I was happy to see Saudis celebrate their National Day yesterday on the streets in Dubai. It was a coincidence as I was on my way to meet a client for coffee who wished to move his operations here from KSA. When our conversation shifted to the reason for his decision, I could see that he was jaded from his experience. It made me wonder how much Dubai has embraced the expat population along its evolutionary journey, and how the cooperation between the private and public sectors has thrived. I will try to recount his narrative here as much as I can remember:

There used to be a time not long ago when the cost of living used to be extremely low which was suitable for hosting large expat families. Rent for big homes, government fees for business and visas, school fees, utility bills, and food essentials prices were cheap. There wasn’t much in terms of public entertainment that would drain the disposable incomes, thus resulting in huge savings. Despite the lack of glamour, conservative Muslims prefer to live here due to their proximity to the Holy cities of Makkah and Medina. Low market saturation and high domestic consumer population meant high sustainable opportunities for business owners. The average level of educational attainment among the local Saudi population was low. This left a wide gap in the expertise required to fill white collared jobs. The expats continued to pour in and flourish because they could fill this gap.

And then the oil-rich kingdom shifted its focus to non-oil industries to drive its GDP. And with that came the sudden introduction of taxes and tariffs that drove up the expenses exponentially. Local petrol prices shot up by 3 times. Utilities by more than double. 2-years residency visa was reduced to yearly renewals which meant an Employment visa would now cost 12k SAR per person every year. A dependent visa is about 6k SAR per person. VAT is at 15%. There is even a high ‘sin’ tax attached to entertainment such as cinema. There is an Exit/Re-entry visa for expats who wish to travel out of the country which costs SAR 200.

The cost of operations for business owners is a steep challenge. There is either a full 100% foreign ownership (includes Corporate tax 20%, Zakat 2.5%, Annual license renewal SAR 65k), or 100% local ownership (includes Corporate tax 0%, Zakat 2.5%, Annual license renewal is less than SAR 10k), and nothing in between. Although the second option may seem favourable, there have been horror stories where the nominal local owner (on paper) has stepped in to claim over the business of the expat. With no signing authority, the expat owners feel that they are at the mercy of the nominal owners. So it has been a common practice for expats to bring in their trusted local sponsors from other GCC countries to step in as the nominal ‘paper’ owners.

High unemployment among the local Saudis has been dealt with by intensive Saudisation measures such as restricting expat employment in multiple job categories. All stores in malls can only hire local women staff. The business has to employ one local for every 3 expats with a minimum salary plus benefits. 100% foreign-owned businesses have to deal with surprise inspections to ensure that a Saudi staff is present in the office during working hours. Expats are not allowed to be in the office if the Saudi staff is not present. Moving on to the positives, although bottom-lines are affected, retail commerce is improving. This can be attributed to women now being able to move around freely, and them being big spenders. There is still a lot of business potential in the kingdom, and many businesses continue to endure despite the financial strain. Let’s hope that the kingdom’s 2030 vision has accounted for these challenges towards its vision for a thriving economy and global competitiveness.

The UAE ranked 16th on the World Bank’s 2020 Ease of Doing Business Index, while Saudi Arabia ranked 63rd.