This rapid progress has led to an array of new opportunities for both public and private sector enterprises — but it also comes with significant operational and financial implications that must be accounted for. In this article, we'll examine some of the key operational and financial considerations for businesses in KSA during this period of rapid infrastructure development.
Saudi Arabia's Notable Infrastructure Projects
The last decade has seen a number of major infrastructure projects in the Kingdom, including:
- King Salman International Airport: a new hub for international travel based in Riyadh
- The Riyadh Metro: one of the largest urban transport projects in the world.
- The Red Sea Project: a massive tourism, leisure and residential development planned for the western coast of Saudi Arabia.
- The Makkah Public Transport Programme: a comprehensive system designed to reduce congestion in the holy city of Makkah.
- The Riyadh-Dammam Expressway: a major highway project that is expected to reduce travel times between the two cities.
- Al Widyan: a new city located in the north of Riyadh is being built with an eye towards encouraging economic growth.
- Jabal Omar Development Project in Makkah: a massive urban project, which aims to develop the area into one of the most luxurious residential, business and leisure districts in the Middle East.
- Al Faisaliah Economic City: a new eco-friendly city located near Jeddah.
These are just some of the major infrastructure initiatives being undertaken in the Kingdom. This rapid expansion of infrastructure is helping to drive economic growth, create jobs, and spur investment. In order for businesses to capitalize on the growth opportunities, however, they must first understand the operational and financial implications of these developments.
Implications for Operational Accounting
Businesses in the Kingdom must consider the operational implications of these projects to remain competitive and profitable. Here are some of the key considerations below.
Greater Demand for Skilled Labour
With an influx of large-scale infrastructure projects, there is sure to be greater demand for qualified personnel in a range of industries, such as engineering, construction, project management, and finance. Companies may be forced to compete for talent, which in turn may push up wages.
Higher Costs for Materials
As infrastructure development intensifies, the demand for key raw materials is likely to rise. This could lead to higher costs for businesses, as suppliers may be able to charge more for their materials. Companies should take this into account when preparing budgets and setting pricing.
Changes in Transportation and Logistics
New roads, bridges, airports, and other infrastructure projects may change the way businesses transport goods and services across the Kingdom. Companies may need to adjust their delivery routes and rethink their supply chains to take advantage of the new opportunities.
Possible Disruption of Existing Operations
Large-scale infrastructure projects can cause disruption to existing operations, especially when they are being constructed near existing businesses. Companies must take this into account when planning for the future and prepare contingency plans in case of disruptions.
Implications for Financial Accounting
In addition to operational considerations, businesses must also consider the financial implications of infrastructure development.
Opportunities for Investment
Infrastructure development can open up opportunities for businesses to invest in new projects and expand their operations. Companies should ensure they have the necessary financial resources to take advantage of these opportunities.
Increase in Foreign Investment
Infrastructure projects can often attract foreign investment, particularly if they are seen as being advantageous to the economy. Companies should seek advice from financial professionals to ensure any foreign investments are compliant with local regulations.
Higher Borrowing Costs
Infrastructure projects are often financed through loans and other forms of debt. This can lead to increased borrowing costs, which must be considered when budgeting and forecasting.
Changes in Accounting Practices
With the rapid development of Saudi Arabia's physical infrastructure, the government has also taken steps to develop its accountancy infrastructure. Companies must take note of any changes in regulation and ensure their accounting practices are up-to-date with the latest standards and international best practices.
Saudi Arabia's Infrastructure Development Presents Opportunity
With change comes opportunity, and infrastructure development in the Kingdom of Saudi Arabia is no exception. While there are numerous operational and financial implications for businesses to consider, the potential for growth and development is clear. Companies should take advantage of the opportunities and plan for the future to maximize the chance for success.