Saudi Arabia offers a relatively attractive and stable market for investment, particularly for investors able to overcome initial barriers imposed on foreigners. Following years of high economic growth, a period of sustained low oil prices has prompted the Saudi Arabian government (SAG) to embark upon an ambitious series of socio-economic reforms, collectively known as “Vision 2030.” Aimed at diversifying the Saudi economy and securing more private sector jobs for a growing population, Vision 2030 also offers attractive opportunities for foreign investors in several sectors, including healthcare, housing, education, energy, mining, and entertainment.
In support of its reform efforts, the SAG took a number of positive steps in 2016 to improve its investment climate. In June, the Council of Ministers formally approved full foreign ownership of retail and wholesale businesses, thereby removing the former 25 percent local ownership requirement. The SAG also took steps in 2016 toward privatizing many state-owned entities across a range of sectors, including civil aviation, education, energy, and healthcare. Further, the SAG sought to attract foreign investment in entirely new sectors, including renewable energy and entertainment. Last, with the launch of the Saudi Center for Commercial Arbitration in late 2016, foreign investors now have access to a new, cost-effective avenue for alternative dispute resolution.
At the same time, economic pressures to generate non-oil revenue and provide more jobs for Saudi citizens have led the SAG to implement measures that may prove harmful to the country’s investment climate, including significant fee hikes for business visas; new fees levied on firms employing expatriates (as well as on expatriates’ dependents); tighter labor quotas; more stringent localization polices; higher utility costs; and the approval of the country’s first value-added tax, set to be implemented in early 2018. In addition, due to an ongoing budget crunch, the SAG continued to accrue arrears to private sector firms over the course of 2016—a problem it only partially addressed with a late-2016 payment of $28 billion to contractors.
In theory, foreigners are permitted to invest in all sectors of the economy, except for specific activities contained in a “negative list” that currently excludes three industrial sectors and 12 service sectors, among them upstream petroleum and real estate investment in Mecca and Medina. Other than hiring quotas and training requirements for Saudi citizens, the government does not currently impose conditions on most forms of investment, such as locating in a specific geographic area (except for some restrictions on the distribution of retail outlets and the location of industrial activities), committing to specific percentages of local content or local equity (except for government contractors), substitution for imports, export requirements or targets, or financing only by local sources. However, over the course of 2016, the SAG has increasingly signaled its intent to introduce new local content requirements for foreign firms in a bid to stimulate domestic manufacturing, create jobs for Saudi nationals, and transfer technology and know-how.
Overall, Saudi Arabia continues to offer an attractive but often challenging climate for American investors. At the same time, new taxes and fees, tightened labor quotas, and potential new local content requirements could significantly alter the status quo in the coming year.
|TI Corruption Perceptions index||2016||62 of 175||http://www.transparency.org/news/
|World Bank’s Doing Business Report “Ease of Doing Business”||2017||94 of 190||doingbusiness.org/data/
|Global Innovation Index||2016||49 of 128||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2014||$10,064||bea.gov/international/direct_investment_
|World Bank GNI per capita||2015||$23,550||https://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Attracting foreign direct investment remains a critical component of the SAG’s broader program to diversify an economy overly dependent on oil exports and promote employment opportunities for a growing youth population. As such, the SAG seeks foreign investment that explicitly promotes economic development, transfers foreign expertise and technology to Saudi Arabia, creates jobs for Saudi nationals, and/or expands Saudi’s non-oil exports. The government encourages investment in nearly all economic sectors, with priority given to transportation, education, health, information and communications technology, life sciences, and energy, as well as in four new “Economic Cities” that are at various stages of development. The Economic Cities are large-scale and self-contained developments in different regions focusing on particular industries, e.g., information technology. In early 2017, the SAG expressed renewed interest in developing its nascent renewable energy sector, offering foreign investors valuable opportunities to participate in the market and ultimately sign power purchase agreements. Overall, prospective investors will find Saudi Arabia relatively attractive for its economic stability, large market (the largest in the Gulf region with a population of over 30 million), sound infrastructure, and well-regulated banking system.
The Saudi Arabian General Investment Authority (SAGIA) governs and regulates such investment in the Kingdom, issues licenses to prospective investors, and works to foster and promote investment opportunities across the economy, particularly in energy, education, transportation, health, life sciences, and knowledge-based industries. Established originally as a regulatory agency, SAGIA has increasingly shifted its focus to investment promotion and assistance, offering potential investors detailed guides and a catalogue of current investment opportunities on its website (www.sagia.gov.sa ).
Despite Saudi Arabia’s overall welcoming approach to foreign investment, some structural rigidity remains. As noted earlier, foreign investment is banned in three industrial sectors and 12 service sectors, among them real estate in Mecca and Medina, some subsectors in printing and publishing, audiovisual services, land-transportation services excluding intra-city rail transport, and upstream petroleum. The complete “negative list” can be found at www.sagia.gov.sa . Additionally, older laws remaining on the books prohibit or otherwise restrict foreign investment in some economic subsectors not on the “negative list” above, including many areas of healthcare.
Foreign investors must also contend with a local content requirement of subcontracting 30 percent of the value of their government contracts to local firms, a requirement to hire increasingly larger proportions of Saudi nationals at higher costs, an increasingly restrictive visa policy for foreign workers, and enforced segregation of the sexes in nearly all business and social settings. Further, over the course of 2016, the SAG has increasingly signaled its interest in introducing new local content requirements for foreign firms, in a bid to stimulate domestic manufacturing, hire more Saudi nationals, and transfer technology and knowhow. Last, foreign and domestic contractors also reported severe payment delays from the Saudi government over the course of 2016, a problem stemming from the SAG’s 2015 decision to freeze payments to major contractors in the wake of a budget crunch induced by sustained low oil prices.
Limits on Foreign Control and Right to Private Ownership and Establishment
Saudi Arabia fully recognizes rights to private ownership and establishment of private business. As outlined above, the SAG does exclude foreign investors from some economic sectors and places some limits on foreign control. With respect to energy, Saudi Arabia’s largest economic sector, foreign firms are barred from investing in the upstream petroleum sector, but the SAG permits foreign investment in the downstream energy sector, including refining and petrochemicals. There is significant foreign investment in these sectors. ExxonMobil and Shell are both 50 percent partners in refineries with Saudi Aramco. ExxonMobil, Chevron Texaco, and Shell, as well as several other international investors, have formed joint ventures with the Saudi Basic Industries Corporation (SABIC) to build large-scale petrochemical plants that utilize natural-gas feedstock from Aramco’s existing operations at Ras Tanura. Aramco selected the Dow Chemical Company in 2006 as its partner in a $20 billion joint venture to construct, own, and operate a chemicals and plastics production complex in Saudi Arabia’s Eastern Province.
With respect to other non-oil natural resources, the national mining company, Maaden, has a $12 billion joint venture with Alcoa for bauxite mining and aluminum production and a $7 billion joint venture with the leading American fertilizer firm Mosaic and SABIC to produce phosphate-based fertilizers.
Joint ventures almost always take the form of limited-liability partnerships, 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. SAGIA’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 and Investment (MCI), in accordance with the requirements defined in the Ministry’s Resolution 264 from 1982. These regulations, in theory, permit the registration of Saudi-foreign joint-venture consulting firms. As part of its WTO accession commitments, Saudi Arabia generally allows consulting firms to establish a local office without a Saudi partner. However, offices practicing law, accounting and auditing, design, architecture, engineering, or civil planning or providing healthcare, dental, or veterinary services must have a Saudi partner, and the foreign partner’s equity cannot exceed 75 percent of the total investment. A recent legal challenge to the MCI’s right to license joint venture law offices based on the contention that jurisdiction should properly rest with the Ministry of Justice has resulted in suspension of the issuance of new licenses, pending resolution of the jurisdictional issue.
In recent years, Saudi Arabia has opened additional service markets to foreign investment, including financial and banking services; aircraft maintenance and repair and computer reservation systems; wholesale, retail, and franchise distribution services (traditionally subject to minimum 25 percent local ownership and minimum SR 20 million [$5.3 million] foreign investment); both basic and value-added telecom services; and investment in the computer and related services sectors. In 2016, for example, Saudi Arabia formally approved full foreign ownership of retail and wholesale businesses in the Kingdom, thereby removing the former 25 percent local ownership requirement. While nearly a half dozen companies have already received licenses under the new rules, the restrictions attached to obtaining full ownership – including a requirement to invest over $50 million over the first five years and ensure that 30 percent of all products sold are manufactured locally – have precluded many investors from taking full advantage of the reform.
The SAG has also signaled its possible intention to begin enforcing offset requirements for major investments. In 2014, the SAG issued a royal decree requiring all foreign companies fulfilling contracts valued at over SR 400 million ($107 million) to implement a 40 percent offset requirement across all economic sectors. Previously unenforced outside of the defense sector, the offset mandate appeared in an early 2016 tender issued by the Gulf Cooperation Council (GCC) Health Ministers’ Council for contracts with the Saudi Ministry of Health, signaling the SAG’s intention to apply the requirement more broadly. Although the matter has yet to be clarified officially, a number of SAG investment and offset officials have indicated informally that the 40 percent offset requirement will apply across all sectors.
Other Investment Policy Reviews
Saudi Arabia completed its second WTO review in late 2015, which included investment policy (https://www.wto.org/english/tratop_e/tpr_e/tp433_e.htm ).
In addition to applying for a license from SAGIA as described above, foreign and local investors must register a new business via the MCI, which has begun offering online registration services for limited liability companies at: http://www.mci.gov.sa/en . Though users may submit Articles of Association and apply for a business name within minutes on MCI’s website, final approval from the ministry can often take a week or longer. Applicants must also complete a number of other steps in order to start a business, including obtaining a municipality (Baladia) license for their office premises and registering separately with the Ministry of Labor 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 a foreign investor on average two to three months from the time an initial SAGIA application is complete, placing the country at 147 of 190 countries in terms of ease of starting a business, according to the World Bank. With respect to foreign direct investment, the investment approval by SAGIA is a necessary, but not sufficient, step in establishing an investment in the Kingdom. There are a number of other government ministries, agencies, and departments regulating business operations and ventures.
Though Saudi officials have stated their intention to attract foreign small- and medium-sized enterprises (SMEs) to the Kingdom, no formal mechanism yet exists to facilitate investment and business operations by foreign SMEs. In 2016, the SAG released a new Companies Law designed in part to promote the development of the SME sector, which allows one person, rather than the previous minimum of two, to form a corporation, though in very limited cases. It also substantially cuts the minimum capital and number of shareholders required to form a joint stock company (from five previously to two). In fall 2015, the SAG announced the establishment of a new Saudi SME Authority, housed within the MCI, but the organization has yet to announce any initiatives targeted at foreign entrepreneurs.
In 2016, Saudi Arabia announced a number of high-profile outward investments via its Public Investment Fund, including a $3.5 billion stake in Uber and an agreement with Japanese Softbank Group Corp. to jointly create a $100 billion technology investment fund. Saudi Arabia does not restrict domestic investors from investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
Saudi Arabia has signed bilateral trade and investment agreements with over 20 countries. The United States and Saudi Arabia signed a Trade and Investment Framework Agreement (TIFA) in 2003, building upon an agreement on secured private investment with the United States that has been in place since February 1975. The United States and Saudi Arabia last held TIFA consultations in January 2017.
Saudi Arabia is a founding member of the GCC, which also includes Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates. While still under development, the GCC Customs Union ensures the free movement of labor and capital within the bloc. The GCC currently maintains a free trade agreement (FTA) with Singapore, and is in the process of negotiating one with China. Saudi Arabia does not have a bilateral taxation treaty with the United States, though maintains double taxation agreements with 40 countries as of 2017.
3. Legal Regime
Transparency of the Regulatory System
Few aspects of the SAG’s regulatory system are transparent, although Saudi investment policy is less opaque than many other areas. Saudi tax and labor laws and policies favor technology transfer and the employment of Saudis rather than fostering competition. Saudi health and safety laws and policies are not used to distort or impede the efficient mobilization and allocation of investments. Bureaucratic procedures are cumbersome, but red tape can generally be overcome with persistence.
Stakeholder consultation is inconsistent: some Saudi organizations are scrupulous about 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. Some government agencies permit public comments through their websites. The processes and procedures for stakeholder consultation are not generally transparent or codified in law or regulations. There are no private-sector or government efforts to restrict foreign participation in the industry standards-setting consortia or organizations that are available. There are no informal regulatory processes managed by NGOs or private-sector associations.
International Regulatory Considerations
Saudi Arabia adheres to standards developed both domestically by, the Saudi Arabian Standards Organization (SASO), and by the Gulf Standards Organization (GSO), an umbrella group serving the six countries of the GCC. While the GSO continues to push for standards harmonization across the Gulf, SASO maintains significant agency in developing, elaborating on, and enforcing standards for Saudi Arabia specifically.
Over the course of 2016, Saudi Arabia continued to revise technical regulations for a variety of products based solely on standards developed by the International Organization for Standardization and International Electrotechnical Commission. Saudi Arabia has excluded other international standards, such as those developed by U.S.-domiciled organizations through open, transparent and consensus-based processes – and which may meet or exceed Saudi Arabia’s standards. Saudi Arabia’s exclusion of these other international standards, which are often used by U.S. manufacturers, creates significant market access restrictions for industrial and consumer products exported from the United States.
A member of the WTO, Saudi Arabia notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.
Legal System and Judicial Independence
The Saudi legal system is derived from the legal rules of Islam, known as sharia law. Efforts to codify these laws, begun in 2010, remain incomplete. Saudi commercial law, meanwhile, is still in its developmental stage. In 1994 Saudi Arabia ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Saudi Arabia is also a member of the International Center for the Settlement of Investment Disputes (ICSID) Convention. In 2012, the SAG revised its arbitration law to update certain provisions. Currently, the MCI is leading a new effort to overhaul commercial laws, a project that entails drafting new laws while modernizing current ones. In 2016, Saudi Arabia took a significant step in improving its dispute settlement regime with the establishment of the Saudi Center for Commercial Arbitration (see “Dispute Settlement” below).
The Ministry of Justice oversees the sharia-based judicial system, but most ministries have committees to rule on matters under their jurisdictions. 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 law. This review process can take years, 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. Monetary judgments are based on the terms of the contract—i.e., 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 the 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 Embassy recommends consulting with local counsel in advance of investing to review legal options and appropriate contractual provisions for dispute resolution.
Laws and Regulations on Foreign Direct Investment
SAGIA, in cooperation with its parent organization (the MCI), remains responsible for formulating government policies regarding investment activities, proposing plans and regulations to enhance the investment climate in the country, and evaluating and licensing investment proposals.
SAGIA periodically reviews the list of activities excluded from foreign investment (see Policies Toward Foreign Direct Investment) and submits its reviews to higher authorities for approval. Although these sectors are off limits to 100 percent foreign investment, foreign minority ownership in joint ventures with Saudi partners may be allowed in some 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 outside of the country and can sponsor foreign employees, provided that “Saudization” quotas are met (see Labor Section below). Minimum capital requirements to establish business entities range from zero to SR 30 million ($8 million) depending on the sector and the type of investment.
Investors are not required to purchase from local sources or export a certain percentage of output, and their access to foreign exchange is unlimited. In order to benefit from waivers from Saudi customs duties, however, foreign manufacturers must prove that no local materials are available. Further, in line with the SAG’s bid to diversify its economy and provide more private sector jobs for Saudi nationals, the government has increasingly signaled its interest in introducing local content requirements for foreign firms. Aramco’s “In-Kingdom Total Value Added” program, for example, strongly encourages the purchase of goods and services from a local supplier base and aims to double Aramco’s percentage of locally-manufactured energy-related goods and services to 70 percent by 2021.
SAGIA’s Investor Service Center (ISC) 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 SAGIA, the ISC must grant or refuse a license within five days of receiving an application and supporting documentation from the prospective investor. SAGIA established and posted licensing guidelines in 2012 and 2015, but many companies looking to invest in Saudi Arabia continue to work with local representation to navigate the slow and often bureaucratic licensing process. However, foreign investors report increased efficiency over the last year in obtaining a license, with an approval time averaging one week compared to over a month in the past.
SAGIA has traditionally issued foreign investment licenses for seven broadly-defined activities: industrial, trading, agricultural, contracting, real estate, specialized and non- specialized services, and consulting. In 2015, SAGIA reduced the license categories to three sectors, each with its own regulations and requirements: services, which comprise a wide range of activities including real estate, trading, consulting, IT, healthcare, and tourism; industry; and contracting. Foreign firms must describe their planned commercial activities in some detail and will receive a license in one of these sectors at SAGIA’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 Saudi Commission for Tourism and Antiquities.
An important SAGIA objective is to ensure that investors do not just acquire and hold licenses without investing, and SAGIA has been cancelling licenses of foreign investors that it deems do not contribute sufficiently to the local economy. SAGIA’s periodic license reviews, with the possibility of cancellation, add uncertainty for investors and can provide a disincentive to longer-term investment commitments.
SAGIA has agreements with various SAG agencies and ministries to facilitate and streamline foreign investment. These agreements permit SAGIA to facilitate the granting of visas, establish SAGIA 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, SAGIA 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 SAGIA has set up the infrastructure to support foreign investment, many companies report that the process remains cumbersome and time-consuming.
Competition and Anti-Trust Laws
SAGIA and the Ministry of Commerce and Investment review transactions for competition-related concerns. Concerns have arisen that allegations of price fixing for certain products, including infant nutrition products, may have been used on occasion as a pretext to control prices. The Ministry of Commerce and Investment has looked to the GCC’s reference pricing approach on subsidized products to assist the SAG in determining market-price suggested norms.
Expropriation and Compensation
The Embassy is not aware of the SAG ever having expropriated property from foreign investors without adequate compensation. There have been no expropriating actions in the recent past or policy shifts that would suggest that the SAG will initiate such actions in the near future. 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.
ICSID Convention and New York Convention
The Kingdom of Saudi Arabia ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994. Saudi Arabia is also a member state of the ICSID Convention, though under the terms of its accession it cannot be compelled to refer investment disputes to this system absent specific consent, provided on a case-by-case basis. Saudi Arabia has yet to consent to the referral of any investment dispute to the ICSID for resolution.
Investor-State Dispute Settlement
The use of any international or domestic dispute settlement mechanism within Saudi Arabia continues to be time-consuming and uncertain, as all outcomes are subject to a final review in the Saudi judicial system and carry the risk that principles of sharia law may potentially trump a judgment or legal precedent. The Embassy recommends consulting with local counsel in advance of investing to review legal options and contractual provisions for dispute resolution.
International Commercial Arbitration and Foreign Courts
Traditionally, dispute settlement and enforcement of foreign arbitral awards in Saudi Arabia have proven time-consuming and uncertain, carrying the risk that sharia principles can potentially trump any foreign judgments or legal precedents, as the New York Convention allows. Even after a decision is reached in a dispute, effective enforcement of the judgment can still take years. In several cases, disputes have caused serious problems for foreign investors. For instance, Saudi partners and creditors have blocked foreigners’ access to or right to use exit visas, forcing them to remain in Saudi Arabia against their will. In cases of alleged fraud or debt, foreign partners may also be jailed to prevent their departure from the country while awaiting police investigation or court adjudication of the case. Courts can in theory impose precautionary restraint on personal property pending the adjudication of a commercial dispute, though this remedy has been applied sparingly.
In recent years, however, the SAG has demonstrated interest in improving the quality of commercial legal proceedings and access to alternative dispute resolution mechanisms. Local attorneys indicate that the quality of final judgments in the court system has improved, but that cases still take far too long to litigate. In 2012, the SAG updated certain provisions in Saudi Arabia’s domestic arbitration law, paving the way for the establishment of the Saudi Center for Commercial Arbitration (SCCA) in 2016. Developed in accordance with international arbitration rules and standards, including those set by the American Arbitration Association’s International Centre for Dispute Resolution and the International Chamber of Commerce’s International Court of Arbitration, the SCCA offers comprehensive arbitration services to firms both domestic and international. Less than a year old, the SCCA has already accepted three arbitration cases filed by Saudi firms against other Saudi firms. The SCCA reports that both domestic and foreign law firms have begun to include referrals to the SCCA in the arbitration clauses of their contracts. Awards rendered by the SCCA can be enforced in local courts, though judges remain empowered to reject enforcement of provisions they deem non-compliant with sharia law.
A 1996 royal decree put Saudi Arabia’s current bankruptcy law, the Regulation on Bankruptcy Protective Settlement, into effect. Articles contained in the law allow debtors to conclude financial settlements with their creditors through committees in each municipal or regional Chamber of Commerce and Industry or through the Board of Grievances. Ordinary creditors may utilize the law’s provisions, except in the case of privileged debts and debts which arise pursuant to the settlement procedures. The Ministry of Commerce and Investment is revising the bankruptcy law to update key provisions and address several deficiencies in the Saudi bankruptcy regime. Potential investors should note that the “resolving insolvency” indicator most negatively affects Saudi Arabia’s World Bank “Doing Business” ranking; its rank for this indicator is 169th out of 190 countries measured.
4. Industrial Policies
The government does not currently impose conditions on investment, such as locating in a specific geographic area (except for some restrictions on the distribution of retail outlets and the location of industrial activities), committing to specific percentages of local content or local equity (except for firms contracting with the government), substitution for imports, export requirements or targets, or financing only by local sources. Nonetheless, the Saudi Industrial Development Fund (SIDF), an entity that reports to the Minister of Energy, Industry, and Mineral Resources, will provide additional incentives and better loan terms to foreign investors who set up their manufacturing facilities in the underdeveloped provinces of Jizan, Hail, and Tabuk.
The government uses its purchasing power to encourage foreign investment, requiring offsetting investments equivalent to 40 percent of a program’s value for defense contracts exceeding SR 400 million ($107 million) and may be expanding offsets to non-defense ministries and agencies. In addition to defense offsets, the SAG is also seeking foreign direct investment in various key sectors, such as oil, power generation, railways, and others, with the aim of fostering job creation.
Research and Development
American and other foreign firms are able to participate in SAG-financed and/or -subsidized research-and-development programs. Many of these programs are run though the King Abdulaziz City for Science and Technology (KACST), which funds much of the Kingdom’s R&D programs. KACST’s budget, however, has been drastically reduced as a result of the SAG’s ongoing fiscal difficulties.
Foreign Trade Zones/Free Ports/Trade Facilitation
Saudi Arabia permits transshipment of goods through its ports in Jeddah, Dammam, and King Abdullah Economic City, and it has bonded re-export zones at the Jeddah and Dammam ports. Saudi Arabia is also a member of the GCC, which confers special trade and investment privileges among the six member states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates), and of the Arab Free Trade Zone, established in 2005.
Performance and Data Localization Requirements
Investors are not currently required to purchase from local sources or export a certain percentage of output, and their access to foreign exchange is unlimited. While not required to procure from local sources, investors may avoid import duties on raw materials only if they can demonstrate to the satisfaction of the MCI that the materials are not available locally. There is no requirement that the share of foreign equity be reduced over time. Investors are not required to disclose proprietary information to the SAG as part of the regulatory approval process, except where issues of health and safety are concerned.
The government encourages recruitment of Saudi employees through a series of incentives and limits placed on the number of visas for foreign workers available to companies. The largest groups of foreign workers come from Bangladesh, Egypt, India, Pakistan, the Philippines, and Yemen. Some two million Syrian nationals are reported to reside in the Kingdom, which allows them to work locally pending resolution of the conflict in their home country.
The SAG announced in 2002 it would ease restrictions on the issuance of visas to foreign businesspeople to allow greater access and decreed in 2005 that sponsor requirements for business visas would be lifted. Difficulties remain regarding the Saudi visa procedures, however, despite the government’s announcement that foreign business visitors will no longer be required to provide invitation letters from Saudi businesses to receive visas. In November 2007, Saudi Arabia declared that it would begin issuing U.S. business visitors five-year, multiple-entry visas at Saudi embassies, consulates, and ports of entry, though the Kingdom’s implementation of this policy had proven sporadic up until early 2016. Today, the Saudi electronic visitor visa system now 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, and the visa applicants must provide evidence that they are 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.
In fall 2016, the SAG implemented a series of significant visitor fee increases for expatriates whose countries do not have reciprocity agreements with Saudi Arabia, doubling the cost of a single-entry business visit visa to $533. (U.S. citizens are exempt from such increases on the basis of a 2008 U.S.-Saudi visa reciprocity agreement.) The SAG also imposed on the same date an increased exit and reentry visa fee for all foreign workers residing in the Kingdom, including U.S. citizens, increasing the cost of a visa to exit and reenter the country by roughly $347 for one year and $694 for two years.
Other than a requirement to retain records locally for ten years for tax purposes, there is no requirement regarding data storage or access to surveillance.
5. Protection of Property Rights
The Saudi legal system protects and facilitates acquisition and disposition of all property, consistent with 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. Mortgages do exist, although the recording system is reportedly unreliable. Other foreign-owned corporate and personal property is protected by law. The Embassy knows of no cases of government expropriation or nationalization of U.S.-owned assets in the Kingdom without adequate compensation. Saudi Arabia does have a system of recording security interests, and has plans to modernize an archaic land registry system. In 2015, the SAG approved a new 2.5 percent annual tax on the value of undeveloped urban vacant land zoned for residential or commercial use, with collection set to begin in January 2018. The measure is intended to stimulate construction to remedy a housing shortage and concentrate development within current city limits, with tax proceeds applied toward public housing construction. For more information, please refer to Saudi Arabia’s data in the World Bank Group’s “Doing Business 2015: Going Beyond Efficiency” publication: http://www.doingbusiness.org/rankings .
Intellectual Property Rights
In the last two decades, Saudi Arabia undertook a comprehensive revision of its laws covering intellectual property rights to bring them in line with the WTO agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) and promulgated changes in coordination with the World Intellectual Property Organization (WIPO). The SAG updated its Trademark Law (2002), Copyright Law (2003), and Patent Law (2004) with the dual goals of TRIPs compliance and effective deterrence. In 2008, the Violations Review Committee created a website and has populated it with information on current cases. Although intellectual property rights reforms are slow and inconsistent in some areas, the Kingdom is progressing overall.
The current Law on Patents, Layout Designs of Integrated Circuits, Plant Varieties and Industrial Designs has been in effect since September 2004. The patent office continues to build its capacity through training, has streamlined its procedures, hired more staff, and reduced its backlog. Patents are available for both products and processes. The term of protection was increased from 15 to 20 years under the 2004 law, but patent holders can no longer apply for a routinely granted five-year extension. In December 2009, the Saudi Council of Ministers approved the Kingdom’s accession to both the Intellectual Property Owners Association Patent Cooperation Treaty and its Implementing Regulations and the Patent Law Treaty adopted by the Diplomatic Conference in Geneva on June 1, 2000.
In September 2009, the King approved a mechanism to protect Exclusive Marketing Rights (EMR) for certain pharmaceutical products that had lost patent protection when Saudi Arabia transitioned to a new TRIPS-compliant patent law in 2004. EMR protection in Saudi Arabia expires on the same date the patent expires in the United States or the European Union, and companies report that they have received EMR protection for accepted applications. Recent steps by the Saudi FDA (SFDA) to license locally-manufactured cheaper generic versions of patent-pending drugs within their five year regulatory data protection period have created significant concern among U.S. industry stakeholders due to the commercial loss resulting from this abrogation of their patent and data protection.
The SAG revised its Copyright Law in 2003 and is seeking to impose stricter penalties on copyright violators. In January 2010, the Ministry of Culture and Information referred the first-ever copyright-violation case to the Board of Grievances for deterrent sentencing. The SAG has stepped up efforts to force pirated printed material, recorded music, videos, and software off the shelves of stores, including relatively frequent raids on shops selling pirated goods, but many pirated materials are still available in the marketplace. The Ministry employs only a handful of investigators/inspectors nationwide and lacks the resources for effective copyright enforcement. The use of pirated software increases possible cyber-security vulnerability in some systems, and may have played a role in a major cyber failure in 2012 at Aramco. An Islamic religious edict (“fatwa”) stating that software piracy is “forbidden” has not been backed up by strong enforcement efforts. Much of the software utilized by the Saudi government itself is reportedly unlicensed or “under-licensed” (in which insufficient licenses are procured for the total number of users).
Comprehensive data on seizures of counterfeit goods is not available, but the SAG does make public announcements in local media when large seizures are made. Saudi Customs, for example, reported that it had seized a total of 41 million counterfeit goods worth $83 million in the fourth quarter of 2016 alone.
The Rules for Protection of Trade Secrets came into effect in 2005. Trademarks are protected under the Trademark Law. Saudi Arabia has one of the best trademark laws in the region, and the Saudi Customs Authority has significantly stepped up its enforcement efforts. Saudi Arabia received anti-counterfeiting and piracy awards from the World Customs Organization in 2009 for organizing the first Pan-Arab conference on this issue, building the capacity of the Customs Authority, and translating official documents into Arabic. Saudi Arabia has not signed or ratified the WIPO internet treaties.
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/ .
Saudi Arabia was removed from USTR’s Special 301 report in 2010 following improvements in the Kingdom’s IPR enforcement regime. Saudi Arabia is not listed in USTR’s notorious markets review.
Resources for Rights Holders
Embassy point of contact:
+966 11 488-3800 Ext. 4140
6. Financial Sector
Capital Markets and Portfolio Investment
Financial policies generally facilitate the free flow of private capital, while 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), which was established in 2004, and opened the stock exchange to public investment.
Prior to 2015 the CMA only permitted foreign investors to invest in the Saudi stock market through indirect “swap arrangements,” through which foreigners had accumulated ownership of one per cent of the market. In June 2015, the CMA opened the stock market to qualified foreign investors, though to date only large financial institutions have met the stringent requirements for entry. In 2016 these standards were lowered to allow additional foreign investors to qualify for market entry, reducing the minimum requirement of assets to have under management from $5 billion to $1 billion. To prevent foreign entities from becoming a majority shareholder of a Saudi Arabian company, the CMA has capped foreign ownership of traded companies at 49 percent.
In 2013, the Saudi Arabian Monetary Agency (SAMA), the central bank, enhanced and updated its 1995 Circular on Guidelines for the Prevention of Money Laundering and Terrorist Financing. The enhanced guidelines are more compliant with the Banking Control Law, the Financial Action Task Force (FATF) 40 Recommendations, the nine Special Recommendations on Terrorist Financing, and relevant UN Security Council Resolutions. In 2015 Saudi Arabia obtained observer status to the FATF and pending a successful mutual evaluation will gain full member status in 2018.
Historically, credit was widely available to both Saudi and foreign entities from commercial banks and was allocated on market terms. The 2016 accumulation of government arrears combined with the monthly domestic bond offerings created a late-2016 tightening of liquidity in the banking system. Subsequent contractor payments and suspension of domestic bond sales combined with an injection of capital from SAMA returned liquidity levels to near normal by early 2017. In addition to large-scale supplemental programs, credit is available from several government institutions, such as the SIDF, which allocate credit based on government-set criteria rather than market conditions. Companies must have a legal presence in Saudi Arabia in order to qualify for credit. The private sector has access to term loans, and there have been a number of issuances of sharia compliant bonds, known as “sukuk,” but there is no fully developed corporate bond market.
As part of the economic reforms initiated for accession to the WTO, Saudi Arabia liberalized licensing requirements for foreign investment in financial services. In addition, the government increased foreign-equity limits in financial institutions from 40 percent to 60 percent to entice further foreign investment.
Money and Banking System
In the last few years, the SAG has taken steps to increase foreign participation in its banking sector by granting operating licenses to foreign banks. As of 2017, SAMA had granted 12 foreign banks licenses to operate in the Kingdom: Gulf International Bank, Emirates NBD, National Bank of Bahrain, National Bank of Kuwait, Muscat Bank, Deutsche Bank, BNP Paribas, J.P. Morgan Chase N.A., National Bank of Pakistan, State Bank of India, T.C.ZIRAAT BANKASI A.S., Industrial and Commercial Bank of China (ICBC). The Cabinet further approved the licensing of a branch of Qatar National Bank, although according to SAMA’s website the license “has not started yet.” The legal, regulatory, and accounting systems practiced in the banking sector are generally transparent and consistent with international norms. SAMA, which oversees and regulates the banking system, generally gets high marks for its prudent oversight of commercial banks in Saudi Arabia. SAMA is the only central bank in the Middle East other than Israel’s that is a member and shareholder of the Bank for International Settlements in Basel, Switzerland.
Foreign Exchange and Remittances
Other than withholding taxes ranging from five percent for technical services and dividend distributions to 15 percent for transfers to related parties and 20 percent or more for management fees, there is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs. Bulk cash shipments greater than $10,000 must be declared at the point of entry or exit. Since 1986, when the last devaluation occurred, the official exchange rate has been 3.75 Saudi riyals per US dollar. Transactions take place using rates very close to the official rate.
Saudi Arabia is the second most remitting country in the world, and remitted almost $41 billion in 2016 (a three percent drop from the 2015 amount). There are currently no restrictions on converting and transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, and lease payments) into a freely usable currency at a legal market-clearing rate. While there have been no recent changes, the SAG actively debated over the course of 2016 a tax on expatriates’ remittances ranging from two to six percent. Although the SAG announced in January 2017 that it had shelved the idea, the SAG’s implementation of taxes and fees in other areas to generate non-oil revenue suggest the remittance tax proposal could appear again in the future.
The Ministry of Labor and Social Development has also begun to progressively implement a “Wage Protection System” designed to verify that workers are being properly paid according to their contracts; under this system, employers are required to transfer salary payments from a local Saudi bank account to employees’ local bank account, rather than paying some workers offshore as has been common in the past. There are no delays in effect for remitting investment returns such as dividends, repatriation of capital, interest and principal on private foreign debt, lease payments, royalties and management fees through normal legal channels. There is no need for a legal parallel market for investor remittances. Saudi Arabia is a member of Middle East and North Africa Financial Action Task Force (MENA-FATF) and an observer member of the FATF.
Sovereign Wealth Funds
The Kingdom does not have an official sovereign wealth fund, but several organizations have attributes of such a fund. In practice, SAMA acts as the Kingdom’s principal sovereign wealth fund, holding the majority of the Kingdom’s foreign assets. SAMA, whose holdings stood at about $536 billion at the end of 2016, invests the Kingdom’s surplus oil revenues primarily in low-risk liquid assets, such as sovereign debt instruments and fixed-income securities.
The Kingdom established a Public Investment Fund (PIF) in 1971 to channel oil wealth into economic development. The PIF’s role has grown and evolved over time; it currently invests approximately 95 percent of its assets in the domestic market and holds the government’s shares in many partially privatized state-owned enterprises (SOEs), including SABIC, the National Commercial Bank, Saudi Telecom Company, and others. The PIF was removed from the Ministry of Finance’s control in 2015 and placed under the authority of the Council for Economic and Development Affairs. In 2008, the Kingdom established the Saudi Arabian Investment Company (also known as Sanabil al-Saudia), which is wholly owned by the PIF. The fund began with $5.3 billion of startup capital and makes direct equity investments in Saudi-based companies, employing a long-term investment strategy similar to traditional sovereign wealth funds. The General Organization for Social Insurance (GOSI), which oversees the Kingdom’s private-sector workers’ pension contributions, owns stakes in most leading publicly traded Saudi firms. In 2009, GOSI formed Hassana Investment Company, an investment vehicle similar to the PIF’s Sanabil. PIF and GOSI are the two leading institutional investors in the Saudi stock market.
In April 2016, Deputy Crown Prince Mohammed bin Salman announced his intention to build the PIF into a $2 trillion global investment fund, relying in part on proceeds from the planned initial public offering of some portions of Aramco’s business lines (currently set for 2018). In 2016, the PIF made headlines with a record $3.5 billion investment in ride-hailing Uber, followed by an agreement with Japanese SoftBank Group Corp. to jointly create a $100 billion technology investment fund.
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, and petrochemicals. Aramco, the world’s largest producer and exporter of crude oil and a large-scale oil refiner and producer of natural gas, is 100 percent SAG-owned, and its revenues typically account for around 85-90 percent of the SAG’s budget. The SAG has announced that it is planning an Aramco initial public offering (IPO) of up to five percent in 2018. The SAG claims that the company is valued at $2 trillion, which would make a five percent IPO the largest in history. Saudi Arabia’s leading petrochemical company, SABIC, is 70 percent owned by the SAG. SABIC’s Chairman is a member of the royal family and also the chair of the Royal Commission of Jubail & Yanbu; four additional members of SABIC’s seven-member board are SAG officials. The SAG tends to be similarly well-represented in the leadership of other SOEs. State-owned Saudi Arabian Airlines (Saudia) competes against Fly Nas, a private, low-cost carrier, but enjoys substantial discounts on aviation fuel. The SAG has yet to initiate accession procedures to join the Government Procurement Agreement, as agreed during the Kingdom’s accession process to the WTO.
In 2002, the Supreme Economic Council announced the approval of privatization procedures, open to domestic and foreign investors, and a timetable to transfer certain public services to the private sector. Twenty state-owned companies handling water supply and drainage, water desalination, telecommunications, mining, power, air transportation and related services, railways, some sectors of roadways, postal services, flour mills and silos, seaport services, industrial-cities services, government hotels, sports clubs, some municipality services, educational services, social services, agricultural services, health services, government portions of SABIC, banks, and local refineries were slated for privatization.
As a result of the privatization strategy, the Saudi Telecommunications Company (STC) floated a minority stake (approximately 20 percent) on the stock market in January 2003, netting close to $4 billion in proceeds. An additional 10 percent has since been offered for private ownership. The initial public offering (IPO) of 50 percent of the formerly state-owned National Company for Cooperative Insurance was completed in January 2005. The first SABIC offering went public on December 17, 2005, for 35 percent of the newly formed Yanbu National Petrochemical Company (YANSAB; to be capitalized at $1.5 billion). YANSAB is SABIC’s largest petrochemical complex to date, and the IPO netted $533 million in capital.
In 2015, as part of Saudi Arabia’s renewed efforts to transform and diversify its economy in the wake of sustained low oil prices, the SAG announced that it had identified over 25 additional sectors for privatization in the coming years, chief among them civil aviation, technology, and healthcare. The Kingdom’s new privatization strategy began in earnest in January 2016, when the General Authority for Civil Aviation (GACA) announced that it would privatize management and operations of all 27 airports within the Kingdom by 2020, beginning with King Khalid International Airport (KKIA) in Riyadh in 2016. (Although the SAG did not fully privatize KKIA in 2016, it did award operation and management for the airport’s new domestic terminal to a semi-private foreign firm—the Dublin Airport Authority. In May 2017, the SAG announced that it had awarded a license to operate Jeddah’s King Abdulaziz International Airport to Singapore-based Changi Airports International. Meanwhile, the SAG has spun off air navigation services into a new state-owned enterprise with the aim of eventually privatizing the service.) Foreign entities will be allowed to invest in Saudi airports without a Saudi partner, and local investment in some airports will be capped at 25 percent to allow foreign operators a majority holding in operating contracts, according to GACA.
The SAG has also signaled its intention to privatize large portions of its healthcare industry and energy sector. In January 2016, then-Minister of Health Khalid al-Falih announced plans to double private-sector participation in healthcare within five years, expecting to attract nearly $11 billion in investment during the same period. After the former minister of commerce assumed leadership at the Ministry of Health, the new minister continued plans to develop pilot projects for privatization. The same month, Deputy Crown Prince Mohammed bin Salman, Chair of the Kingdom’s Council on Economic and Development Affairs (set up in early 2015 to exercise authority over the SAG’s 22 economic ministries and agencies), expressed support for a potential IPO of Aramco, Saudi Arabia’s state-owned oil enterprise. The SAG has announced that it is planning an Aramco initial public offering (IPO) of up to five percent in 2018. The SAG claims that the company is valued at $2 trillion, which would make a five percent IPO the largest in history. Separately, the Saudi Electricity Company (SEC) has declared its intent to privatize all of its power generation plants starting in late 2017.
In July 2003, the SAG lowered the corporate tax rate on foreign investors to a flat 20 percent; however, separate rates apply to investments in hydrocarbons. The flat tax replaced a tiered system with tax rates as high as 45 percent. While this was a welcome step toward more balanced treatment of foreign and Saudi-owned capital, the tax structure still favors Saudi companies and joint ventures with Saudi participation. Saudi investors do not pay corporate income tax, but are subject to a 2.5 percent tax, or “zakat,” on net current assets.
8. Responsible Business Conduct
There is a dawning awareness of corporate social responsibility (CSR) in Saudi Arabia. The SAG sees CSR primarily as a component of its competitiveness vis-à-vis global economies and has knit CSR promotion into its goal of becoming a top-ten economy. In July 2008, SAGIA, the King Khalid Foundation, and the international NGO AccountAbility jointly established the Saudi Arabian Responsible Competitiveness Index, a ranking of companies’ CSR contributions. The results led to the granting of the King Khalid Responsible Competitiveness Award in several categories at the annual Global Competitiveness Forum. In 2013, the Jeddah Chamber of Commerce and Industry launched the first annual summit entirely dedicated to CSR, the third iteration of which took place in December 2015. In general, the Embassy believes that the SAG and major corporations are fully aware of CSR but does not believe CSR currently has a broad impact on consumer perception.
The government encourages foreign and local enterprises to follow generally accepted CSR principles, including the OECD Guidelines for Multinational Enterprises.
Saudi Arabia has limited legislation aimed at curbing corruption. The Tenders Law of Saudi Arabia, approved in 2004, has improved transparency in the government procurement process through the publication of tenders. Ministers and other senior government officials appointed by royal decree are forbidden from engaging in business activities with their ministry or organization while employed there. While regulations issued in 1992 carry heavy penalties for public officials who offer or receive bribes, there is no prohibition against bribery in the private sector. There are few cases of prominent citizens or government officials being tried on corruption charges.
Foreign firms have identified corruption as a barrier to investment in Saudi Arabia; nevertheless, authorities have only taken modest steps toward combating it. In April 2007, King Abdullah established the National Authority for Combating Corruption that was to report directly to the king, but there was little tangible follow-through to empower this institution. The General Auditing Bureau is also charged with combating corruption. In 2011, King Abdullah reconstituted the Authority as the National Anti-Corruption Commission (“Nazaha”) under new and more energetic leadership. The Commission regularly publishes news of its investigations on its website (http://www.nazaha.gov.sa/en/Pages/Default.aspx ), and some evidence suggests the organization has not shied away from influential players whose indiscretions may previously have been ignored. The Commission’s ability to monitor corruption in the Kingdom’s judicial system, however, remains limited: in 2015, the Minister of Justice announced that the Commission had no authority to inspect judges within the country. Globally, Saudi Arabia ranks 62nd out of 176 countries in Transparency International’s Corruption Perceptions Index 2016.
Saudi Arabia ratified the U.N. Convention against Corruption in April 2013 and signed the G-20 Anti-Corruption Action Plan in November 2010.
Resources to Report Corruption
The National Anti-Corruption Commission’s physical address by post, telegram, or in person:
National Anti-Corruption Commission
P.O. Box (Wasl) 7667
The Kingdom of Saudi Arabia
Through the “Complainant Service” on the website of the National Anti-Corruption Commission: http://www.nazaha.gov.sa/en/eServices/Complaints/Pages/default.aspx
10. Political and Security Environment
The Department of State issues regular travel warnings to apprise U.S. citizens about the security situation in Saudi Arabia and frequently reminds U.S. citizens of recommended security precautions. Significant enhancements in the capacity and capability of Saudi security and intelligence forces have greatly improved the security environment, but it is important to note that there is an ongoing security threat from transnational terrorist organizations such as the Islamic State (ISIS) and Al Qaida in the Arabian Peninsula. In the most recent Travel Warning for Saudi Arabia, the Department of State urges U.S. citizens to consider carefully the risks of traveling to Saudi Arabia. According to the Warning, there continue to be reports of threats against U.S. citizens and other Westerners, as well as locations frequented by them. There have been multiple attacks on mosques which were directed or inspired by the ISIS in the past year. Furthermore, there are ongoing security concerns related to the crises in neighboring countries such as Yemen and Iraq.
11. Labor Policies and Practices
The Ministry of Labor and Social Development along with the Ministry of Interior regulate recruitment and employment of expatriate labor, which makes up a large majority of the private-sector workforce. The government encourages recruitment of Saudi employees through a series of incentives and limits placed on the number of visas for foreign workers available to companies. The largest groups of foreign workers come from Bangladesh, Egypt, India, Pakistan, the Philippines, and Yemen. Westerners compose less than 2 percent of the labor force.
Beginning with the 1969 Labor and Workman Regulations, Saudi Arabia has pursued a number of localization schemes to combat unemployment among Saudis, which the CIA World Factbook estimated at 11.7 percent for Saudi males in 2016, and nearly 33 percent for Saudi women. Other estimates put the unemployment rate at as high as 25 percent, while estimates of youth unemployment among Saudis aged 15-25 approach 30 percent. In 2011, the Ministry of Labor and Social Development laid out a sophisticated plan known as “Nitaqat,” under which companies are divided into sectors, each with a different set of quotas for Saudi employment based on company size. Each company is determined to be in one of four strata based on actual percentage of Saudi employees, with platinum and green strata for companies meeting or exceeding the quota for their sector and size, and yellow and red strata for those failing to meet it. Expatriate employees in red and yellow companies can move freely to green or platinum companies, without the approval of their current employers, and green and platinum companies have greater privileges with regard to securing and renewing work permits for expatriates.
The Ministry of Labor and Social Development has announced the goal of reducing the expatriate population from approximately 30 percent currently to 20 percent of the total population. Over the last year, the SAG has taken additional measures to strengthen the “Nitaqat” program and require the hiring of Saudi nationals. In 2016, the Ministry of Labor and Social Development introduced new rules requiring all mobile phone stores in the Kingdom – which were formerly mostly owned and operated by expatriates – to be fully staffed by Saudi nationals, a policy that resulted in numerous store closures across the country. Likewise, efforts are underway to ensure Saudi employment in retail businesses catering to women.
Many elements of “Nitaqat” have garnered criticism from the private sector, but the SAG claims it has substantially increased the percentage of Saudi nationals working in the private sector over the last several years. In 2013, the Ministry of Labor and Social Development along with Ministry of Interior launched an ongoing campaign to deport illegal and improperly documented workers, which has resulted in higher labor costs for many businesses. In addition, all companies operating in the Kingdom, regardless of sector or size, are now obliged to pay $640 per year for each expatriate employee in excess of the number of the company’s Saudi employees—a fee expected to increase annually. Numerous employers, particularly in construction and other blue-collar services sectors, have vehemently criticized the SAG’s labor policies, but it appears the SAG will continue to enforce them.
Saudi Arabia’s labor law, enacted in 2005, forbids union activity, strikes, and collective bargaining. However, the government allows companies that employ more than 100 Saudis to form “labor committees.” By-laws detailing the functions of the committees were enacted in April 2002. In 2015, the SAG published 38 amendments to the existing labor law with the aim of supporting the “Saudization” of the economy by expanding Saudi employees’ rights and benefits. Domestic workers are not covered under the provisions of the latest labor law, but separate regulations covering domestic workers were issued in 2013, guaranteeing at least nine hours of rest per day, one day off a week, and one month of paid vacation every two years.
Overtime is normally compensated at time-and-a-half rates. The minimum age for employment is 14. The SAG does not adhere to the International Labor Organization’s convention protecting workers’ rights. A July 2004 decree addresses some workers’ rights issues for non-Saudis, who can appeal to specialized committees within the Ministry of Labor and Social Development 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.
12. OPIC and Other Investment Insurance Programs
OPIC stopped operating in Saudi Arabia in 1995 due to the government’s failure to take steps to adopt and implement laws that extend internationally recognized workers’ rights to its labor force. Saudi Arabia has been a member of the Multilateral Investment Guarantee Agency since April 1988.
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)||2015||$646,002||2015||$646,002||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||N/A||2014||$10,064||BEA|
|Host country’s FDI in the United States ($M USD, stock positions)||N/A||2014||$13,300||FDI Markets|
|Total inbound stock of FDI as % host GDP||N/A||2015||1.02%||UN Conference on Trade and Development|
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$169,206||100%||Total Outward||$63,251||100%|
|United Arab Emirates||$12,601||7%||N/A||N/A||N/A|
|China, P.R.: Mainland||$9,035||5%||N/A||N/A||N/A|
|“0” reflects amounts rounded to +/- USD 500,000.|
Source: Inward Direct Investment: IMF Coordinated Direct Investment Survey (2010 – latest available), Outward Direct Investment: UNCTAD World Investment Report (2016)
Table 4: Sources of Portfolio Investment
Coordinated Portfolio Investment Survey data are not available for Saudi Arabia.
14. Contact for More Information
Economic Section and Foreign Commercial Service Offices
Embassy of the United States of America
P.O. Box 94309
Riyadh 11693, Saudi Arabia
Phone: +966 11 488-3800