Saudi Arabia has captured the world’s attention with the announcement of an ambitious agenda, Vision 2030, aimed at overhauling the structure of its economy. The plan would reduce historical high dependence on oil by transforming how the Kingdom generates income, as well as how it spends and manages its vast resources.
What impact and change will this bring to the economy? The barriers of Saudi business are about to open up a little more, and authorities are going to put more effort towards harmonising their economy with the rest of the world. Yes, the Saudi economy is diversifying to accomplish the Vision 2030 plan, but so is the corporate landscape and accountancy profession in the country.
The change fits with a wider pattern of reform and gradually increasing transparency. The country joined the World Trade Organization (WTO) in December 2005. In 2015, it eased restrictions on foreign investment in the Saudi Stock Exchange (Tadawul). The country is set to enforce international accounting rules for all companies from next year. The new accounting standards ought to give more confidence to international and local investors alike and make it easier to judge the performance of Saudi companies compared to their international peers. At a time when the country is planning its most significant ever IPO, of oil behemoth Saudi Aramco, such reforms will be particularly important.
A country once entirely dependent on oil revenues – the world’s largest oil producer and exporter, controlling the world’s second largest oil reserves and the sixth largest gas reserves – is now on its way to explore avenues of non-oil revenues and overhauling the structure of its economy.
Undoubtedly, this nation has smart finance leaders, strong businesses and a young, ambitious generation with an entrepreneurial spirit to progress and compete with the world. This can be seen in the progression of Saudi Aramc” (with the world’s largest proven crude oil reserves and largest daily oil production making it the world’s largest oil and gas company), SABIC (the world’s largest producer of chemicals making it the largest listed company in the region) and Almarai (the world’s largest vertically integrated dairy company), to name a few.
Geographically, Saudi Arabia is the fifth-largest state in Asia and second-largest state in the Arab world after Algeria. It is bordered with Jordan and Iraq to the north, Kuwait to the north-east, Qatar, Bahrain and the United Arab Emirates to the east, Oman to the south-east and Yemen to the south. It is the only nation with both a Red Sea coast and a Persian Gulf coast and most of its terrain consists of arid desert and mountains.
The likely future leadership of Saudi Arabia is optimistic about the Kingdom. Their focus is not whether oil prices will rise or fall, but disavowing decades of Saudi oil doctrine as leader of OPEC (Organization of the Petroleum Exporting Countries). If the oil price goes up more funds will be available to non-oil investment sectors and if prices go down Saudi Arabia can expand in the growing Asian market.
Saudi Arabia takes third place in the global list of countries ranked by ease of paying taxes, a remarkable achievement for a G20 country with a GDP of over $650bn. With the necessary due care and commitment to compliance, businesses can enjoy the advantages of the Kingdom’s tax system. Tax legislation can be characterised as stable where taxpayers can comfortably plan their tax affairs and budget tax costs for the foreseeable future – an advantage that very few economies offer these days. The stability of tax rules is notable given the regulatory reforms in recent years in many other areas of society and business, e.g. foreign investment, labour, immigration, finance and securities.
With the recent development of transfer pricing and planned value added tax implementation next year, Saudi Arabia is set to meet the overall objective of strengthening governments’ fiscal sustainability which is in line with International Monetary Fund (IMF) recommendation for Gulf states to impose revenue-raising measures.
Saudi Arabia is fully integrated into the global economy and has a great story to tell. I left Saudi Arabia in 2004 to pursue my education in university and returned in 2008 to complete my ACA training contract in Saudi Arabia in 2012. A lot has changed since then.
Ahmed Mukhtar is manager, governance, risk & compliance for AZAQ Group, a Saudi-based diversified regional conglomerate