Policies Towards Foreign Direct Investment

The Algerian economy is both challenging and potentially highly rewarding. While the Algerian government publicly welcomes FDI, a difficult business climate, an inconsistent regulatory environment, and sometimes contradictory government policies complicate foreign investment. There are business opportunities in nearly every sector, including agribusiness, consumer goods, energy, healthcare, mining, pharmaceuticals, power, recycling, telecommunications, and transportation.

The urgency for Algeria to diversify its economy away from reliance on hydrocarbons has increased amid low and fluctuating oil prices since mid-2014, a youth population bulge, and increased domestic consumption of energy resources. The government reiterated its intention to diversify in its August 2020 plan to recover from the COVID-19 crisis. The government has sought to reduce the country’s persistent trade deficit through import substitution policies, currency depreciation, and import tariffs as it attempts to preserve rapidly diminishing foreign exchange reserves. On January 29, 2019, the government implemented tariffs between 30-200 percent on over one-thousand goods it assessed were destined for direct sale to consumers. Companies that set up local manufacturing operations can receive permission to import materials the government would not otherwise approve for import if the importer can show materials will be used in local production. Certain regulations explicitly favor local firms at the expense of foreign competitors, most prominently in the pharmaceutical sector, where an import ban the government implemented in 2009 remains in place on more than 360 medicines and medical devices. Frequent, unpredictable changes to business regulations have added to the uncertainty in the market.

Algeria eliminated state enterprises’ “right of first refusal” on most transfers of foreign holdings to foreign shareholders, with the exception of identified “strategic” sectors. Though the 2020 Complementary Finance Law eliminated the 51/49 domestic ownership requirement with the exception of “strategic sectors,” the 2021 Finance Law restored the requirement for importers of products for domestic resale, and regulations governing the auto industry released in September 2020 required automobile importers to be wholly domestically owned.

There are two main agencies responsible for attracting foreign investment, the National Agency of Investment Development (ANDI) and the National Agency for the Valorization of Hydrocarbons (ALNAFT).

ANDI is the primary Algerian government agency tasked with recruiting and retaining foreign investment. ANDI runs branches in Algeria’s 58 states (wilayas) which are tasked with facilitating business registration, tax payments, and other administrative procedures for both domestic and foreign investors. U.S. companies report that the agency is understaffed and ineffective. Its “one-stop shops” only operate out of physical offices and do not maintain dialogue with investors after they have initiated an investment. The agency’s effectiveness is undercut by its lack of decision-making authority, particularly for industrial projects, which is exercised by the Ministry of Industry, the Minister of Industry themself, and in many cases the Prime Minister.

ALNAFT is charged with attracting foreign investment to Algeria’s upstream oil and gas sector. In addition to organizing events marketing upstream opportunities to potential investors, the agency maintains a paid-access digital database with extensive technical information about Algeria’s hydrocarbons resources.

Limits on Foreign Control and Right to Private Ownership and Establishment

Establishing a presence in Algeria can take any of three basic forms: 1) a liaison office with no local partner requirement and no authority to perform commercial operations, 2) a branch office to execute a specific contract, with no obligation to have a local partner, allowing the parent company to conduct commercial activity (considered a resident Algerian entity without full legal authority), or 3) a local company with 51 percent of capital held by a local company or shareholders. A business can be incorporated as a joint stock company (JSC), a limited liability company (LLC), a limited partnership (LP), a limited partnership with shares (LPS), or an undeclared partnership. Groups and consortia are also used by foreign companies when partnering with other foreign companies or with local firms.

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity. However, the 51/49 rule requires majority Algerian ownership in all projects involving foreign investments in the “strategic sectors” of energy, mining, defense, transportation infrastructure, and pharmaceuticals (with the exception of innovative products), as well as for importers of goods for resale in Algeria.

The 51/49 investment rule poses challenges for various types of investors. For example, the requirement hampers market access for foreign small and medium-sized enterprises (SMEs), as they often do not have the human resources or financial capital to navigate complex legal and regulatory requirements. Large companies can find creative ways to work within the law, sometimes with the cooperation of local authorities who are more flexible with large investments that promise significant job creation and technology and equipment transfers. SMEs usually do not receive this same consideration. There are also allegations that Algerian partners sometimes refuse to invest the required funds in the company’s business, require non-contract funds to win contracts, and send unqualified workers to job sites. Manufacturers are also concerned about intellectual property rights (IPR), as foreign companies do not want to surrender control of their designs and patents. Several U.S. companies have reported they have policies that preclude them from investing overseas without maintaining a majority share, out of concerns for both IPR and financial control of the local venture, which thus prevent them from establishing businesses in Algeria.

Algerian government officials defended the 51/49 requirement as necessary to prevent capital flight, protect Algerian businesses, and provide foreign businesses with local expertise. For sectors where the requirement remains, officials contend a range of tailored measures can mitigate the effect of the 51/49 rule and allow the minority foreign shareholder to exercise other means of control. Some foreign investors use multiple local partners in the same venture, effectively reducing ownership of each individual local partner to enable the foreign partner to own the largest share.

The Algerian government does not officially screen FDI, though Algerian state enterprises have a “right of first refusal” on transfers of foreign holdings to foreign shareholders in identified strategic industries. Companies must notify the Council for State Participation (CPE) of these transfers. In addition, initial foreign investments remain subject to approvals from a host of ministries that cover the proposed project, most often the Ministries of Commerce, Health, Pharmaceutical Industry, Energy, Telecommunications and Post, Industry, and Mines. U.S. companies have reported that certain high-profile industrial proposals, such as for automotive assembly, are subject to informal approval by the Prime Minister. In 2017, the government instituted an Investments Review Council chaired by the Prime Minister for the purpose of “following up” on investments; in practice, the establishment of the council means FDI proposals are subject to additional government scrutiny. According to the 2016 Investment Law, projects registered through the ANDI deemed to have special interest for the national economy or high employment generating potential may be eligible for extensive investment advantages. For any project over 5 billion dinars (approximately USD 38 million) to benefit from these advantages, it must be approved by the Prime Minister-chaired National Investments Council (CNI). The CNI previously met regularly, though it is not clear how the agenda of projects considered at each meeting is determined. Critics allege the CNI is a non-transparent mechanism which could be subject to capture by vested interests. In 2020 the operations of the CNI and the CPE were temporarily suspended pending review by the former Ministry of Industry, but a final decision as to their status has not been made.

Other Investment Policy Reviews

Algeria has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD) or the World Trade Organization (WTO). The last investment policy review by a third party was conducted by the United Nations Conference on Trade and Development (UNCTAD) in 2003 and published in 2004.

Business Facilitation

Algeria’s online information portal dedicated to business creation www.jecreemonentreprise.dz and the business registration website www.cnrc.org.dz are under maintenance and have been so for more than a year. The Ministry of Commerce is currently developing a new electronic portal at https://cnrcinfo.cnrc.dz/qui-somme-nous/ . The websites provide information about several business registration steps applicable for registering certain kinds of businesses. Entrepreneurs report that additional information about requirements or regulation updates for business registration are available only in person at the various offices involved in the creation and registration process. The Ministry of Foreign Affairs also recently established an Information Bureau for the Promotion of Investments and Exports (BIPIE) to support Algerian diplomats working on economic issues abroad, as well as provide local points of contact for Algerian companies operating overseas.

In the World Bank’s 2020 Doing Business report, Algeria’s ranking for starting a business was unchanged at 157 out of 190 countries ( http://www.doingbusiness.org/en/data/exploreeconomies/algeria ).

This year’s improvements were modest and concerned only three of the ten indicator categories. The World Bank report lists 12 procedures that cumulatively take an average of 18 days to complete to register a new business. New business owners seeking to establish their enterprises have sometimes reported the process takes longer, noting that the most updated version of regulations and required forms are only available in person at multiple offices, therefore requiring multiple visits.

Outward Investment

Algeria does not restrict domestic investors from investing overseas, provided they can access foreign currency for such investments. The exchange of Algerian dinars outside of Algerian territory is illegal, as is the carrying abroad of more than 10,000 dinars in cash at a time (approximately USD 76; see section 7 for more details on currency exchange restrictions).

Algeria’s National Agency to Promote External Trade (ALGEX), housed in the Ministry of Commerce, is the agency responsible for supporting Algerian businesses outside the hydrocarbons sector that want to export abroad. ALGEX controls a special promotion fund to promote exports, but the funds can only be accessed for limited purposes. For example, funds might be provided to pay for construction of a booth at a trade fair, but travel costs associated with getting to the fair – which can be expensive for overseas shows – would not be covered. The Algerian Company of Insurance and Guarantees to Exporters (CAGEX), also housed under the Ministry of Commerce, provides insurance to exporters. In 2003, Algeria established a National Consultative Council for Promotion of Exports (CCNCPE) that is supposed to meet annually. Algerian exporters claim difficulties working with ALGEX including long delays in obtaining support funds, and the lack of ALGEX offices overseas despite a 2003 law for their creation. The Bank of Algeria’s 2002 Money and Credit law allows Algerians to request the conversion of dinars to foreign currency in order to finance their export activities, but exporters must repatriate an equivalent amount to any funds spent abroad, for example money spent on marketing or other business costs incurred.

Transparency of the Regulatory System

The national government manages all regulatory processes. Legal and regulatory procedures, as written, are considered consistent with international norms, although the decision-making process is at times opaque.

Algeria implemented the Financial Accounting System (FAS) in 2010. Though legislation does not make explicit references, FAS appears to be based on International Accounting Standards Board and International Financial Reporting Standards (IFRS). Operators generally find accounting standards follow international norms, though they note that some particularly complex processes in IFRS have detailed explanations and instructions but are explained relatively briefly in FAS.

There is no mechanism for public comment on draft laws, regulations, or regulatory procedures. Copies of draft laws are generally not made publicly accessible before enactment, although the Ministry of Finance published a draft of the 2021 Finance Law in October before its consideration by Parliament. Government officials often give testimony to Parliament on draft legislation, and that testimony typically receives press coverage. Occasionally, copies of bills are leaked to the media. All laws and some regulations are published in the Official Gazette (www.joradp.dz ) in Arabic and French, but the database has only limited online search features and no summaries are published. Secondary legislation and/or administrative acts (known as “circulaires” or “directives”) often provide important details on how to implement laws and procedures. Administrative acts are generally written at the ministry level and not made public, though may be available if requested in person at a particular agency or ministry. Public tenders are often accompanied by a book of specifications only provided upon payment.

In some cases, authority over a matter may rest among multiple ministries, which may impose additional bureaucratic steps and the likelihood of either inaction or the issuance of conflicting regulations. The development of regulations occurs largely away from public view; internal discussions at or between ministries are not usually made public. In some instances, the only public interaction on regulations development is a press release from the official state press service at the conclusion of the process; in other cases, a press release is issued earlier. Regulatory enforcement mechanisms and agencies exist at some ministries, but they are usually understaffed, and enforcement remains weak.

The National Economic, Social, and Environmental Council (CNESE) studies the effects of Algerian government policies and regulations in economic, social, and environmental spheres. CNESE provides feedback on proposed legislation, but neither the feedback nor legislation are necessarily made public.

Information on external debt obligations up to fiscal year 2019 is publicly available online via the Central Bank’s quarterly statistical bulletin. The statistical bulletin describes external debt and not public debt, but the Ministry of Finance’s budget execution summaries reflect amalgamated debt totals. The Ministry of Finance is planning to create an electronic, consolidated database of internal and external debt information, and in 2019 published additional public debt information on its website. A 2017 amendment to the 2003 law on currency and credit covering non-conventional financing authorizes the Central Bank to purchase bonds directly from the Treasury for a period of up to five years. The Ministry of Finance indicated this would include purchasing debt from state enterprises, allowing the Central Bank to transfer money to the treasury, which would then provide the cash to, for example, state owned enterprises in exchange for their debt. In September 2019, the Prime Minister announced Algeria would no longer use non-conventional financing, although the Ministry of Finance stressed the program remains available until 2022.

International Regulatory Considerations

Algeria is not a member of any regional economic bloc or of the WTO. The structure of Algerian regulations largely follows European – specifically French – standards.

Legal System and Judicial Independence

Algeria’s legal system is based on the French civil law tradition. The commercial law was established in 1975 and most recently updated in 2007 ( www.joradp.dz/TRV/FCom.pdf ). The judiciary is nominally independent from the executive branch, but U.S. companies have reported allegations of political pressure exerted on the courts by the executive. Organizations representing lawyers and judges have protested during the past year against alleged executive branch interference in judicial independence. Regulation enforcement actions are adjudicated in the national courts system and are appealable. Algeria has a system of administrative tribunals for adjudicating disputes with the government, distinct from the courts that handle civil disputes and criminal cases. Decisions made under treaties or conventions to which Algeria is a signatory are binding and enforceable under Algerian law.

Laws and Regulations on Foreign Direct Investment

The 51/49 investment rule requires a majority Algerian ownership in “strategic sectors” as prescribed in the 2020 Complementary Finance Law (see section 2). There are few other laws restricting foreign investment. In practice, the many regulatory and bureaucratic requirements for business operations provide officials avenues to informally advance political or protectionist policies. The investment law enacted in 2016 charged ANDI with creating four new branches to assist with business establishment and the management of investment incentives. ANDI’s website (www.andi.dz/index.php/en/investir-en-algerie ) lists the relevant laws, rules, procedures, and reporting requirements for investors. Much of the information lacks detail – particularly for the new incentives elaborated in the 2016 investments law – and refers prospective investors to ANDI’s physical “one-stop shops” located throughout the country. The website has been nonfunctional for several months.

There is an ongoing effort by the customs service, under the Ministry of Finance, to establish a new digital platform featuring one-stop shops for importers and exports to streamline bureaucratic processes. The Ministry expects the service to begin in 2021.

The National Competition Council ( www.conseil-concurrence.dz/ ) is responsible for reviewing both domestic and foreign competition-related concerns. Established in late 2013, it is housed under the Ministry of Commerce. Once the economic concentration of an enterprise exceeds 40 percent of a market’s sales or purchases, the Competition Council is authorized to investigate, though a 2008 directive from the Ministry of Commerce exempted economic operators working for “national economic progress” from this review.

Expropriation and Compensation

The Algerian state can expropriate property under limited circumstances, with the state required to pay “just and equitable” compensation to the property owners. Expropriation of property is extremely rare, with no reported cases within the last 10 years. In late 2018, however, a government measure required farmers to comply with a new regulation altering the concession contracts of their land in a way that would cede more control to the government. Those who refused to switch contract type by December 31, 2018, lost the right to their land.

Dispute Settlement

ICSID Convention and New York Convention

Algeria is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) and the Convention on the International Center for the Settlement of Investment Disputes (ICSID Convention). The Algerian code of civil procedure allows both private and public sector companies full recourse to international arbitration. Algeria permits the inclusion of international arbitration clauses in contracts.

Investor-State Dispute Settlement
Investment disputes sometimes occur, especially on major projects. Investment disputes can be settled informally through negotiations between the parties or via the domestic court system. For disputes with foreign investors, cases can be decided through international arbitration. The most common disputes in the last several years have involved state-owned oil and gas company Sonatrach and its foreign partners concerning the retroactive application since 2006 of a windfall profits tax on hydrocarbons production. Sonatrach won a case in October 2016 against a Spanish oil company and two Korean firms. An international firm won one of their cases against Sonatrach in 2016. In 2018, Sonatrach announced it had settled all outstanding international disputes.

The most recent investment dispute involving a U.S. company dates to 2012. The company, which had encountered bureaucratic barriers to the expatriation of dividends from a 2005 investment, did not resort to arbitration. The dispute was resolved in 2017, with the government permitting the company to expatriate the dividends.

There is no U.S.-Algeria Bilateral Investment Treaty or Free Trade Agreement.

International Commercial Arbitration and Foreign Courts

The Algerian Chamber of Commerce and Industry (CACI), the nationwide, state-supported chamber of commerce, has the authority to arbitrate investment disputes as an agent of the court. The bureaucratic nature of Algeria’s economic and legal system, as well as its opaque decision-making process, means that disputes can drag on for years before a resolution is reached. Businesses have reported cases in the court system are subject to political influence and generally tend to favor the government’s position.

Local courts recognize and have the authority to enforce foreign arbitral awards. Nearly all contracts between foreign and Algerian partners include clauses for international arbitration.

The Ministry of Justice oversees enforcement of arbitral awards against SOEs. Alternative dispute resolution mechanisms are not widely used.

Bankruptcy Regulations

Algeria’s bankruptcy system is underdeveloped. While bankruptcy per se is not criminalized, management decisions (such as company spending, investment decisions, and even procedural mistakes) can be subject to criminal penalties including fines and incarceration, so decisions that lead to bankruptcy could be punishable under Algerian criminal law. However, bankruptcy cases rarely proceed to a full dissolution of assets. The Algerian government generally props up public companies on the verge of bankruptcy via cash infusions from the public banking system. According to the World Bank’s Doing Business report, debtors and creditors may file for both liquidation and reorganization.

Since the resignation of former President Abdelaziz Bouteflika in early 2019, the courts have given the government authority to put several companies in receivership and have appointed temporary heads to direct them following the arrests of their CEOs as part of a broad anti-corruption drive. The status and viability of several of those companies is unclear.

Investment Incentives

While the government previously required 51 percent Algerian ownership of all investments, the 2020 budget law restricted this requirement to the energy, mining, defense, transportation infrastructure, and pharmaceuticals manufacturing sectors, and the 2021 budget law extended the requirement to importers of goods for resale in Algeria.

Any incentive offered by the Algerian government is generally available to any company, though there are multiple tiers of “common, additional, and exceptional” incentives under the 2016 investments law ( www.joradp.dz/FTP/jo-francais/2016/F2016046.pdf ). “Common” incentives available to all investors include exemption from customs duties for all imported production inputs, exemption from value-added tax (VAT) for all imported goods and services that enter directly into the implementation of the investment project, a 90 percent reduction of tenancy fees during construction, and a 10-year exemption on real estate taxes. Investors also benefit from a three-year exemption on corporate and professional activity taxes and a 50 percent reduction for three years on tenancy fees after construction is completed. Additional incentives are available for investments made outside of Algeria’s coastal regions, to include the reduction of tenancy fees to a symbolic one dinar (USD .01) per square meter of land for 10 years in the High Plateau region and 15 years in the south of Algeria, plus a 50 percent reduction thereafter. The law also charges the state to cover, in part or in full, the necessary infrastructure works for the realization of the investment. “Exceptional” incentives apply for investments “of special interest to the national economy,” including the extension of the common tax incentives to 10 years. The sectors of “special interest” have not yet been publicly specified. An investment must receive the approval of the National Investments Council in order to qualify for the exceptional incentives.

Regulations passed in a March 2017 executive decree exclude approximately 150 economic activities from eligibility for the incentives ( www.joradp.dz/FTP/jo-francais/2017/F2017016.pdf ). The list of excluded investments is concentrated on the services sector but also includes manufacturing for some products. All investments in sales, whether retail or wholesale, and imports business are ineligible.

The 2016 investments law also provided state guarantees for the transfer of incoming investment capital and outgoing profits. Pre-existing incentives established by other laws and regulations also include favorable loan rates well below inflation from public banks for qualified investments.

The government does not issue guarantees for private investments, or jointly financed foreign direct investment projects. In practice, however, the government is disinclined to allow companies that employ significant numbers of Algerians – whether private or public – to fail and may take on fiscal responsibilities to ensure continued employment for workers. President Tebboune’s administration also indicated more flexibility in considering alternative financing methods for future projects, which might include joint financing.

Foreign Trade Zones/Free Ports/Trade Facilitation

Algeria does not have any foreign trade zones or free ports.

Performance and Data Localization Requirements

The Algerian government does not officially mandate local employment, but companies usually must provide extensive justification to various levels of the government as to why an expatriate worker is needed. Any person or legal entity employing a foreign citizen is required to notify the Ministry of Labor. Some businesses have reported instances of the government pressuring foreign companies operating in Algeria, particularly in the hydrocarbons sector, to limit the number of expatriate middle and senior managers so that Algerians can be hired for these positions. Contacts at multinational companies have alleged this pressure is applied via visa applications for expatriate workers. U.S. companies in the hydrocarbons industry have reported that, when granted, expatriate work permits are usually valid for no longer than six months and are delivered up to three months late, requiring firms to apply perpetually for renewals. Government-imposed restrictions on routine international travel since March 2020 in response to COVID-19 have caused difficulties for foreign companies attempting to rotate their expatriate staff into and out of Algeria.

In 2017, the Algerian government began instituting forced localization in the auto sector. New regulations governing the sector issued in September 2020 require companies producing or assembling cars in the country to achieve a local integration rate of at least 30 percent within the first year of operation, rising to 50 percent by the company’s fifth year of operation. Since 2014, the government has required car dealers to invest in industrial or “semi-industrial” activities as a condition for doing business in Algeria. Dealers seeking to import new vehicles must obtain an import license from the Ministry of Commerce. Since January 2017, the Ministry has not issued any licenses, and the process of assigning new import quotas to qualified importers under the new 2020 specifications are on hold pending review by the new Minister of Industry. As the Algerian government further restricts imports, localization requirements are expected to broaden to other manufacturing industries over the next several years. For example, a tender launched in 2018 for 150 megawatts of photovoltaic solar energy power plants mandated that bidders be Algerian legal entities, and specifications released in 2020 governing consumer appliance manufacturing mandate local content thresholds.

Information technology providers are not required to turn over source codes or encryption keys, but all hardware and software imported to Algeria must be approved by the Agency for Regulation of Post and Electronic Communications (ARPCE), under the Ministry of Post and Telecommunications. In practice, the Algerian government requires public sector entities to store data on servers within the country.

Real Property

Secured interests in property are generally recognized and enforceable, but court proceedings can be lengthy and results unpredictable. All property not clearly titled to private owners remains under government ownership. As a result, the government controls most real property in Algeria, and instances of unclear titling have resulted in conflicting claims of ownership, which has made purchasing and financing real estate difficult. Several business contacts have reported significant difficulty in obtaining land from the government to develop new industrial activities; the state prefers to lease land for 33-year terms, renewable twice, rather than sell outright. The procedures and criteria for awarding land contracts are opaque.

Property sales are subject to registration at the tax inspection and publication office at the Mortgage Register Center and are part of the public record of that agency. All property contracts must go through a notary.

According to the World Bank Doing Business report, Algeria ranks 165 out of 190 countries for ease of registering property.

Intellectual Property Rights

Patent and trademark protection in Algeria remains covered by a series of ordinances dating from 2003 and 2005, and representatives of U.S. companies operating in Algeria reported that these laws were satisfactory in terms of both the scope of what they cover and the penalties they mandate for violations. A 2015 government decree increased coordination between the National Office of Copyrights and Related Rights (ONDA), the National Institute for Industrial Property (INAPI), and law enforcement to pursue patent and trademark infringements. An Algerian court ruled in favor of a U.S. pharmaceutical company in late 2020 in the first case of alleged patent infringement by a local producer pursued in the courts by a U.S. company.

ONDA, under the Ministry of Culture, and INAPI, under the Ministry of Industry, are the two entities within the Algerian government that protect IPR. ONDA covers literary and artistic copyrights as well as digital software rights, while INAPI oversees the registration and protection of industrial trademarks and patents. Despite strengthened efforts at ONDA, INAPI, and the General Directorate for Customs (under the Ministry of Finance), which have seen local production of pirated or counterfeit goods nearly disappear since 2011, imported counterfeit goods are prevalent and easily obtained. Algerian law enforcement agencies annually confiscate hundreds of thousands of counterfeit items, including clothing, cosmetics, sports items, foodstuffs, automotive spare parts, and home appliances. Software firms estimate that more than 85 percent of the software used in Algeria, and a similar percentage of titles used by government institutions and state-owned companies, is not licensed.

Algeria moved from the Priority Watch List to the Watch List of USTR’s Special 301 Report ( https://ustr.gov/issue-areas/intellectual-property/Special-301 ) in 2021.

Resources for Intellectual Property Rights Holders:

Peter Mehravari

Patent Attorney

Intellectual Property Attaché for the Middle East & North Africa

U.S. Embassy Abu Dhabi | U.S. Department of Commerce U.S. Patent & Trademark Office

Tel: +965 2259 1455 Peter.Mehravari@trade.gov 

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

The Algiers Stock Exchange has five stocks listed – each at no more than 35 percent equity. There is a small and medium enterprise exchange with one listed company. The exchange has a total market capitalization representing less than 0.1 percent of Algeria’s GDP. Daily trading volume on the exchange averages around USD 2,000. Despite its small size, the market is regulated by an independent oversight commission that enforces compliance requirements on listed companies and traders.

Government officials have expressed their desire to reach a capitalization of USD 7.8 billion and enlist up to 50 new companies. Attempts to list additional companies have been stymied by a lack both of public awareness and appetite for portfolio investment, as well as by private and public companies’ unpreparedness to satisfy due diligence requirements that would attract investors. Proposed privatizations of state-owned companies have also been opposed by the public. Algerian society generally prefers material investment vehicles for savings, namely cash. Public banks, which dominate the banking sector (see below), are required to purchase government securities when offered, meaning they have little leftover liquidity to make other investments. Foreign portfolio investment is prohibited – the purchase of any investment product in Algeria, whether a government or corporate bond or equity stock, is limited to Algerian residents only.

Money and Banking System

The banking sector is roughly 85 percent public and 15 percent private as measured by value of assets held and is regulated by an independent central bank. Publicly available data from private institutions and U.S. Federal Reserve Economic Data show estimated total assets in the commercial banking sector in 2017 were roughly 13.9 trillion dinars (USD 116.7 billion) against 9.2 trillion dinars (USD 77.2 billion) in liabilities. The central bank had mandated a 12 percent reserve requirement until mid-2016, when in response to a drop in liquidity the bank lowered the threshold to eight percent. In August 2017, the ratio was further reduced to 4 percent in an effort to inject further liquidity into the banking system. The decrease in liquidity was a result of all public banks buying government bonds in the first public bond issuance in more than 10 years; buying at least five percent of the offered bonds is required for banks to participate as primary dealers in the government securities market. The bond issuance essentially returned funds to the state that it had deposited at local banks during years of high hydrocarbons profits. In January 2018, the bank increased the retention ratio from 4 percent to 8 percent, followed by a further increase in February 2019 to a 12 percent ratio in anticipation of a rise in bank liquidity due to the government’s non-conventional financing policy, which allows the Treasury to borrow directly from the central bank to pay state debts. In response to liquidity concerns caused by the oil price decline and COVID-19 crisis, the bank progressively decreased the reserve requirement from 12 percent to 3 percent between March and September 2020.

The IMF and Bank of Algeria have noted moderate growth in non-performing assets since 2015, currently estimated between 12 and 13 percent of total assets. The quality of service in public banks is generally considered low as generations of public banking executives and workers trained to operate in a statist economy lack familiarity with modern banking practices. Most transactions are materialized (non-electronic). Many areas of the country suffer from a dearth of branches, leaving large amounts of the population without access to banking services. ATMs are not widespread, especially outside the major cities, and few accept foreign bankcards. Outside of major hotels with international clientele, hardly any retail establishments accept credit cards. Algerian banks do issue debit cards, but the system is distinct from any international payment system. The Minister of Commerce announced a plan to require businesses to use electronic payments for all commercial and service transactions, though a government deadline for all stores to deploy electronic payment terminals was delayed for the third time to the end of 2021. In addition, approximately 6.1 trillion dinars (USD 46 billion), or one-third, of the money supply is estimated to circulate in the informal economy.

Foreigners can open foreign currency accounts without restriction, but proof of a work permit or residency is required to open an account in Algerian dinars. Foreign banks are permitted to establish operations in the country, but they must be legally distinct entities from their overseas home offices.

In 2015, the Financial Action Task Force (FATF) removed Algeria from its Public Statement, and in 2016 it removed Algeria from the “gray list.” The FATF recognized Algeria’s significant progress and the improvement in its anti-money laundering/counter terrorist financing (AML/CFT) regime. The FATF also indicated Algeria has substantially addressed its action plan since strategic deficiencies were identified in 2011.

Foreign Exchange and Remittances

Foreign Exchange

There are few statutory restrictions on foreign investors converting, transferring, or repatriating funds, according to banking executives. Monies cannot be expatriated to pay royalties or to pay for services provided by resident foreign companies. The difficultly with conversions and transfers results mostly from the procedures of the transfers rather than the statutory limitations: the process is bureaucratic and requires almost 30 different steps from start to finish. Missteps at any stage can slow down or completely halt the process. Transfers should take roughly one month to complete, but often take three to six months. Also, the Algerian government has been known to delay the process as leverage in commercial and financial disputes with foreign companies.

Expatriated funds can be converted to any world currency. The IMF classifies the exchange rate regime as an “other managed arrangement,” with the central bank pegging the value of the Algerian dinar (DZD) to a “basket” composed of 64 percent of the value of the U.S. dollar and 36 percent of the value of the euro. The currency’s value is not controlled by any market mechanism and is set solely by the central bank. As the Central Bank controls the official exchange rate of the dinar, any change in its value could be considered currency manipulation. When dollar-denominated hydrocarbons profits fell starting in mid-2014, the central bank allowed a slow depreciation of the dinar against the dollar over 24 months, culminating in about a 30 percent fall in its value before stabilizing around 110 dinars to the U.S. dollar in late 2016. The 2020 Finance Law forecast a 10 percent depreciation of the dinar against the dollar over three years. However, the government allowed the dinar to depreciate eleven percent against the dollar in 2020 and has forecasted an 18 percent depreciation through 2023 in the 2021 Finance Law. Despite devaluation in the official rate, imbalances in foreign exchange supply and demand caused by the COVID-19 outbreak and travel restrictions beginning in March 2020 led to a steep decline in the value of the euro and dollar on the foreign exchange black market.

The 2021 Finance Law includes provisions to curb import activity, requiring importers of most products to make payment 30 days after the date of shipment of goods, with exceptions for strategic products, food items, or other items of “emergency character.”  As importers are required to request import approvals well in advance of the shipment of the goods, the new measure exposes importers to significant exchange rate uncertainty.

Remittance Policies

There have been no recent changes to remittance policies. Algerian exchange control law remains strict and complex. There are no specific time limitations, although the bureaucracy involved in remittances can often slow the process to as long as six months. Personal transfers of foreign currency into the country must be justified and declared as not for business purpose. There is no legal parallel market through which investors can remit; however, there is a substantial black market for foreign currency, where the dollar and euro trade at a significant premium above official rates, although economic disruptions related to the outbreak of COVID-19 in March 2020 led to interruptions in the functioning of the black market. With the more favorable informal rates, local sources report that most remittances occur via foreign currency hand-carried into the country. Under central bank regulations revised in September 2016, travelers to Algeria are permitted to enter the country with up to 1,000 euros or equivalent without declaring the funds to customs. However, any non-resident can only exchange dinars back to a foreign currency with proof of initial conversion from the foreign currency. The same regulations prohibit the transfer of more than 10,000 dinars (USD 75) outside Algeria.

Private citizens may convert up to 15,000 dinars (USD 118) per year for travel abroad, and must demonstrate proof of their intention to travel abroad through plane tickets or other official documents.

In April 2019, the Finance Ministry announced the creation of a vigilance committee to monitor and control financial transactions to foreign countries. It divided operations into three categories relating to 1) imports, 2) investments abroad, and 3) transfer abroad of profits.

Sovereign Wealth Funds

Algeria’s sovereign wealth fund (SWF) is the “Fonds de Regulation des Recettes (FRR).” The Finance Ministry’s website shows the fund decreased from 4408.2 billion dinars (USD 37.36 billion) in 2014 to 784.5 billion dinars (USD 6.65 billion) in 2016. The data has not been updated since 2016. Algerian media reported the FRR was spent down to zero as of February 2017. Algeria is not known to have participated in the IMF-hosted International Working Group on SWFs.

State-owned enterprises (SOEs) comprise more than half of the formal Algerian economy. SOEs are amalgamated into a single line of the state budget and are listed in the official business registry. To be defined as an SOE, a company must be at least 51 percent owned by the state.

Algerian SOEs are bureaucratic and may be subject to political influence. There are competing lines of authority at the mid-levels, and contacts report mid- and upper-level managers are reluctant to make decisions because internal accusations of favoritism or corruption are often used to settle political and personal scores. Senior management teams at SOEs report to their relevant ministry; CEOs of the larger companies such as national hydrocarbons company Sonatrach, national electric utility Sonelgaz, and airline Air Algerie report directly to ministers. Boards of directors are appointed by the state, and the allocation of these seats is considered political. SOEs are not known to adhere to the OECD Guidelines on Corporate Governance.

Legally, public and private companies compete under the same terms with respect to market share, products and services, and incentives. In reality, private enterprises assert that public companies sometimes receive more favorable treatment. Private enterprises have the same access to financing as SOEs, but they work with private banks and they are less bureaucratic than their public counterparts. Public companies generally refrain from doing business with private banks and a 2008 government directive ordered public companies to work only with public banks. The directive was later officially rescinded, but public companies continued the practice. However, the heads of Algeria’s two largest state enterprises, Sonatrach and Sonelgaz, both indicated in 2020 that given current budget pressures they are investigating recourse to foreign financing, including from private banks. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors, but business contacts report that the government favors SOEs over private sector companies in terms of access to land.

SOEs are subject to budget constraints. Audits of public companies can be conducted by the Court of Auditors, a financially autonomous institution. The constitution explicitly charges it with “ex post inspection of the finances of the state, collectivities, public services, and commercial capital of the state,” as well as preparing and submitting an annual report to the President, heads of both chambers of Parliament, and Prime Minister. The Court makes its audits public on its website, for free, but with a time delay, which does not conform to international norms.

The Court conducts audits simultaneously but independently from the Ministry of Finance’s year-end reports. The Court makes its reports available online once finalized and delivered to the Parliament, whereas the Ministry withholds publishing year-end reports until after the Parliament and President have approved them. The Court’s audit reports cover the entire implemented national budget by fiscal year and examine each annual planning budget that is passed by Parliament.

The General Inspectorate of Finance (IGF), the public auditing body under the supervision of the Ministry of Finance, can conduct “no-notice” audits of public companies. The results of these audits are sent directly to the Minister of Finance, and the offices of the President and Prime Minister. They are not made available publicly. The Court of Auditors and IGF previously had joint responsibility for auditing certain accounts, but they are in the process of eliminating this redundancy. Further legislation clarifying whether the delineation of responsibility for particular accounts which could rest with the Court of Auditors or the Ministry of Finance’s General Inspection of Finance (IGF) unit has yet to be issued.

Privatization Program

There has been limited privatization of certain projects previously managed by SOEs, and so far restricted to the water sector and possibly a few other sectors. However, the privatization of SOEs remains publicly sensitive and has been largely halted.

Multinational, and particularly U.S. firms operating in Algeria, are spreading the concept of responsible business conduct (RBC), which has traditionally been less common among domestic firms. Companies such as Occidental, Cisco, Microsoft, Boeing, Dow, Halliburton, Pfizer, and Berlitz have supported programs aimed at youth employment, education, and entrepreneurship. RBC activities are gaining acceptance as a way for companies to contribute to local communities while often addressing business needs, such as a better-educated workforce. The national oil and gas company, Sonatrach, funds some social services for its employees and supports desert communities near production sites. Still, many Algerian companies view social programs as the government’s responsibility. While state entities welcome foreign companies’ RBC activities, the government does not factor them into procurement decisions, nor does it require companies to disclose their RBC activities. Algerian laws for consumer and environmental protections exist but are weakly enforced.

Algeria does not adhere to the OECD or UN Guiding Principles and does not participate in the Extractive Industries Transparency Initiative. Algeria ranks 73 out of 89 countries for resource governance and does not comply with rules set for disclosing environmental impact assessments and mitigation management plans, according to the most recent report by National Resource Governance Index published in 2017.

Additional Resources

Department of State

• Country Reports on Human Rights Practices ();
• Trafficking in Persons Report ();
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities () and;
• North Korea Sanctions & Enforcement Actions Advisory ().

Department of Labor

• Findings on the Worst forms of Child Labor Report ( );
• List of Goods Produced by Child Labor or Forced Labor ();
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World () and;
• Comply Chain ().

The current anti-corruption law dates to 2006. In 2013, the Algerian government created the Central Office for the Suppression of Corruption (OCRC) to investigate and prosecute any form of bribery in Algeria. The number of cases currently being investigated by the OCRC is not available. In 2010, the government created the National Organization for the Prevention and Fight Against Corruption (ONPLC) as stipulated in the 2006 anti-corruption law. The Chairman and members of this commission are appointed by a presidential decree. The commission studies financial holdings of public officials, though not their relatives, and carries out studies. Since 2013, the Financial Intelligence Unit has been strengthened by new regulations that have given the unit more authority to address illegal monetary transactions and terrorism funding. In 2016, the government updated its anti-money laundering and counter-terrorist finance legislation to bolster the authority of the financial intelligence unit to monitor suspicious financial transactions and refer violations of the law to prosecutorial magistrates. Algeria signed the UN Convention Against Corruption in 2003.

The new Algerian constitution, which the President approved in December 2020, includes provisions that strengthen the role and capacity of anti-corruption bodies, particularly through the creation of the High Authority for Transparency, Prevention, and Fight against Corruption. This body is tasked with developing and enabling the implementation of a national strategy for transparency and preventing and combatting corruption.

The Algerian government does not require private companies to establish internal codes of conduct that prohibit bribery of public officials. The use of internal controls against bribery of government officials varies by company, with some upholding those standards and others rumored to offer bribes. Algeria is not a participant in regional or international anti-corruption initiatives. Algeria does not provide protections to NGOs involved in investigating corruption. While whistleblower protections for Algerian citizens who report corruption exist, members of Algeria’s anti-corruption bodies believe they need to be strengthened to be effective.

International and Algerian economic operators have identified corruption as a challenge for FDI. They indicate that foreign companies with strict compliance standards cannot effectively compete against companies which can offer special incentives to those making decisions about contract awards. Economic operators have also indicated that complex bureaucratic procedures are sometimes manipulated by political actors to ensure economic benefits accrue to favored individuals in a non-transparent way. Anti-corruption efforts have so far focused more on prosecuting previous acts of corruption rather than on institutional reforms to reduce the incentives and opportunities for corruption. In October 2019, the government adopted legislation which allowed police to launch anti-corruption investigations without first receiving a formal complaint against the entity in question. Proponents argued the measure is necessary given Algeria’s weak whistle blower protections.

Currently the government is working with international partners to update legal mechanisms to deal with corruption issues. The government also created a new institution to target and deter the practice of overbilling on invoices, which has been used to unlawfully transfer foreign currency out of the country.

The government imprisoned numerous prominent economic and political figures in 2019 and 2020 as part of an anti-corruption campaign. Some operators report that fear of being accused of corruption has made some officials less willing to make decisions, delaying some investment approvals. Corruption cases that have reached trial deal largely with state investment in the automotive, public works sectors, and hydrocarbons, though other cases are reportedly under investigation.

Resources to Report Corruption

Central Office for the Suppression of Corruption (OCRC)

Mokhtar Lakhdari, General Director

Placette el Qods, Hydra, Algiers +213 21 68 63 12

+213 21 68 63 12 www.facebook.com/263685900503591/ 

www.facebook.com/263685900503591/  no email address publicly available

no email address publicly available

National Organization for the Prevention and Fight Against Corruption (ONPLC)

Tarek Kour, President

14 Rue Souidani Boudjemaa, El Mouradia, Algiers +213 21 23 94 76

+213 21 23 94 76 www.onplc.org.dz/index.php/ 

www.onplc.org.dz/index.php/  contact@onplc.org.dz 

contact@onplc.org.dz 

Watchdog organization:

Djilali Hadjadj

President

Algerian Association Against Corruption (AACC) www.facebook.com/215181501888412/ 

www.facebook.com/215181501888412/  +213 07 71 43 97 08

+213 07 71 43 97 08 aaccalgerie@yahoo.fr 

aaccalgerie@yahoo.fr  10. Political and Security Environment

Following nearly two months of massive protests, known as the hirak, former President Abdelaziz Bouteflika resigned on April 2, 2019, after 20 years in power. His resignation launched an eight-month transition, resulting in the election of Abdelmadjid Tebboune as president in December 2019. Voter turnout was approximately 40 percent and the new administration continues to focus on restoring government authority and legitimacy. Following historically low turnout of 24 percent in the November 2020 constitutional referendum and President Tebboune’s lengthy medical absences in late 2020 and early 2021, hirak protests resumed in February 2021. Demonstrations have taken place in Algeria’s major wilayas (states) and have focused largely on political reform, as protestors continue to call for an overhaul of the Algerian government. President Tebboune dissolved parliament in February and Algeria will hold new parliamentary elections in June.

Prior to the hirak, which began in 2019, demonstrations in Algeria tended to concern housing and other social programs and were generally smaller than a few hundred participants. While most protests were peaceful, there were occasional outbreaks of violence that resulted in injuries, sometimes resulting from efforts of security forces to disperse the protests. Hirak protests remain relatively peaceful, though security forces occasionally use heavy-handed tactics to suppress protesters. Smaller protests due to socioeconomic conditions still occur sporadically throughout the country, but mostly in the largely marginalized areas of the south.

Government reactions to public unrest typically include tighter security control on movement between and within cities to prevent further clashes, significant security presence in anticipated protest zones, and promises of either greater public expenditures on local infrastructure or increased local hiring for state-owned companies. During the first few months of 2015, there were a series of protests in several cities in southern Algeria against the government’s program to drill test wells for shale gas. These protests were largely peaceful but sometimes resulted in clashes, injury, and rarely, property damage. Government pronouncements in 2017 that shale gas exploration would recommence did not generate protests.

On April 27, 2020, an Algerian court sentenced an expatriate manager and an Algerian employee of a large hotel to six months in prison on charges of “undermining the integrity of the national territory” for allegedly sharing publicly available security information with corporate headquarters outside of Algeria.

The Algerian government requires all foreign employees of foreign companies or organizations based in Algeria to contact the Foreigners Office of the Ministry of the Interior before traveling in the country’s interior so that the government can evaluate security conditions. The Algerian government also requires U.S. Embassy employees to request permission and a police escort to visit the Casbah in Algiers and to coordinate travel with the government on any trip outside of the Algiers wilaya (state). In response to the COVID-19 outbreak, the Algerian government imposed ongoing lockdowns or curfews throughout the country, cancelled events and gatherings, suspended public transportation and domestic and international flights, and required 50 percent of all non-essential employees to stay at home. Though restrictions on domestic travel have been lifted, restrictions on international travel persisted into 2021. These restrictions may impact where and when certain U.S. consular services can be provided.

In February 2020, ISIS claimed responsibility for a suicide bomber who attacked a military barrack in southern Algeria, killing a soldier. This was met with a swift response by Algerian security services against the militants responsible for the attacks, and the Algerian army continues to carry out counterterrorism operations throughout the country.

According to official Defense Ministry announcements, Algerian security forces “neutralized” 37 terrorists (21 killed, 9 arrested, and 7 surrendered) and arrested an additional 108 “supporters” of terrorism in 2020.  Army detachments also destroyed 251 terrorist hideouts and seized a large quantity of ammunition and explosives during the year

U.S. citizens living or traveling in Algeria are encouraged to enroll in the Smart Traveler Enrollment Program (STEP) via the State Department’s travel registration website, https://step.state.gov/step, to receive security messages and make it easier to be located in an emergency. 11. Labor Policies and Practices

There is a shortage of skilled labor in Algeria in all sectors. Business contacts report difficulty in finding sufficiently skilled plumbers, electricians, carpenters, and other construction/vocational related areas. Oil companies report they have difficultly retaining trained Algerian engineers and field workers because these workers often leave Algeria for higher wages in the Gulf. Some white-collar employers also report a lack of skilled project managers, supply chain engineers, and sufficient numbers of office workers with requisite computer and soft skills.

Official unemployment figures are measured by the number of persons seeking work through the National Employment Agency (ANEM). While the official unemployment rate for 2020 has not yet been published, the National Representative for Major Risks at the Interior Ministry Hamid Afra said in March 2021 that Algeria shed more than one million jobs in 2020 during the COVID-19 pandemic. Minister of Labor El Hachemi Djaaboub also reported in March 2021 that job vacancies fell by 30% in 2020, dropping from 437,000 vacancies in 2019 to 300,000. Additionally, the subsidy allotted to finance vocational integration (le dispositif d’insertion professionnelle) decreased from 135 billion dinars in 2013 to 32 billion in 2021.

The government has undertaken efforts to protect formal sector employment during the COVID-19 crisis. In general, finding a job is regulated by the government and is bureaucratically complex. Prospective employees must register with the labor office, submit paper resumes door to door, attend career fairs, and comb online job offerings. According to the Office of National Statistics, 81 percent of university graduates say that they favor “family relationships” or “the family network” as the best way to look for a job.

The private sector accounts for 62.2 percent of total employment with 7.014 million people, with 37.8 percent in the public sector, employing 4.267 million people. Additionally, the International Labor Organization (ILO) estimates that more than one-third of all employment in Algeria takes place in the informal economy. The Ministry of Vocational Training sponsors programs that offer training to at least 300,000 Algerians annually, including those who did not complete high school, in various professional programs.

Companies must submit extensive justification to hire foreign employees, and report pressure to hire more locals (even if jobs could be replaced through mechanization) under the implied risk that the government will not approve visas for expatriate staff. There are no special economic zones or foreign trade zones in Algeria.

The constitution provides workers with the right to join and form unions of their choice provided they are Algerian citizens. The country has ratified the ILO’s conventions on freedom of association and collective bargaining but failed to enact legislation needed to implement these principles fully. The General Union of Algerian Workers (UGTA) is the largest union in Algeria and represents a broad spectrum of employees in the public sectors. The UGTA, an affiliate of the International Trade Union Conference, is an official member of the Algerian “tripartite,” a council of labor, government, and business officials that meets annually to collaborate on economic and labor policy. The Algerian government liaises almost exclusively with the UGTA, however, unions in the education, health, and administration sectors do meet and negotiate with government counterparts, especially when there is a possibility of a strike. Collective bargaining is legally permitted but not mandatory.

Algerian law provides mechanisms for monitoring labor abuses and health and safety standards, and international labor rights are recognized under domestic law, but are only effectively regulated in the formal economy. However, typical labor inspections were greatly reduced in 2020 due to COVID-19 restrictions. The government has shown an increasing interest in understanding and monitoring the informal economy, evidenced by its 2018 partnerships with the ILO and current cooperation with the World Bank on several projects aimed at better quantifying the informal sector.

Sector-specific strikes occur often in Algeria, though general strikes are less common. The law provides for the right to strike, and workers exercise this right, subject to conditions. Striking requires a secret ballot of the whole workforce, and the decision to strike must be approved by a majority vote of the workers at a general meeting. The government may restrict strikes on several grounds, including economic crisis, obstruction of public services, or the possibility of subversive actions. Furthermore, all public demonstrations, including protests and strikes, must receive prior government authorization. By law, workers may strike only after 14 days of mandatory conciliation or mediation. The government occasionally offers to mediate disputes. The law states that decisions agreed to in mediation are binding on both parties. If mediation does not lead to an accord, workers may strike legally after they vote by secret ballot. The law requires that a minimum level of essential public services must be maintained, and the government has broad legal authority to requisition public employees. The list of essential services includes banking, radio, and television. Penalties for unlawful work stoppages range from eight days to two months imprisonment.

Since the beginning of the COVID-19 crisis, there have been periodic strikes affecting companies in various sectors as a result of the economic recession caused by the pandemic. Several strikes were initiated by workers in the northern regions, particularly in the industrial zones of Tizi-Ouzou, Béjaïa, and Bordj Bou Arreridj. In January 2021, employees of the electronics and household appliance group Condor demanded the firing of the director of the company appointed by the courts and back payment for salaries from December 2020.

Stringent labor-market regulations likely inhibit an increase in full-time, open-ended work. Regulations do not allow for flexibility in hiring and firing in times of economic downturn. For example, employers are generally required to pay severance when laying off or firing workers. Unemployment insurance eligibility requirements may discourage job seekers from collecting benefits due to them, and the level of support claimants receive is minimal. Employers must have contributed up to 80 percent of the final year salary into the unemployment insurance scheme in order for the employees to qualify for unemployment benefits.

The law contains occupational health and safety standards, but enforcement of these standards is uneven. There were no known reports of workers dismissed for removing themselves from hazardous working conditions. If workers face hazardous conditions, they may file a complaint with the Ministry of Labor, which is required to send out labor inspectors to investigate the claim. Nevertheless, the high demand for unemployment in Algeria gives an advantage to employers seeking to exploit employees.

Because Algerian law does not provide for temporary legal status for migrants, labor standards do not protect economic migrants from sub-Saharan Africa and elsewhere working in the country without legal immigration status. However, migrant children are protected by law from working.

The Ministry of Labor enforces labor standards, including compliance with the minimum wage regulation and safety standards. Companies that employ migrant workers or violate child labor laws are subject to fines and potentially prosecution.

The law prohibits participation by minors in dangerous, unhealthy, or harmful work or in work considered inappropriate because of social and religious considerations. The minimum legal age for employment is 16, but younger children may work as apprentices with permission from their parents or legal guardian. The law prohibits workers under age 19 from working at night. While there is currently no list of hazardous occupations prohibited to minors, the government reports it is drafting a list which will be issued by presidential decree. Although specific data was unavailable, children reportedly worked mostly in the informal sector, largely in sales, often in family businesses. They are also involved in begging and agricultural work. There were isolated reports that children were subjected to commercial sexual exploitation.

The Ministry of Labor is responsible for enforcing child labor laws. There is no single office charged with this task, but all labor inspectors are responsible for enforcing laws regarding child labor. In 2018, the Ministry of Labor focused one month specifically on investigating child labor violations, and in some cases prosecuted individuals for employing minors or breaking other child-related labor laws. While the government claims to monitor both the formal and informal sectors, contacts note that their efforts largely focus on the formal economy.

The National Authority of the Protection and Promotion of Children (ONPPE) is an inter-agency organization, created in 2016, which coordinates the protection and promotion of children’s rights. As a part of its efforts, ONPPE continues to hold educational sessions for officials from relevant ministries, civil society organizations, and journalists on issues related to children, including child labor and human trafficking. Due to COVID-19, in 2020 ONPPE held only two such sessions. 12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data: No Host Country data available.

Table 3: Sources and Destination of FDI

The latest data available for Algeria is from 2019.

Table 4: Sources of Portfolio Investment

Data not available. 14. Contact for More Information

U.S. Embassy Algiers
Political and Economic Section
5 Chemin Cheikh Bachir El-Ibrahimi, El Biar Algiers, Algeria (+213) 0770 082 153
(+213) 0770 082 153
Algiers_polecon@state.gov 

Policies Towards Foreign Direct Investment

The SAG seeks foreign investment that explicitly promotes economic development, transfers foreign expertise and technology to Saudi Arabia, creates jobs for Saudi nationals, and increases Saudi Arabia’s non-oil exports. As part of Vision 2030, the SAG targets increasing foreign investments in Saudi Arabia to $3 trillion. The government encourages investment in nearly all economic sectors, with priority given to chemicals, industrial, and manufacturing; transport and logistics; information and communication technology; healthcare and life sciences; water and waste management; energy; education; tourism, entertainment and sports; real estate; financial services; and mining and metals. In March 2021, the SAG announced it is seeking to attract $420 billion in foreign investments over the next 10 years in the infrastructure and transportation sectors alone.

The Ministry of Investment of Saudi Arabia (MISA), formerly the Saudi Arabian General Investment Authority (SAGIA), governs and regulates foreign investment in the Kingdom, issues licenses to prospective investors, and works to foster and promote investment opportunities across the economy. Established originally as a regulatory agency, MISA has increasingly shifted its focus to investment promotion and assistance, offering potential investors detailed guidance and a catalogue of current investment opportunities on its website (https://investsaudi.sa/en/sectors-opportunities/).

MISA promotes efforts to improve the Kingdom’s attractiveness as an investment destination: e-licenses to provide a more efficient and user-friendly process; an online “instant” license issuance or renewal service to foreign investors that are listed on a local or international stock market and meet certain conditions; a reduction in the license approval period from days to hours; a reduction in required customs documents; 100 percent foreign ownership in most sectors; a reduction in customs clearance period from weeks to hours; the launch of Saudi Center for Commercial Arbitration; and an increase in the investor license period to five years. MISA’s reforms appear to be yielding results: Saudi Arabia jumped 30 places to 62nd place in the 2020 World Bank’s Ease of Doing Business Report.

In a country where most public entertainment was once forbidden, the SAG now regularly sponsors and promotes entertainment programming, including live concerts, dance exhibitions, sports competitions, and other public performances. Significantly, the audiences for many of those events are now gender-mixed, representing a larger consumer base. In addition to reopening cinemas in 2018, the SAG has hosted Formula E races, professional golf tournaments, a world heavyweight boxing title match, and a professional tennis tournament. Saudi Arabia launched the Saudi Seasons initiative in 2019 with tourism and cultural events in each of the 11 regions of the country. The Riyadh Season included first-ever car exhibition and auction in Riyadh, which attracted 350 U.S. exhibitors. Saudi Arabia’s General Entertainment Authority announced it plans to launch the second iteration of Saudi Seasons in November 2021 after a COVID pause.

The SAG is proceeding with “economic cities” and new “giga-projects” that are at various stages of development and is seeking foreign investment in them. These projects are large-scale and self-contained developments in different regions focusing on particular industries, e.g., technology, energy, logistics (airports, railways, ports, and warehouses), tourism, entertainment, and institutional (education; medical; government entities, post offices and fire stations; religious buildings, and dams and reservoirs). Principal among these projects are:

• Qiddiya, a new, large-scale entertainment, sports, and cultural complex near Riyadh;
• King Abdullah Financial District, a commercial center development with nearly 60 skyscrapers in Riyadh;
• Red Sea Project, a massive tourism development on the archipelago of islands along the western Saudi coast, which aims to create 70,000 jobs and attract one million tourists per year;
• Amaala, a wellness, healthy living, and meditation resort on the Kingdom’s northwest coast, projected to include more than 2,500 luxury hotel rooms and 700 villas; and
• NEOM, a $500 billion long-term development project to build a futuristic “independent economic zone” in northwest Saudi Arabia. In November 2020, the SAG announced The Line; a new, 100 mile-long, $100-$200 billion development at NEOM that will have no cars, no streets, and no carbon emissions. The project aims to create 380,000 jobs and contribute $48 billon to domestic GDP by 2030.

The long term impact of the COVID-19 pandemic and sustained downturn in oil prices in 2020 on these giga-projects is not clear. While some companies working on the projects reported the ongoing availability of funding in 2020, others reported that budget cutbacks had begun to impact their operations.

In June 2020, the SAG approved a new mining investment law that aims to boost investments in the sector. The law will facilitate the establishment of a mining fund to provide sustainable finance, support geological survey and exploration programs, and optimize national mineral resources valued at $1.3 trillion. The law could increase the sector’s contribution to GDP by $64 billion, reduce imports by $9.8 billion, and create 200,000 direct and indirect jobs by 2030.

Structural impediments to foreign investment in Saudi Arabia remain.

Foreign investors must contend with increasingly strict localization requirements in bidding for certain government contracts, labor policy requirements to hire more Saudi nationals (usually at higher wages than expatriate workers), an increasingly restrictive visa policy for foreign workers, and gender segregation in business and social settings (though gender segregation is becoming more relaxed as the SAG introduces socio-economic reforms). The General Authority for Military Industries, for example, will require that all military procurements have fifty percent local content by 2030.

The SAG implemented new taxes and fees in 2017 and early 2018, including significant visa fee increases, higher fines for traffic violations, new fees for certain billboard advertisements, and related measures. On July 1, 2020, the SAG increased the value-added tax (VAT) from five percent to 15 percent.

The SAG implemented new taxes and fees in 2017 and early 2018, including significant visa fee increases, higher fines for traffic violations, new fees for certain billboard advertisements, and related measures. On July 1, 2020, the SAG increased the value-added tax (VAT) from five percent to 15 percent.

In February 2021, MISA and the Royal Commission for Riyadh City (RCRC) announced a new directive that companies that want to contract with the SAG must establish their regional headquarters in Saudi Arabia – preferably in Riyadh – by 2024. Companies that relocate their regional headquarters to Riyadh will receive tax breaks and other incentives. Saudi officials have confirmed that offices cannot be headquarters “in name only” but, rather, must be legitimate headquarters offices with C-level executive staff in Riyadh overseeing operations and staff in the rest of the region. Companies choosing to maintain their regional headquarters in another country will not be awarded public sector contracts – including contracts from Saudi Aramco – beginning in 2024.

Foreign investment is currently prohibited in 10 sectors on the Negative List, including:

1. Oil exploration, drilling, and production;
2. Catering to military sectors;
3. Security and detective services;
4. Real estate investment in the holy cities, Mecca and Medina;
5. Tourist orientation and guidance services for religious tourism related to Hajj and umrah;
6. Printing and publishing (subject to a variety of exceptions);
7. Certain internationally classified commission agents;
8. Services provided by midwives, nurses, physical therapy services, and quasi-doctoral services;
9. Fisheries; and
10. Poison centers, blood banks, and quarantine services.

In addition to the negative list, older laws that remain in effect prohibit or otherwise restrict foreign investment in some economic subsectors not on the list, including some areas of healthcare. At the same time, MISA has demonstrated some flexibility in approving exceptions to the “negative list” exclusions.

Limits on Foreign Control and Right to Private Ownership and Establishment

Saudi Arabia fully recognizes rights to private ownership and the establishment of private business. As outlined above, the SAG excludes foreign investors from some economic sectors and places some limits on foreign control.

With respect to energy, Saudi Arabia’s largest economic sector, foreign firms are barred from investing in the upstream hydrocarbon sector, but the SAG permits foreign investment in the downstream energy sector, including refining and petrochemicals. There is significant foreign investment in these sectors. ExxonMobil, Shell, China’s Sinopec, and Japan’s Sumitomo Chemical are partners with Saudi Aramco (the SAG’s state-owned oil firm) in domestic refineries. ExxonMobil, Chevron, Shell, and other international investors have joint ventures with Saudi Aramco and/or the Saudi Basic Industries Corporation (SABIC) in large-scale petrochemical plants that utilize natural gas feedstock from Saudi Aramco’s operations. The Dow Chemical Company and Saudi Aramco are partners in the $20 billion Sadara joint venture with the world’s largest integrated petrochemical production complex.

Saudi Aramco also maintains several contractors under its Long-Term Agreement (LTA) group for a series of offshore jobs that include engineering, procurement, construction, and installation. LTA firms are prioritized for offshore contracts typically ranging between $100 to $800 million in value. Saudi Aramco also maintains a smaller group of contractors to provide hook-up, commissioning and maintenance, and modifications and operations jobs for its offshore oil and gas infrastructure. These refurbishment contracts are usually valued under $100 million and tendered exclusively to this smaller group.

With respect to other non-oil natural resources, Saudi Arabia’s mining sector continues to expand. With an estimated $1.3 trillion of mineral resources, the sector expects to have significant opportunities in exploration and development projects. Saudi Arabia’s mining sector laws were recently updated to allow foreign companies to enter the mining sector and invest in the Kingdom’s vast mining resources. Saudi Arabia’s national mining company, Ma’aden, has a $12 billion joint venture with Alcoa for bauxite mining and aluminum production and a $7 billion joint venture with the leading American fertilizer firm Mosaic and SABIC to produce phosphate-based fertilizers.

Joint ventures almost always take the form of limited liability partnerships in Saudi Arabia, to which there are some disadvantages. Foreign partners in service and contracting ventures organized as limited liability partnerships must pay, in cash or in kind, 100 percent of their contribution to authorized capital. MISA’s authorization is only the first step in setting up such a partnership.

Professionals, including architects, consultants, and consulting engineers, are required to register with, and be certified by, the Ministry of Commerce. In theory, these regulations permit the registration of Saudi-foreign joint venture consulting firms. As part of its WTO commitments, Saudi Arabia generally allows consulting firms to establish a local office without a Saudi partner. Foreign engineering consulting companies, however, must have been incorporated for at least 10 years and have operations in at least four different countries to qualify. Foreign entities practicing accounting and auditing, architecture and civil planning, or providing healthcare, dental, or veterinary services, must still have a Saudi partner.

In recent years, Saudi Arabia has opened additional service markets to foreign investment, including financial and banking services; aircraft maintenance and repair; computer reservation systems; wholesale, retail, and franchise distribution services; both basic and value-added telecom services; and investment in the computer and related services sectors. In 2016, Saudi Arabia formally approved full foreign ownership of retail and wholesale businesses in the Kingdom. While some companies have already received licenses under the new rules, the restrictions attached to obtaining full ownership – including a requirement to invest over $50 million during the first five years and ensure that 30 percent of all products sold are manufactured locally – have proven difficult to meet and precluded many investors from taking full advantage of the reform.

Other Investment Policy Reviews

Saudi Arabia completed its third WTO trade policy review in March 2021, which included investment policies ( https://www.wto.org/english/tratop_e/tpr_e/tp507_e.htm ).

Business Facilitation

In addition to applying for a license from MISA, foreign and local investors must register a new business via the Ministry of Commerce (MOC), which has begun offering online registration services for limited liability companies at: https://mc.gov.sa/en/ . Though users may submit articles of association and apply for a business name within minutes on MOC’s website, final approval from the Ministry often takes a week or longer. Applicants must also complete a number of other steps to start a business, including obtaining a municipality (baladia) license for their office premises and registering separately with the Ministry of Human Resources and Social Development, Chamber of Commerce, Passport Office, Tax Department, and the General Organization for Social Insurance. From start to finish, registering a business in Saudi Arabia takes about three weeks. The country placed at 38 of 190 countries for ease of starting a business, according to the World Bank (2020 rankings). Also, improved protections for minority investors helped Saudi Arabia tie for third place globally on that World Bank indicator.

Saudi officials have stated their intention to attract foreign small- and medium-sized enterprises (SMEs) to the Kingdom. To facilitate and promote the growth of the SME sector, the SAG established the Small and Medium Enterprises General Authority in 2015 and released a new Companies Law in 2016, which was amended in 2018 to update the language vis-à-vis Joint Stock Companies (JSC) and Limited Liability Companies (LLC). It also substantially reduced the minimum capital and number of shareholders required to form a JSC from five to two. Additionally, as of 2019, women no longer need a male guardian to apply for a business license.

Outward Investment

Private Saudi citizens, Saudi companies, and SAG entities hold extensive overseas investments. The SAG has been transforming its Public Investment Fund (PIF), traditionally a holding company for government shares in state-controlled enterprises, into a major international investor and sovereign wealth fund. In 2016, the PIF made its first high-profile international investment by taking a $3.5 billion stake in Uber. The PIF has also announced a $400 million investment in Magic Leap, a Florida-based company that is developing “mixed reality” technology, and a $1 billion investment in Lucid Motors, a California-based electric car company. In 2020 and early 2021, the PIF made a number of new investments, including in Facebook, Starbucks, Disney, Boeing, Citigroup, LiveNation, Marriott, several European energy firms, Carnival Cruise Lines, Reliance Retail Ventures Limited (RRVL), and Hambro Perks Ltd’s Oryx Fund, but liquidated its position in many of these within a few months. Saudi Aramco and SABIC are also major investors in the United States. In 2017, Saudi Aramco acquired full ownership of Motiva, the largest refinery in North America, in Port Arthur, Texas. SABIC has announced a multi-billion dollar joint venture with ExxonMobil in a petrochemical facility in Corpus Christi, Texas.

Transparency of the Regulatory System

Saudi Arabia received the lowest score possible (zero out of five) in the World Bank’s Global Indicators of Regulatory Governance Report, which places the Kingdom in the bottom 13 countries among 186 countries surveyed ( http://rulemaking.worldbank.org/ ). Few aspects of the SAG’s regulatory system are entirely transparent, although Saudi investment policy is less opaque than other areas. Bureaucratic procedures are cumbersome, but red tape can generally be overcome with persistence. Foreign portfolio investment in the Saudi stock exchange is well-regulated by the Capital Markets Authority (CMA), with clear standards for interested foreign investors to qualify to trade on the local market. The CMA has progressively liberalized requirements for “qualified foreign investors” to trade in Saudi securities. Insurance companies and banks whose shares are listed on the Saudi stock exchange are required to publish financial statements according to International Financial Reporting Standards (IFRS) accounting standards. All other companies are required to follow accounting standards issued by the Saudi Organization for Certified Public Accountants.

Stakeholder consultation on regulatory issues is inconsistent. Some Saudi organizations are diligent in consulting businesses affected by the regulatory process, while others tend to issue regulations with no consultation at all. Proposed laws and regulations are not always published in draft form for public comment. An increasing number of government agencies, however, solicit public comments through their websites. The processes and procedures for stakeholder consultation are not generally transparent or codified in law or regulations. There are no private-sector or government efforts to restrict foreign participation in the industry standards-setting consortia or organizations that are available. There are no informal regulatory processes managed by NGOs or private-sector associations.

International Regulatory Considerations

Saudi Arabia uses technical regulations developed both by the Saudi Arabian Standards Organization (SASO) and by the Gulf Standards Organization (GSO). Although the GCC member states continue to work towards common requirements and standards, each individual member state, and Saudi Arabia through SASO, continues to maintain significant autonomy in developing, implementing, and enforcing technical regulations and conformity assessment procedures in its territory. More recently, Saudi Arabia has moved towards adoption of a single standard for technical regulations. This standard is often based on International Organization for Standardization (ISO) or International Electrotechnical Commission (IEC) standards, to the exclusion of other international standards, such as those developed by U.S.-domiciled standards development organizations (SDOs).

Saudi Arabia’s exclusion of these other international standards, which are often used by U.S. manufacturers, can create significant market access barriers for industrial and consumer products exported from the United States. The United States government has engaged Saudi authorities on the principles for international standards per the WTO Technical Barriers to Trade Committee Decision and encouraged Saudi Arabia to adopt standards developed according to such principles in their technical regulations, allowing all products that meet those standards to enter the Saudi market. Several U.S.-based standards organizations, including SDOs and individual companies, have also engaged SASO, with mixed success, in an effort to preserve market access for U.S. products, ranging from electrical equipment to footwear.

A member of the WTO, Saudi Arabia must notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

The Saudi legal system is derived from Islamic law, known as sharia. Saudi commercial law, meanwhile, is still developing. In 2016, Saudi Arabia took a significant step in improving its dispute settlement regime with the establishment of the Saudi Center for Commercial Arbitration (see “Dispute Settlement” below). Through its Commercial Law Development Program, the U.S. Department of Commerce has provided capacity-building programs for Saudi stakeholders in the areas of contract enforcement, public procurement, and insolvency.

The Saudi Ministry of Justice oversees the sharia-based judicial system, but most ministries have committees to rule on matters under their jurisdictions. Judicial and regulatory decisions can be appealed. Many disputes that would be handled in a court of law in the United States are handled through intra-ministerial administrative bodies and processes in Saudi Arabia. Generally, the Saudi Board of Grievances has jurisdiction over commercial disputes between the government and private contractors. The Board also reviews all foreign arbitral awards and foreign court decisions to ensure that they comply with sharia. This review process can be lengthy, and outcomes are unpredictable.

The Kingdom’s record of enforcing judgments issued by courts of other GCC states under the GCC Common Economic Agreement, and of other Arab League states under the Arab League Treaty, is somewhat better than enforcement of judgments from other foreign courts. Monetary judgments are based on the terms of the contract – e.g., if the contract is calculated in U.S. dollars, a judgment may be obtained in U.S. dollars. If unspecified, the judgment is denominated in Saudi riyals. Non-material damages and interest are not included in monetary judgments, based on the sharia prohibitions against interest and against indirect, consequential, and speculative damages.

As with any investment abroad, it is important that U.S. investors take steps to protect themselves by thoroughly researching the business record of a proposed Saudi partner, retaining legal counsel, complying scrupulously with all legal steps in the investment process, and securing a well-drafted agreement. Even after a decision is reached in a dispute, enforcement of a judgment can still take years. The U.S. government recommends consulting with local counsel in advance of investing to review legal options and appropriate contractual provisions for dispute resolution.

In a February 8, 2021 statement, the Crown Prince announced draft legal reforms impacting personal status law, civil transactions law, evidence law, and discretionary sentencing that aim to increase predictability and transparency in the legal system, facilitating commerce and expanding protections for women. The draft proposals, expected to be approved later in 2021, would begin to codify Saudi law to introduce transparency and help ensure consistency in court rulings and improve oversight and accountability. Details remain unclear, but if implemented effectively, the reforms would be a major step in modernizing the Saudi legal system.

Laws and Regulations on Foreign Direct Investment

In January 2019, the Saudi government established the Foreign Trade General Authority (FTGA), which aims to strengthen Saudi Arabia’s non-oil exports and investment, increase the private sector’s contribution to foreign trade, and resolve obstacles encountered by Saudi exporters and investors. The new authority monitors the Kingdom’s obligations under international trade agreements and treaties, negotiates and enters into new international commercial and investment agreements, and represents the Kingdom before the World Trade Organization. The Governor of the Foreign Trade General Authority reports to the Minister of Commerce.

Despite the list of activities excluded from foreign investment (see “Policies Toward Foreign Direct Investment”), foreign minority ownership in joint ventures with Saudi partners may be allowed in some of these sectors. Foreign investors are no longer required to take local partners in many sectors and may own real estate for company activities. They are allowed to transfer money from their enterprises out of the country and can sponsor foreign employees, provided that “Saudization” quotas are met (see “Labor Section” below). Minimum capital requirements to establish business entities range from zero to 30 million Saudi riyals ($8 million), depending on the sector and the type of investment.

MISA offers detailed information on the investment process, provides licenses and support services to foreign investors, and coordinates with government ministries to facilitate investment. According to MISA, it must grant or refuse a license within five days of receiving an application and supporting documentation from a prospective investor. MISA has established and posted online its licensing guidelines, but many companies looking to invest in Saudi Arabia continue to work with local representation to navigate the bureaucratic licensing process.

MISA licenses foreign investments by sector, each with its own regulations and requirements: (i) services, which comprise a wide range of activities including IT, healthcare, and tourism; (ii) industrial, (iii) real estate, (iv) public transportation, (v) entrepreneurial, (vi) contracting, (vii) audiovisual media, (viii) science and technical office, (ix) education (colleges and universities), and (x) domestic services employment recruitment. MISA also offers several special-purpose licenses for bidding on and performance of government contracts. Foreign firms must describe their planned commercial activities in some detail and will receive a license in one of these sectors at MISA’s discretion. Depending on the type of license issued, foreign firms may also require the approval of relevant competent authorities, such as the Ministry of Health or the Ministry of Tourism.

An important MISA objective is to ensure that investors do not just acquire and hold licenses without investing, and MISA sometimes cancels licenses of foreign investors that it deems do not contribute sufficiently to the local economy. MISA’s periodic license reviews, with the possibility of cancellation, add uncertainty for investors and can provide a disincentive to longer-term investment commitments.

MISA has agreements with various SAG agencies and ministries to facilitate and streamline foreign investment. These agreements permit MISA to facilitate the granting of visas, establish MISA branch offices at Saudi embassies in different countries, prolong tariff exemptions on imported raw materials to three years and on production and manufacturing equipment to two years, and establish commercial courts. To make it easier for businesspeople to visit the Kingdom, MISA can sponsor visa requests without involving a local company. Saudi Arabia has implemented a decree providing that sponsorship is no longer required for certain business visas. While MISA has set up the infrastructure to support foreign investment, many companies report that despite some improvements, the process remains cumbersome and time-consuming.

Competition and Antitrust Laws

The General Authority for Competition (GAC) reviews merger transactions for competition-related concerns, investigates business conduct, including allegations of price fixing, can issue fines, and can approve applications for exemptions for certain business conduct.

The Competition law, as amended in 2019, applies to all entities operating in Saudi Arabia, and has a broad application covering all activities related to the production, distribution, purchase, and sale of commodities inside the Kingdom, as well as practices that occur outside of Saudi Arabia and that have an impact on domestic competition.

The competition law prohibits anti-competitive practices and agreements, which have as their object or effect the restriction of competition. This may include certain aspects of vertically-integrated business combinations. Consequently, companies doing business in Saudi Arabia may find it difficult to register exclusivity clauses in distribution agreements, but are not necessarily precluded from enforcing such clauses in Saudi courts.

Certain merger transactions must be notified to the GAC, and each entity involved in the merger is obligated to notify the GAC. GAC may approve, conditionally approve, or reject a merger transaction.

Expropriation and Compensation

The Embassy is not aware of any cases in Saudi Arabia of expropriation from foreign investors without adequate compensation. Some small- to medium-sized foreign investors, however, have complained that their investment licenses have been cancelled without justification, causing them to forfeit their investments.

Dispute Settlement

ICSID Convention and New York Convention

The Kingdom of Saudi Arabia ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994. Saudi Arabia is also a member state of the International Center for the Settlement of Investment Disputes Convention (ICSID), though under the terms of its accession it cannot be compelled to refer investment disputes to this system absent specific consent, provided on a case-by-case basis. Saudi Arabia has yet to consent to the referral of any investment dispute to the ICSID for resolution.

Investor-State Dispute Settlement

The use of any international or domestic dispute settlement mechanism within Saudi Arabia continues to be time-consuming and uncertain, as all outcomes are subject to a final review in the Saudi judicial system and carry the risk that principles of sharia law may potentially supersede a judgment or legal precedent. The U.S. government recommends consulting with local counsel in advance of investing to review legal options and contractual provisions for dispute resolution.

International Commercial Arbitration and Foreign Courts

Traditionally, dispute settlement and enforcement of foreign arbitral awards in Saudi Arabia have proven time-consuming and uncertain, carrying the risk that sharia principles can potentially supersede any foreign judgments or legal precedents. Even after a decision is reached in a dispute, effective enforcement of the judgment can be lengthy. In several cases, disputes have caused serious problems for foreign investors. In cases of alleged fraud or debt, foreign partners may also be jailed to prevent their departure from the country while awaiting police investigation or court adjudication. Courts can in theory impose precautionary restraint on personal property pending the adjudication of a commercial dispute, though this remedy has been applied sparingly.

The SAG has demonstrated a commitment to improve the quality of commercial legal proceedings and access to alternative dispute resolution mechanisms. Local attorneys indicate that the quality of final judgments in the court system has improved, but that cases still take too long to litigate. The Saudi Center for Commercial Arbitration (SCCA) offers comprehensive arbitration services to domestic and international firms. The SCCA reports that both domestic and foreign law firms have begun to include referrals to the SCCA in the arbitration clauses of their contracts. However, it is currently too early to assess the quality and effectiveness of SCCA proceedings, as the SCCA is still in the early stages of operation. Awards rendered by the SCCA can be enforced in local courts, though judges remain empowered to reject enforcement of provisions they deem noncompliant with sharia law.

In December 2017, the United Nations Commission on International Trade Law (UNCITRAL) recognized Saudi Arabia as a jurisdiction that has adopted an arbitration law based on the 2006 UNCITRAL Model Arbitration Law. UNCITRAL took this step after Saudi judges clarified that sharia would not affect the enforcement of foreign arbitral awards. In May 2020, Saudi Arabia ratified the United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the “Singapore Convention on Mediation,” becoming the fourth state to ratify the Convention. As a result of Saudi Arabia’s ratification, international settlement agreements falling under the Convention and involving assets located in Saudi Arabia may be enforced by Saudi Arabian courts.

Bankruptcy Regulations

In August 2018, the SAG implemented new bankruptcy legislation which seeks to “further facilitate a healthy business environment that encourages participation by foreign and domestic investors, as well as local small and medium enterprises.” The new law clarifies procedural processes and recognizes distinct creditor classes (e.g., secured creditors). The new law also includes procedures for continued operation of the distressed company via financial restructuring. Alternatively, the parties may pursue an orderly liquidation of company assets, which would be managed by a court-appointed licensed bankruptcy trustee. Saudi courts have begun to accept and hear cases under this new legislation.

Investment Incentives

MISA advertises a number of financial advantages for foreigners looking to invest in the Kingdom, including custom duty drawback and exemption on selected materials, equipment and machinery; the lack of personal income taxes; and a corporate tax rate of 20 percent on foreign companies’ profits (the lowest among G20 countries). MISA also lists various SAG-sponsored regional and international financial programs to which foreign investors have access, such as the Saudi Export Program, Arab Fund for Economic and Social Development, the Arab Trade Financing Program, and the Islamic Development Bank.

On March 30, 2021, the Crown Prince announced the Shareek (Arabic for partner) program to encourage local investment. To participate in the program, companies must commit to investing a minimum of $5.2 billion by 2030 and have the ability to invest at least $106 million in each additional project. Participating companies will be eligible for loans, grants, and co-investment from the Shareek program as well as special support from the SAG on regulatory and other issues.

The Saudi Industrial Development Fund (SIDF), a government financial institution established in 1974, supports private-sector industrial investments by providing medium- and long-term loans for new factories and for projects to expand, upgrade, and modernize existing manufacturing facilities. The SIDF offers loans of 50 to 75 percent of a project’s value, depending on the project’s location. Foreign investors that set up manufacturing facilities in developed areas (Riyadh, Jeddah, Dammam, Jubail, Mecca, Yanbu, and Ras al-Khair), for example, can receive a 15-year loan for up to 50 percent of a project’s value; investors in the Kingdom’s least developed areas can receive a 20-year loan for up to 75 percent of the project’s value. The SIDF also offers consultancy services for local industrial projects in the administrative, financial, technical, and marketing fields. (The SIDF’s website is https://www.sidf.gov.sa/en/Pages/default.aspx .)

The SAG offers several incentive programs to promote employment of Saudi nationals in certain cases. The Saudi Human Resources Development Fund (HRDF) ( https://www.hrdf.org.sa/ ), for example, will pay 30 percent of a Saudi national’s wages for the first year of work, with a wage subsidy of 20 percent and 10 percent for the second and third year of employment, respectively (subject to certain limits and caps). “Tamheer” is an on-the-job training program through which the SAG provides Saudi graduates with a SAR 3,000 monthly stipend plus occupational hazard insurance for a period of three to six months.

American and other foreign firms are able to participate in SAG-financed and/or -subsidized research-and-development (R&D) programs. Many of these programs are run though the King Abdulaziz City for Science and Technology (KACST), which funds many of the Kingdom’s R&D programs.

Foreign Trade Zones/Free Ports/Trade Facilitation

Saudi Arabia does not operate free trade zones or free ports. However, as part of its Vision 2030 program, the SAG has announced it will create special zones with special regulations to encourage investment and diversify government revenues. The SAG is considering the establishment of special regulatory zones in certain areas, including at NEOM and the King Abdullah Financial District in Riyadh. During the G20 Leaders Summit in November 2020, the SAG announced plans to launch special economic zones in 2022 that will be focused on greenfield investment in various sectors including pharmaceuticals, biotechnology, and digital industries. These zones will have a special legislative environment and include attractive incentives, according to the SAG.

Saudi Arabia has established a network of “economic cities” as part of the country’s efforts to reduce its dependence on oil. Overseen by MISA, these four economic cities aim to provide a variety of advantages to companies that choose to locate their operations within the city limits, including in matters of logistics and ease of doing business. The four economic cities are: King Abdullah Economic City near Jeddah, Prince AbdulAziz Bin Mousaed Economic City in north-central Saudi Arabia, Knowledge Economic City in Medina, and Jazan Economic City near the southwest border with Yemen. The cities are in various stages of development, and their future development potential is unclear, given competing Vision 2030 economic development projects.

The Saudi Industrial Property Authority (MODON in Arabic) oversees the development of 35 industrial cities, including some still under development, in addition to private industrial cities and complexes. MODON offers incentives for commercial investment in these cities, including competitive rents for industrial land, government-sponsored financing, export guarantees, and certain customs exemptions. (MODON’s website is https://www.modon.gov.sa/en/Pages/default.aspx .)

The Royal Commission for Jubail and Yanbu (RCJY) was formed in 1975 and established the industrial cities of Jubail, located in eastern Saudi Arabia on the Persian Gulf coast, and Yanbu, located in north western Saudi Arabia on the Red Sea coast. A significant portion of Saudi Arabia’s refining, petrochemical, and other heavy industries are located in the Jubail and Yanbu industrial cities. The RCJY’s mission is to plan, promote, develop, and manage petrochemicals and energy intensive industrial cities. In connection with this mission, RCJY promotes investment opportunities in the two cities and can offer a variety of incentives, including tax holidays, customs exemptions, low-cost loans, and favorable land and utility rates. More recently, the RCJY has assumed responsibility for managing the Ras Al Khair City for Mining Industries (2009) and the Jazan City for Primary and Downstream Industries (2015). (The RCJY’s website is https://www.rcjy.gov.sa).

Performance and Data Localization Requirements

The government does not impose systematic conditions on foreign investment. In line with its bid to diversify the economy and provide more private sector jobs for Saudi nationals, the SAG has embarked on a broad effort to source goods and services domestically and is seeking commitments from investors to do so. In 2017, the Council of Economic and Development Affairs (CEDA) established the Local Content and Private Sector Development Unit (NAMAA in Arabic) to promote local content and improve the balance of payments. NAMAA is responsible for monitoring and implementing regulations, suggesting new policies, and coordinating with the private sector on all local content matters. In December 2018, a royal decree was issued to establish the Local Content and Government Procurement Authority (LCGPA) to develop local content and to improve government procurement operation. The LCGPA is mandated to set local content requirements for individual contracts, track the amount of local content used by contractors, and obtain and audit commitments by contractors to use local content.

Government-controlled enterprises are also increasingly introducing local content requirements for foreign firms. Saudi Aramco’s “In-Kingdom Total Value Added” (IKTVA) program, for example, strongly encourages the purchase of goods and services from a local supplier base and aims to double Aramco’s percentage of locally-manufactured energy-related goods and services to 70 percent by 2021.

In the defense sector, Saudi Arabia’s military is in the process of reforming its procurement processes and policies to incorporate new ambitious goals of Saudi employment and localized production. The SAG has shifted over the last two years away from offsets in favor of “localization” of purchases of goods and services and “Saudization” of the labor force. Previously, the government required offsets in investments equivalent to up to 40 percent of a program’s value for defense contracts, depending on the value of the contract. The SAG is currently mandating increasingly strict localization requirements for government contracts in the defense sector.

In 2017 the General Authority for Military Industries (GAMI) was established by the Saudi Council of Ministers to develop Saudi Arabia’s national military manufacturing capabilities. GAMI’s mandate is to localize 50 percent of Saudi Arabia’s military spending over the next decade.

Another key player in the defense sector is Saudi Arabian Military Industries (SAMI) – a wholly-owned subsidiary of the PIF launched in 2017. SAMI aims to be among the top 25 military industries companies in the ‎world by 2030 and supports the Kingdom’s localization goals by forming joint ventures to locally manufacture defense articles.

The government encourages recruitment of Saudi employees through a series of incentives (see section 11 on “Labor Policies” for details of the “Saudization” program) and limits placed on the number of visas for foreign workers available to companies. The Saudi electronic visitor visa system defaults to five-year visas for all U.S. citizen applicants. “Business visas” are routinely issued to U.S. visitors who do not have an invitation letter from a Saudi company, but the visa applicant must provide evidence that he or she is engaged in legitimate commercial activity. “Commercial visas” are issued by invitation from Saudi companies to applicants who have a specific reason to visit a Saudi company.

The cost of a single-entry business visit visa is $533. In January 2018, the SAG implemented new fees for expatriate employers ranging between $80 and $107 per employee per month and increased levies on expatriates with dependents to a $54 monthly fee for each dependent (see section 11 on “Labor Policies”). In January 2019, fees on expatriate employees increased to between $133 to $160 per month, and levies on expatriate dependents increased to $80 per month. These fees increased again in 2020 to between $186 to $212, but no additional increases are announced beyond 2020.

Data Treatment

Due to the demands of the COVID-19 pandemic in 2020, Saudi Arabia substantially accelerated its Vision 2030 digital transformation reform to move its economy to an e-services platform. Also in 2020, infrastructure supporting the information and communications technology sector and 5G network expanded significantly. Concerns about cybersecurity and data treatment regulations increased in 2020, driven in part by the roll-out of healthcare and travel applications during the pandemic that collect and track individuals’ data.

In 2020, the National Data Governance Interim Regulations were issued to deal mainly with government-related data. However, part 5 of the National Data Regulations addresses personal data protection and applies to all entities in Saudi Arabia that process personal data in whole or in part, as well as entities outside the Kingdom that possess personal data related to individuals residing in Saudi Arabia. It remains unclear if the National Data Regulations are being enforced, as no sanctions for a potential breach are specified. Personal data is also protected under general provisions of Saudi law that impose strict obligations on businesses in relation to how, who, and when personal data can be collected, used, and stored.

Saudi Arabia’s Medical Practitioners’ Law of 2005 safeguards information obtained during medical practice, including personal data. It is unclear if personal data safeguards on government software applications rolled out during the COVID-19 pandemic provide the same level of personal data protection.

The Saudi E-Commerce Law of 2019, together with its 2020 implementing regulations, covers data protection of consumers’ personal information and applies to all e-commerce providers (domestic and international) that offer goods and services to customers based in Saudi Arabia. Its provisions regulate e-commerce business practices, requiring transparency and consumer protection, as well as protection of customers’ personal data, with the goal to enhance cybersecurity and trust in online transactions. Data retention is also restricted; service providers are not allowed to retain personal data any longer than required to complete business transactions for which data was collected. Also, sharing of data and customer information with third-party providers is prohibited without express permission. In March 2021, the General Authority of Zakat and Tax released guidelines for VAT registration for store owners engaged in e-commerce activities.

With increased emphasis on data-driven technologies, such as artificial intelligence (AI), machine learning, cloud computing, blockchain, automation and robotics, the internet of things (IoT), and smart mobility, among others, it is anticipated that further developments will occur in the data protection space in the near- to mid-term. Under its Vision 2030 National Transformation Program strategy, Saudi Arabia is relying on data-driven “leapfrog” technologies to drive its 21st century economy. In 2020, Saudi Arabia announced two lynchpin policies aimed at advancing data mining to meet its ambitious digital transformation goals: the National Digital Economy Policy, and the National Strategy for Data and Artificial Intelligence (NSDAI). Recognizing the need for new data protection and cybersecurity laws and regulations for its evolving digital economy, Saudi Arabia’s Ministry of Communications and Information Technologies (MCIT) has indicated it is willing to take a more pragmatic approach to its data localization regulations, such as the 2018 Essential Cybersecurity Controls – and would provide incentives for big tech joint ventures. Saudi Arabia aims to be the region’s high-technology hub.

Saudi Arabia’s Cloud Computing Regulatory Framework (CCRF), issued in 2018 and amended in 2019 by the Saudi Communication and Information Technology Commission (CITC), applies to any cloud service provided to cloud customers with a home or business address in Saudi Arabia. The Framework governs the rights and obligations of cloud service providers, customers, businesses, and government entities, and includes data protection principles. Unless expressly allowed by Saudi law, CCRF regulations do not allow cross-border data flows by cloud service providers or customers of sensitive business content, or of highly-sensitive and secret content belonging to government agencies and institutions.

Saudi Arabia’s IOT Regulatory Framework regulates the use of all IoT services and includes data security, privacy, and protection requirements. IoT providers and implementors must comply with existing and future published laws, regulations, and requirements concerning data management, which will likely continue to focus on cybersecurity and data security. The IoT Regulatory Framework specifies data security measures, such as limited retention and data localization for IoT services and networks, which are also regulated by the CITC.

Saudi Arabia’s Electronic Transactions Law imposes obligations on internet service providers (ISPs) to maintain confidentiality of business information and personal data in electronic transactions.

Saudi Arabia’s Anti-Cyber Crime Law seeks to protect the national economy by deterring cybercrimes such as destruction or alteration of data, illegal access to bank or credit information, interruption of computer and information network transmissions, and other disruptions to ICT infrastructure. The law also requires consent from individuals whose personal data or documents are to be disclosed.

In 2018, the Saudi National Cybersecurity Authority (NCA) developed, and continues to update, the country’s Essential Cyber Controls (ECC) regulation with input from multiple Saudi cybersecurity and ICT authorities. For the first time, large American cloud, ISP, and ICT industry representatives have also provided feedback on how to protect consumer data while still enabling innovation and growth of the digital economy and cross-border trade. The ECC sets the minimum cybersecurity requirements for national organizations that are within its scope of ECC implementation.

There are no requirements for foreign IT providers to turn over source code or provide access to encryption. Other than a requirement to retain records locally for ten years for tax purposes, there is no requirement regarding data storage or access to surveillance.

Real Property

The Saudi legal system protects and facilitates acquisition and disposition of all property, consistent with the Islamic practice of upholding private property rights. Non-Saudi corporate entities are allowed to purchase real estate in Saudi Arabia in accordance with the foreign-investment code. Other foreign-owned corporate and personal property is protected by law. Saudi Arabia has a system of recording security interests, and plans to modernize its land registry system. Saudi Arabia ranked 19th out of 190 countries for ease of registering property in the 2020 World Bank Doing Business Report.

In 2017, the Saudi Ministry of Municipal, Rural Affairs, and Housing implemented an annual vacant land tax of 2.5 percent of the assessed value on vacant lands in urban centers in an attempt to spur development. Additionally, in January 2018, in an effort to increase Saudis’ access to finance and stimulate the mortgage and housing markets, Saudi Arabia’s central bank lifted the maximum loan-to-value rate for mortgages for first-time homebuyers to 90 percent from 85 percent, and increased interest payment subsidies for first-time buyers. This further liberalized stringent down-payment requirements that prevailed up to 2016, when the central bank raised the maximum loan-to-value rate from 70 percent to 85 percent.

Intellectual Property Rights

Saudi Arabia has been on the U.S. Trade Representative’s (USTR) Special 301 Report “Priority Watch List” since 2019. In the U.S. Chamber International IP Index 2021 report, Saudi Arabia ranked 37th out of 53 countries surveyed.

In 2018, Saudi Arabia established the Saudi Authority for Intellectual Property (SAIP) to regulate, support, develop, sponsor, protect, enforce, and upgrade IP fields in accordance with the best international practices. In 2020, SAIP worked to consolidate IP protection competence, including creating a government-wide IPR respect program, establishing a specialized IP court, launching online and in-market enforcement programs, continuing market raids against counterfeit and pirated goods, and conducting significant pro-IPR awareness campaigns. SAIP has cooperated with USTR and the U.S. Patent and Trademark Office (USPTO), including the signing of a Cooperation Arrangement in October 2018 between SAIP and USPTO. Saudi Arabia Customs Authority has significantly enhanced its IP enforcement efforts and capacity, seized and destroyed 2 million counterfeit items across all ports during 2020 in coordination with SAIP, partnered closely with trademark and copyright owners, and systematically notified right holders of suspected shipments.

Since 2016, the Saudi Arabia Food and Drug Authority (SFDA), which the Minister of Health oversees, has granted marketing approval for pharmaceuticals to domestic companies relying on another company’s undisclosed test or other data for products despite the protection provided by Saudi regulations.

The United States government also continues to remain concerned about reportedly high levels of online piracy in Saudi Arabia, particularly through illicit streaming devices (ISDs), which right holders report are widely available and generally unregulated in Saudi Arabia. Industry reported in December 2020 that 32.6 percent of the 510,000 worldwide users of livehd7, a popular streaming website that violates IP laws, were from Saudi Arabia. However, in August 2019, beoutQ, a Saudi-based rampant satellite and online piracy service, ceased operations. In June 2020, the SAIP announced that it had disabled access to 231 websites that had been disseminating infringing content.

U.S. software firms report that the Saudi government continues to use unlicensed and “under-licensed” (in which an insufficient number of licenses is procured for the total number of users) software on government computer systems in violation of their copyrights. Other concerns include the lack of seizure and destruction of counterfeit goods in enforcement actions, and limits on the ability to enter facilities suspected of involvement in the sale or manufacture of counterfeit goods, including facilities located in residential areas.

In 2020, SAIP launched a copyright enforcement campaign in 2020 in Riyadh, Mecca, Jeddah, Dammam, and al-Ahsa. During the campaign, SAIP inspected 359 shops and seized 9,137 counterfeit and illicit items in marketplaces. In collaboration with the Ministry of Media, SAIP confiscated and destroyed over 3.5 million counterfeit and illicit items in 2020, including CDs, computers, and TV receivers.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Resources for Rights Holders

Embassy point of contact:

Darin Christensen
Economic Officer+966 11 488-3800 Ext. 4097
christensends2@state.gov

Regional IPR Attaché:

Pete C. Mehravari
U.S. Intellectual Property Attaché for Middle East and North Africa
Patent Attorney
U.S. Embassy Abu Dhabi | U.S. Department of Commerce
Office: +965 2259-1455 | Cell: +965 9758-9223 | WhatsApp: +1 404-429-9986
Peter.mehravari@trade.gov 

Capital Markets and Portfolio Investment

Saudi Arabia’s financial policies generally facilitate the free flow of private capital and currency can be transferred in and out of the Kingdom without restriction. Saudi Arabia maintains an effective regulatory system governing portfolio investment in the Kingdom. The Capital Markets Law, passed in 2003, allows for brokerages, asset managers, and other nonbank financial intermediaries to operate in the Kingdom. The law created a market regulator, the Capital Market Authority (CMA), established in 2004, and opened the Saudi stock exchange (Tadawul) to public investment.

Since 2015, the CMA has progressively relaxed the rules applicable to qualified foreign investors, easing barriers to entry and expanding the foreign investor base. The CMA adopted regulations in 2017 permitting corporate debt securities to be listed and traded on the exchange; in March 2018, the CMA authorized government debt instruments to be listed and traded on the Tadawul. The Tadawul was incorporated into the FTSE Russell Emerging Markets Index in March 2019, resulting in a foreign capital injection of $6.8 billion. Separately, the $11 billion infusion into the Tadawul from integration into the MSCI Emerging Markets Index took place in May 2019. The Tadawul was also added to the S&P Dow Jones Emerging Market Index.

Money and Banking System

The banking system in the Kingdom is generally well-capitalized and healthy. The public has easy access to deposit-taking institutions. The legal, regulatory, and accounting systems used in the banking sector are generally transparent and consistent with international norms. In November 2020, the SAG approved the Saudi Central Bank Law, which changed the name of the Saudi Arabian Monetary Authority (SAMA) to the Saudi Central Bank. Under the new law, the Saudi Central Bank is responsible for maintaining monetary stability, promoting the stability of and enhancing confidence in the financial sector, and supporting economic growth. The Saudi Central Bank will continue to use the acronym “SAMA” due to its widespread use.

SAMA generally gets high marks for its prudential oversight of commercial banks in Saudi Arabia. SAMA is a member and shareholder of the Bank for International Settlements in Basel, Switzerland.

In 2017, SAMA enhanced and updated its previous Circular on Guidelines for the Prevention of Money Laundering and Terrorist Financing. The enhanced guidelines have increased alignment with the Financial Action Task Force (FATF) 40 Recommendations, the nine Special Recommendations on Terrorist Financing, and relevant UN Security Council Resolutions. Saudi Arabia is a member of the Middle East and North Africa Financial Action Task Force (MENA-FATF). In 2019, Saudi Arabia became the first Arab country to be granted full membership of the FATF, following the organization’s recognition of the Kingdom’s efforts in combating money laundering, financing of terrorism, and proliferation of arms. Saudi Arabia had been an observer member since 2015.

The SAG has authorized increased foreign participation in its banking sector over the last several years. SAMA has granted licenses to a number of new foreign banks to operate in the Kingdom, including Deutsche Bank, J.P. Morgan Chase N.A., and Industrial and Commercial Bank of China (ICBC). A number of additional, CMA-licensed foreign banks participate in the Saudi market as investors or wealth management advisors. Citigroup, for example, returned to the Saudi market in early 2018 under a CMA license.

Credit is normally widely available to both Saudi and foreign entities from commercial banks and is allocated on market terms. The Saudi banking sector has one of the world’s lowest non-performing loan (NPL) ratios, roughly 2.0 percent in 2020. In addition, credit is available from several government institutions, such as the SIDF, which allocate credit based on government-set criteria rather than market conditions. Companies must have a legal presence in Saudi Arabia to qualify for credit. The private sector has access to term loans, and there have been a number of corporate issuances of sharia-compliant bonds, known as sukuk.

The New Government Tenders and Procurement Law (GTPL) was approved in 2019. The New GTPL applies to procurement by government entities and works and procurements executed outside of Saudi Arabia. The Ministry of Finance has a pivotal role under the new GTPL by setting policies and issuing directives, collating and distributing information, maintaining a list of boycotts, and approving tender and prequalification forms, contract forms, performance evaluation forms, and other documents. In 2018, the Ministry of Finance launched the Electronic Government Procurement System (Etimad Portal) to consolidate and facilitate the process of bidding and government procurement for all government sectors, enhancing transparency amongst sectors of government and among competing entities.

In 2021, SAMA introduced the new Instant Payment System (Sarie) to facilitate instant, 24/7 money transfers across local banks.

Foreign Exchange and Remittances

Foreign Exchange

There is no limitation in Saudi Arabia on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs, other than certain withholding taxes (withholding taxes range from five percent for technical services and dividend distributions to 15 percent for transfers to related parties, and 20 percent or more for management fees). Bulk cash shipments greater than $10,000 must be declared at entry or exit points. Since 1986, when the last currency devaluation occurred, the official exchange rate has been fixed by SAMA at 3.75 Saudi riyals per U.S. dollar. Transactions typically take place using rates very close to the official rate.

Remittance Policies

Saudi Arabia is one of the largest remitting countries in the world, with roughly 75 percent of the Saudi labor force comprised of foreign workers. Remittances totaled approximately $39.9 billion in 2020. There are currently no restrictions on converting and transferring funds associated with an investment (including remittances of investment capital, dividends, earnings, loan repayments, principal on debt, lease payments, and/or management fees) into a freely usable currency at a legal market-clearing rate. There are no waiting periods in effect for remitting investment returns through normal legal channels.

The Ministry of Human Resources and Social Development is progressively implementing a “Wage Protection System” designed to verify that expatriate workers, the predominant source of remittances, are being properly paid according to their contracts. Under this system, employers are required to transfer salary payments from a local Saudi bank account to an employee’s local bank account, from which expatriates can freely remit their earnings to their home countries.

Sovereign Wealth Funds

The Public Investment Fund (PIF, www.pif.gov.sa ) is the Kingdom’s officially designated sovereign wealth fund. While PIF lacks many of the attributes of a traditional sovereign wealth fund, it has evolved into the SAG’s primary investment vehicle.

Established in 1971 to channel oil wealth into economic development, the PIF has historically been a holding company for government shares in partially privatized state-owned enterprises (SOEs), including SABIC, the National Commercial Bank, Saudi Telecom Company, Saudi Electricity Company, and others. Crown Prince Mohammed bin Salman is the chairman of the PIF and announced his intention in April 2016 to build the PIF into a $2 trillion global investment fund, relying in part on proceeds from the initial public offering of up to five percent of Saudi Aramco shares.

Since that announcement, the PIF has made a number of high-profile international investments, including a $3.5 billion investment in Uber, a commitment to invest $45 billion into Japanese SoftBank’s VisionFund, a commitment to invest $20 billion into U.S. Blackstone’s Infrastructure Fund, a $1 billion investment in U.S. electric car company Lucid Motors, and a partnership with cinema company AMC to operate movie theaters in the Kingdom. Under the Vision 2030 reform program, the PIF is financing a number of strategic domestic development projects, including: “NEOM,” a planned $500 billion project to build an “independent economic zone” in northwest Saudi Arabia; “The Line,” a $100-$200 billion project to build an environmentally friendly, carless, zero-carbon city at NEOM; “Qiddiya,” a new, large-scale entertainment, sports, and cultural complex near Riyadh; “the Red Sea Project”, a massive tourism development on the western Saudi coast; and “Amaala,” a wellness, healthy living, and meditation resort also located on the Red Sea.

At the end of 2020, the PIF reported its investment portfolio was valued at nearly $400 billion, mainly in shares of state-controlled domestic companies. In an effort to rebalance its investment portfolio, the PIF has divided its assets into six investment pools comprising local and global investments in various sectors and asset classes: Saudi holdings; Saudi sector development; Saudi real estate and infrastructure development; Saudi giga-projects; international strategic investments; and an international diversified pool of investments.

In 2021, Crown Prince Mohammed bin Salman launched a new five-year strategy for the PIF. The 2021-2025 strategy will focus on launching new sectors, empowering the private sector, developing the PIF’s portfolio, achieving effective long-term investments, supporting the localization of sectors, and building strategic economic partnerships. Under the new strategy, by 2025, the PIF will invest $267 billion into the local economy, contribute $320 billion to non-oil GDP, and create 1.8 million jobs. The Crown Prince also stated that the SAG would increase the size of the PIF more than five-fold to $2 trillion by 2030. The SAG declared it is investing nearly $220 billion through PIF, the National Development Fund, and the Royal Commission for Riyadh to transform Riyadh into a global city with 15 to 20 million inhabitants by 2030 (from its current population of about 7.5 million), and expects to attract a similar amount of investment from the private sector. The PIF also plans to establish a new major airline that will complement the state-owned Saudia (formerly Saudi Arabian Airlines) and compete with other major aviation companies in the region.

The Ministry of Finance announced in 2020 that $40 billion was being transferred from the Kingdom’s foreign reserves, held by the central bank SAMA, to the PIF to fund investments. In addition to previous investments in Uber, Magic Leap, Lucid Motors, Facebook, Starbucks, Disney, Boeing, Citigroup, LiveNation, Marriott, several European energy firms, and Carnival Cruise Lines, the PIF made a number of new investments in the latter half of 2020 including equity investments in CloudKitchens, Activision Blizzard, Electronic Arts, and Take-Two Interactive Software.

In practice, SAMA’s foreign reserve holdings also operate as a quasi-sovereign wealth fund, accounting for the majority of the SAG’s foreign assets. SAMA invests the Kingdom’s surplus oil revenues primarily in low-risk liquid assets, such as sovereign debt instruments and fixed-income securities. SAMA’s foreign reserves fell from $502 billion in January 2020 to $450 billion in January 2021. SAMA’s foreign reserve holdings peaked at $746 billion in mid-2014.

Though not a formal member, Saudi Arabia serves as a permanent observer to the International Working Group on Sovereign Wealth Funds.

SOEs play a leading role in the Saudi economy, particularly in water, power, oil, natural gas, petrochemicals, and transportation. Saudi Aramco, the world’s largest exporter of crude oil and a large-scale oil refiner and producer of natural gas, is 98.5 percent SAG-owned, and its revenues typically contribute the majority of the SAG’s budget. Four of the eleven representatives on Aramco’s board of directors are from the SAG, including the chairman, who serves concurrently as the Managing Director of the PIF. In December 2019, the Kingdom fulfilled its long-standing promise to publicly list shares of its crown jewel – Saudi Aramco, the most profitable company in the world. The initial public offering (IPO) of 1.5 percent of Aramco’s shares on the Saudi Tadawul stock market on December 11, 2019 was a cornerstone of Crown Prince Mohammed bin Salman’s Vision 2030 program. The largest-ever IPO valued Aramco at $1.7 trillion, the highest market capitalization of any company at the time, and generated $25.6 billion in proceeds, exceeding the $25 billion Alibaba raised in 2014 in the largest previous IPO in history.

During the annual Future Investment Initiative conference held in January 2021, the Crown Prince announced that Saudi Aramco would launch a second offering of shares as a continuation of the historical initial public offering of 2019, but did not provide additional details. Proceeds from a second floatation will be transferred to the PIF and will be reinvested domestically and internationally.

In March 2019, Saudi Aramco signed a share purchase agreement to acquire 70 percent of SABIC, Saudi Arabia’s leading petrochemical company and the fourth largest in the world, from the PIF in a transaction worth $69.1 billion. Five of the nine representatives on SABIC’s board of directors are from the SAG, including the chairman and vice chairman. The SAG is similarly well-represented in the leadership of other SOEs. The SAG either wholly owns or holds controlling shares in many other major Saudi companies, such as the Saudi Electricity Company, Saudi Arabian Airlines (Saudia), the Saline Water Conversion Company, Saudi Arabian Mining Company (Ma’aden ), the National Commercial Bank, and other leading financial institutions.

Privatization Program

Saudi Arabia has undertaken a limited privatization process for state-owned companies and assets dating back to 2002. The process, which is open to domestic and foreign investors, has resulted in partial privatizations of state-owned enterprises in the banking, mining, telecommunications, petrochemicals, water desalination, insurance, and other sectors.

As part of Vision 2030 reforms, the SAG has announced its intention to privatize additional sectors of the economy. Privatization is a key element underpinning the Vision 2030 goal of increasing the private sector’s contribution to GDP from 40 percent to 65 percent by 2030. In April 2018, the SAG launched a Vision 2030 Privatization Program that aims to: strengthen the role of the private sector by unlocking state-owned assets for investment, attract foreign direct investment, create jobs, reduce government overhead, improve the quality of public services, and strengthen the balance of payments. (The full Privatization Program report is available online at http://vision2030.gov.sa/en/ncp .)

The program report references a range of approaches to privatization, including full and partial asset sales, initial public offerings, management buy-outs, public-private partnerships (build-operate-transfer models), concessions, and outsourcing. While the privatization report outlines the general guidelines for the program and indicated 16 targeted sectors, it does not include an exhaustive list of assets to be privatized. The report does, however, reference education, healthcare, transportation, renewable energy, power generation, waste management, sports clubs, grain silos, and water desalination facilities as prime areas for privatization or public-private partnerships

In 2017, Saudi Arabia established the National Center for Privatization and Public Private Partnerships, which will oversee and manage the Privatization Program. (The Center’s website is http://www.ncp.gov.sa/en/pages/home.aspx .) The NCCP’s mandate is to introduce privatization through the development of programs, regulations, and mechanisms for facilitating private sector participation in entities now controlled by the government.

In March 2021, Saudi Arabia approved the Private Sector Participation (PSP) Law. The PSP law aims to increase private sector participation in infrastructure projects and in providing public services by supporting Public-Private-Partnerships (PPP) and privatization of public sector assets.

There is a growing awareness of corporate social responsibility (CSR) in Saudi Arabia. The King Khalid Foundation issues annual “responsible competitiveness” awards to companies doing business in Saudi Arabia for outstanding CSR activities. In March 2021, the SAG approved the formation of a committee on corporate social responsibility in the Ministry of Human Resources and Social Development.

Additional Resources

Department of State

Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);

Trafficking in Persons Report (https://www.state.gov/trafficking-in-persons-reporabilab/resources/reports/child-labor/findings );

List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);

Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;

Comply Chain (https://www.dol.gov/ilab/complychain/).

Foreign firms have identified corruption as a barrier to investment in Saudi Arabia. Saudi Arabia has a relatively comprehensive legal framework that addresses corruption, but many firms perceive enforcement as selective. The Combating Bribery Law and the Civil Service Law, the two primary Saudi laws that address corruption, provide for criminal penalties in cases of official corruption. Government employees who are found guilty of accepting bribes face 10 years in prison or fines up to one million riyals ($267,000). Ministers and other senior government officials appointed by royal decree are forbidden from engaging in business activities with their ministry or organization. Saudi corruption laws cover most methods of bribery and abuse of authority for personal interest, but not bribery between private parties. Only senior Oversight and Anti-Corruption Commission (“Nazaha”) officials are subject to financial disclosure laws. The government is considering disclosure regulations for other officials, but has yet to finalize them. Some officials have engaged in corrupt practices with impunity, and perceptions of corruption persist in some sectors, but combatting corruption remains a priority.

Nazaha, originally established in 2011, is responsible for promoting transparency and combating all forms of financial and administrative corruption In December 2019, King Salman issued royal decrees consolidating the Control and Investigation Board and the Mabahith’s Administrative Investigations Directorate under the National Anti-Corruption Commission, and renamed the new entity as the Oversight and Anti-Corruption Commission (“Nazaha”). The decrees consolidated investigations and prosecutions under the new Nazaha and mandated that the Public Prosecutor’s Office transfer any ongoing corruption investigations to the newly consolidated commission. Nazaha reports directly to King Salman and has the power to dismiss a government employee even if not found guilty by the specialized anti-corruption court.

Since its reorganization, Nazaha has not shied away from prosecuting influential players whose indiscretions may previously have been ignored. Throughout 2020, Nazaha published monthly press releases detailing its arrests and investigations, often including high-ranking officials, such as generals and judges, from every ministry in the SAG. The releases are available on the Nazaha website ( http://www.nazaha.gov.sa/en/Pages/Default.aspx ).

SAMA, the central bank, oversees a strict regime to combat money laundering. Saudi Arabia’s Anti-Money Laundering Law provides for sentences up to 10 years in prison and fines up to $1.3 million. The Basic Law of Governance contains provisions on proper management of state assets and authorizes audits and investigation of administrative and financial malfeasance.

The Government Tenders and Procurement Law regulates public procurements, which are often a source of corruption. The law provides for public announcement of tenders and guidelines for the award of public contracts. Saudi Arabia is an observer of the WTO Agreement on Government Procurement (GPA)

Saudi Arabia ratified the UN Convention against Corruption in April 2013 and signed the G20 Anti-Corruption Action Plan in November 2010. Saudi Arabia was admitted to the OECD Working Group on Bribery in February 2021.

Globally, Saudi Arabia ranks 52 out of 180 countries in Transparency International’s Corruption Perceptions Index 2020.

Resources to Report Corruption

The National Anti-Corruption Commission’s address is:

National Anti-Corruption Commission
P.O. Box (Wasl) 7667, AlOlaya – Ghadir District
Riyadh 2525-13311
The Kingdom of Saudi Arabia
Fax: 0112645555
E-mail: info@nazaha.gov.sa 

Nazaha accepts complaints about corruption through its website www.nazaha.gov.sa  or mobile application.

Saudi Arabia is a monarchy ruled by King Salman bin Abdulaziz Al Saud. The King’s son, Crown Prince Mohammed bin Salman, has assumed a central role in government decision-making. The Department of State regularly reviews and updates a travel advisory to apprise U.S. citizens of the security situation in Saudi Arabia and frequently reminds U.S. citizens of recommended security precautions. In addition to a Global Travel Advisory due to COVID-19, the Department of State has a current travel advisory for Saudi Arabia that was updated in August 2020. The Travel Advisory urges U.S. citizens to exercise increased caution when traveling to Saudi Arabia due to terrorism and the threat of missile and drone attacks on civilian targets and to not travel within 50 miles of the Saudi Arabia-Yemen border.

Please visit www.travel.state.gov  for further information, including the latest Travel Advisory.

Due to risks to civil aviation operating within the Persian Gulf and the Gulf of Oman region, including Saudi Arabia, the Federal Aviation Administration (FAA) has issued an advisory Notice to Airmen (NOTAM).

The Ministry of Human Resources and Social Development (MHRSD) sets labor policy and, along with the Ministry of Interior, regulates recruitment and employment of expatriate labor, which makes up a majority of the private-sector workforce. About 76 percent of total jobs in the country are held by expatriates, who represent roughly 38 percent of the total population of approximately 34.2 million. The largest groups of foreign workers come from India, Pakistan, Bangladesh, Egypt, the Philippines, and Yemen. Saudis occupy about 93 percent of government jobs, but only about 24 percent of the total jobs in the Kingdom. Roughly 46 percent of employed Saudi nationals work in the public sector.

Saudi Arabia’s General Authority for Statistics estimates unemployment at 7.4 percent for the total population and 12.6 percent for Saudi nationals (Q4 2020 figures), but these figures mask a high youth unemployment rate, a Saudi female unemployment rate of 24.4 percent, and low Saudi labor participation rates (51.2 percent overall; 33.2 percent for women). With approximately 60 percent of the Saudi population under the age of 35, job creation for new Saudi labor market entrants will prove a serious challenge for years.

The SAG encourages Saudi employment through “Saudization” policies that place quotas on employment of Saudi nationals in certain sectors, coupled with limits placed on the number of visas for foreign workers available to companies. In 2011, the Ministry of Labor and Social Development (the forerunner of MHRSD) laid out a sophisticated plan known as Nitaqat, under which companies are divided into categories, each with a different set of quotas for Saudi employment based on company size.

The SAG has taken additional measures to strengthen the Nitaqat program and expand the scope of Saudization to require the hiring of Saudi nationals. The MHRSD has mandated that certain job categories in specific economic sectors only employ Saudi nationals, beginning with mobile phone stores in 2016. The ministry has likewise mandated that only Saudi women can occupy retail jobs in certain businesses that cater to female customers, such as lingerie and cosmetics shops. In 2017, Saudi Arabia began to phase in rules forbidding employment of foreigners in retail sales positions in 12 sectors, including: watches, eyewear, medical equipment and devices, electrical and electronic appliances, auto parts, building materials, carpets, cars and motorcycles, home and office furniture, children’s clothing and men’s accessories, home kitchenware, and confectioneries. Many elements of Saudization and Nitaqat have garnered criticism from the private sector, but the SAG claims these policies have substantially increased the percentage of Saudi nationals working in the private sector over the last several years and has indicated that there is flexibility in implementation for special cases.

In 2017, the SAG launched the latest phase of an ongoing campaign to deport illegal and improperly documented workers. The combination of Saudization and Nitaqat policies, new expatriate fees, increased visa and entry/exit permit fees, the increased VAT, and the COVID-19 pandemic has prompted approximately 2.2 million expatriates to depart the Kingdom over the past few years. These measures have also significantly increased labor costs for employers, both Saudi and foreign alike.

Saudi Arabia’s labor laws forbid union activity, strikes, and collective bargaining. However, the government allows companies that employ more than 100 Saudis to form “labor committees” to discuss work conditions and grievances with management. In 2015, the SAG published 38 amendments to the existing labor law with the aim of expanding Saudi employees’ rights and benefits. In March 2021, MHRSD implemented its Labor Reform Initiative (LRI) which allows foreign workers greater job mobility and freedom to exit Saudi Arabia without the need for the employer’s prior permission. Domestic workers are not covered under the provisions of either the 2015 regulations or the LRI; separate regulations covering domestic workers were issued in 2013, stipulating employers provide at least nine hours of rest per day, one day off a week, and one month of paid vacation every two years.

Saudi Arabia has taken significant steps to address labor abuses, but weak enforcement continues to result in credible reports of employer violations of foreign employee labor rights. In some instances, foreign workers and particularly domestic staff encounter employer practices (including passport withholding and non-payment of wages) that constitute trafficking in persons. The Department’s annual Trafficking in Persons Report details concerns about labor law enforcement within Saudi Arabia’s sponsorship system is available at: https://www.state.gov/j/tip/rls/tiprpt/.

Overtime is normally compensated at time-and-a-half rates. The minimum age for employment is 14. The SAG does not adhere to the International Labor Organization’s convention protecting workers’ rights. Non-Saudis have the right to appeal to specialized committees in the MHRSD regarding wage non-payment and other issues. Penalties issued by the ministry include banning infringing employers from recruiting foreign and/or domestic workers for a minimum of five years.

* Source for Host Country Data: Saudi General Authority for Statistics   

Table 3: Sources and Destination of FDI

According to the 2020 UNCTAD World Investment Report, Saudi Arabia’s total FDI inward stock was $236.2 billion and total FDI outward stock was $123.1 billion (in both cases, as of 2019).

Detailed data for inward direct investment (below) is as of 2010, which is the latest available breakdown of inward FDI by country.

*Source: IMF Coordinated Direct Investment Survey (2010 – latest available complete data)

Source: IMF’s Coordinated Portfolio Investment Survey (CPIS); data as of June 2020.

Economic Section and Foreign Commercial Service Offices
Embassy of the United States of America
P.O. Box 94309
Riyadh 11693, Saudi Arabia
Phone: +966 11 488-3800