Why good governance is crucial for Saudi Arabia’s economic growth

The great business leaders of history: from Andrew Carnegie, John D. Rockefeller, and John Cadbury to Arianna Huffington, Oprah Winfrey, and Richard Branson have all sought to build successful and inclusive businesses steeped in a culture of responsibility and obligation to their employees, local communities, shareholders and nations. Indeed, both countries and businesses flourish when there is a sense of trust and collaboration between them.

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The best businesses and businesspeople have always understood this: Carnegie built dozens of libraries in gratitude to his native Scotland and managed his company with the wisdom required to pass it down to future generations.

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While Carnegie might not have had a set of words for these practices, we do: ‘good governance.’ This is a broader concept that contains the better-understood ideas of corporate governance and social responsibility that have become by-words in the business sector over the last decade.

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Good governance commits business leaders to long-term management, inclusive hiring practices, environmental consciousness, management training, and auditing practices. As former US Treasury secretary, Lawrence Summers has?written

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The real need is for a cadre of trusted, tough-minded investors in any given company who can credibly commit to support strong management teams and to provide assurances to a broader investment community so that productive investments are made. Accomplishing that, while maintaining market discipline, is the crucial challenge

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CEOs, whether they are heading privately held companies or listed organizations, should recognize that putting strong governance structures in place will benefit those they directly report to. However, committing to a long-term and holistic plan that integrates both market incentives and social responsibility and the concerns of shareholders, management and employees also helps the wider economy. Indeed, the?OECD ?has outlined how corporate governance practices are vital to promoting sustainable economic growth

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My own country, Saudi Arabia, and its various successful companies have made significant advances into innovative governance practices that are complimenting the policies set out as part of Saudi Vision 2030. Saudi Arabia has long been a pioneer in the Middle East, developing modern governance practices from 1999 through the Supreme Economic Council (SEC) at the same time as the OECD was launching its?‘Principles on Corporate Governance.’

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More innovations came in 2006 as the Capital Market Authority (CMA) established leading regulations for joint-stock companies. In 2015, the SEC was modernized and transformed into the Saudi Council of Economic and Development Affairs. However, our governance history goes back to 1965, when the Saudi government transposed new British laws into our own “Company Law.”

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Last year, slated changes, including the Labour Reform Initiative (LRI) and new Chambers of Commerce legislation have made it easier for foreign investors and workers to operate. Indeed, many foreign companies are taking notice of the increasingly positive commercial environment in Saudi Arabia. As?Arabian Business ?reports, in 2021 foreign investor license applications reached an all-time high and increased 60% over the period from 2019 to 2020

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Yet, good governance will need to become increasingly important as Saudi Arabia aims to transfer economic growth to the private sector and build its service economy. We will need to attract talented employees, high-quality customers, and longer-term investors from across Saudi society and the wider world to achieve desired growth.

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Clear expectations, obligations, and standards will further incentivize the best talent and clients to travel and trade with Saudi companies. It will also attract capital investment and the knowledge that comes with it. From my experience working with multinational and multidivisional companies in the Kingdom, I know that this process is already starting. For instance, the?non-oil economy grew at 5% ?in Q4 2021 helped by record levels of vaccination (with over 59 million jabs taken up). Our retail and commerce sectors are now raring to go

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Vision 2030 commits organizations like mine, Al Othaim Investment Co, to help achieve goals. These range from creating a sense of ‘Daem’ or meaningful entertainment for citizens; raising our social capital index ranking; expanding vocational training; integrating the young and women (who make up 50% of our graduates) into the workforce; increasing the long-term contribution of the private sector to GDP; and modernizing the retail sector through digital innovation

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As a market-leader in the construction, management and operation of large shopping centers in the MENA region, Al Othaim Investment Co. aims to create a unique mixed-use destination that incorporates restaurants, tourist attraction sites and entertainment centers. We are fulfilling these goals by creating a cutting-edge HR team that will make our company more attractive to the young, increasingly diverse, and highly educated workforce resident in Saudi Arabia

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As the economy reopens after the pandemic we, as corporate leaders, are presented with the opportunity to refresh and re-examine our priorities and goals. Saudi Arabia’s retail, entertainment, and commerce hubs should be beacons of the community and also great places to work. The growth of these industries should lead to new management practices and, in turn, new management practices should kick start even more economic growth. Saudi Arabia’s private and service sectors are set to bloom, but growth requires change