The Saudi government is strongly focused on attracting foreign investment to ensure long-term sustainability and economic diversification. This dedication to foreign investment stems from a series of economic reforms that have been implemented in recent years, following the adoption of Saudi Arabia’s Vision 2030. The primary objective of this vision is to diversify the economy and decrease reliance on oil by fostering the growth of sectors like tourism, industry, and technology. Saudi Arabia aims to establish itself as a prominent global investment destination and a thriving business hub, with the ultimate goal of positioning Riyadh among the top 10 economies worldwide.
Saudi reforms
A significant reform undertaken to attract foreign investment involves the implementation of laws and policies designed to streamline investment procedures and enhance the business environment. These measures are geared towards establishing a favorable climate for investors and promoting economic growth. The Saudi government has simplified procedures and facilitated electronic communication between government entities, making it more convenient for investors to navigate through clear and specific procedures and submit applications electronically. This has eliminated the need for repetitive reviews at each stage. Additionally, the government recognizes the crucial role of legal protection in safeguarding the interests of investors and has taken appropriate measures in this regard.
In line with its efforts to stimulate the private sector, the Saudi government has announced a plan to allocate SAR72 billion ($19.2 billion) to support private sector growth. The aim is to increase the private sector’s contribution to the Gross Domestic Product (GDP) from 40 percent to 65 percent by 2030.
In addition, Saudi has issued a requirement for foreign companies operating in the region to relocate their headquarters to the Kingdom within a specified time frame if they wish to be eligible for government contracts. Consequently, starting from 2024, the contracting of any foreign business company or enterprise with regional headquarters outside of Saudi will be prohibited, as per the government’s announcement.
Saudi corporate incentives
In order to encourage foreign companies to relocate to Saudi Arabia, the government has implemented various measures. This includes expanding investment opportunities, which resulted in approximately $13 billion of investment in the second quarter of 2021.
To simplify and expedite the investment process, the government has introduced legislation that streamlines the application for a foreign investment permit. The application can now be completed online, and the automated process typically takes one to three days when all necessary documents are submitted according to the specified requirements.
Foreign companies are given the flexibility to choose the legal structure that suits them best, whether it’s a limited liability company, a joint-stock company, or a subsidiary of a foreign company.
In recent years, Saudi Arabia has allowed foreign investors to obtain a 100 percent investment license, enabling them to conduct business without the need for a Saudi partner, as long as their capital investment is at least SAR 30 million ($8 million).
Moreover, foreign investors have the opportunity to get a one-year interim certificate, free of charge, to participate in government enterprise competitions such as tenders and bids. If their project is successful, they will be allowed a permanent foreign investment license.
A notable advantage provided by Saudi Arabia’s foreign investment laws is the opportunity for foreign investors to obtain a privileged residence permit. In addition, this grants them to directly obtain an investment permit without the requirement of establishing a separate legal entity outside the Kingdom.
Foreign investment triggers
Saudi Arabia has effectively attracted foreign investment by employing a variety of strategies. These include the establishment of specialized cities and economic zones governed by unique laws and regulations, providing substantial customs exemptions to investors, developing robust infrastructure facilities, streamlining processes for ownership and licensing, simplifying employment recruitment procedures, ensuring reliable energy availability for industrialization, offering export insurance and credit financing, granting tax exemptions, fostering a thriving ecosystem for investors, providing financial and regulatory incentives, and actively involving enterprises in the investment landscape.
Furthermore, the Kingdom possesses a strong and expanding economy, with a GDP surpassing $800 billion. The Saudi economy has consistently achieved an average annual growth rate of around 3 percent. Geographically located at the center of the Arab world, Saudi Arabia serves as a pivotal gateway for East-West trade and investment. It presents an extensive and promising market, with a population exceeding 35 million and an average per capita income of approximately SAR29,890. Additionally, the country boasts advanced infrastructure, including an extensive network of highways, railways, and airports.
Read more: Gigaproject construction progress good for Saudi FDI ambitions
Licenses for 15 foreign law firms
The Saudi Ministry of Justice recently announced that it has approved licenses for 15 foreign law firms, while 15 other applications for the legal profession in Saudi are currently being reviewed.
The Ministry clarified that licenses have been granted to law firms from different countries, including the United States (U.S.) and the United Kingdom (U.K.). The objective behind this initiative is to strengthen and elevate the legal profession within the country, enhance the skills and expertise of legal practitioners, and foster a more conducive business environment to attract investment in the country.
Foreign investment in the industrial sector
Saudi’s Ministry of Industry and Mineral Resources recently disclosed that the total volume of foreign and joint investment in the industrial sector surpassed SAR542 billion. This accounts for 37 percent of the sector’s overall investment volume and 17 percent of the total number of existing plants as of May 2023.
Also, according to the ministry, there are 930 factories with foreign investment in the Kingdom, constituting 9 percent of the total number of factories. The investments in these factories exceed SAR71 billion.
Additionally, there are 924 factories with co-investment, representing 8 percent of all factories, with investments estimated to be over SAR470 billion. As of May 2023, the total number of factories in the industrial sector stood at 10,910, with the overall investment size exceeding 1.455 trillion riyals, as reported by the Saudi Press Agency (SPA).
Increase in capital flow
The growing interest in foreign investment has resulted in a significant increase in capital flows towards Saudi Arabia. In recent years, the Kingdom has witnessed substantial growth in the number of registered foreign companies and joint ventures with Saudi counterparts. Foreign investment has played a crucial role in fostering economic equilibrium and driving economic transformation in Saudi Arabia.
Between 2018 and the end of 2022, foreign investments in the Saudi market skyrocketed by 300 percent, reaching a total of SAR347 billion ($92.52 billion) by the end of the previous year. This amount is equivalent to 14.2 percent of the value of shares in the main market.
According to a statement released by the Saudi Capital Market Authority (CMA), the value of foreigners’ ownership in the Saudi stock market has tripled over a five-year period. This growth has been supported by the implementation of facilities and procedures that enable foreigners to invest in debt instruments and the sukuk market.
Exchange data reveals that after experiencing the highest monthly outflow rate of foreign investments this year in October, foreigners recorded market inflows in the first half of the following month. In the first two weeks of November, foreigners purchased Saudi shares amounting to SAR12.7 billion ($3.4 billion), following a month of selling SAR26 billion, resulting in a net outflow.
Types of investments in Saudi Arabia
Saudi Arabia presents a highly promising opportunity for foreign investment, with immense potential for growth and prosperity. The Saudi government is committed to further attracting foreign capital by implementing regulatory and legal improvements and fostering an enhanced business environment. These efforts aim to enhance the country’s competitiveness and ensure long-term economic sustainability.
Various investment options are available in Saudi, including:
- Capital investment. This involves purchasing corporate shares or debt bonds as a means of investment.
- Securities investment. This encompasses investing in financial instruments such as stocks, bonds, futures, and other tradable securities.
- Real estate investment. This type of investment involves acquiring properties, including land, apartments, and residential homes.
- Business investment. This category entails establishing a new business venture or acquiring a stake in an existing business.
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