Saudi Arabia's special economic zones 'pivotal' to its future as an investment destination

The kingdom recorded more than $266.6bn in investment in 2022, Minister of Investment says

Saudi Arabia's King Abdullah Port, on the Red Sea, will anchor the King Abdullah Economic City special economic zone. All photos: Economic Cities and Special Zones Authority

The special economic zone will focus on advanced manufacturing and logistics

The Knowledge Economic City focuses on consumer goods, medical technology and information and communications technology

The four new zones will offer companies financial and non-financial incentives such as competitive corporate tax rates

Saudi Arabia is pushing to become one of top 15 global economies by 2030

Saudi Arabia's new special economic zones are “pivotal” to its present and future as a global investment destination, creating opportunities for sustainable business growth, the kingdom's Minister of Investment said.

These next-generation zones will enable the country to “win and play” in a fast-changing world economy and geopolitical environment, said Khalid Al Falih, who is also chairman of the board of directors of the Economic Cities and Special Zones Authority (ECZA).

“The zones are part of efforts to strengthen our standing as an investment hub and provide businesses with a launch pad for growth to new targeted markets,” he told the Saudi Special Economic Zones Investment Forum in Riyadh on Monday.

The zones will contribute to Saudi Arabia's economic transformation journey, boost the non-oil sector, create value for investors and help the kingdom to attract high-skilled talent, he said.

Saudi Arabia's capital formation to total investments grew by 31 per cent year-on-year to exceed one trillion Saudi riyals ($266.6 billion) in 2022, Mr Al Falih said.

Saudi Arabia’s new special economic zones, launched last month, have attracted $12.6 billion from investors across maritime, mining, manufacturing, logistics, and tech sectors. An additional $31 billion in investments is in the progress, it was announced in the forum.

The zones were launched to offer companies financial and non-financial incentives as the kingdom seeks to attract more foreign investment and position itself as a global business centre.

They will focus on the advanced manufacturing, cloud computing, medical technology and maritime sectors, all key growth areas.

The special economic zones are the King Abdullah Economic City, Jazan, Ras Al Khair and Cloud Computing, in the King Abdulaziz City for Science and Technology.

The zones were officially launched on Monday during the forum, with each being granted licences.

Government officials at the forum made the case for the continued relevance of economic zones globally amid a qualitative shift in FDI flows where investors are becoming more selective, while the trend is towards "friend-shoring".

Friend-shoring refers to manufacturing and sourcing from countries that are allies.

"Given these dynamics, let me ask a rhetorical question: Are SEZs still relevant for high-growth economies? The answer, in my mind, is a resounding 'yes'," Mr Al Falih said.

"Globally, SEZs have gain renewed relevance as part of [a] broader industrial policies comeback trend to attract FDI and supply chains."

Today's special economic zones must go beyond financial incentives and infrastructure to delivering "soft incentives", such as overcoming supply chain bottlenecks through business-enabling regulations, he said.

In October 2022, Saudi Arabia opened the Special Integrated Logistics Zone at King Khalid International Airport in Riyadh as part of plans to boost its cargo capacity, bolster supply chains and become a global logistics centre.

The development of the special zones is part of a broader economic transformation in the country as part of Vision 2030 – an initiative to reduce its reliance on oil, unlock the potential of the private sector to drive growth and put in place sweeping reforms to boost its business competitiveness.

The kingdom, which has a domestic market of more than 30 million people, recorded economic growth of 8.7 per cent in 2022 – one of the fastest among G20 economies.

The country plans to use its strategic location and resources to develop the most promising sectors, from advanced manufacturing to artificial intelligence, for sustainable economic growth in Saudi Arabia and the region, Mr Al Falih said.

About 13 per cent of global trade passes through the Red Sea and the kingdom's strategic location offers access to 70 per cent of the world’s population within eight hours’ flight time.

Saudi Arabia is placing “great emphasis” on putting in place a national special economic zones agenda and developing a network of competitive zones to boost investment in a wide range of industries, said ECZA secretary general Nabil Khojah.

“As the kingdom's economy grows and investors' needs evolve, we plan to expand our network of SEZs in the future,” he said in an introduction to a detailed brochure on the zones.

The existing network offers robust infrastructure and connectivity, supportive regulation, attractive incentives, competitive costs, local talent and an environment that “maximises opportunity while minimising risk for businesses”, he said.

The kingdom has placed specific "guard rails" to ensure that the special economic zones do not compete with or take away from the main economy's growth, Saudi Finance Minister Mohammed Al Jadaan said during a panel discussion at the forum.

Clear policies have been drawn to ensure that they do not "cannibalise" the base economy or each other, "otherwise it will be a race to the bottom", he said.

Mr Khoja told the forum that each zone has a specific cluster with a sector that either does not exist or has a minimal presence in the main economy, so they represent "enormous opportunities".

The Arab world's biggest economy is pushing to become one of top 15 global economies by 2030.

It is developing a series of projects in critical sectors ranging from tourism to manufacturing, and putting in place reforms to attract investment as part of its Vision 2030 programme.

In October, the kingdom launched the Global Supply Chain Resilience Initiative to support investments worth 40 billion riyals in its first two years.

The project will allocate 10 billion riyals in financial and non-financial incentives for investors as the country seeks to expand its transport sector and become a global logistics centre.

The new special economic zones are designed to hasten the development of key sectors within Saudi Arabia – from medical technology to maritime industries, and attract foreign investors.

“In a challenging and uncertain global economy, we offer unmatched opportunities and a government that is fully committed to doing whatever it takes to help you access these,” Mr Al Falih said in the brochure.

Mr Al Jadaan said the special economic zones were a "very important project" for Saudi Arabia's Vision 2030 as they are expected to attract more foreign direct investment, boost private sector participation and enhance local content.