The Egyptian government continues to make progress on economic reforms, and while many challenges remain, Egypt’s investment climate is improving. Thanks in part to the macroeconomic reforms it completed as part of a three-year, $12-billion International Monetary Fund (IMF) program from 2016 to 2019, Egypt was one of the fastest-growing emerging markets prior to the COVID-19 outbreak. Egypt was also the only economy in the Middle East and North Africa to record positive economic growth in 2020, despite the COVID-19 pandemic and thanks in part to IMF assistance totaling $8 billion. Increased investor confidence and high real interest rates have attracted foreign portfolio investment and increased foreign reserves. In 2021, the Government of Egypt (GoE) announced plans to launch a second round of economic reforms aimed at increasing the role of the private sector in the economy, addressing long-standing customs and trade policy challenges, modernizing its industrial base, and increasing exports. The GoE increasingly understands that attracting foreign direct investment (FDI) is key to addressing many of its economic challenges and has stated its intention to create a more conducive environment for FDI. FDI inflows grew 11 percent between 2018 and 2019, from $8.1 to $9 billion, before falling 39 percent to $5.5 billion in 2020 amid sharp global declines in FDI due to the pandemic, according to data from the Central Bank of Egypt and the United Nations Commission on Trade and Development (UNCTAD). UNCTAD ranked Egypt as the top FDI destination in Africa between 2016 and 2020.
Egypt has passed several regulatory reform laws, including a new investment law in 2017; a “new company” law and a bankruptcy law in 2018; and a new customs law in 2020. These laws aim to improve Egypt’s investment and business climate and help the economy realize its full potential. The 2017 Investment Law is designed to attract new investment and provides a framework for the government to offer investors more incentives, consolidate investment-related rules, and streamline procedures. The 2020 Customs Law is likewise meant to streamline aspects of import and export procedures, including through a single-window system, electronic payments, and expedited clearances for authorized companies.
Egypt will host the United Nations Climate Change Conference, COP 27, in November 2022. Recognizing the immense challenges the country faces from the impacts of climate change, government officials announced that the Cabinet will appropriate 30 percent of government investments in the 2022/2023 budget to green investments, up from 15 percent in the current fiscal year 2021/2022, and that by 2030 all new public sector investment spending would be green. The GoE accelerated plans to generate 42 percent of its electricity from renewable sources by five years, from 2035 to 2030, and is prioritizing investments in solar and wind power, green hydrogen, water desalination, sustainable transportation, electric vehicles, smart cities and grids, and sustainable construction materials. The government continues to seek investment in several mega projects, including the construction of smart cities, and to promote mineral extraction opportunities. Egypt intends to capitalize on its location bridging the Middle East, Africa, and Europe to become a regional trade and investment gateway and energy hub and hopes to attract information and communications technology (ICT) sector investments for its digital transformation program.
Egypt is a party to more than 100 bilateral investment treaties, including with the United States. It is a member of the World Trade Organization (WTO), the African Continental Free Trade Agreement (AfCFTA), and the Greater Arab Free Trade Area (GAFTA). In many sectors, there is no legal difference between foreign and domestic investors. Special requirements exist for foreign investment in certain sectors, such as upstream oil and gas as well as real estate, where joint ventures are required.
1. Openness To, and Restrictions Upon, Foreign Investment
Egypt’s completion of the three-year, $12-billion IMF Extended Fund Facility between 2016 and 2019, and its associated reform package, helped stabilize Egypt’s macroeconomy, introduced important subsidy and social spending reforms, and helped restore investor confidence in the Egyptian economy. The flotation of the Egyptian Pound (EGP) in November 2016 and the restart of Egypt’s interbank foreign exchange (FX) market as part of this program was the first major step in restoring investor confidence that immediately led to increased portfolio investment and should lead to increased FDI over the long term. Other important reforms have included a new investment law and an industrial licensing law in 2017, a new bankruptcy law in 2018, a new customs law in 2020, and other reforms aimed at reducing regulatory overhang and improving the ease of doing business.
In 2021, Egypt’s government announced plans to launch a second round of economic reforms aimed at increasing the role of the private sector in the economy, addressing long-standing customs and trade policy challenges, and modernizing its industrial base and increasing exports.
As a result of the government’s increased focus on infrastructure development, Egypt’s $259 billion project finance pipeline is the third-largest in the Middle East and the largest in Africa as of March 2022, according to ratings agency Fitch. Recognizing the immense challenges the country faces from the impacts of climate change, government officials announced in 2021 that by 2030 all new public sector investment spending would be green, and accelerated plans to generate 42 percent of its electricity from renewable sources by 2035. Egypt will host the United Nations Conference on Climate Change, COP 27, in November 2022, and the government is developing a package of investment incentives aimed at attracting foreign investment and project finance in areas such as solar and wind power, green hydrogen, water desalination, sustainable transportation, electric vehicles, smart cities and grids, and sustainable construction materials.
With few exceptions, Egypt does not legally discriminate between Egyptian nationals and foreigners in the formation and operation of private companies. The 1997 Investment Incentives Law was designed to encourage domestic and foreign investment in targeted economic sectors and to promote decentralization of industry away from the Nile Valley. The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital.
The Tenders Law (Law 89 of 1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.
The Capital Markets Law (Law 95 of 1992) and its amendments, including the most recent in February 2018, and relevant regulations govern Egypt’s capital markets. Foreign investors are able to buy shares on the Egyptian Stock Exchange on the same basis as local investors.
The General Authority for Investment and Free Zones (GAFI, http://gafi.gov.eg) is the principal government body that regulates and facilitates foreign investment in Egypt and reports directly to the Prime Minister.
The Investor Service Center (ISC) is an administrative unit within GAFI that provides “one-stop-shop” services, easing the way for global investors looking for opportunities presented by Egypt’s domestic economy and the nation’s competitive advantages as an export hub for Europe, the Middle East, and Africa. This is in addition to promoting Egypt’s investment opportunities in various sectors.
The ISC provides a start-to-end service to the investor, including assistance related to company incorporation, establishment of company branches, approval of minutes of Board of Directors and General Assemblies, increases of capital, changes of activity, liquidation procedures, and other corporate-related matters. The Center also aims to issue licenses, approvals, and permits required for investment activities within 60 days from the date of request. Other services GAFI provides include:
Advice and support to help in the evaluation of Egypt as a potential investment location;
Identification of suitable locations and site selection options within Egypt;
Assistance in identifying suitable Egyptian partners; and
Dispute settlement services.
The ISC plans to establish branches in each of Egypt’s Governorates by the end of 2021. Egypt maintains ongoing communication with investors through formal business roundtables, investment promotion events (conferences and seminars), and one-on-one investment meetings.
The Egyptian Companies Law does not set any limitation on the number of foreigners, neither as shareholders nor as managers/board members, except for Limited Liability Companies where the only restriction is that one of the managers must be an Egyptian national. In addition, companies are required to obtain a commercial and tax license, and pass a security clearance process. Companies are able to operate while undergoing the often lengthy security screening process. However, if the firm is rejected, it must cease operations and may undergo a lengthy appeals process. Businesses have cited instances where Egyptian clients were hesitant to conclude long-term business contracts with foreign businesses that have yet to receive a security clearance. They have also expressed concern about seemingly arbitrary refusals, a lack of explanation when a security clearance is not issued, and the lengthy appeals process. Although the Government of Egypt has made progress streamlining the business registration process at GAFI, inconsistent treatment by banks and other government officials has in some cases led to registration delays.
Sector-specific limitations to investment include restrictions on foreign shareholding of companies owning lands in the Sinai Peninsula. Likewise, the Import-Export Law requires companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians. Nevertheless, the new Investment Law does allow wholly foreign companies investing in Egypt to import goods and materials. In January 2021 the Egyptian government removed the 20-percent foreign ownership cap for international and private schools in Egypt.
The ownership of land by foreigners is complicated, in that it is governed by three laws: Law 15 of 1963, Law 143 of 1981, and Law 230 of 1996. Land/Real Estate Law 15 of 1963 explicitly prohibits foreign individual or corporation ownership of agricultural land (defined as traditional agricultural land in the Nile Valley, Delta and Oases). Law 15/1963 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land. Law 143/1981 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is approximately equal to one acre) that may be owned by individuals, families, cooperatives, partnerships, and corporations regardless of nationality. Partnerships are permitted to own 10,000 feddans. Joint stock companies are permitted to own 50,000 feddans.
Under Law 230/1986, non-Egyptians are allowed to own real estate (vacant or built) only under the following conditions:
Ownership is limited to two real estate properties in Egypt that serve as accommodation for the owner and his family (spouses and minors) in addition to the right to own real estate needed for activities licensed by the Egyptian Government;
The area of each real estate property does not exceed 4,000 m²; and
The real estate is not considered a historical site.
Exemption from the first and second conditions is subject to the approval of the Prime Minister. Ownership in tourist areas and new communities is subject to conditions established by the Cabinet of Ministers. Non-Egyptians owning vacant real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public. Non-Egyptians cannot sell their real estate for five years after registration of ownership, unless the Prime Minister consents to an exemption.
In December 2020, the World Bank published a Country Private Sector Diagnostic report for Egypt which analyzed key structural economic reforms that the Egyptian government should adopt in order to encourage private-sector-led economic growth. The report also included recommendations for the agribusiness, manufacturing, information technology, education, and healthcare sectors.
On July 8, 2020, the Organization for Economic Cooperation and Development (OECD) released an Investment Policy Review for Egypt that highlighted the government’s progress implementing a proactive reform agenda to improve the business climate, attract more foreign and domestic investment, and reap the benefits of openness to FDI and participation in global value chains.
In January 2018 the World Trade Organization (WTO) published a comprehensive review of the Egyptian Government’s trade policies, including details of the Investment Law’s (Law 72 of 2017) main provisions.
The United Nations Conference on Trade Development (UNCTAD) published an Information and Communications Technology (ICT) Policy Review for Egypt in 2017, in which it highlighted the potential for investments in the ICT sector to help drive economic growth and recommended specific reforms aimed at strengthening Egypt’s performance in key ICT policy areas.
GAFI’s ISC (https://gafi.gov.eg/English/Howcanwehelp/OneStopShop/Pages/default.aspx) was launched in February 2018 and provides start-to-end service to the investor, as described above. The Investment Law (Law 72 of 2017) also introduces “Ratification Offices” to facilitate obtaining necessary approvals, permits, and licenses within 10 days of issuing a Ratification Certificate.
Investors may fulfill the technical requirements of obtaining the required licenses through these Ratification Offices, directly through the concerned authority, or through its representatives at the Investment Window at GAFI. The Investor Service Center is required to issue licenses within 60 days from submission. Companies can also register online. GAFI has also launched e-establishment, e-signature, and e-payment services to facilitate establishing companies.
Egypt promotes and incentivizes outward investment. According to the Egyptian government’s FDI Markets database for the period from January 2003 to January 2021, outward investment featured the following:
Egyptian companies implemented 278 Egyptian FDI projects. The estimated total value of the projects, which employed about 49,000 workers, was $24.26 billion;
The following countries respectively received the largest amount of Egyptian outward investment in terms of total project value: The United Arab Emirates (UAE), Saudi Arabia, Algeria, Kenya, Jordan, Ethiopia, Germany, Libya, Morocco, and Nigeria;
The UAE, Saudi Arabia, and Algeria accounted for about 28 percent of the total amount;
Elsewedy Electric was the largest Egyptian company investing abroad, implementing 21 projects with a total investment estimated to be $2.1 billion.
Egypt does not restrict domestic investors from investing abroad.
3. Legal Regime
The Egyptian government has made efforts to improve the transparency of government policy and to support a fair, competitive marketplace. Nevertheless, improving government transparency and consistency has proven difficult, and reformers have faced strong resistance from entrenched bureaucratic and private interests. Significant obstacles continue to hinder private investment, including the reportedly arbitrary imposition of bureaucratic impediments and the length of time needed to resolve them. Nevertheless, the impetus for positive change driven by the government reform agenda augurs well for improvement in policy implementation and transparency.
Enactment of laws is the purview of the Parliament, while executive regulations are the domain of line ministries. Under the Constitution, the president, the cabinet, and any member of parliament can present draft legislation. After submission, parliamentary committees review and approve legislation, including any amendments. Upon parliamentary approval, a judicial body reviews the constitutionality of any legislation before referring it to the president for his approval.
Although notice and full drafts of legislation are typically printed in the Official Gazette (similar to the Federal Register in the United States), there is no centralized online location where the government publishes comprehensive details about regulatory decisions or their summaries, and in practice consultation with the public is limited. In recent years, the Ministry of Trade and other government bodies have circulated draft legislation among concerned parties, including business associations and labor unions. This has been a welcome change from previous practice, but is not yet institutionalized across the government.
Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The Financial Regulatory Authority (FRA) supervises and regulates all non-banking financial markets and instruments, including capital markets, futures exchanges, insurance activities, mortgage finance, financial leasing, factoring, securitization, and microfinance. It issues rules that facilitate market efficiency and transparency. FRA has issued legislation and regulatory decisions on non-banking financial laws, which govern FRA’s work and the entities under its supervision. (http://www.fra.gov.eg/jtags/efsa_en/index_en.jsp )
The criteria for awarding government contracts and licenses are made available when bid rounds are announced. The process actually used to award contracts is broadly consistent with the procedural requirements set forth by law. Further, set-aside requirements for small and medium-sized enterprise (SME) participation in GoE procurement are increasingly highlighted. The FRA publishes key laws and regulations to the following website:
The Parliament and the independent “Administrative Control Authority” both ensure the government’s commitment to follow administrative processes at all levels of government.
The cabinet develops and submits proposed regulations to the president following discussion and consultation with the relevant ministry and informal consultation with other interest groups. Based on the recommendations provided in the proposal, including recommendations by the presidential advisors, the president issues “Presidential Decrees” that function as implementing regulations. Presidential decrees are published in the Official Gazette for enforcement.
The degree to which ministries and government agencies responsible for drafting, implementing, or enforcing a given regulation coordinate with other stakeholders varies widely. Although some government entities may attempt to analyze and debate proposed legislation or rules, there are no laws requiring scientific studies or quantitative regulatory impact analyses prior to finalizing or implementing new laws or regulations. Not all issued regulations are announced online, and not all public comments received by regulators are made public.
The government made its budget documents widely and easily accessible to the general public, including online. Budget documents did not include allocations to military state-owned enterprises, nor allocations to and earnings from state-owned enterprises. Information on government debt obligations was publicly available online, but up-to-date and clear information on state-owned enterprise debt guaranteed by the government was not available. According to information the Central Bank has provided to the World Bank, the lack of information available about publicly guaranteed private-sector debt meant that this debt was generally recorded as private-sector non-guaranteed debt, thus potentially obscuring some contingent debt liabilities.
In general, international standards are the main reference for Egyptian standards. According to the Egyptian Organization for Standardization and Quality Control, approximately 7,000 national standards are aligned with international standards in various sectors. In the absence of international standards, Egypt uses other references referred to in Ministerial Decrees No. 180/1996 and No. 291/2003, which stipulate that in the absence of Egyptian standards, the producers and importers may use European standards (EN), U.S. standards (ANSI), or Japanese standards (JIS).
Egypt is a member of the WTO, participates actively in various committees, and notifies technical regulations to the WTO Committee on Technical Barriers to Trade. Egypt ratified the Trade Facilitation Agreement (TFA) in June 2017 (Presidential decree No. 149/2017) and deposited its formal notification to the WTO on June 24, 2019. Egypt notified indicative and definitive dates for implementing Category B and C commitments on June 20, 2019, but to date has not notified dates for implementing Category A commitments. In August 2020, the Egyptian Parliament passed a new Customs Law, Law 207 of 2020, that includes provisions for key TFA reforms, including advance rulings, separation of release, a single-window system, expedited customs procedures for authorized economic operators, post-clearance audits, and e-payments.
Egypt’s legal system is a civil codified law system based on the French model. If contractual disputes arise, claimants can sue for remedies through the court system or seek resolution through arbitration. Egypt has written commercial and contractual laws. The country has a system of economic courts, specializing in private-sector disputes, which have jurisdiction over cases related to economic and commercial matters, including intellectual property disputes. The judiciary is set up as an independent branch of the government.
Regulations and enforcement actions can be appealed through Egypt’s courts, though appellants often complain about the lengthy judicial process, which can often take years. To enforce judgments of foreign courts in Egypt, the party seeking to enforce the judgment must obtain an exequatur (a legal document issued by governments allowing judgements to be enforced). To apply for an exequatur, the normal procedures for initiating a lawsuit in Egypt must be satisfied. Moreover, several other conditions must be satisfied, including ensuring reciprocity between the Egyptian and foreign country’s courts, and verifying the competence of the court rendering the judgment.
Judges in Egypt enjoy a high degree of public trust, according to Egyptian lawyers and opinion polls, and are the designated monitors for general elections. The Judiciary is proud of its independence and can point to a number of cases where a judge has made surprising decisions that run counter to the desires of the regime. The judge’s ability to interpret the law can sometimes lead to an uneven application of justice.
No specialized court exists for foreign investments.
In 2017, the Parliament also passed the Industrial Permits Act, which reduced the time it takes to license a new factory by mandating that the Industrial Development Authority (IDA) respond to a request for a license within 30 days of the request being filed. As of February 2020, new regulations allow IDA regional branch directors or their designees to grant conditional licenses to industrial investors until other registration requirements are complete.
In 2016, the Import-Export Law was revised to allow companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians; formerly the law required 100 percent Egyptian ownership and management. Later in 2016, the inter-ministerial Supreme Investment Council also announced seventeen presidential decrees designed to spur investment or resolve longstanding issues. These include:
Forming a “National Payments Council” that will work to restrict the handling of FX outside the banking sector;
Producers of agricultural crops that Egypt imports or exports will get tax exemptions;
Five-year tax exemptions for manufacturers of “strategic” goods that Egypt imports or exports;
Five-year tax exemptions for agriculture and industrial investments in Upper Egypt; and
Begin tendering land with utilities for industry in Upper Egypt for free as outlined by the Industrial Development Authority.
The Egyptian Competition Law (ECL), Law 3 of 2005, provides the framework for the government’s competition rules and anti-trust policies. The ECL prohibits the abuse of dominant market positions, which it defines as a situation in which a company’s market share exceeds 25 percent and in which the company is able to influence market prices or volumes regardless of competitors’ actions. The ECL prohibits vertical agreements or contracts between purchasers and suppliers that are intended to restrict competition, and also forbids agreements among competitors such as price collusion, production-restriction agreements, market sharing, and anti-competitive arrangements in the tendering process. The ECL applies to all types of persons or enterprises carrying out economic activities, but includes exemptions for some government-controlled public utilities. In early 2019, the Egyptian Parliament endorsed a number of amendments to the ECL, including controls on price hikes and prices of essential products and higher penalties for violations.
In addition to the ECL, other laws cover various aspects of competition policy. The Companies Law (Law 159/1981) contains provisions on mergers and acquisitions; the Law of Supplies and Commerce (Law 17 of 1999) forbids competition-reducing activities such as collusion and hoarding; and the Telecommunications Law (Law 10 of 2003), the Intellectual Property Law (Law 82 of 2002), and the Insurance Supervision and Control Law (Law 10 of 1981) also include provisions on competition.
The Egyptian Competition Authority (ECA) is responsible for protecting competition and prohibiting the monopolistic practices defined within the ECL. The ECA has the authority to receive and investigate complaints, initiate its own investigations, and take decisions and necessary steps to stop anti-competitive practices. The ECA’s enforcement powers include conducting raids; using search warrants; requesting data and documentation; and imposing “cease and desist orders” on violators of the ECL. The ECA’s enforcement activities against government entities are limited to requesting data and documentation, as well as advocacy.
Egypt’s Investment Incentives Law provides guarantees against nationalization or confiscation of investment projects under the law’s domain. The law also provides guarantees against seizure, requisition, blocking, and placing of assets under custody or sequestration. It offers guarantees against full or partial expropriation of real estate and investment project property. The U.S.-Egypt Bilateral Investment Treaty also provides protection against expropriation. Private firms are able to take cases of alleged expropriation to court, but the judicial system can take several years to resolve a case.
Egypt passed a Bankruptcy Law (Law 11 of 2018) in January 2018, which was designed to speed up the restructuring of troubled companies and settlement of their accounts. It also replaced the threat of imprisonment with fines in cases of bankruptcy. As of July 2020, the Egyptian government was considering but had not yet implemented amendments to the 2018 law that would allow debtors to file for bankruptcy protection, and would give creditors the ability to determine whether debtors could continue operating, be placed under administrative control, or be forced to liquidate their assets.
In practice, the paperwork involved in liquidating a business remains convoluted and protracted; starting a business is much easier than shutting one down. Bankruptcy is frowned upon in Egyptian culture, and many businesspeople still believe they may be found criminally liable if they declare bankruptcy.
4. Industrial Policies
Green economy and climate change incentives:
In March 2022, the GoE announced in March 2022 a series of incentives for companies undertaking green projects and investments, including:
The ability to deduct between 30 and 50 percent of investment costs from taxes for green hydrogen and green ammonia production, storage, and export, and for manufacturing plastics-alternatives;
Projects in the Suez Canal Economic Zone, the New Administrative Capital, and Upper Egypt are eligible for the largest tax breaks;
Companies involved in other green and renewable energy projects are eligible for other non-tax incentives that the 2017 Investment Law authorizes, but did not provide further details; and
Projects in green hydrogen, green ammonia, electric vehicle manufacturing and charging, plastics alternatives, and waste management will be fast-tracked through the approvals and permit process, with a 20 working day window for making decisions on new investment and project proposals.
The 2017 Investment Law
The Investment Law (Law 72 of 2017) gives multiple incentives to investors as described below. In August 2019, President Sisi ratified amendments to the Investment Law that allow its incentive programs to apply to expansions of existing investment projects in addition to new investments.
All investment projects subject to the provisions of the new law enjoy the general incentives provided by it.
Investors are exempted from the stamp tax, notary fees, registration of the Memorandum of Incorporation of the companies, credit facilities, and mortgage contracts associated with their business for five years from the date of registration in the Commercial Registry, in addition to the registration contracts of the lands required for a company’s establishment.
If the establishment is under the provisions of the new investment law, it will benefit from a two-percent unified custom tax over all imported machinery, equipment, and devices required for the set-up of such a company.
Special Incentive Programs:
Investment projects established within three years of the date of the issuance of the Investment Law (Law 72 of 2017) will enjoy a perpetual deduction from their net profit subject to the income tax;
Fifty percent deduction of depreciated investment costs from taxes, infrastructure fees, and cost of lands for projects in regions the government has identified as most in need of development, as well as designated projects in Suez Canal Special Economic Zone and the “Golden Triangle” along the Red Sea between the cities of Safaga, Qena, and El Quseer; or
Thirty percent deduction of depreciated investment costs from taxes, infrastructure fees, and land costs for projects elsewhere in Egypt; and
Provided that such deduction shall not exceed 80 percent of the paid-up capital of the company, the incentive could be utilized over a maximum of seven years.
Additional Incentive Program:
The Cabinet of Ministers may decide to grant additional incentives for investment projects in accordance with specific rules and regulations as follows:
The establishment of special customs ports for exports and imports of the investment projects.
The state may incur part of the costs of the technical training for workers.
Free allocation of land for a few strategic activities may apply.
The government may bear in full or in part the costs incurred by the investor to invest in utility connections for the investment project.
The government may refund half the price of the land allocated to industrial projects in the event of starting production within two years from receiving the land.
Other Incentives related to Free Zones according to Investment Law 72of 2017:
Exemption from all taxes and customs duties.
Exemption from all import/export regulations.
The option to sell a certain percentage of production domestically if customs duties are paid.
Limited exemptions from labor provisions.
All equipment, machinery, and essential means of transport (excluding sedan cars) necessary for business operations are exempted from all customs, import duties, and sales taxes.
All licensing procedures are handled by GAFI. To remain eligible for benefits, investors operating inside the free zones must export more than 50 percent of their total production.
Manufacturing or assembly projects pay an annual charge of one percent of the total value of their products excluding all raw materials. Storage facilities are to pay one percent of the value of goods entering the free zones, while service projects pay one percent of total annual revenue.
Goods in transit to specific destinations are exempt from any charges.
Other Incentives related to the Suez Canal Economic Zone (SCZone):
100 percent foreign ownership of companies allowed.
100 percent foreign control of import/export activities allowed.
Imports are exempted from customs duties and sales tax.
Customs duties on exports to Egypt imposed on imported components only, not the final product.
Fast-track visa services.
A full service one-stop shop for registration and licensing.
Allowing enterprises access to the domestic market; duties on sales to domestic market will be assessed on the value of imported inputs only.
The Tenders Law (Law 89 of 1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.
The Ministry of Industry & Foreign Trade and the Ministry of Finance’s Decree 719 of 2007 provides incentives for industrial projects in the governorates of Upper Egypt (Upper Egypt refers to governorates in southern Egypt). The decree provides an incentive of 15,000 EGP (approx. $940) for each job opportunity created by the project, on the condition that the investment costs of the project exceed 15 million EGP (approx. $940,000). The decree can be implemented on both new and ongoing projects.
Public and private free-trade zones are authorized under GAFI’s Investment Incentive Law 72 of 2017. Free zones are located within the national territory, but are considered to be outside Egypt’s customs boundaries, granting firms doing business within them more freedom on transactions and exchanges. Companies producing largely for export (normally 80 percent or more of total production) may be established in free-trade zones and operate using foreign currency. Free-trade zones are open to investment by foreign or domestic investors. Companies operating in free-trade zones are exempted from sales taxes or taxes and fees on capital assets and intermediate goods. The Legislative Package for the Stimulation of Investment, issued in 2015, stipulated a one-percent duty paid on the value of commodities upon entry for storage projects and a one-percent duty upon exit for manufacturing and assembly projects.
There are currently nine public free trade zones in operation in the following locations: Alexandria; Damietta; Ismailia; Qeft; Media Production City; Nasr City; Port Said; Shebin el Kom; and Suez. Private free-trade zones may also be established with a decree by GAFI but are usually limited to a single project. Export-oriented industrial projects are given priority. There is no restriction on foreign ownership of capital in private free zones.
The Special Economic Zones (SEZ) Law (Law 83 of 2002) allows establishment of special zones for industrial, agricultural, or service activities designed specifically with the export market in mind. The law allows firms operating in these zones to import capital equipment, raw materials, and intermediate goods duty free. Companies established in the SEZs are also exempt from sales and indirect taxes and can operate under more flexible labor regulations. The first SEZ was established in the northwest Gulf of Suez.
Investment Law (Law 72 of 2017) authorized creation of investment zones with Prime Ministerial approval. The government regulates these zones through a board of directors, but the zones are established, built, and operated by the private sector. The government does not provide any infrastructure or utilities in these zones. Investment zones enjoy the same benefits as free zones in terms of facilitation of license-issuance, ease of dealing with other agencies, etc., but are not granted the incentives and tax/custom exemptions enjoyed in free zones. Projects in investment zones pay the same tax/customs duties applied throughout Egypt. The aim of the law is to assist the private sector in diversifying its economic activities. There are currently five investment zones located in Cairo, Giza, and Ismailia, and in 2019 GAFI approved the development of an additional 12 investment zones in the Alexandria, Dakhalia, Damietta, Fayoum, Giza, Qalyubia, and Sharkia governorates.
The Suez Canal Economic Zone (http://www.sczone.com.eg/English/Pages/default.aspx), a major industrial and logistics services hub announced in 2014, includes upgrades and renovations to ports located along the Suez Canal corridor, including West and East Port Said, Ismailia, Suez, Adabiya, and Ain Sokhna. The Egyptian government has invited foreign investors to take part in the projects, which are expected to be built in several stages, the first of which was scheduled to be completed by mid-2020. Reported areas for investment include maritime services like ship repair services, bunkering, vessel scrapping and recycling; industrial projects, including pharmaceuticals, food processing, automotive production, consumer electronics, textiles, and petrochemicals; IT services such as research and development and software development; renewable energy; and mixed use, residential, logistics, and commercial developments.
Egypt has rules on national percentages of employment and difficult visa and work permit procedures. The government plans to phase out visas for unskilled workers, but as yet has not done so. For most other jobs, employers may hire foreign workers on a temporary six-month basis, but must also hire two Egyptians to be trained to do the job during that period. Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. The application of these regulations is inconsistent. The Labor Law allows Ministers to set the maximum percentage of foreign workers that may work in companies in a given sector. There are no such sector-wide maximums for the oil and gas industry, but individual concession agreements may contain language establishing limits or procedures regarding the proportion of foreign and local employees.
No performance requirements are specified in the Investment Incentives Law, and the ability to fulfill local content requirements is not a prerequisite for approval to set up assembly projects. In many cases, however, assembly industries still must meet a minimum local content requirement in order to benefit from customs tariff reductions on imported industrial inputs.
Decree 184 of 2013 allows for the reduction of customs tariffs on intermediate goods if the final product has a certain percentage of input from local manufacturers, beginning at 30 percent local content. As the percentage of local content rises, so does the tariff reduction, reaching up to 90 percent if the amount of local input is 60 percent or above. Exporters receive additional subsidies if they use a greater portion of local raw materials. In certain cases, a minister can grant tariff reductions of up to 40 percent in advance.
Prime Minister issued Decision 3053 of 2019 regarding the formation of joint committees in the inspection yards at each customs port. These committees include representatives of the customs authority and the concerned authorities and bodies according to type of goods. The committees are responsible for completing inspection and control procedures for imported or exported goods within a period not exceeding three working days from the date of the customs declaration was registered.
Manufacturers wishing to export under trade agreements between Egypt and other countries must complete certificates of origin and satisfy the local content requirements contained therein. Oil and gas exploration concessions, which do not fall under the Investment Incentives Law, have performance standards specified in each individual agreement, which generally include the drilling of a specific number of wells in each phase of the exploration period stipulated in the agreement.
Egypt does not impose localization barriers on ICT firms. Egypt’s Personal Data Protection Act (Law 151 of 2020), signed into law in July 2020, will require licenses for cross-border data transfers once the law’s executive regulations are finalized, but it will not impose any data localization requirements. Similarly, Egypt does not make local production a requirement for market access, does not have local content requirements, and does not impose forced technology or intellectual property transfers as a condition of market access. But there are exceptions where the government has attempted to impose controls by requesting access to a company’s servers located offshore, or requested servers to be located in Egypt and thus under the government’s control.
5. Protection of Property Rights
The Egyptian legal system provides protection for real and personal property. Laws on real estate ownership are complex and titles to real property may be difficult to establish and trace.
The National Title Registration Program introduced by the Ministry of State for Administrative Development has been implemented in nine areas within Cairo. This program is intended to simplify property registration and facilitate easier mortgage financing. Real estate registration fees, long considered a major impediment to development of the real estate sector, are capped at no more than 2,000 EGP (approximately $120), irrespective of the property value.
Foreigners are limited to ownership of two residences in Egypt, and specific procedures are required for purchasing real estate in certain geographical areas.
The mortgage market is still undeveloped in Egypt, and in practice most purchases are still conducted in cash. Real Estate Finance Law 148/2001 authorized both banks and non-bank mortgage companies to issue mortgages. The law provides procedures for foreclosure on property of defaulting debtors, and amendments passed in 2004 allow for the issuance of mortgage-backed securities. According to the regulations, banks can offer financing in foreign currency of up to 80 percent of the value of a property.
Presidential Decree 17 of 2015 permitted the government to provide land free of charge, in certain regions only, to investors meeting certain technical and financial requirements. In order to take advantage of this provision companies must provide cash collateral for five years following commencement of either production (for industrial projects) or operation (for all other projects).
The ownership of land by foreigners is governed by three laws: Law 15 of 1963, Law 143 of 1981, and Law 230 of 1996. Law 15 of 1963 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land. Law 143 of 1981 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is approximately equal to one acre) that may be owned by individuals, families, cooperatives, partnerships and corporations. Partnerships are permitted to own up to 10,000 feddans. Joint stock companies are permitted to own up to 50,000 feddans.
Partnerships and joint stock companies may own desert land within these limits, even if foreign partners or shareholders are involved, provided that at least 51 percent of the capital is owned by Egyptians. Upon liquidation of the company, however, the land must revert to Egyptian ownership. Law 143 defines desert land as the land lying two kilometers outside city borders. Furthermore, non-Egyptians owning non-improved real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public. Non-Egyptians may only sell their real estate five years after registration of ownership unless the Prime Minister consents to an exemption.
Egypt remains on the Special 301 Watch List in 2022. Egypt’s intellectual property rights (IPR) legislation generally meets international standards, and the government has made progress enforcing those laws and reducing patent application backlogs. In 2020 and 2021, Egypt shut down a number of online illegal streaming websites. Stakeholders note continued challenges with widespread counterfeiting, opaque patent and trademark examination criteria, and the lack of an effective mechanism for the early resolution of potential patent disputes.
Multinational pharmaceutical companies in the past have complained that local generic drug-producing companies infringe on their patents. The government has not yet established a system linking pharmaceutical marketing applications with patent licenses, and as a result permits for the sale of pharmaceuticals are generally issued without first cross-checking patent filings.
Decree 251 of 2020, issued in January 2020, established a ministerial committee to review petitions for compulsory patent licenses. As of March 2022, the committee has not received any compulsory patent petitions, and the committee has not met or taken any actions. According to Egypt’s 2002 IPR Law (Law 82 of 2002), which allows for compulsory patent licenses in some cases, the committee has the power to issue compulsory patent licenses according to a number of criteria set forth in the law; to determine financial remuneration for the original patent owners; and to approve the expropriation of the patents.
Book, music, and entertainment software piracy is prevalent in Egypt, and a significant portion of the piracy takes place online. American film studios represented by the Motion Pictures Association of America are concerned about the illegal distribution of American movies on regional satellite channels.
Eight GoE ministries have the responsibility to oversee IPR concerns: Supply and Internal Trade for trademarks; Higher Education and Research for patents; Culture for copyrights; Agriculture for plants; Communications and Information Technology for copyright of computer programs; Interior for combatting IPR violations; Customs for border enforcement; and Trade and Industry for standards and technical regulations. Article 69 of Egypt’s 2014 Constitution mandates the establishment of a “specialized agency to uphold [IPR] rights and their legal protection.” A National Committee on IPR was established to address IPR matters until a permanent body is established. All IPR stakeholders are represented in the committee, and members meet every two months to discuss issues. The National Committee on IPR is chaired by the Ministry of Foreign Affairs and reports directly to the Prime Minister.
The Egyptian Customs Authority (ECA) handles IPR enforcement at the national border and the Ministry of Interior’s Department of Investigation handles domestic cases of illegal production. The ECA cannot act unless the trademark owner files a complaint. ECA’s customs enforcement also tends to focus on protecting Egyptian goods and trademarks. The ECA is taking steps to adopt the World Customs Organization’s (WCO) Interface Public-Members platform, which allows customs officers to detect counterfeit goods by scanning a product’s barcode and checking the WCO trademark database system.
For additional information about treaty obligations and points of contact at local offices, please see WIPO’s country profiles at http://wipo.int/directory/en/.
IPR Contact at Embassy Cairo:
Trade & Investment Officer
6. Financial Sector
To date, high returns on Egyptian government debt have crowded out Egyptian investment in productive capacity. As of February 2022, loans to the government and government-related entities accounted for 67 percent of banks’ assets, and Egypt’s debt-to-GDP ratio was 91.4 percent at the end of 2021. Meanwhile, consistently positive and relatively high real interest rates have attracted large foreign capital inflows since 2017, most of which has been volatile portfolio capital. Foreign investors sold $1.19 billion of Egyptian treasury bonds following Russia’s full-scale invasion of Ukraine in February 2022.
The Egyptian Stock Exchange (EGX) is Egypt’s registered securities exchange. Some 246 companies were listed on the EGX, including Nilex, as of February 2022. There were more than 3.3 million investors registered to trade on the exchange in July 2021. Stock ownership is open to foreign and domestic individuals and entities. The Government of Egypt issues dollar-denominated and Egyptian Pound-denominated debt instruments, for which ownership is open to foreign and domestic individuals and entities. Foreign investors conducted 18.3 percent of sales on the EGX in 2021. In September 2020, the GoE issued the region’s first sovereign green bonds with a value of $750 million. The GoE issued Eurobonds worth $11.75 billion in 2020 and 2021, and issued its first $500 million Japanese Yen-dominated bond in March 2022. The government has announced its intention to issue its first sovereign sukuk bonds and additional green bonds during the remainder of 2022.
The Capital Market Law 95 of 1992, along with Banking Law 94 that President Sisi ratified in September 2020, constitute the primary regulatory frameworks for the financial sector. The law grants foreigners full access to capital markets, and authorizes establishment of Egyptian and foreign companies to provide underwriting of subscriptions, brokerage services, securities and mutual funds management, clearance and settlement of security transactions, and venture capital activities. The law specifies mechanisms for arbitration and legal dispute resolution and prohibits unfair market practices. Law 10 of 2009 created the Egyptian Financial Supervisory Authority (EFSA) and brought the regulation of all non-banking financial services under its authority. In 2017, EFSA became the Financial Regulatory Authority (FRA).
Settlement of transactions takes one day for treasury bonds and two days for stocks. Although Egyptian law and regulations allow companies to adopt bylaws limiting or prohibiting foreign ownership of shares, virtually no listed stocks have such restrictions. A significant number of the companies listed on the exchange are family-owned or -dominated conglomerates, and free trading of shares in many of these ventures, while increasing, remains limited. Companies are de-listed from the exchange if not traded for six months.
Prior to November 2020, foreign companies listing on the EGX had to possess minimum capital of $100 million. With the FRA’s passage of new rules, foreign companies joining the EGX must now meet lesser requirements matching those for Egyptian companies: $6.4 million (100 million EGP) for large companies and between $63,000 and $6.4 million (1-100 million EGP) for smaller companies, depending on their size. Foreign businesses are only eligible for these lower minimum capital requirements if the EGX is their first exchange and if they attribute more than 50 percent of their shareholders’ equites, revenues, and assets to Egyptian subsidiary companies.
A capital gains tax of 10 percent on Egyptian tax residents came into force in January 2022 after more than 6 years of suspension, then it was decreased in March to 5 percent for two years. The rate will rise to 7.5 percent once this period ends. Capital increases and share-swaps between listed and unlisted companies will not be taxed. Non-tax residents and foreigners are permanently tax-exempt. The government also set the stamp tax on stock market transactions by non-tax residents at 0.125 percent and at 0.05 percent for tax residents on unlisted securities. Tax residents are exempted from stamp tax on listed securities.
Foreign investors can access Egypt’s banking system by opening accounts with local banks and buying and selling all marketable securities with brokerages. The government has repeatedly emphasized its commitment to maintaining the profit repatriation system to encourage foreign investment in Egypt, especially since the pound flotation and implementation of the IMF loan program in November 2016. The current system for profit repatriation by foreign firms requires sub-custodian banks to open foreign and local currency accounts for foreign investors (global custodians), which are exclusively maintained for stock exchange transactions. The two accounts serve as a channel through which foreign investors process their sales, purchases, dividend collections, and profit repatriation transactions using the bank’s posted daily exchange rates. The system is designed to allow for settlement of transactions in fewer than two days, though in practice some firms have reported significant delays in repatriating profits due to problems with availability. Foreign firms and individuals continue to report delays in repatriating funds and problems accessing hard currency for the purpose of repatriating profits.
The Egyptian credit market, open to foreigners, is vibrant and active. Repatriation of investment profits has become much easier, as there is enough available hard currency to execute foreign exchange (FX) trades. Since the flotation of the Egyptian Pound in November 2016, FX trading is considered straightforward, given the re-establishment of the interbank foreign currency trading system. There have been no reports of difficulties executing FX transactions following the CBE’s interest rate hike and currency devaluation in March, 2022.
Thirty-eight banks operate in Egypt, including several foreign banks. The CBE has not issued a new commercial banking license since 1979. The only way for a new commercial bank, whether foreign or domestic, to enter the market (except as a representative office) is to purchase shares in an existing bank. According to the CBE, banks operating in Egypt held nearly $448 billion (8.6 trillion EGP) in total assets as of December 2021, generating a total profit of $6.8 billion with the five largest banks generating 74 percent, or $5 billion (79 billion EGP).
Egypt’s banking sector is generally regarded as well-capitalized, due in part to its deposit-based funding structure and ample liquidity, especially since the flotation and restoration of the interbank market. The CBE declared that 3.5 percent of the banking sector’s loans were non-performing by December 2021. However, since 2011, a high level of exposure to government debt, accounting for two-thirds of banks’ assets as of February 2022, has reduced the diversity of bank balance sheets and crowded out domestic investment. Moody’s and S&P consider Egypt’s banking system to be stable, although S&P classifies it as facing high levels of economic and financial system risk due to its high exposure to sovereign debt and the government’s external funding vulnerabilities. In February 2022, S&P affirmed Egypt’s government issuer rating of B stable due to the government’s relatively low issuance of foreign currency loans and relatively low external government debt.
Benefitting from the nation’s increasing economic stability, Egypt’s banks have enjoyed both ratings upgrades and continued profitability. Banking competition is serving a largely untapped retail segment and the nation’s challenging, but potentially rewarding, small and medium-sized enterprise (SME) segment.
The Central Bank of Egypt (CBE) requires that banks direct 25 percent of their lending to SMEs. Over the past two years, the Central Bank has launched a subsidized loan program worth $16 billion (253 billion EGP) to spur domestic manufacturing, agriculture, and real state development. Also, with only one-third of Egypt’s adult population owning or sharing an account at a formal financial institution (according press and comments from contacts), the banking sector has potential for growth and higher inclusion, which the government and banks discuss frequently. A low median income plays a part in modest banking penetration.
The CBE has taken steps to work with banks and technology companies to expand financial inclusion. The employees of the government, one of the largest employers, must now have bank accounts because salary payment is through direct deposit. The CBE approved new procedures in October 2020 to allow deposits and the opening of new bank accounts with only a government-issued ID, rather than additional documents. The maximum limits for withdrawals and account balances also increased. In July 2020, President Sisi ratified a new Micro, Small and Medium Enterprises (MSMEs) Development Law (Law 152 of 2020) that will provide incentives, tax breaks, and discounts for small, informal businesses willing to register their businesses and begin paying taxes.
As an attempt to keep pace with best practices and international norms, President Sisi ratified a new Banking Law, Law 94 of 2020, in September 2020. The law establishes a National Payment Council headed by the President to move Egypt away from cash and toward electronic payments; establishes a committee headed by the Prime Minister to resolve disputes between the CBE and the Ministry of Finance; establishes a CBE unit to handle complaints of monopolistic behaviors; requires banks to increase their cash holdings to $320 million (5 billion EGP), up from the prior minimum of $32 million (500 million EGP); and requires banks to report deficiencies in their own audits to the CBE.
The chairman of the EGX stated that Egypt is exploring the use of blockchain technologies across the banking community. The FRA will regulate how the banking system adopts the fast-developing blockchain systems into banks’ back-end and customer-facing processing and transactions. The Central Bank developed a national fintech and innovation strategy in March 2019, and the government has issued regulations to incentivize mobile and electronic payments. The Central Bank launched in March 2022 a new mobile application, InstaPay, which allows Egyptian banking customers to perform instant bank and payments transactions. At the end of 2021 Egypt was among the top four African countries for fintech investment, with investments in fintech startups quadrupling between 2020 and 2021, reaching $159 million. According to research firm Magnitt, Egyptian startups received $509 million in venture capital investments in 2021, with a 100 percent year-on-year compound annual growth rate between 2017 and 2021.
Since 2020, the Central Bank has prohibited all dealings with cryptocurrencies: the issuance of them, trading in them, promoting them, and establishing or operating platforms for their trading.
Alternative financial services in Egypt are extensive, given the large informal economy, estimated to account for between 30 and 50 percent of GDP. Informal lending is prevalent, but the total capitalization, number of loans, and types of terms in private finance is less well known.
The 1992 U.S.-Egypt Bilateral Investment Treaty provides for free transfer of dividends, royalties, compensation for expropriation, payments arising out of an investment dispute, contract payments, and proceeds from sales. Prior to reform implementation throughout 2016 and 2017, large corporations had been unable to repatriate local earnings for months at a time, but repatriation of funds is no longer restricted.
The Investment Incentives Law (Law 72 of 2017) stipulates that non-Egyptian employees hired by projects established under the law are entitled to transfer their earnings abroad. Conversion and transfer of royalty payments are permitted when a patent, trademark, or other licensing agreement has been approved under the Investment Law.
Banking Law 94 of 2020 regulates the repatriation of profits and capital. The current system for profit repatriation by foreign firms requires sub-custodian banks to open foreign and local currency accounts for foreign investors (global custodians), which are exclusively maintained for stock-exchange transactions. The two accounts serve as a channel through which foreign investors process their sales, purchases, dividend collections, and profit-repatriation transactions using the bank’s posted daily exchange rates. The system is designed to allow for settlement of transactions in less than two days, though in practice some firms have reported short delays in repatriating profits due to the steps involved in processing.
Egypt’s sovereign wealth fund (SWF), approved by the Cabinet and launched in late 2018, holds 200 billion EGP ($12.5 billion) in authorized capital as of July 2021. The SWF aims to invest state funds locally and abroad across asset classes and manage underutilized government assets. The sovereign wealth fund focuses on sectors considered vital to the Egyptian economy, particularly industry, energy, and tourism, and has established four new sub-funds covering healthcare, financial services, real estate, and infrastructure while plans to establish another two sub-funds for education and technology. The SWF participates in the International Forum of Sovereign Wealth Funds.
7. State-Owned Enterprises
State and military-owned companies compete directly with private companies in many sectors of the Egyptian economy. Although Public Sector Law 203 of 1991 states that state-owned enterprises (SOEs) should not receive preferential treatment from the government or be accorded exemptions from legal requirements applicable to private companies, in practice SOEs and military-owned companies enjoy significant advantages, including relief from regulatory requirements. IMF reports show that Egyptian SOEs have an average return on assets of just two percent and are only one-fourth as productive as private companies. Some 40 percent of SOEs are loss-making, despite access to subsidized capital and owning assets worth more than 50 percent of GDP. Profitable SOEs, meanwhile, tend to exploit a natural monopoly or hold exclusive rights to public assets. Few of Egypt’s 300 state-owned companies, 645 joint ventures, and 53 economic authorities release regular financial statements.
SOEs in Egypt are structured as individual companies controlled by boards of directors and grouped under government holding companies that are arranged by industry, including Petroleum Products & Gas, Spinning & Weaving; Metallurgical Industries; Chemical Industries; Pharmaceuticals; Food Industries; Building & Construction; Tourism, Hotels, & Cinema; Maritime & Inland Transport; Aviation; and Insurance. The holding companies are headed by boards of directors appointed by the Prime Minister with input from the relevant Minister.
The Egyptian government has announced plans to privatize shares of SOEs several times since 2018, but has only carried out a small number of sales. It sold a minority stake in the Eastern Tobacco Company in March 2018, a 26 percent share of state-owned e-payment firm E-Finance in October 2021, and a 10 percent share of Abu Qir Fertilizers in December 2021. In December 2020 the government announced plans to sell stakes in two military-owned companies and in February 2022 added a handful of other SOEs to the list, but scaled back those plans following Russia’s war against Ukraine. The government has indefinitely delayed plans for privatizing stakes in 20 other SOEs, including up to 30 percent of the shares of Banque du Caire, due to adverse market conditions and increased global volatility. Egypt’s privatization program is based on Public Enterprise Law 203/1991, which permits the sale of SOEs to foreign entities.
Law 32 of 2014 limits the ability of third parties to challenge privatization contracts between the Egyptian government and investors. The law was intended to reassure investors concerned by legal challenges brought against privatization deals and land sales dating back to the pre-2008 period. Court cases at the time Parliament passed the law had put many of these now-private firms, many of which are foreign-owned, in legal limbo over concerns that they may be returned to state ownership.
8. Responsible Business Conduct
Responsible Business Conduct (RBC) programs have grown in popularity in Egypt over the last ten years. Most programs are limited to multinational and larger domestic companies as well as the banking sector and take the form of funding and sponsorship for initiatives supporting entrepreneurship and education and other social activities. Environmental and technology programs are also garnering greater participation. The Ministry of Trade has engaged constructively with corporations promoting RBC programs, supporting corporate social responsibility conferences and providing Cabinet-level representation as a sign of support to businesses promoting RBC programming.
A number of organizations and corporations work to foster the development of RBC in Egypt. The American Chamber of Commerce has an active corporate social responsibility committee. Several U.S. pharmaceutical companies are actively engaged in RBC programs related to Egypt’s hepatitis-C epidemic. The Egyptian Corporate Responsibility Center, which is the UN Global Compact local network focal point in Egypt, aims to empower businesses to develop sustainable business models as well as improve the national capacity to design, apply, and monitor sustainable responsible business conduct policies. In March 2010, Egypt launched an environmental, social, and governance index, the second of its kind in the world after India’s, with training and technical assistance from Standard and Poor’s. Egypt does not participate in the Extractive Industries Transparency Initiative. Public information about Egypt’s extractive industries remains limited to the government’s annual budget.
Egypt has a set of laws to combat corruption by public officials, including an Anti-Bribery Law (articles 103 through 111 of Egypt’s Penal Code), an Illicit Gains Law (Law 62 of 1975 and subsequent amendments in Law 97 of 2015), and a Governmental Accounting Law (Law 27 of 1981), among others. Countering corruption remains a long-term focus. However, corruption laws have not been consistently enforced. Transparency International’s Corruption Perceptions Index ranked Egypt 117 out of 180 countries in its 2021 survey. Past surveys from Transparency International reported that nearly half of Egyptians said they had paid a bribe to obtain a public service.
Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. There is no government requirement for private companies to establish internal codes of conduct to prohibit bribery.
Egypt ratified the United Nations Convention against Corruption in 2005. It has not acceded to the OECD Convention on Combating Bribery or any other regional anti-corruption conventions.
While NGOs are active in encouraging anti-corruption activities, dialogue between the government and civil society on this issue is almost non-existent. In a 2009 study demonstrating a trend that continues to this day, the OECD found that while government officials publicly asserted they shared civil society organizations’ goals, they rarely cooperated with NGOs, and applied relevant laws in a highly restrictive manner against NGOs critical of government practices. Media was also limited in its ability to report on corruption, with Article 188 of the Penal Code mandating heavy fines and penalties for unsubstantiated corruption allegations.
U.S. firms have identified corruption as an obstacle to FDI in Egypt. Companies might encounter corruption in the public sector in the form of requests for bribes, using bribes to facilitate required government approvals or licenses, embezzlement, and tampering with official documents. Corruption and bribery are reported in dealing with public services, customs (import license and import duties), public utilities (water and electrical connection), construction permits, and procurement, as well as in the private sector. Businesses have described a dual system of payment for services, with one formal payment and a secondary, unofficial payment required for services to be rendered.
Several agencies within the Egyptian government share responsibility for addressing corruption. Egypt’s primary anticorruption body is the Administrative Control Authority (ACA), which has jurisdiction over state administrative bodies, state-owned enterprises, public associations and institutions, private companies undertaking public work, and organizations to which the state contributes in any form. 2017 amendments to the ACA law grant the organization full technical, financial, and administrative authority to investigate corruption within the public sector (with the exception of military personnel/entities). The ACA appears well funded and well trained when compared with other Egyptian law enforcement organizations. Strong funding and the current ACA leadership’s close relationship with President Sisi reflect the importance of this organization and its mission. However, it is small (roughly 300 agents) and is often tasked with work that would not normally be conducted by a law enforcement agency.
The ACA periodically engages with civil society. For example, it has met with the American Chamber of Commerce in Egypt and other organizations to encourage them to seek it out when corruption issues arise.
In addition to the ACA, the Central Auditing Authority (CAA) acts as an anti-corruption body, stationing monitors at state-owned companies to report corrupt practices. The Ministry of Justice’s Illicit Gains Authority is charged with referring cases in which public officials have used their office for private gain. The Public Prosecution Office’s Public Funds Prosecution Department and the Ministry of Interior’s Public Funds Investigations Office likewise share responsibility for addressing corruption in public expenditures.
Minister of Interior
General Directorate of Investigation of Public Funds
Telephone: 02-2792-1395 / 02-2792 1396
10. Political and Security Environment
Stability and economic development remain Egypt’s priorities. The Egyptian government has taken measures to eliminate politically motivated violence while also limiting peaceful protests and political expression. Egypt’s presidential elections in March 2018 and senatorial elections in August 2020 proceeded without incident. In 2020 and 2021, all terrorist attacks took place in the Sinai Peninsula. Nevertheless, terrorist plans to target civilians, tourists, and security personnel in mainland Egypt and the greater Cairo region remained a concern. The government has been conducting a comprehensive counterterrorism offensive in the Sinai since early 2018 in response to terrorist attacks against military installations and personnel by ISIS-affiliated militant groups.
11. Labor Policies and Practices
Official statistics put Egypt’s labor force at approximately 29 million, with an official unemployment rate of 7.3 percent at the end of 2020. Women make up 23.8 percent of the Egyptian labor force and have an unemployment rate of 17.8 percent as of late 2021. Accurate figures are difficult to determine and verify given Egypt’s large informal economy, in which some 62 percent of the non-agricultural workforce is engaged, according to International Labor Organization (ILO) estimates.
The government bureaucracy and public sector enterprises are substantially over-staffed compared to the private sector and international norms. According to the World Bank, Egypt has the highest number of government workers per capita in the world, although state statistics agency CAPMAS announced in March 2022 that public sector employment dropped 8.6 percent in 2021 from 2020, or 15 percent from 2017. Businesses highlight a mismatch between labor skills and market demand, despite high numbers of university graduates in a variety of fields. Foreign companies frequently pay internationally competitive salaries to attract workers with valuable skills.
The Unified Labor Law 12/2003 provides comprehensive guidelines on labor relations, including hiring, working hours, termination of employees, training, health, and safety. The law grants a qualified right for employees to strike and stipulates rules and guidelines governing mediation, arbitration, and collective bargaining between employees and employers. Non-discrimination clauses are included, and the law complies with labor-related ILO conventions regulating the employment and training of women and eligible children. Egypt ratified ILO Convention 182 on combating the Worst Forms of Child Labor in 2002. In 2018, Egypt launched the first National Action Plan on combating the Worst Forms of Child Labor. The law also created a national committee to formulate general labor policies and the National Council of Wages, whose mandate is to discuss wage-related issues and national minimum-wage policy, but it has rarely convened, and a minimum wage has rarely been enforced in the private sector.
Parliament adopted a new Trade Unions Law (Law 213 of 2017) in late 2017, replacing a 1976 law, which experts said was out of compliance with Egypt’s commitments to ILO conventions. After a 2016 Ministry of Manpower and Migration (MOMM) directive not to recognize documentation from any trade union without a stamp from the government-affiliated Egyptian Trade Union Federation, the new law established procedures for registering independent trade unions, but some of the unions noted that the directorates of the MOMM did not implement the law and placed restrictions on freedoms of association and organizing for trade union elections. Executive regulations for trade union elections stipulate a very tight deadline of three months for trade union organizations to legalize their status, and one month to hold elections, which, critics said, restricted the ability of unions to legalize their status or to campaign. The GoE registered two new independent labor unions in 2018, and a further seven in 2020 and 2021 as part of a cooperative program with the International Labor Organization.
In July 2019, the Egyptian Parliament passed a series of amendments (Law 142 of 2019) to the 2017 Trade Unions Law that reduced the minimum membership required to form a trade union and abolished prison sentences for violations of the law. The amendments reduced the minimum number of workers required to form a trade union committee from 150 to 50, the number of trade union committees to form a general union from 15 to 10 committees, and the number of workers in a general union from 20,000 to 15,000. The amendments also decreased the number of unions necessary to establish a trade union federation from 10 to 7 and the number of workers in a trade union from 200,000 to 150,000. Under the new law, a trade union or workers’ committee may be formed if 150 employees in an entity express a desire to organize.
Based on the new amendments to the Trade Unions Law and a request from the Egyptian government for assistance implementing them and meeting international labor standards, the International Labor Organization’s and International Finance Corporation’s joint Better Work Program launched in Egypt in March 2020.
The Trade Unions law explicitly bans compulsory membership or the collection of union dues without written consent of the worker and allows members to quit unions. Each union, general union, or federation is registered as an independent legal entity, thereby enabling any such entity to exit any higher-level entity.
The 2014 Constitution stipulated in Article 76 that “establishing unions and federations is a right that is guaranteed by the law.” Only courts are allowed to dissolve unions. The 2014 Constitution maintained past practice in stipulating that “one syndicate is allowed per profession.” The Egyptian constitutional legislation differentiates between white-collar syndicates (e.g., doctors, lawyers, journalists) and blue-collar workers (e.g., transportation, food, mining workers). Workers in Egypt have the right to strike peacefully, but strikers are legally obliged to notify the employer and concerned administrative officials of the reasons and time frame of the strike 10 days in advance. In addition, strike actions are not permitted to take place outside the property of businesses. The law prohibits strikes in strategic or vital establishments in which the interruption of work could result in disturbing national security or basic services provided to citizens. In practice, however, workers strike in all sectors, without following these procedures, but at risk of prosecution by the government.
Collective negotiation is allowed between trade union organizations and private sector employers or their organizations. Agreements reached through negotiations are recorded in collective agreements regulated by the Unified Labor law and usually registered at MOMM. Collective bargaining is technically not permitted in the public sector, though it exists in practice. The government often intervenes to limit or manage collective bargaining negotiations in all sectors.
MOMM sets worker health and safety standards, which also apply in public and private free zones and the Special Economic Zones (see below). Enforcement and inspection, however, are uneven. The Unified Labor Law prohibits employers from maintaining hazardous working conditions, and workers have the right to remove themselves from hazardous conditions without risking loss of employment.
Egyptian labor laws allow employers to close or downsize operations for economic reasons. The government, however, has taken steps to halt downsizing in specific cases. The Unemployment Insurance Law, also known as the Emergency Subsidy Fund Law 156 of 2002, sets a fund to compensate employees whose wages are suspended due to partial or complete closure of their firm or due to its downsizing. The Fund allocates financial resources that will come from a one percent deduction from the base salaries of public and private sector employees. According to foreign investors, certain aspects of Egypt’s labor laws and policies are significant business impediments, particularly the difficulty of dismissing employees. To overcome these difficulties, companies often hire workers on temporary contracts; some employees remain on a series of one-year contracts for more than 10 years. Employers sometimes also require applicants to sign a “Form 6,” an undated voluntary resignation form which the employer can use at any time, as a condition of their employment. Negotiations on drafting a new Labor Law, which has been under consideration in the Parliament for two years, have included discussion of requiring employers to offer permanent employee status after a certain number of years with the company and declaring Form 6 or any letter of resignation null and void if signed prior to the date of termination.
Egypt has a dispute resolution mechanism for workers. If a dispute concerning work conditions, terms, or employment provisions arises, both the employer and the worker have the right to ask the competent administrative authorities to initiate informal negotiations to settle the dispute. This right can be exercised only within seven days of the beginning of the dispute. If a solution is not found within 10 days from the time administrative authorities were requested, both the employer and the worker can resort to a judicial committee within 45 days of the dispute. This committee comprises two judges, a representative of MOMM, and representatives from the trade union and one of the employers’ associations. The decision of this committee is provided within 60 days. If the decision of the judicial committee concerns discharging a permanent employee, the sentence is delivered within 15 days. When the committee decides against an employer’s decision to fire, the employer must reintegrate the latter in his/her job and pay all due salaries. If the employer does not respect the sentence, the employee is entitled to receive compensation for unlawful dismissal.
Labor Law 12 of 2003 sought to make it easier to terminate an employment contract in the event of “difficult economic conditions.” The Law allows an employer to close his establishment totally or partially or to reduce its size of activity for economic reasons, following approval from a committee designated by the Prime Minister. In addition, the employer must pay former employees a sum equal to one month of the employee’s total salary for each of his first five years of service and one and a half months of salary for each year of service over and above the first five years. Workers who have been dismissed have the right to appeal. Workers in the public sector enjoy lifelong job security as contracts cannot be terminated in this fashion; however, government salaries have eroded as inflation has outpaced increases.
Egypt has regulations restricting access for foreigners to Egyptian worker visas, though application of these provisions has been inconsistent. The government plans to phase out visas for unskilled workers, but as yet has not done so. For most other jobs, employers may hire foreign workers on a temporary six-month basis but must also hire two Egyptians to be trained to do the job during that period. Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. Application of these regulations is inconsistent.
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)
* Sources for Host Country Data: Central Bank of Egypt; CAPMAS; GAFI
Table 3: Sources and Destination of FDI
Data not available.
Elizabeth Stratton, Economic Officer, U.S. Embassy Cairo
Since King Abdullah II’s 1999 ascension to the throne, Jordan has taken steps to encourage foreign investment and to develop an outward-oriented, market-based, and globally competitive economy. Jordan is also uniquely poised as a platform to host investments focused on the reconstruction of Iraq and other projects in regional markets.
Jordan is committed to investment promotion as a key driver of economic growth and job creation, though in practice these policies are implemented unevenly. Traditionally, foreign investment has been concentrated in the energy (from both conventional sources and renewables), tourism, real estate, manufacturing, and services sectors. The Government of Jordan offers a range of incentives to potential investors and has undertaken measures to review and enhance the economic, financial, and legal framework governing the investment process. However, despite improvement on doing business indicators, operating in Jordan is more difficult than elsewhere in the region. U.S. investors specifically cite instability in the tax regime and incentive packages as a key challenge, as well as public-private interface issues including the government’s inconsistent interpretation of its policies and regulations.
Jordan’s economic growth has been limited for over a decade by exogenous shocks, including the global financial crisis, energy disruptions during the 2011 Arab Spring, the 2015 closure of Jordans borders with Iraq and Syria, and the Syrian civil war. Although the borders with Iraq fully and Syria partially reopened in 2017 and 2018 respectively, cross-border movements have not recovered to previous levels. After a 1.6 percent GDP contraction in 2020 due to the pandemic, Jordan achieved 2.2 percent real GDP growth in 2021. IMF projections estimate growth will reach 2.7 percent in 2022.
In recent years, the government has run large annual budget deficits and reducing the financing gap with loans, foreign grants, and savings. In March 2020, the IMF board approved a $1.3 billion Extended Fund Facility (EFF) program focused on fiscal consolidation, increased revenue collection, targeted social spending, economic growth, and job creation. The IMF also released additional credit from a Rapid Financing Instrument to help Jordan meet its fiscal obligations during the pandemic. In January 2022, Jordan and the IMF completed its third review of the EFF program.
In October 2021, Jordan established a dedicated Ministry of Investment, which has absorbed the duties of the Jordan Investment Commission and the Public Private Partnerships (PPP) Unit. The Minister of Investment is charged with all issues related to local and foreign investors and setting policies to stimulate investment and enhance competitiveness.
Foreign Direct Investment (FDI) dropped slightly by 1.5 percent to JD 509.8 million ($720 million) in 2020 compared to 2019. FDI inflow reached JD 269.4 million ($380 million) during the first three quarters of 2021.
1. Openness To, and Restrictions Upon, Foreign Investment
Jordan is largely open to foreign investment, and the government is committed to supporting foreign investment. Foreign and local investors are treated equally under the law.
In October 2021, a new, dedicated Ministry of Investment absorbed the responsibilities of the Jordan Investment Commission (JIC) and is now responsible for implementing the 2014 Investment Law and promoting new and existing investment in Jordan. The Ministry is the focal point for investors and can expedite government services and investment incentives. The Ministry supervises and approves investment-related matters within guidelines set by the Investment Council and approved by the government.
The Investment Council, comprised of the Prime Minister, ministers with economic portfolios, and representatives from the private sector, oversees the management and development of national investment policy and propose legislative and economic reforms to facilitate investment.
The Ministry of Investment oversees an “Investment Window” to provide information and technical assistance to investors, with a mandate to simplify registration and licensing procedures for investment projects that benefit from the Investment Law. The Ministry will continue offering the same services that were initiated by The Jordan Investment Commission, including the “Follow-Up and After Care” department established in 2018 and the investor grievance mechanism introduced in 2019 to address investor complaints, with the aim to resolve legal disputes outside of the formal court system.
In 2018, the government issued the “Code of Governance Practices of Policies and Legislative Instruments in Government Departments for the Year 2018.” It aims to increase legislative predictability and stability to ensure the confidence of citizens and the business sector. The government developed and adopted guidelines for a Regulatory Impact Assessment (RIA), to be implemented across all government entities.
Investment and property laws allow U.S. entities to establish businesses in many, but not all, sectors. Foreign companies may open regional and branch offices; branch offices may carry out full business activities; and regional offices may serve as liaisons between head offices and Jordanian or regional clients. The Ministry of Industry, Trade and Supply’s Companies Control Department implements the government’s policy on the establishment of regional and branch offices.
Under the U.S.-Jordan Bilateral Investment Treaty, U.S. investors are granted several exceptions and are accorded the same treatment as Jordanian nationals, allowing U.S. investors to maintain 100 percent ownership in some restricted businesses. In some sectors, including aerospace and defense, travel and tourism, transportation, and media and entertainment, there are limits to U.S. ownership and/or requirements for key positions to be filled by Jordanian nationals, among other restrictions. The most up-to-date listing of limitations on U.S. investments is available in the FTA Annex 3.1 and may be found athttp://www.ustr.gov/trade-agreements/free-trade-agreements/jordan-fta/final-text
Foreign nationals and firms are permitted to own or lease property in Jordan for investment purposes and are allowed one residence for personal use, provided that their home country permits reciprocal property ownership rights for Jordanians. Depending on the size and location of the property, the Land and Survey Department, the Ministry of Finance, and/or the Cabinet may need to approve foreign ownership of land and property, which must then be developed within five years of the date of approval.
In 2020, the government amended its bylaw governing foreign ownership, expanding ownership percentage in some economic activities, while maintaining the following restrictions:
Foreigners are prohibited from wholly or partially owning investigation and security services, stone quarrying operations for construction purposes, customs clearance services, and bakeries of all kinds; and are prohibited from trading in weapons and fireworks. The Cabinet, however, may approve foreign ownership of projects in these sectors upon the recommendation of the Investment Council. To qualify for the exemption, projects must be categorized as being highly valuable to the national economy.
Investors are limited to 50 percent ownership in certain businesses and services, including retail and wholesale trading, engineering consultancy services, exchange houses apart from banks and financial services companies, maritime, air, and land transportation services, and related services.
Foreign firms may not import goods without appointing an agent registered in Jordan; the agent may be a branch office or a wholly owned subsidiary of the foreign firm. The agent’s connection to the foreign company must be direct, without a sub-agent or intermediary.
The bylaw authorizes the Council of Ministers, upon the recommendation of the Prime Minister to grant a higher percentage ownership to non-Jordanian investors in any investment based on a certain criterion.
The Commercial Agents and Intermediaries Law No. 28/2001 governs contractual agreements between foreign firms and commercial agents. Private foreign entities, whether licensed under sole foreign ownership or as a joint venture, compete on an equal basis with local companies.
For national security purposes, foreign investors must undergo security screening through the Ministry of Interior, which can be finalized through the Commission’s “Investment Window” located at the Investment Commission or online https://www.jic.gov.jo/en/home-new/.
Jordan has been a World Trade Organization (WTO) member since 2000. The WTO conducted Jordan’s second Trade Policy Review in November 2015.
In 2012, the United States and Jordan agreed to Statements of Principles for International Investment and for Information and Communication Technology Services, and a Trade and Investment Partnership Bilateral Action Plan, each of which is designed to increase transparency, openness, and governmental and private sector cooperation. All current treaties and agreements in force between the United States and Jordan may be found here: https://www.state.gov/treaties-in-force/
As a follow-up to OECD’s Investment Policy Review of Jordan and Jordan’s adherence to the
OECD Declaration on International Investment and Multinational Enterprises in 2013, the MENA-OECD competitiveness program issued a report in 2018 entitled “Enhancing the legal
framework for sustainable investment: Lessons from Jordan” (http://www.oecd.org/mena/competitiveness/Enhancing-the-Legal-Framework-forSustainable-Investment-Lessons-from-Jorden.pdf).
Businesses in Jordan need to register with the Ministry of Industry, Trade, and Supply, Companies Control Department, or the Chambers of Commerce or Industry depending on the type of business they conduct. Registration is required to open a bank account, obtain a tax identification number and obtain a VAT number. New businesses also need to obtain a vocational license from the municipality, receive a health inspection, and register with the SSC.
In February 2022, the Parliament endorsed a new law for licensing professions within the jurisdiction of the Greater Amman Municipality (GAM) to create a registration fast-track. More than 383 economic activities will be eligible to obtain their licenses within one day, or maximum seven days if the business is considered high-risk. The law also extended the validity of licenses from one to five years.
The Ministry of Investment (which has absorbed the responsibilities of the Jordan Investment Commission) maintains an “Investment Window” which serves as a comprehensive investment center for investors. The Investment Window offers technical advice and complete registration and licensing services for investments inside and outside of development zones. Investors can register their businesses in one day if all documents are provided. Approvals for exemptions granted under the investment law can be approved and obtained in one week.
Jordan has also adopted a single security approval for new investors. The new approval covers registering and licensing the company, obtaining driving licenses for investors, possessing immovable property for the establishment of investment projects in the industrial and developing zones, in addition to granting residence permits to non-Jordanian investors and their family members. The commission has published a number of online guides, including the investor guide (Investor Guide – Moin).
In 2018, the Companies Control Department has developed and launched a portal for online registration: http://www.ccd.gov.jo/. Foreign investors can access it to register new companies.
However, e-signatures have not been implemented, so investors must sign documents using notary services in their countries.
In November 2019, under the Jordan Investment Commission (JIC), the government introduced several new online services including the issuance and renewal investor IDs, issuance and renewal of IDs for investors’ family members, registration of institutions in development zones, first-time registration of individual institutions, changing the method of use, registration and renewal of subscriptions to the Amman Chamber of Commerce (ACC), amendments to subscriptions to the ACC, and issuance of environmental permits. The introduction of these electronic services reduced the time needed to grant or renew the investor identification card (required to facilitate various transactions) to one day. (home new – Moin). In December 2020, the Greater Amman Municipality (GAM) digitized thirteen of its licensing related services, including vocational licensing and renewal.
In 2018, Jordan launched a National Single Window (NSW) for customs clearance. In 2020, all export and import custom declarations became electronic. In January 2022, the government adopted a simplified import tariff structure and reduced tariff rates. The Ministry of Finance reduced tariff brackets from eleven levels of taxation to four, ranging from zero to 25 percent. The maximum tariff rate (previously 40 percent) was reduced to 25 percent and will be reduced to 15 percent by 2023 (https://services.customs.gov.jo/JCcits/sections.aspx).
The Ministry of Digital Economy and Entrepreneurship continues to encourage the use of e-services and expand the number of government transactions that can be completed online. As of March 2021, 413 e-services are available including services provided by the Greater Amman Municipality, Ministry of Investment, Tax Department, Ministry of Trade, and Jordan Customs.
Jordan does not have a mechanism to specifically incentivize outward investment, nor does it restrict it.
3. Legal Regime
Legal, regulatory, and accounting policies, applicable to both domestic and foreign investors, are transparent.
The Jordanian Companies Law stipulates that all registered companies should maintain sound accounting records and present annual audited financial statements in accordance with internationally recognized accounting and auditing principles. According to the Jordanian Securities Commission (JSC) Law and Directives of disclosures, auditing, and accounting standards (1/1998), all entities subject to JSC’s supervision are required to apply International Financial Reporting Standards (IFRS).
In 2018, the government issued the “Code of Governance Practices of Policies and Legislative Instruments in Government Departments” to increase legislative predictability and the stability of legislative environment. Currently, the government is updating its Regulatory Impact Assessment (RIA) guidelines. Furthermore, it is working to establish a unified public consultation portal to ensure all government entities conduct consultations on all their regulations.
In 2020, the Council of Ministers issued a “Legislation Data Memorandum,” which all government entities submitting new regulations are required to fill out. The memorandum provides information on the type and details of consultations conducted with the public and private sector. Laws and regulations are also published on the website of the Legislative and Opinion Bureau for public comment, in addition to executive branch consultations with the legislative branch and key stakeholders.
The government is gradually implementing policies to improve competition and foster transparency in implementation. These reforms aim to change an existing system influenced inthe past by family affiliations, business ties, and other entrenched interests.
The draft comprehensive business law, currently with the Legislative and Opinion Bureau undergoing an RIA, includes updates that will touch on anti-competitive practices, Investors’ rights, contract enforcement, insolvency, etc.
All investments, including public sector projects, are required to conduct an environmental and social impact studies, before receiving final approval. Jordan is committed to its fiscal transparency policy; the Ministry of Finance publishes a monthly “General Government Finance Bulletin” and that includes detailed information on government’s debt obligations. (arbic_pdf_december2-2021.pdf (mof.gov.jo))
Jordan recognizes and accepts most U.S. standards and specifications. However, Jordan has occasionally required additional product standards for imports. Some of these measures have been viewed as barriers to trade, such as a 2014 restriction imposed on packaging sizes for poultry available for retail resale.
As a member country of the WTO, Jordan is obliged to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).
Jordan is a signatory of the WTO Trade Facilitation Agreement. Jordan had implemented 88.7 percent of its commitments. Jordan submitted its notifications for Category A before the agreement came into force, is currently in the final review for categories B and C and must report completion by December 2022.
Jordan has a mixed legal system based on civil law, sharia law (Islamic law), and customary law. The Constitution establishes the judiciary as one of three separate and independent branches of government. Jordanian commercial laws do not make a distinction between Jordanian and non-Jordanian investors. However, plaintiffs have complained about judicial backlogs and subsequent delays in legal proceedings.
In 2018, Jordan has introduced economic judicial chambers. Jointly the Judicial Council in cooperation with the Ministry of Justice established a unit at the Amman First Instance Court and Amman Magistrate Court that includes judges who are solely dedicated to commercial cases specialized in hearing commercial cases exclusively, in accordance with the provisions of the Law of Formation of the amended Courts No. 30 of 2017. These chambers specialize in the adjudication of certain commercial and investment disputes mentioned in Article 4 of the Courts Formation Law.
Jordan’s Investment Law governs local and foreign investment. The law consolidated three entities – the Jordan Investment Board, the Jordanian Development Zones Commission, and the Free Zones Corporation – into the Jordan Investment Commission, which was absorbed by the Ministry of Investment in 2021. The law incorporates a statement of investors’ rights and a legal framework for a single Investment Window.
The Ministry published services and licensing guides outlining processes and fees, in addition to other guides on its website (Publications – Moin). In 2019, it passed amendments to the Foreign Investors bylaw which allowed larger foreign ownership in previously restricted sectors.
In 2018, Jordan passed the Insolvency Law, Movable Assets and Secured Lending Law and Bylaw, the Venture Capital Bylaw, and the Income Tax Law, along with bylaws to ensure proper implementation. The government has worked to train and certify insolvency practitioners. To date, no company has successfully used the insolvency law to re-structure operations and obligations.
In October 2019, Jordan published an amended Social Security Law stipulating temporary changes to the social security contributions of newly registered entities that meet specific conditions, with an aim to support new companies and startups. The government also issued the Investor Grievance Bylaw and established a special unit to follow up on investors’ cases. As of 2019, new investors are offered 10-year “incentive stability guarantees.”
Since 2020, the Government of Jordan has a Public Private Partnership (PPP) Unit to identify and study investment opportunities. The PPP Unit falls under the Ministry of Investment and has received technical assistance from the International Finance Corporation (IFC) and other donors.
In 2021, the Parliament approved further amendments to the Companies Law, to allow virtual General Assembly and Board of Directors meetings. The amendments also stipulated companies must keep a record that includes information about the beneficial owner of shares and further obliged companies to disclose to the Companies Control Department the actual beneficiary, in support on Anti-Money Laundering and Counter Terrorism Financing Law.
There is no systematic or legal discrimination against foreign participation with respect to ownership and participation in Jordan’s major economic sectors other than the restrictions outlined in the governing regulations. In fact, many Jordanian businesses actively seek engagement with foreign partners to increase their competitiveness and access to international markets. The government’s efforts have made Jordan’s official investment climate welcoming; however, U.S. investors have reported hidden costs, bureaucratic red tape, vague regulations, and unclear or conflicting jurisdictions.
Parliament passed amendments to Competition Law No. 33/2004 in 2011 to strengthen the local economic environment and attract foreign investment by providing incentives to improve market competitiveness, protect small and medium enterprises from restrictive anticompetitive practices, and give consumers access to high quality products at competitive prices. The Competition Directorate at the Ministry of Industry, Trade, and Supply conducts market research, examines complaints, and reports violators to the judicial system.
The investor grievance unit established in 2019 at the Ministry of Investment can also investigate unfair competition cases filed by investors.
Article 11 of the Jordanian Constitution stipulates those expropriations are prohibited unless specifically deemed to be in the public interest. In cases of expropriation, the law mandates provision of fair compensation to the investor in convertible currency.
The Commercial Code, Civil Code, and Companies Law collectively govern bankruptcy and insolvency proceedings. In December 2017, the cabinet endorsed a bankruptcy bylaw which stipulates procedures for optional and compulsory liquidation, along with the mechanism, liquidation plan, and required documentation and reporting. In 2018, Parliament passed the Insolvency Law, which allows individuals and companies to offset their financial position through a debt management plan. The law was designed to help the insolvent entity continue its economic activity, rather than directly resorting to bankruptcy. The law regulates insolvency proceedings for foreign organizations according to international conventions ratified by Jordan. As of 2022, judges had dismissed almost all petitions for insolvency on technical grounds and no company has yet used the insolvency law successfully.
Defaulting on loans or issuing checks without adequate available balances is a crime in Jordan and may subject the offender to imprisonment under Jordan’s penal system. While Jordan is reexamining these laws, prison terms for debtors remains a legal practice in Jordan. Investors should conduct thorough due diligence on potential partners and avail themselves of local legal counsel to understand best business practices in Jordan and conform with local laws. The U.S. Commercial Service Office of the Embassy of the United States in Amman can assist American businesses in these endeavors.
4. Industrial Policies
Under Investment Law No. 30/2014, the Council of Ministers, upon the recommendation of the Investment Council, may offer investment incentives in accordance with the law and governing regulations for projects outside the Development and Free Zones. The Investment Council and Investment Commission can also offer certain exemptions for projects in the following sectors:
Agriculture and livestock
Hospitals and specialized medical centers
Hotel and touristic facilities
Tourism-related entertainment and recreation
Contact and communication centers
Scientific research centers and medical laboratories
Technical and media production
Such incentives include customs exemptions, refunding of the general tax for production inputs, and no sales tax. The Ministry of Investment can provide investors with further information on these exemptions (home new – Moin). Automatic exemptions are also granted for specific services whether purchased locally or imported. The Income and Sales Tax Department will refund the general tax levied within 30 days from submitting a written request in accordance with the terms and conditions determined by the Regulations Governing Investment Incentives (Number 33 of 2015).
A number of non-automatic exemptions are granted for production requirements and fixed assets used in industrial or handicrafts activities. Such exemptions are subject to administrative procedures and approvals obtained from the Ministry of Investment Technical Committee and are governed by the previously referenced regulation.
Article 8-A of the 2014 Investment Law allows the cabinet to grant additional advantages, exemptions, or incentives to any economic activities. Under this article, the cabinet granted additional incentives to the ICT, tourism, and transport sectors in 2016, as published in the Official Gazette.
As the government implements reforms under the IMF Extended Fund Facility program and its own pro-growth reform agenda, several U.S. investors have reported the government has sought to reduce or eliminate incentives, guarantees, and/or tax exemptions previously expected.
Bylaw number 13 for year 2015 regulates the incentives granted to renewable energy and energy efficiency equipment and projects. The Bylaw exempted those items from customs duties and imposed a General Sales Tax (GST) at a rate of zero percent. However, the Ministry of Energy has stalled all renewable energy projects of more than 1 MW capacity.
Jordanian law and regulation promote and incentivizes water efficiency, waste management, and green building in commercial property development. For example, since 2015 the Jordan National Building Codes have required energy efficient practices in new construction.
Starting April 1, 2022, the Government will implement a new electricity tariff structure, which will reduce production costs for several vital economic sectors including health, tourism, commercial, agricultural, and industrial sectors.
The country is divided into three development areas: Zones A, B, and C. Investments in Zone C, the least developed areas of Jordan, receive the highest level of incentives while those in Zone A receive the lowest level. All agricultural, maritime, transport and railway investments are classified as Zone C, irrespective of location. Hotel and tourism-related projects along the Dead Sea, leisure and recreational compounds, and convention and exhibition centers receive Zone A designations. Qualifying Industrial Zones (QIZs) are zoned according to their geographical location unless granted an exemption. The three-zone classification scheme does not apply to nature reserves and environmental protection areas.
Jordan’s Investment Law No. 30 of 2014 merged the Development and Free Zones Commission (DFZC) into the newly formed Jordan Investment Commission (now absorbed by the Ministry of Investment), thus it became the main governmental body responsible for creating, regulating, and monitoring Jordan’s free trade zones, industrial estates, and development zones. The development areas are the King Hussein Bin Talal Development Area (KHBTDA) in Mafraq, the Ma’an Development Area, the Irbid Development Area (IDA), the Dead Sea Development Zone, the Jabal Ajloun Development Zone, and the King Hussein Business Park Development Zone. The Investment Law assigns the Jordan Industrial Estates Corporation (JIEC) and the Development and Free Zones Corporation (DFZC) as main developers of industrial estates and development and free zones, under the supervision of the investment commission.
The government has also created nine industrial estates in Amman, Irbid, Karak, Mafraq, Madaba , Tafileh, Salt, and Aqaba, in addition to several privately-run industrial parks, including al-Mushatta, al-Tajamouat, al-Dulayl, Cyber City, al-Qastal, Jordan Gateway, and al-Hallabat. These estates provide basic infrastructure for a wide variety of manufacturing activities, reducing the cost of utilities and providing cost-effective land and buildings. Investors in the estates continue to receive incentives until their contracts expire, and receive various additional exemptions, such as a two-year exemption on income and social services taxes, complete exemptions from building and land taxes, and exemptions or reductions on most municipalities’ fees.
Besides the six public free zones in Zarqa, Sahab, Karak, Karama, Mowaqaar, and Queen Alia Airport, Jordan has over 37 designated free zones administered by private companies under the DFZC’s supervision. The free zones are outside of the jurisdiction of Jordan Customs and provide a duty and tax-free environment for the storage of goods transiting Jordan.
Jordan launched a solar park in Ma’an development zone and announced plans to establish two new industrial parks in Zarqa and Jerash.
Under the Investment Law, establishments operating within development zones are subject to a unified tax rate of 5 percent. However, Income Tax Law No. 38 of 2018 modified the tax rates applicable to entities operating in the Development Zones depending on the source of the income; industrial activities with a local value-added of at least 30 percent are subject to 5 percent income tax rate, while other projects and activities are subject to 10 percent.
The Investment Law also grants entities registered in the free zones a tax exemption on any activity conducted within the borders of the free zones, the export of goods and services outside the Kingdom, and associated transit trade. Profits earned on activities pertaining to the sale, disposal, or importation of goods and services within the borders of the free zones are subject to tax based on the normal income tax rates applicable to each entity, depending on its status (corporation or individual).
The Aqaba Special Economic Zone (ASEZA) is an independent economic zone not governed by the Investment Commission or the articles in the Investment Law governing investments in free zones or development zones. It offers special tax exemptions, a flat five percent income tax, and facilitates customs handling at Aqaba Port. In recent years, ASEZA has attracted projects, mainly in hotel and property development sectors, valued at over $8 billion. The government continues to implement development projects aimed at attracting commerce and tourism through the Port of Aqaba. The Aqaba New Port project became operational in 2018 and reached design capacity in 2019. The new port, 20 kilometers south of the previous port, added four new terminals and expanded general ship berthing and marine services, in addition to adding dedicated terminals for grain silos, liquefied natural gas, phosphates, and propane.
Investors, foreign or domestic, face specific requirements in trade, services, and industrial projects in free zones. Industrial projects must be related to one of the following industries:
New industries that depend on advanced technology;
Industries that require locally available raw material and/or locally manufactured parts;
Industries that complement domestic industries;
Industries that enhance labor skills and promote technical know-how; or,
Industries that provide consumer goods and that contribute to reducing market dependency on imported goods.
In 2021, the government passed tax legislation to address gaps and loopholes to prevent tax leakages and ensure transparency and fairness; This included legislation on economic substance and transfer pricing and brought ASEZA under the national control for tax and customs administration.
Jordan does not follow “forced localization.” However, some of the incentives are being tied to deployment of local content at certain percentages.
Jordan does not have requirements for foreign IT providers to turn over source code or provide access to surveillance.
In 2020, the Ministry of Digital Economy and Entrepreneurship submitted a draft for the personal Data Protection Law, which supports Jordan’s digitization efforts. The Council of Ministers approved the law and sent it to the Legislative and Opinion Bureau for review, as of March 2022, the draft law is with the Lower House for review. Jordan does not have a modern data protection law. The Criminal Law, Cybercrime Law, and Telecommunication Law offer partial protection of personal data.
5. Protection of Property Rights
The legal system reliably facilitates and protects the acquisition and disposition of property rights. Foreign ownership of land and assets is governed by the Leasing of Immovable Assets and Their Sale to Non-Jordanian and Judicial Persons Law No. 47/2006. Under Article 3 of the law, if the buyer’s country of residence has a reciprocal relationship with Jordan, foreign nationals are afforded the right of ownership of property within urban borders in Jordan for residential purposes. According to the law, foreign nationals may rent immovable assets for business or accommodation purposes, provided that the plot of land does not exceed 10 acres and the lease is for no more than three years in duration. Interest in real property is recognized and enforced once recorded in a legal registry.
Jordan approved an investment program that grants citizenship or permanent residency of non-Jordanians in February 2018. This program includes permanent residency for non-Jordanians who purchase properties worth a minimum of JOD 200,000 ($282,100) and hold the properties for 10 years.
A new Property law passed in 2019 consolidated 13 laws governing property ownership in one legislation and addressed issues such as zoning and the facilitation of ownership and leases for foreign investors.
All land plots in Jordan are titled and registered with the Jordanian Land and Survey Department; any land not titled as private property is considered government property.
Jordan has a fairly strong legal structure to protect intellectual property rights (IPR), having passed several laws in compliance with its international commitments. Laws consistent with Trade Related Aspects of Intellectual Property Rights (TRIPS) now protect trade secrets, plant varieties, and semiconductor chip designs. Jordan’s record on IPR enforcement has improved in recent years, but more effective enforcement mechanisms and legal procedures are still needed to address the cases of infringement and theft that persist.
Copyrights are registered with the Ministry of Culture’s National Library Department, and patents and trademarks are registered with the Registrar of Patents and Trademarks at the Ministry of Industry and Trade. Registration of patents and trademarks can be done electronically at https://ippd-eservice.mit.gov.jo/.
Jordan ratified the Patent Cooperation Treaty and the Madrid Protocol in 2007. Jordan is a signatory to World Intellectual Property Organization (WIPO) treaties on both copyrights and on performances and phonograms, and it has been developing updated laws for copyrights, trademark standards, and customs regulations to meet international standards. Jordanian firms may seek joint ventures and licensing agreements with multinational partners.
In 2021, the Industrial Property Protection Directorate, in cooperation with the World Intellectual Property Organization, completed institutional intellectual property policies for Jordanian universities and research institutions where 11 Jordanian universities benefited from this technical support.
Despite improvements in enforcement generally, infringements persist, especially copyright violations of electronic media. In particular, a significant amount of pirated videos, software, and television content remains in the marketplace.
During 2021, the National Library referred 23 cases of copyright violations to the judiciary.
In October 2021, the government enacted a bylaw on Border Measures to Protect Intellectual Property Rights to stipulate the procedures to be followed by customs officials at the border to ensure the protection of IPR. The bylaw allows the right holder of a good to request the competent court to stop clearance procedures and prevent the release of suspected counterfeits.
Jordan was not included in the 2021 Special 301 report. One online market in Jordan was included in the 2021 Notorious Markets Report for streaming pirated television content.
Mr. Peter Mehravari
Intellectual Property Attaché for the Middle East & North Africa
U.S. Embassy Abu Dhabi
Tel: +965 97589223
There are three key capital market institutions: the Jordan Securities Commission (JSC), the Amman Stock Exchange (ASE), and the Securities Depository Center (SDC). The ASE launched an Internet Trading Service in 2010, providing an opportunity for investors to engage in securities trading independent of geographic location.
Jordan’s stock market is one of the most open among its regional competitors, with no cap on foreign ownership. As of end of February 2022, non-Jordanian ownership in companies listed on the ASE represented 48.3 percent of the total market value. The foreign ownership includes governments, institutional investors, and individuals. Non-Jordanian ownership in the financial sector was 52.2 percent, 21.5 percent in the services sector and 53.7 percent in the industrial sector.
Despite recent reforms and technological advances, the ASE suffers from intermittent liquidity problems and low trading activity. No new listings have been added since 2008. Market capitalization at end of 2021 reached $21.8 billion, up by almost 20 percent from 2020 levels.
The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.
Credit is allocated on market terms. The private sector has access to a limited variety of credit instruments relative to countries with more developed capital markets.
Jordan has 24 banks, including commercial banks, Islamic banks, and foreign bank branches. Jordan does not distinguish between investment banks and commercial banks. Concentration in the banking sector has decreased over the past decade, the assets of the largest five banks accounted for 50.3 percent of licensed banks’ total assets at the end of 2020. The banking system is capably supervised by the CBJ, which publishes an annual Financial Stability Report. JFSR2020 Final 28-11-2021.pdf (cbj.gov.jo)
Banks continue to be profitable and well-capitalized with deposits being the primary funding base. Liquidity and capital adequacy indicators remain strong largely due to the banks’ conservative and risk averse approach, and due to strict regulations on lending, particularly mortgage lending. The non-performing loan ratio reached 5.45 percent at the end of 2020. The rate of non-performing loans is expected to increase in 2022 as the CBJ rescinded in December 2021 measures to defer loan payments for pandemic-affected businesses.
Jordan has historically had low banking penetration, which the CBJ has worked to improve through its 2018 Financial Inclusion Strategy. As of end of 2020, 50 percent of people and 29 percent of women in Jordan above the age of 15 had bank accounts.
Banking Law No. 28 of 2000 does not discriminate between local and foreign banks, however capital requirements differ. The minimum capital requirements for foreign banks are JD 50 million ($70.6 million), and JD 100 million ($141 million) for local banks, although the CBJ has the authority to amend and increase the minimum capital requirement. The law also protects depositors’ interests, diminishes money market risk, guards against the concentration of lending, and includes articles on electronic banking practices and anti-money laundering. The CBJ set up an independent Deposit Insurance Corporation (DIC) in 2000 that insures deposits up to JOD 50,000 ($71,000). The DIC also acts as the liquidator of banks as directed by the CBJ.
Foreigners are allowed to open bank accounts with a valid passport and a Jordanian residence permit.
In January 2017, the CBJ established the Jordan Payments and Clearing Company, with an aim to establish and develop digital retail and micro payments along with the investment in innovative technology and digital financial services. The CBJ actively supports technology and is running JoMoPay, a mobile payment system and provides regulatory support to a privately-operated electronic bill payment service eFAWATEER.com.
In October 2021, The Central Bank of Jordan (CBJ) started a process soliciting comments from local banks over the potential introduction and licensing of digital banks, which aims to automate all front-end, back-end and middle-end operations. The CBJ is also exploring the possibility of launching the central bank digital currency (CBDC) would be linked to the Jordanian dinar and have legal standing. Full adoption and implementation could take five years.
Jordan does not have a sovereign wealth fund.
7. State-Owned Enterprises
Jordan has twenty-two SOEs of different sizes and mandates that are fully owned by the government. Wholly-owned SOEs employ around 11,000 people and have assets exceeding $8 billion. The government has more than 50 percent ownership in six companies, employing around 4,000 individuals, with total assets of $1.3 billion.
Most SOEs are small in terms of operations, assets, number of employees, and income. The largest SOEs are: National Electrical Power Company (NEPCO), Samra Electric Power Company, the Yarmouk Water Company, and Aqaba Development Corporation (ADC).
On average, since 2010, the private sector has maintained its share in the Jordanian economy’s Gross Domestic Product (GDP). The proportion remains around the 84% to 86% of GDP. SOEs in Jordan exercise delegated governmental powers and operate in fields not yet open for private investment, such as managing the transmission and distribution of electrical power and water. Other SOE activities include logistics, mining, storage and inventory management of strategic products, and some economic development activities such as Aqaba Port Company, Jordan National Petroleum Company, and Jordan Silos and Supply General Company. The government supports these companies as necessary, for example, the government has issued and guaranteed Treasury bonds for NEPCO since 2011 to ensure continuous power supply for the country.
SOEs generally compete on equal terms with private enterprises with respect to access to markets, credit, and other business operations. The law does not provide preferential treatment to SOEs, and they are held accountable by their Board of Directors, typically chaired by the sector-relevant Minister and the Audit Bureau.
Jordan is not a party to the World Trade Agreement (WTO) Government Procurement Agreement.
In year 2012, Jordan completed a multi-year privatization program, in the telecom, energy, and transportation sectors. There government has no further plans for additional privatizations.
In year 2020, Jordan adopted a new Public Private Partnership Law (PPP) to support the government’s commitment to broadening the utilization of public-private sector partnerships (PPPs) and encouraging the private sector to play a larger role in the economy. The law does not limit PPPs to certain sectors or nationalities.
A PPP unit housed at the Ministry of Investment supports the government in identifying and prioritizing projects, provides funding resources to cover pre-feasibility and feasibility studies, and oversees tendering processes. The PPP unit interacts with private sector and potential investors through promotional activities, market sounding exercises, and to discuss proposals. Communication during the bidding phase is strictly governed by the PPPs bylaw in line with international best practices.
Once a contract is awarded, line ministries or entities will take over as main POCs for projects and their implementation. The PPP Higher Council will handle investors’ grievances throughout the project’s lifecycle. The unit has already identified a list of potential PPP projects in several sectors: water, energy, transport, tourism, education, health, environment, and ICT. PPPs related regulations and current investment opportunities are listed on the Ministry of Investment website (In Arabic) مشاريع الشراكة بين القطاع العام و الخاص – وزارة الاستثمار الاردنية (moin.gov.jo)
There is general awareness of responsible business conduct among both manufacturers and consumers in Jordan, with many of the large local and multinational companies voluntarily developing and adopting corporate social responsibility (CSR) programs. CSR efforts predominantly focus on improving infrastructure in adjoining communities or providing better access to educational opportunities.
The amended Companies Law of 2018 regulates the work of companies by applying the rules of corporate governance and enhancing the monitoring authorities of shareholders at public liability companies. All investors are required to conduct environmental and social impact studies.
The government, enterprises, and NGOs are taking initiatives to promote responsible business conduct principles into their practices. The authorities developed a Corporate Governance Code based on the OECD Principles of Corporate Governance and ratified human rights conventions, but further steps are needed to guarantee respect for human rights by enterprises.
Jordan Labor Watch is a non-governmental organization which contributes to improving working conditions in accordance with international labor standards. It produces reports covering labor issues and uncovers workplace violations and abuses. The program provides a comprehensive database covering indicators related to the labor market, trade unions, labor organizations, and laws and regulations governing performance. Furthermore, Jordan Labor Watch strives to present alternative policies that tackle challenges facing the Arabian and Jordanian labor market.
The American Chamber of Commerce in Jordan published in 2016 a framework code of conduct for the private sector, the Jordan Integrity and Anti-Corruption Commission (JIACC) approved and embedded as part of the governance chapter in the amended Companies Law. The Customs Department released and revised a Golden List Program, which encourages good corporate citizenship amongst trading companies and international best practice for trade across borders.
The government issues a monthly financial bulletin highlighting all revenues, including taxes and royalties paid by extractive industries. Jordan initiated discussions with the Extractive Industries Transparency Initiative (EITI), but it has not joined.
Jordan is a signatory of The Montreux Document on Private Military and Security Companies since 2009.
Jordan is drafting a Nationally Determined Contributions (NDC) Action Plan in five key sectors: energy, transport, agriculture, water, and health. The NDC Action Plan seeks to scale up renewables and energy efficiency measures; adapt the water, agricultural, and health sectors to climate change impacts; and strengthen the resilience of disadvantaged groups and vulnerable ecosystems.
Jordan has raised its greenhouse gas (GHG) emission reduction target included in its revised NDCs to 31 percent compared to the baseline scenario. The reduction target is divided into conditional and unconditional a as follows: conditional target: 26 percent, unconditional target: 5 percent.
The new GHG emission reduction target is based on a combination of national policies, programs, and actions as well as international support and finance. The adaptation vision and objective of the updated NDC is directly linked to the recently launched National Adaptation Plan (NAP). This updated NDC aims at driving Jordan’s post COVID-19 recovery process into a lower carbon and more climate resilient development pathway steered by national green growth priorities while fully committing to the provisions of the UNFCCC and the Paris Agreement and paving the way for a future Climate Change Long Term Strategy (LTS). The total estimated cost of the proposed mitigation actions listed in the updated NDC submission is $7.54 billion
To support its targets, the Ministry of Environment has also identified pilot cross-sector interventions to implement mitigation actions in the energy and water sectors with Energy Efficiency (EE) and Renewable Energy (RE). The interventions aimed at fulfilling three components: A national Monitoring, Reporting and Verification MRV system and registry for climate mitigation measures, designing a platform for private sector financing in EE and RE, and exploring the potential for market-based instruments for climate mitigation measures.
The Ministry of Environment adopted two by-laws in 2005 to protect biodiversity. Article 4 Environmental Impact Assessment (EIA) Regulation No. 37 of 2005 ensures any project will need to assess its impact on the environment including biodiversity. Regulation No. 29 of 2005 on natural protected areas and national parks gave the authority of creating protected areas to a Technical Committee led by the Ministry of Environment, and management authority to the Royal Society for the Conservation of Nature (RSCN), a unique model for the region and globally. Since that time, RSCN has gone on to establish seven protected areas throughout Jordan, covering over 1200 square kilometers.
All agricultural, industrial, commercial, housing, and tourism projects, including public sector projects, are required to obtain environmental approval from the Ministry of Environment (Article 4 Environmental Impact Assessment (EIA) Regulation No. 37 of 2005). The process begins with a screening phase led by the Ministry of Environment and an initial EIA, to determine whether the project has a significant impact on the environment. Depending on the result, the Ministry of Environment may require a comprehensive EIA.
In 2020 Jordan established its first Marine Protected Area in the Gulf of Aqaba, governed and managed by the Aqaba Special Economic Zone Authority under its laws and regulations. That same year new provisions were added to the Agricultural Law of 13 of 2015 updating the fishing regulations, including an annex with endangered marine species.
Jordanian law and regulation promote and incentivizes water efficiency, waste management, and green building in commercial property development. For example, since 2015 the Jordan National Building Codes have required energy efficient practices in new construction.
Courts convicted a former Minister of Public Works and Housing, Customs Director General, and several local elected officials for corruption in separate trials during 2021. In September 2021, the State Security Court issued verdicts in a case related to the illegal production and smuggling of tobacco. A three-judge panel convicted 23 defendants and sentenced the chief suspect to 20 years’ imprisonment. The judges also acquitted four defendants and dismissed charges on two defendants who died during the trial. The verdict was subject to appeal at the Court of Cassation. The State Security Court also imposed fines of JD 179 million ($252 million) on multiple defendants in the case, requiring additional hearings.
Jordan was the first Middle Eastern country to sign and ratify the United Nations Convention against Corruption (UNCAC) in 2005. In 2006, Jordan issued a code of conduct for the public sector, enacted an Illicit Gains Law, and Anti-Corruption Law. Jordanian law defines corruption as any act that violates official duties, all acts related to favoritism and nepotism that could deprive others from their legitimate rights, economic crimes, and misuse of power.
The Illicit Gains Law requires designated officials, their spouses, and minor children to file financial disclosures with the Integrity and Anti-Corruption Commission (IACC). Designated officials include the prime minister, cabinet members, members of parliament, senior government officials, as well as municipal-level council members and executives.
In 2019, Parliament amended the IACC Law granting the IACC more authority to access asset disclosure filings of officials exhibiting unexplained wealth. The amendment empowers the commission to request asset seizures, international travel bans, and suspension of officials under investigation for corruption. The amendment also increases the IACC’s administrative autonomy by enabling the commission to update its own regulations and protecting IACC board members and the chairperson from arbitrary dismissal.
In 2018, the government issued the Code of Governance Practices of Policies and Legislative Instruments in Government Departments, to improve the predictability of legal and regulatory framework governing the business environment.
A new Audit Bureau Law was enacted in 2018 to strengthen audit performance, capacity and independence in line with International Organization of Supreme Audit Institutions (INTOSAI) standards. Other related laws include the Penal/Criminal Code, Anti-Money Laundering Law, Right to Access Information Law, and the Economic Crimes Law.
Jordan is not a party to the OECD Convention on Combatting Bribery.
H.E. Mohannad Hijazi
Jordan Integrity and Anti-Corruption Commission (JIACC)
P.O. Box 5000, Amman, 11953, Jordan
+962 6 550 3150
P.O. Box 582662, Amman, 111585, Jordan
+962 6 585 2528 email@example.com
10. Political and Security Environment
The threat of terrorism remains high in Jordan. Transnational and indigenous terrorist groups have demonstrated the capability to plan and implement attacks in Jordan. Violent extremist groups in Syria and Iraq, including the Islamic State of Iraq and ash-Sham (ISIS), and al-Qa’ida, directly or indirectly have conducted or supported attacks in Jordan and continue to plot against local security forces, U.S. and Western interests and “soft” targets, such as high-profile public events, hotels, places of worship, restaurants, schools, and malls. Jordan’s prominent role in the Global Coalition to Defeat ISIS and its shared borders with Iraq and Syria increase the potential for future terrorist incidents.
Demonstrations occur frequently. They may take place in response to political or economic issues, on politically significant holidays, and during international events. In general, demonstrations remain peaceful. However, some have turned violent, even when intended to be peaceful, leading security officials to intervene.
Jordan remained a committed partner on counterterrorism and countering violent extremism in 2021. As a regional leader in the Global Coalition to Defeat ISIS, Jordan played an important role in Coalition successes in degrading the terrorist group’s territorial control and operational reach.
Although Jordan experienced a decrease in terrorist activity in 2021 compared to previous years partially due to the continuing COVID-19 pandemic, the country faced a continued threat from terror groups. While the Jordanian security forces thwarted plots and apprehended suspected terrorists, the threat of domestic radicalization, especially online, persisted.
Visitors should consult current State Department public announcements at www.travel.state.gov before traveling to Jordan.
11. Labor Policies and Practices
According to Jordan’s Department of Statistics, in 2021 the total number of employed persons over the age of 15 was approximately 1.3 million, and the total number of unemployed persons was 425,000, suggesting a total workforce of approximately 1.7 million. Jordan does not officially publish a labor participation rate but given a population of 5.1 million persons above the age of 15, the implied labor participation rate is 33 percent. Jordan’s unemployment rate as of September 30, 2021, was 23.2 percent.
Women and youth are underrepresented in Jordan’s labor market. In 2021, the unemployment rate for women was 30.8 percent, and the labor participation rate for women was 14.5 percent. At the same time, the unemployment rate for youth (15-25 years) was 48.5 percent, and the labor participation rate was 34.4 percent.
Jordan does not officially track the nationality of its workforce. However, 31 percent of Jordan’s total population are not Jordanian nationals (either refugees or non-Jordanian workers) and non-Jordanian workers play a significant role in Jordan’s economy, including the informal economy.
Jordan’s workforce (employed and unemployed) is largely well educated, with nearly 40 percent holding a bachelor’s degree or higher, and literacy rates approaching 100 percent. However, educational attainment rates among the population at large are significantly lower, especially among the older population.
Informal labor plays a significant part in Jordan’s economy. Official statistics are unavailable; however, experts estimate that informal labor may account for as much as 41 percent of Jordan’s actual workforce and 15 percent of GDP. There have been few analyses on the interaction between the informal and formal sectors of the economy. However, anecdotal evidence suggests that the agriculture sector and the domestic sector rely heavily on informal employment. In January 2021, agriculture sector employers protested attempts to regularize employment in that sector, complaining regularized employment arrangements would erode their competitiveness.
The COVID-19 pandemic shed light on conditions faced by workers in the informal economy, who do not have access to social welfare protection or medical insurance or may suffer from poor working environment, unfair pay, and harassment. In response to these concerns, the Government of Jordan established a complementary welfare support system in 2021 to support vulnerable workers.
According to Jordan’s Civil Service Bureau, the labor market needs certain medical specialists (such as respiratory therapists), engineers, and cybersecurity specialists. Jordan has a surplus of people educated in the humanities and social sciences.
Many professions and types of positions may be filled only by Jordanians, e.g. administrative professions such as data entry, secretarial tasks and wholesale/retail business. In addition, each sector has a designated minimum percentage of Jordanian employees. The Minister of Labor has the authority to grant exceptions to these policies.
The Jordanian Labor Law restricts layoffs under most circumstances by requiring prior notice to the Ministry of Labor and a guarantee of payment of benefits and severance payments to which the severed employee is entitled. However, termination without prior notice is allowed under certain conditions. Companies may obtain permission from the Ministry of Labor (MOL) to reduce their staff as a result of business restructuring. The social security system provides up to six months of unemployment benefits for formally registered workers.
Local labor requirements in economic development zones and free trade zones vary based on the type of economic activity. For example, employers in qualified industrial zones are restricted in their ability to transfer employees to other sectors and have certain obligations to repatriate foreign workers at the end of their contract terms.
Collective bargaining in Jordan is rare, and labor unions are generally weak. Labor unions serve primarily as intermediaries between workers and the MOL and may engage in collective bargaining on behalf of workers. The 17 recognized unions are all members of the General Federation of Jordanian Trade Unions. Estimates put union membership at less than 10 percent of the labor force. In 2021, labor unions representing workers in garment, food, petrochemical, and oil industries signed forty Collective Bargaining Agreements.
Articles 120, 121, and 122 of the Jordanian law set forth a mechanism for collective labor dispute resolution beginning with labor inspector mediation. If mediation fails, the Minister of Labor reviews the case, followed by the Conciliation Council, then finally by the Labor Court under the Magistrate and Penalty Court to resolve the case within seven days.
There were two strikes in 2021, at Jordanian Cement Factories Company and Aqaba Container Terminal Company. The government’s role has been to keep communications open between workers and management. Neither posed a serious investment risk.
The International Labor Organization has produced a legal analysis showing the extent to which Jordanian legislation is compatible with Convention No. 190 on violence and harassment in the workplace with the aim of establishing a legislative framework conducive to creating a workplace free of these two phenomena. To date, the Government of Jordan has not addressed the issues raised in this analysis, such as defining, comprehensively prohibiting, and/or addressing workplace violence and harassment.
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)