HomeReportsBureau of Economic and Business Affairs2018 Investment Climate Statements...Saudi Arabia

# 					2018 Investment Climate Statements: Saudi Arabia			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

The Saudi Arabian government (SAG) has embarked upon an ambitious series of socio-economic reforms, collectively known as “Vision 2030.” Aimed at diversifying the Saudi economy, creating more private sector jobs for a growing population, improving government finances and services, and creating entertainment and tourism opportunities for the Saudi populace, Vision 2030 contemplates the development of entirely new economic sectors and a significant transformation of the economy in general. Spearheaded by Crown Prince Mohammed bin Salman, the reform program seeks to transition from Saudi Arabia’s traditional, government-led economic growth model to a one driven by the private-sector. In connection with these ambitious plans, the SAG seeks to expand and sharpen the country’s knowledge base, technical expertise, and commercial competitiveness. To help accomplish these goals, Saudi Arabia seeks increased foreign investment.

During 2017, the SAG took a number of positive steps to improve the investment climate in the Kingdom. The SAG moved forward with plans to privatize many state-owned entities across a range of sectors, including transportation, education, energy, and healthcare, albeit at a gradual pace. The SAG also continued to ease requirements for foreign investors trading on Saudi Arabia’s stock exchange, the *Tadawul* (though foreign investment still comprises a small percentage of the local stock market). Preparations continue for an initial public offering of up to 5 percent of Saudi Aramco’s shares; the shares are likely to be listed on the *Tadawul*and may also be listed on a major international exchange. Further, the SAG has sought to attract foreign investment in entirely new sectors, including renewable energy, entertainment, and waste management. The SAG also seeks to increase the participation of women in the workforce; a royal decree to permit women to drive starting in 2018 is expected to ease some transportation challenges previously cited as barriers for women’s entry into the labor market.

At the same time, the SAG has regressed in several key areas affecting the investment climate in the Kingdom. Over the past year, certain U.S. pharmaceutical companies have alleged that the SAG violated their intellectual property rights and the confidentiality of their trade data in licensing local firms to produce competing pharmaceuticals. The use of unlicensed U.S. software, including on SAG computer systems, has continued unabated. The detention of prominent Saudi businessmen during an anti-corruption campaign launched in November 2017 introduced uncertainties into the business climate. Furthermore, economic pressures to generate non-oil revenue and provide more jobs for Saudi citizens have prompted the SAG to implement measures that may prove harmful to the country’s investment climate, including significant fee hikes for business visas, new taxes, higher prices for fuel and utilities, increased fees for expatriate workers, tighter labor quotas, and more stringent localization polices. Recent examples, which went into effect on January 1, 2018, include: doubling residential electricity rates; increasing the price of gasoline by more than 80 percent; collecting an across-the-board value-added tax (VAT) of five percent; and charging employers a monthly fee for each expatriate worker they employ. Additionally, the SAG has signaled its intent to introduce new local content requirements for foreign firms in a bid to stimulate domestic manufacturing, create jobs for Saudi nationals, and transfer technology and know-how.

Foreigners are permitted to invest in all sectors of the economy, except for specific activities contained in a “negative list” that currently precludes foreign investment in three industrial sectors and 13 service sectors, among them upstream petroleum and real estate investment in Mecca and Medina.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies Towards Foreign Direct Investment**

Attracting foreign direct investment remains a critical component of the SAG’s broader program to diversify an economy overly dependent on oil exports and to create employment opportunities for a growing youth population. As such, the SAG seeks foreign investment that explicitly promotes economic development, transfers foreign expertise and technology to Saudi Arabia, creates jobs for Saudi nationals, and/or expands Saudi’s non-oil exports. The government encourages investment in nearly all economic sectors, with priority given to transportation, health/biotech, information and communications technology (ICT), media/entertainment, industry (mining and manufacturing), and energy.

Saudi Arabia’s economic reform programs are opening up new areas for potential investment. For example, in a country where most public entertainment was once forbidden, the SAG recently began introducing entertainment programming, including live concerts, dance exhibitions, monster truck shows, and other public performances. Significantly, the audiences for some of those events are now gender-mixed, representing a larger consumer base. The SAG began licensing cinemas in April 2018; that same month, a cinema, opened in partnership between a SAG agency and U.S. cinema company, held the first public screening of a commercial film (“Black Panther”) in 35 years.

The SAG is proceeding with “economic cities” and new “giga-projects” that are at various stages of development and welcomes foreign investment in them. These projects are large-scale and self-contained developments in different regions focusing on particular industries, e.g., high-technology, energy, tourism, and entertainment. In October 2017, Saudi Arabia hosted a Future Investments Initiative Forum at which the Public Investment Fund (PIF), the SAG’s primary investment vehicle, launched its new strategy focused on strategic domestic investments, returns-driven international investments, and several domestic “giga-projects,” including: “NEOM,” a new USD 500 billion project to build a high-technology city in northwest Saudi Arabia; “Qiddiya,” a new, large-scale entertainment, sports, and cultural complex near Riyadh; and “the Red Sea Project,” a massive tourism development on the western Saudi coast.

In early 2017, the SAG initiated a bidding process to develop a renewable energy sector, offering foreign investors valuable opportunities to participate in the market and ultimately sign power purchase agreements. The PIF has also announced a USD 200 billion solar energy project in cooperation with SoftBank. Further, the SAG has announced plans to develop a civil nuclear power sector and an evaluation process for potential bidders is underway.

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, SAGIA has increasingly shifted its focus to investment promotion and assistance, offering potential investors detailed guides and a catalogue of current investment opportunities on its website (www.sagia.gov.sa ).

Despite Saudi Arabia’s overall welcoming approach to foreign investment, some structural impediments remain. As noted earlier, foreign investment is banned in three industrial sectors and 13 service sectors, among them real estate in Mecca and Medina, some subsectors in printing and publishing, audiovisual services, land-transportation services excluding intra-city rail transport, and upstream petroleum. However, SAGIA has recently showed some flexibility in approving exceptions to these exclusions. The complete “negative list” can be found at www.sagia.gov.sa . Additionally, older laws remaining on the books prohibit or otherwise restrict foreign investment in some economic subsectors not on the “negative list” above, including some areas of healthcare.

Foreign investors must also contend with increasingly strict local content requirements in bidding for certain government contracts, labor policy requirements to hire more Saudi nationals at higher wages than expatriate workers, an increasingly restrictive visa policy for foreign workers, and enforced segregation of the sexes in business and social settings (though gender segregation is becoming more relaxed as the SAG introduces socio-economic reforms). Additionally, in a bid to bolster non-oil income, the government implemented new taxes and fees in 2017 and early 2018, including significant visa fee increases, new levies on expatriates, higher fines for traffic violations, new fees for certain billboard advertisements, and related measures. The government implemented a VAT in January 2018 at a rate of five percent, in addition to excise taxes implemented in June 2017 on cigarettes (at a rate of 100 percent), carbonated drinks (at a rate of 50 percent), and energy drinks (at a rate of 100 percent). In January 2018, the government also implemented new fees for expatriate employers ranging between USD 80 and USD 107 per employee per month, as well as increasing levies on expatriates with dependents amounting to a USD 54 monthly fee for each dependent. These expatriate fees are scheduled to increase over the next two to three years.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

Saudi Arabia fully recognizes rights to private ownership and establishment of private business. As outlined above, the SAG does exclude foreign investors from some economic sectors and places some limits on foreign control. With respect to energy, Saudi Arabia’s largest economic sector, foreign firms are barred from investing in the upstream petroleum sector, but the SAG permits foreign investment in the downstream energy sector, including refining and petrochemicals. There is significant foreign investment in these sectors. 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 Aramco and/or the Saudi Basic Industries Corporation (SABIC) in large-scale petrochemical plants that utilize natural-gas feedstock from Aramco’s operations. In Saudi Arabia’s Eastern Province, the Dow Chemical Company and Aramco are partners in a USD 20 billion joint venture to construct, own, and operate what will be, upon completion, the world’s largest integrated petrochemical production complex.

With respect to other non-oil natural resources, the national mining company, Ma’aden, has a USD 12 billion joint venture with Alcoa for bauxite mining and aluminum production and a USD 7 billion joint venture with the leading American fertilizer firm Mosaic and SABIC to produce phosphate-based fertilizers.

Joint ventures almost always take the form of limited-liability partnerships, 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. SAGIA’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 and Investment (MCI), in accordance with the requirements defined in the Ministry’s Resolution 264 from 1982. These regulations, in theory, permit the registration of Saudi-foreign joint-venture consulting firms. As part of its WTO accession commitments, Saudi Arabia generally allows consulting firms to establish a local office without a Saudi partner. The requirement that law practices and engineering consulting firms must have a Saudi partner was rescinded in 2017. Foreign engineering consulting companies must have been incorporated for at least 10 years and have operations in at least four different countries to qualify. However, offices practicing accounting and auditing, architecture, or civil planning, or providing healthcare, dental, or veterinary services must still have a Saudi partner, and the foreign partner’s equity cannot exceed 75 percent of the total investment.

In recent years, Saudi Arabia has opened additional service markets to foreign investment, including financial and banking services; aircraft maintenance and repair and computer reservation systems; wholesale, retail, and franchise distribution services (traditionally subject to minimum 25 percent local ownership and minimum 20 million Saudi riyal (USD 5.3 million) foreign investment); both basic and value-added telecom services; and investment in the computer and related services sectors. In 2016, for example, Saudi Arabia formally approved full foreign ownership of retail and wholesale businesses in the Kingdom, thereby removing the former 25 percent local ownership requirement. While some companies have already received licenses under the new rules, the restrictions attached to obtaining full ownership – including a requirement to invest over USD 50 million over the first five years and ensure that 30 percent of all products sold are manufactured locally – have proven difficult to meet and precluded many investors from taking full advantage of the reform.

**Other Investment Policy Reviews**

Saudi Arabia completed its second WTO trade policy review in late 2015, which included investment policy (https://www.wto.org/english/tratop_e/tpr_e/tp433_e.htm ).

**Business Facilitation**

In addition to applying for a license from SAGIA as described above, foreign and local investors must register a new business via the MCI, which has begun offering online registration services for limited liability companies at: http://www.mci.gov.sa/en . Though users may submit articles of association and apply for a business name within minutes on MCI’s website, final approval from the ministry can often take a week or longer. Applicants must also complete a number of other steps in order to start a business, including obtaining a municipality (*baladia*) license for their office premises and registering separately with the Ministry of Labor 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 a foreign investor on average three to five months from the time an initial SAGIA application is complete, placing the country at 135 of 190 countries in terms of ease of starting a business, according to the World Bank (2017 rankings). With respect to foreign direct investment, the investment approval by SAGIA is a necessary, but not sufficient, step in establishing an investment in the Kingdom. There are a number of other government ministries, agencies, and departments regulating business operations and ventures.

Saudi officials have stated their intention to attract foreign small- and medium-sized enterprises (SMEs) to the Kingdom. The SAG established the Small and Medium Enterprises General Authority in 2015 to facilitate the growth of the SME sector. In 2016, the SAG released a new Companies Law designed in part to promote the development of the SME sector. The law allows one person, rather than the previous minimum of two, to form a corporation, though in very limited cases. It also substantially cuts the minimum capital and number of shareholders required to form a joint stock company (from five previously to two).

**Outward Investment**

Saudi Arabia does not restrict domestic investors from investing abroad. Private Saudi citizens, Saudi companies, and SAG entities hold extensive overseas investments. The SAG is attempting to transform its Public Investment Fund, traditionally a holding company for government shares in state-controlled enterprises, into a major international investor. In 2016, the PIF made its first high-profile international investment by taking a USD 3.5 billion stake in Uber. The PIF subsequently concluded an agreement with Japanese Softbank Group Corp. to jointly create a USD 100 billion technology investment fund and an agreement with Blackstone to form a USD 40 billion infrastructure fund, focused largely on projects in the United States. The PIF has also announced a USD 400 million investment in Magic Leap, a U.S.- based company that is developing “mixed reality” technology. Saudi Aramco and SABIC are also major investors in the United States. Aramco acquired full ownership of the largest refinery in the United States, at Port Arthur, Texas, in 2017. SABIC has announced a major joint venture with ExxonMobil in a petrochemical facility in Texas.

							2. Bilateral Investment Agreements and Taxation Treaties					

Saudi Arabia has signed bilateral trade and investment agreements with over 20 countries. The United States and Saudi Arabia signed a Trade and Investment Framework Agreement (TIFA) in 2003, building upon an agreement on secured private investment with the United States that has been in place since February 1975. The United States and Saudi Arabia last held TIFA consultations in May 2018 in Washington, D.C.

Saudi Arabia is a founding member of the Gulf Cooperation Council (GCC), which also includes Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates. While still under development, the GCC Customs Union formally ensures the free movement of labor and capital within the bloc. The GCC currently maintains free trade agreements (FTA) with Lebanon, Singapore, the European Free Trade Association (Norway, Switzerland, Iceland, and Liechtenstein), and the Greater Arab Free Trade Area of 18 Arab countries. The CGG is in the process of negotiating additional FTAs with China, the European Union, New Zealand, and several other trade partners.

On June 5, 2017, Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt announced they were severing diplomatic relations with Qatar (other governments subsequently followed suit). The land border between the Kingdom and Qatar remains closed and there are no direct flights between the two countries.

Saudi Arabia does not have a bilateral taxation treaty with the United States, though the country maintained double taxation agreements with more than 40 countries as of March 2018.

The corporate tax treatment of foreign and domestic companies is imbalanced and favors Saudi companies and joint ventures with Saudi participation. The SAG imposes a flat 20 percent corporate tax rate on foreign investors. Saudi investors do not pay corporate income tax but are subject to a 2.5 percent tax, or “zakat,” on net current assets. In January 2018, the SAG implemented a VAT at a rate of 5 percent; in June 2017 the SAG introduced excise taxes on cigarettes (at a rate of 100 percent), carbonated drinks (at a rate of 50 percent), and energy drinks (at a rate of 100 percent).

							3. Legal Regime					

**Transparency of the Regulatory System**

Few aspects of the SAG’s regulatory system are entirely transparent, although Saudi investment policy is less opaque than many 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 is progressively liberalizing 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) account standards. All other companies are required to follow accounting standards issued by the Saudi Organization for Certified Public Accountants.

Stakeholder consultation is inconsistent. Some Saudi organizations are scrupulous about 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. The processes and procedures for stakeholder consultation are not generally transparent or 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.

**International Regulatory Considerations**

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 toward 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 their territory. More recently, Saudi Arabia has moved toward adherence to a single standard, which is often based on International Organization for Standardization (ISO) or International Electrotechnical Commission (IEC) standards, in technical regulations 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 restrictions 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, on these issues in an effort to preserve market access for U.S. products, ranging from electrical equipment to footwear.

A member of the WTO, Saudi Arabia notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

**Legal System and Judicial Independence**

The Saudi legal system is derived from Islamic law, known as *sharia*. Saudi commercial law, meanwhile, is still developing. Currently, the MCI is leading a new effort to overhaul commercial laws, a project that entails drafting new laws while modernizing current ones. 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” below). Through its Commercial Law Development Program, the U.S. Department of Commerce provides capacity building programs for Saudi stakeholders in the areas of contract enforcement, public procurement, and insolvency.

The 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 are ultimately appealable. 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. Monetary judgments are based on the terms of the contract—i.e., 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 the 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 Embassy recommends consulting with local counsel in advance of investing to review legal options and appropriate contractual provisions for dispute resolution.

**Laws and Regulations on Foreign Direct Investment**

SAGIA, in cooperation with its parent organization (the MCI), remains responsible for formulating government policies regarding investment activities, proposing plans and regulations to enhance the investment climate in the country, and evaluating and licensing investment proposals.

SAGIA periodically reviews the list of activities excluded from foreign investment (see Policies Toward Foreign Direct Investment) and submits its reviews to higher authorities for approval. Although these sectors are off-limits to 100 percent foreign investment, foreign minority ownership in joint ventures with Saudi partners may be allowed in some 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 Section below). Minimum capital requirements to establish business entities range from zero to 30 million Saudi riyals (USD 8 million) depending on the sector and the type of investment.

SAGIA’s Investor Service Center (ISC) 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 SAGIA, the ISC must grant or refuse a license within five days of receiving an application and supporting documentation from the prospective investor. SAGIA has established and posted on-line its licensing guidelines, but many companies looking to invest in Saudi Arabia continue to work with local representation to navigate the bureaucratic licensing process.

SAGIA licenses foreign investments in three broad categories, each with its own regulations and requirements: (i) services, which comprise a wide range of activities including real estate, trading, consulting, IT, healthcare, and tourism; (ii) industry; and (iii) contracting. Foreign firms must describe their planned commercial activities in some detail and will receive a license in one of these sectors at SAGIA’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 Saudi Commission for Tourism and National Heritage.

An important SAGIA objective is to ensure that investors do not just acquire and hold licenses without investing, and SAGIA sometimes cancels licenses of foreign investors that it deems do not contribute sufficiently to the local economy. SAGIA’s periodic license reviews, with the possibility of cancellation, add uncertainty for investors and can provide a disincentive to longer-term investment commitments.

SAGIA has agreements with various SAG agencies and ministries to facilitate and streamline foreign investment. These agreements permit SAGIA to facilitate the granting of visas, establish SAGIA 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, SAGIA 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 SAGIA has set up the infrastructure to support foreign investment, many companies report that the process remains cumbersome and time-consuming.

**Competition and Anti-Trust Laws**

SAGIA and the Ministry of Commerce and Investment review transactions for competition-related concerns. Concerns have arisen that allegations of price fixing for certain products, including infant nutrition products, may have been used on occasion as a pretext to control prices. The Ministry of Commerce and Investment has looked to the GCC’s reference pricing approach on subsidized products to assist the SAG in determining market-price suggested norms.

Saudi competition law prohibits certain vertically-integrated business combinations. Consequently, producers are unable to register exclusive distribution agreements at MCI’s agencies registry, driving them in many instances to seek ways to work around this restriction. Such work-around arrangements may give rise to brand and quality management difficulties.

**Expropriation and Compensation**

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.

**Dispute Settlement**

*ICSID Convention and New York Convention*

The Kingdom of Saudi Arabia ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994. Saudi Arabia is also a member state of the International Center for the Settlement of Investment Disputes Convention (ICSID), though under the terms of its accession it cannot be compelled to refer investment disputes to this system absent specific consent, provided on a case-by-case basis. Saudi Arabia has yet to consent to the referral of any investment dispute to the ICSID for resolution.

*Investor-State Dispute Settlement*

The use of any international or domestic dispute settlement mechanism within Saudi Arabia continues to be time-consuming and uncertain, as all outcomes are subject to a final review in the Saudi judicial system and carry the risk that principles of *sharia* law may potentially trump a judgment or legal precedent. The Embassy recommends consulting with local counsel in advance of investing to review legal options and contractual provisions for dispute resolution.

*International Commercial Arbitration and Foreign Courts*

Traditionally, dispute settlement and enforcement of foreign arbitral awards in Saudi Arabia have proven time-consuming and uncertain, carrying the risk that *sharia* principles can potentially trump any foreign judgments or legal precedents. Even after a decision is reached in a dispute, effective enforcement of the judgment can take a long period of time. In several cases, disputes have caused serious problems for foreign investors. For instance, Saudi partners and creditors have blocked foreigners’ access to or right to use exit visas, forcing them to remain in Saudi Arabia against their will. In cases of alleged fraud or debt, foreign partners may also be jailed to prevent their departure from the country while awaiting police investigation or court adjudication of the case. Courts can in theory impose precautionary restraint on personal property pending the adjudication of a commercial dispute, though this remedy has been applied sparingly.

In recent years, the SAG has demonstrated a commitment to improving the quality of commercial legal proceedings and access to alternative dispute resolution mechanisms. Local attorneys indicate that the quality of final judgments in the court system has improved, but that cases still take too long to litigate. In 2012, the SAG updated certain provisions in Saudi Arabia’s domestic arbitration law, paving the way for the establishment of the Saudi Center for Commercial Arbitration (SCCA) in 2016. Developed in accordance with international arbitration rules and standards, including those set by the American Arbitration Association’s International Centre for Dispute Resolution and the International Chamber of Commerce’s International Court of Arbitration, the SCCA offers comprehensive arbitration services to firms both domestic and international. The SCCA reports that both domestic and foreign law firms have begun to include referrals to the SCCA in the arbitration clauses of their contracts. However, it is currently too early to assess the quality and effectiveness of SCCA proceedings, as the SCCA is still in the early stages of operation. Awards rendered by the SCCA can be enforced in local courts, though judges remain empowered to reject enforcement of provisions they deem non-compliant with *sharia* law.

In December 2017, the United Nations Commission on International Trade Law (UNCITRAL) recognized Saudi Arabia as a jurisdiction that has adopted an arbitration law based on the 2006 UNCITRAL Model Arbitration Law. While Saudi Arabia adopted this law in 2012, UNCITRAL did not consider it as a model law jurisdiction due to the SAG’s reference to *sharia’s* supremacy over UNCITRAL-adopted provisions. After discussions between UNCITRAL representatives and Saudi judges, during which the Saudi judges clarified that *sharia*would not affect the enforcement of foreign arbitral awards, UNCITRAL added Saudi Arabia to the list of model law jurisdictions. The potential impact of the decision is that foreign investors and companies in Saudi Arabia have slightly more certainty that their arbitration agreements and awards will be enforced, as in other UNCITRAL countries. Whether (and how) Saudi courts will apply this latest interpretation of the relationship between foreign arbitral awards and *sharia* law remains to be seen.

**Bankruptcy Regulations**

Potential investors should note that the “Resolving Insolvency” indicator most negatively affects Saudi Arabia’s 2018 World Bank “Doing Business” ranking; its rank for this indicator is 168th out of 190 countries measured.

A 1996 royal decree put Saudi Arabia’s current bankruptcy law, the Regulation on Bankruptcy Protective Settlement, into effect. Articles contained in the law allow debtors to conclude financial settlements with their creditors through committees in each municipal or regional Chamber of Commerce and Industry or through the Board of Grievances. Ordinary creditors may utilize the law’s provisions, except in the case of privileged debts and debts that arise pursuant to the settlement procedures.

In February 2018, the SAG announced the approval of new bankruptcy legislation, which is to become effective after the publication of the related implementing regulations, possibility later in 2018. According to the SAG, the new bankruptcy law seeks to “further facilitate a healthy business environment that encourages participation by foreign and domestic investors, as well as local small and medium enterprises.”

							4. Industrial Policies					

**Investment Incentives**

SAGIA advertises a number of financial advantages for foreigners looking to invest in the Kingdom, including the lack of personal income taxes and a corporate tax rate of 20 percent on foreign companies’ profits. SAGIA also lists various SAG-sponsored, regional, and international financial programs to which foreign investors have access, such as the Arab Fund for Economic and Social Development, the Arab Trade Financing Program, and the Islamic Development Bank.

The Saudi Industrial Development Fund (SIDF), a government financial institution established in 1974, 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 for up to 50 percent 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 projects value. The SIDF also offers consultancy services for local industrial projects in the administrative, financial, technical and marketing fields.

SIDF also offers concessionary loan financing of up to 50 percent of total costs for: projects rendering logistics and support services, including warehousing, materials handling and transportation within industrial cities or to industrial sector investors; and infrastructure development in industrial cities and technology zones owned by the Saudi Industrial Property Authority (MODON) and the private sector. These programs are designed to encourage the private sector to invest in developing and building Saudi Arabia’s industrial cities. (The SIDF’s website is at https://www.sidf.gov.sa/en/Pages/default.aspx ).

The SAG offers several incentive programs to promote employment of Saudi nationals. The SAG’s Saudi Human Resources Development Fund (HRDF) (https://www.hrdf.org.sa/ ), for example, will pay up to USD 800 monthly for up to six months to recent college-graduate trainees at private companies, while the employer, at its own discretion, may choose to provide additional incentives, stipends, allowances, or other benefits. The SAG also offers tax incentives for training and recruiting Saudi nationals in certain regions, including Ha’il, Jazan, Najran, Al-Baha, Al-Jouf, and Northern Borders.

American and other foreign firms are able to participate in SAG-financed and/or -subsidized research-and-development programs. Many of these programs are run though the King Abdulaziz City for Science and Technology (KACST), which funds many of the Kingdom’s R&D programs.

**Foreign Trade Zones/Free Ports/Trade Facilitation**

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 Vision-2030 strategy cites logistics, tourism, industry, and finance as promising sectors for such zones. The SAG is discussing the establishment of free zones in certain areas, including at the NEOM high-technology city giga-project, the King Abdullah Financial District project in Riyadh, certain airports, and other locations.

Saudi Arabia has established a network of “economic cities” as part of the country’s efforts to diversify away from oil. Overseen by SAGIA, four economic cities aim 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 AbdulAziz 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 Saudi Industrial Property Authority (MODON) oversees the development of 35 industrial cities, including some still under development. 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 at 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 Gulf coast, and Yanbu, located in western Saudi Arabia on the Red Sea coast. A significant portion of Saudi Arabia’s refining, petrochemical, and other heavy industries are located 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. (The RCJY’s website is at https://www.rcjy.gov.sa/en-US/Jubail ).

Saudi Arabia permits transshipment of goods through its ports in Jeddah, Dammam, and King Abdullah Economic City, and it has bonded re-export zones at the Jeddah and Dammam ports. Investors may avoid import duties on raw materials if they can demonstrate to the satisfaction of the MCI that the materials are not available locally.

**Performance and Localization Requirements**

The government does not impose systematic conditions on foreign investment. For example, there are no requirements to locate in a specific geographic area (except for some restrictions on the distribution of retail outlets and the location of industrial activities). Investors are not required to export a certain percentage of output. There is no requirement that the share of foreign equity be reduced over time. Investors are not required to disclose proprietary information to the SAG as part of the regulatory approval process, except where issues of health and safety are concerned.

Although investors have not been required heretofore to purchase from local sources, the situation is changing. In line with the its bid to diversify its economy and provide more private sector jobs for Saudi nationals, the SAG has embarked upon a broad effort to source goods and services locally 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; http://namaa.gov.sa/en/ ) 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. Utilizing resources from a USD 72 billion private sector stimulus fund, NAMAA is currently developing initiatives, which are set to be announced later in 2018, to encourage companies to increase local content.

Government-controlled enterprises are also increasingly introducing local content requirements for foreign firms. Aramco’s “In-Kingdom Total Value Added” program, for example, strongly encourages the purchase of goods and services from a local supplier base and aims to double Aramco’s percentage of locally-manufactured energy-related goods and services to 70 percent by 2021.

In the defense sector, Saudi Arabia’s military is in the process of reforming its procurement processes and policies to incorporate new ambitious goals of Saudi employment and localized production. The SAG has shifted over the last 12 months away from offsets in favor of “localization” of purchases of goods and services and “Saudization” of the labor force. Previously, the government required offsets in investments equivalent to up to 40 percent of a program’s value for defense contracts, depending on the value of the contract. The SAG is currently resorting instead to increasingly strict localization requirements in government contracts in the defense sector. The SAG’s Vision 2030 program calls for 50 percent of defense materials to be produced and procured locally by 2030, and simultaneously seeks comparable increases in the number of Saudis employed in this sector.

The government encourages recruitment of Saudi employees through a series of incentives (see section 11 on Labor Policies 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; 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.

In the fall of 2016, the SAG implemented a series of significant visitor fee increases for expatriates whose countries do not have reciprocity agreements with Saudi Arabia, doubling the cost of a single-entry business visit visa to USD 533. (U.S. citizens are exempt from such increases on the basis of a 2008 U.S.-Saudi visa reciprocity agreement.) The SAG also imposed higher exit and reentry visa fees for all foreign workers residing in the Kingdom, including U.S. citizens, increasing the cost of a visa to exit and reenter the country by roughly USD 347 for one year and USD 694 for two years. Furthermore, in January 2018, the SAG implemented new fees for expatriate employers ranging between USD 80 and USD 107 per employee per month and increased levies on expatriates with dependents to a USD 54 monthly fee for each dependent (see section 11 on Labor Policies).

*Data Treatment*

There are no requirements for foreign IT providers to turn over source code or provide access to encryption. Other than a requirement to retain records locally for ten years for tax purposes, there is no requirement regarding data storage or access to surveillance.

							5. Protection of Property Rights					

**Real Property**

The Saudi legal system protects and facilitates acquisition and disposition of all property, consistent with 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. Mortgages do exist, although the recording system is reportedly unreliable. Other foreign-owned corporate and personal property is protected by law. Saudi Arabia does have a system of recording security interests, and has plans to modernize an archaic land registry system.

In 2017, the Ministry of Housing implemented a vacant land tax of 2.5 percent of the assessed value on vacant lands in urban centers in an attempt to spur development. Additionally, in January 2018, in an effort to increase Saudi’s access to finance 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. This represented a further liberalization in stringent down-payment requirements that prevailed up to 2016, when the central bank raised the maximum loan-to-value rate from 70 percent to 85 percent.

**Intellectual Property Rights**

In the last two decades, Saudi Arabia undertook a comprehensive revision of its laws governing intellectual property rights (IPR) to bring them in line with the WTO agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs); the changes were promulgated in coordination with the World Intellectual Property Organization (WIPO). The SAG updated its Trademark Law (2002), Copyright Law (2003), and Patent Law (2004) with the dual goals of TRIPs compliance and effective deterrence against IPR violations.

The SAG is in the process of reorganizing its IPR agencies and centralizing responsibility for all IPR matters in a new Saudi Intellectual Property Rights Authority (SIPA). SIPA’s Board of Directors held its first meeting in March 2018 under the chairmanship of the Minister of Commerce and Investment. SIPA’s objective is to ensure the unification and integration of IPR in Saudi Arabia. SIPA is expected to prepare a new national IP strategy and oversee its implementation.

While the SAG has made significant progress in IPR enforcement in recent years, deterioration of the IP situation occurred in certain sectors in 2017. Saudi Arabia was included on USTR’s Special 301 “Watch List” in April 2018 following an increase in the number of IP stakeholders’ complaints about the IPR situation in the Kingdom, particularly with respect to pharmaceuticals, software, digital and signal piracy, and counterfeit goods. (Saudi Arabia had been removed from USTR’s Special 301 report in 2010 following improvements in the Kingdom’s IPR enforcement regime.)

Recent steps by the Saudi Food and Drug Authority (SFDA) to license locally-manufactured, cheaper generic versions of patent-pending drugs within their five year regulatory data protection period have created significant concern among U.S. industry stakeholders due to the commercial loss resulting from this abrogation of their patent and data protection rights. Additionally, in 2017, the SFDA granted another license to a local generic pharmaceutical manufacturer for a treatment that had been granted patent protection under Saudi law. In May 2018, the Saudi government awarded these local manufacturers contracts to supply these drugs nationally. According to the U.S. pharmaceutical and biologics industry, the SFDA’s failure to recognize the data protections and patent constitutes a serious breach of intellectual property rights.

The current Law on Patents, Layout Designs of Integrated Circuits, Plant Varieties and Industrial Designs has been in effect since September 2004. The patent office continues to build its capacity through training, has streamlined its procedures, hired more staff, and reduced its backlog. Patents are available for both products and processes. The term of protection was increased from 15 to 20 years under the 2004 law. In December 2009, the Saudi Council of Ministers approved the Kingdom’s accession to both the Intellectual Property Owners Association Patent Cooperation Treaty and its Implementing Regulations and the Patent Law Treaty adopted by the Diplomatic Conference in Geneva on June 1, 2000.

The SAG revised its Copyright Law in 2003 and is seeking to impose stricter penalties on copyright violators. In January 2010, the Ministry of Culture and Information referred the first-ever copyright-violation case to the Board of Grievances for deterrent sentencing, but since that time has not pressed actively for violators to be sentenced. The SAG has stepped up efforts to force pirated printed material, recorded music, videos, and software off the shelves of stores, including relatively frequent raids on shops selling pirated goods, but many pirated materials are still available in the marketplace. The Ministry employs only a handful of investigators/inspectors nationwide and lacks the resources for effective copyright enforcement.

The Ministry of Commerce and Investment reported that its inspectors confiscated approximately five million counterfeit products in 2017. MCI announced that its inspectors visited 58,714 businesses and revoked 56 business licenses in 2017; 1,184 samples of products were tested at specialized laboratories. The SAG often makes public announcements in local media when large seizures of counterfeit goods are made. In April 2018, for example, media reported that in the course of one week MCI inspectors seized 400,000 counterfeit products, including perfumes, cleansing sprays, automotive oils, electrical products, and lightbulbs. According to the report, the inspectors raided 55 warehouses in Riyadh, Jeddah, and Damman and closed down a factory in Mecca that was producing fake perfumes and cleansing products.

The Rules for Protection of Trade Secrets came into effect in 2005. Trademarks are protected under the Trademark Law. Saudi Arabia has one of the best trademark laws in the region, and the Saudi Customs Authority has significantly stepped up its anti-counterfeit enforcement efforts. Saudi Arabia has not signed or ratified the WIPO internet treaties.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

**Resources for Rights Holders**

Embassy point of contact:

Brian BaroneEconomic Officer+966 11 488-3800 Ext. 4140BaroneBA@state.gov

Regional IPR Attaché:

Pete C. MehravariU.S. Intellectual Property Attaché for Middle East and North AfricaPatent AttorneyU.S. Embassy KuwaitU.S. Department of CommerceOffice: +965 2259-1455Peter.mehravari@trade.gov

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

Financial policies generally facilitate the free flow of private capital, while 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), which was established in 2004, and opened the Saudi stock exchange (*Tadawul*) to public investment.

Prior to 2015, the CMA only permitted foreign investors to invest in the Saudi stock market through indirect “swap arrangements,” through which foreigners had accumulated ownership of one per cent of the market. In June 2015, the CMA opened the *Tadawul* to “qualified foreign investors,” but with a stringent set of regulations that only large financial institutions could meet. Since 2015, the CMA has progressively relaxed the rules applicable to qualified foreign investors, easing barriers to entry and expanding the foreign investor base. Following these regulatory steps, and stimulated by the March 2018 inclusion of the Saudi stock exchange on a key emerging markets index (FTSE Russell), the inflow of foreign capital to the *Tadawul* reached record highs in the first quarter of 2018. 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.*

**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 practiced in the banking sector are generally transparent and consistent with international norms. The Saudi Arabian Monetary Authority (SAMA), the central bank oversees and regulates the banking system; SAMA generally gets high marks for its prudent oversight of commercial banks in Saudi Arabia. SAMA is the only central bank in the Middle East other than Israel’s that is a member and shareholder of the Bank for International Settlements in Basel, Switzerland.

As part of the economic reforms initiated for accession to the WTO, Saudi Arabia liberalized licensing requirements for foreign investment in financial services. In addition, the government increased foreign-equity limits in financial institutions from 40 percent to 60 percent to entice further foreign investment. The SAG has authorized increased foreign participation in its banking sector over the last several years. As of March 2018, SAMA has granted licenses to operate in the Kingdom to 14 foreign banks: Gulf International Bank, Emirates NBD, National Bank of Bahrain, National Bank of Kuwait, Muscat Bank, Deutsche Bank, BNP Paribas, J.P. Morgan Chase N.A., National Bank of Pakistan, State Bank of India, T.C.ZIRAAT BANKASI A.S., Industrial and Commercial Bank of China (ICBC), Qatar National Bank, and Bank of Tokyo. 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. In late 2016, however, the accumulation of government arrears to private-sector companies, combined with high volumes of monthly domestic bond offerings, led to tightened liquidity in the banking system. The SAG’s subsequent clearing of most arrears and the suspension of domestic bond sales, plus an early 2017 injection of capital from SAMA, has returned the banking system’s liquidity levels to normal. The Saudi banking sector has one of the world’s lowest non-performing loan (NPL) ratios, in the range of 1.5 per cent. 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 in order 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*.

In February 2018, Saudi Arabia’s Capital Market Authority issued a cautionary warning to the Saudi public about investment and speculative trading in initial coin offerings for cryptocurrencies because of the inherent risks associated with such investment vehicles.

**Foreign Exchange and Remittances**

*Foreign Exchange Policies*

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 USD 10,000 must be declared at entry or exit points. Since 1986, when the last devaluation occurred, the official exchange rate has been fixed by SAMA at 3.75 Saudi riyals per U.S. dollar. Transactions take place using rates very close to the official rate.

**Remittance Policies**

Saudi Arabia is one of the largest remitting countries in the world. Remittances totaled USD 37.7 billion in 2017. 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 Labor 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 employees’ local bank account, from which expatriates can freely remit their earnings to their home countries.

In 2013, SAMA enhanced and updated its 1995 Circular on Guidelines for the Prevention of Money Laundering and Terrorist Financing. The enhanced guidelines are more compliant with the Banking Control Law, 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 Middle East and North Africa Financial Action Task Force (MENA-FATF). In 2015 Saudi Arabia obtained observer status to the FATF.

**Sovereign Wealth Funds**

As of October 2017, the Public Investment Fund (https://www.pif.gov.sa/en/Pages/default.aspx ) is the Kingdom’s officially designated sovereign wealth fund. While the PIF lacks all the attributes of traditional sovereign wealth fund, it is evolving 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, and others. In April 2016, then-Deputy Crown Prince Mohammed bin Salman became chairman of the PIF and announced his intention to build the PIF into a USD 2 trillion global investment fund, relying in part on proceeds from the planned initial public offering of up to five percent of Saudi Aramco shares.

Since that announcement, the PIF has made a number of high-profile investments and announcements, including a USD 3.5 billion investment in Uber, an agreement with Japanese SoftBank Group to create a USD 100 billion technology investment fund, a partnership with Blackstone to establish a USD 40 billion North American infrastructure fund (to which the PIF would contribute up to USD 20 billion), an MOU with Softbank to develop the world’s largest solar power generation project (USD 200 billion/200 gigawatts), and a partnership with cinema company AMC to operate movie theaters in the Kingdom.

In October 2017, Saudi Arabia hosted a Future Investments Initiative Forum, at which the PIF launched its new strategy focused on strategic domestic investments, returns-driven international investments, and several domestic “giga-projects,” including: “NEOM,” a new USD 500 million project to build a high-technology city in northwest Saudi Arabia; “Qiddiya,” a new, large-scale entertainment, sports, and cultural complex near Riyadh; and “the Red Sea Project, a massive tourism development on the western Saudi coast.

At the end of 2017, the PIF had an investment portfolio valued at approximately USD 180-200 billion, mainly in shares of state-controlled domestic companies. The PIF is in the process of rebalancing its investment portfolio and 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 international diversified pool of investments. The PIF has ambitions to achieve USD 400 billion in assets under management by 2020.

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 stood at approximately USD 495 billion at the end of 2017. Total reserves fell by approximately USD 40 billion in 2017, an improvement over the USD 80 billion drop in 2016. SAMA reserves peaked at USD 736 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.

							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 producer and exporter of crude oil and a large-scale oil refiner and producer of natural gas, is 100 percent SAG-owned, and its revenues typically contribute the majority of the SAG’s budget. The SAG has announced a plan for an initial public offering (IPO) of up to five percent of Aramco shares in 2018, but there are indications that the IPO may be delayed until 2019. The SAG claims that the company is valued at USD 2 trillion, which would make a five percent IPO the largest in history. Saudi Arabia’s leading petrochemical company, SABIC, is 70 percent owned by the SAG. 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, Saudi Arabian Airlines (Saudia), the Saline Water Conversion Company, Ma’aden (mining), and the National Commercial Bank and other leading financial institutions.

**Privatization Program**

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 the banking, mining, telecommunications, petrochemicals, water desalination, insurance, and other sectors.

As part of the Vision 2030 reforms, the SAG has announced its intention to privatize additional sectors of the economy. Privatization is a key element underpinning Vision 2030’s target of increasing the private sector’s contribution to Saudi GDP from 40 percent currently to 65 percent by 2030. In April 2018, the SAG launched a Vision 2030 Privatization Program that aims to: strengthen the role of the private sector by unlocking state-owned assets for investment; attract foreign direct investment; create jobs; reduce government overhead; improve the quality of public services; and strengthen the balance of payments. (The full Privatization Program report is available online at http://vision2030.gov.sa/en/ncp ). The program report references a range of approaches to privatization, including: full and partial assets sales; initial public offerings; management buy-outs, public-private partnerships (build-operate-transfer models); concessions; and outsourcing. The SAG aims to create 12,000 jobs and generate USD 9-USD 11 billion in non-oil revenue by 2020 through the Privatization Program. The program cites more than 100 privatization initiatives across ten SAG ministries and targets 14 public-private partnership investments worth an estimated USD 6.4-USD 7.5 billion. While the program report outlines the general guidelines for the Privatization Program, it does not include an exhaustive list of assets to be privatized. The report does, however, reference 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.

In 2017, Saudi Arabia established the National Center for Privatization and Public Private Partnerships, which will oversee and manage the Privatization Program. (The Center’s website is at http://www.ncp.gov.sa/en/pages/home.aspx ). The NCCP’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 CEO of the NCCP stated in April 20 2018 that the SAG’s Privatization Program would focus on ten economic sectors: environment, water and agriculture, transportation, energy, labor and social development, telecommunications and IT, education, municipal services, healthcare, housing, and *hajj* and *umrah* travel and tourism. According to the CEO, the Privatization Program aims to enhance competitiveness, elevate the quality of service, contribute to economic development, and improve the business environment. The NCCP’s near-term objective is to complete five asset sales, 14 public-private partnerships, and four major corporatizations by 2020. The SAG is also developing a law on public-private partnerships, slated for passage by the end of 2018.

							8. Responsible Business Conduct					

There is a growing awareness of corporate social responsibility (CSR) in Saudi Arabia. The SAG sees CSR primarily as a component of its competitiveness vis-à-vis global economies and has knit CSR promotion into its goal of becoming a top-ten economy. The SAG encourages foreign and local enterprises to follow generally accepted CSR principles, including the OECD Guidelines for Multinational Enterprises.

In July 2008, SAGIA, the King Khalid Foundation, and the international NGO AccountAbility jointly established the Saudi Arabian Responsible Competitiveness Index (SARCI), a ranking of companies’ CSR contributions. As part of the SARCI initiative, the King Khalid Foundation issues annual “responsible competitiveness” awards to Saudi companies for outstanding CSR activities. The award’s coverage includes: workforce development, equality and diversity,community investment strategies, quality, innovation and good governance, working with suppliers, and environmental management. According to the King Khalid Foundation, these themes have been developed to align with Vision 2030’s core priorities.

							9. Corruption					

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 enforcement can be selective. The Combating Bribery Law and 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 one million riyals (USD 267,000). Ministers and other senior government officials appointed by royal decree are forbidden from engaging in business activities with their ministry or organization while employed there. Saudi corruption laws cover most methods of bribery and abuse of authority for personal interest, but not bribery between private parties. Public officials are not subject to financial disclosure laws. Some officials engage in corrupt practices with impunity, and perceptions of corruption persist in some sectors.

On November 4, 2017, King Salman issued a royal decree forming a new Supreme Anti-Corruption Committee. The SAG subsequently detained approximately 200 government officials, businesspersons, and royal family members ostensibly to investigate allegations of widespread corruption. The royal decree exempted committee members – which included the Crown Prince, attorney general, chairman of the National Anticorruption Commission (“Nazaha”), chief of the General Audit Bureau, chairman of the Saudi Monitoring and Investigation Commission, and head of the State Security Presidency – from “all laws, regulations, instructions, orders, and decisions” that would impede anticorruption efforts. Some of the detainees reportedly negotiated financial settlements in exchange for their release. In January 2018, the attorney general announced that the SAG had collected more than USD 100 billion in various types of assets, including real estate, commercial entities, securities, cash and other assets as part of its anti-corruption campaign. It is expected that detainees who elected not to negotiate settlements will go to trial, but no public trials have taken place as of April 2018.

The Supreme Anti-Corruption Committee, National Anticorruption Commission/Nazaha, the Public Prosecutor’s Office, and the Control and Investigation Board are units of the government with authority to investigate reports of criminal activity, corruption, and “disciplinary cases” involving government employees. These bodies are responsible for investigating potential cases and referring them to the administrative courts.

Nazaha, established by former King Abdullah in 2011, is responsible for promoting transparency and combating all forms of financial and administrative corruption. Nazaha’s ministerial-level director reports directly to the King. Nazaha refers cases of possible public corruption to the Public Prosecutor’s Office. Some evidence suggests the organization has not shied away from influential players whose indiscretions may previously have been ignored. In 2016, for example, it referred the Minister of Civil Service for investigation over allegations of abuse of power and nepotism. In November 2016, Nazaha announced it found irregularities in the appointment of the minister’s son to the Ministry of Municipal and Rural Affairs. The Commission regularly publishes news of its investigations on its website (http://www.nazaha.gov.sa/en/Pages/Default.aspx ).

The Control and Investigation Board is responsible for investigating financial malfeasance, and the Public Prosecutors Office has the lead on all criminal investigations. The General Auditing Bureau is also charged with combating corruption, as is the Human Rights Commission, which responds to and researches complaints of corruption. Provincial governors and other members of the royal family routinely pay compensation to victims of corruption during weekly *majlis*meetings where citizens raise complaints.

The Saudi Arabian Monetary Authority oversees a strict regime to combat money laundering. Saudi Arabia has enacted an Anti-Money Laundering Law under which those convicted of can be sentenced to up to 10 years in prison and be fined up to USD 1.3 million. The Basic Law of Governance contains provisions on proper management of state assets and authorizes audits and investigation of administrative and financial malfeasance.

The Government Tenders and Procurement Law regulates public procurements, 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). Although Saudi Arabia committed to initiate negotiations for accession to the WTO GPA when it became a WTO Member in 2005, it has not yet begun those negotiations.

Saudi Arabia ratified the U.N. Convention against Corruption in April 2013 and signed the G-20 Anti-Corruption Action Plan in November 2010.

Globally, Saudi Arabia ranks 57th out of 180 countries in Transparency International’s Corruption Perceptions Index 2017.

**Resources to Report Corruption**

The National Anti-Corruption Commission’s address is:

National Anti-Corruption CommissionP.O. Box (Wasl) 7667Elalia-HiaelghaderRiyadh 2525-13311The Kingdom of Saudi ArabiaFax: 012645555

Nazaha accepts complaints about corruption in person, by post, by telegram, or through the “Complainant Service” on its website: http://www.nazaha.gov.sa/en/eServices/Complaints/Pages/default.aspx .

							10. Political and Security Environment					

The Department of State issues regular travel warnings to apprise U.S. citizens of the security situation in Saudi Arabia and frequently reminds U.S. citizens of recommended security precautions. In the most recent Travel Warning for Saudi Arabia, the Department of State urges U.S. citizens to exercise increased caution when traveling to Saudi Arabia due to terrorism and the threat of missile attacks on civilian targets. The Travel Warning notes that terrorist groups continue plotting possible attacks in Saudi Arabia and that terrorists may attack with little or no warning, targeting tourist locations, transportation hubs, markets/shopping malls, and local government facilities. Furthermore, terrorists have targeted both Saudi and Western government interests, mosques and other religious sites (both Sunni and Shia), and places frequented by U.S. citizens and other Westerners. Additionally, rebel groups operating in Yemen continue to fire long-range missiles into Saudi Arabia that have targeted major cities such as Riyadh and Jeddah, Riyadh’s international airport, Saudi Aramco facilities, and vessels in the Red Sea shipping lanes. Please visit www.travel.state.gov for further information.

							11. Labor Policies and Practices					

The Ministry of Labor and Social Development 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 78 percent of total jobs in the country are held by expatriates, who number 12.2 million out of a total population of 32.6 million. The largest groups of foreign workers come from Bangladesh, Egypt, India, Pakistan, the Philippines, and Yemen. Saudis occupy about 90 percent of government jobs but only about 22 percent of the total jobs in the Kingdom. Over two-thirds of Saudi nationals are employed in the public sector. Westerners comprise less than two percent of the labor force.

Saudi Arabia’s General Authority for Statistics estimates unemployment at 5.8 percent for the total population and 12.8 percent for Saudi nationals (end of 2017 figures), but these figures mask a high youth unemployment rate, a Saudi female unemployment rate of 32.7 percent, and low Saudi labor participation rates (40.7 percent overall, out of which only 17.8 percent are women). With approximately 60 percent of the Saudi population under the age of 30, job creation for new Saudi labor market entrants will prove a serious challenge in the coming years.

The SAG encourages Saudi employment through “Saudization” policies that favor the hiring of Saudi nationals, coupled with limits placed on the number of visas for foreign workers available to companies. In 2011, the Ministry of Labor and Social Development laid out a sophisticated plan known as *Nitaqat*, under which companies are divided into sectors, each with a different set of quotas for Saudi employment based on company size. Reforms enacted in 2017 refine the program to further incentivize the employment of women, disabled individuals, managerial, and high-wage earning Saudis. Each company is determined to be in one of four strata based on its actual percentage of Saudi employees, with platinum and green strata for companies meeting or exceeding the quota for their sector and size, and yellow and red strata for those failing to meet it. Expatriate employees in red and yellow companies can move freely to green or platinum companies, without the approval of their current employers, and green and platinum companies have greater privileges with regard to securing and renewing work permits for expatriates.

Over the past few years, the SAG has taken additional measures to strengthen the *Nitaqat*program and expand the scope of Saudization to require the hiring of Saudi nationals. The Ministry of Labor and Social Development has mandated that certain job categories in specific economic sectors only employ Saudi nationals, beginning with mobile phone stores in 2016. The ministry has since broadened the policy to include car rental agencies, retail sales jobs in shopping malls, and other sectors. The ministry has likewise mandated that only Saudi women can occupy retail jobs in certain businesses that cater to female customers, such as lingerie and cosmetics shops. In 2017, the Ministry of Labor and Social Development began to phase in rules forbidding employment of foreigners in retail sales positions in 12 sectors, including: watches, eyewear, medical equipment and devices, electrical and electronic appliances, auto parts, building materials, carpets, cars and motorcycles, home and office furniture, children’s clothing and men’s accessories, home kitchenware, and confectioneries. Because many retail shops in sectors subject to Saudization are owned and operated by expatriates, these policies have resulted in numerous store closures across the country. 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.

In 2017, the Ministry of Labor and Social Development and Ministry of Interior launched the latest phase of an ongoing campaign to deport illegal and improperly documented workers. Furthermore, in January 2018, the SAG implemented new fees for expatriate employers (ranging between USD 80 and USD 107 per employee per month), as well as increased levies on expatriates with dependents (a USD 54 monthly fee for each dependent). The combination of Saudization and *Nitaqat* policies, new expatriate fees, increased visa and entry/exit permit fees, the new VAT, and other measures that have raised the cost of living has prompted many expatriates to depart the Kingdom. These measures have also significantly increased labor costs for employers, Saudi and foreign alike.

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.” In 2015, the SAG published 38 amendments to the existing labor law with the aim of expanding Saudi employees’ rights and benefits. Domestic workers are not covered under the provisions of the latest labor law, but separate regulations covering domestic workers were issued in 2013, guaranteeing at least nine hours of rest per day, one day off a week, and one month of paid vacation every two years.

Overtime 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 protecting workers’ rights. Non-Saudis have the right to appeal to specialized committees in the Ministry of Labor and Social Development 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.

							12. OPIC and Other Investment Insurance Programs					

OPIC ceased operating in Saudi Arabia in 1995 due to the SAG’s failure to take steps to adopt and implement laws that extend internationally recognized workers’ rights to its labor force. Saudi Arabia has been a member of the Multilateral Investment Guarantee Agency since April 1988.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

*Table 3: Sources and Destination of FDI*

Source: Inward Direct Investment: IMF Coordinated Direct Investment Survey (2010 – latest available), Outward Direct Investment: UNCTAD World Investment Report (2016).*Table 4: Sources of Portfolio Investment*

Source: IMF’s Coordinated Portfolio Investment Survey (CPIS); data as of June 2017.

							14. Contact for More Information					

Economic Section and Foreign Commercial Service OfficesEmbassy of the United States of AmericaP.O. Box 94309Riyadh 11693, Saudi ArabiaPhone: +966 11 488-3800

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### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

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