Saudi Arabia is the largest economy in the Middle East, and with the government increasing spending in the private sector, it is an ideal time for companies from the US to increase foreign investments. Saudi and US have had strong ties in the past and those ties continue to strengthen. To achieve Vision 2030 and the National Transformation Program (NTP)’s objectives the Saudi government are increasing investments in the private sector, which is expected to maintain growth at a rate of 5.3%.
Research by McKinsey and Company shows that the Saudi GDP is expected to double by 2030, and by 2030 there will be an estimated $4 trillion spent on the non-oil economy, primarily in the private sector, catering to the expected 6 million Saudi job-seekers.
Saudi Arabia shows many advantages for foreign investors, such as the long-term economic stability, the well-regulated banking system, the high spending power and the large local market. Opportunities are available for US companies in security and defense, healthcare, transport and trade.
Security and defense
In 2015, Saudi Arabia invested US$87 billion on defense and security, which made it the third-highest spender globally and approximately 25% of the budget (US$56.9 billion), in 2016, was spent on military and security services. Saudi is expected to continue spending on security and defense; on security vehicles, perimeter protection, access control, cybersecurity, and monitoring systems. However, the Kingdom aim to have 30-50% of military spending to be local.
Therefore, foreign investors in the security and defense sectors have opportunities to supply the government. The US is already one of Saudi’s biggest suppliers in this sector and the strong ties between the countries means that US foreign investors looking to set up business in Saudi are known for their capability in this sector.
King Abdullah bin Abdulaziz inaugurated the Northern Border Security Project, and for the US, some of the top opportunities exist in command and control solutions, maintenance and repair of aircraft, cybersecurity solutions, and training services.
The Saudi government have designated $11 billion in healthcare investments by 2020, including opportunities in tertiary and secondary care, procurement and manufacture of medical devices, manufacture of pharmaceuticals, education and insurance.
Saudi have planned the building of 22 health centers, and will therefore require staff, training of staff, and medical supplies. The projects include 19 integrated medical complexes comprising hospitals and modern medical centers as well as three centers for treating growth and behavioral disorders in children.
Saudi are also looking increase the localization of the pharmaceutical industry through the private sector as a NTP objective. There is a need for generic brand pharmaceuticals in the Kingdom. This comes as there is increasing private consumption of medicine, improved longevity and an increasing number of growing diseases such as diabetes and gastrointestinal disorders.
Saudi Arabia’s NTP objective, to enhance the efficiency of the public transport sector has lead them to increase privatization of the sector. It is estimated that the Ministry of Transport will make a $450 billion investment to fund the rail and metro infrastructure and bus transit development will require approximately $200 billion. The construction of highways, roads and connecting infrastructure will also cost an estimated $130 billion.
US companies are able to assist in the construction of these projects throughout the supply chain. There is a need for companies that can provide materials, operation and maintenance of the rail and metro systems.
The Saudi Stock Exchange, also called Tadawul, has a market capitalization of $400 billion, which is shown in Tadawul All Share Index. For US financial institutions entering Saudi, they are able to invest in the Saudi equity market by registering as a Qualified Foreign Investor (QFI). To qualify as a QFI, the company must have at least 3.75 billion Saudi riyals ($1 billion) worth of assets under management.
Financial markets in the US are the largest and most liquid in the world, and for those looking to enter a stable market with many opportunities, Saudi is an eligible option. QFIs are eligible to subscribe to initial public offerings (IPOs) on Tadawul, which is where Saudi Aramco will place its’ initial listing.
Saudi remains a favorable place for US companies to invest. The Saudi government increasing spending in the private sector makes it a growing market for foreign companies to invest in. Saudi and US have strong ties and common economic and security interests keep them close and the Saudi government are actively seeking foreign investors to enter the Kingdom.
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