Saudi Arabia: Transforming Saudi Arabia: National Transformation

On 6 June 2016, the "National Transformation Program 2020" was approved by the Saudi Cabinet. This caps a frenetic few months of activity in the Kingdom that began with the approval of "Saudi Vision 2030" at the end of April, saw Ministerial changes and questions as to the role that Saudi Aramco and the Public Investment Fund ("PIF") would play in the country's plans to reduce its dependency on oil and diversify its economy by encouraging greater private sector participation, reducing public spending and promoting newly-established industries that would create new opportunities for the people of the Kingdom. Below we take an initial look at the National Transformation Program 2020 and the opportunities that may result in the Kingdom.

Background

The National Transformation Program 2020 has been developed to help fulfill Saudi Vision 2030 by establishing strategic objectives and identifying the initiatives necessary for achieving specific interim targets in 2020. It is therefore important to first understand what the "vision" of Saudi Vision 2030 is.

Saudi Vision 2030 is a wide-ranging privatisation and economic reform program that aims to reposition the Kingdom's economy away from its dependence on oil export revenues and Government spending. It encompasses strategic objectives, targets, outcome-oriented indicators and commitments that are to be achieved by the public, private and non-profit sectors in the Kingdom. Some of the more ambitious targets cited in Saudi Vision 2030 include:

  • cutting the Kingdom's dependence on sale of hydrocarbons by 2020 through the development of non-oil sectors;
  • increasing the Kingdom's overall non-oil government revenue from SR163 billion ($43.5 billion) to SR600 billion by 2020, increasing it further to SR1 trillion by 2030;
  • increasing the private sector's contribution from 40% to 65% of GDP; and
  • raising the Kingdom's share of non-oil exports in non-oil GDP from the current 16% to 50%.

Key highlights from Saudi Vision 2030 include the following:

  • Saudi Aramco IPO—Up to 5% of Saudi Aramco will be listed in the Kingdom, with foreign investors entitled to subscribe and with the remainder of Saudi Aramco's ownership to be held by PIF. Although not confirmed, it is rumored in the market that any IPO will likely incorporate an ADR/GDR listing in New York and/or, possibly, Hong Kong.
  • PIF—The proceeds of the Saudi Aramco IPO will go to PIF, which is intended to become a sovereign wealth fund with a value up to $3 trillion, making it a global investment powerhouse. PIF recently made headlines through its $3.5bn investment into Uber, which is seen by many as a statement of intent. PIF will have a mandate to kickstart domestic investment and encourage major Saudi corporations to expand across borders and compete in global markets.
  • Privatisation—Government assets (up to 146 state-owned entities have been mooted), from Saudi Aramco to healthcare and education, will be privatised to help meet the Kingdom's target of diversifying the economy away from oil and to enable the Government's role to shift from providing services to regulating and monitoring the provision of the services by the private sector.
  • Investment by the Private Sector—Private sector investments, both local and international, will be sought in healthcare, municipal services, housing, finance and energy sectors.
  • Mining Sector—Structural reforms will be made to the mining sector to ensure that it reaches SR97 billion by 2020, creating 90,000 job opportunities in the process.
  • Defence Sector—By 2030, 50% of defence spending is intended to be sourced locally by 2030, meaning that local military and defence capabilities will be established, including building aircraft.
  • Renewable Energy—A competitive renewable energy sector will be established through the gradual liberalisation of the fuels market. The King Salman Renewable Energy Initiative will be launched, which will include the implementation of a legal and regulatory framework that allows the private sector (via public-private partnerships) to buy and invest in the renewable energy sector. A local renewable energy industry will also be developed.
  • Other—Access to investing and trading in the stock markets, and the process of listing private Saudi companies and state-owned enterprises, will be simplified and liquidity in capital markets will be deepened, the role of debt markets will be fortified and derivatives markets will be developed.

National Transformation Program 2020

Background

The National Transformation Program 2020 has been launched across 24 different Government bodies to help build the institutional capacity and capability required to fulfill Saudi Vision 2030. The first phase of initiative implementation will be launched this year and in the following years, more Government bodies will participate in the implementation. The National Transformation Program 2020 document sets out the strategic objectives, key performance targets and benchmarks of the different Government bodies and links them to Saudi Vision 2030. The appendix to the document sets out the initiatives to be undertaken by the different Government bodies that have been approved by the Council of Economic and Development Affairs and it is worth noting that:

  • the National Transformation Program 2020's initiatives should result in the creation of more than 450,000 jobs in the non-Government sector and the localization of more than SR270 billion of content, each by 2020; and
  • the private sector will fund 40% of the cost of the National Transformation Program 2020's initiatives.

Energy, Mineral Resources & Industry

Targets to be achieved by 2020: These targets include:

  • Decreasing water and electricity subsidies by SR200 billion.
  • Boosting annual non-oil commodity exports to SR330 billion from SR185 billion.
  • Lifting the percentage of power plant electricity generation through "strategic partners" to 100% from 27%.
  • Boosting dry gas production capacity from 12 billion to 17.8 billion standard cubic feet per day.
  • Increasing the mining sector's contribution to GDP from SR64 billion to SR97 billion.
  • Increasing local content in total expenditure of private and public sectors from 36% to 50%.
  • Increasing the volume of private sector investments in high-potential less-developed regions from zero to SR28 billion.
  • Increasing local pharmaceutical manufacturing percentage of total market value from 20% to 40%.

Notable Initiatives: The Ministry of Energy, Industry and Mineral Resources will spend over SR2.5 billion on new initiatives over the next five fiscal years, including coordinating with relevant authorities to build production centres for manufacturing and light industries in Raas Abu-Gamis, Bani-Tamim and Debaa to benefit from the local natural resources that are available.

Transport

Targets to be achieved by 2020: These targets include increasing private sector contribution to developing and operating railways projects (from 5% to 50%) and ports projects from 30% to 70%. Notable Initiatives: The Ministry of Transport will spend over SR5.5 billion on new initiatives over the next five fiscal years, including the establishment of private sector operation and maintenance concession contracts and development of an integrated program to increase the efficiency of ports.

Health

Targets to be achieved by 2020: These targets include increasing private healthcare expenditure (from 25% to 35%) and total revenue generated by the private sector (from SR300 million to SR4 billion).

Notable Initiatives: The Ministry of Health will spend over SR23 billion on new initiatives over the next five fiscal years, including reform and restructuring of primary health case, the establishment of private public partnerships, the privatization of one of the medical cities and the localization of the pharmaceutical industry.

Saudi Arabian General Investment Authority

Targets to be achieved by 2020: These targets include:

  • Raising direct foreign investment from SR30 billion to SR70 billion.
  • Implementing 218 administrative and procedural reforms aimed at improving the business environment.
  • Developing a unified national investment vision to promote and direct investments supporting the national economy, resulting in SR2.3 trillion in new investment opportunities.
  • Reducing time needed to issue new business permits from 19 days to one day.

Notable Initiatives: The Saudi Arabian General Investment Authority will spend over SR1 billion on new initiatives over the next five fiscal years, including the development and execution of plans for localizing construction material and equipment industries and the transportation and logistical services sector, establishment of a government agency to manage and execute mega projects, launching the unified permits for foreign investors and the execution of the "National Investment Plan."

Haj, Umrah and Tourism

Targets to be achieved by 2020: These targets include:

  • Increasing total new tourism investment from SR145 billion to SR171.5 billion.
  • Increasing total revenues from partnerships with the private sector from SR80 million to SR19 billion.

Notable Initiatives: The Saudi Commission for Tourism & National Heritage will spend over SR10 billion on new initiatives over the next five fiscal years, including the development of Ola City, Uqair, Farasan Islands and Okaz City.

Royal Commission for Jubail and Yanbu

Targets to be achieved by 2020: These targets include:

  • Increasing the number of value-added basic manufacturing and transformation products from 432 to 516.
  • Increasing total RCJY cities' industrial production from 252 million tons to 309 million tons.
  • Increasing the size of the private sector's new investments from SR681 billion to SR1.065 trillion.

Notable Initiatives: The Royal Commission for Jubail and Yanbu will spend over SR41.5 billion on new initiatives over the next five fiscal years, including the development of new infrastructure in Yanbu Industrial City (including the localization of the renewable energy industry and rubber industry and establishment of industrial gases and steam networks), Jubail Industrial City, Ras Al-Khair Industrial City and Jazan Economic City.

King Abdullah City for Atomic and Renewable Energy

Targets to be achieved by 2020: These targets include:

  • Enabling atomic energy to contribute to the national energy y mix.
  • Enabling renewable energy to contribute to the national energy mix in the amount of 3.45GW.
  • Increasing the local content in the industrial and service value chains and localization of expertise in the renewable energy sector (from 25% to 35%) and the atomic energy sector (from 25% to 30%).

Notable Initiatives: King Abdullah City for Atomic and Renewable Energy will spend over SR5 billion on new initiatives over the next five fiscal years, including in relation to:

  • the atomic energy sector, identification and preparation of the construction locations of the first nuclear power plant sites and provision of necessary infrastructure, development of necessary human capabilities, localization of small nuclear reactors and industry, localization of nuclear fuel cycle in uranium production to achieve investment returns and development of necessary legislation; and
  • the renewable energy sector, the launch of the "King Salman Renewable Energy Initiative," development of necessary human capabilities, localization of renewable energy technology to support the Kingdom's power and water desalination sectors and development of necessary legislation.

Water

Targets to be achieved by 2020: These targets include:

  • Percentage of desalinated water production through strategic partners to increase from 16% to 52%.
  • Percentage of treated water production through strategic partners to increase from zero to 20%.
  • Percentage of cities covered with water and sewage services through The National Water Company to increase  from 42% to 70%.

Notable Initiatives: The Ministry of Environment, Water and Agriculture will spend over SR12.9 billion on new initiatives over the next five fiscal years, including the expansion of the number of the cities covered by the services of The National Water Company in collaboration with the private sector.

Housing

Targets to be achieved by 2020: These targets include:

  • Percentage of real estate sector contribution to the GDP to increase from 5% to 10%.
  • Percentage of available housing units (new and unoccupied) to total number of subsidy-eligible citizens to increase from 10% to 50%.

Notable Initiatives: The Ministry of Housing will spend over SR59 billion on new initiatives over the next five fiscal years, including savings programs to enable financing applicants to save a portion of the cost of owning their own home, encouraging private sector real estate developers to invest in housing projects (including the use of fast track licences and special finance packages) and establishing partnerships with private sector developers to develop government lands into large-scale housing projects.

Education

Target to be achieved by 2020: These targets include increasing the percentage of students in non government higher education from 6% to 15%.

Notable Initiatives: The Ministry of Education will spend over SR24 billion on new initiatives over the next five fiscal years, including encouraging private sector investment in public education in the Kingdom.

Technology

Targets to be achieved by 2020: These targets include:

  • Number of establishments created to develop local content to increase from 8 to 17.
  • Number of technology companies emerging from universities through the "Innovative Companies Program" to increase to 800.
  • Number of localized and developed technologies in targeted sectors to increase to 125.
  • Number of patents issued by the Kingdom to increase from 700 to 5,000.

Notable Initiatives: The King Abdulaziz City for Science and Technology will spend over SR8.3 billion on new initiatives over the next five fiscal years, including the localization and transfer of technology in building and construction, mining and advanced materials, health, energy, information and communication, water, oil and gas and transport and logistics.

Opportunities

Two recent transactions suggest that foreign and local investors should be optimistic that Saudi Vision 2030 and the National Transformation Program 2020 will result in significant opportunities both within the Kingdom and in connection with Saudi entities looking to do business outside of the Kingdom.

Recently, General Electric agreed with Saudi Arabian Industrial Investments Company to participate in as much as $3 billion of investments across industries in the Kingdom, evidencing the Kingdom's commitment to developing local industry through joint ventures with foreign companies, facilitating direct foreign investment and increasing the participation of the private sector in the Kingdom's economy. We expect to see many more transactions of this nature (which may also take the form of public private partnerships) involving foreign partners in sectors like mining, manufacturing, defence, health, education, real estate, tourism, technology, finance, social services, transport, energy and petrochemical sectors. With increased private sector investment, we would also expect to see an increased demand for debt finance which will be one of the challenges for investors given the current squeeze on liquidity of local banks.

PIF's recent $3.5 billion investment in Uber should also be seen as confirmation of the Kingdom's commitment to looking beyond the Kingdom for ways of accessing technology and know-how, boosting employment opportunities and encouraging entrepreneurship of Saudi entities, as well as earning strong equity returns. We expect PIF to be quite active over the coming years as it pursues further foreign investments, especially when the proceeds of the Saudi Aramco IPO become available. We do expect, however, that PIF may look to tap debt markets to finance some of its investments, which was rumoured to be the case on the Uber investment.

Given the Kingdom's commitment to increasing private sector investment and reducing Government expenditure, we expect to see a flurry of privatization activity, which should present many opportunities for lenders, local investors and foreign investors in connection with Government asset sales and sales of shares in Government-owned companies. We also expect increased levels of IPO activity through the implementation of the Government's privatisation program.

We expect that over the coming months, many more new initiatives will be announced in the Kingdom in connection with Saudi Vision 2030 and the National Transformation Program 2020 and we will continue to monitor developments with great interest.

*Attorney Advertising ─ Prior Results Do Not Guarantee a Similar Outcome.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions