Saudi Arabia’s special economic zones ‘pivotal’ to its future as an investment destination

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Saudi Arabia’s new special economic zones are “pivotal” to its present and future as a global investment destination, creating opportunities for sustainable business growth, the kingdom’s Minister of Investment said.

These next-generation zones will enable the country to “win and play” in a fast-changing world economy and geopolitical environment, said Khalid Al Falih, who is also chairman of the board of directors of the Economic Cities and Special Zones Authority (ECZA).

“The zones are part of efforts to strengthen our standing as an investment hub and provide businesses with a launch pad for growth to new targeted markets,” he told the Saudi Special Economic Zones Investment Forum in Riyadh on Monday. The zones will contribute to Saudi Arabia’s economic transformation journey, boost the non-oil sector, create value for investors and help the kingdom to attract high-skilled talent, he said.

Saudi Arabia’s capital formation to total investments grew by 31 per cent year-on-year to exceed one trillion Saudi riyals ($266.6 billion) in 2022, Mr Al Falih said. Saudi Arabia’s new special economic zones, launched last month, have attracted $12.6 billion from investors across maritime, mining, manufacturing, logistics, and tech sectors. An additional $31 billion in investments is in the progress, it was announced in the forum.

The zones were launched to offer companies financial and non-financial incentives as the kingdom seeks to attract more foreign investment and position itself as a global business centre. They will focus on the advanced manufacturing, cloud computing, medical technology and maritime sectors, all key growth areas.

The special economic zones are the King Abdullah Economic City, Jazan, Ras Al Khair and Cloud Computing, in the King Abdulaziz City for Science and Technology. The zones were officially launched on Monday during the forum, with each being granted licences.

Government officials at the forum made the case for the continued relevance of economic zones globally amid a qualitative shift in FDI flows where investors are becoming more selective, while the trend is towards “friend-shoring”. Friend-shoring refers to manufacturing and sourcing from countries that are allies.

“Given these dynamics, let me ask a rhetorical question: Are SEZs still relevant for high-growth economies? The answer, in my mind, is a resounding ‘yes’,” Mr Al Falih said. “Globally, SEZs have gain renewed relevance as part of [a] broader industrial policies comeback trend to attract FDI and supply chains.” Today’s special economic zones must go beyond financial incentives and infrastructure to delivering “soft incentives”, such as overcoming supply chain bottlenecks through business-enabling regulations, he said.

In October 2022, Saudi Arabia opened the Special Integrated Logistics Zone at King Khalid International Airport in Riyadh as part of plans to boost its cargo capacity, bolster supply chains and become a global logistics centre.

The development of the special zones is part of a broader economic transformation in the country as part of Vision 2030 – an initiative to reduce its reliance on oil, unlock the potential of the private sector to drive growth and put in place sweeping reforms to boost its business competitiveness. The kingdom, which has a domestic market of more than 30 million people, recorded economic growth of 8.7 per cent in 2022 – one of the fastest among G20 economies.

The country plans to use its strategic location and resources to develop the most promising sectors, from advanced manufacturing to artificial intelligence, for sustainable economic growth in Saudi Arabia and the region, Mr Al Falih said.

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