Is it a coronation or is it an expansion of boundaries? It might seem, from a distance, that Saudi Arabia is about to edge the UAE off the throne as the GCC’s most important economy. But look closer.
Imitation is the best form of flattery and the Kingdom is on a 'best of' roll filling its strategic coffers with ideas that have catapulted some of the world's smallest nations from UAE to South Korea to the top of the economic leagues. One of these is setting up economic free zones.
For a summary of the zones announced so far as well as some historical context, read on.
The Economic Cities Authority, set up in 2010 to manage the development of Economic Cities (EC)*, became the Economic Cities and Special Zones Authority (ECZA) in 2019. It is now responsible for overseeing the development of both ECs and SEZs and establishing a regulatory environment conducive to attracting investment across businesses ranging from logistics and technology to agribusiness and construction.
These zones are one of the many initiatives Saudi Arabia is implementing to realize its ambitious Vision 2030 strategy for developing a thriving economy. They will provide an attractive platform for global businesses to capitalize on the vast growth opportunities in the region. In turn it hopes to boost domestic investment, attract FDI, diversify its economy away from oil and towards technology, aviation, tourism, logistics and maritime services, and provide employment and training opportunities to its increasingly educated population.
The Kingdom needn’t look far to appreciate the potential and the promise of SEZ’s with Jebel Ali, Dubai’s largest free zone, home to 135,000 jobs and 9,500 companies, nestling next-door. It is bustling testimony to the power of a few well-considered financial incentives, an efficient, hassle-free regulatory and operating environment, and of course a strategic location. Tiny UAE is now home to more than 40 SEZs. Saudi Arabia, 26 times larger by land mass and three times its population, has only double the UAE's GDP. The potential boggles the mind.
We can safely assume the Kingdom is just getting started. With around 1600 miles of coastline along the Red Sea to the West and the Persian Gulf to the East we can expect many more ECs and SEZ’s specializing in industries such as logistics, supply-chain and maritime services amongst others proliferating in the coming months and years as Saudi Arabia prepares to shift gears in the Vision 2030 marathon begun less than a decade ago.
Two of three Vision 2030 objectives - positioning Saudi Arabia as a global hub connecting Asia, Europe and Africa and as a global industry powerhouse – reference the Kingdom’s geostrategic position: its location at the heart of major trade routes, its vast natural resources and access to 70% of the world’s population in under eight hours. So it makes eminent sense that the location and features of each SEZ reflect strategic advantages for their particular industry of focus including logistics, automobile and maritime industries, pharma and med-tech as well as construction and technology.
Here follows a quick summary of zones planned and under development.
So far, the government has announced a Centre for Riyadh SEZs (November 2023) to oversee SEZs that will be established across the capital city, four SEZs across the Kingdom (April 2023) and ISBL (near Khalid Airport announced in October 2022).
It should be noted that one of the most important incentives ECZA is offering under the SEZ umbrella is a “one-stop-shop” government center. This will enable investors to access a streamlined application and approval process and as well as all manner of ancillary but vital services relating to real estate and accommodation; licensing, tax, regulation and customs; as well as employment services.
1. King Abdullah Economic City (KAEC) SEZ:
Blessed with a state-of the-art telecom services, clean energy sources and excellent utilities infrastructure, KAEC is located on the Red Sea coast with access to King Abdullah Port – ranked amongst world’s most efficient in 2022. A mere ninety miles from Jeddah Airport, KAEC also boasts a high-speed railway network to various locations across the Kingdom.
Offering access to global trade routes by rail, sea and by air, its key features include a port, an industrial park as well as commercial and residential amenities. As a center for advanced manufacturing and logistics, the zone is targeting automobile supply chain and assembly services, sustainable industries such as electric vehicles, technology and MedTech, pharmaceuticals as well as consumer goods. Lucid, a PIF -backed manufacturer of electric cars, has already set up a base in KAEC and plans to produce 150,000 EVs annually.
2. Jazan SEZ
Jazan, located in the fertile southwest and close to King Abdullah Port, is ideally located for easy access to markets in Asia and Africa especially for large scale infrastructure projects. With access to a power plant, a refinery and port, the zone will serve the energy and mining industries but is also expected to become a trade hub for food and agriculture related manufacturing, processing and distribution industries for markets across the greater Middle East and Africa.
3. Ras Al-Khair SEZ
The announcement of this SEZ is in alignment with the Vision 2030 aim of developing a US$ 14B maritime industry. Located in the eastern province, close to the city of Jubail and Ras Al-Khair Port, the Kingdom’s most recently constructed industrial port. With an area of 23 km² and 14 berths, the port is already serving more than 100 manufacturing projects, can accommodate ships of all sizes and has the capacity to manage both general and bulk cargo.
Described as the ‘launchpad on the Arabian Gulf for leaders in the maritime industry’ this SEZ is in a region already home to an established ‘fully-integrated marine ecosystem’. Ras Al-Khair is designed to attract investments across shipbuilding, offshore drilling or rig platforms; their maintenance and repair operations (MRO) as well as in mining and mineral industries such as aluminium production. A power plant, a rolling mill, and a smelter have already been constructed to serve targets across non-oil economic diversification as well supply chain localization. An emphasis on creating a green value chain and access to renewable energy sources is also an important feature of this zone.
4. Cloud Computing SEZ, located in King Abdulaziz City for Science and Technology (KACST)
Set up to target investments across technology services, particularly cloud computing, this SEZ is located in the King Abdulaziz City for Science and Technology (KACST), in the capital city of Riyadh. As Cloud Computing SEZ, it is expected to serve as a hub for ‘emerging and disruptive technologies’ and to support the growth of digital technologies in Saudi Arabia.
By allowing investors to establish physical data centres and cloud computing infrastructure in multiple locations around the Kingdom, and dramatically improving the country’s computing and processing power, this SEZ will help position Riyadh as a Silicon Valley in the desert. Targeting foreign and domestic direct investments worth US$13b across data and artificial intelligence products and services in the zone, the Kingdom hopes to carve out a slice of a global market for cloud services, expected to be worth US$834 billion by 2027.
5. Royal Commission for Riyadh City
Transforming Riyadh into one of the worlds’ top ten city economies is an important element of building a thriving economy, a key pillar of Vision 2030. The government is not leaving this to chance. It has set up the Centre for Riyadh Special Economic Zones to oversee the economic development of the Kingdom’s capital city via a number of SEZ that will serve to diversify the city’s economy and position it as an attractive destination for global investment and global business.
Mindful of the lifestyle of the professionals and investors it will need to attract, Riyadh is also investing in health and education services. In case of the latter, it is inviting international schools and colleges to set up campuses in the city, is working with international health service providers to offer state of the art health and lifestyle services and is building a vast public transport network including a six-line metro to make the city cleaner and more accessible.
It is early days yet for the ‘CRSEZ’ but we will be following their progress with interest.
6. The Special Integrated Logistics Zone (SILZ)
To be set up in close proximity to airports, the first of these SILZ was announced in October 2022. Located at King Khaled International Airport in Riyadh, and governed by the General Authority of Civil Aviation, these SILZs will target investments in maintenance and repair services; sorting and packaging, import, export and re-export services, logistics and after-sales and recycling services. An important objective these SILZ will fulfil is strengthening the national logistics infrastructure ‘to ensure more resilience in the face of supply chain shocks’ and position the Kingdom as an important link in the supply-chain operations of the region.
This logistics zone will be able to process goods in preparation for dispatch within four hours while it can still take up to 24 hours for goods to be processed and dispatched in other SEZs in the region. Other advantages include reduced or no VAT on servicing and assembly, compared to zones in other countries; expedited B2C customs clearances for e-commerce solutions; a 50-year tax holiday and 100% foreign ownership.
What does all this mean for the UAE?
Imitation is the best form of flattery, and the Kingdom is doing a lot of it by learning from the successes and failures of the UAE, whose size most emphatically has not mattered. That may be about to change.
For one thing, the government is not waiting for investors to find their own way to the Kingdom. It has made it clear that only foreign businesses who set up their regional headquarters in Riyadh will have access to government contracts. If not, they will only be able to participate in private sector enterprise. That, and the sheer size of the Saudi market – it has the largest GDP in the Gulf region and accounts for just under 66% of the population which is young and tech savvy - compared to that of the UAE, is a strong incentive to move and many, with established regional operations in the UAE, have already made the move.
In a further blow, Saudi Arabia has withdrawn GCC tariff concessions for goods being manufactured and imported from the free zones in its neighbours’ backyards, namely Oman, UAE, Bahrain, Kuwait and Qatar.
Size it would appear is about to matter a lot.
So, should the UAE be worried?
Not too much. THe withdrawals might be painful in the short-term as the Saudi economy basks in the spotlight for a while, but the region will find a new equilibrium and then move ahead as a bloc towards faster growth. And though the proliferation of SEZ’s might suggest that there will simply be too many in the confines of such a small region, the trick is to zoom out and look at the surrounding regions – Middle East, Asia (especially China and India) and Africa – and sure enough the GCC seems perfectly positioned to serve as a global hub for trade, investment and logistics with more than enough business for all member countries to grow and prosper.
We need only look at the European Union for proof. It is not only one of the largest economies in the world but many of the countries within the union are each other’s largest trading partners. The future seems bright!
We end with a final word from the government of Saudi Arabia: “With hugely attractive financial incentives, world-class infrastructure, business-friendly regulations and streamlined procedures for investors, there has never been a better time to be part of Saudi Arabia’s economic success story. The zones will become engines of growth, increasing the Kingdom’s export competitiveness, attracting talent, boosting technology and improving our global links.”
*The ECZA website describes ECs as full-fledged cities funded, developed and operated by the private sector under government oversight and enablement. It is envisioned that ECs will provide high standards of living across work, home and leisure. The objective of ECs is to a) attract value-added investment, b) diversify the national economy, c) improve public services and elevate the quality of life d) encourage innovation & entrepreneurship, e) develop strategic sectors, and f) provide an environment conducive to exploring new business concepts, models, and practices.
This is the fourth and last in a series of articles on Saudi Arabia's SEZs. For previous articles, click here.
Published on linkedin: 15.12.23 https://www.linkedin.com/pulse/sezing-crown-240inc-ltd-hhwze%3FtrackingId=cbKf5x5rswVdgSBmJvpzwA%253D%253D/?trackingId=cbKf5x5rswVdgSBmJvpzwA%3D%3D
