VIEWPOINT

2024

THE KINGDOM’SGROW TH ENGINE
How to accelerate regional
development efforts in
Saudi Arabia

With guidance from its Vision 2030 strategy, The
Kingdom of Saudi Arabia (KSA) aspires to become
one of the world’s 15 largest economies. Unlocking

AUTHORS
Ryan Alnesayan
Adnan Merhaba
Eddy Ghanem

the growth potential outside its urban centers will

Tobias Aebi

play a vital role in achieving this ambitious objective,

Ferry Lounis

alongside other growth drivers. This Viewpoint
analyzes the primary success factors that are

Abdulmajeed Babtain

available to state and non-state actors to realize

Anna Martinelli

the full potential of KSA’s regions.

Yash Sapre

ARTHUR D. LITTLE

VIEWPOINT

THE TR ANSFORMATIVEPUSH OF VISION 2030
KSA is currently undergoing a majorsocioeconomic transformation as it strives

THE POTENTIALI M PA C T O F R E G I O N A L
D E V E L O P M E N T O N K S A’ s
GDP IS ENORMOUS

to meet its Vision 2030 objective. Although avariety of growth drivers will be utilized, such as
investing in new industries and strengthening the

Additionally, the Brazilian Ministry of Planning,private sector, unlocking the possibilities beyond

Budget and Management highlighted PAC’s

the country’s established urban centers will playcontribution to new job creation and increase ina critical role. Looking to KSA’s regions shows aincomes. The program guaranteed employment

real opportunity to deliver growth by leveling up

to locals, which helped mitigate the impact ofregional development.

the 2008 financial crisis.

The potential impact of regional development

Spain’s regions enjoy significant autonomy, whichon KSA’s GDP is vast. Today, annual GDP per capita

provides an advantageous climate for economicin established urban centers including Riyadh,

growth. When developing strategies and plans

Dammam, and Jeddah averages around SAR

in the Catalonia region, the focus was on sectors

107,000 (US $28,500). In contrast, annual GDP

where it has comparative advantages, such as

per capita is closer to SAR 73,000 (US $19,500)

tourism and IT. Catalonia has been developing

in regional growth centers such as Aseer, Al-

its regional tourism strategy since 2005; today,

Qaseem, and other provinces. Closing the gap

the sector accounts for around 12% of its GDP.

with the urban centers’ annual GDP per capita

Showing the benefits, since 2005, Catalonia’s

by only 10% would unlock around SAR 27 billion

GDP has increased by a CAGR of approximately(US $7.2 billion) of annual GDP contribution.

2.3%, above Spain’s overall growth of 2.1% in thesame period. Regional development in Catalonia

Case studies — Regional development

has had a significant impact on Spain’s nationalin Brazil & Spaineconomy, too, given that it accounts for 20.3%

Many countries recognize regional development
as a growth driver. In Brazil, the government
implemented its Growth Acceleration Program,or Programa de Aceleração do Crescimento(PAC), in the early 2000s. PAC aimed to developof Spain’s total GDP. Examining the details ofthese two countries’ approaches offers KSA
useful insights. Backed by multi-billion-dollar
investments, KSA has begun a journey to develop
its regions.

infrastructure and improve social services

With the establishment of over 10 dedicatedin different regions of the country throughregional development entities, initiatives haveinvestments in transport, housing, sanitation,

already moved forward and achieved tangible

and energy infrastructure. The outcomes boosted

progress, such as the transformation of the AlUlaliving standards, and research conducted by State

region into a global tourism destination andUniversity of Bahia estimated that PAC increased

the plans for the futuristic NEOM community

GDP growth by as much as 40% when comparedin northwest Saudi Arabia.

to projections that excluded the program.

THE KINGDOM’S GROWTH ENGINE

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ARTHUR D. LITTLE

VIEWPOINT

Figure 2. Key success factors for regional development
Figure 1. Key success factors for regional development

1 STRATEGY

2 GOVERNANCE

3 HUMAN CAPITAL

4 INFRASTRUCTURE

5 INVESTMENT

A

A

A

A

A

Capitalize uponcomparative &competitive
advantages
B

Understandstakeholder
intentions

Provide tailoredhuman capitaldevelopment
programs

B

Develop clear
governanceframework

Align with national
sectorial strategies
CC

Follow sustainable
development
practices

Establish
coordination
mechanisms

B

Finance or cofinanceinfrastructuredevelopment
programs

Establish
dedicatedinvestmentattraction unit
B

Identify
opportunities &promote packages

B

Retain highly
educated & skilledindividuals

Follow integrated
approach toinfrastructuredevelopment

C

Provide support &facilitation service

Source: Arthur D. Little

Source: Arthur D. Little

FAC TORS FOR SUCCES S- Capitalize on the region’s comparative andcompetitive advantages. KSA can leverage

By nature, regional development efforts are

its wide range of assets and resources

multifaceted. Arthur D. Little’s (ADL’s) experience

within different regions. Comparative anddesigning and implementing effective programs

competitive advantages can be diverse. These

revealed five specific factors that led to successful

include historical sites and natural beauty

outcomes. These factors focus on strategy,(e.g., Aseer and AlUla) and religious sites suchgovernance, human capital, infrastructure,

as Makkah (Mecca) and Madinah (Medina),

and attracting investment (see Figure 1).

while provinces like the Northern Borders
region possess natural resources and offer

1. Set a visionary strategy
Putting a clear, visionary strategy in place will
deliver the necessary focus and enable ongoing,

an attractive location for logistics.

- Align with national sectorial strategies.

A disjointed approach and the potential forsustainable success. It’s important to tailor

competition among regions could undermine

the strategy to the region’s comparative andsuccess on the regional and national levels.

comparable advantages, align it with national

To avoid these pitfalls, it is important thatpriorities, and focus on sustainable development

regional development strategies closelypractices. A strong, thoughtful strategy isalign with both national strategies, such asa crucial element for development and can

KSA’s National Tourism Strategy and National

effectively mobilize stakeholders. Several factors

Investment Strategy, and with the plans of

can be considered when formulating a region’s

other regions. Achieving alignment requires

strategy:

regions to begin by studying and analyzing
relevant national strategies and gaining input
from ministries and other stakeholders.

THE KINGDOM’S GROWTH ENGINE

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ARTHUR D. LITTLE

VIEWPOINT- Follow sustainable development practices.
Regional strategies have to benefit the local
communities and preserve natural assets
for generations to come. As KSA embarks on
its massive development efforts, it should
encourage regions to embed sustainable
practices into their strategy to achieve
long-term value. KSA has already madecommitments to sustainable development,
as shown by the example of the recent
establishment of the sprawling Imam Faisal
bin Turki Royal Reserve, which spans 30,000
square kilometers.

Sustainable tourism — RAKTDA

2. Establish clear governanceRegional development programs require buy-in,understanding, and support from a wide rangeof stakeholders, at both the national and local
levels. These entities can include municipalities
and dedicated regional development authorities,
ministries (e.g., Ministry of Municipal and Rural
Affairs and Housing; Ministry of Environment,
Water and Agriculture), and infrastructure partners(e.g., Saudi Electricity Company, National Water
Company). Best practices for designing thegovernance process include:- Understand stakeholder intentions. Building
an in-depth understanding of all key players
and their roles in the development of the

Beyond KSA, the Ras Al Khaimah Tourism

region is crucial to uncovering synergies andDevelopment Authority (RAKTDA) plays acollaborations between them. If there is acentral part in the United Arab Emirate’s

dedicated entity for regional development,(UAE’s) focus on sustainable tourism, building

it can carry out workshops where all relevant

on its existing strengths while aiming tostakeholders present their own projects andincrease employment and improve thehighlight the support they can provide to others.

quality of jobs for residents. RAKTDA has

The Aseer Region Development Authority (ASDA)

implemented multiple initiatives thatis a great example for this. ASDA conducts

include improving connectivity and public

ongoing stakeholder alignment efforts totransport, providing scholarships for

ensure that the development of Aseer is a

tourism-related programs, organizing

joint, coordinated effort.

training, and launching social inclusion
programs to establish the UAE as asought-after place to live and work. The
organization has developed sustainability
guidelines and standards, such as its
green building regulations, and invested
in measures to preserve Ras Al Khaimah’s
culture by applying for UNESCOWorld Heritage designation for fourarchaeological sites and sympathetically
restoring one of the region’s last pearldiving towns.

THE KINGDOM’S GROWTH ENGINE

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VIEWPOINTA STRONG GOVERNANCE
FR AMEWORK IS CRITICALT O FA C I L I TAT I N G
SUCCESSFUL REGIONAL
DEVELOPMENT EFFORTS

3. Develop regional human capital
Ensuring the availability of well-trained talent isnecessary for successful regional development.
Without human capital, projects will not deliver
economic benefits, and regional populations
may potentially feel marginalized and remain
underemployed. The World Intellectual Property- Develop clear governance framework.

Because multiple groups are involved and the
mandates, roles, and responsibilities of different
stakeholders often overlap, a strong governanceframework is critical to facilitating successful
regional development efforts. The governanceframework should include:- A clearly defined interaction model thatshows interfaces between stakeholders.
A visible resource can enable the program
to be executed end to end with all entities
working together.

- Signed agreements between stakeholders

Index that KSA invested 7.8% of its GDP in
education in 2022. Though KSA has embarked
on an impressive upskilling journey, regional
availability of well-trained talent remains amain challenge. Overcoming this issue requires
measures to:- Provide tailored human capital development
programs. Regional educational institutes

can go beyond delivering the general national
curriculum to work with governments,
businesses, and industry associations to modify
their curricula to meet the needs of priority
sectors and industries identified in regionalto ensure their commitment to the program

development strategies. This collaborationand to delivering assigned projects in thewill support the development of industries

region.

with high growth potential by ensuring that- Establish coordination mechanisms.
If there are multiple stakeholders withsimilar responsibilities, it is important toestablish coordination mechanisms. A regional
development committee is one potential
coordination mechanism. It can be headed
and supported by a dedicated entity, if there isone, and should include representatives fromeach key stakeholder. The committee thenorchestrates the planning and implementationof all regional development efforts.

THE KINGDOM’S GROWTH ENGINE

Organization (WIPO) noted in its Global Innovation

the local workforce has the right skills andrequired knowledge, which will further help
attract investment. When it comes to humancapital development, AlUla has alreadyachieved impressive results with its approach,which used multiple initiatives to upskill over
5,200 members of its local community in 2021
(against a target of 3,855). The opportunities
include scholarship programs, training, and theHammayah program, which encourages andtrains local people to become stewards of theregion’s cultural and natural heritage.

5

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THE KINGDOM’S GROWTH ENGINEARTHUR D. LITTLE

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VIEWPOINT- Retain highly educated and skilledindividuals. Rural regions often sufferfrom the loss of well-educated talent tomore developed regions that offer better
career opportunities. It is therefore vital toincentivize workers to stay by making theregional environment more appealing. This
includes investment in infrastructure andtransport and providing access to affordable
housing and healthcare. Offering competitive
salaries and family-friendly policies, such as
flexible work schedules, parental leave, andchildcare services, may enhance the appeal
for the younger demographic.

4. Develop the region’s infrastructure
Regional infrastructure plays a pivotal rolein enabling trade, investment, and social
development, thereby promoting economic
growth. Although KSA ranks highly globallyin terms of infrastructure quality, there are
significant variations between major cities
and less populated regions where; for example,
harsh weather conditions can make it difficultand costly to develop infrastructure networks.
To overcome these challenges, success factors
to consider include:- Finance or cofinance infrastructuredevelopment programs. There is considerable

Modernizing Malaysia & South Korea
The previously agricultural state of Penang
in Malaysia sought to diversify its economy
and identified several priority sectors
in its strategy, including electronics,
automotive, and pharmaceuticals. By
establishing a specialized engineeringcollege and pharmaceutical R&D centers,
the state has built a skilled workforce,
which has enabled it to become a major

potential for further infrastructure development
in KSA’s regions, whether through new projects
or maintaining or upgrading existing assets.
While the majority of required investment
will have to be publicly funded, public-private
partnerships may offer a solution to avoid theentire burden of investment falling solely on
the government, particularly in less developed
regions.

- Follow integrated approach to infrastructuredevelopment. Ensuring that different projects

electronics and automotive hub, attracting

work together to create synergies amplifies andcompanies like Intel, Dell, and Bosch to the

maximizes the benefits of new infrastructure.

area. During the 1960s, the South KoreanThis requires close coordination between

government established the Saemaul

stakeholders, built on a holistic, high-level

Undong (New Village Movement) program

view of all infrastructure project possibilities,

to modernize and develop the country’s

combined with an understanding of how theyrural areas. The movement’s undertakings

can combine to deliver greater returns together

included providing villagers with funding

than if implemented in isolation. The benefits

and technical support to help them startof an integrated approach can be seen inbusinesses, build schools and healthcare

linking the expansion of the King Abdulaziz

facilities, and improve agricultural

International Airport to Jeddah’s renovation

productivity.

project. The airport was connected to theHaramain High Speed Railway project, whichlinks Jeddah to the holy cities of Mecca andMedina, making it easier for pilgrims to travel
to and from the airport and strengthening the
airport’s potential as a major transportation hub
for other regions.

THE KINGDOM’S GROWTH ENGINE

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VIEWPOINT

The impact of regional infrastructure
on growth in China- Identify opportunities and promote

packages. Regional investment opportunities
are developed through investment packages,

Regional infrastructure development

which typically include information about

has made a major contribution to China’s

asset location, total land area, total

economic growth. The government has taken

development cost, and internal rate ofa coordinated approach to infrastructure

return. Timing is important for successfully

development in the Guangdong-Hongpromoting these packages; marketing themKong-Macao Greater Bay Area, which seeks

too early, before underlying infrastructure

to integrate nine cities in Guangdongis ready, risks dissuading investors over theprovince, as well as Hong Kong and Macao,

long term. Promotional tactics include events,

into one cohesive and dynamic economic

private investor dinners, and forums.

zone. Infrastructure plans include building ahigh-speed rail network and constructing the- Provide support and facilitation service.
The investment journey can be complex,

Hong Kong-Zhuhai-Macao Bridge, a massive

which means investors require support tobridge-tunnel system that spans the Pearlovercome any hurdles along the way. Regional

River Delta.productivity.

development programs should identify
any potential issues, resolve those that fall

5. Attract investment from the public& private sectors

under their remit, and coordinate solutions
to overcome future challenges. Services
can include supporting investors to obtain

KSA aims to raise the contribution of domestic

government incentives, connecting them to

FDI (foreign direct investment) to GDP from 3.8%

relevant stakeholders, finding opportunities,

to 5.7% by 2030. Building an appealing investment

and conducting site visits, all of which help

environment is crucial to unlocking private sector

maintain an investor’s interest.

participation in regional development efforts.
Therefore, regional development programs
should increase the private sector’s awarenessof opportunities and act to remove bottlenecks
in the process. These actions can create an
attractive environment for investment:- Establish dedicated investment-attraction

Multiple entities within KSA, such as the Strategic
Office for the Development of Al-Baha region, areestablishing dedicated investment-attraction
units, as have agencies in other countries like
RAKTDA in the UAE and Italy’s Invest in Tuscany.
For example, RAKTDA’s investment teamattracted hotel and casino group Wynn Resorts

unit. While the Ministry of Investment’s isto Ras Al Khaimah, the biggest FDI in the emirate.

spearheading national investment attraction

This milestone in turn increased interest from

efforts, at the regoinal level specialized teamsother investors.

play a prominent role in orchestrating theregional investment ecosystem and providing
investors with a regional point of contact
to showcase and develop opportunities.
Establishing these units clarifies the roles ofdifferent regional and national stakeholders
and provides investors with a 360-degree viewof all investment opportunities across theregion.

THE KINGDOM’S GROWTH ENGINE

8ARTHUR D. LITTLE

VIEWPOINT

Besides attracting private investments, throughOne of its landmarks is situated in the Al Madinah

the Public Investment Fund (PIF), The Kingdom

region, where SEVEN plans to establish six

can count on an impressive growth catalyst.

entertainment zones. These entertainment

Since its inception, PIF has been among theoases not only enrich the cultural and recreational

key catalysts of KSA’s regional development

landscape of each region but create hundreds ofefforts. Mainly through its portfolio holdings,

direct and indirect jobs for the local community.

PIF channels strategic capital into 13 pivotal

Overall, SEVEN has signed eight global

sectors with high potential, thereby bolstering

partnerships with companies such as Warner Bros.

Saudi Arabia’s regional growth and economic

Discovery and Mattel and is expecting more thandiversification. In the entertainment, leisure, and90 million visitors by 2030.

sports sector, for example, Saudi Entertainment
Ventures (SEVEN), a wholly owned subsidiary of
PIF, is investing SAR 50 billion (US $13.3 billion) indeveloping 21 entertainment destinations across
14 cities in The Kingdom.

THE KINGDOM’S GROWTH ENGINE

9ARTHUR D. LITTLE

VIEWPOINT

CONCLUSIONUNLOCKING REGIONALGROW TH THROUGH
BEST PR AC TICESUNLOCKING THE REGIONS’SOCIOECONOMIC POTENTIALREQUIRES A HOLISTICDE VELOPMENT APPROACH

To meet the goal of becoming a top 15 global economy, one of
KSA’s promising growth engines is its regions. Unlocking theregions’ socioeconomic potential requires a holistic development
approach. Elements to consider include the following five main
dimensions:1Strategy. Follow a common national strategic direction,leverage the region’s comparative and competitive
advantages, and follow sustainable development principles.

2

Governance. Gain buy-in from all stakeholders, and develop
a clear governance framework and coordination mechanisms.

3

Human capital. Ensure the availability of talent with
relevant skills through training and retention programs.

4

Infrastructure. Develop the right infrastructure throughan integrated approach, and explore direct finance or
cofinancing models.

5

Investment. Attract investment with a centralized,
dedicated unit, promote opportunities, and provide
full support to investors.

THE KINGDOM’S GROWTH ENGINE

10VIEWPOINT

THE KINGDOM’S GROWTH ENGINEARTHUR D. LITTLE

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