Could Saudi Arabia's new Special Economic Zone be a game changing solution?

Recent supply-chain shocks have made the world’s 6,500 special economic zones (SEZ) pivotal to the recovery and yet the model for such zones tends to be templated across the world. Riyadh’s Special Integrated Logistics Zone pioneers a new model that is bespoke in nature and designed entirely for leading multinational corporations. 

SEZs are geographically-defined areas within which governments facilitate industry with special support and incentives. They come in many sizes and types. But what makes the newly-launched Special Integrated Logistics Zone so different is its strategic location and its package of measures that are designed to give multinationals the most competitive launchpad possible into the Saudi market, MENA and beyond.

Situated beside Saudi Arabia’s King Khalid International Airport, the new Special Integrated Logistics Zone has both global connectivity, thanks to the rapidly-expanding Saudi aviation sector, and tax-free access to the Middle East’s largest national economy. As a consequence, Apple and other world-leading companies are making it their base, knowing that the zone’s regulatory framework was designed in partnership with its investors, creating a base of operations that is tailored to their needs. 

When the 3 million-square-meter zone became operational in August it was a game-changing moment for the logistics sector in the Gulf region. The Special Integrated Logistics Zone opening followed a Saudi government decree specifying that imported products from free zones in the six-member Gulf Co-operation Council (GCC) would no longer enjoy preferential tariffs. These signals of Saudi’s determination to be the dominant hub in the Middle East’s supply chain have created a business case for multinationals to establish their operations inside the Kingdom of Saudi Arabia, which has by far the largest GDP in the GCC and 65.6% of its total population. Previously multinationals would base themselves outside of Saudi Arabia leading to slower delivery times for customers in the Kingdom and less resiliency in Saudi logistics. The decree sought to strengthen Saudi logistics infrastructure to ensure more resilience in the face of supply chain shocks.

The Special Integrated Logistics Zone is Saudi Arabia’s first special economic zone with a package of operational fiscal and regulatory benefits, whereas neighbouring countries have long established special economic zones. The Saudis believe that they can achieve competitive advantage over regional and international rivals by introducing expedited B2C customs clearances for e-commerce solutions to the Saudi mainland and other jurisdictions to accelerate the movement of goods and cut delivery times to a minimum. The zone offers investors a 50-year tax holiday, 100% foreign ownership, and aims to serve a market of 5 billion people within 8 hours flying time in Europe, Asia and Africa.

The new Saudi facility can process goods for dispatch to market within only four hours of arrival in the zone, compared to more than 24 hours at other established zones in the region. Additionally, the Special Integrated Logistics Zone provides investors with VAT advantages on servicing and assembly, whereas other zones apply VAT charges, making manufacturing and assembly more expensive.

With more than 60% of the world’s consumer goods passing through SEZs during transit, these zones have a key role in reviving global trade in the wake of the Covid-19 pandemic. Saudi Arabia’s desire to become a major logistics hub is a central feature in its Vision 2030 strategy to drive social reform and diversify its economy beyond oil. More Saudi special logistics zones are planned to help achieve the Vision’s ambition of 4.5 million tons of cargo per annum.

Saudi’s Crown Prince Mohammed bin Salman aims to position Riyadh as one of the ten largest city economies in the world and to make it a global center for advanced technologies, such as artificial intelligence. It is hoped that the Special Integrated Logistics Zone can attract world-leading companies by offering integrated technological systems that improve efficiency and hasten supply processes, including optimization of e-commerce.

The project is being managed by Saudi’s General Authority of Civil Aviation (GACA) and is aligned to the National Transport & Logistics Strategy, which aims to establish Riyadh as a supply chain hub and improve the quality of life of the Saudi people by investing in transport infrastructure and providing thousands of jobs. 

GACA plans to increase Saudi’s air cargo volume as part of the Saudi Aviation Strategy to put Saudi Arabia at the forefront of the Middle East aviation sector by 2030. The Saudi Aviation Strategy, which is supported by a $100 billion investment, is targeting annual passenger traffic of 330 million by increasing Saudi Arabia’s air connectivity to 250 destinations across 29 airports. 

To achieve its goals, Saudi Arabia must confront considerable challenges. The global logistics sector is under economic pressure from soaring inflation, a strong dollar and the need to reach net zero by 2050. Since the pandemic, consumers have new expectations of goods being replaced or refunded, putting further strain on supply chains.

Saudi Arabia sees opportunities for growth in differentiating its Special Integrated Logistics Zone facility from other special economic zones. Its superiority in speed of distribution is based on multiple factors including complete suspension of customs and import restrictions, a vendor-managed inventory process and zone optimized e-commerce solutions with advanced track and trace facilities. The result is an improved end-to-end logistics offer whereby goods can arrive in the zone and be dispatched to market inside four hours. 

Saudi Arabia might have come late to SEZs but it is confident that global investors will recognise the value of its long-term regulatory and fiscal offer at a time of geopolitical uncertainty. Investors at the Special Integrated Logistics Zone benefit from a light regulatory structure designed to “feel like home” by permitting companies to maintain the corporate structures they use domestically. The key industries that the free zone is targeting are: consumer electronics and computer products, pharmaceuticals, electronics, luxury, jewelry, and aerospace parts.

The zone allows investors to conduct their own waste and e-waste management and aims to attract leading waste and e-waste management companies to optimize industry-specific environmental management to create a complete and cohesive ecosystem.

Most advantageous of all is the zone’s prime position. On the doorstep of one of the top 60 airports in the world, it also allows access to a 661-mile land-bridge railway that will span Saudi Arabia and will help ensure reliable last-mile delivery to the most important national market in the Middle East. 

SEZs can be the engines that accelerate post-pandemic global trade. But some zones are more than special. Saudi Arabia aims to show that the Special Integrated Logistics Zone, with its unique value proposition designed by the world’s leading companies for the world’s leading companies – and strategic location – will be a truly integrated special economic zone.