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

  • 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.


Saudi housing program Sakani benefits over 32,000 families in Q1

Updated 13 sec ago
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Saudi housing program Sakani benefits over 32,000 families in Q1

RIYADH: As many as 32,343 Saudi families benefitted from Sakani’s housing options during the first quarter of 2024, marking an annual 15 percent increase.

In collaboration with the Real Estate Development Fund and financial institutions, the program provides a variety of housing support packages to encourage first-time house buyers, including non-refundable financial assistance of SR100,000 ($26,659) or SR150,000.

The number of the Kingdom’s households that purchased their first homes reached 25,391 in the first three months of the year, reflecting the objective of Sakani to offer a variety of residential options and financial solutions.

Founded in 2017 by the Saudi Ministry of Housing and the Real Estate Development Fund, the program aims to increase the proportion of families that own a home in the Kingdom to 70 percent by 2030, in line with the economic diversification strategy Vision 2030.

Figures from Sakani showed that the number of beneficiary households reached 12,184 in March, with 9,381 Saudi families obtaining their first residence.

In January, Sakani announced that more than 100,000 Saudi families benefited from the initiative in 2023, while the number of applicants who obtained their first home over that 12 month period reaching 98,475.

The core objectives of the Sakani initiative are to enable homeownership in the Kingdom by creating new housing stock, assigning plots and properties to citizens, and providing financing for their purchases.

The Sakani website and application provide a wide range of housing facilities and services, such as real estate consultancy, issuance of real estate transaction tax certificates and a display of financing institution rates.

It also provides electronic financing and the disbursement of land contracts, engineering design services, access to certified contractors, and additional services.


Qatar inflation dips 1.4% in March: official data

Updated 3 min 31 sec ago
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Qatar inflation dips 1.4% in March: official data

RIYADH: A fall in food and beverage prices helped drive Qatar’s inflation down 1.4 percent in March as compared to the previous month, official data showed.

According to a report released by the country’s Planning and Statistics Authority, the consumer price index reached 106.67 points in March.

Compared to February, expenses for food and beverages slid by 4.74 percent in March. Prices for recreation and culture witnessed a decline of 5.58 percent during the same period. 

Similarly, costs for restaurant and hotels, as well as furniture and household equipment, decreased by 1.92 percent and 0.34 percent, respectively, in March compared to the previous month. 

On the other hand, prices for clothing and footwear increased by 1.88 percent, followed by expenses for transport, which went up by 0.23 percent. 

Cost of healthcare and communication remain unchanged in March, data showed.

However, the Gulf country’s annual consumer price index edge up by 0.98 percent in March compared to the same month of the previous year.

The year-on-year surge in prices was driven by recreation and culture (8.48 percent), communication (3.84 percent), education (3.48 percent), food and beverages  (2.73 percent), furniture and household equipment (1.28 percent), and miscellaneous goods and services (0.83 percent).

A year-on-year decrease has been recorded in the prices of  clothing and footwear, followed by housing, water, electricity and other fuel. 

Qatar’s economy is expected to stabilize in the near future after experiencing a surge in 2022 due to hosting the FIFA World Cup, according to the IMF.  

The Washington-based lender has forecasted a 1.9 percent growth in the country’s gross domestic product for 2024. 

Highlighting Qatar’s resilience to recent global disturbances, the IMF stated that the country’s economic prospects are promising. 

Furthermore, it noted that the Hamas-Israel conflict has not had any discernible impact on Qatar. 

“Risks are broadly balanced. Maintaining prudent macroeconomic policy and intensifying reform efforts will support Qatar’s resilience to shocks and accelerate its economic transformation,” the IMF said. 


Closing Bell: TASI gains 41 points to close at 12,708, reaches $2.59bn trade volume  

Updated 36 min ago
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Closing Bell: TASI gains 41 points to close at 12,708, reaches $2.59bn trade volume  

RIYADH: Saudi Arabia’s Tadawul All Share Index closed at 12,708.34 points on Monday, gaining 41.44 points, or 0.33 percent.  

The parallel market Nomu also gained 158.48 points, or 0.6 percent, to conclude at 26,548.59.   

However, the MSCI Tadawul 30 Index fell 4.77 points – 0.3 percent – to finish at 1,610.23.  

The main index posted a trading value of SR9.7 billion ($2.59 billion), with 172 stocks advancing and 54 declining. On the other hand, Nomu reported a trade volume of SR103.7 million.  

Saudi Cable Co. was the top performer on TASI as its share price surged 9.89 percent to SR77.80. Saudi Chemical Co. followed next with its share price jumping 7.62 percent to close at SR8.19.  

Salama Cooperative Insurance Co. was also among the top performers, climbing 7.19 percent to SR33.55. Al-Etihad Cooperative Insurance Co. and Al Yamamah Steel Industries Co. increased 6.82 and 6.81 percent to SR26.15 and SR42.35, respectively.  

Conversely, Saudi Tadawul Group Holding Co. recorded the most significant dip, declining 2.73 percent to SR270.40.  

Arabian Internet and Communications Services Co. and the National Co. for Glass Industries also experienced setbacks, with their shares dropping to SR368.20 and SR45.90, reflecting declines of 2.33 and 2.24 percent, respectively. Bupa Arabia for Cooperative Insurance Co. and Saudi Awwal Bank also reported significant losses.  

Nomu’s top performer was Abdulaziz and Mansour Ibrahim Albabtin Co., which saw a 9.49 percent jump to SR45. Amwaj International Co. and Meyar Co. also recorded notable gains, with their shares closing at SR55.60 and SR73.90, marking an increase of 8.59 and 5.57 percent, respectively. Alqemam for Computer Systems Co. and Professional Medical Expertise Co. also fared well.  

Raoom Trading Co. was the worst performer on the parallel market, declining by 7.72 percent to SR145.80. Other underperformers included Al Mohafaza Co. for Education and Mohammed Hasan AlNaqool Sons Co., whose share prices dropped 4.67 percent and 3.68 percent to SR20.80 and SR44.50, respectively.  

Alhasoob Co. and Mulkia Investment Co. declined during the day to settle at SR67.20 and SR34, respectively.  


Egypt’s economic reforms yielding positive results: finance minister

Updated 15 April 2024
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Egypt’s economic reforms yielding positive results: finance minister

RIYADH: Egypt’s new economic path, focused on structural reforms empowering the private sector to lead growth and attracting investment, has begun to yield positive results, said the country’s finance minister.  

Mohamed Maait highlighted that despite the harsh impacts of global and regional economic crises, Egypt has seen financial indicators surpass budget estimates and targets over the past nine months of the fiscal year 2023-2024, Egyptian daily Al-Ahram reported. 

The minister noted that this success reflects the international recognition of the north African country’s economy for achieving better-than-expected performance metrics.  

Last month, Egypt secured an additional $5 billion in loans from the International Monetary Fund following the central bank’s decision to raise interest rates and allow the pound to depreciate by nearly 40 percent in value. 

Earlier this month, the IMF announced that it would link payments to the country under an $8 billion financial program to Cairo’s decision to allow market conditions to determine the price of its currency and to make foreign exchange available to businesses and private individuals. 

Further emphasizing the economic strategies, Maait pointed out the significant improvements in non-tax revenues, which saw an increase of 122.9 percent, and tax revenues which surpassed 1 trillion Egyptian pounds ($20.6 billion), marking a growth of 41.2 percent annually.   

He proudly noted these gains were achieved without imposing new burdens on citizens or investors, thanks to expanded mechanization intended to broaden the tax base and integrate the informal economy into the formal sector.   

Maait pointed out that the country’s continues effort to boost its economy is evident in the Ministry of Finance’s ongoing dialogues with over 2,000 investment institutions a year.   

The ministry’s Investor Relations Unit plays a crucial role in these engagements, maintaining open dialogue throughout the year and issuing monthly performance reports. 

These reports provide foreign investors with precise, up-to-date economic data, including details about debt levels, deficits, and primary surpluses, the state-owned newspaper reported.  

They also offer a simplified guide on the various incentives, including tax advantages available to investors, aiming to alleviate any concerns and accurately address potential economic risks.  

Meanwhile, data released earlier this month by Egypt's Central Agency for Public Mobilization and Statistics showed a slowdown in the country’s urban consumer price inflation rate to 33.1 percent in March from 36 percent in February.  

Additionally, month-on-month prices rose by 10 percent in the third month of 2024, down from an 11.4 percent increase in the previous period. 

This development follows the central bank’s announcement in early March of a 600 basis points hike in interest rates at an unscheduled meeting, along with a shift to an inflation-targeting regime, allowing the exchange rate to be determined by market forces. 

Furthermore, Egypt’s Ministry of Petroleum and Mineral Resources has announced that construction of a solar power plant at the Assiut Oil Refining Co. has begun, in an effort to lower carbon emissions.   

The project, spearheaded by the consortium of ENPPI and Petrojet, involves the creation of a 10-megawatt solar facility, with an investment of 550 million Egyptian pounds.   

Scheduled for completion within 11 months, this initiative is a part of a broader strategy for energy transition and emissions reduction across the country’s petroleum sector.  

This solar power project is complemented by another initiative at the Egyptian General Petroleum Corp., aiming to produce 6.5 MW of electricity from solar energy, with a similar investment of 500 million pounds.   

Both projects are financed through a EU grant under the Energy Sector Policy Support program, aligning with the ministry’s goal to implement actionable projects that advance the sector’s sustainability objectives.  


Budget Saudi Arabia to buy 70% stake in UAE freight firm Overseas Development

Updated 15 April 2024
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Budget Saudi Arabia to buy 70% stake in UAE freight firm Overseas Development

RIYADH: Saudi car rental firm United International Transportation Co. is set to acquire a 70 percent stake in the UAE’s freight forwarder Overseas Development through a recent deal.  

The company, also known as Budget Saudi Arabia, said in a Tadawul statement that the purchase amount was based on the financial evaluation of the acquisition and came in at 13.34 million dirhams ($3.63 million).   

The new sale and purchase agreement comes following the company’s announcement in March that it will procure 70 percent of Overseas Development LLC’s shares in its subsidiaries in Saudi Arabia, UAE, and Kuwait as part of a memorandum of understanding signed at the time.   

In February, the vehicle leasing company was given the go-ahead by the Kingdom’s competition watchdog to acquire Al-Jazira Equipment Co.     

In a Saudi Stock Exchange statement, it was revealed the General Authority for Competition had issued a no-objection notice regarding Budget Saudi Arabia’s complete purchase of the operational lease and car maintenance company, also known as Auto World.   

In 2023, the firm’s net profit after zakat and tax stood at SR277 million ($73.89 million), reflecting a 10 percent surge compared to 2022 figures. 

The increase in net profit in 2023 compared to the previous year was due to maximizing the utilization of the firm’s expanding fleet, both in short-term and long-term rentals. This, coupled with the increased sale of used car units compared to 2022, significantly propelled revenue growth. 

In August 2023, Budget Saudi Arabia signed a non-binding memorandum of understanding to acquire all shares of Auto World by issuing stocks to its owner, the Saudi Economic and Development Co., known as SEDCO.

Budget Saudi is the holder of the largest Budget International franchise. The company has provided its services for over 45 years while building a diverse customer base and operating a fleet of more than 35,000 vehicles. 

The firm also offers various transportation services throughout the Kingdom, including long-term and short-term car rental and the sale of used cars.