Saudi Business Continuity Updates

Chris Johnson

I was honored to moderate a panel last week in the first of AmCham Saudi Arabia’s 6-event Public Private Partnership (PPP) series with Esmail Al-Solom (National Infrastructure Fund/NIF), Salman Badr (National Center for Privatization/NCP), Nasser Al-Shawaf (Al-Bawani), Abdulelah Al-Sheikh (Jacobs Engineering) and Mohammed Al-Balwi (Tamasuk Holdings).

While slow to blossom since the unveiling of Vision 2030, privatization is a key pillar and PPP a core element of an ambitious plan to diversify the economy and create a vibrant, sustainable and competitive private sector. As both sides of the public/private divide acknowledged in our discussion, this will require radical restructuring of roles, and perhaps more challenging a cultural retooling for agencies from owner to regulator, and for companies from contractor to investor and principal. 

Building on decades of experience in privatizing power and water, 17 sectors are now slated for privatization, with expedited approval processes including NCP, NIF and each concerned agency.

Unlike legacy government procurement, limited as it is to approved templates and Grievance Board jurisdiction (to the Kingdom’s credit, while plagued by late payments and seemingly never ending negotiations, a recent breakthrough in resolving Riyadh Metro disputes promises delivery of this long-delayed project within two years), the process will allow broad freedom to negotiate contracts project by project to accommodate relevant circumstances and concerns.

Potentially controversial issues will include latitude in restructuring and potentially downsizing legacy workforce, and flexibility in negotiating ownership shares, management control, dispute resolution, termination, financial guarantees and other potentially consequential terms. Every option will be on the table, from Engineer/Procure/Construct (EPC) to outright ownership, Build/Own/Operate, Build/Own/Operate/Transfer, and everything in between.

As Mr. Al-Shawaf aptly emphasized, the program’s success will depend on deep wells of trust and goodwill between newly-appointed regulators and newly-empowered investors, and their ability to prioritize the “partnership” piece of PPP over a too-common adversarial relationship in matters of workforce flexibility, tax, competition and other potential regulatory pitfalls.

While power and water projects are readily secured by offtake agreements, social services in the healthcare and education sectors for example may require novel financial solutions to assure predictable revenues for typically demanding financiers. Mr. Al-Solom expressed confidence in NIF’s ability to balance its development mandate with profitable deployment of sovereign assets, guided by its financial advisor Blackrock. 

Arguably not since the UK privatizations of the 80s and 90s have we seen such ambitious and thoroughgoing goals, consistent with a broad World Bank initiative to expand private sector empowerment. Poster children for successful programs currently include Australia and Canada.

The Kingdom has since 2016 risen impressively in ease of business indices, though challenges for foreign investors remain in Saudiization, tax, kafala (sponsorship) system, etc. Messrs Al-Solom and Badr both insisted that the government remains committed to addressing such investment inhibitors to assure fair and equitable treatment, as illustrated by a new law designed to ensure national treatment for foreign investors and postponement of a highly restrictive data privacy law.

While investment interest from the U.S. remains tentative, Korean, Chinese and European groups have stepped forward, and efforts are underway to promote what promises to be one of the most ambitious and thoroughgoing privatization programs in our time.

If only half of current hopes are realized, we can expect a radically transformed economic environment  by 2030, leveraging not only the Kingdom’s pivotal geographic location and abundant natural resources, but potentially a regionally and globally competitive private sector and newly mobilized, energized, and hungrily youthful workforce.

Among other risks global economic reverses could adversely impact foreign investment in an already competitive global economy, balanced however by unusually strong macroeconomic factors including a balanced budget and fast-growing sovereign wealth.

High levels of enthusiasm and participation from both panel and a sellout audience of 150 Saudis and expatriates from private sectors alike bode well for very real, profitable and abundant projects, as reflected in existing heavy commitments by our private sector panelists representing Al-Bawani, Jacobs and Tamasuk.

-Chris Johnson

P.S.: For my last Thursday’s interview by Richard Wilson and Lucien Zeigler of The 966, click here.

Upcoming Saudi Holidays, Events, Webinars, and Conferences

  • USSBC Program: For a schedule of upcoming U.S.-Saudi Business Council (USSBC) events and webinars see here.
  • FIFA World Cup Qatar: November 21-December 18
     

Public Sector and Significant Updates 

  • New Officials Appointed: King Salman has appointed a new Deputy Minister of Justice, Director General of the General Investigations, chairmen for various government entities, and ambassadors and envoys.
  • Unified Visa Platform: The Saudi Cabinet has asked 11 ministries and government entities to develop a Unified National Visa Platform.
     

Corporate / Employment

  • Workers’ Consent for Job Title Changes: The Qiwa platform no longer requires obtaining foreign workers’ consent for changing professions in their iqama.
     

Legal

  • Al Tamimi Legal Magazine: For Al Tamimi Law’s latest magazine issue (focus is on the future of retail), see here.
  • Alcohol Ban Reinforced: The Assistant Minister of Tourism stated that Saudi Arabia does not plan to lift a ban on serving alcohol as it is opening up to the world and seeking to promote its tourism industry. 
  • Taxi Meter Rules: Taxi passengers will be entitled to get a free trip after reaching their destination if the driver doesn’t operate the fare meter during the trip.
     

Visas, Travel, and COVID

  • COVID Status: Saudi Arabia reported most recently 408 cases of COVID.
  • Travel Guidelines: For up-to-date travel information, visit the US Embassy in Saudi Arabia’s COVID-19 page. For Saudia’s travel guidelines, see here. 
    • COVID Protocols Lifted: Saudi Arabia has lifted all COVID travel restrictions. Unvaccinated travelers can enter the Kingdom.
  • Aviation Investments: Saudi Arabia has committed to investing $100 billion into its aviation sector by 2030 in an effort to upgrade its air traffic infrastructure, launch a new national carrier, and provide a path for new airspace entrants such as drones and electric vertical take-off and landing (eVTOL) aircraft.
  • New Airline Plan: For an update on Saudi Arabia’s planned new airline, see here.
  • Qatar Airways Flight Increases: Qatar Airways is increasing flight frequencies to Saudi Arabia and is partnering with four carriers from neighboring countries to offer shuttle services during the FIFA World Cup Qatar 2022. 
  • Israeli Passports Permitted: Saudi Arabia now allows Israeli passport holders to enter the Kingdom.
  • Flight Bans for Citizens: In response to increasing COVID cases, Saudi Arabia has banned citizens from traveling to 16 countries across Asia, Africa, and South America.
  • UK Visa Waivers: Saudi and Bahraini citizens have been given electronic visa waiver status to the UK.
     

Business / Economy 

  • General:
    • Financial Windfall: Saudi Arabia’s oil exports now stand at almost $1 billion per day, due to growing prices and production. The Kingdom plans to use its surplus to invest in the PIF, its sovereign wealth fund, and boost its reserves.
    • Decrease in Commercial Licenses: The Ministry of Municipal and Rural Affairs and Housing issued 238,800 commercial licenses in 2021, down 31% from 2020.
    • Interest Rates Raised: The Saudi Central Bank increased its main interest rates by 50 basis points, in tandem with the US Federal Reserve’s move to try to tame inflation. 
  • Public Investment Fund (PIF):
  • Finance, Insurance, and Investment:
    • Islamic Finance Position: Saudi Arabia is the largest incubator of Islamic finance in the world in terms of assets at $800 billion, which represents 28% of total global assets.
  • Real Estate, Construction, Infrastructure, and Megaprojects:
    • NEOM Regreening: NEOM has launched a regreening initiative to plant 100 million native trees, shrubs, and grasses by 2030.
    • Jubail Desalination Plant: Construction has begun on the Jubail 3B Independent Water Project. 
    • Real Estate Loan Growth: The outstanding balance of real estate loans provided by Saudi banks grew by 33% in 2021 year-on-year.
  • Industry, Utilities, Logistics, and Non-Oil Energy:
    • Lucid EV Factory: Lucid Group and its Saudi partners have signed several agreements for the construction of the EV maker’s production factory in the King Abdullah Economic City. This plant will likely be one of three EV plants in the Kingdom.
    • Steel, Metals Plant: The Ministry of Industry and Mineral Resources said it has secured $6 billion for a steel plate mill complex and electric vehicle battery metals plant.
    • Helicopter Purchases: Saudi operator The Helicopter Company (THC) has signed deals with Airbus and Leonardo for at least 43 aircraft, with options for a further 20. 
    • Airport Privatizations: Saudi Arabia has transferred ownership of its 29 airports to a new entity, Matarat, in order to prepare them for privatization.
    • Railway Cargo Growth: Saudi Railway Company (SAR) cargo trains achieved a 25% growth in their shipment volumes during Q1 2022 compared to Q1 2021.
  • Tourism, Hospitality, Culture, Sports, and Entertainment:
    • Tourism Development: Saudi Arabia plans to invest $1 trillion in developing its tourism sector in the coming decade as part of efforts to pivot away from oil. Saudi Arabia aims to draw over 70 million tourist visits this year after recieving 62 million in 2021.
    • Heritage Sites Open: Saudi Arabia has opened multiple heritage sites across the country.
    • Film Production Incentives: The Saudi Film Commission has announced a 40% cash rebate for film productions in the Kingdom. 
    • Golf Ambitions: For an analysis of Saudi Arabia’s golf ambitions, see here.
  • Retail, Luxury, and E-Commerce: 
    • Al Othaim IPO Cancelled: The Al Othaim family has canceled plans for an IPO of its mall business.
  • Religion: 
    • Makkah Hajj Entry Ban: Authorities have implemented an entry ban to Makkah for expatriates without Hajj permits.
  • Education:
    • No significant recent developments.
  • Healthcare:
    • No significant recent developments.
  • Technology and Telecom:
  • Defense: 
    • Jeddah Naval Drill: Saudi Arabia has launched the “Red Wave 5” naval drill off the coast of Jeddah which involves forces from neighboring Red Sea countries. 
  • Food and Agriculture:
    • No significant recent developments.
  • Natural Resources, Mining, and Environment:
    • Mining and Minerals Investments: The Ministry of Industry and Mineral Resources has announced plans to seek $32 billion in investments in the mining and minerals sector.
  • Oil: Oil prices most recently stood on May 31 at $116.32 pbb for Saudi oil (Arab Light) and $117.69 pbb for West Texas Intermediate (WTI).
    • World’s Most Valuable Company: Aramco has surpassed Applea as the world’s most valuable company.
    • Refining Crunch: The Minister of Energy stated that the cause of rising fuel prices is a refining crunch.
    • Capacity Increase: The Minister of Energy stated that the Kingdom is on track to boost oil production capacity to over 13 billion barrels per day by 2027.
       

Geopolitical

  • Davos Participation: For an analysis of Saudi Arabia’s role at the World Economic Forum in Davos, see here.
  • Religious Forum: Saudi Arabia recently hosted the Forum on Common Values Among Religious Followers in Riyadh which included over 100 religious leaders representing Islam, Christianity, Judaism, Buddhism, and Hinduism.
  • U.S.:

Gulf

  • UAE:
    • COVID Information: For current COVID information from the U.S. Embassy in the UAE, see here. For statistics and information from the UAE government, see here.
    • Sheikh Khalifa bin Zayed Death: Sheikh Khalifa bin Zayed Al Nahyan, the President of the UAE, has died. Sheikh Mohammed bin Zayed Al Nahyan has replaced him as the President.
    • Regional Industrial Partnership: The UAE, Egypt, and Jordan have signed a $10 billion industrial partnership agreement to enhance economic growth in the three countries across five key sectors.
    • U.S. Relations Revamp: President Biden is signaling an effort by the White House to reset its relationship with Abu Dhabi.
    • Fujairah Airline: Plans are progressing for Fujairah to launch its own airline.
    • Turkey Defense MoUs: The UAE signed two MoUs with Turkey to bolster defense cooperation.
    • Monkeypox Cases: The UAE has reported three cases of monkeypox.
  • Qatar: 
    • COVID Information: For current COVID information from the U.S. Embassy in Qatar, see here. For statistics and information from the Ministry of Public Health, see here.
    • Exports Surge: Qatar’s exports soared to $12 billion in April (up from half that a year ago) due to liquefied natural gas exporter demand following the Russia-Ukraine crisis. 
    • Industrial Growth: Qatar’s industrial sector has witnessed a significant boom with over 60 new factories opening in 2021.
    • FIFA Visitor Expectations: The FIFA World Cup is expected to attract over 16,000 spectators and football enthusiasts through Qatar’s two airports daily.
    • FIFA Visitor Allowances: Each Qatari resident can receive up to 10 relatives and friends by registering their data on the official residence platform during the FIFA World Cup.
    • New U.S. Embassy: Work has begun on a new U.S. embassy in Doha.
  • Kuwait: 
    • COVID Information: For current COVID information from the U.S. Embassy in Kuwait, see here. For statistics and information from the Ministry of Health, see here.
    • Government Resignation: Kuwait’s ruler has accepted the government’s resignation, more than a month after the cabinet quit.
    • Expat Residency Proposal: Kuwait’s parliament is considering a proposal to raise the maximum expat residency permit to five years and fifteen years for investors.
    • Visa Peddler Crackdown: Kuwait is cracking down on visa peddling with higher penalties.
  • Bahrain:
    • COVID Information: For current COVID information from the U.S. Embassy in Bahrain, see here. For statistics and information from the Ministry of Health, see here.
    • Growth Forecast: Bahrain’s economy is expected to grow 3% in 2022 on the back of higher oil prices and output and a rebound from the COVID pandemic.
    • Metro Bids: Eleven companies and joint ventures have prequalified to bid for the first phase of Bahrain’s planned metro system.
  • Oman:
    • COVID Information: For current COVID information from the U.S. Embassy in Oman, see here. For statistics and information from the Ministry of Health, see here.
    • COVID Travel Protocols Lifted: All remaining COVID precautionary measures in place at the country’s airports have been lifted.
        

Other

  • Miscellaneous: For earlier developments, see here.

Resources

US State Department Travel Information