Saudi Arabia: From Oil Kingdom to Start-Up Hub

Original Content created by: Lina Abisoghomyan

  Courtesy of Construction Week Online

Courtesy of Construction Week Online

The Players

Saudi Arabia:  is currently in a position of both opportunity and inherent risk. Its economic situation is extremely unique and fragile; it has the resources to do great things with most literally limitless possibilities, but the incentives, intellectual infrastructure, and bureaucratic support in doing so are shaky at best. This gives the Kingdom room to grow, but also a lot of responsibility for that growth. 

Regionl economy: will be affected by Saudi Arabia's decision in the near future as they are an extremely capital-rich but not yet unlocked regional player and, of course, a large participant of OPEC

Investors: have a golden opportunity to commit their money to an up-and-coming investment with a great deal of potential to make huge returns over the initial stages of the project. It is a one-of-a-kind investment in a diverse array of business ventures, architectural projects, and factory building. 

 
  From News Cision

From News Cision

 

The Background

According to the World Data Bank, the oil business accounts for close to 50% of Saudi Arabia’s GDP. But this number has been slowly but surely falling; in 2011, it was a 48.1%, in 2012 it fell to 45.8%, and in 2013 it dropped even lower down to 43.6%.  Saudi Arabia will soon need to realize that its economy’s sustainability and success is only true in the short term. Saudi Arabia has planned a very promising two-level approach, a domestic and an international, in tackling the need for a diversified, healthy, and inclusive economy.

The tactics for encouraging continued international involvement in the Kingdom’s initiatives include building attractive infrastructure to bring in foreign investors for the purposes of public-private partnerships. These initiatives benefit the Kingdom by including it as a player in the international business market for something other than oil. Saudi Arabia has already taken great steps in encouraging development and investment in these initiatives.

The tactic for encouraging continued domestic involvement in the Kingdom’s economic diversification through entrepreneurship, particularly in the technology and professional service sectors, can be largely seen as identifying need for and jumpstarting initiatives targeting previously underrepresented and sometimes even barred groups.

Both these important initiatives also need to be considered from the point of incentivizing business development and the assessment of long-term sustainability.  

 
  Courtesy of Daily Mail

Courtesy of Daily Mail

 

The Story

The King Abdullah Economic City (KAEC) is Saudi Arabia’s most notable public-private venture attempting to secure the framework for Saudi Arabia’s post oil future.The city, located on the Western Coast of the country North of Jeddah, has been developed with particular attention to attracting Western investors and entrepreneurs. KAEC is a pre-emptive solution to the over-estimated amounts and prices of Saudi Arabia’s oil being met with dropping international market prices and demand, and looks to diversify the oil-dependent economy. More than $70 billion has already been invested into KAEC by both the government and foreign investors. Recently, and quite notably, US company Mars has begun building a $200 million factory to produce its candy bars.

 

In educating and including under-represented groups in its new initiatives, the government further highlights the steps it is taking to make the Kingdom look more attractive to the international community and foreign non-oil market investors. The two most important and promising groups for Saudi Arabia’s economic development and diversification are women and newly-graduated youth. The economy, particularly in terms of the market for Small and Medium Enterprises (SME’s) in Saudi Arabia, and the Gulf region as a whole, does not fall into the usual bi-polar classification of developed or non-developed country. It does not have the long-standing history and progression of industry that a developed country would have, nor does it have the lack of capital as a non-developed country would have. Rather, it has little to no infrastructure for production and industry but a huge amount of available capital. 

Incentivizing entrepreneurs to take advantage of these support mechanisms, to invest large pools of capital, is difficult to say the least. People have no need to invest their money in risky ventures when they are already well supported by their government, often paying no taxes and having unimaginably cheap prices for good they do have to pay for, such as .44 cents a gallon for gas.And so, when looking purely at the Kingdom’s domestic plan, it is clear that the business considerations in Saudi Arabia are largely different from those of other countries; the environmental policy debate is linked to future petroleum demand and price.This is just about the only thing that can bolster support and encouragement for the development of a local private industry.