GLOBAL REPORT / 2020 JEDDAH - SAUDI ARABIA In just four years the ambitious plan to reshape Saudi Arabia’s economy is triggering a strong economic revival in this dynamic coastal city Quality Media Press This Report was produced by Middle East Qmpress FZ LLC, who is responsible for its editorial content. ITP Media and Arab Business Magazine have provided printing and distribution for this Report. For extra copies please contact info@qmpress.comKSA vi Sion 2030 2 redseamallksa www.redseamall.com info@redseamall.comKSA vi Sion 2030 3 Four years ago, Saudis learned that a deep economic shock was on its way and their country, which already was a key player in the global economy, was going to be trans- formed almost beyond recognition. Announced by Crown Prince Mohammad Bin Salman in a nationwide televised inter- view, the ambitious plan known as Vision 2030 is designed to slash the country’s heavy reliance on oil, thrust the Kingdom into the 21st century and place it on par with the leading nations of the world in many ways. The reforms’ goals include the initial public offering for the giant state-owned oil company Aramco, moving the Kingdom from being the 19th largest world economy to placing it in the top 15, cutting the jobless rate from almost 12 per cent to 7 percent and raising the country from its current 25th position in the Global Competitiveness Index to be among the top 10. Other targets are increasing foreign direct investment from almost 4 per cent of GDP to around 6 per cent, boosting the private sector’s contribution from 40 per cent to 65 per cent of GDP, and raising the share of non-oil exports in non-oil GDP from 16 per cent to 50 per cent. But it’s not just about the economy. There are also plans to allow women to drive already in effect and boost female participation in the workforce, provide more entertainment options in the Kingdom such as opening cinemas, achieve environmental sustainability, fund cultural projects and attract foreign tourists to the country’s stunning Red Sea coast. Along with the rest of the economy, real estate and construction are recovering in Saudi Arabia as government plans to get citizens to enter the housing market, a rising demand for offices and a number of mega-projects across the Kingdom drive these related sectors. Under Vision 2030, the official target is to increase local home ownership by 70 per cent over the next decade through an affor- dable housing programme and regulatory initiatives to expand the mortgage market. And Jeddah, the country’s second-largest city, is benefitting as it is undergoes a surge in growth from young people who are buying their first home there, lured by the seaside lo- cation, a vibrant economy and a more tolerant attitude than much of the rest of the country. Indeed, residential transactions in Jeddah rose by more than 80 per cent in the third quarter of last year, with that momentum expected to continue in 2020 and beyond. At the same time, high-end office space and other commercial real estate is benefit- ting from companies and businesses created thanks to generous government incentives. While the current situation regarding the Covid-19 pandemic is affecting growth, analysts are confident that Jeddah is well po- sitioned to rebound in the second half of 2020. Strong Recovery One veteran company involved in both the residential and commercial real estate sector is integrated property management firm Intimaa which handles a broad range of prestige projects. And real estate veteran and company CEO Maher Faroq Luqman argues that the city is definitely on a winning streak after the recent downturn. “I took a look around the northern part of the city recently and I was shocked by the speed of construction going on which signals there is a real recovery. In certain areas rental pricing is 20 to 30 per cent higher than last year with very high demand,” he says. “That’s in stark contrast to the challen- ge of just two years ago. Our own portfolio suffered a slowdown with rents declining and vacancies rising,” he recalls. “But the slowdown gave companies, inclu- ding Intimaa, the chance to restructure, conso- lidate, cut costs, upgrade and offer new servi- ces. To us, 2018 was a healthy wake-up call!” Intimaa’s services include property and facility management, project management, real estate advisory and mall management. “Our property management services, for example, cover marketing, leasing, collection, upkeep and overall health management to make sure that the client’s property leasing is kept up to date,” the executive explains. Its project management team offers a variety of tasks such as providing engineering proposals for the development and improve- ment of existing buildings based on studies of economic feasibility, and valuation to ensure a profitable rental return for clients. This department also qualifies contractors, manages the contracts of development con- tractors and directly supervises their work on site from the start of the project to the han- dover to the owners. JEDDAH SHIfTS InTO HIGH GEAR StrAtegIc locAtIon And vISIon 2030 hAve PUt jeddAh’S reAl eStAte Sector In the SPotlIght maheR faRoq luqman ceo oF IntImAA “AS vISIon 2030 mAde cleAr, ForeIgn InveStorS In reAl eStAte Are very welcome”KSA vi Sion 2030 4 And for clients looking for help in buying or selling in the Jeddah real estate market, Intimaa prepares studies, offers analysis and consulting services, as well as real estate brokerage services. “We have a department that specialises in managing regional malls and now have four such properties, including Red Sea Mall, where since 2010 we have handled aspects like marketing, leasing, strategy, collection and others,” says Mr Luqman. “Last year we began concentrating more on what consumers want at the malls we manage and we have had to increase enter- tainment space which goes along with the government’s encouragement of more such activities in the Kingdom so the tenant mix is changing.” The CEO says that he would advise de- velopers and investors to look into inco- me-generating assets related to retail and entertainment, and join in the trend for e- commerce stalls so shoppers can purchase online while at the mall. “We’re seeing platforms where the kids are playing video games while the parents are checking what’s available on Amazon. com,” he explains. “This is an area of interest for sure.” Looking ahead, Mr Luqman sees what he calls “very positive trends” in the Saudi sector with residential assets quickly recuperating and commercial property on a roll. “And there is a positive trend in prices in both sales and rents with an aggressive de- mand across the board. And as Vision 2030 makes clear, foreign investors in real estate are very welcome!” entertainment upgrade Alrayan A. Gadouri, the General Manager of Red Sea Mall, stresses that foreign tourists will also be welcome at the commercial cen- tre which is embracing Vision 2030’s new en- couragement of the tourism sector. “Jeddah has for centuries been a destina- tion for religious tourists on their way to and from Makkah and now with the government opening the Kingdom to leisure tourists we’re ready to show both groups a unique experience at Red Sea Mall,” he says. “We have contracts with tour operators handling religious tourists to visit us for shop- ping and we’re in contact with a major cruise line which wants to bring its 4,000 passengers to the mall when their ship is in Jeddah.” This year alone the mall will spend millions of riyals to upgrade its common areas at the mall to heighten the tourism experience as part of its emphasis on providing visitors with entertain- ment and dining options as well as shopping. “We opened the first cinemas in Jeddah and we’ve started to change our tenant mix so there are more food and beverage op- tions,” the executive general manager says. Currently, the Red Sea Mall boasts 49 food court outlets, 19 dine-in restaurants and a num- ber of cafés inside the mall. Some of the inter- national brands doing business there include Applebee’s, Nando’s, Burger King, Starbucks and many others, along with a wide range of local restaurants providing Arab cuisine. “And soon we will have Saudi Arabia’s lar- gest virtual reality park measuring 3,700 square metres. This is all part of our efforts at providing excellent entertainment facilities for families.” “Our own Vision 2030 is to be recognized as a super regional mall which allows people to enjoy every possible experience whether it’s catching a film, having a great meal or spending hours browsing through our shops.” And it appears to be working. Last year, retail sales grew by 20 per cent over 2018 and all indications are that with the economy improving and consumer confidence on the rise, commercial centres like the Red Sea Mall have a bright future. “There is this new trend in customer sa- tisfaction,” Mr Gadouri says, “and we’re doing all we can to be in the lead.” State-of-the-art market Other changes are coming to Jeddah’s commercial sector with the city’s new wholesale fruit and vegetable market in the planning stages under the direction of real estate developer and its twin construction contractor M.O. Wali & Bait AlArab. “We have just obtained a 400,000-square- metre plot of land from the city council for 25 years for Jeddah’s new Fruit and Vegetable Market, which will be operated by an interna- tional outfit. We are in charge of the design and working as the contractor, partner and company chairman,” says General Manager Mohammed Omar Wali. “It will replace the old market in the cen- tre of Jeddah and will be important for dis- tribution of fresh produce not only the to the city but the whole Kingdom, as Jeddah is the main trading city in Saudi Arabia providing 55 per cent all goods to the country.” Scheduled to be finished in three years, the Jeddah Fruit and Vegetable Market will have professional, state-of-the-art facilities and be fully air conditioned. An expanse of land measuring 2.6 million square metres surrounding the site will be used for logistics. alRayan a. gadouRi generAl mAnAger oF red SeA mAll “At red SeA mAll we Are on the leAd In the new qUeSt For cUStomer SAtISFActIon”KSA vi Sion 2030 5 “We’re looking for both Saudi and internatio- nal companies to handle the logistics. Experien- ced operators and straight shooters,” he adds. A huge project but one that should be easy for the general manager who started his career in a local design office almost 40 years ago and has worked with a British enginee- ring company, was a developer in London for five years and then returned to Saudi Arabia as a constructor and developer. Four years ago, Mr Wali designed and developed a premium hotel in Al-Ula ma- naged by French hospitality giant Accor as a Sofitel Galley property, and is now planning an apartment hotel which will operate under the Novotel Living brand. The executive says he is taking advan- tage of the real estate market recovery now that prices have returned to their logical level after land was hugely overvalued be- fore the downturn in the petroleum sector brought it back to earth. “The government is providing lots of support for opportunities in the hospitality, health care and education sectors and this is valuable,” he explains. “All this opportunity is especially vital for our young people who make up more than 70 per cent of our popu- lation because the future is for them.” international Partners Executives in other sectors concur on the issue, with President and Board Chairman of Advanced Construction Company and PC Ma- rine Services Mohammed Ali AlGheithy no- ting that the government is strongly backing foreign investment. “There are all these big projects coming up and the government is looking for foreign companies to either come as investors or to cooperate in these mammoth tasks,” he says. “In fact, foreign investment in Saudi Arabia has increased by 54 per cent over last year so it’s a good time.” Mr AlGheithy’s sister companies work with a number of prestigious foreign part- ners with proven track records as he says they boost professionalism and help on very big projects or ones in which Advanced Construction and PC Marine Services don’t have much experience. “In the Red Sea project we’re hoping to work on, for example, we have submitted bids on some projects in cooperation with foreign companies.” According to the executive, performance is key to success in the Saudi construction sector which means delivering the contract on time and turning in top-quality work. He cites one example of a tunnel in Jeddah built by a Chinese company which he describes as a “disaster” and says there are hundreds more like that in the Kingdom. While based in Jeddah, Advanced Cons- truction and PC Marine Services work all over the country in civil engineering and construc- tion, transport infrastructure, residential and commercial buildings, electro-mechanical works, dredging, port construction and a host of related activities. “We’ve seen a definite upturn in the economy and the resulting effect on our industry,” Mr Algheithy says. “Over recent weeks we’ve had to apply for new visas for foreign workers because the market for both companies is turning the corner. “Last week we were the lowest bidder for a project in Riyadh, last month we were the lowest bidder for work on the Jeddah Corniche and we’re looking forward to signing a contract for another project in Obhur, north of Jeddah. “I’m sure that from this year we’re cer- tainly going to see a lot of improvement.” mohammed omaR Wali chAIrmAn oF m. o. wAlI & BAIt AlArAB “I’ve Seen A deFInIte UPtUrn In the economy And ItS eFFectS on conStrUctIon” “jeddAh’S new mArKet wIll ProvIde 55% oF All FreSh ProdUce to the coUntry”KSA vi Sion 2030 6 Tourism opportunities Opportunities in the local travel and hospitality sectors are also the focus of executives at the Diary Group Company and its subsidiary Universal Caravan Aviation, both of which have vast experience in the Kingdom’s religious tourism business. “Diary Group is a holding company that offers services, we have 16 hotels in Makkah, the Jet Wings Gambia airline and Universal Caravan Aviation as a support service, as well as cargo and catering,” explains its Executive Chairman Muadh Suliman Bilal. Founded in 2012 and now with a staff of some 500 employees, the group enjoyed sales revenue of around $50 million last year. The executive says business can only increase with the government’s new pro- tourism policy. “Visitors can now go to Makkah with a regular tourist visa and leisure travellers can also now see all the interesting places around the Kingdom,” Bilal says. “So tourism isn’t seasonal anymore structured around just the Umrah and Hajj pilgrimages.” Government officials say they want to triple the number of Umrah pilgrims to 30 million by 2030 but sector analysts and bu- sinesspeople say there are challenges ahead. “We need more capacity, new hotels and new infrastructure as every year the numbers will grow,” argues the group chairman. “For example there is a real need for some kind of metro system in Makkah to ease the traffic congestion.” Some of that needed investment could come from foreign firms forming partners- hips with local operators like Universal Cara- van Aviation, says its founder and CEO Essam A. Martaa. “In our case we have the airline, the contracts with aircraft owners and the market because of our business in Makkah,” he explains. “I would tell potential foreign investors that this is their chance and that they should not wait. Recently Bilal met with the President Barrow of Gambia, while presenting their “oPPortUnItIeS In hotelS And hoSPItAlIty In meccA Are very lArge For US” A delegation of the Universal Caravan Aviation met with President Barrow of Gambia recently to discuss the launch of the new Jet Wings Gambia airline by mid-2020KSA vi Sion 2030 7 plans for the new airline Jet Wings Gambia. The airline will connect all West African cities and subsequently expand to interna- tional destinations like Barcelona, Brussels and the UK. After completion of registration, the airline will begin the acquisition of an operator’s certificate to fly by mid-2020. It will launch operations with three Boeing 373 aircrafts that will connect Banjul to Duala, Monrovia, Dakar, Lagos, Accra, Freetown, among others. By the second year, the plans to extend services to cover the UK, Barcelona and Brussels among other destinations. Yet the Diary Group remains fully com- mitted to the local opportunities that the expected increase in visitors to Mecca will provide to the local hotel operators. “The opportunity in hotel accommoda- tion is especially huge and in five years’ time those who let this chance pass them by will regret it,” Bilal adds. first in Site When construction recovers in any economy, amongst the earliest to note the change are companies like Jeddah-based Soil & Foundation Co Ltd, or SAFCO, which carries out surveys and testing to ensure that planned structures are being built on a solid, and safe, surface. “We are the first ones to register activi- ty in the sector because we start with the surveying and the foundations,” explains founder and General Manager Dr Abdul Karim El-Rousstom. “And there has been a definite impro- vement since Vision 2030 was announced which is why we have opened three more offices in the Kingdom over the past several years for a total of 22.” SAFCO offers a range of geotechnical- related services including investigations, quality control assurance on soil, aggregate, concrete and asphalt, topographical surveys, structural analysis and pile load tests and pile integrity. The company also carries out temporary shoring, dewatering, anchoring and other tasks and since its foundation in 1977 has worked on 100,000 projects including 1,000 bridges, 5,000 mosques and 2,000 schools and universities. Amongst some of the companies more iconic projects are the Riyadh metro, the Ga- lleria Hotel in Jeddah, the Jamarat Bridge in Makkah and the Haifaa Mall in Jeddah. “As the population increases there is a hig- her need for more schools, mosques, hospitals, etc. And now we’re entering a new phase which is the entertainment industry so buildings hou- sing leisure activity venues are safe on the engi- neering side,” the executive explains. “Four years ago I started a new busi- ness called Geotechnical and Environmen- tal Company, or GECO, which concentrates mainly on environmental studies.” Dr El-Roussom says he is optimistic that the Saudi economy is entering a new phase of sustainable growth as the local population grows and the government mounts its mega- projects, many of which SAFCO is involved in. “This is a blessed country and all are wel- come to come here to work with us. Crown Prince Mohammed bin Salman is changing the country for the best.” aBdul KaRim el-RouSSTom generAl mAnAger oF SAFco - SoIl & FoUndAtIon co. “wIth oUr SUrveyIng And FoUndAtIonS worK we’re the FIrSt to See growth”KSA vi Sion 2030 8 Steering Saudi Arabia’s economy away from its overreliance on the petroleum sector will not be possible unless the government and the private sector work hand-in-hand to expand the Kingdom’s industrial sector - a key goal for Vision 2030. Along with economic diversification, the plan calls for a range of tasks including deve- loping human capital, increasing productivity in key sectors and creating quality employ- ment for Saudis, all of which should trigger unprecedented growth for industry. The government has pledged “to support promising sectors and foster their success so that they become new pillars of our economy. In the manufacturing sector, we will work towards localising renewable energy and in- dustrial equipment sectors.” In addition, the government vowed “to create suitable job opportunities for our citi- zens by supporting small and medium-sized entrepreneurship, privatisation and inves- tments in new industries.” Under Vision 2030, the private sector’s contribution to GDP is targeted to grow from 40 per cent to 65 per cent. And Saudi Arabia is already on its way. Analysts argue that the Kingdom boasts the largest industrial output in the Middle East and North Africa and has an existing manu- facturing base producing construction mate- rials, cement, military aircraft, plastics, food and beverages and much, much more. Just take a look at the statistics: between 1974 and 2018, the number of factories in the country increased from 206 to 7,630, while invested capital, non-oil exports and the number of industrial workers made co- rrespondingly significant gains. And these fi- gures will certainly grow significantly under Vision 2030. Among the many bold steps the scheme envisions are developing a local automotive and parts industry, localising pharmaceutical manufacturing and biotech development, building production centres for light industry, developing a Saudi military manufacturing capability and establishing industry clusters around the Kingdom. Saudi Arabia’s western region, centred es- pecially in Jeddah, is and will remain a major focal point for industrial growth as eviden- ced by the number of existing manufacturers operating there and those planning on laun- ching new industrial enterprises. national Champion A case in point is 3P Gulf Group, one of the Middle East’s leaders in plastic packa- ging, which carries out its extensive export operations thanks to the convenience of its location in Jeddah. “Our turnover is around $500 million with most of our revenue coming from ex- ports. In fact, 70 per cent of our markets are from outside Saudi Arabia,” explains General Manager Hashim Ali Hashim. “One example is that we ship something like 300 containers of stretched plastic film to Europe where we have a major market with big distribution channels.” 3P Gulf Group has benefited from govern- ment help and was short-listed by the NCPP, the National Companies Promotion Program, crea- ted to enable more than 100 Saudi companies JEDDAH BETS BIG On ITS InDUSTRy the mAnUFActUrIng Sector dUStS oFF the crISIS And FAceS A new PerIod oF hIgh demAnd “we hAve to Be FocUSed on exPortS AS oUr locAl SAUdI mArKet’S StIll lImIted In SIze” haShim ali haShim (RigTh) generAl mAnAger oF 3P gUlF groUP KSA vi Sion 2030 9 to transform from a local to a regional company or from a regional company to a global one. “We’re glad we were selected as the go- vernment can see how we can grow interna- tionally, give us support to penetrate foreign markets and help us handle any economic or political obstacles,” the executive says. “It’s great that under Vision 2030 the go- vernment is pushing us on how we can stand out internationally and compete with compa- nies in the United States, Europe and China.” Operating for more than 50 years, the group manufactures plastic packaging for the food and beverage, pharmaceutical, per- sonal products and home products sectors with products like bottles, caps and tops, pac- kaging film, disposables and tubes. Its international clients include such na- mes as Pepsi, Unilever, Coca-Cola and Nestlé, while it also supplies a wide range of Saudi and regional consumer goods companies. Its beverage bottles are manufactured using PET, or polyethylene terephthalate, a pe- troleum-based product hailed as a lightweight, safe and flexible material which, more impor- tantly in this age of alarms being raised about plastics use, is also 100 per cent recyclable. “It’s clear that we have to focus on ex- ports as we are limited to what we can supply in the local market,” the General Manager says. “Europe and Africa have the biggest po- tential for us and we’ve already started up a manufacturing facility in Sudan. “And we have a sister company under the same ownership which moved some of the production capacity to Egypt so we can stamp it as an Egyptian-made product which helps in exporting to some markets, in Euro- pe for example, which has restrictive quotas for products from the Kingdom.” With these operations in place and more on the horizon Mr Hashim predicts long-term growth beyond the immediate region and sees China has an example to emulate. “We have to explore other markets like the Chinese who are opening factories outsi- de their country. This is what we have to do: take our know-how to the wider world, learn to become customer centric based on their requests and grow!” Changing mentality Saudi businesses at first struggled under the new rules and regulations of Vision 2030 and at the same time had to contend with the sharp drop in oil prices but those days are over, argues Nasser Saleh Al Sorayai, the Managing Director of Pioneer Industrial In- vestment Company, or PIIC. “Between 2016 and 2018 people didn’t accept the changes. Also when oil income went down the government had new rules for the market and costs rose so a lot of com- panies went out of business,” he recalls. “It was not easy for us to absorb all these problems but we cut our expenses, restructu- red with the banks and worked to open new markets abroad for our exports.” PIIC’s exports are petrochemical pro- ducts and also makes paper and aluminium as the manufacturing division of Al Sorayai Group, which is part of SNASCO Holdings with interests in real estate, restaurants and other investment channels. Last year, the group’s manufacturing ope- rations enjoyed sales of $32 million. “Our petrochemical markets at the mo- ment are Jordan, Kuwait and the GCC and we expect further expansion because the govern- ment is giving us a lot of support in exporting. “And I believe it’s headed in the right di- rection as it is doing its best to support the business sector,” the executive says. The government is also helping PIIC by attempting to have Saudis switch over from using plastic for items like shopping bags to paper. In response, the company is ramping up manufacturing paper packaging products. PIIC is in its first year of aluminium pro- duction which is mostly used in construction and that market is recovering. “Those three difficult years put a brake on that sector but it also meant that many of our potential rivals dropped out of the mar- ket. And with demand on the increase as the economy improves we’ll certainly grow,” Mr Al Sorayai explains. “So this year will be good for us and I’m hoping for at least 20 per cent growth across all sectors. If that doesn’t happen then it will mean that we have some kind of problem with the organization.” That growth will come through increa- sing the market share for PIIC’s products and perhaps the acquisition of a paper manufac- turer in Saudi Arabia. “We have accepted the changes here and that’s the way to succeed now under Vision 2030: one needs to understand the new in- vestment rules and always give priority to providing quality goods and services to one’s customers,” he says. naSSeR Saleh al SoRayai mAnAgIng dIrector oF PIIc - PIoneer IndUStrIAl InveStment co. “over the lASt three yeArS mAny PotentIAl rIvAlS hAve droPPed oUt oF the mArKet”Next >