Putting business back on the flight path to 2030
In the last 12 months, the world has experienced an extraordinary economic challenge that has disrupted global trade and volatility in financial markets. Saudi Arabia’s economy, however, has proved resilient. Five years after the Kingdom’s Vision 2030 reform program was unveiled — and one year after the local and global economy was hit by the pandemic crisis — how are businesses in Saudi Arabia getting back on track to meet the targets of the vision in a post-pandemic era?
The coronavirus disease (COVID-19) brought significant challenges to businesses in Saudi Arabia. But the Kingdom has remained steadfast in its development plans. Under the visionary leadership of King Salman and Crown Prince Mohammad bin Salman, the Kingdom’s vision has continued to play its part in establishing a more diverse economy, and in supporting both private and public sector organizations.
As we move towards a period of gradual recovery, the businesses that have been able to mitigate the negative impact of the pandemic have been those that are the most agile and innovative, focusing on local capabilities and contributing to an environment that thrives on sustainability and competition.
With the global crisis reinforcing the importance of local manufacturing and other domestic production capabilities, businesses will now need to look to develop a recovery plan that factors in the opportunity to build on local capacity. A central pillar of Vision 2030 is raising the development of the private sector, with a view to drive its contribution to GDP to 65 percent from the 40 percent mark it stood at in 2016 at the unveiling of the program. One of the many ways the government is doing this is by supporting Saudi products through the “Made in Saudi” initiative.
In our own efforts to build our market — and as the exclusive manufacturer and distributor of LG Air Conditioners in Saudi Arabia — we recently expanded our production capacity in partnership with LG and introduced new technologies to boost its output efficiency. By developing and growing local production capabilities, Shaker has improved delivery time, while supporting the reform program in its aim to enhance local content and industrial self-sufficiency. It is pleasing to see other companies across sectors committing to the same process, and we’re excited to see its future impact.
A competitive economy
With Saudi Arabia’s decision to encourage regional headquarters in Riyadh and drive foreign direct investment into the Kingdom, businesses can expect the Riyadh Strategy to pave the way for an even more competitive economy. Businesses in Saudi Arabia can expect to gain access to new markets and boost profits through the reduction of production costs. Companies who wish to do business in the Kingdom must invest in the local economy. This will, in turn, boost economic growth, drive competitiveness, and create thousands of jobs as well as attract local and international talent.
Recently, 115 new factories worth $430 million were licensed by the Saudi government. This resulted in 4,099 new jobs created, combined with the growth of a competitive economy. It is important we look inward to support a competitive economy, particularly as this directly correlates with the success of individual businesses. Competition among businesses spurs the invention of new and enhanced products as well as the establishment of more efficient processes. Competition paves the way for the creation of lower-cost manufacturing processes, which in turn drives profits, competition, and ultimately consumer savings. A competitive economy also helps businesses identify consumer needs, thereby creating headroom for greater economic diversity.
Both Riyadh Strategy and Vision 2030 offer an inspiring roadmap to a more sustainable and resilient economy. But to meet these goals and contribute to a more competitive market, it is the responsibility of the private sector to invest in long-term initiatives that support the economy, our people, and the environment.
Mohammed Ibrahim Abunayyan
Saudi Arabia has launched a number of incentives to attract international companies to relocate to Riyadh, including tax-free salaries for employees and access to government-sponsored mega projects. Through the implementation of reforms — from the establishment of special economic zones to labour law exemptions and accelerated commercial licensing — there is a lot to gain for businesses relocating to the capital. We relocated Shaker’s headquarters to Riyadh in 2015 and have benefited from operating in a dynamic business hub that breeds innovation. Ultimately, the influx of regional headquarters will result in greater diversification of the economy and a wider set of opportunities for trade, collaboration, and investment.
We must come together as a business community and engage with our global partners to encourage relocation. Businesses can get back on track by taking advantage of the opportunities and growth prospects brought forth by Vision 2030. This includes the socio-cultural reforms that make the Kingdom an exciting place to invest. International companies can contribute to shaping the future of Saudi Arabia while creating meaningful partnerships with local businesses and expanding their regional footprint. Shaker’s own long-standing international joint ventures are a prime example of this kind of fruitful collaboration.
Improving environmental practices is firmly part of the Saudi national agenda. Last year, Tadawul announced it would be launching an ESG index with global index provider MSCI. There is growing investor demand for environmentally friendly and sustainable businesses, and this demand has grown during the COVID-19 pandemic. It is now generally accepted that businesses which integrate sustainability into their core strategy will deliver more competitive future returns.
Sustainability does and will support profitability across almost all sectors. Research by Bank of America Merrill Lynch has found that businesses with built-in ESG principles garner higher three-year returns, were less likely to have their products experience significant price declines, and were less likely to be faced with bankruptcy.
Sustainability also brings deeper emotional bonds and differentiation, as businesses build stronger loyalty and resonate more powerfully with the goodwill of customers and consumers.
In seeking to realise their sustainability ambitions, Saudi companies can now take advantage of the opportunities created by Vision 2030. The vision has prioritized the private sector with the government working in tandem with private businesses to create job opportunities for talented Saudi nationals, improving the business environment for the private sector, encouraging foreign direct investments, and supporting the growth of small and medium size enterprises.
Recently, the UN has publicly endorsed its interest in the Saudi Green and Middle East Green initiatives, which aim to reduce carbon emissions in the region by 60 percent. In announcing the scheme last month, the Kingdom stressed the importance of addressing environmental challenges through the establishment of partnerships between neighboring countries. Similarly, businesses across sectors must work together and encourage one another to ramp-up sustainable manufacturing practices. At Shaker, we have long been committed to developing sustainable products, contributing to greater energy efficiency and are proud to have been the first Saudi company to be fully accredited by the Saudi Energy Efficiency Center. Our most energy efficient products in the air conditioning market are those that are contributing most powerfully to top-line growth and share in this segment. The demand is there, and manufacturers need to meet it.
Whether private or public companies, we all benefit from government initiatives to strengthen the economy. That fact was more than apparent at the height of the pandemic when government support to the private sector proved essential for stabilization. Both Riyadh Strategy and Vision 2030 offer an inspiring roadmap to a more sustainable and resilient economy. But to meet these goals and contribute to a more competitive market, it is the responsibility of the private sector to invest in long-term initiatives that support the economy, our people, and the environment.
• Mohammed Ibrahim Abunayyan is the CEO of Al Hassan Ghazi Ibrahim Shaker Company and a board member of Abunayyan Holding