagh, governor of SAGIA: “Leveraging the kingdom’s resources to turn it into the energy capital of the world, and building on its ideal location to make it a major regional hub connecting east and west – this is the essence of our strategy.”
BUILDING A KNOWLEDGE SOCIETY
“Forget everything you know about ‘industrial parks’ and ‘free zones’. Saudi Arabia’s four new economic cities – fully planned and under construction – are exactly that: new cities, where up to five million residents will live, work and play.” Such is SAGIA's description of the kingdom's new investment magnets. Building on the success of existing industrial cities in Jubail and Yanbu dating from the 1970s, SAGIA has started to develop new economic cities in different regions of the country in an effort to reduce geographically-based economic inequalities by providing job opportunities in strategically located areas. With 80% of the population under 40 years of age, employment is one of the major issues the government needs to tackle. SAGIA calculates that the total cost of the cities will amount to $50 bn. This should result in more than a million new job opportunities, homes for 4 to 5 million residents and a $150 bn boost to the country’s GDP. Built according to strict environmental regulations, each city “will feature modern building design, world-class services and infrastructure and ubiquitous connectivity. These built-in advantages, combined with attractive investment incentives and a supportive regulatory environment will create significant competitive business advantages. We are starting from scratch to build an integrated system of economic cities from the ground up. One of these cities will be the size of Washington DC, and each will provide the ultimate in competitive investment and living environment. As the sole regulator, SAGIA's Total Service Centres will supply everything from A to Z, including commercial and residential land, visas, work permits, the ultimate in entertainment and healthy living – everything to provide the best quality of life for inhabitants and investors,” says Mr. Abdullah al-Dabbagh.
Our latest investment report on Kuwait was recently published in one of the leading Spanish dailies, ABC. FindMe in Kuwait explores the economic perspectives of Kuwait and the country´s future plans to compete with its fast developing neighbours. Once the leading country of the Gulf, Kuwait has remained silent for the past decade. And although many would like to see faster changes, Kuwait is moving, at its pace, to them. Inexorably. Learn about who is who in Kuwait and read what the leaders say about their own future in our upcoming release: FindMe in Kuwait Mobile app.
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Global Gulf Consulting has concluded its latest production on Bahrain, FindMe in Bahrain giving the country a fresh approach after a couple of difficult years of local demonstrations that matched the global recession. Bahrain is a small island in the Arabian Gulf with an incredible potential for logistics, industries and tourism. FindMe in Bahrain was supported by both the public and private sector of Bahrain. Banagas, Nass Corporation, BBK and DHL were GGC strategic partners in the development of the series among others.
FindMe in Bahrain is available at the local bookstores Jashamal and online as well as in the Apple Store. It is a full business leisure and business guide for any investor or visitor interested in traveling to Bahrain or for those that already live there.
FindMe in Saudi offers a multi-faceted overview combining business and leisure, economy and heritage. The book aims to capture the current development of Saudi Arabia in the words of the people who live and work there. It is an authoritative source of information for investors, businessmen and travellers produced to firmly position KSA as an attractive investment destination.
In contains general information about the country´ economic performance and who is who as a sectorial overview and a leisure guide.
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