Saudi Arabia opens four special economic zones with eye on 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 goal of bringing in higher inflows of needed foreign direct investment (FDI). 

Khalid Al-Falih, Saudi Arabia’s minister of investment, said this was an exciting moment for his country. 

“We are proud to see the launch of these four special economic zones that offer the chance for foreign investors to have a stake in the world’s fastest-growing economy,” he said in a statement by the Saudi Press Agency (SPA), which highlighted that the zones will enable Saudi Arabia to fast-track certain reforms and facilitate the ease of doing 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 within the kingdom. 

The new SEZ 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 in a country that permit specific economic activities and have regulations that differ from those of the country at large. SEZs' economic regulations tend to be more advantageous 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% ownership of companies, seamless establishment procedures and flexibility in employing foreign labor. 

Why it matters: FDI into Saudi Arabia dropped by nearly 60% from 2021 to 2022, according to Forbes, which is its first annual fall in about five years and the largest decline in more than 15 years. 

Total investment into the kingdom last year was $7.9 billion, according to data Forbes gathered from the Saudi Central Bank (Sama) in February of this year. This amount was the second highest annual figure since 2016, but it was far from the 2021 record of $19.3 billion. 

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

Zone details: The SPA statement identified the economic strengths of each of the four SEZ. 

The KAEC zone is a Red Sea coastal hub for advanced manufacturing and logistics for industries including information and communications technology (ICT), medical technology and automobile supply chains. American electric vehicle manufacturer Lucid Motors announced last year that it will build its first international plant in the KAEC zone with a target of manufacturing 150,000 vehicles per year and earning $3.4 billion of value over 15 years. 

Also along the Red Sea is the Jazan zone, an industrial center and center point for trade with Africa and Asia granting access to one of Saudi Arabia’s largest ports to import and export goods and materials. It is also part of the kingdom’s more fertile southwestern region utilized for the manufacturing, processing and distribution of food products. 

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

The new Cloud Computing zone in KACT is geared to serve as an innovation center for emerging and disruptive technology. This zone follows the country’s 2019 Cloud First Policy that aims to accelerate the adoption of cloud computing services. In February of this year, Microsoft announced its intent to invest in a new cloud data center in Saudi Arabia.