Saudi Arabia opens four special economic zones with an eye to foreign investment

Saudi Arabia announced on Thursday the launch of four new economic zones that will offer local and international investors incentives to invest in the kingdom, with the aim of bringing in greater inflows of much-needed foreign direct investment (FDI).

Khalid Al-Falih, Saudi Arabia’s investment minister, said it was an exciting time for his country.

“We are proud to see the launch of these four special economic zones, which offer foreign investors a chance to have a stake in the world’s fastest growing economy,” he said in a statement to the Saudi Press Agency (SPA), which highlighted that the zones will allow Saudi Arabia to accelerate certain reforms and make it easier to do business in the country.

What happened: Saudi Arabia launched four special economic zones (SEZs) across the country on Friday with incentives for international companies to operate in the kingdom.

The new SEZs are spread strategically across the country:

  • King Abdullah Economic City (KAEC) – West
  • Jazan – Southwest
  • Ras Al Khair – Northeast
  • Cloud Computing in King Abdulaziz City for Science and Technology (KACT) – Central (Riyadh)

SEZs are geographically defined areas within a country that allow specific economic activities and have regulations that differ from those of the country as a whole. The economic regulations of SEZs are generally more favorable and attractive for FDI.

Saudi Arabia’s SEZs offer incentives such as competitive corporate tax rates, duty-free imports of machinery and raw materials, 100% company ownership, hassle-free establishment procedures, and flexibility in hiring foreign labor.

Why it matters: FDI in Saudi Arabia fell nearly 60% from 2021 to 2022, according to Forbes, the first annual decline in about five years and the biggest drop in more than 15 years.

Total investment in the kingdom last year was $7.9 billion, according to data compiled by Forbes from the Saudi Central Bank (Sama) in February this year. That amount was the second-highest annual figure since 2016, but was a far cry from 2021’s record of $19.3 billion.

Saudi Arabia’s long-term economic strategy, Vision 2030, aims to increase FDI’s contribution to gross domestic product (GDP) from 0.7% in 2016 to 5.7% by 2030.

Area Details: The SPA statement identifies the economic advantages of each of the four SEZs.

The KAEC zone is a coastal Red Sea hub for advanced manufacturing and logistics for industries including information and communication technology (ICT), medical technology and automotive supply chains. American electric vehicle maker Lucid Motors announced last year that it would build its first international plant in the KAEC zone with the goal of producing 150,000 cars a year and earning $3.4 billion in value over 15 years.

Also along the Red Sea is the Jazan area, an industrial center and hub for trade with Africa and Asia, providing access to one of Saudi Arabia’s largest ports for the import and export of goods and materials. It is also part of the kingdom’s more fertile south-west region, used for food production, processing and distribution.

The Ras Al Khair area is a fully integrated marine ecosystem in the north-eastern region of Saudi Arabia with opportunities for shipbuilding and repair, offshore drilling and marine value chains.

The new Cloud Computing Zone at KACT is designed to serve as an innovation hub for emerging and breakthrough technologies. This zone follows the country’s 2019 cloud-first policy, which aims to accelerate the adoption of cloud computing services. In February of this year, Microsoft announced its intention to invest in a new cloud data center in Saudi Arabia.

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