Saudi FDI reforms poised to deliver transformative impact

Saudi FDI reforms poised to deliver transformative impact
Reforms to the Kingdom’s economy are not new, with a World Bank report in 2020 noting the significance of measures primarily concentrated on starting a business, dealing with construction permits, and facilitating trade. (SPA)
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Updated 10 December 2023
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Saudi FDI reforms poised to deliver transformative impact

Saudi FDI reforms poised to deliver transformative impact
  • Main contributors to investment surge include France, Japan, Kuwait, Malaysia, Singapore, the UAE, and the US

RIYADH: Saudi Arabia continues to vigorously pursue its reform agenda, with a focus on bolstering foreign direct investment inflows and diversifying investment strategies despite a recent deceleration in its financial account as reported by the Saudi Central Bank and the Ministry of Finance.

In the second quarter of 2023, FDI inflows experienced a 21 percent decline compared to the same period last year, amounting to SR6.2 billion ($1.65 billion).

FDI outflows, which encompass the capital invested by Saudi entities in foreign countries, reached SR18.34 billion, a 53 percent decrease from the corresponding quarter of the previous year.

Albara’a Al-Wazir, an economist at the US-Saudi Business Council, said: “Despite the recent decline in FDI to SR6.2 billion, the number of investment licenses issued by the Ministry of Investment … reached 1,819 in Q2, marking a 94 percent increase compared to the previous year.”

He added: “Saudi Arabia has implemented significant legal, economic, and social changes to attract higher levels of foreign direct investment since the launch of Vision 2030.”

Al-Wazir highlighted that the Ministry of Investment granted licenses to 180 companies to establish regional headquarters in the Kingdom ahead of the January 2024 deadline.

The economist anticipates that the regional headquarters program will expedite FDI in Saudi Arabia.

“As companies seeking government projects will need to relocate, the full impact of this program is expected to manifest in the medium term, albeit with a potential lag,” he said.

Saudi Arabia has also announced tax incentives for foreign companies establishing their regional headquarters in the Kingdom, including a 30-year exemption from corporate income tax.

These measures also encompass zero income tax for foreign entities relocating their regional headquarters, effective from the issuance date of the license, as outlined by the Ministry of Investment. 




Riyadh has announced tax incentives for foreign companies establishing their regional headquarters in the Kingdom, including a 30-year exemption from corporate income tax. (SPA)

Al-Wazir said the newly introduced NEOM Investment Fund is strategically positioned to draw investors and play a role in the development of the new city.

Despite the decline in FDI in the second quarter of 2023, he emphasized that the Kingdom achieved the second-highest amount in the Middle East and Africa region during this period.

As per information disclosed by the Ministry of Investment, the FDI stock, representing the cumulative FDI in Saudi Arabia, saw a 2.89 percent increase during this period.

The ministry highlighted that this rise signifies the growing confidence of foreign investors in the Saudi investment ecosystem.

Reforms to the Kingdom’s economy are not new, with a report from the World Bank issued in 2020 noting the significance of a series of measures primarily concentrated on starting a business, dealing with construction permits, and facilitating international trade.

Additionally, the report noted that protections for minority investors were strengthened, a value-added tax was introduced, and notable improvements in trading and contract enforcement were implemented.

These reforms collectively demonstrate Saudi Arabia’s commitment to creating a more efficient and investor-friendly business environment.

According to the International Bar Association report on the Kingdom’s FDI legal framework and outlook in April 2023, Saudi Arabia is witnessing an increasing flow of FDI across various sectors. The main contributors to this investment surge include France, Japan, Kuwait, as well as Malaysia, Singapore, the UAE, and the US.

As outlined in the report, key sectors drawing substantial FDI include the chemical industry, real estate, fossil fuels, as  well as automobiles, tourism, plastics, and machinery. This diversification indicates a growing interest and confidence from international investors in Saudi Arabia’s economic landscape.

Data from the Ministry of Investment indicated a 135.4 percent annual increase in the number of investment licenses issued, reaching 2,192 in the third quarter of this year.

According to the ministry, this surge underscores Saudi Arabia’s appeal as an attractive investment destination, offering competitive advantages within a stable and supportive business environment. 

FASTFACT

Data from the Ministry of Investment indicated a 135.4 percent annual increase in the number of investment licenses issued, reaching 2,192 in the third quarter of this year.

Gross Fixed Capital Formation, reflecting investment in tangible assets like buildings, machinery, equipment, and infrastructure for production, saw a notable 7 percent increase during this period totaling SR278.9 billion, as reported by the ministry.

Within this, non-government GFCF accounted for approximately 85 percent of the total, reaching SR236.6 billion. This marked a 7.6 percent growth compared to the corresponding period last year.

In contrast, government GFCF held a 15 percent share during this quarter, with a 3.5 percent increase, reaching a total of SR42.3 billion. This data underscores the significant role of both non-government and government sectors in driving capital formation within Saudi Arabia’s economy.

The Kingdom’s financial account, which includes net values for direct investment, portfolio investment, and reserve assets, amounted to SR42.97 billion. This figure represents a 70 percent decline compared to the corresponding period last year, according to the report from the Kingdom’s central bank.

Portfolio investment, the second component of Saudi Arabia’s financial account, experienced a 66 percent decrease, primarily attributed to the Kingdom’s increased borrowings.

Meanwhile, the net acquisition of financial assets showed a robust 25 percent annual growth in the second quarter, totaling SR50.14 billion. However, this increase was countered by a rise in the portfolio’s liability section, with debt securities increasing from -SR18.53 billion to SR25.69 billion during the same period.

According to Al-Wazir: “The Kingdom signaled that it would utilize debt markets to raise liquidity to fund its projects. The increase in borrowing via debt securities underscores its commitment to achieve its desired diversification goals.”

He added: “The Kingdom has more recently issued both external and domestic debt, with domestic riyal-denominated debt accounting for approximately 63 percent of the total. In H1 2023, the government issued SR23 billion in domestic debt, while growing total domestic debt from SR615 billion to SR624 billion.”

Reserve assets, encompassing special drawing rights and currency, deposits, and securities, witnessed a 70 percent decrease. This decline is attributed to the devaluation of securities within this category.

“The topic of drawing down reserves, in this case securities, is a strategic move to decrease SAMA’s reserve holdings and redirect cash across a diversified set of vehicles,” explained Al-Wazir.

“Saudi has been adjusting its investment strategy in recent years whereby it is allocating money to national funds like the Public Investment Fund and National Development Fund. An example of this is when SAMA transferred SR150 billion from its foreign reserves to PIF in 2020,” he added.

The economist concluded by asserting that public debt remains sustainable, comfortably staying below the 50 percent debt to gross domestic product ceiling, and the fiscal capacity is substantial. He emphasized that the government’s borrowing strategy primarily aims to lengthen maturities, reduce refinancing costs, and establish a yield curve.


UAE economy to grow by 5% in 2024, minister reiterates 

UAE economy to grow by 5% in 2024, minister reiterates 
Updated 4 sec ago
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UAE economy to grow by 5% in 2024, minister reiterates 

UAE economy to grow by 5% in 2024, minister reiterates 

RIYADH: The UAE’s economy is projected to grow by 5 percent in 2024, a leading member of the government has reiterated.

In an interview with Emirates News Agency, also known as WAM, Minister of the Economy Abdulla bin Touq Al-Marri said that more than 73 percent of the national economy is now non-oil, a historic first for the country.

His projection is in line with recent assessments by the Ministry of Finance and S&P Global, which forecast growth of 5.7 percent and 5 percent respectively.

“This achievement reflects the confidence of the private sector and investors around the world in the UAE’s investment environment,” Al-Marri said. 

The minister added that the private sector is a key pillar in the new economic and investment landscape and is at the heart of global changes and challenges. 

“And in implementation of the directives of the wise leadership, the UAE has identified the most sustainable and flexible economic sectors, which have reached more than 16 sectors, including health technology, agriculture, education, financial services, artificial intelligence, and other sectors that contribute to the sustainability of economic sectors and enhance the strength of the national economy,” Al-Marri highlighted.


More opportunities for women awaiting in the petrochemical industry: SABIC official

More opportunities for women awaiting in the petrochemical industry: SABIC official
Updated 21 min 12 sec ago
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More opportunities for women awaiting in the petrochemical industry: SABIC official

More opportunities for women awaiting in the petrochemical industry: SABIC official

RIYADH: Saudi women should explore more opportunities in the petrochemical industry, as only 25 percent of the sector’s workforce are female, said a top official. 

Speaking at the Human Capability Initiative in Riyadh on Feb. 28, Faisal Al-Suwailem, executive vice president of corporate human resources at Saudi Basic Industries Corp., said that the industrial sector in the Kingdom has been witnessing a sharp rise in female employment over the past three years. 

“If we take a look at the petrochemical industry, in the last 20 years, I have seen a great increase in the participation of females in the petrochemical industry. However, if you look at the number of women in the petrochemical industry, it is still about 25 percent. So, I believe we still have room to grow,” said Al-Suwailem. 

He added: “In the industrial sector, the hiring of females has increased 93 percent over the last three years. We have right now over 63,000 females working in plants around the Kingdom.” 

Al-Suwailem further pointed out that Saudi Arabia has surpassed the female workforce target outlined in the Kingdom’s Vision 2030. 

“Let us first look at Vision 2030, and under the thriving economy for female participation in the labor market, the baseline target was set at 22.8 percent, and now we are at 34.5 percent,” said Al-Suwailem. 

He added that SABIC stands out as one of the companies offering structured training programs aimed at nurturing and enhancing the skills of young individuals.

Al-Suwailem also underscored that SABIC offers scholarship programs that provide equal opportunities for both men and women. 

“SABIC is a national champion for sure in petrochemicals, but it also has a proven record of being a national champion for development, job creation, learning and contribution to the gross domestic product,” said Al-Suwailem. 

He added: “SABIC’s scholarship program, which is meant for Saudi bright young talents, is right now equally split between men and women.” 

For her part, during the same panel discussion, Cabinet Secretary and Minister of Labor and Social Protection of Kenya Florence Bore said that the country is preparing its youth to adapt themselves to procure jobs in the international market. 

“Our focus currently is on labor migration, and even as you focus on labor migration, it is one of the areas where we get foreign remittances,” said Bore. 

She added: “Kenya has been undergoing lots of changes in the workplace. We have both the informal and formal jobs. The informal sector is really growing at a faster rate than the formal jobs. And because of that, you will find most of our Kenyans are now venturing out for jobs in the international market.”


More opportunities for women awaiting in the petrochemical industry: SABIC official

More opportunities for women awaiting in the petrochemical industry: SABIC official
Updated 21 min 16 sec ago
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More opportunities for women awaiting in the petrochemical industry: SABIC official

More opportunities for women awaiting in the petrochemical industry: SABIC official

RIYADH: Saudi women should explore more opportunities in the petrochemical industry, as only 25 percent of the sector’s workforce are female, said a top official. 

Speaking at the Human Capability Initiative in Riyadh on Feb. 28, Faisal Al-Suwailem, executive vice president of corporate human resources at Saudi Basic Industries Corp., said that the industrial sector in the Kingdom has been witnessing a sharp rise in female employment over the past three years. 

“If we take a look at the petrochemical industry, in the last 20 years, I have seen a great increase in the participation of females in the petrochemical industry. However, if you look at the number of women in the petrochemical industry, it is still about 25 percent. So, I believe we still have room to grow,” said Al-Suwailem. 

He added: “In the industrial sector, the hiring of females has increased 93 percent over the last three years. We have right now over 63,000 females working in plants around the Kingdom.” 

Al-Suwailem further pointed out that Saudi Arabia has surpassed the female workforce target outlined in the Kingdom’s Vision 2030. 

“Let us first look at Vision 2030, and under the thriving economy for female participation in the labor market, the baseline target was set at 22.8 percent, and now we are at 34.5 percent,” said Al-Suwailem. 

He added that SABIC stands out as one of the companies offering structured training programs aimed at nurturing and enhancing the skills of young individuals.

Al-Suwailem also underscored that SABIC offers scholarship programs that provide equal opportunities for both men and women. 

“SABIC is a national champion for sure in petrochemicals, but it also has a proven record of being a national champion for development, job creation, learning and contribution to the gross domestic product,” said Al-Suwailem. 

He added: “SABIC’s scholarship program, which is meant for Saudi bright young talents, is right now equally split between men and women.” 

For her part, during the same panel discussion, Cabinet Secretary and Minister of Labor and Social Protection of Kenya Florence Bore said that the country is preparing its youth to adapt themselves to procure jobs in the international market. 

“Our focus currently is on labor migration, and even as you focus on labor migration, it is one of the areas where we get foreign remittances,” said Bore. 

She added: “Kenya has been undergoing lots of changes in the workplace. We have both the informal and formal jobs. The informal sector is really growing at a faster rate than the formal jobs. And because of that, you will find most of our Kenyans are now venturing out for jobs in the international market.”


Saudi Arabia’s tourism fund signs agreement with New Murabba  

Saudi Arabia’s tourism fund signs agreement with New Murabba  
Updated 34 min 30 sec ago
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Saudi Arabia’s tourism fund signs agreement with New Murabba  

Saudi Arabia’s tourism fund signs agreement with New Murabba  

RIYADH: Financing and investment opportunities are set to rise in Saudi Arabia’s new downtown project, with the Tourism Development Fund signing an agreement with New Murabba Development Co.   

This memorandum of understanding aims to foster cooperation and contribute to the Kingdom’s social and economic growth by developing New Murabba, situated northwest of Riyadh.  

According to the agreement, the fund will explore direct financing or investment opportunities in the project through its partners, investors, or contractors, aligning with its policies and procedures, the Saudi Press Agency reported. 

The MoU was signed by Qusai Al-Fakhri, CEO of TDF, and Michael Dyke, CEO of New Murabba Development Co., a subsidiary of the Public Investment Fund. 

The collaboration will also include workshops to discuss potential cooperation opportunities, while New Murabba Development Co. will be responsible for qualifying the project’s infrastructure and foundation.  

Al-Fakhri emphasized the deal's significance in achieving the goals of Saudi Vision 2030, noting that New Murabba aims to provide an exceptional lifestyle, work, and entertainment experience.  

The MoU is an extension of several memoranda and cooperation agreements the fund has signed with the private sector, emphasizing the importance of collaborative work to achieve shared goals.   

Al-Fakhri noted that these agreements would support the TDF’s efforts to promote the tourism sector’s growth and diversity, attracting domestic and foreign investments to make tourist destinations a modern lifestyle model that attracts tourists and offers quality experiences.  

Dyke said that the deal aims to develop a modern downtown in line with Saudi Vision 2030’s goals noting that New Murabba’s design focuses on sustainability standards and life quality improvement, including green spaces, walking paths, and promoting health and sports concepts.   

He added that the project also aims to offer a unique living, working, and entertainment experience within a 15-minute walking radius, along with internal transportation means.  

Established in 2022 by Crown Prince Mohammed bin Salman, New Murabba Development Co. plays a crucial role in realizing Saudi Vision 2030. It focuses on developing a modern downtown centered around the iconic Cube building, redefining Riyadh’s cityscape. 

This initiative is designed to be a cultural symbol for Riyadh, featuring hotel and residential units, office spaces, and entertainment facilities, all incorporating the latest digital technologies. 


Central Bank of Jordan introduces new Shariah-compliant monetary policy tools 

Central Bank of Jordan introduces new Shariah-compliant monetary policy tools 
Updated 28 February 2024
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Central Bank of Jordan introduces new Shariah-compliant monetary policy tools 

Central Bank of Jordan introduces new Shariah-compliant monetary policy tools 

RIYADH: Liquidity management in Jordan’s cash market is set to undergo a significant transformation as the country’s central bank introduces new tools for monetary policy. 

Aligned with Shariah laws, the Central Bank of Jordan has introduced these instruments in collaboration with Islamic banks operating within the country. The goal is to enhance the effectiveness and efficiency of liquidity management in the cash market, the Jordan News Agency reported. 

These new measures will not only assist Islamic banks in achieving more flexible liquidity management but also contribute to the establishment of an effective interbank market among them. 

Under the framework of these tools, the central bank will be able to provide Islamic banks with daytime liquidity, overnight liquidity, and liquidity extending up to one week.

This will be done based on the banks’ requests or at the apex bank’s initiative, allowing flexibility in terms of timing, amount, and duration. The Central Bank of Jordan will determine these parameters to align with its operational objectives in implementing monetary policy.  

This move by the central bank comes as part of its efforts to develop the operational framework of monetary policy and diversify the tools at its disposal. The decision is in line with the best practices of central banks and addresses the specific needs of the local cash and banking market, as reported by PETRA. 

In a related development, earlier in January, 16 Jordanian banks jointly launched the first private sector investment fund, committing $388 million to foster the growth of local businesses. 

The Jordan Capital and Investment Fund, established in 2021 with a capital commitment of 275 million dinars ($387.6 million), was officially registered under the 2022 Investment Environment Law, the state news agency reported. 

The instrument aims to inject money into emerging firms with growth, development, and expansion prospects, providing financing to enhance job opportunities and propel nationwide growth, as stated in an official statement reported by the Jordan News Agency. 

As the country’s first and largest private sector investment fund, it is designed to allocate funds to vital and promising sectors, such as food and health security, manufacturing, and information and communication technology. The objective is to harness Jordan’s potential in building the future, it added. 

At that time, Hani Al-Qadi, the chairman of the Jordan Capital and Investment Fund, had said the fund is crucial for achieving “accelerated growth” by fully leveraging Jordan’s economic potential.