Entrepreneurship in the Kingdom of Saudi Arabia

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Global competitiveness: The Saudi giant wakes up




Published: Dec 13, 2010 20:40 Updated: Dec 13, 2010 20:52

When Saudi Arabia announced a few years ago its “Vision 10 X 10”, indicating its determination to join the top ten nations of the world in terms of global competitiveness, there were a few raised eyebrows and a lot of skepticism at this ever happening.

It now seems that the Kingdom might be having the last laugh after all, as recent global competitiveness indicators have propelled Saudi Arabia from 67th position among 135 countries in 2005, to 13th position in 2009. Reaching the target of top ten suddenly seems within Saudi Arabia’s grasp.

How did this happen, given popular misconceptions about Saudi Arabia, such as its much feared bureaucracy and slow decision making processes compared to its more nimble Gulf neighbors Dubai, Bahrain and now Qatar? The answer lays in a combination of factors: A quiet determination to overcome internal obstacles to business, whether faced by Saudi companies or multinationals, assisted by the creation of autonomous but empowered government institutions such as the Saudi Arabian General Investment Authority (SAGIA). The task was simple, if somewhat daunting to anyone taking on the burden of Saudi transformation: To create a pro-business environment; develop a more knowledge-based society, and channel Saudi and foreign investments into mega economic clusters known as “economic cities”.

Success breeds success as they say, and Saudi Arabia seems to have been overtaken by surprise at its new found global competitiveness positioning. The International Finance Corporation, a World Bank affiliate, recognized the Kingdom as the 16th best business-friendly country in the world in 2009, only three notches away from Saudi Arabia’s 2010 goal.

In the foreign direct investment (FDI) sector, the Kingdom has indeed been a star in the Middle East. According to UNCTAD, Saudi Arabia ranked as the 14th biggest recipient of FDI in the world, and the largest in the Middle East, ahead of Turkey and South Africa with their much larger population. Some might argue that a lot of that FDI has flowed into the lucrative Saudi energy sector, but Saudi FDI figures indicate that around ten percent of the estimated $38 billion FDI flow for 2008 flowed into the energy sector and the rest was non-energy related. The results are a trickling down effect on Saudi job creations.

Besides providing attractive low cost-financing to foreigners on an equal footing with Saudi companies under SAGIA licensing, the Saudis are now using tax credits in a novel manner to attract companies that can contribute to technical transfer and know-how to Saudi Arabia. The more technical know-how that is transferred, the more tax credit is given; the more Saudis are employed, the more the tax credit is further reduced. Theoretically, a foreign company doing business in Saudi Arabia could end up with nil tax liability.

To understand what Saudi Arabia is trying to achieve in terms of advances in competitiveness, one has to define the concept itself, as it is not just a matter of tinkering with a few outmoded procedures.  Competitiveness measures the ability of a nation to create sustainable value through its enterprises – whether public or private – and to maintain a high standard of living for its citizens.  Competitiveness is primarily driven by productivity in terms of the level of impact per output used.  Other measurements such as world market share, GDP per capita, foreign investment and trade are indicators, but not drivers of competitiveness, as they are susceptible to external market shocks and price fluctuations, whereas internal driven productivity is less vulnerable to global economic trends.

A nation’s competitiveness depends then on its ability to capitalize on factors which will lead to new sources of wealth over time, by offering the most productive labor forces and the most conducive environment for business. This in turn attracts all the other drivers to succeed. As such, it is equally important for companies to know how to close a business, as well as to how to open a business in the Kingdom which deals primarily with licensing, employment of workers, registering property, enforcing contracts and getting credit. Such seemingly mundane factors are very important if a country is to be ranked higher in terms of the ease of doing business and this is where Saudi Arabia has been making a rapid “catch-up” strategy to reach its 2010 goal.

And who are the nations sitting at this global “Top Ten” high table in terms of global and business competitiveness index and which Saudi wishes to join? The list is impressive and includes many which are automatically associated with ease of doing business. The following are the top ranked countries from one to ten: Switzerland, Finland, Sweden, Denmark, Singapore, US, Japan, Germany, Netherlands and the UK. It might not be that long to see Saudi Arabia joining the elite club, much to the astonishment of its doubters….

(Mohamed Ramady is a former banker and a visiting associate professor, Finance and Economics Department at King Fahd University of Petroleum and Minerals, Dhahran.)

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