From Fossil Fuel to Growth Fuelled by Technology and Ideas
One day in March 1938, a discovery was made in Dhahran, in the east of Saudi Arabia, that not only transformed the fortunes of this country but that reshaped the political geography of the Middle East and its relationship with the rest of the world.
That Thursday, drills identified what was soon to become known as the world’s largest source of oil. What followed was the rapid transformation of an economy that had been largely reliant on subsistence agriculture, limited longdistance trade, and tourism – essentially providing shelter and supplies to pilgrims headed to Makkah (Mecca) and Madinah (Medina).
The desert still defines most people’s impressions of this country, but the desert outpost that was pre-oil Saudi Arabia is no longer.
Saudi Arabia is now the 11th richest country in the world based on purchasing power parity; the capital, Riyadh, is a thriving high-rise business center, and there are more than 15 million smartphone users in the Kingdom.
There is now a clear understanding, however, that what has served Saudi Arabia well in the past will not be enough to secure it a sustainable future. At the highest levels of government, there is both the pressing need and the volition to move away from reliance on oil, and to do it quickly. Low oil prices in recent years have put significant pressure on the national budget, which are being addressed through the 2016 National Transformation Plan announced in June.
The plan, backed by Deputy Crown Prince Mohammed bin Salman, involves a cut to state-sector salaries and reduced holidays and bonuses. Energy and utility subsidies have been dropped, and there is the likelihood that some state assets will be sold. The aim is to have half of Saudis working in the private sector by 2020 – a huge shift given that Saudis occupy only 15 percent of privatesector jobs now. It also means a shift in mentality for a population that has for generations come to expect a safe and well-paid government job.
The transformation plan is part of the Saudi government’s ‘Vision 2030’, a longer-term blueprint for change. This emphasizes technology and innovation in the private sector, and prescribes a more balanced economy for a healthier population and more vibrant society.
Start-ups are being encouraged, with financial institutions urged to allocate up to 20 percent of overall funding to small and medium enterprises, helping SMEs grow their contribution to GDP from the current 20 percent to 35. Other signs of shifting priorities include the rollout of new rail lines to reduce reliance on diesel trucks for transporting goods around the country, most recently a link between the King Khalid International Airport and the northern borders.
Women’s participation in the workforce is benchmarked to rise from 22 to 30 percent, and there are ambitious targets for public education, household spending on culture and entertainment, and public health.
Faced with a widespread obesity problem and high rates of smoking, the Saudi government aims to get four in 10 people exercising at least weekly (it’s currently 13 percent) and to increase average life expectancy from 74 years to 80.
Technology is at the heart of many of the proposed adjustments, with Riyadh seeking to make the Top Five of the United Nations E-Government Survey Index by 2030; it is currently 36th. Growth in e-learning and e-commerce are key parts of the vision.
The opportunity for brands
This transformation will not be without its challenges, particularly for the lower middle classes most affected by government belt-tightening. But there are significant opportunities for entrepreneurs and established businesses to ride these waves of change and help Saudi people adjust to a new normal.
The ride-sharing service Uber, for instance, is proving instrumental in giving women, who are not allowed to drive in Saudi Arabia, the means to get to work. The Saudi government has invested $3.5 billion in the company, a further signal of its intention to back nonoil, tech-based business.
As the focus of economic activity shifts, there will be expanding opportunity for brands in the healthcare, food, education, technology, business services and infrastructure sectors.
There is hope for growth in the arts and entertainment sectors, and the Kingdom is seeking to expand its tourism industry, luring new visitors and encouraging pilgrims to extend their stay.
Coinciding with the economic realignment are several other major forces that brand builders in Saudi Arabia must consider. There are an estimated 140,000 Saudis studying overseas, who will come back with fresh ideas about the future they want and how they can be part of it. The workforce is forecast to double in size by 2030 as many in this young population reach working age, and digital communication is transforming the way people shop, make friends, share ideas – indeed, the way they live.
Saudi people are seeking out the brands that help them embrace modernity, progress and technology, but without making any compromises on their heritage and religion.
BrandZ™ research into what sets the strongest brands apart from the competition shows that awareness is a key ingredient in consumer choice. But it is a brand’s ability to make a meaningful connection with a consumer that matters most. Brands must get noticed, but then they must have something of value to say.
Successful brands in Saudi Arabia are telling stories that resonate with contemporary Saudis, and that help them navigate the tensions they face between tradition and modernity. Consumers are sophisticated and selective. They expect an increasingly complex relationship with the brands they make part of their lives Advertising has immense power to help consumers identify the products,
services and brands that can enrich their lives. But to advertise successfully in Saudi Arabia means achieving a delicate balance between reflecting deeply held and rigorously enforced cultural values, and at the same time being sufficiently bold and creative to make a lasting impression.
Some of the local names featuring in the inaugural BrandZ™ Top 20 Most Valuable Saudi Brands 2017 are not just a domestic success but are also pioneers in the region. In the coming years, it is likely that more home-grown brands will start to realise bigger aspirations.
The opportunity is there for local and international brands that can align themselves with the new vision that the Saudi government has for its country’s future.