Vision 2030: Attracting investment, rebalancing economy key to sustainable growth

This is an exciting time to be a finance professional in Saudi Arabia. Vision 2030 is bold and ambitious, and has the potential to transform the Kingdom’s economy. But while this is set to be a hugely positive development, realizing some of the more ambitious goals — such as freedom from oil and delivering a booming private sector — will require transformational change in the way the economy is run. The scale of this change should not be underestimated.

It will mean attracting overseas investment, which means a revolution in transparency and accountability, delivered via financial reporting, audit and assurance, and corporate governance. It will also mean rebalancing the economy toward a private-sector model and away from traditional state-led methods.

To achieve all this, there will have to be a great drive to encourage Saudis to develop the necessary skills and work in the private sector. Unless it harnesses the power of its young people, the Kingdom will find it challenging to deliver meaningful and sustainable growth.

Attracting investment

A key element of diversifying away from oil will be the ability to attract foreign direct investment (FDI). But until recently, FDI flows into the Kingdom were on a downward trend. Vision 2030 aims to reverse this. By driving a culture of transparency and accountability, Saudi Arabia hopes to capitalize on the opportunities presented by infrastructure investment and the fact that it is the largest economy in the Middle East.

Transparency will depend partly on setting a high bar for corporate governance — where investors are confident that there is a culture of ethics and integrity, they will be comfortable investing. In the UK this has been achieved via the Corporate Governance code, which was drafted at Chartered Accountants Hall, the London headquarters of the Institute of Chartered Accountants in England and Wales (ICAEW), in the early 1990s.

Investors also want accountability, which means a strong audit profession. When investors and markets can trust the numbers, they can be confident in business. The audit profession relies on trust, which is why independent monitoring is important.

Strong regulation is necessary, but it needs to be proportionate so as to support the growth and development of the profession, including ensuring there is a level-playing field for smaller firms, and safeguarding the profession’s ethics and behavior.

Finally, there is the issue of comparability. International Financial Reporting Standards (IFRS) are the best way to deliver this. There are 150 countries currently using IFRS for their financial reporting, and when Saudi Arabia became part of the G-20, it also adopted them.

IFRS do not just ensure transparent, efficient financial reports. They also mean those reports are comparable with other countries across the globe, which is tremendously attractive to international investors.

Growing the private sector

As Saudi Arabia diversifies into a knowledge-based economy, greater attention will need to be paid to private-sector participation across most sectors. Many sectors stand to benefit from this, including construction and infrastructure, professional services, technology, education, health care, tourism and hospitality, all of which can draw on the technical expertise of the private sector.

Riyadh has recognized that achieving its stated aim of raising the private sector’s economic contribution from 40 percent of gross domestic product (GDP) to 65 percent will mean it needs to align the support it provides to its national development priorities. 

This will mean focusing on public-private partnerships in areas of national strategic importance, allowing employers greater flexibility in hiring national workers, and removing the constraints that currently preclude small and medium enterprises from investing or participating in public services or utilities.

As fiscal adjustment continues in the Kingdom, growing the private sector will be critical for tackling unemployment, especially among young Saudis. As part of its National Transformation Program (NTP) 2020, the government aims to create almost half a million private-sector jobs. If successful, the unemployment rate would be reduced from 11.6 percent to 7 percent, and non-oil income stands to increase to $141.3 billion by 2020.

VAT and business readiness

The introduction of a 5-percent valued-added tax (VAT) in January 2018 will generate new non-oil revenue for the Kingdom. The new tax regime, which is being adopted across the entire Gulf Cooperation Council (GCC), is sign of economic maturity, but it will not be without its challenges. 

According to a survey conducted by EY, half of GCC-based companies are yet to prepare for VAT. Only 11 percent of businesses have evaluated the changes needed across their financial, operational and IT processes.

With most of the GCC region facing delays in implementing VAT and issuing country-specific VAT laws, companies should ensure an effective change-management plan is set. They need to understand how the tax will influence the day-to-day running of their operations, and put in place measures to address this so they are ready for January 2018. 

Vision 2030 will catalyze some of the most disruptive changes the local economy has witnessed in decades, and it has the ambition to make it happen. Accountants and finance professionals have an essential role to play in helping governments and businesses navigate this new terrain, building trust along the way and contributing to a prosperous and sustainable future.

• Michael Izza is chief executive at the Institute of Chartered Accountants in England and Wales (ICAEW).