São Tomé and Príncipe (STP) is a stable, multi-party democracy. It is a developing country with a Gross Domestic Product (GDP) of roughly USD $427.4 million and a population of 215,048 (World Bank, 2019 estimate). Due to STP’s very limited revenue sources, foreign donors finance roughly 90 percent or more of its public investment budget. For the 2021 budget, these donors were China, Japan, Portugal, the World Bank, European Union, the UN Food and Agriculture Organization (FAO), the African Development Bank, and the Arab Bank for Economic Development (BADEA.)
STP has taken positive steps over the last decade to improve its investment climate and to make the country a more attractive destination for foreign direct investment (FDI), including by working to combat corruption and create an open and transparent business environment. In 2021, VISA cards were introduced in the country. To improve the appeal of tourism during the pandemic, the Tourism Directorate launched its “Seal of Clean” Program in 2021. The Value Added Tax (VAT) Law (13/2019) enacted in 2019 to facilitate tax collection and enforcement of the tax code is scheduled for adoption. A modern Labor Code (6/2019) came into force in 2019 to make it easier for investors to understand and abide by the labor standards. In June 2019, STP also became the 25th African country to ratify the African Continental Free Trade Agreement (AfCFTA). In 2018, it passed its Public-Private Partnership (PPP) Law, Notary Code, and Commercial Register Code. The Regulation of Investment Code was adopted in 2017 and the Investment Code and Code of Fiscal Benefits and Incentives were previously adopted in 2016. The 2013 anti-money laundering and counter-terrorist financing law brought STP into compliance with international standards. A Millennium Challenge Corporation Country Threshold Program, completed in 2011, modernized STP’s customs administration, reformed its tax policies, and made it less burdensome to start a new business. Together, these efforts helped to develop a modern and transparent legal framework for foreign investment. Due to its reliance on outside investment, STP remains committed to improving its investment climate.
The government continues to work with the business community to develop the country economically and to improve basic social services for the country’s young and growing population. In 2018, it approved a four-year program to promote “robust economic growth” focused on the provision of services, including tourism, the financial sector, technology, logistics, and health services associated with the digital economy. Special attention is also being given to traditional sectors, mainly agriculture, livestock, and marine resources. STP’s extensive maritime domain (160,000 km2) may hold opportunities for hydrocarbon production as technology improves. In cooperation with China, STP is seeking to modernize its port infrastructure and capitalize on its fishing potential. In 2020, China also announced funding for airport rehabilitation and upgrades. STP is using Word Bank funding to rehabilitate the road linking the capital to the north of the island. However, foreign investors continue to face challenges identifying viable investment opportunities due to STP’s small and fragile domestic market, inadequate infrastructure, slow moving justice system, high cost of credit, and limited access and expensive electricity.
Prime Minister Jorge Bom Jesus is focused on fighting corruption, improving the business environment, attracting Foreign Direct Investment (FDI), and promoting economic growth. In his inaugural address in 2021, President Carlos Vila Nova expressed support for protecting the environment and investments. The President also welcomed U.S. cooperation.
1. Openness To, and Restrictions Upon, Foreign Investment
According to Article 4 of the Investment Code, both domestic and foreign investors are free to establish and own business enterprises, as well as engage in all forms of business activity in STP, except in the sectors defined by law as reserved for the state, specifically military and paramilitary activities and Central Bank operations. STP is gradually moving towards open competition in all sectors of the economy, and competitive equality is the official standard applied to private enterprises in competition with public enterprises regarding access to markets, credit, and other business activities. The government has eliminated former public monopolies in farming, banking, insurance, airline services, telecommunications, and trade (export and import).
São Tomé and Príncipe is taking steps toward sustainable economic growth. Its economic prospects depend on the government’s ability to reinforce the capacity of its small and medium-sized enterprises (SMEs) and attract sustainable foreign direct investment. Therefore, the government is eager to improve the country’s investment climate to make it a more attractive destination for foreign investors. Under Article 14 of the Investment Code, the State guarantees equal and non-discriminatory treatment to both foreign and domestic investors operating in the country. The Trade and Investment Promotion Agency (APCI, www.apcistp.com ), housed in the Ministry of Planning, Finance, and Blue Economy, promotes and facilitates investment through “single-window” service and multi-sectoral coordination. However, the agency is still struggling to fully comply with its mandate due to a lack of capacity.
There are no limits on foreign ownership or control except for activities customarily reserved for the state. The form of public participation, namely the percentage of government ownership in joint ventures, varies according to the agreement. Based on Article 8 of the Regulation of the Investment Code, all inbound investment proposals must be screened and approved by the applicable ministry for the economic sector in coordination with APCI. According to Article 14, an investment proposal can be rejected if it threatens national security, public health, or ecological equilibrium, and if the proposal has a negative effect or insufficient contribution to country’s economy. However, these mechanisms do not go beyond the law’s mandate and are not considered barriers to investment.
STP is not a member of the Organization for Economic Cooperation and Development (OECD), nor has the government participated in in any investment policy reviews provided through the body. Neither the World Trade Organization (WTO) nor United National Conference on Trade and Development (UNCTAD) has conducted a review, either. STP currently has observer status in the World Trade Organization, and it is a member of UNCTAD.
STP has taken steps to facilitate investment and improve the business environment in recent years. The Millennium Challenge Corporation (MCC) worked with STP from 2007 to 2011 on a Threshold Country Program to improve investment opportunities, including by creating a “one-stop shop” to help encourage new investments by making it easier and cheaper to import and export goods, reducing the time required to start a new business, and improving STP’s tax and customs clearance administration. Currently a business can be registered within one to five days. In 2013, with the support of the International Trade Center, the Trade and Investment Promotion Agency (APCI) was created. APCI’s business facilitation services, including a “one-stop shop” for business registration, offer equal treatment for women and underrepresented minorities in the economy; however, there is no special assistance provided to these groups. A Single Window website (http://gue-stp.net/spip.php?article24; in Portuguese only) provides information and the application form needed to create and register companies in STP.
While STP’s government does not actively promote outward investment, it does not restrict domestic investors from investing abroad. STP also has signed Investment Protection Agreements with several countries.
3. Legal Regime
The laws and regulations that affect direct investment, including environmental, health, and safety rules and regulations, apply equally to foreign and domestic firms. Before approval, investment proposals are evaluated for their environmental and social impacts. STP tax laws reward citizens who return to STP to invest, while also containing provisions for attracting foreigners to invest in STP. The STP legal code is based on Portuguese law, and laws and regulations are applied at the national level. Rule-making and regulatory authority exist at the national level and regulations are developed at the ministerial level, approved by the National Assembly, and promulgated by the President. The ministry concerned is responsible for any regulatory enforcement mechanisms. Rarely, drafted bills or regulations are made available for public comment. Copies of most regulations can be purchased online at https://www.legis-palop.org/ or directly at the Ministry of Justice, Public Administration, and Human Rights in the format of the Official Gazette. The public finances and debt obligations are relatively transparent and are periodically available on the finance ministry website: https://financas.gov.st/
STP is a member of the Economic Community of Central African States (ECCAS), whose fundamental goals are to promote exchange and collaboration among the member countries and provide an institutional and legal framework to their cooperative efforts. ECCAS is the largest economic community in Central Africa, including Central African Economic and Monetary Community (CEMAC) member states (Gabon, Cameroon, the Central African Republic, Chad, Republic of Congo, and Equatorial Guinea), as well as Burundi, the Democratic Republic of Congo, Angola, Rwanda, and STP. The archipelago is a member of the Community of Portuguese Language Countries (CPLP) and its economic confederation (CE). STP is not a member of the WTO, but it does have observer status. STP is among the 44 African Nations to have signed the agreement on African Continental Free Trade Area (AfCFTA) in March 2018 in Kigali, Rwanda, and became the 25th African country to ratify the AfCFTA in June 2019.
Disputes are generally solved through dialogue or negotiations between parties without litigation. However, there was a dispute in May 2018 between a local businessman and an Angolan investor that led to the unconstitutional dismissal of Supreme Court Judges by the parliament. Relatedly, there have been a few instances of disagreements involving foreign investors reaching international courts. The country has a written commercial law but does not have specialized courts.
Overall, the legal system is perceived as acting independently. The judicial process is fair but is subject to manipulation on occasion. All regulations or enforcement actions are appealable to the Supreme Court.
The VAT Law was approved in 2019, but it has yet to be legally implemented. A modern Labor Code (6/2019) enacted in April 2019, is designed to make labor standards easier for investors to understand and implement. In June 2019, STP ratified the African Continental Free Trade Area agreement (AfCFTA). The Public Private Partnership (PPP) Law, the new Notary Code, and the Commercial Register Code all entered into force in 2018; the Regulation of Investment Code was adopted in 2017; and the Investment Code and Code of Fiscal Benefits and Incentives were adopted in 2016. The Trade and Investment Promotion Agency (APCI) is a one-stop shop for all investment information.
Due to the establishment of APCI, the cost and waiting period to start a new business have been substantially reduced. A new business can obtain expedited registration within 24 hours for approximately STN10,190 ($456) and between three to five days for approximately STN 5,190 ($232). Despite this improvement, STP was downgraded to 150 out of 190 countries in terms of starting a new business according to the 2020 World Bank Ease of Doing Business Report. In comparison, the country ranked 35 out of 190 economies in the 2017 survey.
Although no online business registration process exists, companies can easily register their businesses at the counter. The following is a general description of how a foreign company can establish a local office:
Provide full company documentation, translated into Portuguese.
Check the uniqueness of the proposed company name and reserve a name.
Notarize the company statutes with the registration office at the Ministry of Justice.
File a company declaration with the Tax Administration Office at the Ministry of Finance, Commerce, and Blue Economy.
Register with the Social Security Office at the Ministry of Labor and Social Affairs.
Publish the incorporation notice in the official government gazette (Diário da República).
Publish the incorporation notice in a national newspaper.
Register the company with the Commercial Registry Office at the Ministry of Finance, Commerce, and Blue Economy.
Apply for a commercial operations permit (also known as an “alvara”).
Apply for a taxpayer identification number with the Office of Tax Administration at the Ministry of Finance, Commerce, and Blue Economy.
Register employees with the Social Security Office.
Other required documents include: 1) copies of the by-laws of the parent company and of the minutes of the meeting of the board of directors in which the opening of the STP branch is approved; 2) a certificate of appointment of the general manager for the STP office; 3) a copy of any agreement signed with a São Toméan company or with the STP government; 4) two copies of permits from the Court authorization to operate; and 5) two photographs and a copy of the passport of the General Manager.
Beyond the APCI’s “one-stop shop,”, there are no agencies or brokers that provide services to further simplify the procedures for establishing an office in STP. Some companies consult with a legal office for assistance.
DRCAE (Directorate of Regulation and Control of Economic Activities) has the mandate to inspect all economic activities and impose penalties, but it lacks the resources necessary to fully perform its duties. DRCAE is housed under the Secretary of State for Commerce and Industry.
AGER (General Regulatory Authority of the Democratic Republic of São Tomé and Príncipe) was created to promote competition and prevent operator abuses in the water, electricity, and telecommunications sectors, as well as in the postal service. The AGER was established in 2005 and is housed under the Ministry of Public Works, Infrastructures, Natural Resources, and Environment.
The STP Constitution and the Expropriation Code allows only the central government to expropriate private property. The law permits expropriation of private property only if it is deemed to be in the national public interest and only with adequate compensation. There is no evidence to suggest that the government would undertake expropriation in a discriminatory manner or in violation of established principles of international law and standards.
Aside from a massive land expropriation from colonial farmers in 1976 – later recognized by the government as detrimental to STP’s economy – there have not been any documented cases of expropriation of foreign-owned properties. The government has reportedly considered expropriating land to expand the runway at the international airport, but thus far has reportedly been reluctant to do so out of concern that any expropriation will deter new investment.
STP has a bankruptcy law, but it is not well developed. In the World Bank’s 2020 Doing Business Report, STP ranked 168 out of 190 economies on the ease of resolving insolvency, the same rank it has in 2019. In January 2022, the STP-based commercial bank Energy Bank, founded in 2011 by a Nigeria investor, declared bankruptcy. This led to the Central Bank cancelling all of the bank’s financial operations in STP.
4. Industrial Policies
According to 2016 Investment Code, all investments, including those for clean energy, above 50,000 Euros are eligible for guarantees and benefits, including fiscal incentives stated in the Fiscal Benefits and Incentives Code of November 2016. These incentives include deductions on corporation taxes, stamp taxes, taxes on baking operations, and withholding taxes. Other incentives include reductions or exemptions of import and re-export tariffs. The government also provides incentives for human resources training, as well other exceptional and complementary benefits and incentives. Based on Article 31 of the Fiscal Benefits and Incentives Code, the incentives are granted through the Private Investment Registration Certificate (CRIP) issued by the APCI following the approval of the investment project. The conditions for access to these incentives apply equally to both men and women. However, contrary to the 2008 Investment Code, the 2016 Code does not provide access to state-owned land and facilities as incentive to investments. No significant measure was adopted in the last year to incentive investments.
STP currently has no free trade zones or free ports but in October 2020, the government formalized a free trade zone project to be developed in Malanza, Caué district, south of São Tomé. Article 33 of the Fiscal Benefits and Incentives Code defines the districts of Cantagalo, Lemba, Lobata, and Caué, as well as Príncipe, as Special Development or Economic Zones. Therefore, any new investment established in these areas under the Investment Code can qualify for special incentives. According to Article 14 of the Investment Code, the state assures fair, non-discriminatory, and equal treatment for all investment in the national territory. Companies that qualify may benefit from reductions or exemptions of taxes under the conditions set forth in the Code of Free and Offshore Activities.
The government encourages but does not mandate local employment. STP has no specific performance requirements as a condition for establishing, maintaining, or expanding investment. However, under the Code of Fiscal Benefits and Incentives, the government offers better incentives for those companies that choose to reinvest or expand their investment. The government encourages but has not defined requirements for investors to buy local products, to export a certain percentage of output, to invest in a specific geographical area, or use a domestic technology. There is no blanket requirement that STP nationals own shares in foreign investments in STP. The visa application process is straightforward and transparent, and visas or work permits are usually easy to obtain if companies meet all the requirements. Nevertheless, few São Toméan embassies worldwide process visa applications. Under the Legal Regime of Foreign Citizens in STP, the country lifted visa requirements for citizens of the United States, EU, Canada, UK, South Africa, Rwanda and the Community of Portuguese Language Countries. In addition, any foreign citizen holding a valid passport with a valid Schengen or U.S. visa can enter and stay in the country up to 15 days. STP recently began accepting online visa applications. Information on submitting an online visa application is available in Portuguese and English at https://evisa.st, though it reportedly suffers from outages, requiring visa applications to be done in person or via email.
In March 2022, the government approved a decree stating that effective June 1, 2022, visa-exempt visitors must pay an entry fee of STN 500,00 (roughly USD 23). Currently, to fly into STP, travelers must have a negative COVID-19 PCR test result valid for 72 hours if the traveler does not possess a digital vaccine certificate. If the traveler has a certificate, he/she can submit the results of a COVID-19 rapid antigen test valid for 24 hours. When flying out of the country, COVID test requirements depend on the country of destination. Check https://travel.state.gov/content/travel.html for country-specific information when planning travel for the latest updates.
The National Agency for Personal Data Protection (ANPDP) oversees all the rules and requirements for data storage and transfer: https://www.anpdp.st/#13.
5. Protection of Property Rights
Based on Article 46 of the Constitution, private property rights are guaranteed by the State. According to Article 13 of the Expropriation Code, authorities must provide fair, adequate, and effective payment at market value in advance before expropriating any private property. The government owns the vast majority of land in the country, most of which is agricultural land granted by the Ministry of Agriculture, Fishing, and Rural Development through concessions of land titles under the Land Reform Law. Less than 10 percent of land is held by private owners. Foreigners cannot purchase land, although they can purchase structures. The 2020 World Bank’s Doing Business Report ranked STP 172 out 190 economies in terms of registering properties. The 2018 Notary Law provides the country with a modern and practical legal framework that allows for fast and efficient notarial acts, while ensuring judicial security. U.S. companies have not raised property rights concerns with the Embassy.
U.S. companies have not raised intellectual property (IP) rights concerns with the Embassy. During the past year, no new IP related laws and regulation were enacted, nor are any reform bills pending. All copyright and industrial property rights proceedings are covered by the Directorate of Industry in collaboration with the National Directorate of Culture, under the Secretariat of State for Commerce and Industry and the Ministry of Tourism and Culture, respectively.
STP is listed in the USTR’s Special 301 report but not listed in the notorious market report. STP is a member of the World Intellectual Property Organization (WIPO). The Regulation on Industrial Property regulates the enforcement of IP, including geographical indications, patents, and trademarks. STP does not report on seizures of counterfeit goods. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
Portfolio investment is undeveloped and unclear. The Central Bank of STP (BCSTP) issued Treasury bills (T-bills) for the first time on June 29, 2015 for STN 75 million (approximately $3.7 million) at the fixed interest rate of 6.2 percent, with a maturity of six months. The demand was 20 percent higher than the offer, due to the participation of three domestic banks. The most recent issuance occurred on March 15, 2018. STP does not have a stock market. Articles 13 and 14 of the Foreign Exchange Regulations facilitate the free flow of financial resources under the supervision of the Central Bank. Foreign investors are able to get credit on the local market; however, access to credit is difficult due to the limited variety of credit instruments, high interest rates, and the number of guarantees requested by the commercial banks. As a result, on the World Bank Ease of Doing Business Report 2020, STP ranked 165 out 190 economies regarding access to credit, a 4-point drop compared to the previous year. There are currently no significant U.S. investors active in STP.
STP has four private commercial banks. Portuguese, Angolan, Cameroonian, Gabonese, Togolese, and as well as Säo Toméan interests are represented in the ownership and management of the commercial banks. The International Bank of STP (BISTP) is believed to be the largest bank in terms of assets; however, banks’ asset estimations are not publicly available. In January 2022, STP-based commercial bank Energy Bank, founded in 2011 by a Nigeria investor, declared bankruptcy leading the Central Bank to cancel all its financial operations in STP. In early 2018, the BCSTP declared the commercial bank “Private Bank” insolvent and opened a public tender to liquidate its assets and liabilities. The Gabonese investment bank BGFI opened its São Toméan operation in March 2012. Banking services, especially from BISTP, are available in the capital with a few smaller branches in cities in the north, south, and center of the country, as well as in Príncipe. In 2021, VISA card was introduced into the country’s financial system
In addition to retail banking, commercial banks offer most corporate banking services, or can procure them from overseas. Local credit to the private sector is limited and expensive, but available to both foreign and local investors on equal terms. The country’s main economic actors finance themselves outside STP. Foreigners must establish residency to open a bank account.
STP does not have a traditional sovereign wealth fund (SWF) in existence. It does have a small National Oil Account (NOA). The NOA was previously funded by signing bonuses paid by energy and oil companies to gain rights to conduct exploration and production activities. According to officials from the budget department, the Law of Petroleum allows the government to withdraw up to 20 percent of the balance of the NOA every year as calculated on June 30 of the previous year. Details are available on the state budget and under NOA online: www.grip.st/?cntnr_informac=informac&ficherselt=DT-166- Envio de Extracto da Conta Nacional de Petroleo junto BCSTP.pdf
8. Responsible Business Conduct
There are no rules or legislation pertaining to responsible business conduct (RBC) in STP. Companies generally act in accordance with laws pertaining to investment, labor, environment, flora and fauna protection, consumer protection, and taxation. There is limited awareness of expectations of or standards for responsible business conduct. STP participates in the Extractive Industries Transparency Initiative (EITI). Companies usually respect human and labor rights. On occasion, civil society and NGOs speak up against businesses’ inappropriate conduct, especially as regards environmental destruction. In 2018, a group of civil society organizations and a political party contested the government’s decision to lease a large piece of land in the north of São Tomé to a Chinese business group for the establishment of a quarry. The land was part of a natural park with many preserved species of plants, animals and birds.
Although STP has taken steps to combat corruption through government reforms the country ranked 66 out 180 countries in Transparency International’s 2021 Corruption Perception Index, dropping one position compared to the previous year. The government passed an anti-corruption law in 2012 that required all payments to government entities over USD $5 be made directly at the BCSTP and all salary payments to civil servants be paid directly to the employee’s bank account. The government has also taken steps to review and update existing contracts with some foreign companies to support liberalization and free market competition. The government has denounced corruption and pledged to take necessary steps to prevent and combat it.
Although the government has been taken these steps, in March 2022, President Vila Nova cited a study showing seven out of 10 Santomeans still believed corruption was increasing.
Although corruption in customs was historically an issue for foreign investors, the MCC Threshold Program did help establish a modern customs code and related decrees by introducing modern customs tracking software and eliminating manual procedures, with customs agents handling payments for the importer. As a result, customs revenues have increased significantly. while incidents of corruption have reportedly declined.
In 2013, the parliament adopted an amended anti-money laundering/counter-terrorist financing (AML/CFT) law that complies with international standards. It designates the Financial Information Unit (Unidade de InformaçãoFinanceira) as the central agency in STP with responsibility for investigating suspect transactions. STP is a member of the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA), a FATF-style regional body.
According to the 2016 Investment Code, all investment proposals must be submitted to the APCI, which is responsible for carrying out all legal inter-institutional coordination with different sectors involved in the analysis and approval of the investment project. The law limits contacts between investment proponents and officials involved in the investment approval process.
STP signed and ratified the UN Anticorruption Convention. It is not party to the Economic Co-operation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
STP does not have a designated agency responsible for combatting corruption but in March 2022, the President promised to create an “Anti-Corruption Committee” comprised of reputable citizens, and uncommitted to any political agenda.
Deodato Capela President
Centro de Integridade Pública de São Tomé e Príncipe (STP Public Integrity Center) – Anticorruption, Transparency and Integrity – NGO
P.C: 330, Almeirim-São Tomé; São Tomé e Príncipe
+ 239 991 1116 email@example.com http://cipstp.st/
10. Political and Security Environment
STP is relatively stable, has no ethnic tensions, and has a relaxed lifestyle, which locals refer to as leve-leve (“take it easy”). Since its democratic reforms in 1990, the archipelago has been a good example of democracy in the sub-region with a history of peaceful transfers of power and consensus in decision-making. In July 2021, following the results of the first round of the presidential elections, the third ranked candidate contested the election’s results, alleging massive fraud. After back-and-forth decisions from the Constitutional Court there was a delay in the holding of the second round of the presidential election. Ultimately, the second round took place and observers announced that they found it to be free, fair, and transparent. The President took office in 2021 without incident. There were some protests in 2018 over the creation of the Constitutional Court, and a lower court decision to recount the votes of the October 7 legislative, local, and regional elections. Despite the post-election protests, the legislative elections led to the peaceful formation of a new coalition Government. STP generally has a good human rights record and demonstrates a respect for citizens’ and workers’ rights. Strikes are not seen as the primary means to settle labor disputes and labor strikes have been sporadic in recent times.
Since independence in 1975, there have been no incidents of politically motivated attacks on projects or installations. There is no anti-American sentiment and instances of civil disorder are rare. Recently maritime piracy has affected STP’s territorial waters in the Gulf of Guinea, though the threat of terrorism remains limited. STP has sought to be an active partner in regional maritime security efforts, although its capacity and resources are minimal. Despite two violent murders in early 2020, violent crime rates are at a historical low.
11. Labor Policies and Practices
A significant portion of STP’s workforce is young, relatively well-educated, and multilingual (Portuguese and French). Further training of the workforce is needed, however, for the economy to continue developing. The percentage of foreign/migrant workers is low but covered by the new Labor Code (Law 6/2019). The government does not officially require but encourages companies to hire nationals. In March 2022, after negotiations with the labor unions, the government announced that the monthly minimum wage for civil servant will increase from USD $50 to USD $112 as of May, with an expected increase to USD $157 in 2023 and USD $202 in 2024. The unions also announced a leave allowance payment of 40 percent as of May and 100 percent by 2023, retroactive from January. For the first time in 2016, the government set the national minimum wage for private and public sectors. The basic salary varies by the size of the enterprise. For micro enterprises or family businesses, the minimum wage is around STN 800 ($38.80) per month, small business STN 1,000 ($48.50), medium enterprise STN 1,300 ($63.10) and large enterprise STN 1,600 ($77.70). The basic salary for the public sector is approximately STN 1,100 ($50). Women are entitled to state-funded maternity leave for a period of 14 weeks, including 8 weeks after childbirth. The law recognizes the right of workers to form and join independent unions, conduct legal strikes (though this is strictly regulated), and bargain collectively. The law does not prohibit anti-union discrimination or retaliation against strikers. Workers’ collective bargaining agreements remain relatively weak due to the government’s role as the principal employer and key interlocutor in labor matters, including wages. Special tax incentives are provided under the Fiscal Benefit Code to companies that provide training to its human resources. Labor disputes are usually solved through dialogue between parties, under mediation of the General Labor Inspection Department (IGT), or through litigation if a consensus cannot be reached. The Labor Law was drafted in collaboration with the ILO. The IGT is housed under the Labor Ministry.
STP’s private sector is underdeveloped, undiversified and dominated by a large number of informal operators who work mainly in civil construction, agriculture, commerce and fisheries, with a low level of education, lack of organizational and managerial skills, absence of structured accounting systems, as well as minimal business planning procedures in the medium/long term. However, the informal sector makes a substantial contribution to the economy through its dynamism, entrepreneurial culture, innovation and flexibility to adjust to changes in the environment. Thus, it still has the potential to eventually develop into a part of the more mainstream private sector in the coming years.
The World Bank 2020 Doing Business Report ranked STP 185 among 190 economies in terms of contract enforcement. Although some reforms are ongoing, the county’s justice system is still seen as slow moving, costly, and biased at times. Therefore, it is still very important to know the given local partner or individual who you are doing business with. Further, it is always advisable to confirm the true ownership of any asset before its acquisition, especially when involving land.
According to a government official, there are a total of 11,000 civil servants, more than half the country’s labor force. The World Bank estimated STP’s 2020 total labor force to be about 68,000; among the total number, roughly 35,000 are female between the ages of 15-64 years old.
In 2021, the Saudi Arabian government (SAG) continued its ambitious socio-economic reforms, collectively known as Vision 2030. Spearheaded by Crown Prince Mohammed bin Salman, Vision 2030 provides a roadmap for the development of new economic sectors and a transition to a digital, knowledge-based economy. The reforms aim to diversify the Saudi economy away from oil and create more private sector jobs for a young and growing population.
To accomplish these ambitious Vision 2030 reforms, the SAG is seeking foreign investment in burgeoning sectors such as infrastructure, tourism, entertainment, and renewable energy. Saudi Arabia aims to become a major transport and logistics hub linking Asia, Europe, and Africa. Infrastructure projects related to this goal include various “economic cities” and special economic zones, which will serve as hubs for petrochemicals, mining, logistics, manufacturing, and digital industries. The SAG plans to double the size of Riyadh city and welcomes investment in its multi-billion-dollar giga-projects (including NEOM, Qiddiya, the Red Sea Project, and Amaala), which are the jumping-off points for its nascent tourism industry. The Kingdom is also developing tourism infrastructure at natural sites, such as AlUla, and the SAG continues to grow its successful Saudi Seasons initiative, which hosts tourism and cultural events throughout the country.
The Saudi entertainment and sports sector, aided by a relaxation of social restrictions, is also primed for foreign investment. The country hopes to build hundreds of movie theaters and the SAG aims to sign agreements for production studios in Saudi Arabia for end-to-end film production. The SAG seeks to host world class sporting events and has already hosted the European Golf Tour, Diriyah ePrix, Dakar Rally, and Saudi Formula One Grand Prix. In addition, recent film festivals and concerts have demonstrated strong demand for art and cultural events. Lastly, the SAG is eager for foreign investment in green projects related to renewable energy, hydrogen, waste management, and carbon capture to reach net-zero emissions by 2060. It is particularly interested in green capacity-building and technology-sharing initiatives.
Despite these investment opportunities, investor concerns persist regarding business predictability, transparency, and political risk. Although some activists have recently been released, the continued detention and prosecution of activists remains a significant concern, while there has been little progress on fundamental freedoms of speech and religion. The pressure to generate non-oil revenue and provide increased employment opportunities for Saudi citizens has prompted the SAG to implement measures that may weaken the country’s investment climate going forward. Increased fees for expatriate workers and their dependents, as well as “Saudization” policies requiring certain businesses to employ a quota of Saudi workers, have led to disruptions in some private sector activities. Additionally, while specific details have not yet been released, Saudi Arabia announced in 2021 that multinational companies wanting to contract with the SAG must establish their regional headquarters in Saudi Arabia by 2024.
The SAG has taken important steps since 2018 to improve intellectual property rights (IPR) protection, enforcement, and awareness. While some concerns remain regarding IPR protection in the pharmaceutical sector, no new incidents related to regulatory data protection for health and safety information have been reported since October 2020, and in March 2022 Saudi Arabia issued a public statement stipulating that data protection in the Kingdom is for five years. While the sharp downturn in oil prices in 2020 put pressure on Saudi Arabia’s fiscal situation, the subsequent spike in oil prices has increased government revenue and the SAG expects a budget surplus in 2022.
1. Openness To, and Restrictions Upon, Foreign Investment
The SAG seeks to attract $3 trillion in foreign investment to promote economic development, transfer foreign expertise and technology to Saudi Arabia, create jobs for Saudi nationals, and increase Saudi Arabia’s non-oil exports.
In October 2021, Saudi Arabia announced its National Investment Strategy, which will help it deliver on its Vision 2030 goals. The National Investment Strategy outlines investment plans for sectors including manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure, and health care. The strategy aims to grow the Saudi economy by raising private sector contribution to 65 percent of total GDP and increasing foreign direct investment to 5.7 percent of total GDP. The National Investment Strategy aims to raise net foreign direct investment flows to $103 billion annually and increase domestic investment to about $450 billion annually by 2030.
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/.
The SAG has adopted reforms to improve the Kingdom’s attractiveness as an investment destination. It has reduced the license approval period from days to hours, decreased required customs documents, reduced the customs clearance period from weeks to hours, and increased the investor license period to five years. It has launched e-licenses to provide a more efficient and user-friendly process and 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. The SAG allows 100 percent foreign ownership in most sectors.
Saudi Arabia’s burgeoning entertainment sector provides opportunities for foreign investment. 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. The audiences for many of these events are now gender-mixed, representing a larger consumer base. In addition to reopening cinemas in 2018, the SAG has hosted Formula One and Formula E races, professional golf and tennis tournaments, and a world heavyweight boxing title match. Saudi Arabia’s General Entertainment Authority launched the Saudi Seasons initiative in 2019, which hosts tourism and cultural events in each of the country’s 11 regions. The second iteration of Saudi Seasons began in October 2021 after a pause due to COVID. Riyadh Season attracted more than 15 million people and more than 1,200 companies participated, providing 150,000 job opportunities. The program included more than 7,500 entertainment events, including Arab and international concerts, international exhibitions, theatrical shows, and a freestyle wrestling tournament. The initiative also featured 200 restaurants and 70 coffee shops at 14 entertainment zones across Riyadh.
The SAG is also seeking foreign investment for its “economic cities” and “giga-projects” that are at various stages of construction. These projects are large-scale, self-contained developments in different regions focusing on particular industries, such as technology, energy, logistics, tourism, entertainment, and infrastructure. These projects include:
NEOM: a $500 billion long-term development project to build a futuristic “independent economic zone” and city in northwest Saudi Arabia. This initiative aims to create 380,000 jobs and contribute $48 billon to domestic GDP by 2030. This project includes:
The Line: a 100 mile-long, urban smart city that will have no cars, no streets, and no carbon emissions.
Oxagon: NEOM’s economic and industrial hub focusing on innovation, research, and technology. Built on the coast, it will include the world’s largest floating structure.
Trojena: NEOM’s mountain destination blending natural and developed landscapes. This project will include a man-made lake, a wildlife reserve, and a ski resort.
Qiddiya: a large-scale entertainment, amusement, 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.
Diriyah Gate: a $50 billion project transforming Diriyah, a suburb of Riyadh, into a premiere destination for culture and heritage, entertainment, hospitality, retail, and education.
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.
Asir: a $13 billion project to develop the southwestern region of Asir into a global tourism hub, aiming to attract more than 10 million visitors by 2030.
To attract tourists to these new sites, the SAG introduced a new tourism visa in 2019 for non-religious travelers, and the Kingdom no longer requires foreign travelers staying in the same hotel room to provide proof of marriage or family relations. The SAG is facilitating private investments through its Tourism Development Fund, which has initial capital of $4 billion, and the Kafalah program, which provides loan guarantees of up to $400 million. In addition, the Tourism Fund signed MOUs with local banks to finance projects valued up to $40 billion to stimulate tourism investment and increase the sector’s contribution to GDP.
Investment opportunities in Saudi Arabia’s mining sector continue to expand. In June 2020, the SAG approved a new law allowing foreign companies to enter the mining sector and invest in the Kingdom’s vast mining resources. 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. 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 the Saudi chemical giant SABIC to produce phosphate-based fertilizers.
Saudi Arabia’s transportation sector also provides ample opportunity for international investment. In June 2021, Crown Prince Mohammed bin Salman launched the National Transport and Logistics Strategy to upgrade transportation infrastructure throughout Saudi Arabia. The strategy aims to enhance Saudi Arabia’s position as a global logistics center, improve quality of life, and balance the public budget. The strategy calls for the launch of a new national air carrier, with the goal of increasing the number of international destinations served by the country to more than 250. The SAG also aims to raise air freight sector capacity to more than 4.5 million tons. The strategy includes an initiative to connect Saudi Arabia with the other Arab Gulf states via a railway line. The SAG plans to invest $147 billion in transport and logistics over the next eight years.
Lastly, the Kingdom’s infrastructure sector is open to foreign investment. The SAG launched an $800 billion project to double the size of Riyadh city in the next decade and transform it into an economic, social, and cultural hub for the region. The project includes 18 “mega-projects” in the capital city to improve livability, strengthen economic growth, and more than double the population to 15-20 million by 2030. The SAG is seeking private sector financing of $250 billion for these projects, with similar contributions from income generated by its financial, tourism, and entertainment sectors.
Saudi Arabia fully recognizes rights to private ownership and the establishment of private business. However, the SAG excludes foreign investors from some economic sectors and places some limits on foreign control.
Foreign investors must contend with increasingly strict requirements to base a certain percentage of production within Saudi Arabia (localization), 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 this is becoming more relaxed as socio-economic reforms progress).
The SAG implemented new taxes and fees in 2017 and early 2018, including significant visa fee increases. In 2020, the SAG increased the value-added tax (VAT) from five to 15 percent.
In February 2021, MISA and the Royal Commission for Riyadh City (RCRC) announced a new directive requiring that companies wanting to contract with the SAG establish their regional headquarters in Saudi Arabia – preferably in Riyadh – by 2024. MISA has yet to publish details regarding this mandate. According to MISA, companies that relocate their regional headquarters to Riyadh will benefit from incentives including relaxed Saudization, spouse work permits, waivers of professional accreditation, visa acceleration, and end-to-end business, personal, and concierge services. 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 beginning in 2024. Implementing regulations for this new directive have not been issued and it remains unclear if the rule would affect contracting by parastatal organizations such as Saudi Aramco.
Foreign investment is currently prohibited in ten sectors:
Oil exploration, drilling, and production except services related to the mining sector listed under Central Product Classification (CPC) 5115+883
Catering to military sectors
Security and detective services
Real estate investment in the holy cities, Mecca and Medina (Note: Foreign investment in real estate in Mecca and Medina is allowed in certain locations and limited to 99-year leases.)
Tourist orientation and guidance services for religious tourism related to Hajj and Umrah
Commission agents internationally classified under CPC 621
Services provided by midwives, nurses, physical therapy services, and quasi-doctoral services classified under CPC 93191
Poison centers, blood banks, and quarantine services
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. ExxonMobil, Shell, China’s Sinopec, and Japan’s Sumitomo Chemical are partners with Saudi Aramco in domestic refineries. ExxonMobil, Chevron, Shell, and other international investors have joint ventures with Saudi Aramco and/or the Saudi Basic Industries Corporation (SABIC, a wholly-owned subsidiary of Saudi Aramco since 2020) in large-scale petrochemical plants. 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 a group of contractors to provide engineering, procurement, construction, hook-up, commissioning and maintenance, and modifications and operations jobs for its offshore oil and gas infrastructure.
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; 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 have precluded many investors from taking full advantage of the reform.
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 several 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.
Saudi officials have stated their intention to attract foreign small- and medium-sized enterprises (SMEs) to the Kingdom. Under Vision 2030, Saudi Arabia aims to increase SME contribution to its GDP to 35 percent by 2030. To facilitate and promote the growth of the SME sector, the SAG established the Small and Medium Enterprises General Authority, Monsha’at, 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. The SAG continues to roll out initiatives to spur the development of the SME ecosystem in Saudi Arabia. As of 2019, women no longer need a male guardian to apply for a business license. In February 2021, Monsha’at launched the Bank of Small and Medium Enterprises to provide a one-stop shop for SME financing. In March 2022, Monsha’at and the King Abdulaziz City for Science and Technology inaugurated the National Business Innovation Portal, which provides guidance and resources for SMEs.
Private Saudi citizens, Saudi companies, and SAG entities hold extensive overseas investments. The SAG has transformed its Public Investment Fund (PIF), into a major international investor and sovereign wealth fund. The PIF’s outward investment projects are covered in Section 6 (Financial Sector). 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. In December 2021, the ExxonMobil-SABIC $10-billion-dollar joint venture, Gulf Coast Growth Ventures, commenced operations at its new petrochemical facility near Corpus Christi, Texas.
3. Legal Regime
Saudi Arabia received the lowest score possible (zero out of five) in the World Bank’s 2017-2018 Global Indicators of Regulatory Governance project, 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. In addition, in March 2021, Saudi Arabia’s National Competitiveness Center launched a public consultation platform called “Istitlaa” to solicit feedback on proposed laws and regulations before they are approved. That said, the processes and procedures for stakeholder consultation remain generally opaque and are not 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.
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 the WTO Committee on Technical Barriers to Trade of all draft technical regulations.
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” section 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 2021, theCrown Prince announced draft legal reforms including a new personal status law, civil transactions law, evidence law, and discretionary sentencing law that aim to increase predictability and transparency in the legal system, facilitating commerce and expanding protections for women. To date, Saudi Arabia has published the new evidence law and the new personal status law. The two new laws have not yet come into force, but if implemented effectively, these reforms could be a major step towards modernizing the Saudi legal system.
In January 2019, the Saudi government established the General Authority for Foreign Trade (GAFT), 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 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 WTO. The Governor of GAFT reports to the Minister of Commerce.
Despite the list of activities excluded from foreign investment (see “Limits on Foreign Control and Right to Private Ownership and Establishment” section), 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 Policies” section). Minimum capital requirements to establish business entities range from zero to $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.
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 covers 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. 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.
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.
In August 2018, the SAG implemented new bankruptcy legislation that 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 law clarifies procedural processes and recognizes distinct creditor classes (e.g., secured creditors). It also includes procedures for continued operation of a 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.
4. Industrial Policies
MISA advertises several 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’s website 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.
In 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, 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 3,000 Saudi riyal (SAR) monthly stipend plus occupational hazard insurance for a period of three to six months.
American and other foreign firms can participate in SAG-financed and/or -subsidized research-and-development (R&D) programs. Many of these programs are run through the King Abdulaziz City for Science and Technology (KACST), which funds many of the Kingdom’s R&D programs.
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 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 Abdelaziz 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 northwestern Saudi Arabia on the Red Sea coast. A significant portion of Saudi Arabia’s refining, petrochemical, and other heavy industries are 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 and the Jazan City for Primary and Downstream Industries. The RCJY’s website is https://www.rcjy.gov.sa.
In 2017, Saudi Aramco began building the King Salman Energy Park (“SPARK”), a sustainable global energy and industrial hub, in the Eastern Province between Dammam and Al-Ahsa. SPARK is designed to attract, establish, and encourage local energy industries in the fields of exploration, production, refining, petrochemicals, conventional power, and water production and treatment. Saudi Aramco aims to finish construction of SPARK in 2035 and expects the hub to add around $6 billion to annual GDP.
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 retain Aramco’s percentage of locally manufactured energy-related goods and services at a minimum of 70 percent.
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 by 2030. 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 manufacture locally defense articles.
The government encourages recruitment of Saudi employees through a series of incentives (see “Labor Policies” section 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 SAG has recently increased fees for expatriate employers and levies on expatriates with dependents.
5. Protection of Property Rights
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.
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 to spur development. In 2018, in order to increase Saudis’ access to financing 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.
Saudi Arabia was removed from the U.S. Trade Representative’s (USTR) Special 301 Report Priority Watch List in 2022 due to steps Saudi Authority took to address stakeholder concerns including the publication of its IP enforcement procedures and increased enforcement againt counterfeit and pirated goods and online pirated content.
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 second Cooperation Arrangement in December 2021 between SAIP and USPTO. In 2021, SAIP made 6,400 field inspection tours in 10 cities, conducted 1,912 online inspection visits, and carried out 282 visits to promote awareness of IPR across Saudi Arabia. In addition, in cooperation with Ministry of Commerce, the General Authority for Audio-Visual Media, the Zakat, Tax and Customs Authority and Public Security, SAIP announced in its 2021 enforcement report confiscation of over 5 million counterfeit products during its inspection campaigns, including pirated DVDs, CDs, books, computers, laptops, hard disks, memory chips, TV satellite boxes, CD-copying devices, copied books, and satellite broadcasting devices. In 2021, SAIP blocked over 2,000 websites for violating intellectual property laws.
SAIP published a first of its kind statement in March 2022 confirming its commitment to regulatory data protection. In a statement posted on social media, that was also published by the Saudi Food and Drug Authority (SFDA), SAIP clarified its definition of confidential commercial information, described why this type of IP is important to innovation, confirmed its duty to protect this data against disclosure and unfair commercial use, and outlined proper procedures to take if an incident occurs. It states, “Any person harmed as a result of violating the provision of the Regulation of Confidential Commercial Information may file a lawsuit before the competent Court to claim compensation for damages sustained.”
In 2022, the Ministry of Human Resources and Social Development approved the establishment of Saudi Arabia’s first nonprofit intellectual property protection entity, Himayah, to spread societal awareness of intellectual property rights.
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.
In November 2021, the CMA allowed financial market institutions to accept subscriptions from non-Saudis in real estate funds that invest in assets within the boundaries of Mecca and Medina.
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 continues 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 to 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 previously been an observer member since 2015.
Saudi Arabia is forward leaning on the development of financial technology. In February 2022, the Saudi cabinet approved a license for a local digital bank, D360, to be established with capital of $440 million. In March 2022, SAMA announced the licensing of a new payment financial technology company, Moyasar Financial Company, to provide e-commerce payment services, bringing the number of payment companies licensed by SAMA to 16 companies. In 2021, SAMA introduced the new Instant Payment System (Sarie) to facilitate instant, 24/7 money transfers across local banks. STC Pay, which provides digital payment solutions, achieved a $1.3 billion valuation in 2020, and the SAG recently approved its conversion into a digital bank.
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 two percent in 2020. In addition, credit is available from several government institutions, such as the SIDF, which allocates 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 procurements executed outside of Saudi Arabia. The Ministry of Finance has a pivotal role under the new GTPL to set policies and issue directives, collate and distribute information, maintain a list of boycotts, and approve 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 government sectors and competing entities.
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 grow the PIF more than five-fold to a $2 trillion global investment fund by 2030, relying in part on proceeds from the initial public offering of 1.5 percent of Saudi Aramco shares.
Under the Vision 2030 reform program, the PIF is financing several of the country’s giga-projects, including NEOM, Qiddiya, the Red Sea Project, and Amaala. The PIF increased its holding of U.S. equities to nearly $44 billion in Q3 2021, acquiring new stakes in 19 firms.
In February 2022, the PIF advanced in the global ranking to become the sixth largest sovereign wealth fund with $580 billion in assets under management after receiving a four percent stake in Saudi Aramco, according to data released by the Sovereign Wealth Funds Institute. 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 strategy focuses 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 aims to invest $267 billion into the local economy, contribute $320 billion to non-oil GDP, and create 1.8 million jobs.
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 reserve holdings peaked at $746 billion in 2014 but have since fallen to $429 billion in January 2022, the lowest level since 2010. This decline may be due to transfers to the PIF, as well as SAMA’s efforts to finance a recovery in import demand following the COVID-19 pandemic.
Though not a formal member, Saudi Arabia serves as a permanent observer to the International Working Group on Sovereign Wealth Funds.
7. State-Owned Enterprises
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 94.5 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 Saudi Aramco. The initial public offering (IPO) of 1.5 percent of Aramco’s shares on the Saudi Tadawul stock market on December 11, 2019, was the largest-ever IPO and valued Aramco at $1.7 trillion. The IPO generated $25.6 billion in proceeds, exceeding the $25 billion Alibaba raised in 2014 in the largest previous IPO in history. In February 2022, the SAG announced the transfer of four percent of Aramco’s shares to the PIF. Crown Prince Mohammed bin Salman announced that after the transfer, the state will remain Aramco’s largest shareholder, retaining more than 94 percent of the total shares.
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; the acquisition was completed in 2020. 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, Saudia Airlines, the Saline Water Conversion Company, Ma’aden, the National Commercial Bank, and other leading financial institutions.
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 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. 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. The program endorses several 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. The Privatization Program report identifies 16 targeted sectors but does not include an exhaustive list of assets to be privatized. The report references 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. The full Privatization Program report is available online at http://vision2030.gov.sa/en/ncp.
In 2017, Saudi Arabia established the National Center for Privatization and Public Private Partnerships (NCP), which oversees and manages the Privatization Program. The NCP’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. The Center’s website is http://www.ncp.gov.sa/en/pages/home.aspx. In March 2021, Saudi Arabia approved the Private Sector Participation (PSP) Law, which aims to increase private sector participation in infrastructure projects and in the provision of public services.
8. Responsible Business Conduct
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.
Saudi Arabia does not participate in the Extractive Industries Transparency Initiative.
The SAG announced the first Saudi National Environmental Strategy in 2018. The strategy included a comprehensive restructuring of the environmental sector, the establishment of the Directorate of Environment under the Ministry of Environment, Water, and Agriculture (MEWA), and the creation of the Environmental Special Forces under the Ministry of Interior. The SAG also formed five specialized environmental centers: the National Center for Waste Management, the National Environmental Compliance Center, the National Center for the Development of Vegetation Cover and Combating Desertification, the National Center for Wildlife Conservation, and the National Meteorological Center. In addition, the Kingdom established the National Environmental Fund to support environmental research and the development of environmentally friendly technologies. In March 2021, Crown Prince Mohammed Bin Salman announced the Saudi Green Initiative (SGI) and the Middle East Green Initiative, which are part of Vision 2030 and place Saudi Arabia at the center of regional efforts to meet international targets for climate change mitigation.
In October 2021, Saudi Arabia announced its intention to reduce, avoid, and remove greenhouse gas emissions by 278 million tons of CO2 equivalent annually by 2030, more than a two-fold increase of its initial nationally determined contribution (NDC). The Kingdom committed to moving to net-zero emissions by 2060 and signed the Global Methane Pledge. In April 2021, Saudi Arabia joined the United States, Canada, Norway, and Qatar to establish the Net-Zero Producers Forum. The forum aims to explore practical net-zero emission strategies, including methane abatement, carbon capture, and clean energy.
Energy Minister Prince Abdulaziz bin Salman Al Saud noted that Saudi Arabia would welcome foreign investment in its climate initiatives but will not require outside financial support to achieve its climate goals. It does, however, need expertise, capacity-building, and technology-sharing. He emphasized that the timeline for these goals could shift, depending on new technologies and the country’s ability to grow its economy.
Saudi Arabia’s flagship environmental initiative is the Circular Carbon Economy (CCE), which it announced during its G20 presidency in 2020. The CCE consists of the “4Rs” model of “reduce, reuse, recycle, and remove” to manage greenhouse gas emissions – a way to offset its carbon emissions while continuing to pump oil. The Kingdom plans to transform the coastal cities of Jubail and Yanbu, both homes to petrochemical, steel, and other heavy industries, into global hubs for carbon capture utilization and storage (CCUS).
By 2030 the SAG plans to generate 50 percent of the country’s electricity from renewables and the other half from natural gas. Currently, 40 percent of electricity generation comes from the burning of crude oil. Saudi company ACWA Power, in which the PIF has a 50 percent stake, has been tasked with developing 70 percent of Saudi renewable energy projects. ACWA Power’s first project under PIF funding, a solar plant in the central city of Sudair, will be one of the largest single-contracted solar PV plants in the world, with an installed capacity of 1,500 megawatts capable of powering 185,000 homes and offsetting nearly 2.9 million tons of emissions each year.
As it seeks to diversify its energy sources away from oil, Saudi Arabia aims to become the world’s largest supplier of hydrogen. The Kingdom’s goal is to produce 2.9 million tons/year by 2030 and four million tons/year by 2035 of blue and green hydrogen. Aramco recently signed an initial agreement to build a green hydrogen and ammonia plant with Hong Kong-based green hydrogen developer InterContinental Energy, bringing private investment into the sector. In 2020, U.S. industrial gas producer Air Products, ACWA Power, and NEOM signed a $5 billion agreement to build a green hydrogen plant powered by four gigawatts of wind and solar power. The completed facility will produce 650 tons of green hydrogen daily, enough to run around 20,000 hydrogen-fueled buses. The fuel will be shipped as ammonia to end markets globally, and production is expected to start in 2025. Challenges remain in the hydrogen sector. The required technology for green and blue hydrogen is still nascent, production costs are high, and the market for these types of hydrogen is being developed.
Saudi Arabia aims to recycle 100 percent of solid waste in Riyadh by 2025 and 82 percent of all waste streams countrywide by 2035. Waste management is a nascent industry, and current recycling stands at only one percent. To reach its waste management goals, the Saudi Investment Recycling Company (SIRC), a wholly owned subsidiary of the PIF, was established in 2017. SIRC is mandated to develop, own, operate, and finance projects across all waste types to establish recycling capacities and build a circular economy.
In December 2019, King Salman issued royal decrees creating the Oversight and Anti-Corruption Commission (“Nazaha”). Nazaha is responsible for promoting transparency and combating all forms of financial and administrative corruption. Nazaha reports directly to King Salman and has the power to dismiss a government employee even if found not guilty by the specialized anti-corruption court. Throughout 2021, 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 at http://www.nazaha.gov.sa/en/Pages/Default.aspx.
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 US$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, and in December 2021 Saudi Arabia amended the Combating Bribery Law to criminalize foreign bribery. Only senior Nazaha officials are subject to financial disclosure laws. The government is considering disclosure regulations for other officials but has yet to finalize them.
SAMA 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 investigations 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, and the International Anti-Corruption Academy (IACA) elected Saudi Arabia to its Board of Governors in April 2022.
The Kingdom ranks 52 out of 180 countries in Transparency International’s Corruption Perceptions Index 2021.
The National Anti-Corruption Commission’s address is:
National Anti-Corruption Commission
P.O. Box (Wasl) 7667, AlOlaya – Ghadir District
The Kingdom of Saudi Arabia
Fax: +966 11 264-5555
Nazaha accepts complaints about corruption through its website www.nazaha.gov.sa or mobile application.
10. Political and Security Environment
The Department of State regularly reviews and updates travel advisories to apprise U.S. citizens of the security situation in Saudi Arabia and frequently reminds U.S. citizens of recommended security precautions. Please visit www.travel.state.gov for further information, including the latest travel advisory.
11. Labor Policies and Practices
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 jobs in the country are held by expatriates, who represent roughly 38 percent of the total population. 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.
The removal of guardianship laws and travel restrictions for women, the introduction of workplace protections, and recent judicial reforms that provide additional protection have enabled more women to enter the labor force. From 2016 to 2020, the Saudi female labor participation rate increased from 19 percent to 33 percent. As of Q4 2021, Saudi Arabia’s General Authority for Statistics estimates unemployment at 6.9 percent for the total population and 11 percent for Saudi nationals, but these figures mask a high youth unemployment rate, a Saudi female unemployment rate of 22.5 percent, and low Saudi labor participation rates (51.5 percent overall; 35.6 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 remain a challenge.
The SAG encourages Saudi employment through “Saudization” policies that place quotas on employment of Saudi nationals in certain sectors, coupled with limits 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. The MHRSD has mandated that certain job categories in specific economic sectors only employ Saudi nationals. The ministry has likewise mandated that only Saudi women can occupy retail jobs in certain businesses that cater to female customers. 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.
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 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. Foreign workers (particularly domestic staff) have encountered 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. It is available at https://www.state.gov/reports/2021-trafficking-in-persons-report/saudi-arabia/.
Overtime work 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 on 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.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)