Investment Opportunities in the Kingdom of Saudi Arabia
Saudi Arabia, a Kingdom in the Middle East has emerged as one among the world's most attractive destinations for foreign investment recently, while also becoming an essential factor in the overall global economy. Saudi Arabia has been continuously evolving as one of the most attractive and investment friendly places in the world for doing business. Currently, it is a moment where profound changes are taking place in this Kingdom, offering investors a rare chance to be part of the market which has been reinventing itself, by means of an ambitious vision and an unprecedented pace of transformation.
Under the leadership of Crown Prince Mohammad bin Salman, Saudi Arabia, has made many moves right from 2015 to diversify its economy and attract significant foreign investors. The Vision 2030 is an economic plan which was released in the year 2016. It lists its pillars to make Saudi Arabia a leading global investment powerhouse, with a specific aim of increasing foreign direct investments from the current level of 3.8 percent of the gross domestic product (GDP) to an international level of about 5.7 percent by the year 2030. The World Bank had estimated in the year 2016 that foreign direct investments were only about1.2 percent of the Saudi GDP.
Saudi Arabia in the future, as an investment powerhouse is expected to be one of the key players in the 2030 vision. With the country already leading as the powerhouse of the Middle East, its current to emerge as one among the top 10 most competitive nations in the world is expected to be achieved with strategic foreign investments. This competitiveness will naturally bring global investors from all over the world, into one of the most lucrative markets.
Moody’s Investor Service has also recently affirmed the Kingdom’s A1 rating, providing a stable outlook. It had raised Saudi’s forecasts for GDP growth during the period (2018-2019) to both 2.5 percent and 2.7 percent respectively, when compared to the previous expectations of about 1.3 percent and 1.5 percent reported in April 2018, for the same period. These are the revised numbers from Moody’s which has surpassed the forecasts that were announced by its government in the preliminary statement, of the 2019 budget announcements on September 30th, 2018.
Trade and Investment System has also in the meanwhile made good progress in about seven major indicators, related to trade and investments in the Global Competitiveness Report 2018 which was issued by the World Economic Forum. The indicators are companies adopting changing ideas, shareholder governance, small and medium enterprise (SME) financing, behaviors towards entrepreneurial risks, and growth of innovation-based companies, as well as multi-stakeholder collaborations, along with robust audit and accounting standards. This remarkable progress in the Global Competitiveness Report, 2018 resulted in best progress in six years of the Kingdom, with 67.5 points, ranking about 39 out of the 140 countries which have been registered.
The Country’s Ministry of Commerce and Investment, along with its Capital Market Authority (CMA), also made progress in terms of the shareholders' governance index. The Kingdom moved to the fifth rank in the world, with a ranking of 72, a rise from the 77th rank globally in 2017. It now ranks first in the Arab world and second among G20. This progress has been made possible due to the actions, which have been aimed at improvement and creation of the investment environment as well as growing attractiveness of the financial markets.
These numbers show how Saudi Arabia has been making efforts for diversifying its income resources for promoting a sustainable economy with the country making a transition away from too much dependence on oil. It even highlights Saudi Arabia’s eagerness in opening its investment doors to the international market. The ambitious Saudi Vision 2030 and the National Transformation Plan which was launched by the Government for the implementation of the Saudi Vision 2030 places a strong emphasis on more involvement by the private sector and increased foreign direct investment in Saudi Arabia.
Despite low global energy prices, the Saudi Arabian market continues to offer a wide range of business opportunities. By announcing Vision 2030 as its roadmap to diversify its economy, Saudi Arabia has taken bold steps to address its dependence on oil, and also begin to open the market about other business fields such as trade, renewable energy, manufacturing, education and engineering activities.
The Saudi Arabian General Investment Authority (“SAGIA”) was launched to oversee the foreign investments in the country. The primary objective of SAGIA is to empower the differentiated investments for building a sustainable economy. SAGIA represents the first such regulatory authority that will serve as the face for foreign investors, by virtue of being a primary licensing authority for those potential investors seeking to start a new business in Saudi Arabia. Investors are given licenses, governed and also regulated by the Saudi Arabian General Investment Authority (SAGIA), which aims at promoting the investment opportunities in Saudi Arabia across the globe, with emphasis on the field like energy, transportation, education, health, life sciences, and innovative, knowledge-based industries. The official website touts many ‘strategic benefits’ for investors in the kingdom including great access to a broad consumer and industrial market, with a population of 30.7 million, a well-qualified workforce, a stable supply of land for industrial and commercial real estate as well as utilities at highly competitive prices. It also mentions a favorable regulatory environment, followed by incentives in a highly favorable tax environment.
The investment environment in Saudi has been witnessing constant changes following the implementation of Vision 2030 and the ambitious National Transformation Plan (2020). SAGIA also has relaxed restrictions which apply to foreign investors for enhancing the overall investment environment. SAGIA is also devoting more focus on attracting the large foreign entities, which led to the creation of Instant License service wherein eligible investors can obtain their licenses for in an expeditious manner.
Several business-friendly initiatives are being undertaken by SAGIA for gaining more foreign investments to the Kingdom like reducing the overall requirements and duration of the issuing licenses, increase in the period of licensing for the foreign investment for 5 years, and approval for instant licenses and also reducing the list which is official excluded from foreign investments, and activating the e-services portal to facilitate the investors. These efforts have resulted in an increase of foreign direct investment by about 127% till the end of 2018, compared to previous year, and inking of 30 agreements at the forum of the future investment, with an estimated investment of about SR250 billion.
Foreign Direct Investments in Saudi Arabia increased by about 779 USD Million during the third quarter of the year 2018. Foreign Direct Investments in Saudi Arabia averaged about 4167.18 USD Million from the year 2006 to 2018. The Saudi Arabian General Investment Authority (SAGIA) report for Q3 of the year 2018 has indicated an increase in the overall number of licenses which have been offered to the foreign and local companies that are investing in Saudi Arabia by a figure of more than 90 percent when compared with the same period during 2017. Recent moves aimed at opening the workforce to women, improvement in women’s mobility by taking away the ban on women driving and reforms in the male guardianship system is also partly aimed towards improving the kingdom’s overall image among the foreign investors.
After Saudi Arabia became a full-fledged member of the WTO in the year 2005, the foreign investment environment in the Kingdom has seen substantial improvement. When seen from an investor's point of view, the strong points of the country are:
World’s largest oil reserves
1.) Vast local market with a high spending power (a population of over 27 million)
2.) Economic diversification strategies (Saudi Vision 2030)
3.) Strong infrastructure
4.) Consolidated finances
5.) Well planned and regulated the banking system
There are many investment opportunities especially in the key sectors of its central economy like the Oil sector, building, information and communication technologies, the automobile industry, as well as health, pharmaceutical industry, and defense etc. The leading potential sectors are franchising, tourism, electricity, banking, mines. The Supreme Economic Council had also launched a privatization programme in the year 2002 itself, that enabled privatization of the 20 state-owned companies. During the end of 2017, the government announced a new series of programs for privatization with an aim to raise the US $200 billion that is expected to be achieved through the sale of public companies in the field of health, education, milling, airports, and hydrocarbons. There are even plans to raise more than US$ 100 billion by selling 5% stake in the public oil behemoth Saudi Aramco on the world stock exchanges.
Earlier, the policy of Saudi Arabia was centered mostly on wooing the investors from abroad through glitzy trade shows and international visits. But in recent years, the kingdom has been organizing various high-profile events to attract potential investors so that they can become familiar with the country and then explore vast business opportunities. Some of these events include the Formula E Grand Prix race in Ad Diriyah, a WWE wrestling event which was organized in Jeddah and also the recent hosting of Italian Super cup in Jeddah. These events are creating more interest for foreign investors to land in the country and experience Saudi Arabia in a completely different way and witness the transformation on ground level, as part of efforts in projecting Saudi Arabia also as a leading leisure destination.
Many works related to massive leisure and infrastructure related projects in Saudi Arabia is proceeding towards completion, while many other proposals are in earlier stages in a market, where the future vision is directed at increased diversification of its overall income sources.
Neom city is being created in Tabuk, in Saudi Arabia’s northwest corner. It is being built on a diverse terrain, which is sheltered by massive mountains and fresh air from nearly 450 km of the Red Sea’s coastline. Neom is expected to stretch eventually spanning the Egyptian and Jordanian borders, thus emerging as the first such mega private economic zone that spans three countries.
Qiddiya is named by the region in which it is situated. It is located about 40 kilometers from the center of Riyadh city and boasts of spectacular views of mountains, desert, and valleys. Jeddah’s airport has been expanded to handle an ever-increasing number of international flights.
One more under-construction mega project is in the Red Sea, where visitors can explore some of the kingdom’s hidden treasures. It also includes a nature reserve with a stunning diversity of flora and fauna, based the foothills of an old, dormant volcano.
Saudi Arabia’s General Entertainment Authority is expected to organize more than 5,000 festivals and concerts which is twice the number of the previous year and made announcements for pumping about $64 billion into the entertainment sector in the next decade.
The Riyadh Metro is a mega project which is expected to transform the lives of people living in the capital city. It is one of its kind infrastructure projects ever in the history of Riyadh. It also involves a rapid, urban rail and bus network along with first such high-speed electric trains between Makkah and Madinah which have already commenced operations. The General Authority for Civil Aviation has inked contracts for development and services of a brand new Taif International Airport with a new group of companies. The airport is coming up on a massive area of 48 million-square-meter about 40 kilometers from the city of Taif and 117 kilometers from the holy city of Makkah. It will entail an investment of $800 million and is expected to commence operations by 2020.
A consortium of global companies is creating a brand-new business park called the Oasis of Technology. It has been created as a joint venture between the King Abdul Aziz City for Science and Technology and the well-known Morganti Group. The 35 million-square-meter area will be accommodating projects for manufacture and assembly of Antonov aircraft, solar panels and developing solar energy. There is also a new Industrial City coming up, which is the first of its kind in Taif Province on an area of 11 million-square-meter, about 55 kilometers from the city center and nearly 29 kilometers from the airport. The first phase involving $32 million first phase is expected to attract light, medium and heavy industries along with a vocational training center. A new university is being built at Saysed National Park. There are other plans involving 16 separate projects, entailing an area of 16 million square meters, at a massive cost of $530 million.
Al Faysaliya, the city, located to the West of Mecca, is being created to house large residential units, mega entertainment centers, along with an airport and a seaport. The project covers a total area of 2,450 sq. Km and will be ready by 2050. King Abdullah’s Economic City is the first city under Kingdom’s free ownership system which features a deep-sea water port, a sporting, and entertainment center, a 55 sq. Km logistics center, and more than 6000 residential estates. The King Abdullah Financial Center will be attracting banks and leading financial service companies, and it will be home to financial auditors and lawyers, bringing the Saudi financial market (Tadawul) and the Capital Market Authority at one location.
The Economic Knowledge City is considered the first city in the Kingdom of Saudi Arabia under the Saudi Smart Cities development program. Located in Madinah, it will focus on companies specializing in intellectual property, key knowledge-based industries, hospitality, medicine, tourism, and multimedia. The Prince Abdulaziz Bin Musa’d Economic City, will be a 156 sq. Km multipurpose city located in Ha’l to the north of the Kingdom, which will see the development of an international airport, shopping centers, residences, hotels, and entertainment facilities.
The Kingdom of Saudi Arabia is clear in its objectives to transform our understanding of what is innovation, aviation recreation, and invention. This presents a prime opportunity for international companies to be part of lucrative contracts worth hundreds of millions of dollars.
We at Khalil Khazindar Law Firm can help your company with the solid grounds to establish your presence in the Kingdom. We can provide you with tailored legal advice as a foreign investor on all laws and regulations, in addition to more guidance and help with foreign company licensing, joint ventures, incorporations, mergers, acquisitions, and liquidations. With us, you can legally invest in Saudi Arabia with so much of ease and confidence.