US investments in Saudi Arabia exceed $55bn

Time: March 22,2018

The total volume of US investments in Saudi Arabia reached over SR207 billion ($55.1 billion) by February, according to a report of the Saudi Arabian General Investment Authority (SAGIA).

The industrial activities make up the lion’s share of these investments with a total amount of SR193 billion for 95 projects followed by the service sector (SR13.5 billon for 245 projects).

The report, cited by the UAE’s state news agency WAM, also showed nine commercial activities with a total investment of SR300 million and two real estate projects with a total funding of SR16 million.

It added that temporary licences have been given for 16 US projects with total investments of SR2 million.

As many as 16 new American companies entered the Saudi market in 2017 with a total investment of SR382 million, of which 13 licences were granted in the service sector with a total financing of SR284 million, the report noted.

This article was first published in Arabian Business

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Foreign investment in Saudi Arabia

Time: March 1, 2018

FDI in Figures

In recent years, FDI flows to Saudi Arabia have followed a downward trend. According to the 2017 World Investment Reportpublished by UNCTAD, the country is the third largest FDI recipient in Western Asia, after Turkey and the United Arab Emirates. In 2016, FDI inflows fell by 8.5% compared to the previous year, reaching USD 7.45 billion, the lowest since 2014.

Political and social tensions, reduced access to credit and the policy of ‘Saudisation’, which started in 2011 and favours a domestic labour force, have all been obstacles to FDI. Nonetheless, the government has invested heavily in national infrastructure to attract investment, and FDI is seen as one of the most effective ways to diversify the economy and provide employment for younger generations. The government recently announced the opening of the retail and wholesale sectors to 100% foreign ownership and has launched a large privatisation programme. Furthermore, The Saudi Capital Market Authority announced measures to ease restrictions on foreign investment in January 2018 and as such, foreign establishments will need to have USD 500 million worth of assets under management instead of USD 1 billion in order to qualify as an investor in the stock market. The authorities welcome FDI due to its ability to transfer technology, employ and train the national workforce, foster economic development and enhance local raw materials. The country’s controlled inflation and relatively stable exchange rate, openness to foreign capital in upstream gas, as well as extensive privatisation programmes are among the advantages attracting investors to the country. The dynamic performance of the banking sector is driving the growth of the non-oil sector. Lastly, access to the world’s largest oil reserves, very low energy costs and a high standard of living are decisive factors for foreign investors.

Foreign Direct Investment 2014 2015 2016
FDI Inward Flow (million USD) 8,012 8,141 7,453
FDI Stock (million USD) 215,909 224,050 231,502
Number of Greenfield Investments*** 97 92 90
FDI Inwards (in % of GFCF****) 4.2 4.2 4.5
FDI Stock (in % of GDP) 28.5 34.4 36.2

Source: UNCTAD, Latest available data.

Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country’s Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.

FDI INFLOWS BY COUNTRY AND INDUSTRY

Main Investing Countries 2016, in %
USA 21.7
United Arab Emirates 20.4
France 9.0
Singapore 7.9
Kuwait 5.2
Malaysia 4.4
Main Invested Sectors 2016, in %
Chemical industry 30.0
Real estate 26.5
Hotels and tourism 9.7
Coal, oil and gas extraction 7.7
Automotive industry 7.0
Machinery 2.5

Source: The Arab Investment & Export Credit Guarantee Corporation – Latest available data.

Form of Company Preferred By Foreign Investors
Joint stock companies and limited liability partnerships are the only companies available to foreign investors. However, it is possible to establish a branch of a foreign company in Saudi Arabia, which may be owned by a single foreign entity except individuals.
Form of Establishment Preferred By Foreign Investors
Joint stock companies and limited liability partnerships are preferred because a foreigner is not allowed to conduct business in Saudi Arabia as a sole proprietor, unless the individual is operating a branch of a foreign company.
Main Foreign Companies
Visit: ‘Top Companies’ at Saudi Business Centre (The Saudi Network).
Sources of Statistics
Central Department of Statistics (in Arabic)

Why You Should Choose to Invest in Saudi Arabia

Strong Points
Once Saudi Arabia became a member of the WTO in 2005, the foreign investment climate in the Kingdom substantially improved. From an investor’s point of view, the country’s strong points are economic stability, the large local market with a high spending power (and a population of over 27 million), sound infrastructure and a well-regulated banking system.
Weak Points
While the country has undertaken reforms to encourage foreign investment, the legal framework in resolving commercial disputes is considered by some to be inadequate. There is a lack of transparency in applying intellectual property legislation, and the Government imposes quotas of Saudi employees in companies. Cases of delayed payment of some government contracts have been reported. The traditionally conservative cultural environment, including the enforced segregation of the sexes in most businesses and social settings, may discourage certain investors who are not accustomed to such practises.
Government Measures to Motivate or Restrict FDI
According to the law on foreign direct investment, foreigners are now allowed to invest in all sectors of the economy, except for specific activities on a “negative list.” This list continues to shrink as Saudi Arabia attempts to liberalise trade. Still, investment in petroleum and mineral projects, among other activities, remains off-limits.Foreign investors are no longer required to take local partners in a number of sectors and may own real estate for company activities. They are allowed to transfer their company money outside the country and can sponsor foreign employees, subject to certain criteria in accordance with the Nitaqat (Saudisation) programme.

In order to facilitate investments in the Kingdom, the Saudi Arabian General Investment Authority(SAGIA) has set up an Investment Services Centre (ISC). The ISC must decide to grant or refuse a license within 30 days of receiving an application from an investor.

Protection of Foreign Investment

Bilateral investment conventions signed by Saudi Arabia
Saudi Bilateral Investment Agreements
International Controversies Registered By UNCTAD
Visit the UNCTAD website mentioning the dispute between Saudi Arabia and the investor country.
Organizations Offering Their Assistance in Case of Disagreement
ICCWBO , International Chamber of Commerce
ICSID , International Center for settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency
Yes

Country Comparison For the Protection of Investors

Saudi Arabia Middle East & North Africa United States Germany
Index of Transaction Transparency* 8.0 6.0 7.0 5.0
Index of Manager’s Responsibility** 8.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 4.0 4.0 4.0 8.0
Index of Investor Protection**** 5.8 4.5 6.5 6.0

Source: Doing Business – Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.

Procedures Relative to Foreign Investment

Freedom of Establishment
Not guaranteed
Acquisition of Holdings
Possible
Competent Organisation For the Declaration
Ministry of Finance, Saudi Arabia
Requests For Specific Authorisations
Saudi Arabia maintains a Negative List that tabulates sectors not open to foreign investment (visit the SAGIA site and check the Negative List). The sectors currently closed to foreign investment include three manufacturing categories and 19 service industries. The list includes real estate investment in Mecca and Medina, some sub-sectors in printing and publishing, audiovisual and media services, land transportation services excluding inter-city transport by trains, and upstream petroleum. SAGIA periodically reviews the list.Moreover, the SAGIA reviews foreign investors or those wishing to set up a branch in Saudi Arabia on a number of criteria, including their fiscal situation, experience in their field, and Saudisation Plan. A foreign entity cannot invest in the Kingdom outside its field of activity. Activities for industrial LLC’s are limited to the product (machine) or raw material to be produced/used, based on a list of items (in Arabic).

Learn more about Foreign Investment in Saudi Arabia on Globaltrade.net, the Directory for International Trade Service Providers.

Office Real Estate and Land Ownership

Possible Temporary Solutions

There are ready-to-move-in offices available on rent in various business parks across Kingdom’s main cities.

However in case the foreign company is of national interest, the Saudi Government may provide temporary space for a limited period till the company establishes itself in the country.

The Possibility of Buying Land and Industrial and Commercial Buildings
It is possible to purchase land for the purpose of conducting licensed activities and for employee residences. However, land may not be bought by a foreigner for investment purposes only (i.e. real estate trading).
Risk of Expropriation
Negligible. It is possible under Saudi law (if deemed in the “public interest”), but practically never happens.

Investment Aid

Forms of Aid
The Government has created industrial sites attracting foreign investors in Riyadh, Jeddah, Dammam, Qaseem, Al-Ahsa and Mecca. The setting up of a subsidiary allows tax exemptions for 5 years. The State provides electricity, water, fuel, etc. at low prices when industrial plans are involved. The Government encourages partnerships with local companies, granting more aid and advantages to companies whose capital is shared with Saudis. The Department of Industry and Electricity and the Department of Finance should be contacted for more information on the various forms of assistance granted to foreign investors.Foreign investment that fulfils the requirements of the Foreign Capital Investment Code enjoys all privileges of national capital and is entitled to the same treatment, protection, and incentives accorded to national capital, which includes exemption from customs duties on machinery and equipment. The Saudi Arabian General Investment Authority (SAGIA) may be contacted for further information about investment laws and opportunities in Saudi Arabia.

In addition, foreign investors who hire Saudis may benefit from a rewards system, whereby the Government would pay 50% of the employees’ salaries, subject to conditions as specified by the Human Resources Development Fund.

Privileged Geographical Zones
The Government has set up six “Economic Cities” located in Riyadh, Jeddah, Dammam, Qaseem, Al-Ahsa and Makkah in order to attract foreign investment. These cities focus on different industries.
Free Zones
Saudi Arabia does not have duty-free zones or free ports.

However Saudi Arabia is a member of Gulf Cooperation Council (GCC) and Arab League. Saudi Arabia grants special trade and investment privileges to GCC members, allowing free movement of local goods. The Arab League has also agreed to negotiate an Arab free trade zone.

Finally, Saudi Arabia will provide additional incentives and better loan terms to foreign investors who set up their manufacturing facilities in Jizan, Hail and Tabuk.

Organizations Which Finance
Saudi Industrial Development FundSaudi Arabian Basic Industries Corporation (SABIC)

Islamic Development Bank

Investment Opportunities

The Key Sectors of the National Economy
Oil sector
High Potential Sectors
Franchising, Tourism, Banking
Privatization Programmes
The Supreme Economic Council launched a privatisation programme in 2002, which allowed privatisation of 20 state-owned companies in a phased manner. These companies belong to such sectors as: telecommunications, water and drainage, saline water desalination, mining, power, air transportation and related services, railways, some sectors of roadways, postal services, flour mills and silos, seaport services, some municipality services, some educational and social services, some agricultural services, some health services, etc.
Tenders, Projects and Public Procurement
Saudi Tenders
Tenders Info, Tenders in Saudi Arabia
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors
Telecommunications, Electricity
Sectors in Decline
Insurance

 

This article was first published in Santander Trade Portal

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Saudi Arabia Extends Foreign Investment Licenses to 5 Years

Time: February 26, 2018

Saudi Arabia extended foreign investment licenses to a renewable period of up to five years from one year, in the latest step to broaden the oil-dependent economy.

Ibrahim Al Suwayel, deputy governor for investors’ services at the Saudi Arabian General Investment Authority, said the move aimed to bolster the country’s economic changes.

Officials have already seen “a positive effect on new investment, following the recent regulation to reduce the time taken to issue business licenses from two days to just four hours,” he said in a statement.

Saudi Arabia is entering a crucial year for Crown Prince Mohammed bin Salman’s plan to remake the economy, dubbed Vision 2030, as officials try to raise government revenue without snuffing out economic growth. It introduced the 5 percent value-added tax on Jan. 1 alongside higher fees for foreign workers and subsidy cuts that drove up fuel and electricity prices.

This article was first published in Bloomberg 

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Relax and invest, Saudi prince tells investors after corruption crackdown

Time:  February 20, 2018

RIYADH/DUBAI (Reuters) – Three months after Saudi Arabia detained scores of people in a crackdown on corruption, its rulers are trying to reassure investors that the kingdom remains open for business.

Foreign and local investors have long complained about corruption, and confronting it is an important part of reforms unveiled by Crown Prince Mohammed bin Salman to transform the country and reduce the economy’s reliance on oil exports.

Yet some business leaders were unsettled by the swoop on top princes, businessmen and government officials in November because of the secrecy around the crackdown and their suspicions that it was at least partly politically motivated.

“This is not a recommendation for why you should invest in Saudi Arabia,” said a Western businessman with extensive contacts in the kingdom. “This whole thing has become one big ball of contradictions.”

Saudi authorities are loathe to say they mishandled the anti-corruption campaign.

But top officials, including Prince Mohammed, met senior local businessmen last month to reassure them that the crackdown was mostly over and that it was safe to do business, according to five Saudi and Western sources who spoke with people who attended the meetings. Most detainees have now been released.

 

In front of global political and business leaders at the World Economic Forum in the Swiss town of Davos last month, Saudi officials highlighted the positives of the detentions, dismissing worries about the way the crackdown was conducted but conceding that it might have been sold slightly differently.

“It’s true we could make mistakes here and mistakes there. Saudi Arabia is not a perfect country. Saudi Arabia is like any other country. But the … road to success is always under construction and the whole momentum of Saudi Arabia is going toward that end,” Minister of Commerce and Investment Majid bin Abdullah al-Qasabi told a Davos session.

Government spokesmen in Riyadh did not respond to requests for comment, but Attorney General Saud al-Mojeb has described the sweep as “an independent judicial process” and “part of an overhaul to ensure transparency, openness and good governance”.

The message delivered in the January meetings underscores a difficult balancing act for Prince Mohammed and his team as they try to reform the country.

FILE PHOTO: Saudi Arabia’s Crown Prince Mohammed Bin Salman and Saudi Prince Miteb bin Abdullah (L) take part in the Annual Horse Race ceremony, in Riyadh, Saudi Arabia, December 30, 2017. Bandar Algaloud/Courtesy of Saudi Royal Court/Handout//File Photo via REUTERS

They must deliver change, and one way to do that is by tackling corruption in Saudi Arabia’s opaque business world. But the judicial system is underdeveloped and the crackdown contrasted sharply with Western-style due process.

That means each attempt at reform in the deeply conservative Muslim kingdom risks exposing other shortcomings.

The government has said that financial settlements made with the detainees in exchange for their freedom have raised more than $100 billion, mostly in the form of land, stakes in businesses and other illiquid assets rather than cash.

That should help raise tens of billions of dollars for huge development plans, such as a $500-billion economic zone in the northwestern desert.

But only a handful of specific allegations against those detained have been revealed. Details of the financial settlements are also being kept secret, and Reuters has been unable to verify the government’s gross estimate.

Authorities say that not naming detainees protected people’s reputations, and settling cases out of court avoided protracted legal battles that would have distracted from other priorities.

Yet the secrecy of the crackdown — during which detainees were held inside the same opulent hotel where days earlier investors had rubbed elbows at an international business conference — could undermine transparency promises.

MEETINGS

The January meetings between Saudi officials and the local business community were in multiple locations including the capital Riyadh and Jeddah, according to the sources, who declined to be named because the conversations were private.

The primary message was that another wave of mass detentions is not on the cards, the sources said, a relief to businessmen who worried that authorities might now take the same approach to the next echelon of the Saudi business world.

“They were told the anti-corruption campaign is done: continue with your business as normal and invest in the economy,” said one of the sources, a senior banker.

Another message was that the Saudi authorities define corruption relatively narrowly. While they want to improve Saudi business practices, the officials told business leaders, they will not try to change that culture so radically that normal business ties are damaged, the sources said.

That was a relief to many businessmen in a country where personal relationships often help determine transactions between companies, and where gifts of cash or land are sometimes deemed necessary to get things done.

At one of the meetings, officials told attendees that the government understood business payments to third parties were sometimes required, said one of the sources.

Businessmen and economists in contact with the government do not expect a firesale of seized assets to raise money. That should minimise pressure on the Saudi real estate and stock markets, they said.

Instead, cash is likely to trickle slowly into government coffers, and authorities are not expected to interfere hugely in most of the companies in which they have obtained stakes, said an economist briefed on the government’s plans.

The meetings with the crown prince have calmed the nerves of some attendees, the sources said, but others remain worried that they could be detained at any time and that instability has become the new norm.

“The whole business community is traumatized,” said one of the sources, a Saudi businessman.

The government has demonstrated it is willing to move quickly and ruthlessly to seize the assets of people it believes have acted wrongly.

One banker who spoke to Saudi officials and attendees at one of the meetings said some of those released from detention had been told they may be asked to help fund certain projects.

“There’s an understanding that the government might at some point tap those released on the shoulder and say, ‘Hi, we’re building an infrastructure project and need some funding: Please contribute’,” the banker said.

This article was first published in Reuters

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Why invest in Saudi Arabia?

Time: 21 November 2016

The Kingdom of Saudi Arabia is transforming itself as one of the world’s most competitive economies, and therefore, one of most lucrative markets for strategic investment. Here’s why:

It’s all about the competitive advantages.

Saudi Arabia has a vast number of competitive advantages in many strategic sectors at regional and global levels, which yield significantly higher returns on investment. Of course, it is no surprise that Saudi Arabia is ranked first with regard to prices of energy provided for investment projects. As such, Saudi Arabia continues to be a natural choice for investors in all energy intensive industries.

But the competitive advantages in today’s Saudi Arabia run much deeper than just energy. It’s about creating a world-class business environment that combines an ease of conducting business with low costs. It’s about unfettered access to regional markets and financial services. Above all, it’s about our country’s vision, and our shared commitment, to seeing your business thrive.

As the world’s fastest reforming economy, the momentum behind this economic transformation is undeniable. It is therefore no surprise that, in just three years, Saudi Arabia has risen from 76th to 23rd position in the World Bank’s Ease of Doing Business Index and is currently number one in the Middle East.

Financially speaking, investment in Saudi Arabia realizes high profit ratios for local, foreign and shared projects, with low risk exposures, and a simple form of taxes and property registration fees. The Kingdom currently occupies the fifth rank regarding tax liabilities and fourth in property registration costs, according to business performance reports 2006/ 2007 issued by the International Bank.

Thus, under such a pro-business environment, firms in Saudi Arabia thrive. According to a comprehensive study published by Arab Forbes Magazine’s in late 2006 assessing the performance of (1616) joint-stock companies in the Arab world, the first three positions were Saudi companies. Out of the top 50 companies, 22 were Saudi companies when applying a number of rigorous standards such as operational efficiency, market value, sales, revenues, dividends, return on equity, return on two last year assets (2004 – 2005), and company expected growth.

In the banking sector, the ten Saudi banks are among the best banks in terms of profitability and growth potential in the Arab World. These Saudi banks comfortably rest within the list of biggest 1000 banks of the world, according to the Financial Times 2006. Also the 3 biggest banks in the Arab world are Saudi, ensuring comprehensive financial support for your business from every angle.

Monetarily speaking, the Saudi Riyal is one of the most stable currencies in the world, and offers great competitive advantages in the region. There has been no significant change in its exchange value during the last 3 decades. There are no restrictions on foreign currency exchange and outgoing money transfers. Inflation rates in Saudi Arabia are very low and the Kingdom is endeavoring to sign bilateral agreements with an increasing number of countries regarding investment encouragement, protection and arrangement of taxation issues.

A report issued by Milken International Corporation in Feb. 2007, noted all of the above points in bestowing upon the Kingdom of Saudi Arabia the first rank worldwide with respect to total economic environment classification (i.e. environment capability for project management and financing). Milken Corporation focused on Saudi Arabia’s low and stable interest rates, low inflation and low taxes, compared with international standards.

In addition to the Kingdom’s strong economic climate for investment, one of the country’s strongest advantages and incentives for foreign investment, however, is its people.

The majority of Saudi Arabia population is young, with 45% of the country under 15 years of age. Recognizing this as the country’s greatest potential asset, the Government has spent billions of dollars towards actively improving the human resources development pattern to better provide for the economic boom set to continue in Saudi Arabia for the near future. All of this provides investors with more opportunities to select the highest caliber labor for their projects.

Recently, the government launched the Human Resources Development Fund to train and recruit Saudis and provide many incentives for companies that employ nationals through the provision of aids and support for activities related to qualifying, training and recruitment of labor, contribution in the private sector Saudi laborers’ qualification and training costs, and even covering a percentage of the salary of Saudi labor employed by the private sector.

What does this all mean for your business? More productivity. Expanded output. Higher Profitability. And above all: boundless potential in the world’s fastest reforming business climate.

Need more reasons for investing in Saudi Arabia? Take into account the following statistics on Saudi Arabia:

  1. Availability of low price facilities and services.
  2. Low cost governmental financing opportunities.
  3. No. 1 in exports and imports size in the Arab world.
  4. Within the first 7 countries of least inflation rates in the world (IMD).
  5. The 7th country in total local savings (IMD).
  6. Within the first best 8 countries in exchange rate policies (IMD).
  7.    Biggest financial market in Middle East.
  8. Within the first 25 countries in total cash savings (index of Economic Freedom).
  9. Within in the first 24 countries of least cost loans from Saudi Industrial Development Fund.
  10. Losses carry over for coming years regarding profit taxes.
  11. Provision of assistance and consultancy by the General Investment Authority.
  12. Within the best 3 countries in the world as of proprietorship registration cost.
  13. Best country in the Middle East as of exchange rate index (Doing Business 2006).
  14. Biggest foreign investment balance in the Arab world since many years till now (Arab Investment Guarantee Corporation Reports).
  15. Biggest economy in the Middle East with gross local product exceeding 300 billion dollars, and a growth rate reaching 6% during the last 3 years.
  16. Within the first 6 countries having the least company taxes in the world according to (IMD) report.
  17. Biggest oil reserve – about 26% of the world’s reserve.
  18. Forth natural gas reserve in the world.
  19. Wide market serving a population of more than 22 million, and a gate to the markets of 205 million persons.
  20. High incomes and purchasing power.
  21. Strategic geographical location through which most significant international aviation lines pass, linking between three continents.
  22. Nonexistence of local disputes due to prolonged political stability.
  23. Nonexistence of multiple taxation (except profit taxes on foreign companies amounting 20%, allowing carrying over the losses of unlimited investments).
  24. Within the first five countries in the world having easiest labor recruitment and work hours flexibility.
  25. Nonexistence of work strikes.
  26. Availability of energy with the least prices in the world.
  27. A net of advanced banks with high technology and efficiency.
  28. Capital cost rate (IMD).
  29. Best in the world regarding financial solvency index (IMD).

Need more information? Please contact SAGIA at info@sagia.gov.sa

This article was first published in ARRIYADH

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