Saudi Arabia’s steps towards reform keep making the news these days with its government’s drive towards modernisation and innovation, but I don’t think people realise just how much change is taking place there. Not only just how much, but how incredibly profound it is going to be; changing the mindset, the business culture and breaking the prejudices of the past. This a country where tourism hardly existed, , one could only get a visa if they were performing Hajj, or an expatriate working there, or if one has a business visa. It was always somewhat of a mystery to many us.
But that is all about to change in early 2021, when Saudi opens its doors to international tourists for the first time, with the introduction of a new tourist visa to visitors from 49 countries, with plans to extend this to more countries. The one-year tourist visa will allow for multiple entries with up to 3 months per entry, with visitors able to spend 90 days a year in the country.
What’s more, the Kingdom won’t require women to wear the head-to-toe robe, or Abaya, in public places and will allow them to travel without a male companion. Of course, like in other GCC countries, tourists will still be expected to dress modestly, and Mecca will still remain off-limits for non-Muslims.
Not only will this new window to international tourism create increased consumer demands and provide for a plethora of new business activities, its impact on Saudi society will undoubtedly be felt as more innovative, modern and transformative ways of thinking of incoming travelers will merge with traditional Saudi society, as tourism becomes the catalyst for growth. Like it or not, we inadvertently change places we travel to, just as they also change us, expanding both our horizons.
It’s one of the reasons Creative Zone has opened an office there. It’s no secret that Saudi Arabia is the largest economy in the Middle East and the region’s richest Arab country. FDI rose in 2019 to $236 billion, by far the highest number among Arab countries. By opening up its doors to foreigners, the opportunities for foreign investment will undoubtedly flourish.
Tourism boom on the horizon
Growth in the tourism sector is a key component of the Vision 2030 plan announced by H.R.H. Sheikh Mohammad Bin Salman Al Saud, Crown Prince of Saudi Arabia, who wants to diversify the economy away from its oil base towards new sectors, including manufacturing, entrepreneurial activities, renewable energy and foreign investment. With the new visa regime, the country expects to attract 100 million foreign and domestic visitors by 2030 and create 1 million new jobs in the tourism sector, with the Saudi Commission for Tourism and National Heritage investment already announcing $27-billion worth of new agreements in the tourism sector.
The Public Investment Fund, the Saudi sovereign wealth fund, has been tasked with developing the “Giga Projects”, including Qiddiya Entertainment City, NEOM, the Red Sea Project and Amaala Resort. All of these are expected to attract visitors seeking new entertainment and leisure experiences in the Kingdom.
Saudi Arabia is also set to expand its local consumer spending, while already having one of the highest standards of living in the Middle East, with a GDP per capita over $20,000.
Tourism, entertainment and its related food, beverage, and other consumption-related activities are, therefore, a key investment trend for the coming year.
A growing consumer society
The services sector currently represents 50.4% of Saudi GDP and employ 73% of the active population. With a large local market with a high spending power, the food and beverage sector is an excellent choice for new business creation. Also, household spending is expected to return to growth in 2021 at 2.7% year-on-year, after a slowdown due to the Covid-19 pandemic.
Improving economic growth in 2021, recovering oil prices and government stimulus measures will, in turn, increase disposable incomes in Saudi Arabia. In 2021, the fast-food services industry is forecast to grow by 7.3% to SAR 22.1 billion, while the restaurants’industry is expected to grow 7.2% to SAR 42.3 billion, as urbanised young consumers are seeking out westernised lifestyles and keen to dine out.
Given the vast experience many UAE-based businesses have in these sectors, they will be keen to get a piece of the cake and expand their presence across borders.
Opening up new sectors to FDI
Saudi Arabia has a “Negative List” restricting certain business activities to Saudi nationals and/or GCC nationals (or companies wholly owned by them). Recently, the Saudi Council of Ministers approved total foreign investments in retail and wholesale trade, transport, recruitment, audio visual media services and real estate sectors. Foreign investors are no longer required to have local partners in a number of sectors and may own property for company activities. The government is also trying to attract FDI in the sectors of renewable energy and entertainment.
The Kingdom does not have a personal income tax regime. However, foreign investors are subject to corporate income tax at the rate of 20% on their share of the net income of a capital company, apart from those involved in the oil and natural gas business, which have substantially higher rates. Meanwhile, a Saudi or GCC investor’s share is subject to Zakat at the rate of only 2.5%.
Expanding into Saudi Arabia
Fully established companies in the UAE that have a strong track record and a desire to expand are ideally suited to entering the Saudi market, as the costs and scale of work there require a greater level of investment and commitment.
Creative Zone has several business set-up options for investors, ranging from opening a branch of an existing company incorporated in the UAE or another GCC country, to creating a 100%-foreign-owned LLC in Saudi. These different options have diverse tax and licensing benefits and drawbacks, but it is important to bear in mind that doing business in Saudi is not a cheap affair. For example, foreign LLCs need to have of at least SAR 500,000 as a capital requirement, which can go up to SAR 30 million in some sectors. Furthermore, the Saudi government is currently developing a number of economic cities, including Ha’il, Jazan, Najran, Al-Baha, Al-Jouf; and the Northern Territory, where it plans to offer certain tax incentives.
While 2020 was a year to slow down, recalibrate and refocus due the pandemic, 2021 promises to be a positive re-set for economic growth, especially tourism, which will soon get back on its feet with global vaccination rollouts and travellers regaining confidence in air travel. Many will want to discover the mysteries of Saudi Arabia that have for so long been hidden as well as exciting new business ventures. Are you ready for that journey of discovery?
About The Author
Lorenzo Jooris is the CEO of Creative Zone, a Dubai-based business advisory firm. Mr Jooris holds extensive and diverse experience in the Middle Eastern and South Asian business markets and retains an expert opinion on the regions’ SMEs and startup culture. He was the founder of One World Communications, a full-fledged multi-media powerhouse advising governments around the world in branding and communication strategies. He also started LEADERS Middle East Magazine in the UAE and formulated ‘Leaders without Borders’, an initiative that promotes young social entrepreneurs’ development. He is the author of “Recipes for a Better World” and an advisor to the James Michel Foundation.