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Investing in Saudi Arabia

Your guide to foreign inbound investment in the Kingdom
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A growing economy

The growth and importance of Saudi Arabia’s economy is widely recognised and it is becoming increasingly attractive to foreign investors. It is the largest economy in the Middle East, with a GDP of SAR 2.9 trillion (US$ 782 billion) in 2018, and it aims to be one of the largest economies in the world over the coming decade.

Domestic transformation

The Vision 2030 and the National Transformation Programme promise change for the Kingdom of Saudi Arabia’s economy and wider society. Central to the Vision 2030 is the diversification of Saudi Arabia’s economy, moving from a public sector-based, oil-dependent economy towards a more balanced economy with a thriving private sector. The ambition is to increase the private sector’s contribution to approximately 65 per cent. of the country’s GDP, up from its current contribution of approximately 40 per cent., with an increase in non-oil government revenue from SAR 163 billion (US$ 43 billion) to SAR 1 trillion (US$ 270 billion). Domestic private sector growth is to be boosted with a comprehensive privatisation programme driven by the National Center for Privatization & PPP (NCP) and the development of domestic industry sectors.

Global ambitions

Saudi Arabia is increasingly integrated in the world economy, a trend which has accelerated since the country joined the World Trade Organisation in 2005. The Kingdom is investing significantly in developing international partnerships and trade links and is attracting foreign inbound investment and expertise. This is supported by a strengthening legal and regulatory framework as set out in more detail in this guide. Many of the changes in this area demonstrate Saudi Arabia’s evolution towards global commercial rules and standards. Complying with international business standards and treaties will continue to help inbound and outbound investment succeed, which is especially important in an era of cross-border regulatory scrutiny and political anxiety about foreign investments into strategic sectors.

This guide analyses how Saudi Arabia’s economy and laws are evolving to support foreign inbound investment.
Waleed-Rasromani_118x157
The regulatory landscape in Saudi Arabia has transformed significantly in recent years, particularly in the spheres of corporate law and capital markets, providing increased legal certainty for foreign investors. We assist international clients in a range of sectors with their inbound investments into the Kingdom, and we are seeing an increasingly flexible approach by the authorities as the objectives of the Vision 2030 are realised.

Waleed Rasromani, Head of Corporate

Saudi Arabia

Key themes

2020 has seen an impressive range of legal and commercial reforms, supporting a Vision 2030 pillar of developing a thriving economy. Initiatives towards meeting the clear goals and measurable objectives for the development of the Kingdom’s economy have continued despite the extremely challenging climate created by the Covid-19 pandemic. The Government pivoted to support business continuity in the private sector with an extensive Private Sector Financing Support Programme of SAR 50 billion (US$ 13.3 billion), a clear signal of the significance Saudi Arabia places on diversifying its oil-based economy and growing its relatively nascent private sector. The Kingdom’s economy is proving resilient in the face of the impact of the Covid-19 pandemic and the future looks bright.

Here are the key themes of this guide:

Current investment climate

Despite the challenges of 2020, the overall investment climate is expected to continue its buoyant trajectory in 2021 and beyond. As economic diversification initiatives continue, analysts forecast that foreign direct investment in 2021 may reach US$ 5.3 billion, a significant increase on the US$ 4.6 billion investment seen in 2019.

  • Outbound: The first half of 2020 saw outbound M&A reach US$ 3.3 billion in deal volume. The Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, continues to make high profile investments, diversified across sectors and geographies. In 2020, the PIF acquired equity stakes in two major Indian companies: Reliance Retail Ventures Limited, India’s leading retail business, and Jio Platforms, India’s leading digital services platform. The PIF’s mission is to become the world’s most impactful investor and it aims to grow its assets under management to US$ 2 trillion by 2030.
  • Inbound: While inbound M&A in the first half of 2020 topped US$ 3.1 billion in deal volume, Saudi Arabia is seeking greater international investment into its economy. Vision 2030 sets out a progressive agenda to unlock state-owned assets for the private sector and to privatise selected government services. This offers extensive and novel opportunities for those wishing to invest in Saudi Arabia.
  • Domestic: The first half of 2020 saw domestic M&A activity of US$ 15.9 billion by deal volume. Within Saudi Arabia, the PIF is funding domestic expansion through investment in strategic companies and funding projects, driving the country’s economic diversification. Over the last few years, for example, the PIF has launched Roshn, a new company to develop world-class urban communities, and acquired a majority stake in ACWA Power, to support the development of the Kingdom’s renewable energy sector.

Liberalisation of inbound foreign investment

Saudi Arabia’s foreign investment regime is one of the most formalised and transparent in the Middle East. The Kingdom’s laws continue to evolve to support foreign inbound investment. Opportunities for investment are growing as a result of the privatisation initiative and progressive stock exchange reforms.

  • Foreign investment regime: The Kingdom operates a sector-based approach to regulating levels of foreign investment in domestic companies. Generally, full foreign ownership of local businesses is permitted with a foreign investment licence, provided that the business operates in a sector which in which foreign investment is not restricted or prohibited.
  • Investing in listed companies: Qualified Foreign Investors (QFIs) can invest directly in companies listed on Tadawul, subject to certain limits. For example, each QFI may not own 10 per cent or more of the shares or convertible debt instruments of any Saudi issuer and the maximum proportion of the shares or convertible debt of any Saudi issuer owned by all foreign investors should not exceed 49 per cent in aggregate.

What do foreign investors need to know?

The first step in assessing the viability of an investment in Saudi Arabia is to determine whether the industry in question is open to foreign investment. If it is, then the following issues need to be considered:

  • Can I invest? The maximum level of foreign ownership permitted may vary depending on the sector.
  • How do I invest? Various government licences and approvals are usually required. These will have implications on timing and process.
  • What else do I need to be aware of? There may be other restrictions or requirements on foreign-funded enterprises as compared with domestic Saudi-funded enterprises.

Privatisation Programme

The Privatisation Programme aims to develop the role of the private sector in the provision of services and the availability of Government assets, reforming its state-owned enterprises. This is a central part restructuring the domestic economy in line with the Vision 2030. The National Centre for Privatisation & PPP is enabling the privatisation of a range of important sectors. It represents a fundamental change in approach as historically the Saudi Arabian Government has provided key services that are typically provided by private sector companies in other countries.
Current investment climate
Liberalisation of inbound foreign investment
What do foreign investors need to know?
Privatisation Programme
Omar El Sayed
The Saudi Arabian General Investment Authority has recently made changes to its licensing procedures, in an effort to modernise the application process, in turn making the process of investing in Saudi Arabia much easier and more transparent.

Omar El Sayed, Banking & Finance Partner

Riyadh

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Investing in Saudi Arabia: Your guide to foreign inbound investment in the Kingdom




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