GCC investors should capitalise on Saudi transformation plan

Saudi Arabia’s National Transformation Program (NTP) 2020 has set out ambitious targets to be achieved over a short time, providing GCC investors with an opportunity to capitalise on the companies that will play key roles in implementing the reforms.

Spurred by the decline in the price of crude oil since mid-2014, the programme outlines more than 500 new initiatives for 24 Saudi ministries and government entities, which will help achieve the ambitions of the government’s long-term strategy – Vision 2030.

NTP 2020 follows a succession of measures announced across the GCC countries over the past 18 months. These aim to reduce budget deficits and diversify non-oil revenues to lessen reliance on hydrocarbon exports, demonstrating a significant shift in strategic priorities across the region.

Saudi Arabia, which recorded the region’s largest deficit last year at about US$90 billion (with a broadly similar figure expected this year), has estimated the total cost of NTP 2020 to be 447bn Saudi riyals (Dh437.7bn), with the government expected to contribute 268bn riyals and the balance to be contributed by the private sector.

A key sector expected to benefit from NTP 2020 is property, which should receive a major boost from the ministry of housing’s target to increase the growth rate of new units in the sector from 4 per cent to 7 per cent per annum by 2020.

The government is also keen to reduce the time it takes to approve and license new residential developments, from 730 days currently to a target of only 60 days, and is seeking to increase the share of residential property financing from 8 per cent of non-oil GDP to 15 per cent by 2020.

Property initiatives such as plans to develop historical cities for tourism, valued at 505 million riyals, will benefit not only companies in the construction and cement sectors, but also the kingdom’s travel and tourism sector, with companies such as Al Tayyar (travel services) and Saudi Catering (airline catering) likely to benefit from higher visitor numbers.

Religious tourism will benefit from the NTP 2020 target of increasing Umrah pilgrimage visitors from 6 million a year to 15 million by 2020, which will further enhance and expand facilities in Medina and Mecca.

The government is also looking to develop non-religious tourism sites and facilities. That will have a positive effect on Saudi-listed companies across a number of sectors, both directly (travel agencies and catering) and indirectly (retail and food).

A third area that will be an important beneficiary of NTP 2020 is health care. Key initiatives include increasing the number of primary care visits from two visits per capita per annum to four visits by 2020.

The aim is to shift the focus to primary care and preventive medicine rather than therapeutic treatments.

In addition, the government is seeking to encourage local generic drugs manufacturing, with the percentage of local pharmaceutical manufacturing to total market value targeted to increase from 20 per cent to 40 per cent by 2020. These measures will potentially benefit several listed healthcare (hospitals) and pharmaceutical providers such as Mouwasat, Meahco and Spimaco.

Given the scale of the NTP 2020 programme, implementation to meet targets by their deadlines is likely to be challenging.

Nevertheless, given the determination the Saudi government has demonstrated to push forward with these reforms, GCC investors should seriously consider positioning their portfolios to benefit from these changes.

Mohammed Al Hashemi is the executive director of Invest AD Asset Management.

Read Saudi Arabia's National Transformation Program 2020 here.

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