July 22, 2024/
Iraq aims to boost the country’s economic performance through enhancing political stability and security, building and improving infrastructure, promoting investment…
In this article, we delve into trends in Saudi Arabia FDI opportunities for European companies.
In the Kingdom of Saudi Arabia, foreign direct investment (FDI) projects serve as the cornerstone of our economic aspirations. These projects not only bolster growth through capital accumulation but also serve as catalysts for job creation, productivity enhancement, and technology adoption. Saudi Arabia stands tall on the global stage as a beacon for FDI. Also, the Kingdom is attracting thriving companies that not only nurture local talent but also entice fresh workforce to our shores.
The Global FDI Landscape
In recent years, the global Foreign Direct Investment landscape has been marred by market uncertainties and trade fragmentation. Geopolitical tensions and volatile food and energy prices have posed significant challenges, particularly for developing nations. Addressing these hurdles necessitates collaborative efforts on a global scale.
Amidst these challenges, Saudi Arabia has emerged as a formidable player in the FDI arena. Saudi Arabia net FDI inflows surged to $3.49 billion in the fourth quarter of 2023. This is marking a remarkable 16% increase from the previous quarter. The resilience of the Saudi economy, coupled with strategic geographical positioning and favorable economic policies, has rendered Saudi Arabia irresistible to international investors.
Vision 2030: A Roadmap for Saudi Arabia FDI Excellence
With a visionary roadmap like Saudi Vision 2030 spearheaded by Crown Prince Mohammed bin Salman, Saudi Arabia aims to attract a staggering $100 billion in FDI by 2030. This ambitious endeavor seeks to diversify our economy away from its dependence on crude oil exports, fostering sustainable growth and prosperity. Central to this strategy is a commitment to investment promotion, transparency, and creating an alluring global financial environment.
This effort includes initiatives such as the National Investment Strategy, the Regional Headquarters Program, and zero-income tax incentives for foreign companies. These measures are seen as essential for advancing Vision 2030, which aims to expand and diversify Saudi Arabia’s economy.
The Success Story: Saudi Arabia FDI Triumphs
In 2023, Saudi Arabia witnessed a commendable 12% surge in FDI inflows, soaring to SR72.28 billion. This substantial increase underscores the Kingdom’s attractiveness to foreign investors seeking lucrative opportunities. Noteworthy initiatives such as the Regional Headquarters Program have enticed multinational giants like Google, Microsoft, and Amazon to establish footholds in Saudi Arabia. Moreover, key players from the US and the UK, including Northern Trust, Bechtel, and IHG Hotels & Resorts, have embraced this initiative. Thus, these moves are propelling Saudi Arabia into the global spotlight as a thriving business hub.
European Business: Opportunities in Saudi Arabia
As Europe undergoes economic transformations, Saudi Arabia emerges as a prime gateway for European companies eyeing expansion into the Middle East, Asia, and Africa. The Kingdom offers a plethora of investment prospects across sectors such as agribusiness, logistics, infrastructure, and sustainable energy. Additionally, burgeoning industries like fintechs, agritechs, and healthtech beckon European enterprises to explore untapped potential in this dynamic market.
Navigating the FDI Horizon
In conclusion, Saudi Arabia’s resolute commitment to fostering FDI lays the foundation for sustainable economic growth and prosperity. With a visionary roadmap, robust policies, and enticing incentives, the Kingdom of Saudi Arabia stands poised to unlock new frontiers of prosperity for both domestic and international investors. As we chart our course towards Vision 2030, the allure of Saudi Arabia as a premier FDI destination shines brighter than ever before, beckoning global enterprises to join us on this transformative journey.
Digital banking in Iraq. But first, what about the banking sector overall in Iraq? Currently, 54 banks operate in Iraq, of which 7 are state-owned, 15 are foreign and 11 are specialized in Islamic banking services. As for the branch network, Iraq currently has around 920 bank branches across different governorates. The Iraqi banking sector is significantly underpenetrated compared to MENA countries. The sector is mainly characterized by low penetration, high asset concentration, and small branch/ATM networks. Therefore, the banking sector has contributed to only 1.94% of the national GDP in 2021.
The majority of these actors rely heavily on the Central Bank of Iraq’s (CBI) foreign currency sales to secure a profitable balance sheet, rather than traditional investments.
Digital Banking in Iraq
Digital banking has transformed the way things are done. Now all you have to do to get cash is to get to the nearest ATM, use your card, and get cash in under a minute! Moreover, going digital allows you the perfect opportunity to enjoy a paperless banking experience, where you no longer need to keep track of your transactions or banking history through physical documents.
In 2014, regulations governing retail payments were introduced, followed by the implementation of the Iraq Retail Payment System Infrastructure by the CBI in 2016. Subsequently, mobile wallets such as ZainCash and AsiaHawala received authorization from the CBI in the same year. Their utility became particularly evident during the COVID-19 pandemic, facilitating the disbursement of government grants and stimulating online shopping and e-commerce platforms.
Electronic Cards
The number of issued electronic cards has grown since 2017. Prepaid cards, in particular, have grown exponentially in popularity, with over 9.7 million cards issued by the end of 2021. This seeming preference is due to the ease of their use and the simplicity. Because they can be obtained without the requirement to create a bank account.
In early 2021, the Central Bank of Iraq launched the Digital Banking Enrollment service. According to the CBI, the program is an “integrated digital financial system” that enhances independence from traditional systems. However, Iraq’s banking and financial legislation is outdated and cannot accommodate modern digital systems.
On March 28, 2024, the Central Bank of Iraq implemented regulations governing the licensing of Digital Banks within the country. The emergence of digital banking is reshaping Iraq’s financial landscape, presenting customers with increased convenience and innovation. Nevertheless, this evolution necessitates adept maneuvering through intricate regulatory frameworks. This briefing offers a succinct summary of the regulatory environment concerning digital banking in Iraq. These regulations also emphasize essential factors and repercussions for financial entities engaged in this domain.
Prospects for the rise of digital banking
Unlike traditional banks, digital banks do not have a store-front presence but use the Internet to serve clients through mobile phone applications and online platforms. It means the availability of all banking activities online.
Cash still is King. Cash’s dominance in Iraq’s economy hinders the growth of the banking system. It is also the biggest instrument of economic exchange. The importance of cash is tied to the stability of the economy due to its usefulness during crises and the need to withdraw it to support spending. Iraq should think bigger and take steps towards establishing a vibrant digital banking system. This would provide consumers with better access to tools like e-payments and improve service provision.
In Iraq, a transition to digital banking will alter the behavior of both companies and consumers holistically.
An indispensable component of any digital banking infrastructure is the capability to facilitate electronic payments. Currently, Iraqis predominantly encounter this through the government’s distribution of public sector salaries via smart cards. However, despite this method, a significant portion of individuals opt to withdraw their salaries as cash, effectively bypassing the digital banking system.
Moreover, while consumers around the world also use their devices for financial transactions, there is a limited opportunity for Iraqis to follow suit because banks and retailers do not yet use e-payments.
Kurdistan Region of Iraq
The banking sector in the Kurdistan Region of Iraq has a limited role in business transactions and, consequently, in economic development. This heavy reliance on cash limits opportunities for economic expansion. An efficient banking system needs interbank and government securities markets to provide liquid instruments for short-term investment. A lack of confidence in the banking sector is related to a loss of deposits under the former regime. While there is no short-term solution to reestablishing trust in the banking system, steps can be made to increase public confidence in the banking sector.
Iraq’s Digital Banking for Financial Institutions
In 2021, CBI allocated around 42 trillion IQD towards the development of industrial, transportation, and a range of other sectors in an effort to tackle stagnation and encourage existing small projects. State-owned banks led investment with an 11.4% increase in 2021 due to COVID-19’s financial impact. Private domestic and local banks saw significant growth. Private foreign banks, however, experienced a 60% decline.
Financial institutions interested in establishing a digital bank in Iraq must comply with regulations set forth by the CIB. These regulations include obtaining a license from the Central Bank, meeting minimum capital requirements, submitting detailed documentation, and adhering to cybersecurity and data protection standards.
To initiate the application procedure, applicants must furnish details including the bank’s title, invested capital, and nation of origin. Also, applicants must provide the legal ownership structure, financial records, and organizational layout, among other particulars. Moreover, they are required to present a financial viability assessment and remit a non-reversible fee for license application.
Foreign Investment
For companies that want their business to thrive in the high-intensity world of banking and finance in the Middle East, Iraq could be a gate to enter the market. With several successful entry cases for global and regional banks, Iraq private banking sector is promising.
The majority of the foreign banks in Iraq focus on the Kurdistan Region. Top Iraqi private banks generate most of their revenue from trade related activities and net interest income. Foreign participation in digital banks operating in Iraq is allowed, subject to certain conditions. Foreign shareholding in a digital bank should not exceed 49%, and there must be a contribution from a conventional bank of not less than 30% of the digital bank’s shares, with approval from the CBI.
The potential risks associated with operating a digital bank in Iraq include cybersecurity threats, compliance failures, operational disruptions, and financial instability. To have safe digital banking in Iraq, banks must take some measurements. Digital banks must implement robust risk management practices and contingency plans to mitigate these risks. Thus they can safeguard the interests of depositors, clients, and shareholders.
The Kingdom of Saudi Arabia is currently experiencing a significant surge in foreign companies’ influx, accompanied by various other factors. This dynamic environment has led to a remarkable 20% increase in office space rental prices. In the first quarter of 2023 alone, Saudi Arabia issued an astounding 1,600 foreign investment licenses, averaging at about 25 licenses granted each day. The escalating demand for office space is not only driven by foreign companies but also fueled by the establishment of new government and private entities.
Rising Demand for Office Space: The occupancy rate in category an office space has soared to an impressive 97%, marking a 15% price increase over the past year. This trend is poised to continue as more foreign companies set foot in the Kingdom and various commercial sectors expand. This increasing demand has created a vibrant market for office space, making it an attractive investment prospect.
Investment Opportunities in the Construction Sector: The construction sector is emerging as a hotspot for investors, with the Saudi government launching mega and giga projects in the tourism and housing sectors. These ambitious projects are not only boosting the economy but also driving the need for additional office space. Investors with an eye on the real estate and construction industries are well-positioned to capitalize on this opportunity.
Government’s Commitment to Investment: During the first quarter of 2023, the Saudi government sealed 104 investment deals, a notable increase from the previous year’s 101 deals, representing a 3% growth. This underlines the government’s unwavering commitment to facilitating foreign investment and economic diversification. Such initiatives create a favorable environment for businesses, further stimulating the demand for office space.
Erbil, June 6 – Injaz Company, a trusted leader in business solutions, successfully participated in the prestigious HITEX event, held in Erbil. With a strong focus on expanding its international business services, Injaz Company showcased its expertise in supporting organizations in their global growth initiatives.
As businesses increasingly sought to enter new markets and seize international opportunities, Injaz Company stood ready to provide comprehensive support and guidance. With a deep understanding of diverse markets and extensive experience in international business expansion, Injaz Company offered tailored solutions to help companies navigate the complexities of global trade.
During the HITEX event, Injaz Company showcased its wide range of services designed to facilitate international expansion. From market research and strategic planning to regulatory compliance and partner identification, Injaz Company’s experts were equipped to assist organizations at every stage of their global journey.
The Injaz Company team was present at their booth, engaging with attendees, sharing insights, and discussing potential collaborations. By leveraging their extensive network and industry knowledge, Injaz Company aimed to connect businesses with the right partners and resources to accelerate their international growth.
Injaz Company’s participation at HITEX highlighted its dedication to helping businesses thrive in the global marketplace. With their international business expansion services, they continue to empower organizations to unlock new growth opportunities in global markets.
Saudi Arabia is taking a bold step forward in its pursuit of becoming a global investment destination with the announcement of the establishment of four new special economic zones (SEZs) on 14 April 2023. The SEZs will be located in Riyadh, Jazan, Ras Al-Khair, and King Abdullah Economic City. And the zones aim to offer competitive incentives to international investors. The zones will serve as new hubs for businesses across key growth sectors, enabling them to launch and expand companies and technologies that will shape the future.
Crown Prince Mohammed bin Salman stated that the new special economic zones will create tens of thousands of jobs. Equally important, the Crown Prince stated that the SEZ will contribute billions of riyals to the country’s gross domestic product. The zones will support existing national strategies and build new links with international frameworks. The zones will leverage the competitive advantages of each region of the country to support key sectors such as logistics, advanced manufacturing, technology, and other priority sectors in the Kingdom.
Opportunities in the Special Economic Zones
Companies operating in the SEZs will enjoy a range of benefits, including competitive corporate tax rates, exemption from customs duties on imports, production inputs, machinery, and raw materials, 100 percent foreign ownership of companies, and flexibility to attract and hire the best talent worldwide.
In addition to the benefits for international investors, the SEZs will also provide significant opportunities for developing the local economy, generating jobs, and localizing supply chains. These zones represent a continuation of the Kingdom’s long-running initiatives to transform itself into a global investment destination and a vital hub for global supply chains, leveraging its strategic location at the heart of global trade routes.
The new SEZs come with a host of competitive benefits. Firstly, a 5% Corporate Income Tax rate for up to 20 years, 0% withholding tax on repatriation of profits from SEZ into foreign countries. Then, customs duties are deferral for goods inside SEZ or 0% Custom duties on capital equipment and inputs inside SEZ. Also, there will be 0% VAT for all intra-SEZ goods exchanged within and between the SEZs.
In addition, the SEZs will have flexible and supportive regulations around foreign talent during the first 5 years. There will be the special tax treatment in line with OECD principles to avoid double taxation. Furthermore, there will be a competitive rate of utilities exemption from operational fees for employees and their families.
Special Economic Zones Role in Diversification of the Saudi Economy
The establishment of these new SEZs is a significant milestone for Saudi Arabia as it seeks to diversify its economy and attract more foreign investment. Evidently, the new SEZs offer a unique opportunity for businesses looking to expand into the Middle East region.
By creating a business-friendly environment with attractive incentives, the Saudi government is demonstrating its commitment to accelerating economic growth. Moreover, the SEZ are supporting job creation and promoting innovation across the country. This is why, the SEZs are expected to become key drivers of growth. The Special Economic Zones help to create new industries and unlock new opportunities for investment and development.
In conclusion, the establishment of these new Special Economic Zones is a welcome development for Saudi Arabia and the broader Middle East region. The competitive incentives and business-friendly environment they offer are obviously expected to attract significant investment and drive economic growth in the coming years. As such, they represent a unique opportunity for businesses looking to expand their operations in the region and take advantage of the numerous benefits on offer.
The Special Economic Zones
King Abdullah Economic City (KAEC) SEZ
The premier destination for advanced manufacturing and logistics, from automobile supply chain and assembly to consumer goods, ICT to MedTech. Set in a prime location on the Red Sea, KAEC is less than 90 minutes from Jeddah Airport. And then, this 60km2 site offers unrivaled access to global trade routes through King Abdullah Port. Positively, the King Abdullah Port is ranked the world’s most efficient by the World Bank in 2022. Anchor investor Lucid, for example, a leader in the global EV industry, will produce 150,000 EVs a year from its base in KAEC SEZ.
Jazan Special Economic Zone
Jazan SEZ is an industrial center and a key platform for trade with fast-growing markets in Africa and Asia. The SEZ offers access to the largest port in the region for the export of goods and import of materials. Besides it is helping investors benefit from and contribute to large-scale infrastructure projects in Saudi Arabia and around the world, backed by easy access to both natural and industrial resources. What’s more, Jazan is part of the Kingdom’s fertile southwestern region. Thus, Jazan Special Economic Zone provides opportunities for the manufacturing, processing, and distribution of food products to cater to growing regional demand and meet food security challenges across the region.
Ras Al-Khair SEZ
A launchpad on the Arabian Gulf for leaders in the maritime industry, Ras Al-Khair SEZ is a fully integrated marine ecosystem. The SEZ has a rich network of existing investors – 40% of the zone is already reserved. Equally important, Ras Al-Khair SEZ has myriad opportunities across shipbuilding and repair, offshore drilling and maritime value chains.
Cloud Computing SEZ, located in King Abdulaziz City for Science and Technology (KACST)
In King Abdulaziz City for Science and Technology, a new Cloud Computing SEZ will serve as a hub for emerging and disruptive technologies. The Cloud Computing SEZ underlines the Kingdom’s commitment to digital innovation and the fast-growing tech sector. Also, the Zone is based on an innovative hybrid model that allows investors to establish physical data centers and cloud computing infrastructure in multiple locations within the Kingdom.
If you wish to find out more about the salient features of these zones, feel free to reach out to us for support.
Injaz Company recently hosted a delegation from the Kurdistan Government in Madrid on February 23rd. The delegation, led by Sarwar Kamal Hawari, the Deputy Minister of Trade and Industry, was interested in learning more about Portugal and Injaz Company to explore the potential of establishing bilateral relations between Kurdistan and Portugal.
During the meeting, Injaz Company’s CEO, Ugur Injaz, provided the delegation with valuable insights into the economic and political situations in Spain and Portugal. He discussed how Injaz Company offers services to help governments establish and bolster their partnerships with other nations.
The Kurdistan government delegation was impressed with Injaz Company’s expertise and commitment to supporting businesses, and governments, and they expressed their interest in collaborating with Injaz Company in the future.
This visit is a positive step towards establishing stronger economic and diplomatic relations between Kurdistan and Iberian countries, and Injaz Company is proud to have played a role in facilitating this important exchange.
Consumers in the Middle East are changing their buying behavior. International companies looking to do business in the Middle East must take these points into consideration. Then, they must adjust to the new trend.
BUSINESS & INVESTMENT
What is the Middle East?
The Middle East has been referred to as the crossroads of the world because it connects the three continents of Asia, Africa, and Europe. The Middle East is used with different definitions. Some use it for Gulf Cooperation Council (GCC), which is in six countries: the United Arab Emirates, Saudi Arabia, Oman, Kuwait, Qatar, and Bahrain. However, the Middle East is more than GCC.
A variety of countries make up the Middle East. Saudi Arabia, Kurdistan, Qatar, Israel, and Lebanon are some of them. We are talking about a population of 700 million, which is roughly 10 percent of the global population and $4 trillion of GDP.
The complexity of the region is very interesting. The region has some of the world’s oldest civilizations—be it Egypt or Mesopotamia, —and some of the youngest countries. The majority of the countries were created in the middle part of the 20th century.
There are some of the richest countries. If you take the GDP per capita of the richest country and the GDP of the poorest country, it’s almost 100 times while it’s around 15 times in Europe. So that gives us a big sense.
We also look at population. There is a population of 70 million in Kurdistan, and 90 million-plus in Egypt. Bahrain’s population is 1.5 million.
The contrast between the different countries actually is quite stark. That’s what makes the region very complex. People talk about the Middle East as one setup, as one country but it’s not.
Business and Investment
Looking in from the outside, the Middle East has been through a bit of a rough patch. Fluctuations in oil prices, political instability, the war against ISIS, etc.
On the one hand, there are other people who basically say, “Well, let’s wait and see,” because they’re skeptical about the geopolitical situation. They’re skeptical about this kind of volatility of economic activity, which is also driven a lot by oil prices over the last few years. Most importantly, this group is skeptical about the success of the transformation
On the other hand, however, there are people that actually are very bullish about the region because they see the ambitious transformation. They see a young population that is thriving and wanting to make a difference. They see a market that actually could be attractive and that is very big. Thus, they see some of the big investments. So, glass half empty, or glass half full.
The Business Strategy
If you’re a CEO looking to do business in the Middle East and thinking about “What’s my Middle East strategy?”, it is very important for to think about this region in a much more granular way. Country by country, city by city. If we think about Saudi Arabia, it is different than Iraq. Or in Saudi itself, every region is very different. The regional differences are quite big. Thinking about this region in a granular way is the number-one step for any strategy that should be set here in the region.
Let’s look a bit from a historical view. Over time, a lot of international companies came into the region. These companies had only sales kinds of operations, which means that everything was produced outside. Everything was developed outside, in countries like the USA, Germany, South Korea, and the UK.
Nevertheless, now the consumers in the Middle East are much more demanding. Consumers are changing their buying and consuming behavior and they are spending even more cautiously than they have in previous years. Also, they are requiring something that is much more tailored to them, their lifestyle, and their customs. Moreover, consumers are also becoming less brand loyal, more health-oriented options and locally sourced products.
Therefore, requires international companies to be closer and closer to this market and to learn the market. You cannot just apply what you’ve done in other markets and come here.
Companies that expand to the Middle East come in with hubris. They say, “We bring this product, and this is the best for you.” This is a misconception too. Hence, that’s the thing I urge international companies to think about, is to be humble and respect the knowledge of the local players here. On that account, that would require them to invest time and money to understand who the local players are that they need to partner with.
At the same time, the costs of doing business in the Middle East keep inching up. In the last 4 years, companies in the Middle East were affected by new value-added taxes and reductions in utility subsidies.
We expect these trends to have staying power. That means companies won’t survive unless they undertake a strategic refocus—and quickly.
Yet this tough business environment should not discourage new entrants. International companies in the Middle East must adjust to the new trend. It’s no easy task. But by staying abreast of changing consumer trends, they can deliver what consumers want. Assertive start-ups, for example, have entered the fray and are growing fast.
