THE EFFECT OF VISION 2030 ON THE FORMATION OF COMPANIES IN SAUDI ARABIA

GENERAL AUTHORITY FOR STATISTICS (GASTAT)

The most recent data from the GASTAT indicates that Saudi Arabia is experiencing significant economic trends, such as: GDP INCREASE: • 3.8% in Q1 2023 • 1.2% in the second quarter of 2023 • Q3 2023: 4.5% contraction (as a result of voluntary sharp oil production reduction) GROWTH IN THE NON-OIL SECTOR: • 3.6% in the third quarter of 2023 • 6.1% in the second quarter of 2023 • 5.4% in Q1 2023 These figures demonstrate the ongoing success of the national transformation policy that has been implemented, which has diversified sources of income beyond hydrocarbons. The country is no longer dependent on GDP numbers, as emphasized by the Minister of Finance, Mohammed Al-Jadaan. Rather, the nation has redirected its attention to investments in the non-oil sector and genuine development. The Saudi economy has emerged as the top performer in terms of growth rate in 2022 and the second highest among G20 nations to date as a result of this transition. The Saudi Arabia's robust economic development and strong fiscal position are further validated by the IMF assessment report, which predicts an average growth rate of 4.9% in the non-oil GDP in 2023 and an overall GDP of 4% in 2024. Furthermore, it is anticipated that the inflation rate will remain consistent at 2%.

OIL RELIANCE DIVERSION

The Saudi government's ongoing dedication to legislative and regulatory reforms is instrumental in promoting economic growth and diversification. This strategic approach actively promotes private sector participation in the economy by privatizing, cultivating strategic partnerships, and attracting foreign investment to the local market. These initiatives are illustrated by the subsequent examples:

1. Saudi Arabia has unveiled a $800 billion investment plan in the tourism sector and a total of SAR 50 billion to construct over 21 entertainment destinations throughout the nation. The objective of these advancements is to increase the tourism sector's contribution to the GDP to 10% and attract 100 million visitors by 2030.
2. On the inaugural day of the Saudi Agricultural Exhibition 2023, 16 agreements of $800 million in investments in the agricultural sector were recorded. The Kingdom's vision to attract industrial investments estimated at SAR 1 trillion by 2030 was further affirmed by the Minister of Industry and Mineral Resources. To date, foreign investments in new licenses have totaled SAR 1.6 billion, with a particular emphasis on critical sectors such as the production of food products, non-metallic minerals, rubber, and plastic products, as well as paper and paper products.
3. Saudi Arabia has declared its intention to establish 60 logistics zones by 2030 as part of its efforts to enhance its economic diversification and establish itself as a global hub for logistics and a premier investment destination.
4. Additionally, the Saudi Central Bank has implemented a thorough evaluation of its fintech strategy, with the objective of increasing the current number of fintech companies to 525. By 2030, it is anticipated that this will contribute over SAR 13 billion to the GDP. It is anticipated that by 2025, investments in the IT and educational technology sectors will amount to SAR 103 billion.

Additionally, the Kingdom has recently approved amendments to the Code of Law Practice that pertain to licensing regulations. These amendments will enable foreign law firms to petition for a license to practice in the Kingdom with 100% foreign ownership. Since that time, the Ministry of Justice has reported that 15 law practice licenses have been granted to foreign law firms.

Encourage the establishment of a regional headquarters (RHQ)

The objectives of Vision 2030 are closely aligned with the enforcement of the Regional Headquarters policy, which permits multinational companies to relocate their regional offices to the Kingdom before 2024 in order to capitalize on government contracting. This initiative offers a promising opportunity to attract foreign investments from multinational companies, thereby fostering value creation and diversifying the Kingdom's economy beyond its dependence on oil. The Kingdom has announced the issuance of over 180 RHQ licenses as of the end of Q3 2023, which suggests a growing interest in this strategic approach. In exchange, the government has established a variety of incentives for RHQ licenses, such as:

• A 10-year Saudiization exemption and the provision of a spousal work permit
• An extension of the dependent age limit to 25 years old
• A waiver of professional accreditation
• A tax exemption

Additionally, the Ministry of Investment Saudi Arabia (MISA) has recently implemented a series of new incentives for RHQ licenses. These incentives include a mechanism that allows for the renewal of a one-year premium residency. These incentives are specifically designed for executive-level personnel within RHQs, including the Chairman, Chief Executive Officer, and General Manager, in collaboration with the Premium Residency Center. This significant milestone in the development of the non-oil segments of the economy and the stimulation of new prospects for multinational corporations across various sectors is marked by these substantial investments and business incentives.

SAUDIZATION

The labor market has undergone substantial concurrent reforms to foster the active engagement of Saudi nationals in the private sector, a key element and objective of the Saudi Vision 2030 to empower Saudi youth through Saudization, in the context of the swift advancement of Saudi's giga-projects, such as the $500 billion city of NEOM, and substantial investments across diverse sectors instrumental in driving economic growth. The Saudi nationalization scheme, Nitaqat, has been a critical measure in the development of a sustainable national workforce and the effective mitigation of the current shortage of qualified labor in the country.   The labor market has undergone substantial concurrent reforms to foster the active engagement of Saudi nationals in the private sector, a key element and objective of the Saudi Vision 2030 to empower Saudi youth through Saudization, in the context of the swift advancement of Saudi's giga-projects, such as the $500 billion city of NEOM, and substantial investments across diverse sectors instrumental in driving economic growth. The Saudi nationalization scheme, Nitaqat, has been a critical measure in the development of a sustainable national workforce and the effective mitigation of the current shortage of qualified labor in the country. Additionally, the objective of the introduction of various work patterns, including remote, flexible, and freelance work options for Saudi nationals, is to cultivate a participatory economy and increase the contribution of local talent to the economy, thereby contributing to the overall increase in GDP and reducing the prevalence of a shadow economy. Nevertheless, special economic zones in the Kingdom are exempt from the Saudization requirement as a means of attracting international companies in specific industries during their initial stages and facilitating their transition to the Kingdom. In 2022 and 2023, the average unemployment rate of Saudi citizens was effectively reduced to a historic low of 8% as a result of the Saudization reforms that were implemented, as reported by the IMF. These reforms were in accordance with the objectives of Vision 2030. The Saudization framework has been credited with the empowerment and engagement of the country's youth population by providing them with access to quality education, training, and employment opportunities. This reduction has been observed.

TAKEAWAY

The Saudi Arabian government's ambitious Vision 2030 has resulted in a significant transformation of the nation's economic landscape through the implementation of transformative reforms and strategic initiatives. This change is intended to cultivate a nation that is ambitious, has a thriving economy, and a vibrant society that is in harmony with global trends, reduces dependence on hydrocarbon resources, and ensures a prosperous future for the country. CIG will assist you in navigating the requisite procedures and requirements for commercial registration in Saudi Arabia in order to gain a deeper understanding of Saudi Vision 2030 and guarantee your involvement in the Kingdom of Saudi Arabia's economic growth journey. Our team of professionals will leverage their industry expertise to optimize your business continuity and return on investment in KSA.