Despite the COVID-19 pandemic, the economic and social reforms which the Kingdom of Saudi Arabia (Kingdom) embarked on at the inception of Vision 2030 have largely continued. Many of these reforms are aimed at market liberalization, while adapting to the new realities of the current pandemic. Partly due to the pandemic, a record number of bankruptcies and restructurings have been filed in relation to the relatively new Saudi Bankruptcy Law. Certain sectors continue to evolve evidenced by the number of mergers that have occurred in the banking and insurance sectors in 2020, in addition to the merger of SABIC and Saudi Aramco. Saudi Arabia also had its first unicorn in November 2020, when Western Union acquired 15% of stc pay valuing the entity at US$1.3 billion.
The Kingdom also continues to make significant investment in creating new cities such as Red Sea and Neom. We also note the continued focus on the entertainment sector in continuing to license new movie theater operators and focusing on developing the tourism sector.
Review of 2020
In 2020, the Kingdom saw significant development in its legal and regulatory terrain aimed at liberalizing the economy, increasing non-oil revenues and improving investors’ confidence. In the following, we highlight some of the significant examples in the Saudi market in 2020.
• Assuming the G20 presidency: In December 2019, the Kingdom assumed the G20 presidency from Japan. The Saudi G20 presidency began from the 1st December 2019 and ended on the 30th November 2020. The Leaders’ Summit took place on the 21st-22nd November 2020 virtually in Riyadh. In the run-up to the summit, the presidency hosted and will continue to host more than 100 meetings and conferences, including ministerial meetings, as well as meetings of officials and representatives from civil society.
• New draft companies law: The Saudi Arabian Minister of Commerce and the Saudi Arabian Capital Market Authority (CMA) issued a new draft companies’ law for public commenting. If approved, the new draft law will be considered a major overhaul of the current version of the law. The most significant change in the law is the creation of a new corporate form called the simple joint stock company which significantly resembles a private company limited by shares. The new draft was prepared based on a benchmarking exercise which reviewed corporate practices from various jurisdictions.
• New amendments to private fund regulations: In June 2020, the CMA published the draft amendments to the Investment Funds Regulations and Real Estate Investment Funds Regulations for public consultation. One of the most significant developments is the proposed amendments to allow for the listing and exchange of units of closed-ended funds and real estate investment funds on the Saudi Parallel Market (Nomu).
• Adoption of the Payment Service Providers Regulations: After a period of public consultation, the Saudi Arabian Monetary Authority (SAMA) implemented the Payment Services Providers Regulations (PSP). The PSP govern the regulation and licensing of payment service providers, taking into consideration the rapid evolution of the sector globally and in the Kingdom. The PSP address four types of payment service providers: major and micro payment institutions and major and minor electronic money service providers. This has been instrumental in growing the fintech sector in Saudi Arabia.
• Creation of the Saudi Arabian Ministry of Investment: On the 25th February 2020, the Ministry of Investment (MISA) was established to replace its predecessor, the Saudi Arabian General Investment Authority (SAGIA), which had been established on the 10th April 2000. Prior to the creation of MISA, SAGIA was a unit overseen by the Ministry of Commerce and Investment. Upon its creation, MISA played a key role in ensuring business continuity for foreign investors during the COVID-19 lockdown. It is worth noting that according to the Ease of Business 2020 report issued by the World Bank, the Kingdom ranked first in the world in business environment reforms among 190 countries in the Ease of Doing Business Index.
• Increase of VAT to 15%: With effect from the 1st July 2020, the Kingdom announced that the value-added tax (VAT) rate will increase to 15% from the current 5%. The increase comes as part of the fiscal measures taken by the Saudi government in response to the economic impact of the COVID-19 crisis. The increase is aimed at addressing the decline in government revenue resulting from lower oil prices, reduced economic activity and increased healthcare expenditure.
• New approval of 100% foreign ownership in the pharmaceutical distribution and manufacturing sector: On the 15th April 2020, the Kingdom implemented the Pharmaceutical and Herbal Establishments and Substances Regulation, providing liberalization on the ability of foreign nationals or companies to directly own certain pharmaceutical businesses in Saudi Arabia. The regulations removed the restrictions on foreign investors in pharmaceutical warehousing and manufacturing. The Kingdom, however, continues to restrict the retail pharmacy sector to Saudi nationals. The Ministry of Health, however, has licensed numerous foreign entities to own and operate hospitals and medical centers.
• Participation in COVID vaccine trials: In August 2020, the Kingdom commenced a third phase of a clinical trial for a coronavirus vaccine in cooperation with China’s vaccine developing company CanSino. About 5,000 healthy volunteers in the Kingdom over the age of 18 years participated in the trial which was launched in three main cities: Riyadh, Dammam and Mecca.
Preview of 2021
Fintech, e-commerce and digitalization appear to be a focus of the Kingdom’s reform plans. E-commerce, along with digital payments and crowdfunding, has proven to be one of the most resistant sectors during the COVID-19 pandemic. As such, SAMA has been very active and is currently finalizing a new set of regulations which will govern debt crowdfunding. The Kingdom continues to also focus on increasing its stock of middle-income housing for the benefit of the Saudi public.
Despite the COVID-19 pandemic, the sweeping change in the Saudi economy signals that the Kingdom is still open for business. We have witnessed all Saudi governmental entities operating longer hours and meeting with foreign investors via the internet. With the promising news about a potential COVID-19 vaccine, we foresee the Kingdom’s momentum continuing to grow.