This is the second in our series of articles on Saudi Arabia's economic transformation exploring developments across industries such as tourism, technology, aviation as well as health and education. We start with a broad overview of economic policies, initiatives and strategies before digging deeper into the industries. Read A very Saudi vision, the first in our series or skip to the next one and read Saudi strikes a pose.
The Saudi government is laying the groundwork for establishing the capital city of Riyadh as a regional economic hub. An initial influx of big names and famous brands flocking to the city is expected to create an ecosystem of opportunities and demand, attracting talent and professional business service providers. The objective is to set off a virtuous cycle of demand and supply that will open Riyadh’s economy in the medium term and catapult it into the exclusive club of cities from NYC and Boston to London and Tokyo.
To this end, the Royal Commission for Riyadh City (RCRC) has just launched a new SEZ* (Special Economic Zone) centre in the city. As a financially and administratively independent entity, the RCRC will be able to develop additional economic zones in Riyadh as needed.
The Centre for Riyadh SEZ will operate under the aegis of RCRC and is the most recent SEZ to be launched in Saudi Arabia, following four launched in April 2023. It is the latest move in the Kingdom's drive to create an investor-friendly environment as it continues on the path to economic diversification.
A glass slipper for Riyadh
The relationship between the SEZ centre and RCRC will be governed by a cooperative framework that will enable the two entities to leverage each other’s experience and ensure their strategies for their respective regions are closely aligned via policies and incentives designed to streamline business functions and enhance value.
They will be responsible for:
- granting licences to investors wishing to operate in these zones
- developing a competitive and attractive investment climate by allowing the recruitment of national and international talent
- establishing a competitive regulatory environment for a wide cross-section of businesses
- offering comprehensive business services based on international best practices
Pre-eminently, the SEZs will:
- contribute to the objectives of Vision 2030 by creating investment opportunities for investors to collaborate on projects with government entities, stakeholders, and partners.
- create a competitive environment, overseen by the RCRC to ensure that it remains conducive to economic growth
The RCRC is the latest entity established under the Economic Cities and Special Zones Authority (ECZA) formed in 2010 to regulate KSA’s Economic Cities (ECs) and SEZs. In 2019, ECZA’s mandate was expanded to include developing the appropriate regulatory environment for attracting international investment and businesses and supervising SEZs to ensure operations in alignment with industry best practices and international regulations.
An ECZA'matic transformation
The primary objective of the ECZA is to improve KSA’s global competitiveness by creating an investor friendly regulatory environment; improving ease of doing business with seamless, efficient and integrated government services and providing incentives to attract businesses from certain economically critical industries. To attract and retain talent, the ECZA ensures that ECs and SEZ pay equal attention to developing urban living spaces designed to cater to the well-being of the individual as well as the community and to offer rich, multifaceted living experiences.
So can it? Will they?
There is more than just some historical evidence to suggest it could and they might. There were 5,400 SEZ’s in 147 locations as of 2022 so the Kingdom is in crowded company. All were set up to liberalize economic regulation and promote economic development, but their varying degrees of success reflect the extent of ‘government support, sector focus, innovation and long-term vision’.
When done well, SEZ’s can serve their objectives by signalling to investors that the risks associated with investing in the economy will be mitigated by investing within the zones. To borrow a term from the fintech industry, SEZ’s serve as a sandbox of sorts for international firms where the host country offers exemptions, incentives, access to infrastructure and facilities, that make the economy competitive with other advanced economies but are not yet available in the economy as a whole.
What does it mean to do SEZ’s well? From fishing village to knowledge hub, the transformation of Shenzhen is instructive. Its success is rooted in government support; collaboration between public and private sector stakeholders; focus on specific sectors (in this case a manufacturing hub with proximity to a seaport advantageous to shipping and logistics operations); an entrepreneurial spirit emboldened by an openness to creativity and continuous innovation.
Meanwhile, neighbourhood SEZ’s such as Jafza, established in UAE in 1985, began with 19 companies and is now home to 9,500. Not bad at all.
Will KSA be the belle of the Middle Eastern ball?
Well, the size, sectors and location of the SEZs certainly reflect not only the scale of the Kingdom’s ambition for economic might but also a tacit acknowledgement of the role FDI has to play in realizing that ambition. And the Kingdom has made exponential progress towards a number of Vision 2030 targets from increasing female participation in the labour force to ease of doing business rankings. Furthermore, from small brands to famous names, businesses are in search of growth opportunities. In the Kingdom of Saudi Arabia, these could be game-changing.
So, yes. Probably.
The final word goes to Gary Dugan an, CEO at The Global CIO Office speaking to Arab News:
“The economic zones are one of the final significant legs of the 2030 vision. The government has made a radical shift in the development of the domestic base through huge ambition, and technology. The stage is to bring the world to Saudi Arabia — to confirm that the country is truly a key component of the global economy.”
* The Statute of the Economic Cities and Special Zones Authority (the ECZA Statute) defines a “Special Economic Zone” as a KSA special economic zone established under the ECZA Statue. SEZs are geographically delineated areas set up to support specific activities such as investment, trade and employment by providing competitive advantages and legislative frameworks that are different from those of the broader Saudi economy.
Published on linkedin: 11.18.23 https://www.linkedin.com/pulse/sezs-power-potential-240inc-ltd-7lm6e%3FtrackingId=Gto%252Ba6V1PXPgfMQbgVJvGQ%253D%253D/?trackingId=Gto%2Ba6V1PXPgfMQbgVJvGQ%3D%3D
