SAGIA Simplifies FDI Process
The Saudi Arabian General Investment Authority (SAGIA) has recently engaged in a transparent program of renewed self-assessment, dialogue and adjustment in order to ensure that the Kingdom’s foreign investment regulations remain competitive while addressing the development goals of the Kingdom. This program has already resulted in the announcement of several new important reforms designed to streamline the foreign investment licence process and extend licence terms up to 15 years in some cases. Additional reforms under consideration, including the possible opening of the wholesale and retail sectors to 100 per cent foreign ownership in certain sectors, could result in substantial increased foreign investment in the Kingdom if realized.
The evolution of the Kingdom’s foreign investment regime began in the year 2000 with the passage of the Kingdom’s Foreign Investment Law. Another large step forward took place when the Kingdom acceded to the World Trade Organization (WTO) on December 11, 2005. Now, SAGIA is revising its foreign investment regulations to create an even more competitive foreign investment regime that will significantly reduce the burden on foreign investors wishing to invest in the Kingdom.
SAGIA’s main objectives in evolving its foreign investment regime include Saudization, technology transfer, diversification of the economy, development of exports and the implementation of state-of-the-art quality standards.
Currently, Saudi Arabia not only meets WTO standards, but also offers a host of additional incentives to compete for foreign investment, including the following:
- 100 per cent foreign ownership is now allowed in most business activities
- Investors have access to public funds through equity investment and loan schemes
- Investors can take advantage of the Human Resources Development Fund to identify, recruit and train qualified Saudi labour for their operations
- Investors have access to affordable land in the Kingdom’s industrial and economic cities
- Capital and profits can be transferred abroad with ease
- The life of a patent has been increased from 10 to 20 years to attract smaller, innovative enterprises
- A fast-track [procedure awards investment licences to qualified investors in five days or less, which is so attractive that many domestic investors have expressed interest in a similar regime for domestic investments
- All investment regulations are available in one succinct, clear document
- A “one-stop shop” at SAGIA allows investors to liaise quickly with all government departments whose consent is needed to establish a business in the Kingdom
The Unified Investment Plan, which will provide investors with access to information on how they can take advantage of an educated Saudi workforce, government procurement opportunities and spending, will be launching soon in a number of sectors. Opportunities within the health-care and transportation sectors alone are expected to be worth more than $140-billion US dollars.
In addition to the above incentives, facilities and opportunities, SAGIA has participated in a number of recent workshops and fora with investors to identify further ways to attract foreign investors. Out of these discussions, a few key areas for reform were identified that were of interest to the greatest number of investors. On September 6, 2015, SAGIA announced a series of further measures designed to increase investment opportunities and reduce administrative burdens for foreign investors.
The new reforms are expected to result in the following new benefits for foreign investors:
- Fast-track procedures will apply to all investment applications from January 1, 2015
- The number of documents needed for an investment licence under the fast-track will be cut from 12 to 3, all of which will be able to be submitted digitally
- The new, simplified application will reduce the time from application submission to licence issuance from four weeks to a maximum of one week
- Qualifying strategic investors will be able to extend their foreign investment licence terms after their first year for a period of up to 15 years (subject to the status of the investment). The licences will be renewable upon expiration of their terms.
- Visa requirements will be simplified for entrepreneurs
- Perhaps most significantly, the Minister of the Ministry of Commerce and Industry and the Governor of SAGIA have announced the Kingdom’s intention to open investment in the wholesale and retail sectors beyond WTO requirements, including up to 100 per cent foreign ownership, subject to conditions to be announced. It appears likely that single-brand retailing will be one of the first sectors for which 100 per cent foreign ownership will be allowed.
When implemented, the measures described above should increase the appetite for foreign investment in the Kingdom. They will also allow SAGIA to allocate significant resources from licensing and compliance activities to the promotion and assistance of new investments.
Saudi Arabia’s existing foreign investment regime has already resulted in the creation of large and successful joint ventures in the petrochemical sector, such as Petro Rabigh and SADARA. We expect the latest evolution in its foreign investment regime to also attract larger numbers of small and medium-size innovative companies and, depending on the conditions attached to 100 per cent foreign ownership, large wholesalers and retailers. The availability of world-class research hubs (such as KAUST) and Islamic venture capital on competitive terms, the opening of the stock market to foreign investors and easy access to GCC and other markets further enhance the attractiveness of the Kingdom as foreign investment destination.
The global market for foreign investment market looks to become increasingly competitive, given the announcement of a major foreign investment initiative in India and the anticipated lifting of sanctions against Iran. It will become more so if the current negotiations over the Trans-Pacific Partnership result in a viable agreement. There are also social and security challenges that must be addressed to encourage foreign investment in the Kingdom. But the latest reforms send a positive signal to foreign investors that should result in significant additional foreign investment in the Kingdom, especially as the rules governing investment in the wholesale and retail sectors are liberalized. If other government agencies and authorities follow SAGIA’s lead in listening to its stakeholders, learning and adapting, the Kingdom could experience a new wave of positive development and even enhance its leadership role among developing countries. With its lean and centralized decision-making structure, if it decides to do so, Saudi Arabia could out-reform and out-perform its Indian and Iranian rivals in the competition for foreign direct investment.
Posted in: Middle East
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