Creating a platform for a brighter economic future

Alkhabeer Capital terms Saudi reforms ‘out-of-the-box’ strategies for transforming economy and society

May 11, 2018

ALKHABEER CAPITAL, the Jeddah-based asset manager specializing in alternative investments, released a report titled ‘Saudi Arabia: Thinking Out of the Box and Reshaping the Economy’. This report outlines highly important long-term opportunities created by the government’s diversification strategies, which are part of the National Transformation Program 2020, while assessing solutions to possible short-term challenges.

Ahmed Saud Ghouth, Alkahabeer Capital’s chief executive officer, commented: “The government is creating a platform for a brighter economic future. There is also a larger picture of the economic transformation that is still unfolding in light of the recent developments. Investors must increase their investment diversification and think over the long term. Long-term investments will ensure sustainable returns for investors in light of the opportunities that are still arising.”

The report illustrates what the reforms will mean to Saudi Arabia’s economy and society in the years to come, based on Alkhabeer’s studies of the Kingdom’s key sectors. Alkhabeer’s aim is to shed more light on the National Transformation Program, which signifies an important step in the history of the Kingdom.

In the report, Alkhabeer Capital takes an optimistic view of these changes, predicting an uptick in growth from 2019 onwards. The report also outlines possible challenges in the short-term. These include increases in electricity and fuel prices and the implementation of VAT.

According to the report, Alkhabeer sees inflation to rise to over 5 percent this year, while highlighting government plans to mitigate near-term negative impacts through a series of measures, including the Citizens Account Program, along with additional payments to state employees, pensioners and soldiers. Alkhabeer believes that by directing government expenditure to investment rather than consumption, the fiscal reforms initiated by the Kingdom will prove positive over the long-term.

For 2018 and 2019, Alkhabeer forecasts 1.8 and 2.3 percent economic growth respectively, with both estimates being slightly higher than what IMF predicted earlier this year. It expects growth to strengthen beyond 2019 if the government is able to manage the short-term inflationary pressure and continue its investment-focused policies.

Alkhabeer also believes that recent decisions to overturn longstanding social restrictions, while enabling the participation of women in the local labor market, will help fuel consumer markets.

The report also analyzes the Kingdom’s strategy that aims to improve the skill sets of Saudi citizens, create more employment opportunities for them and reduce the dependence on expatriates, highlighting efforts in that area such as updating the Nitaqat system. Alkhabeer posits that even a 10 percent shift over time in employment towards Saudis could help solve the unemployment problem.

Over the next five years, Alkhabeer expects major improvements in the education system to keep up with the demand of the Saudi job market. This is evident with the growing number of schools and colleges that provide vocational courses, training programs and quality education to prepare Saudis for the increasingly competitive job market.

Alkhabeer expects the non-oil sector to play a significant role in the country’s growth narrative over the coming years. The key sectors that will play a major role in this growth narrative are construction, retail, entertainment, education, healthcare and tourism.

Amongst additional key takeaways, the report confirms that the mega development projects under way have the potential to make the Kingdom a regional tourism and entertainment destination. It takes into perspective large-scale projects and initiatives such as a recent agreement with SoftBank to build the world’s largest solar plant, conceptualizing ‘NEOM’, the 10,230-square-mile transnational city and economic zone, and the leisure city in Al Qidiya. In addition, Alkhabeer believes that investors will become more receptive to REIT funds, as their popularity will increase among investors who are targeting regular-income investments such as corporates, Waqf entities, and individuals, which will help attract investments to the real estate sector.

The reforms, the report analyzes, are also geared towards supporting the capital markets, which are expected to play a key role in implementing the investment plans whilst also being critical to the development of the SME sector. – SG

May 11, 2018
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