Policies Towards Foreign Direct 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 Invest Saudi website . In August 2022, the Investment Promotion Authority (SIPA) was established to attract national and foreign investment as part of the National Investment Strategy.
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 third iteration of Riyadh Season attracted 12 million visitors during its first 90 days.
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. Many of these initiatives are developed by subsidiary companies of the Public Investment Fund (PIF), the Kingdom’s sovereign wealth fund. These projects include:
- NEOM: a $1.5 trillion long-term development project to build a futuristic “independent economic zone” and city in northwest Saudi Arabia. This initiative includes:
- The Line: a 105 mile-long, urban smart city that will have no cars, no streets, and no carbon emissions. This project aims to create 380,000 jobs and contribute $48 billon to domestic GDP by 2030.
- 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 that will host the 2029 Asian Winter Games.
- Sindalah: one of NEOM’s luxury island destinations in the Red Sea. This project will most likely be the first part of NEOM to open to the public.
- Qiddiya: a large-scale entertainment, amusement, sports, housing, and cultural complex near Riyadh.
- King Abdullah Financial District: a commercial center development with nearly 60 skyscrapers in Riyadh.
- New Murabba: a planned commercial downtown in southwest Riyadh spanning almost 12 square miles with residential, retail, hotel, community, and office spaces.
- 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. This project includes Amaala, a wellness, healthy living, and meditation resort projected to include more than 3,000 luxury hotel rooms and 900 residential villas.
- 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.
- 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 tourist visa in 2019 and an e-visa in 2022 for non-religious travelers. The Kingdom also launched a free, 96-hour “stopover” visa in February 2023. 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 untapped domestic mineral wealth, projected at $1.3 trillion. The SAG seeks to 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 company Tasnee and Boeing signed a Memorandum of Understanding in February 2023 to develop aviation-grade titanium alloy value chains in Saudi Arabia. Ma’aden recently announced the formation of a new joint venture with the PIF to invest in strategic minerals projects in third countries. In a bid to attract further investments, Saudi Arabia hosted the second annual Future Minerals Forum in Riyadh in January 2023, which attracted more than 12,000 international participants. The Ministry of Industry and Mineral Resources issued 69 new mining licenses in December 2022.
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 and cargo hub. As part of the strategy, in March 2023 Saudi Arabia launched a second national air carrier, Riyadh Air, which will serve 100 destinations by 2030. The airline is expected to add $20 billion to non-oil GDP and create more than 200,000 direct and indirect jobs. 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.
Under Vision 2030, Saudi Arabia is transforming its healthcare sector through 23 semi-private “health clusters” – colocated health care facilities and medical cities under local administration. These health clusters represent a significant opportunity for healthcare equipment and technology providers, healthcare services companies, and hospital administrators. Saudi Arabia also plans to open a clinical trials registry and provide incentives for international pharmaceutical companies to bring clinical trials and research and development operations to the Kingdom. The SAG has also committed $1.5 billion to develop digital health services.
Saudi Arabia also aims to become a leader in next-generation technologies such as 5G/6G, artificial intelligence, and the Internet of Things through investments in digital infrastructure and partnerships with private technology companies. The Kingdom established a Science Park on its national labs campus to facilitate information sharing and joint research, and by 2040 aims to invest 2.5 percent of GDP in research, development, and innovation.
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 million by 2030. The SAG is seeking $250 billion in private sector financing for these projects. The Saudi Downtown Company is also seeking foreign investment in its real estate development projects in 12 Saudi cities.
Limits on Foreign Control and Right to Private Ownership and Establishment
Saudi Arabia fully recognizes rights to private ownership and the establishment of private business. 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), and an increasingly restrictive visa policy for foreign workers. The SAG implemented new taxes and fees in 2017 and early 2018, including significant visa fee increases.
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 (RHQ) in Saudi Arabia – preferably in Riyadh – by 2024. According to MISA, companies that relocate their regional headquarters to Riyadh will benefit from incentives including a 10-year “Saudization” exemption, spouse work permits, waivers of professional accreditation, visa acceleration, and end-to-end business, personal, and concierge services. Companies must apply for an RHQ License through MISA and RCRC. To be considered an RHQ, a company’s Saudi branch must conduct strategic and management functions such as budgeting, business planning, regional strategy reviews, regional market monitoring, and operational and financial reporting. An RHQ must also start operations within six months after the license is granted and should conduct at least three optional activities from a list provided by MISA and RCRC within the first year of the license’s operation. An RHQ must have 15 full-time employees within the first year and at least three RHQ employees must be C-suite executives. Companies choosing to maintain their regional headquarters in another country will not be awarded public sector contracts beginning in 2024. 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
- Recruitment offices
- 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), which was acquired by Aramco in 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. The Saudi Code of Law Practice was updated in 2022; a foreign law firm can now establish a branch office in Saudi Arabia without a local partner but cannot advise on Saudi law.
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 an investment 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. 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. The Small and Medium Enterprises General Authority, Monsha’at , aims to increase SME contribution to the Kingdom’s GDP from 20 to 35 percent by 2030. 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 (HYPERLINK “https://fikra.sa/”Fikra), which provides guidance and resources for SMEs.
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. Aramco’s expenditures across its U.S. subsidiaries and other U.S. operations totaled more than $60 billion over the last five years, according to Aramco Americas.