This year, Saudi Arabia’s Council of Ministers gathered and agreed to implement the Vision 2030, which promises to enact sweeping changes to reduce the kingdom’s dependence on oil. Not only does Saudi Arabia’s new economic plan seek to create a more productive private sector and workforce, it also hopes to introduce sustainable fiscal management policies and increase investment opportunities within and beyond Saudi’s borders.

One of the biggest steps taken to encourage an investment-driven economy in Saudi Arabia has been the restructuring of the country’s sovereign wealth fund also known as the Public Investment Fund (PIF). By combining the proceeds from Aramco’s initial public offering and various other assets, the PIF, currently holding $100 billion, will eventually be worth an estimated $2 trillion. Ultimately, providing Saudi Arabia with the financial capital needed to create a more diversified economy and become a stronger regional and global player.   

Attracting Foreign Direct Investment to Saudi Arabia

On a recent visit to the U.S.A, the Deputy Crown Prince Mohammed bin Salman, second deputy premier and defense minister, met with senior U.S. officials and business executives to rally support for the recently approved  National Transformation Plan (NTP) of 2020 and convince American companies to invest in Saudi Arabia. This 5-year plan aims to expand Saudi Arabia’s private sector, while simultaneously promoting “Saudization” and foreign investment.

By introducing a number of key policy reforms, such as reducing the average resolution time for commercial cases by 30%, cutting the percentage of delayed projects from 70% to 40% and speeding up the visa issuing process by two-thirds, the NTP aims to make it easier for people to conduct business in Saudi Arabia. In addition to adding more than 450,000 nongovernment jobs by 2020, creating new investment opportunities worth $613 billion and increasing the foreign direct investment in Saudi Arabia from $8 billion to $19 billion.

According to Mckinsey and Company’s recent Saudi Arabia Beyond Oil report, the following 8 sectors will require an estimated $4 trillion in investment to grow in the kingdom: mining and metals, petrochemicals, manufacturing, retail and wholesale trade, tourism and hospitality, healthcare, finance and construction. To further ease the investment process, the Saudi Arabian General Investment Authority (SAGIA) has even developed an Android and iOs app that investors can use to explore and discover the investment opportunities available in the country.

Saudi Arabia’s Investment in Foreign Economies

Not only does Saudi Arabia’s 2030 Vision aim to expand the worth of the PIF to approximately $2 trillion, it also intends on increasing the portfolio’s foreign investment share from 5% to 50% by 2020, according to Yasir Alrunmayyan, the PIF’s Secretary-General. By increasing foreign investment, Saudi Arabia hopes to support the growth of Saudi investors and companies abroad to further diverse its existing investment portfolio and economic growth.

While the PIF’s recent $3.5 billion investment in Uber has been praised as a bold move from Saudi Arabia to reinvent its economy, there have also been several other promising investment initiatives in the past two months. In April, Saudi Arabia formed a joint coordination council with Jordan to identify potential opportunities for PIF to invest in the Hashemite kingdom. Although the size of the investment fund and the sectors that will receive its support have yet to be determined, it’s clear that the Jordanian economy needs this influx of capital now, more than ever, to generate jobs for its citizens and economically integrate the country’s 1.5 million Syrian refugees.

King Salman bin Abdulaziz Al Saud also visited Cairo in early April to announce the establishment of a $16 billion investment fund to be shared between the PIF and the Egyptian government. Saudi representatives also signed 17 investment deals and memoranda of understanding for cooperation in the agriculture, industry and infrastructure sectors. Other projects in the works include the creation of an economic free trade zone in Sinai and a new industrial city near the Suez Canal.

During this visit, both Saudi Arabia and Egypt also made a historic agreement to construct a bridge over the Red Sea to connect the two countries. When asked about the proposed bridge, Prince Mohammed said that the crossing would link Europe and Asia, provide building and investment opportunities and help move billions of dollars in cargo across the Red Sea. While no detailed plans have been revealed yet, it is expected that the bridge will span from Nabq on the Egyptian side to Ras Al Sheikh Hamid on Saudi Arabia's western coast.

A Role Model of Economic Reform

Since announcing the 2030 Vision, Saudi Arabia has taken great strides to translate this plan into action, which is already strengthening diplomatic relations and re-energizing economies in the MENA region. If the Saudi government is also able to successfully implement the necessary changes required to improve the ability of foreign investors to conduct business within its borders, the kingdom could become a model for economic reform and global community building in the future.

By Soukaina Rachidi

According to the World Bank, the youth unemployment rate in the MENA region in 2014 was 29.7%, one of the highest in the world. While the political unrest in the region has played a significant role in aggravating this problem, Bayt.com’s 2015 Fresh Graduates in the MENA Survey tells another story. Just over three-fifths of the survey’s respondents claimed “to have considered the availability of jobs in their field before deciding their major.” Furthermore, 76% of MENA graduates claimed that it was difficult to find their first job, because employers frequently wanted candidates with previous work experience. Unfortunately, these attitudes have created two paradoxical problems for young Arabs: unemployment and underemployment. However, this is not the case in Switzerland, where the youth unemployment rate is below 3%.  

This low rate has been attributed to the country’s dual vocational education and training (VET) system, where 16-19 year old students spend two days a week learning in a VET school and three days a week learning practical skills in a host company. Switzerland’s VET system is arguably one of Europe’s strongest, as it is the first choice of 70% of Swiss youth, who are looking to pursue upper-secondary education. This system prepares high achieving youth for white and blue collar jobs in a wide array of fields. Yet another advantage of Swiss apprenticeships is that students are paid. A student can receive the equivalent of $600-$700 to start off with and slowly work their way $1,100- $1,200 by their third year. Once they’ve graduate, VET students in the commercial sector can earn about $50,000 a year, and if they pursue further education, up to $100,000 a year according to the Swiss Federal Office for Professional Education and Technology (OPET).

Despite Switzerland’s comparatively low number of graduates to the Arab, it has a strong economy with a GDP of roughly $80,000 per capita, the fourth highest in the world. Moreover, according to INSEAD’s 2014 Global Innovation Index “Switzerland ranks number one, and has in addition a highly competitive export economy that sends 80 percent of what it produces abroad.” So, what is it that makes Switzerland’s VET model so successful and how can the Arab world use it as a case study to eliminate the $40-$50 billion annual loss caused by high unemployment and unproductivity?

• Labor Market Needs are Clearly Identified

To ensure that VET students are prepared for the workforce, Swiss trade organizations thoroughly explore what skills are in demand in the labor market, so apprentices can receive the right training. After identifying what skills are required, The State Secretariat of Education, Research and OPET work closely together with industry associations to devise the curricula for the 200+ occupations that students can do apprenticeships in. During the VET program, students are guaranteed to acquire the various technical, methodological and social skills needed to excel in their chosen occupation.

• Swiss Youth Receive Counselling

Each Swiss state, also known as a canton, has a network of community-based career centers that support grade students, as they decide whether they want to pursue academic or vocational training at the upper-secondary level. Even though these centers exist outside of the educational system, they regularly engage with schools and provide private consultations for interested students and families. These career centers also offer students a range of services including help writing resumes and developing portfolios to organizing short pre-apprenticeships to explore prospective apprenticeship cites. While students are expected to write their own application letters, their career counselors support them until they find an apprenticeship that meets their needs.

• Private Sector is Highly Invested and Engaged

In 2012, around 58,000 Swiss companies provided VET programs to roughly 80,000 young apprentices in commercial, retail, healthcare, technology, and other fields. According to Franziska Schwarz, Vice Director of OPET, “businesses regard [the] training of young people as their social responsibility” and a long-term investment. Consequently, they don’t receive, or even expect, any government subsidies for taking on apprentices. In fact, companies participating in three-year VET programs collectively invest around $5.4 billion to cover apprentices’ salaries, training materials and instructors. However, in return, not only do these companies receive a considerable net-profit, they also get a highly-skilled and experienced workforce.

While several Arab countries already have vocational programs in place, none of them are as successful as the Swiss VET system. Unfortunately, many regional programs are ineffective, because there is poor communication between employers and educational institutions, there is no integrated national system for occupational standards, labor market data is outdated or unreliable and there is a lack of career counseling services for young Arabs. However, these gaps also offer a unique opportunity for those looking to invest in vocational education and training, private universities, and work-readiness programs to improve the competitiveness of the future workforce in the Arab region

Knight Frank KSA releases Saudi Arabia Residential Market Report

On the back of challenges witnessed in 2015, namely the drop in oil prices, the residential sector in Saudi Arabia continued its slowdown in 2016, with transaction volumes and sale prices declining at a slower rate.

Since the Arab Spring in 2011 various regulatory efforts at improving accessibility to real estate have been implemented. Whilst these efforts are a step in the right direction, the policies are only slowly filtering through. Data from the REDF reveals that while real estate loans trended up sharply from

2012-2014, the rate of growth slowed throughout 2015.

Meanwhile, the reduction in government spending is likely to impact the financing of real estate projects. Delays and scaling back of many real estate and infrastructure projects will further exacerbate the shortage of housing across the Kingdom.

Key findings:

• Main Saudi Arabian cities have seen a shift in demand from sales to rentals
• Rental rates increased in 2015 and are expected to maintain their growth levels in 2016.
• A 2.5% white land tax and revisions to mortgage law are expected to revive demand in sales.
• 2016 is expected to see a re-prioritisation of projects with an emphasis on affordable housing.

Riyadh residential market:

Demand in Riyadh continues to be concentrated at the mid-to-lower end of the market. This trend is expected to continue into the future as Riyadh’s population is estimated to grow at 2% per annum over the next couple of years. Concerns remain over the capacity of the development pipeline and the type of product that is being delivered to the market.

Strong demand for rental property in Riyadh saw rental rates increase across the city. Meanwhile, average sale prices remain subdued as annual growth rates slowed, showing an annual 10% decline in the number of residential transactions in Riyadh (Q1 2016 versus Q1 2015).

Jeddah residential market:

Historically demand for residential property has been concentrated in the city centre. Given population growth estimates coupled with the shortage of land, demand is now shifting to the North of the city towards Obhur. Areas surrounding the Kingdom Tower and Jeddah Economic City are expected to see residential growth and similarly, plots in South Obhur and close to the airport are witnessing substantial activity,

Rental rates in Jeddah increased on the back of a shift in demand from sales to rental property. Consequently, average sale prices remained flat as the volume of residential transactions in Jeddah decreased by 8% (Q1 2016 versus Q1 2015).

Eastern Province residential market:

Dammam and Khobar have seen significant population growth over the past couple of years, which has been met with limited residential supply. Demand is expected to cool off as the fall in oil prices impacts the labour market, which is heavily dominated by expats.

Rental rates maintained their stability over the second half of 2015 and into 2016. The slowdown in the economy and resulting cutbacks in the main economic industries is expected to slow demand in the medium-to-long term, exerting downward pressure on rents. The sales market is expected to remain buoyant, particularly for residential property in the south of Khobar.

Sector View

The subject of creating suitable and sustainable zoning is increasingly being debated in order to ensure that future development meets the requirements of the fast-growing population. In addition the scarcity of land in some major cities, combined with key infrastructure projects underway (such as the Riyadh metro), is providing the impetus for urban regeneration initiatives.

Over the medium to long term these development strategies are expected to transform cities for the better, improving the quality of life, affordability, safety and health of local communities – a central objective of the kingdom’s leadership.

To view the full report, click here - http://bit.ly/1UqEbVM