Saudi reforms boost foreign investment

In its 'Doing Business 2008' report, the IFC notes that the kingdom has scaled back minimum capital requirements as well as the time needed for a company to be started from 39 to 15 days. A commercial credit bureau has also been set up while import document requirements and port handling paper work have been sharply reduced.

Lower costs, more firms

Reducing the cost of establishing companies is expected to increase the formation of new businesses in the technology field and help to launch small to medium scale projects.

The effort is already paying dividends. The Saudi Arabia General Investment Authority says that foreign direct investment rose 51 per cent in 2006 to more than $18bn, while domestic investments rose 9 per cent to $33bn.

In a strategic move, the Supreme Economic Council (SEC) is steadily reducing those areas prohibited to foreign investors. Business sectors now open include wholesale and retail distribution services, inter city air and train transport services.

An investment law came into effect in 2000 permitting full foreign ownership in selected enterprises for the first time. Since 2005, wholly-owned foreign companies have been allowed to bid for government contracts.

Minimum capital investment requirements on foreign investors have been removed, while the visa application process, especially for trade visitors, is being streamlined.

As a result, privately owned firms, together with foreign companies, are increasingly entering the gas, banking, insurance, telecommunications, water and power and education sectors.

Investor incentives

Investors coming to the new economic cities being built throughout the kingdom are also expected to be attracted by generous incentives including extended repayment grace periods for loans provided by the Saudi Industrial Development Fund, as well as tax credits.

The on-going reforms are specifically designed to attract foreign direct investment and increase the role of the private sector in the kingdom's economy, says SEC Secretary-General Abdul Rahman Al Tuwaijeri.

The locomotive of economic activity in the future is going to be the private sector and the government wants to speed the process. Since 2003, there have been initial public offerings by state owned enterprises such as the Saudi Telecommunications Company and the National Company for Cooperative Insurance.

The government also aims to sell off Saudi Arabian Airlines, Saudi Arabian Mining, or Ma'aden, and divest shares in refineries. Saudi ports are already managed by private contractors and at least 20 other service operations are scheduled for privatisation.

Equity returns are highest in countries that are the most reforming says the IFC's VP for Financial and Private Sector Development, Michael Klein. 'Investors are looking for upside potential and they find it in economies that are reforming regardless of their starting point.'

The improving business environment which continues to be boosted by privatisation and liberalisation is seen as giving the Saudi economy an increasing edge in attracting investment in the region. The government's declared aim is to make the kingdom one of the top ten world destinations in terms of investment competitiveness by 2010.

See also:
Saudi economy goes from strength to strength
Saudi aims for global top ten