Zeyad Khoshaim, Managing Partner, Khoshaim & Associates, on Vision 2030 and the Kingdom’s new economic era: Viewpoint

Following numerous global and regional socio-economic and political developments, the Kingdom of Saudi Arabia has been going through a policy and legislative overhaul. Indeed, the past few months have seen the issuance of new legislation and amendments to Saudi Arabian regulations, including, most notably, the Companies Regulations and Qualified Foreign Investor Rules, with the much-anticipated insolvency law, which is expected to follow in 2016, as well as the restructuring of a number of ministries and public authorities.

Theses changes are in line with the Kingdom’s Vision 2030. Announced by Deputy Crown Prince Mohammed bin Salman Al Saud in his capacity as chairman of the Council of Economic and Development Affairs, and labelled by the press as an “economic revamp”, Vision 2030 highlights the key areas the government intends to address and develop, and its targets for the next 14 years. Vision 2030 is centred around three pillars: the Kingdom’s significance in the Islamic world, its global investment capabilities and its strategic geographic location. The plan will enact reforms in the areas of business investment, health, education and the environment, among others, and stipulates explicit targets and performance indicators for the future.

Vision 2030 was launched in recognition of the need for the Kingdom to diversify its revenue sources and investment portfolio following the decline in oil prices. Although the plan was fuelled by a need to move away from an oil-dependent economy, its enumerated targets reflect the direction the Kingdom had been heading, albeit at a slower pace. As Mohamed El Erian, PIMCO’s former CEO, put it, “While the immediate catalyst for economic restructuring is the impact of the sharp fall in international oil prices, the rationale for these reforms has been evident for much longer.” One way in which the Kingdom will attempt to achieve this diversification and balance out reduced public capital expenditures will be by encouraging public-private partnerships (PPPs) in the sectors of health care, defence, mining, renewable energy, education and infrastructure.

Reports show that as of February 2016, PPPs had only accounted for 4% of infrastructure projects. Vision 2030 aims to increase this figure, along with PPP activity in other sectors, by privatising a number of government services, with the aim of increasing the private sector’s contribution to the Kingdom’s GDP from an estimated 40% to 60%. The planning phase of the privatisation of King Khalid International Airport in Riyadh, for example, is already under way, and the Kingdom’s National Transformation Programme, announced in June 2016, indicated that the privatisation of the General Ports Authority and the postal and railway services will likely follow suit.

A key player in achieving these goals will be the Public Investment Fund (PIF), which the country is planning to grow into the world’s largest sovereign wealth fund by increasing its assets from SR600bn ($160bn) to over SR7trn ($1.9trn). Announcements have already been made regarding the proposed public listing of 5% of Saudi Aramco, whose ownership will be transferred to PIF. Another key actor is the Capital Market Authority, which has already approved amendments to its registration requirements for Qualified Foreign Financial Institutions – reforms that are likely to boost investment in companies on the Kingdom’s stock exchange.

Lastly, the Ministry of Commerce and Investment, in conjunction with the Saudi Arabian General Investment Authority, recently announced that international investors would be permitted 100% ownership of retail businesses in Saudi Arabia. This will be a welcome change for manufacturers wishing to establish a vertically integrated chain of production, as well as for private equity houses that recognise the opportunities that Saudi Arabia’s economy possesses.