Long hampered by its unattractive regulatory framework, foreign investment in Saudi Arabia recovered thanks to its accession to the WTO in late 2005 and especially thanks to the adoption of a more favorable investment legislation in April 2000. Saudi Arabia is the largest recipient of foreign direct investment in the Gulf and the Middle East, and according to the 2013 World Investment Report published by UNCTAD, the country was the largest FDI recipient in Western Asia after Turkey.
Social and political tensions and a reduced access to credit have recently been obstacles to FDI, but this should prove to be only temporary. The government of Saudi Arabia has invested heavily in national infrastructure to attract investment. FDI is one of the most effective ways to diversify the national economy and ensuring the employment of young generations. The authorities welcome FDI due to their ability to transfer technology, employ and train the national workforce, foster economic development and enhance local raw materials.
With controlled inflation and relatively stable exchange rates, openness to foreign capital in upstream gas, as well as extensive privatization programs are among the advantages attracting the investors into 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.
|Saudi Arabia||Middle East & North Africa||United States||Germany|
|Index of Transaction Transparency*||9.0||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||9.0||5.0|
|Index of Investor Protection****||7.0||5.0||8.3||5.0|
Source: Doing Business - Last 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.
|Foreign Direct Investment||2011||2012||2013|
|FDI Inward Flow (million USD)||16,308||12,182||9,298|
|FDI Stock (million USD)||186,850||199,032||208,330|
|Performance Index*, Ranking on 181 Economies||12||-||-|
|Potential Index**, Ranking on 177 Economies||15||-||-|
|Number of Greenfield Investments***||164||135||120|
|FDI Inwards (in % of GFCF****)||10.8||7.7||5.6|
|FDI Stock (in % of GDP)||27.9||28.0||28.0|
Source: UNCTAD - Last 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.
Once Saudi Arabia became a member of 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 infrastructures and a well-regulated banking system.
The week points are the inadequate legal framework in resolving commercial disputes, the lack of transparency in applying the intellectual property legislation, the government imposed quotas of Saudi employees in companies, the delayed payment of some government contracts, a restrictive visa policy for all workers, a very conservative cultural environment and enforced segregation of the sexes in most business and social settings.
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.
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.
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Last Updates: February 2015