OPPORTUNITIES IN SAUDI ARABIA

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1 OPPORTUNITIES IN SAUDI ARABIA SAUDI ARABIA S ECONOMY IS CHANGING COURSE: ARE YOU READY TO MAXIMISE THIS OPPORTUNITY? SAUDI VISION NECESSITY DRIVES CHANGE. Rulers of the Kingdom of Saudi Arabia have long acknowledged the need to diversify the economy and to fully develop and utilise the talents of its increasingly well-educated young men and women. The rapid drop in oil prices, combined with the increased influence of young, forward-thinking technocrats, has brought these objectives into sharp focus. The government will adopt reforms to attract massive investment and facilitate significant socio-economic change, in hopes of weaning the economy off its dependence on oil, developing the private sector, facilitating technology transfer and changing the country s working culture. So what for business? Saudi Vision 2030 has a number of ambitious economic goals which, if realised, would create spectacular business opportunities and propel the kingdom to become one of the fastest growing and dynamic economies. But to take advantage of these opportunities, businesses will have to closely monitor the reforms being put in place and adapt their business plans to the changing economic and social landscape. Key economic and global rank targets in Vision 2030 include: Move up the global economic league table from 19th into the top 15 (as measured by GDP) Increase the private sector s contribution to GDP from 40% to 65% Increase non-hydrocarbon export share of non-hydrocarbon GDP from 16% to 50% Increase inward FDI from 3.8% to 5.7% of GDP

2 OPPORTUNITY FOR GROWTH NEW VISION, DIFFERENT RESULTS? Past plans have fallen short on implementation and have not delivered expected outcomes. However, the current circumstances suggest that, while some parts of Vision 2030 may be overly ambitious, even a partial successful implementation of the programme is likely to improve the business environment and lead to significant opportunities for both foreign and local companies. Based on Vision 2030 targets and Oxford Economics baseline forecasts for the Saudi economy, we predict achievement of Vision 2030 would result in: Total GDP Faster GDP growth by three percentage points per year versus baseline growth, resulting in GDP rising to USD 2.5 trillion, four times the size of the economy today. Private Sector GDP Stronger private sector annual GDP growth by five percentage points per year versus baseline growth, growing on average by 13% per year (in nominal terms), resulting in private sector GDP growing by a factor of six in just fifteen years. Non-hydrocarbon exports Non-hydrocarbon exports growth higher by 10 percentage points per year versus baseline growth, growing on average by 22% per year (in nominal terms), making 2030 s non-hydrocarbon exports twenty times larger than today s. Inward FDI Inward FDI average growth of 21% per year (in nominal terms), resulting in cumulative inward FDI of USD 1 trillion over the next fifteen years. Opportunity sectors Delivering these ambitious economic targets and transforming the kingdom s economy will require rapid development of certain parts of the private sector. Vision 2030 has earmarked the following priority sectors: Transforming Saudi Aramco, the kingdom s major oil company, into a global industrial conglomerate, potentially spanning construction, engineering, manufacturing and energy Mining: Create 25,000 jobs in the mining sector and increase its contribution to GDP by 50% by Defence: Produce 50% of defence procurement needs locally by Digital economy and e-government: Double the IT sector s contribution to GDP by 2020 and become one of the world s top five nations in e-government by Tourism: Attract $7bn in investment by 2020 and more than triple the number of religious tourists by 2030.

3 HOW TO MAXIMISE OPPORTUNITIES While there are long-term rewards to be gained from doing business in the kingdom, it remains a challenging environment in which to do business. Companies that want to be successful in Saudi need to understand local business conditions and risks and the best ways to deal with them. The key steps in defining your business strategy for Saudi Arabia are: Determine if your sector is a focus area for Vision 2030 and how that might impact its growth. Assess the scale and analyse the key risk factors and determinants of success. Plan and communicate how your business will contribute to the government s development goals through local hiring, knowledge and technology transfers and supporting local businesses. Understand current sector maturity in Saudi and current and likely future competition to inform your choice of a local partner. Understand how the government may support or inhibit your sector and business, for example, through taxation, subsidies, incentives and regulations. Assess the current talent market and learn how and where to recruit and retain talent and how to operate within the kingdom s labour market regulations. Build a market entry or market expansion plan to take into account the general and sector-specific risks and opportunities and best practices in managing these. Control Risks, Oxford Economics, and Oxford Strategic Consulting are partnering to offer clients an all-encompassing perspective on Saudi Arabia and the opportunities and risks associated with Vision Together, we combine our unique areas of expertise, knowledge and tools to help organisations plan their market entry or expansion and prepare them to make the most of the business opportunity brought by the changing dynamics in the country. As part of our joint venture, our firms collaborate on consulting and research projects and develop new analytical tools and custom risk solutions tailored to the needs of our clients across industries and markets.

4 CASE STUDIES CONTROL RISKS Our client, a European manufacturer, wanted a fuller understanding of the kingdom s economic development plan, Saudi Vision 2030, and the implications for doing business there. It also wished to understand the realities of dealing with issues related to the labour market, Saudization measures requiring companies to employ a minimum number of local nationals, contract frustration and non-payment. Our client used our report to inform its internal discussions over whether to locate in Saudi Arabia and its ability to meet the challenges posed by the kingdom s business environment. O OXFORD ECONOMICS Oxford Economics closely tracks and analyses the Saudi economy at a macro, industry and city level, with leading Saudi public and private organisations subscribers to our models and services. On a monthly basis we update our forecast and commentary on the kingdom s economy. We also produce regular research briefings on topics including Vision 2030 and vulnerabilities in Saudi s balance of payments. In addition we have undertaken, and are currently undertaking, a range of economic consulting projects in Saudi, which furthers deepens our understanding and knowledge of the kingdoms changing economic landscape. O OXFORD STRATEGIC CONSULTING Our client, a FTSE250 global outsourcing organisation, wanted a detailed plan to enter the KSA market, recruit ex pat and Saudi National staff, and commence operations. Using our detailed understanding of KSA labour market dynamics, government priorities and employment legislation, together with our hands-on experience of KSA HR practice, we built a step-by-step start-up and resourcing plan, a fully costed recruitment model and a detailed guide covering key Saudi employment and HR practices. This included evaluating risks and considerations relating to global and local labour market trends and practices, upcoming changes to Saudisation regulations, practicalities of employing ex pat and local staff, and real-world experience of dealing with government agencies. In addition to our in-house practitioners and researchers, we consulted our wide network of industry and government contacts to provide up-to-the-minute data on market practices and trends. Our client used our reports and spreadsheet models to optimise their mobilisation, proceed with certainty, and quickly raise knowledge levels within their internal teams.

5 ABOUT US Control Risks is a global risk consultancy with more than 25 years of experience in Saudi Arabia. We maintain a permanent presence in the kingdom, in addition to consultants based in Dubai and London. We have assisted clients at all stages of their operations in Saudi Arabia and across a wide range of sectors. Our market entry work encompasses everything from macro-political risk assessments and partner due diligence to granular analysis of regulatory trends in specific sectors. In addition to our consultants substantial country expertise, Control Risks has a well-developed international network of contacts, which includes regulatory bodies, law enforcement experts, industry analysts and members of the business and financial communities. Oxford Economics is one of the world s foremost independent global advisory firms, providing reports, forecasts and analytical tools on 200 countries, more than 100 industrial sectors and over 3,000 cities. Our best-of-class global economic and industry models and analytical tools give us an unparalleled ability to forecast external market trends and assess their economic, social and business impact. Oxford Economics is a key adviser to corporate, financial and government decision-makers and thought leaders. Our global team is highly skilled in a full range of research techniques and thought leadership capabilities, from econometric modelling, scenario framing, and economic impact analysis to market surveys, case studies, expert panels, and web analytics. Oxford Economics regularly tracks and analyses the Saudi economy at a macro, industry and city level. On a monthly basis, we update our forecast and commentary on the kingdom s economy. We also produce regular research briefings on topics such as Vision 2030 and vulnerabilities in Saudi s balance of payments. A number of leading Saudi institutions are subscribers to our global economic model and related services. In addition, we have undertaken and are currently undertaking wide scope of Saudi consulting projects, including analysing the economic impact of energy price subsidy reforms and developing a highly detailed model of the kingdom s economy. Oxford Strategic Consulting (OSC) is renowned for high-calibre and innovative research and consulting in the UK, US, Europe and the Middle East. Through our research, we help commercial and government clients gather intelligence, develop new thinking and build robust evidence to make better decisions and go beyond best-practice. Our in-house research teams work closely with a global network of industry and academic experts, producing leading-edge qualitative and quantitative analysis. Our research is quoted globally in leading publications such as The Economist, BBC World Service, Bloomberg Businessweek, People Management Magazine and other media outlets across the globe. All of our senior consultants possess leadership experience in leading global organisations and excel at translating our research into practical business benefits in a wide range of disciplines and sectors. Control Risks 2017 For further information, contact us at: ksa@controlrisks.com

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