Saudi Arabia’s reforming business landscape

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In June Saudi Arabia announced it would be relaxing the 49 percent limit for foreign strategic investors in shares of listed companies. The move came as part of a reform package that the Kingdom has instituted as part of the Vision 2030 agenda to diversify the economy.

The World Bank’s Ease of Doing Business 2019 report found that Saudi Arabia ranked fourth in terms of the number of reforms that would contribute to improving the country’s business environment amongst G20 nations.

The Executive Committee for Improving the Performance of Private Sector Businesses (Tayseer) has been responsible for implementing these reforms. Earlier this year, the Saudi Arabian General Investment Authority (SAGIA), the foreign investment license provider for the Kingdom, reported that Tayseer had implemented 45 percent of more than 500 economic reforms.

These reforms had been identified as key to improving the Kingdom’s business landscape and achieve the Vision 2030 goal of expanding the private sector’s contribution of GDP to 65 percent from its current 40 percent.

Sectors that have hitherto been negligible or nonexistent, such as entertainment and events, have become open for innovative entrepreneurs looking to capitalize on the Kingdom’s reform agenda.

In January of 2018, SAGIA launched the Entrepreneurs License aimed at streamlining the process for any entrepreneur looking for an investment opportunity in Saudi Arabia. For regional and international entrepreneurs only two documents are required – their companies’ articles of association and an acceptance letter from a Saudi university or one of the Kingdom’s approved business incubators.

Saudi residents meanwhile only require a no-objection letter from their employer or sponsor in order to proceed – a process which can be completed through SAGIA’s e-portal with the license issued within a few hours.

Al Arabiya English spoke with Muhammed Mekki, a founding partner at AstroLabs, Saudi Arabia’s first licensed international incubator. He said, “Everything has changed with the introduction of the Entrepreneur License offered by SAGIA. Startups are now able to quickly and easily form onshore entities at subsidized rates.”

SAGIA has played an important role in increasing the Kingdom’s appeal to entrepreneurs. “Since its inception, SAGIA has been structured to facilitate foreign investors’ entry to the Kingdom, as well as supporting the local investor,” said Dr. Mazin al-Zaidi, the Entrepreneurship & Innovation Segment Director at SAGIA.

According to al-Zaidi, SAGIA will help pave the road for aspiring entrepreneurs by providing them with useful data as well as support in exploring the local market and talking to potential investors.

That is not to say that challenges for entrepreneurs do not exist, however. “Entrepreneurs from outside the Arabian Gulf region might need to spend a bit of time understanding the local business landscape, and this is where we help as well,” added al-Zaidi.

In addition, talent acquisition continues to be an area of difficulty according to Mekki. “A key challenge in the Saudi market is finding the right talent, since the digital economy itself is relatively new and top talent is difficult to attract from their traditional jobs in finance, oil and gas, or government,” he said.

Although startups across the board have begun to flourish in the Kingdom, technology startups in particular are thriving in Saudi Arabia and the region as a whole. “The growth in the startup and tech ecosystem in the region is phenomenal, and yet, we are just at the beginning of a trajectory that will see technology-driven companies grow significantly and incredibly quickly over the coming years,” said Noor Sweid, general partner at Global Ventures, a Middle East venture capital fund.

Mekki noted that in Astrolab’s experience, consumer-focused technology companies represent the fastest growing technology segment at the moment. In other sectors, such as finance and health, there is still some regulatory uncertainty. Once a regulatory framework is approved, however, he expects the fintech sector to blossom with innovative startups moving to the forefront.

In comparison to its regional rivals, Saudi Arabia has certain systemic advantages. Its position as the largest economy in the MENA region provides a certain attraction to entrepreneurs. The larger market may help businesses scale faster and grow, which for a startup is crucial in proving that their business model is sound. Recent reforms in foreign investment will also likely prove attractive, as founders can expect more investment and stock-listing opportunities to open up in the future as their business grows.

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