Saudi Arabia's strategic location between Europe, Africa, and Asia has brought forth the potential to develop the country as the globally leading logistics hub. Along with the increasing population and the government's plan to diversify its economy, further reducing itself from oil dependency, Saudi Arabia's logistics sector expects to play a critical role in the non-oil gross domestic product growth.
Saudi Arabia Vision 2030 in 2016 has positioned the kingdom to focus on improving logistics infrastructure and capacity through customs restructuring and expansion in related business opportunities. However, the COVID-19 pandemic has catalyzed the need for seamless and fast logistics services to cater to the growing demand for e-commerce, both domestic and international consumption. In recent years, the Middle East has also implemented an open market to encourage more participation from the private sectors, opening opportunities for the logistics industry to develop more rapidly as players seek to tap into the market.
Today, the kingdom is undergoing a dynamic infrastructure revolution, particularly for logistics fundamental pillars such as warehousing and roads. However, the emerging market of Saudi possesses several tricky landscapes that players in the industry must understand before venturing to the kingdom.
The rise of e-commerce and retail sectors has emphasized the urgent demand of Saudi Arabia's manufacturing and warehousing capacity. Previously, the kingdom relied on two extensive warehousing and logistics spaces in Riyadh, the King Abdullah Economic City, and Al Khobar. However, as Saudi Arabia develops its logistics infrastructure, new warehousing sites would be needed to cater to the needs of inventories.
With the rise of e-commerce globally, Saudi Arabia has shown a 74 percent growth during the first period of the COVID-19 pandemic, putting pressure on the kingdom's warehousing sector to provide more room for the massive goods traffic around the surrounding areas. Additionally, e-commerce businesses demand technologies installed in the warehousing properties to ensure the ease of process of receiving, processing, and shipping.
Saudi Arabia - albeit being an indulgent kingdom - is lacking adequate human resources for logistics and technological transformation. The bottleneck to Saudi Arabia's logistics provider stems from the unparalleled growth of the industry, with low population growth and interest in the logistics industry.
The Saudi Arabian government has been resiliently investing in mega-construction projects such as NEOM smart city and the Red Sea project, eventually allowing diversification in warehousing demand outside of the kingdom's urban centers by building thorough facilitations in the newly developed areas. The soon-to-be-finished projects will support logistics industry players to deliver their services more efficiently with additional spaces and roadways closer to the consumers.
Furthermore, the government aims to provide a larger and more capable workforce through multiple regulatory restructuring, targeting over 1.2 million new laborers at the end of 2022. Among the new policies is establishing the Human Resource Development Fund (HRDF) that encourages employers to extend the training for Saudi Arabian citizens by allowing reimbursement for training costs required to hire its residents.