A new investment era for Saudi Arabia

A new era for Saudi Arabia has started in line with Vision 2030, an ambitious plan to boost and modernize Saudi Arabia’s economy, creating up to 6 million new jobs in the process. The historical visit of US President Donald Trump, during which agreements with US companies valued at more than $380 billion were signed[i], sent out a strong message that Saudi Arabia is encouraging more than ever collaborations, partnership, and cross-investment.

Saudi Arabia is the largest economy in the Middle East and North Africa (MENA), and provides access to a market of 1.5 billion consumers across MENA and South Asia[ii].  With a growing population, predominantly young, and a rising consumer purchasing power, Saudi Arabia is implementing a series of policy changes in its economy and aims to more than triple revenues from non-oil sectors by 2020.

The Saudi-US CEO Forum coincided with the visit of US President Donald Trump and set high hopes for foreign investors. A remarkable outcome were the authorization of new licenses which will enable foreign companies to invest in retailing and wholesaling without a local partner, giving investors 100 percent equity.  To qualify for this, however, international firms must invest over $53.3 million to boost Saudi employment and their professional skills development over five years, while emphasizing manufacturing, R&D, or logistics, according to Ibrahim al-Omar, the governor of Saudi Arabian General Investment Authority (SAGIA).[iii] Also, it was announced that new sectors will open by privatizing public services and assets; these will include utilities, sports clubs, airports, education and health care.

The context at large becomes a favorable one for foreign investments into the country but also for early-or late-stage international startups interested to expand to a growing market. Sectors such as tourism and entertainment are expected to boom and largely contribute to the GDP growth of Saudi Arabia.

It should be kept in mind that while traditional manufacturing businesses and sectors are attractive, the greatest opportunities arise in high-tech sectors with highly innovative potential. These are sectors, which are expected to have a strong impact on diversifying Saudi Arabia’s economy and on engaging its tech-savvy youth.

Prior to the Saudi-US CEO Forum, a roundtable was convened at King Abdullah University of Science and Technology (KAUST), focused on innovation as a catalyst for youth economic empowerment. Leading figures from Saudi and US universities and companies participated in the discussions.

A rise in the number of incubators, accelerators and investment funds has been seen in the last two years in KSA, proving that the local startup ecosystem is enthusiastically growing. A push for spin-offs can also be seen in the country’s educational and research institutions.

A private graduate-level research university founded in 2009, KAUST puts a strong emphasis on science and technology-driven innovation and economic development in the areas of water, food, energy, and cleantech. It has its own Innovation Fund, which makes venture capital investments in high-tech startups from seed (less than $200,000) to early-stage (up to $2 million) and becomes a long-term strategic partner of these ventures. Given the Kingdom’s relatively young innovation ecosystem, equity investments are the most popular at the moment, however, with time, it is expected that this will transition to an independent VC funding model.

A focus on high-tech is also reflected when it comes to Saudi Arabian investments outside the country. One would expect that major investments abroad will focus on agricultural infrastructure and water resources, which is the case to a certain extent, as Saudi Arabia aims to control the supply chain for its active food processing industry and to ensure food security for its growing consumers market.

However, last year, Saudi Arabia has taken bold steps in new technology investment by creating a $100 billion tech fund, in collaboration with Japanese telecom firm Softbank[iv]. The fund has already invested $3.5 billion in ride-sharing startup Uber, and aims to actively engage in the technology revolution, which is taking place around the world.

Sources:

[i] https://www.bloomberg.com/news/articles/2017-05-20/aramco-to-sign-50-billion-in-deals-with-u-s-companies-today

[ii] http://www.arabnews.com/node/1101711

[iii] http://www.arabnews.com/node/1101711

[iv] http://money.cnn.com/2016/10/14/technology/saudi-arabia-softbank-japan-tech-fund/