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Why a stronger, more connected KSA is good for its neighbours
The pace of change and development in the Kingdom of Saudi Arabia will benefit other GCC markets.
The 2016 announcement of Saudi Vision 2030 heralded a new age for the kingdom. Saudi citizens embraced change, while sweeping reforms changed both society and business.
Since then, following the Vision 2030 strategic framework to diversify from an oil-centric economy, the kingdom has taken steps to unlock and develop specific sectors and industries, including education, healthcare, housing, transportation and tourism.
The changes are visible and the world is taking note. Saudi Arabia jumped 30 spots to 62 in the World Bank’s Ease of Doing Business 2020 index on the back of implementing eight reforms.1
According to the World Bank, reforms under Vision 2030 have led to improved access to credit, strengthened minority investor protections and facilitated the resolution of insolvency in the kingdom.
As the Gulf Cooperation Council (GCC)’s largest economy, Saudi Arabia is a key player. It has the biggest population in the region — 35 million, three times bigger than the UAE’s.
The ongoing coronavirus (Covid 19) contagion has put a severe pressure on global oil demand and prices thereby weakening the world’s biggest crude exporter’s balance sheet. Nevertheless, its oil-funded coffers allow it to spend hugely; the kingdom has a budget of $272 billion for 2020.
What are the implications for other GCC economies of a stronger, more internationally connected Saudi Arabia? Will changes in the kingdom impact regional banking centres and tourist destinations?
Benefits across the GCC
A more connected Saudi Arabia would potentially benefit all GCC economies, as the outcome could potentially be that the whole becomes greater than the sum of its parts.
A good example of such collaboration is the European Union, where closer relationships between members helped modernise countries and create an influential and powerful economic block.
History has repeatedly shown that whenever countries start trading together as a bloc, the whole becomes stronger than when they do it on their own. They tend to have higher levels of economic leverage in trade with other nations. It helps build large markets for companies which then lead to further investments, both local and foreign, while competition within the bloc can increase the efficiency of companies and improve profits.
While the GCC is not a formalised trading bloc, its members have economic connections going back centuries. What Saudi Arabia achieves under its new strategic vision could well be complementary to the efforts made by its neighbours as they drive their own agendas towards progress.
The road to progress
One of Vision 2030’s targets is diversification and modernisation of its transport industry, developing the kingdom as a major logistics centre within the wider MENA region. Its location between the Gulf and the Red Sea makes it an important destination for freight flows from the United States and Europe, according to Oxford Business Group. 2
An example of this is the new Saudi-Oman highway, running through Rub Al-Khali, or the Empty Quarter, which once completed will cut down the distance between the two countries by nearly 800 kilometres compared to the current road that passes though the UAE. Not only will the road strengthen trade between Oman and Saudi Arabia, it will facilitate travel for the tens of thousands of Omanis traveling for the Hajj and Umrah pilgrimages.
From the leisure traveller’s point of view, the opening up of Saudi Arabia for tourism means added attractions to see on a visit to the Gulf. Cultural trips to the ancient Nabataean ruins in Mada'in Saleh, a UNESCO World Heritage site, and the Neolithic art of Jubbah and Shuwaymis could easily round off the glamour and glitz of a Dubai vacation.
Further, in moves that support the diversification of its economy from oil, one of the goals set out in the Vision is to raise SME contribution to GDP to 35 percent from the current 20 percent by 2030.
Saudi Arabian companies and start-ups are looking to expand, not just in the region but beyond as well. The government is weighing in by setting up consultancies and accelerators that help them find funds and partner with foreign investors. It is helping companies promote Saudi products at international exhibitions and thereby create new markets.
Two-way traffic
The flow isn’t only in one direction. In line with the Vision, the government is setting out a raft of pro-startup regulations aimed at positioning the kingdom as an attractive destination for global companies looking to gain entry into the region. In 2019, the Saudi Arabian General Investment Authority (SAGIA) reported a 54 percent rise in the number of licenses issued to foreign companies compared to 2018, a clear sign that the moves are bearing fruit. 3
As Saudi companies expand into other GCC countries and they, in turn, move into the kingdom, a stronger set of regional players are created. This new strength will position them better for further expansion into other high-growth regions such as Asia.
International banks like HSBC will provide businesses with funding networks and connectivity. A customer working with HSBC in Saudi Arabia will gain access to our network. HSBC’s global footprint then allows the customer to expand into other countries like Singapore, China or the United States.
By attracting the best banks into the kingdom, Saudi Arabia is increasing that connectivity, which is so crucial for flow of funds, ideas and innovation.
A synergistic relationship rather than competitive one among the GCC countries would make the whole much stronger. As one economy is lifted up, the others benefit too.
