The scale of economic transformation Saudi Arabia is aiming for in its Vision 2030 plan has no equivalent anywhere on the planet.
Vision 2030 aims to turn a country that was until recently very closed to the outside world and that relied on the oil and gas sector for 50% of GDP and 70% of exports in 2019, into a diversified economy with small and medium-sized enterprises, foreign direct investment (FDI), tourism and the private sector major contributors to GDP. It plans to achieve this in less than ten years.
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The ability of its capital city to attract and retain investment, talent and companies will be crucial to whether the country achieves its objectives. The government of Saudi Arabia is undertaking a $800bn investment programme to transform Riyadh into one of the world’s leading business and cultural hubs.
While some might see these ambitions as unrealistic, Greg Clark, group advisor for future cities and new industries at HSBC, says: “The 2030 aspirations are entirely appropriate for a city that has the kinds of ambitions Riyadh has.”
Clark says that Vision 2030 is a perfect example of “a nation recognising that the journey from a commodities-led economy to a diversified economy is one of intelligent urbanisation. If you want to host an economy led by services, innovation, experience and enterprise you need successful vibrant cities.”
How will Riyadh be transformed?
The spatial footprint of Riyadh has grown from just 64km2 in 1970 to more than 1,500km2 in 2020. The population of the city has risen to more than 7 million and the government is aiming for it to reach 15 million by 2030.
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By GlobalDataDespite its size, Riyadh lags behind other cities in the Middle East in terms of its business and financial sectors, its start-up ecosystem, and its all-round liveability.
Riyadh aspires to emulate the FDI success of Dubai and become a rival hub for international business. The government’s strategy to achieve this involves huge investment in urban renewal, reducing bureaucracy and putting pressure on companies to relocate to the city.
Tens of billion of dollars is being invested in Riyadh’s infrastructure across several megaprojects. These include a bus network and integrated metro system spanning 176km and featuring 85 stations across six lines, the largest city park in the world, a new financial district with 59 towers, and a new shopping district featuring five sky-scrappers.
Coaxing companies to Riyadh with Project HQ
In early 2021, the Saudi Arabian government launched Project HQ, an initiative that demands that by 2024 any company with government contracts must have its regional headquarters in the country.
The clear intention of Project HQ is to tempt companies to relocate away from Dubai to Riyadh, using the lucrative government contracts on offer as part of Vision 2030 as both a carrot and a stick.
The challenge for Riyadh is that Saudi Arabia has a perception issue, with none of the social or leisure attractions that Dubai boasts. This quality of life deficit partly explains why service sector companies do not make up a larger part of the economy.
Despite this, US companies Greenbrier, Bechtel and CSG have all announced since the launch of Project HQ that their regional headquarters will now be in Riyadh, while Chevron and Google have confirmed expansion plans in the country.
Saudi Arabia is the largest economy in the region yet only a small percentage of corporations have regional headquarters in Riyadh. Albara’a Alwazir, US-Saudi Business Council
Albara’a Alwazir, a director at the US-Saudi Business Council, says that US companies accounted for 33 new investment projects in Saudi Arabia in 2020 and that interest in investing in the country is on the rise.
“Saudi Arabia is the largest economy in the region yet only a small percentage of corporations have regional headquarters in Riyadh,” says Alwazir. “A lot of their revenues in the region are generated in Saudi Arabia, not Dubai or other places, so you can see why the government wants to encourage companies to have Riyadh as their main headquarters.”
Clark of HSBC thinks that the competition between Riyadh and other cities in the Middle East is overstated and that the Saudi capital will prosper along with the rest of the region.
“I don't see a zero-sum competition between Riyadh and any other city in the region in the medium term,” says Clark. “The Middle East, North Africa and Turkey region is moving rapidly towards being a very high value-added economy, with high levels of innovation, as well as knowledge-based industries, with a shift towards complementing FDI with bottom-up endogenous growth.
“We do not expect other prosperous regions to be dominated by one single city, we see regional prosperity producing multiple successful cities, and I expect the same in the Middle East, North Africa and Turkey."
Changes to Riyadh's business climate
To meet targets of increasing FDI from 3.8% to 5.7% of GDP by 2030 and increasing private sector contributions to the economy from 40% to 65% over the same period, the Saudi Arabian government has pursued several initiatives to improve the country’s business environment.
Foreign investors are now allowed to own 100% of local companies in certain sectors and the government is developing the King Abdullah Financial District in Riyadh, while also launching the Integrated Logistics Bonded Zone in the city, which will offer various incentives to multinational companies.
FDI inflows for 2020 suggest that some of these initiatives are proving successful, with investment in Saudi Arabia more resilient during the pandemic than in most other countries globally.
Waleed Rasromani, a Riyadh-based partner at global law firm Linklaters, says that in some ways the pandemic has accelerated Saudi Arabia’s modernisation.
“Requiring people to be at home and restrictions on face-to-face meetings have forced many government departments to adapt,” he says. “It brought certain processes that were previously steeped in bureaucracy quickly into the modern age, with a lot of meetings now done over video call. The accessibility of individuals and government authorities has generally improved because of Covid.”
Changing cultures
Significant changes to both the business culture and culture more generally will be needed if Riyadh is to become a global city in the way Vision 2030 imagines.
We do not expect other prosperous regions to be dominated by one single city, we see regional prosperity producing multiple successful cities. Greg Clark, HSBC
The city ranks just sixth in the Middle East, North Africa and Turkey region for the number of start-ups and scale-ups and historically in Saudi Arabia less than 1% of GDP has been invested in R&D. The government has launched an incubator and accelerator programme in Riyadh in order to better support nascent companies.
Riyadh also ranks 104th globally for talent competitiveness. More than 40% of Riyadh’s population is foreign-born yet the government hopes to strengthen the city’s universities to attract more highly skilled workers. The government is encouraging foreign universities to open international branches in the country, as some already have in Dubai and Doha.
In December 2020, Riyadh was awarded the 2034 Asian Games, one of several international events the government hopes to attract to the city to help raise its international profile.
However, continuing restrictions on alcohol, revealing clothing and open displays of affection that are completely alien to many international visitors act as a deterrent to both tourists and business visitors.
“Saudi Arabia is very ambitious and wants to be a global leader in a multitude of sectors that it is not a leader in today,” says Alwazir. “To do so it has to adopt the best global practices and that requires partnerships, specifically FDI, with many countries.”
The government’s initiatives may be increasing FDI to Riyadh, but it is far from clear whether the wider transformation of the city imagined in Vision 2030 will be achieved.
This article is part of Investment Monitor’s Future of Middle Eastern Cities series. Other articles in the series are:
