Saudi Arabia: The transformation continues
The country’s ongoing diversification from oil brings economic resilience
“Saudi Arabia has been going through a journey over the last five years and is becoming intensely outbound and open—it’s hugely exciting.” Tony Cripps, Managing Director, SABB
Every September 23 the skies above Saudi Arabia light up with dazzling displays of fireworks to celebrate Saudi National Day. Marking the anniversary of the country’s naming in 1932, it’s an occasion when the population reflects on what has been achieved over the decades. This year, the commemoration may be a particularly proud affair, as the country looks back on the resilience it demonstrated during the pandemic and the huge transformation it has experienced since 2016.
That year, Crown Prince, Deputy Prime Minister and Minister of Defense Mohammed bin Salman bin Abdulaziz Al Saud launched the ambitious Vision 2030 development plan with the aim of, among other things, diversifying the economy away from oil, creating a more attractive environment for local and international investors, opening up new innovative sectors and promoting a vibrant Saudi society. Five years into its implementation and, despite the pandemic, the country is ahead of the vision’s targets. Between 2015 and the end of 2020, non-oil revenues grew 222 percent to reach $98.4 billion, investment inflows increased by 331 percent to $4.7 billion, foreign investor holdings on the Tadawul stock exchange were up 196 percent at $55.5 billion and Saudi home ownership rose from 47 percent to 60 percent.
Like most nations, Saudi Arabia experienced economic contraction in 2020, but the efforts made over the last five years laid the foundation for a rapid return to form. After witnessing a 10.1 percent expansion of its nonoil sectors in the second quarter of 2021, independent research firm Capital Economics now predicts the country’s gross domestic product will grow by 4.8 percent this year and by 6.3 percent in 2022. A clear indication that the economy is firmly on the road to recovery is the recent performance of the Saudi financial sector, with its top banks recording a surge in year-on-year profits in both the first and second quarters of 2021.
At $245 million, the highest growth in net profits over the latter period was recorded by Saudi British Bank (SABB). “Throughout the pandemic, the industry stayed quite strong, well capitalized and had lots of liquidity,” asserts SABB Managing Director Tony Cripps, who is looking forward to the future. “The recovering economy, plus the reflation of asset and commodity prices and resilience of the finance sector are positives. I think the next few years are going to be great: Saudi Arabia has been going through a journey over the last five years and is becoming intensely outbound and open—it’s hugely exciting.” Established in 1978 and 32-percent owned by the HSBC Group, this March SABB completed a historic merger with Alawwal Bank to form the country’s third-largest bank with total assets of about $73 billion. It now
provides integrated services to 1.7 million retail and 27,000 corporate and institutional customers. Aiming to better support those customers and Saudi Arabia’s transformational ambitions, the merger has been a success, with SABB being named the best bank in the country by both Euromoney and Global Finance Magazine in 2021.
New national champion in banking
One of the benefits of the merger is a much larger branch network, which will enable SABB to increase the contribution retail banking makes to its overall business from 25 percent to 30 percent, says Cripps. “The merger gives us a bigger platform in the domestic market, both in terms of retail and small and medium-sized enterprises (SMES). At the same time, we want to grow our institutional and corporate business. SABB has an advantage in the international affluent customer space: if you are a SABB customer, your account will be linked to all of your other HSBC accounts globally, you will be able to transfer money instantly and so on. There is no other bank in the country that can do that. Our focus is the internationalization of the Saudi market—given the government’s focus areas, a bank that can serve an international network is in a position to offer unique retail and corporate services.”
To maximize the effectiveness of its network, SABB is making substantial investments in technology. For instance, it has recently launched a tap-onphone payment solution app with Saudi fintech firm Geidea, he reveals. “In the next three to five years we will spend $400 million on digital technology, with the majority being spent in the next 18 months. That is twice as much as SABB has ever spent on technology. Leveraging fintech capabilities, like our partnership with Geidea to help strengthen our offering in the payment space, sums up our domestic strategy.”
Modern and innovative services
Another frontrunner in digitalized banking is Banque Saudi Fransi (BSF)—AS you would expect from a bank that is missioned to be the Gulf region’s most modern and innovative. Established in 1977 and managing assets valued at around $52 billion at the end of 2020, BSF has an extensive branch network and online presence, through which it provides a full range of commercial banking services to domestic and international customers, with whom it fosters loyal and personalized partnerships.
BSF’S Managing Director and CEO, Rayan Fayez, confirms that the Saudi banking system showed resilience last year. “At BSF, we successfully hit several of our original key performance indicators and targets, and we entered 2021 with optimism.” One of those targets saw BSF becoming the first Saudi bank to launch an e-signature service. Another was the completion of the first phase of a three-year core banking system transformation program that is delivering enhanced customer-centric digitalization and efficiencies. “When it comes to digital, we think of it almost as a state of mind. Digitizing the customer journey is at the center of all the initiatives that we are currently implementing—we are starting to see the fruits of some of our
investments and will see a lot more in the next 12-18 months,” comments Fayez.
The country’s digitalization as a whole has accelerated, with it ranking third globally for 5G deployment in 2020, for instance. That acceleration is mirrored in its banking system, Fayez says. “The digital readiness of the banks, Saudi Central Bank (SAMA) and Saudi Payments, the owner and operator of electronic payment systems, is high. During the pandemic, we have seen contactless payments skyrocket and the adoption of online account opening is going very well—everything related to the targets of going into a cashless society has seen an unbelievable spike. It is a matter of convenience as well: the moment you get used to something like Apple Pay, there is no turning back. The digital shift may have been expedited by the pandemic, but it is something that we have benefited from in Saudi Arabia and will continue to utilize to our advantage.”
One way that shift is being facilitated is through the encouragement of innovative local fintech businesses by both SAMA and astute banks like BSF. “Fintech is an area that is very promising here as good talent and opportunities abound. What we are seeing is exciting and excellent ideas are coming into fruition. For BSF, we are looking at this both as competitive threat but also as an opportunity for collaboration and partnership,” he notes
While BSF’S main focus is corporate banking, it has seen recent growth in its retail business, especially in relation to housing, which contributed to the bank’s net profits soaring by 76 percent in the second quarter of 2021. “Mortgages support the Vision 2030 objective of increasing home ownership. Realizing this objective entails collaboration with various stakeholders and the partnership between the public sector, the banks and the private sector works so well: more Saudis now own homes, more developers are building, banks are lending and the government continues to be supportive in pushing that objective,” Fayez states.
Driving BSF’S corporate business are the Saudi giga projects that are taking shape, such as the Red Sea Project, one of the world’s most ambitious tourism developments. In April, the project was granted a $3.77-billion green loan and revolving credit facility in a deal led by BSF and also involving SABB, Riyad Bank and Saudi National Bank. “We are financing the project, but also the construction of its airport and utilities. Each of these giga projects creates an entire ecosystem that drives activity and business,” explains Fayez. He adds that a big factor in BSF’S decision to lead the financing was the project’s exceptional environmental standards. “It is in line with our efforts to keep ahead of the curve on environmental, social and governance (ESG) issues. ESG is good for the economy, for business, for shareholders and, obviously, it is good for our planet, and we can be at the forefront of that.”
A global beacon for tourism, heritage and culture
The Red Sea Project is an initiative of the state-backed Public Investment Fund, which is pumping $40 billion a year into strategic investments to diversify the economy into areas such as tourism. A notable priority of Vision 2030, in 2019 Saudi Arabia boasted the world’s fastest growing tourism sector. As well as a rising amount of tourist facilities, visitors can enjoy hundreds of heritage sites, fabulous scenery, a wealth of traditions, great food and a thriving cultural scene.
The key enabler of that scene is the Eastern Province’s King Abdulaziz Center for World Culture (Ithra). Housed in an award-winning 90-meter-high architectural masterpiece, energy giant Saudi Aramco’s flagship citizenship initiative opened its doors in 2016. Since then, it has welcomed in excess of 1.7 million visitors in person, millions more to its innovative virtual platforms, been named one of Time Magazine’s top-100 global places to visit, and organized over 11,000 world-class programs and events that are centered around art, knowledge, creativity, culture and community.
“Our mission is to inspire hearts and enrich minds. The vision behind our programs is to allow people to grow in what they are passionate about, whether that is science, technology or the arts. It is important for us to have programs that are not only geared toward visitors but also to artists and the creative community,” says Hussain Hanbazazah, Ithra’s director.
In just a few years, the center has become a vital catalyst for local talent and content across a myriad of creative industries. It is, for example, already one of Saudi Arabia’s leading film producers. But Ithra is ambitious to go further, according to Hanbazazah. “I believe that Saudi Arabia can become a global cultural hub and Ithra is definitely in the middle of that as the leading cultural destination in the region.”
The private sector drives the economy forward
As well as prioritizing the development of the country’s cultural landscape, the government is encouraging greater private sector participation in the diversification of the Saudi economy. Since 2016, the number of manufacturing factories located in the country has increased by 38 percent to 9,984, for instance, while in 2020, it introduced a new Private Sector Participation Law to modernize the legislative framework for privatizations and public-private partnerships.
“The digital shift may have been expedited by the pandemic, but it is something that we have benefited from in Saudi Arabia and will continue to utilize to our advantage.” Rayan Fayez, Managing Director and CEO, Banque Saudi Fransi
“It’s imperative to continue to diversify and innovate, to have a spirit of entrepreneurship and a zest for growth.” Ayman Tamer, Chairman and Partner, Tamer Group
Backed by a supportive government encouraging local investment and development, Saudi Arabia’s most prominent enterprises are at the forefront of driving the country’s economy forward. A key example is Tamer Group, which marks a century of operations next year. Founded as Saudi Arabia’s first pharmacy, in 2020 it recorded revenues of $2.12 billion from a diverse business portfolio that extends throughout the Middle East and North Africa (MENA).
It is the country’s top supplier of pharmaceuticals, but its experience and state-of-the-art resources also make it a partner of choice for third-party logistics and the regional distribution, sales and marketing of international medical devices and solutions, consumer goods, beauty, personal care and prestige brands. According to Chairman and Partner Ayman Tamer, “Our 100th anniversary is a testament to our purpose, which is to serve our community and make a brighter, healthier future.” Tamer Group is far from complacent about its success, he says. “It’s imperative to continue to diversify and innovate, to have a spirit of entrepreneurship and a zest for growth.”
This spirit is evident in an ambitious transformation strategy that is accelerating rapidly. Its initial focus was to ensure operational excellence by introducing cutting-edge digital internal processes and systems. Secondly, Tamer Group optimized its business-to-business e-commerce platforms to make them more customer centric. The third wave of Tamer Group’s transformation includes rolling out more digital sales channels, which began in June with the purchase of a majority stake in Mumzworld, the Middle East’s largest e-commerce site for mothers and babies that currently supplies over 250,000 products to a loyal community of 2.5 million women in 20 countries, Tamer states. “We are tapping into a completely new business-to-consumer market with the full potential to expand and diversify our products and services. Mumzworld is a market leader and has many years of further exponential growth ahead.”
Tamer Group will continue to grow its e-commerce activities organically and through acquisitions, and is bullish about the future of the Saudi economy, particularly in terms of healthcare, he reveals. “The economic and social trends all reinforce our positioning, and there is a growing demand from the healthcare market, which is the largest in MENA with an estimated size of $45 billion. Digital health and telemedicine are among the highest growth opportunities, and we believe that other new verticals will emerge. We will continue our legacy with an eye on the future.”
Abdul Ghani El-ajou and Sons Holding Trading Co. is another preeminent Saudi enterprise that is playing a substantial role in advancing the country’s economy. Established in 1958, the company is a leading national provider of, among other things, best-in-class office automation, digital imaging, printing, integrated business, space management, office furniture, information technology and medical equipment solutions.
In many of these areas, the company has partnerships with global frontrunners, such as Ricoh, General Electric Medical, 3M Medical and Dell, says Vice Chairman Maher A. El-ajou. “They come to us because they need a better market share. We offer local know-how and added value, and we are always on the lookout for new ideas and opportunities.” The company reacted quickly to the pandemic to support its employees, customers and the country by, for instance, strengthening its online presence, digital services and product porfolio. “One important example is in healthcare, where we now offer COVID-19 testing machines, and we make testing kits and gloves,” El-ajou comments.
Despite the crisis, it is business as usual in Saudi Arabia and Abdul Ghani El-ajou & Sons Holding Trading Co. will maintain its focus on expanding and developing dynamic economic sectors, he asserts. “The country is stronger and more resilient than ever, and our economy will continue to grow significantly. We are very optimistic about what’s to come.”