KSA opens retail sector to more foreign investment
Jeddah - Arab Today
Economists have welcomed the Kingdom’s move to open Saudi retail sector to greater foreign investment.
Recent policy changes look set to push Saudi Arabia’s position as an international hub for distributing, selling and re-exporting products.
The Cabinet Monday approved rules “for foreign companies to invest in (the) wholesale and retail trade sector with 100 percent ownership.”
It added that the decision is in line with the Vision 2030 plan.
The previous foreign investment limit was up to 75 percent.
James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, commented:
“This is a welcome move that will boost competition in the retail sector, hopefully leading to an improvement in the retail experience for customers, and lower prices in the shops.”
Reeve said: “In general, more foreign investment is a good thing for any economy, since it has the potential to create jobs, transfer technology, and does not create debt.”
Tamer El Zayat, senior economist at the National Commercial Bank, told Arab News: “There is an expected medium to long-term negative impact on the profit margins of local companies in the retail sector. This threat might turn to be an opportunity if these companies restructured their balance sheets and concentrated on niche markets.”
He said: “The consumer, on the other hand, will benefit from lower prices and hence higher disposable income that is associated with a market structure involving more players and multinational companies. On the macroeconomic, this development will be favorable with more jobs created in the labor intensive retail sector, which will be supportive of consumer spending, the most important driver in advanced economies, representing more than 70 percent of GDP.”
Vision 2030 and the National Transformation Program (NTP), which sets targets for implementing it, seek to boost non-oil revenues and employ more Saudi nationals.
As part of the effort, Vision 2030 talks of “attracting both regional and international retail investors and... easing restrictions on ownership and foreign investment.”
The plan calls for an additional one million Saudi jobs by 2020 in a growing retail sector, while increasing the relatively low proportion of e-commerce.
According to reports, Saudi Arabia has one of the fastest-growing retail sectors in the world, growing 11 percent per annum with consumer spending up 18 percent, year -on-year, in 2015.
New retail space in Riyadh is projected to grow by about 45 percent in the next three years to 21.5 million square feet, according to the property company JLL.
The surge in shopping mall construction has renewed many foreign retailers’ interest.
Saudi Arabia has a strong base of domestic consumers, strengthened by a growing population of young people and rising disposable incomes.
Greater consolidation has been taking place since the late 2000s as top foreign retailers began entering the market in the late 2000s, with licensed retailers controlling a growing share of sales.
The broad expansion of the Saudi economy over the last five years has had a positive effect on the spending potential of the country’s consumer base.
In a recent development, Saudi Arabia was named as a leading global retail market in A. T. Kearney’s 2016 Global Retail Development Index (GRDI), titled ‘Global Retail Expansion at a Crossroads.’
The Kingdom ranked 8th in the global scale, with the retail sector continuing to boom despite recent fall in the GDP.
While Saudi Arabia’s GDP fell 15 percent in 2015, retail sales continued to grow. Saudi Arabia is already a popular destination for multinationals and tourists from the region.
H&M has the most regional stores in Saudi Arabia, and Majid Al-Futtaim will quadruple its store count in Saudi Arabia to 300 in the next five years.
Arabian Centers, the Kingdom’s largest owner and operator of malls opened the Yasmin Mall in Jeddah and plans to develop 12 additional malls, including Mall of Arabia in Riyadh.
Shamail Siddiqi, principal at A.T. Kearney Middle East, said: “The UAE and Saudi Arabia are leading the way across the region and it’s promising to see both countries ranked top 10 among leading global players such as China and India who topped this year’s Global Retail Development Index.”
The Saudi Cabinet also approved rules for implementing a 2.5 percent tax on undeveloped urban land.
Revenue will go to the Ministry of Housing which, under the NTP, wants 52 percent of citizens to own their own homes by 2020.
At a recent press conference in Jeddah, Housing Minister Majid Al-Hogail said he wants both local and foreign investors to develop the housing sector.