Rankings report: KSA

Vision 2030 turbocharges new sectors for KSA

The Kingdom of Saudi Arabia is ramping up its efforts to diversity its economy away from oil, creating new sectors and new companies. Che Golden reports.

As the Kingdom of Saudi Arabia (KSA) pushes ahead with its Vision 2030 strategy, the country is really opening up to foreign investment and creating new sectors within the economy. Coupled with initiatives put in place to make it easier to create companies and a push to encourage SMEs, there has been a gold rush in demand for accountancy services.

One of the biggest stories to come from KSA this year is the news in March that the Kingdom is establishing a USD 40 billion fund dedicated to artificial intelligence investments.

“I think this investment signals a significant shift towards opening up to foreign investment in a substantial manner,” said Dollah Alasire, tax accountant at Osama A. Elkhereiji & Partners Co, a PrimeGlobal member firm. “This move showcases the kingdom’s recognition of the importance of diversifying its economy away from traditional oil-dependent sectors and embracing emerging technologies to drive growth and initiate actions in line with vision 2030. By inviting foreign investors and partnering with renowned firms, the kingdom aims to leverage external expertise and capital.”

The investment in AI is part of a broader strategy to position itself as a global leader in technology, according to Ahmed Al-Jumah, partner at BDO Saudi Arabia. “This initiative, focusing on areas such as chip manufacturing and data centres, aims to attract global investors and create an ecosystem for AI development,” he said. “Alongside investments in cloud infrastructure by major companies like Microsoft, Oracle, and AWS, Saudi Arabia is fostering an environment conducive to technological innovation and entrepreneurship, indicating an opening up to foreign investment in strategic sectors beyond oil.”

Attracting foreign direct investment is considered one of the pillars of a comprehensive plan for the Kingdom to enhance non-oil GDP, diversify the Saudi economy, and reduce its reliance on crude oil exports. It certainly seems to be paying off – in the fourth quarter of 2023 Saudi Arabia saw a significant surge in foreign direct investment (FDI) of USD 3.49 billion, according to the Saudi General Authority of Statistics. This marks a 16% growth from the third quarter.

“FDI is a priority for the government and, to this end, the kingdom is implementing various measures,” said Alasire. “Thse include special economic zones, customs exemptions, streamlining for infrastructure and licensing, simplified labour recruitment, reliable energy provision, financing options, tax exemptions, environmental compliance support, financial and regulatory assistance, and public-private partnerships.”

Ahmed Al-Jumah, partner, BDO Saudi Arabia

While previous IAB reports showed Vision 2030 struggled to get going, it finally seems to be gaining traction. In March, official data revealed that while Saudi Arabia’s GDP contracted by 0.8% in 2023 due to a 9% decline in oil activity, the non-oil sector expanded by 4.4% during the same period compared to the previous year. The Ministry of Economy and Planning announced that non-oil economic activity accounted for 50% of Saudi Arabia’s GDP in 2023, marking a historic high. Valued at USD 453 billion in constant prices, the non-oil economy was stimulated by sustained growth in investment, consumption and exports.

Part of the reason for this boost in the non-oil sector is that the Kingdom has overhauled laws and regulations to make it much easier for Saudi nationals to set up their own companies. Minimum capital requirements for limited liability companies have been abolished, which makes business initiation more accessible. “It's a game-changer for startups and SMEs, who can now enter the market without hefty initial capital,” said Sultan Alshubaily, managing partner of Sultan AlShubaily CPA Company, an Allinial Global member firm. “In the ever-evolving landscape of Saudi Arabian business regulations, the Saudi Arabia Companies Law to improve the legal framework for businesses stands out as a pivotal milestone. This law is more than a set of amendments; it's a commitment to fostering a business environment that is not only flexible but also deeply rooted in modern corporate governance principles.”

The Law is now a more flexible one. Saudis can establish a company with just one shareholder, whereas the old law required at least two. It now allows non-shareholders to be appointed as directors, a move that promotes inclusion and diversity in decision-making roles. All companies must adopt modern accounting standards to ensure transparency, which is creating huge demand for local accounting firms.

The Kingdom has put a lot of support and investment into growing its SME sector. According to the SME Monitor by Monsha’at, Saudi Arabia achieved a total of 1.23M SMEs in the first quarter of 2023, representing growth of 2.6% compared to the previous quarter. By the fourth quarter, the total number of SMEs amounted to 1.3M, indicating growth of 3.1% from the third quarter of the same year.

All these startups and small businesses are seeking accounting services to manage their finances, taxes, and compliance requirements.

“Companies are turning to local firms for help with regulatory compliance and financial management,” said Abdulrahman Aldulaijan, owner of Aldulaijan CPA, an Allinial Global member firm. “We are also helping them access funding and are increasingly being asked to provide advisory services beyond traditional accounting functions, such as business planning and risk management.  Overall, the emphasis on boosting the SME sector in Saudi Arabia has created a significant demand for accounting services.”

Sultan Alshubaily, managing partner, Sultan AlShubaily CPA Company, an Allinial Global member firm

Keeping up with changes in law and regulation in KSA seems to be enough to keep all firms busy. Alsire said 2023 has stood out due to numerous regulatory advancements.

One of the most significant regulatory announcements that recently took place is the Royal Decree No. (M/62) Issued on 12-Nov-2023 regarding a number of tax exemptions. The regulations aim to provide incentives for foreign companies operating in the Kingdom under a regional headquarter programme, including exemptions from income tax and withholding tax on payments made by regional headquarters to non-residents. Regional headquarters meeting qualification criteria will receive a 30- year income tax exemption, renewable upon obtaining a license for qualifying activities.

“Around 200 companies, including Airbus, Oracle, Pfizer, and Boeing, have applied to establish regional headquarters in Saudi Arabia, indicating strong interest in the initiative,” she said. Companies without regional headquarters in Saudi Arabia are no longer eligible for contracting with governmental entities as of January 1, 2024.

2024 will also see the implementation of the second phase of electronic invoicing. Phase 2, known as the Integration Phase, had begun by January 2023. It is currently undergoing implementation and has reached the tenth wave group so far, encouraging subjected taxpayers with annual taxable revenue above USD 6.66 million to conform.“

This phase introduces technical and business solutions as it involves the integration of business software like accounting and EPR systems with ZATCA’s operations portal known as the Fatoora Portal. With this integration, when a supplier creates an invoice, the invoice details are electronically transmitted to the Fatoora portal for validation and authentication when required.

The Local Content and Government Procurement Authority (LCGPA) mandated companies in specific sectors are now required to obtain the Local Content Certificate for participation in government tenders, as of May 2023. This is to promote national products in sectors including factories, medical supplies, chemicals, fertilisers, and furniture. This requirement has also been extended to the construction sector, hygiene consumables sector, and personal/household equipment sector as of September 1st, 2023.

Mohammad Nasser Barakat, partner at AIGC

As well as the rise in SMEs, some service areas have grown significantly over the last three years. Digital transformation consulting has boomed as Vision 2030 emphasises digital transformation across various sectors. Consulting services related to digitalisation, IT strategy, cybersecurity, and data analytics have seen significant growth, according to Mohammad Nasser Barakat, partner at AIGC, and Ali Khalid Alshaibany, chairman of AKS, both Allinial Global firms.

Environmental, Social, and Governance (ESG) considerations are becoming increasingly important for businesses worldwide. Advisory services helping companies navigate ESG reporting requirements and sustainability initiatives have grown in KSA and are still on the rise. Risk management and compliance is also on the up - with evolving regulatory frameworks and geopolitical dynamics, there was an increased demand for risk management, compliance advisory, and internal audit services.

“Family business consulting has also boomed,” said Barakat. “Given the prevalence of family-owned businesses in Saudi Arabia, the demand for advisory services related to succession planning, governance structures, and strategic growth has witnessed significant growth.” 

Further growth is expected in all these areas in 2024, particularly in the fields of ESG reporting, risk management and compliance and family business consulting. “We also expect to witness an increased demand in data analytics services and real estate advisory due to the significant investments being made in development projects,” said Alshaibany. “Advisory services covering real estate investment, valuation, and portfolio optimisation could be growing.” 

Al-Jumah expects that over the next 12 months, significant developments in Saudi Arabia are likely to align with Vision 2030's strategic sectors. “We can expect advancements in renewable energy projects, especially solar and wind, to support the kingdom's sustainability goals,” he said. “The tourism sector might see new attractions and infrastructure to attract international visitors. Healthcare and education could benefit from digital transformation initiatives. Infrastructure and transportation projects like the NEOM city could progress, showcasing high-tech solutions and smart city implementations, potentially setting new standards in urban development and technological innovation.” 

As Vision 2030 gathers pace, it will be interesting to see how the local accountancy industry keeps pace with the rapid change.

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