Saudi Arabia
Executive Summary
In 2020, 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, including tourism and entertainment, and for a significant transformation toward a digital, knowledge-based economy. The reforms are aimed at diversifying the Saudi economy away from its reliance on oil and creating more private sector jobs for a young and growing population.
To help accomplish these goals, the Saudi Arabian government (SAG) took additional steps in 2020 to improve the Kingdom’s investment climate, attract increased foreign investment, and encourage greater domestic and international private sector participation in its economy. To accelerate development and facilitate investment, the SAG elevated two Saudi authorities to full ministries in 2020: the Saudi Arabian General Investment Authority became the Ministry of Investment, and the Saudi Commission for Tourism and National Heritage became the Ministry of Tourism. On March 30, 2021, the SAG also announced the new Shareek program, an initiative designed to generate $3.2 trillion of domestic investment from the SAG, the sovereign wealth Public Investment Fund, and the private sector into Saudi Arabia’s economic development.
The Saudi Arabian government and its new stand-alone intellectual property rights (IPR) agency, the Saudi Authority for Intellectual Property (SAIP), have taken important steps since 2018 to improve IPR protection, enforcement, and awareness. In 2020, SAIP continued its inspection campaigns and seized millions of items that violated IPR protection. However, despite making measurable progress, the continued lack of effective protection of IPR in the pharmaceutical sector remains a significant concern. Several U.S. and international pharmaceutical companies allege the SAG violated their IPR and the confidentiality of trade data by licensing local firms to produce competing generic pharmaceuticals without approval. Industry attempts to engage the SAG on these issues have not led to satisfactory outcomes for the affected companies, while legal recourse and repercussions for IPR violations remain poorly defined. Primarily for these reasons, the U.S. Trade Representative included Saudi Arabia on its Special 301 Priority Watch List for the second consecutive year.
Infrastructure development remains a priority component of Saudi Arabia’s Vision 2030 aspiration to become the most important logistics hub in the region, linking Asia, Europe, and Africa. By establishing new business partnerships and facilitating the flow of goods, people, and capital, the country seeks to increase interconnectivity and economic integration with other Gulf Cooperation Council (GCC) countries. Improvements to transportation, such as the $23 billion Riyadh metro, are intended to support this plan. In addition, Saudi Arabia continues to create and expand “economic cities” – including plans for special economic zones – throughout the Kingdom as hubs for petrochemicals, mining, logistics, manufacturing, and digital industries. The Kingdom also continued its early-stage work on infrastructure for NEOM, a futuristic city in northwest Saudi Arabia that Saudi officials have said will cost $500 billion to develop.
Saudi Arabia is launching 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. While specific details of a new initiative announced in February 2021 to attract multinational companies’ regional headquarters offices to Saudi Arabia have not been finalized, senior SAG officials have said publicly that beginning in 2024, government contracts will only be awarded to companies whose regional headquarters are located in the Kingdom. “Saudization” polices requiring certain businesses to employ a quota of Saudi workers have led to disruptions in some private sector activities.
In recognition of the progress made in its investment and business climate, Saudi Arabia’s rankings on several world indexes improved between 2019 and 2021. The country jumped 13 places on the IMD World Competitiveness Yearbook 2019, the biggest gain of any country surveyed, and increased two more spots in 2020 to 24th place, supported by improvements to government and business efficiency. The World Bank ranked Saudi Arabia the world’s top reformer and improver in its Doing Business 2020 report. The Kingdom rose 30 places, from 92nd to 62nd, and improved in 9 out of 10 areas measured in the report. World Economic Forum’s 2020 Global Competitiveness Report Special Edition ranked Saudi Arabia among the top 10 countries in the world for digital skills. The report attributed this progress to a number of factors including the adoption of information and communication technology, flexible work arrangements, national digital skills, and the legal digital framework.
On the social front, the removal of guardianship laws and travel restrictions for adult 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.
Development of the Saudi tourism sector is also a priority under Vision 2030, with plans to develop tourist attractions that meet the highest international standards and develop potential UNESCO World Heritage Sites. In addition to introducing a new tourism visa in 2019 for non-religious travelers, the SAG no longer requires that foreign travelers staying in the same hotel room provide proof of marriage or family relations. Construction of several multi-billion dollar giga-projects focused on tourism, including Qiddiya, the Red Sea Project, and Amaala, continue to progress. The SAG is seeking private investments through its Tourist Investment 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 in an effort to stimulate tourism investment and increase the sector’s contribution to GDP. Due to the global pandemic, the SAG paused its Saudi Seasons initiative comprised of 11 annual tourism ‘seasons’ held in each region of the country, but has announced the program will resume in November 2021.
The Saudi entertainment and sporting events sector is growing rapidly. AMC, Vox, and other cinema companies continue to develop hundreds of movie theaters. The SAG is seeking to sign agreements for film production studios in Saudi Arabia for end-to-end film production. Saudi film festivals, like the Red Sea Film Festival, are being developed to meet the SAG’s Vision 2030 Quality of Life objectives. The SAG has also hosted several world class sporting events including the European Tour, Diriyah ePrix, Dakar Rally, Saudi Formula One Grand Prix, Diriyah Tennis Cup, WWE Crown Jewel, and Supercoppa. In addition, several festivals and concerts have demonstrated strong demand for a variety of art and culture content.
Investor concerns persist, however, over the rule of law, business predictability, and political risk. Although some have recently been released, the continued detention and prosecution of activists, including prominent women’s rights activists, remains a significant concern, while there has been little progress on fundamental freedoms of speech and religion. Pressure on Saudi Arabia’s fiscal situation from the sharp downturn in oil prices and demand in 2020, as well as the unexpected spending needed to respond to COVID-19, will likely dampen some of the SAG’s ambitious plans. Despite budget cuts imposed in 2020 and the possibility that further spending reductions may be forthcoming, companies working on the SAG’s giga-projects reported the ongoing availability of funding in 2020. Revenues generated by the tripling of Saudi Arabia’s value-added tax rate from 5 to 15 percent in July 2020 have helped ease fiscal stress.
The pressure to generate non-oil revenue and provide more jobs for Saudi citizens have 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” polices requiring certain businesses to employ a quota of Saudi workers, have led to disruptions in some private sector activities and may lead to a decrease in domestic consumption levels.
Finally, while some U.S. companies, including those with significant experience in Saudi Arabia, continue to experience payment delays for SAG contracts, many were paid in full from late 2020 through the beginning of 2021. The SAG has committed to speed up its internal payment process and pay companies in a timely manner.
| Measure | Year | Index/Rank | Website Address |
|---|---|---|---|
| TI Corruption Perceptions Index | 2020 | 52 of 180 | http://www.transparency.org/research/cpi/overview |
| World Bank’s Doing Business Report | 2020 | 62 of 190 | http://www.doingbusiness.org/en/rankings |
| Global Innovation Index | 2020 | 66 of 131 | https://www.globalinnovationindex.org/analysis-indicator |
| U.S. FDI in partner country ($M USD, historical stock positions) | 2019 | $10,826 | https://apps.bea.gov/international/factsheet/ |
| World Bank GNI per capita | 2019 | $22,840 | http://data.worldbank.org/indicator/NY.GNP.PCAP.CD |
6. Financial Sector
Capital Markets and Portfolio Investment
Saudi Arabia’s financial policies generally facilitate the free flow of private capital and currency can be transferred in and out of the Kingdom without restriction. Saudi Arabia maintains an effective regulatory system governing portfolio investment in the Kingdom. The Capital Markets Law, passed in 2003, allows for brokerages, asset managers, and other nonbank financial intermediaries to operate in the Kingdom. The law created a market regulator, the Capital Market Authority (CMA), established in 2004, and opened the Saudi stock exchange (Tadawul) to public investment.
Since 2015, the CMA has progressively relaxed the rules applicable to qualified foreign investors, easing barriers to entry and expanding the foreign investor base. The CMA adopted regulations in 2017 permitting corporate debt securities to be listed and traded on the exchange; in March 2018, the CMA authorized government debt instruments to be listed and traded on the Tadawul. The Tadawul was incorporated into the FTSE Russell Emerging Markets Index in March 2019, resulting in a foreign capital injection of $6.8 billion. Separately, the $11 billion infusion into the Tadawul from integration into the MSCI Emerging Markets Index took place in May 2019. The Tadawul was also added to the S&P Dow Jones Emerging Market Index.
Money and Banking System
The banking system in the Kingdom is generally well-capitalized and healthy. The public has easy access to deposit-taking institutions. The legal, regulatory, and accounting systems used in the banking sector are generally transparent and consistent with international norms. In November 2020, the SAG approved the Saudi Central Bank Law, which changed the name of the Saudi Arabian Monetary Authority (SAMA) to the Saudi Central Bank. Under the new law, the Saudi Central Bank is responsible for maintaining monetary stability, promoting the stability of and enhancing confidence in the financial sector, and supporting economic growth. The Saudi Central Bank will continue to use the acronym “SAMA” due to its widespread use.
SAMA generally gets high marks for its prudential oversight of commercial banks in Saudi Arabia. SAMA is a member and shareholder of the Bank for International Settlements in Basel, Switzerland.
In 2017, SAMA enhanced and updated its previous Circular on Guidelines for the Prevention of Money Laundering and Terrorist Financing. The enhanced guidelines have increased alignment with the Financial Action Task Force (FATF) 40 Recommendations, the nine Special Recommendations on Terrorist Financing, and relevant UN Security Council Resolutions. Saudi Arabia is a member of the Middle East and North Africa Financial Action Task Force (MENA-FATF). In 2019, Saudi Arabia became the first Arab country to be granted full membership of the FATF, following the organization’s recognition of the Kingdom’s efforts in combating money laundering, financing of terrorism, and proliferation of arms. Saudi Arabia had been an observer member since 2015.
The SAG has authorized increased foreign participation in its banking sector over the last several years. SAMA has granted licenses to a number of new foreign banks to operate in the Kingdom, including Deutsche Bank, J.P. Morgan Chase N.A., and Industrial and Commercial Bank of China (ICBC). A number of additional, CMA-licensed foreign banks participate in the Saudi market as investors or wealth management advisors. Citigroup, for example, returned to the Saudi market in early 2018 under a CMA license.
Credit is normally widely available to both Saudi and foreign entities from commercial banks and is allocated on market terms. The Saudi banking sector has one of the world’s lowest non-performing loan (NPL) ratios, roughly 2.0 percent in 2020. In addition, credit is available from several government institutions, such as the SIDF, which allocate credit based on government-set criteria rather than market conditions. Companies must have a legal presence in Saudi Arabia to qualify for credit. The private sector has access to term loans, and there have been a number of corporate issuances of sharia-compliant bonds, known as sukuk.
The New Government Tenders and Procurement Law (GTPL) was approved in 2019. The New GTPL applies to procurement by government entities and works and procurements executed outside of Saudi Arabia. The Ministry of Finance has a pivotal role under the new GTPL by setting policies and issuing directives, collating and distributing information, maintaining a list of boycotts, and approving tender and prequalification forms, contract forms, performance evaluation forms, and other documents. In 2018, the Ministry of Finance launched the Electronic Government Procurement System (Etimad Portal) to consolidate and facilitate the process of bidding and government procurement for all government sectors, enhancing transparency amongst sectors of government and among competing entities.
In 2021, SAMA introduced the new Instant Payment System (Sarie) to facilitate instant, 24/7 money transfers across local banks.
Foreign Exchange and Remittances
Foreign Exchange
There is no limitation in Saudi Arabia on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs, other than certain withholding taxes (withholding taxes range from five percent for technical services and dividend distributions to 15 percent for transfers to related parties, and 20 percent or more for management fees). Bulk cash shipments greater than $10,000 must be declared at entry or exit points. Since 1986, when the last currency devaluation occurred, the official exchange rate has been fixed by SAMA at 3.75 Saudi riyals per U.S. dollar. Transactions typically take place using rates very close to the official rate.
Remittance Policies
Saudi Arabia is one of the largest remitting countries in the world, with roughly 75 percent of the Saudi labor force comprised of foreign workers. Remittances totaled approximately $39.9 billion in 2020. There are currently no restrictions on converting and transferring funds associated with an investment (including remittances of investment capital, dividends, earnings, loan repayments, principal on debt, lease payments, and/or management fees) into a freely usable currency at a legal market-clearing rate. There are no waiting periods in effect for remitting investment returns through normal legal channels.
The Ministry of Human Resources and Social Development is progressively implementing a “Wage Protection System” designed to verify that expatriate workers, the predominant source of remittances, are being properly paid according to their contracts. Under this system, employers are required to transfer salary payments from a local Saudi bank account to an employee’s local bank account, from which expatriates can freely remit their earnings to their home countries.
Sovereign Wealth Funds
The Public Investment Fund (PIF, www.pif.gov.sa ) is the Kingdom’s officially designated sovereign wealth fund. While PIF lacks many of the attributes of a traditional sovereign wealth fund, it has evolved into the SAG’s primary investment vehicle.
Established in 1971 to channel oil wealth into economic development, the PIF has historically been a holding company for government shares in partially privatized state-owned enterprises (SOEs), including SABIC, the National Commercial Bank, Saudi Telecom Company, Saudi Electricity Company, and others. Crown Prince Mohammed bin Salman is the chairman of the PIF and announced his intention in April 2016 to build the PIF into a $2 trillion global investment fund, relying in part on proceeds from the initial public offering of up to five percent of Saudi Aramco shares.
Since that announcement, the PIF has made a number of high-profile international investments, including a $3.5 billion investment in Uber, a commitment to invest $45 billion into Japanese SoftBank’s VisionFund, a commitment to invest $20 billion into U.S. Blackstone’s Infrastructure Fund, a $1 billion investment in U.S. electric car company Lucid Motors, and a partnership with cinema company AMC to operate movie theaters in the Kingdom. Under the Vision 2030 reform program, the PIF is financing a number of strategic domestic development projects, including: “NEOM,” a planned $500 billion project to build an “independent economic zone” in northwest Saudi Arabia; “The Line,” a $100-$200 billion project to build an environmentally friendly, carless, zero-carbon city at NEOM; “Qiddiya,” a new, large-scale entertainment, sports, and cultural complex near Riyadh; “the Red Sea Project”, a massive tourism development on the western Saudi coast; and “Amaala,” a wellness, healthy living, and meditation resort also located on the Red Sea.
At the end of 2020, the PIF reported its investment portfolio was valued at nearly $400 billion, mainly in shares of state-controlled domestic companies. In an effort to rebalance its investment portfolio, the PIF has divided its assets into six investment pools comprising local and global investments in various sectors and asset classes: Saudi holdings; Saudi sector development; Saudi real estate and infrastructure development; Saudi giga-projects; international strategic investments; and an international diversified pool of investments.
In 2021, Crown Prince Mohammed bin Salman launched a new five-year strategy for the PIF. The 2021-2025 strategy will focus on launching new sectors, empowering the private sector, developing the PIF’s portfolio, achieving effective long-term investments, supporting the localization of sectors, and building strategic economic partnerships. Under the new strategy, by 2025, the PIF will invest $267 billion into the local economy, contribute $320 billion to non-oil GDP, and create 1.8 million jobs. The Crown Prince also stated that the SAG would increase the size of the PIF more than five-fold to $2 trillion by 2030. The SAG declared it is investing nearly $220 billion through PIF, the National Development Fund, and the Royal Commission for Riyadh to transform Riyadh into a global city with 15 to 20 million inhabitants by 2030 (from its current population of about 7.5 million), and expects to attract a similar amount of investment from the private sector. The PIF also plans to establish a new major airline that will complement the state-owned Saudia (formerly Saudi Arabian Airlines) and compete with other major aviation companies in the region.
The Ministry of Finance announced in 2020 that $40 billion was being transferred from the Kingdom’s foreign reserves, held by the central bank SAMA, to the PIF to fund investments. In addition to previous investments in Uber, Magic Leap, Lucid Motors, Facebook, Starbucks, Disney, Boeing, Citigroup, LiveNation, Marriott, several European energy firms, and Carnival Cruise Lines, the PIF made a number of new investments in the latter half of 2020 including equity investments in CloudKitchens, Activision Blizzard, Electronic Arts, and Take-Two Interactive Software.
In practice, SAMA’s foreign reserve holdings also operate as a quasi-sovereign wealth fund, accounting for the majority of the SAG’s foreign assets. SAMA invests the Kingdom’s surplus oil revenues primarily in low-risk liquid assets, such as sovereign debt instruments and fixed-income securities. SAMA’s foreign reserves fell from $502 billion in January 2020 to $450 billion in January 2021. SAMA’s foreign reserve holdings peaked at $746 billion in mid-2014.
Though not a formal member, Saudi Arabia serves as a permanent observer to the International Working Group on Sovereign Wealth Funds.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
| Host Country Statistical source* | USG or international statistical source | USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other | |||
|---|---|---|---|---|---|
| Economic Data | Year | Amount | Year | Amount | |
| Host Country Gross Domestic Product (GDP) ($M USD) | 2020 | $700,118 | 2019 | $792,967 | www.worldbank.org/en/country |
| Foreign Direct Investment | Host Country Statistical source* | USG or international statistical source | USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other | ||
| U.S. FDI in partner country ($M USD, stock positions) | N/A | N/A | 2019 | $10,826 | BEA data available at https://apps.bea.gov/ international/factsheet/ |
| Host country’s FDI in the United States ($M USD, stock positions) | N/A | N/A | 2019 | $6,220 | BEA data available at https://www.bea.gov/international/ direct-investment-and-multinational- enterprises-comprehensive-data |
| Total inbound stock of FDI as % host GDP | N/A | N/A | 2019 | 29.8% | UNCTAD data available at https://stats.unctad.org/ handbook/EconomicTrends/Fdi.html |
* Source for Host Country Data: Saudi General Authority for Statistics
Table 3: Sources and Destination of FDI
According to the 2020 UNCTAD World Investment Report, Saudi Arabia’s total FDI inward stock was $236.2 billion and total FDI outward stock was $123.1 billion (in both cases, as of 2019).
Detailed data for inward direct investment (below) is as of 2010, which is the latest available breakdown of inward FDI by country.
| Direct Investment from/in Counterpart Economy Data | |||||
|---|---|---|---|---|---|
| From Top Five Sources/To Top Five Destinations (US Dollars, Millions) | |||||
| Inward Direct Investment | Outward Direct Investment | ||||
| Total Inward | $169,206 | 100% | Total Outward | N/A | N/A |
| Kuwait | $16,761 | 10% | Country #1 | N/A | N/A |
| France | $15,918 | 9% | Country #2 | N/A | N/A |
| Japan | $13,160 | 8% | Country #3 | N/A | N/A |
| United Arab Emirates | $12,601 | 7% | Country #4 | N/A | N/A |
| China, P.R. | $9,035 | 5% | Country #5 | N/A | N/A |
| “0” reflects amounts rounded to +/- USD 500,000. | |||||
*Source: IMF Coordinated Direct Investment Survey (2010 – latest available complete data)
| Portfolio Investment Assets | ||||||||
|---|---|---|---|---|---|---|---|---|
| Top Five Partners (Millions, current US Dollars) | ||||||||
| Total | Equity Securities | Total Debt Securities | ||||||
| All Countries | $308,806 | 100% | All Countries | $231,500 | 100% | All Countries | $77,306 | 100% |
| United States | $108,474 | 35% | United States | $94,132 | 41% | United States | $14,342 | 19% |
| Cayman Islands | $37,101 | 12% | Cayman Islands | $33,281 | 14% | U.A.E | $10,550 | 14% |
| Japan | $20,827 | 7% | China P.R | $16,091 | 7% | Turkey | $7,284 | 9% |
| China P.R. | $16,501 | 5% | Japan | $13,813 | 6% | Japan | $7,014 | 9% |
| U.A.E | $15,464 | 5% | Switzerland | $8,964 | 4% | Egypt | $5,543 | 7% |
Source: IMF’s Coordinated Portfolio Investment Survey (CPIS); data as of June 2020.