The recognition of Saudi Arabia’s stellar economic performance among the G20 countries has been widespread. According to the EY (Ernst & Young) G20 Entrepreneurship Barometer 2013, far-reaching reforms in taxation and regulation have infused Saudi Arabia’s private sector with entrepreneurial dynamism. The Ernst and Young report described the country as having the strongest tax and regulatory framework across all of the G20 countries, ahead of Canada, the UK, Japan, Germany and the EU. The Kingdom’s private sector growth has been primarily spurred by the adoption of a streamlined taxation regime and a more favorable business climate.
This view has been echoed by the IMF which applauded the strong performance of the Saudi economy and the stabilising role that the country plays in the global oil market. According to the IMF, the Saudi economy grew by 5.1% in 2010. on the back of high oil prices, robust private sector growth and government spending.
Saudi Arabia is the only member of the G20 that also belongs to OPEC. Although almost half of the country’s GDP is accounted for by oil, the government is seeking to diversify away from oil exports and develop the country’s non-oil economy with a focus on construction, trade, banking, financial services, transportation and manufacturing. The country is still the world’s largest oil exporter.
With an SR 204 billion education budget for 2013, Saudi Arabia has emerged as the world leader in education spending. The amount of money allocated to the education sector has risen sharply over the last four years: from SR 105 billion in 2008, SR 122 billion in 2009, SR 137 billion in 2010, and SR 150 billion in 2011 to the highest amount ever of SR 204 billion in 2013. This contrasts sharply with the paltry education budgets of the world’s most developed countries in Europe and North America where allocations rarely exceed 4%-5% of their GDP, whereas Saudi Arabia is spending an average of 10% on education – the highest in the world.
Government allocations towards education have increased significantly with funding for research institutes, universities and colleges to generate a skilled and innovative workforce. Numerous major universities have been opened in recent years, including one of the region’s largest research universities, King Abdullah University of Science and Technology. Over 50% of the population is below 25 years, reinforcing the urgent need to ensure a bright and prosperous future for Saudi citizens.
According to the World Economic Forum, Saudi Arabia is one of the easiest countries in which to obtain venture capital funding. This has drawn increasing interest from global venture capital firms which are converging on the Kingdom in search of innovative ideas and opportunities in its domestic market.
The tax system in Saudi Arabia imposes an exceptionally easy administrative burden on entrepreneurs. There are only three payments to be made each year, whereas other G20 countries enforce several more payments throughout the year. In addition, the average time spent by businesses on tax affairs is just 77 hours, which is the lowest (average taken from 2010 to 2012). Most notably, the cost of setting up a business is approximately one third less than the G20 average. With regard to employment regulations, labour tax in the Kingdom is the lowest.
With a vibrant economy, the government is seeking to boost entrepreneurship through the development of five “economic cities,” such as the King Abdullah Economic City (KAEC), as part of a broader strategy to diversify away from oil and encourage foreign investment.
A conducive environment for small and medium enterprises is being actively fostered with a number of loan facilities and training schemes for small businesses.
Ashraf Abu-Sharkh, Strategic Growth Markets Leader, EY MENA, stated, “Saudi Arabia is one of the best performing rapid-growth economies in the barometer, thanks to laudable efforts to reform its overall business environment in recent years. Its ranking in tax and regulation is a testament to the streamlined tax regime in the country. As the Government diversifies away from oil gradually, a strengthened culture of entrepreneurship is developing.”
At the time of the global financial crisis, prudent economic management and fiscal reform measures left the country relatively unscathed.
The IMF also praised Saudi Arabia’s financial assistance and support of developing countries. Pakistan has been no exception. Over the years, Saudi Arabia has stood by Pakistan in times of crisis, particularly in the aftermath of the 2005 earthquake and the 2010 floods.