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<strong>Saudi</strong> <strong>Arabia</strong><br />
A <strong>Budding</strong><br />
<strong>Business</strong><br />
<strong>Opportunity</strong><br />
March 2016
Opening More Doors for U.S. Investors<br />
September marked Custodian of The Two Holy Mosques King Salman’s first visit to the<br />
United States since ascending the throne in January 2015. His visit came at a critical<br />
time for the region (only weeks after the U.S. signed its nuclear deal with Iran and amid<br />
rapidly declining oil prices) and stood to reaffirm the historic <strong>Saudi</strong>-American relation.<br />
Beyond politics, King Salman took his visit as an opportunity to stress the importance<br />
of the strategic U.S.-<strong>Saudi</strong> partnership and the Kingdom’s commitment to further<br />
strengthening economic ties.<br />
This commitment was solidified at the highly anticipated U.S.-<strong>Saudi</strong> Investment Forum<br />
held on September 4th 2015, when the <strong>Saudi</strong> <strong>Arabia</strong>n General Investment Authority<br />
(SAGIA), in collaboration with the U.S.-<strong>Saudi</strong> <strong>Business</strong> Council and the Council of<br />
<strong>Saudi</strong> Chambers announced the Kingdom’s plans to expand U.S. investor access to the<br />
Kingdom by allowing full U.S. ownership of key retail and wholesale businesses.<br />
<strong>Saudi</strong> Foreign Direct Investment & Trade facts<br />
Source: United States Trade Representative<br />
www.saprac.org<br />
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The reform, drafted by SAGIA and the <strong>Saudi</strong><br />
Ministry of Commerce and Industry is set to<br />
take affect this year, and will open exclusive<br />
doors for U.S. investors across several industries<br />
where foreign ownership is currently capped<br />
at 75%. This puts U.S. investors and businesses<br />
at a competitive advantage.<br />
“Allowing foreign investors to own 100% of<br />
certain businesses is a measure that will benefit<br />
everyone”, said governor of SAGIA Abdullatif<br />
Al-Othman to Oxford <strong>Business</strong> Group.<br />
The Authority is also set on streamlining its<br />
investment rules and visa regulations for<br />
investors.<br />
The announcement by SAGIA, which came in<br />
line with orders by King Salman is part of the<br />
Kingdom’s continuous efforts to diversify the<br />
economy and encourage more investment in<br />
the private sector. Their efforts have resulted<br />
in a promising $2 trillion worth of investment<br />
opportunities across 12 sectors including<br />
transportation, real-estate, healthcare and<br />
education.<br />
According to director of Investment<br />
Regulations, Ayedh Al-Otaibi, “<strong>Saudi</strong> <strong>Arabia</strong><br />
is one of the few countries in the region that<br />
allows 100 percent foreign ownership of<br />
investment projects. Any restricted investment<br />
activity is also under constant review with the<br />
aim of permitting more activities.” Al-Otaibi<br />
added “the Foreign Investment Act has gone<br />
www.saprac.org<br />
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FDI To <strong>Saudi</strong> <strong>Arabia</strong> By Country (2011)<br />
beyond to welcome individual entrepreneurs<br />
in activities that are in target sector, innovative<br />
in nature and involve commercialization of<br />
patents” (Arab News).<br />
The reform not only offers U.S. businesses the<br />
opportunity to tap into a growing consumer<br />
market, but it is also part of the Kingdoms<br />
commitment to creating employment<br />
opportunities for a high youth population<br />
while also improving competitiveness,<br />
technology and skill transfer. Rashid Al-<br />
Tayeb, vice-chairman of the public sector<br />
in Booz Allen Hamilton emphasized the<br />
role investors play in adding local economic<br />
value. “The foreign investor who wants to<br />
Source: SAGIA<br />
http://www.sagia.gov.sa/PageFiles/4132/Annual_Report_FDI%20_SAUDI_ARABIA.pdf<br />
www.saprac.org<br />
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invest in any sector in <strong>Saudi</strong> <strong>Arabia</strong> is also responsible to serve the Kingdom. For instance,<br />
the investor can serve the Kingdom by creating jobs in <strong>Saudi</strong> <strong>Arabia</strong>, and we see that this<br />
is something important and positive” (Al Arabiya News). According to Oxford <strong>Business</strong><br />
Group, retailers will in fact be required to provide their manufacturing plans, proposed<br />
technology transfer and targeted employment of <strong>Saudi</strong> nationals in their licensing<br />
application.<br />
Easing restrictions for U.S. investors gives them greater access to the largest economy and<br />
consumer base in the Gulf. According to Economist Intelligent Unit (EIU), the country’s<br />
retail market is valued at $100 billion and is set to exceed $130 billion by 2019.<br />
Despite a government budget deficit amounting to $98 billion in 2015, and forecasts of<br />
slower growth in 2016, consumer spending is on the rise, albeit, at a slower rate.<br />
According to EIU, "The growing spending power of <strong>Saudi</strong>s, combined with a rising<br />
population, will ensure further growth in spending in 2015 -19 but the rate is set to decline,<br />
FDI Inflow by Sectors in 2010 (Total USD 28 bi)<br />
Source: SAGIA<br />
http://www.sagia.gov.sa/PageFiles/4132/Annual_Report_FDI%20_SAUDI_ARABIA.pdf<br />
www.saprac.org<br />
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US FDI Flows in <strong>Saudi</strong> <strong>Arabia</strong> (2005-2012) in USD Million<br />
Source: UNCTAD<br />
http://unctad.org/en/PublicationsLibrary/webdiaeia2012d17_en.pdf<br />
to an annual average of 5.1% (compared with 8.7% in 2011 -14) as overall demand is<br />
softened by lower oil prices, and initially, reduced global foodstuffs prices." Nonetheless at<br />
a growth over 5%, the consumer market remains promising.<br />
The announcement came just a few months after the <strong>Saudi</strong> Stock Exchange, Tadawul- the<br />
largest and most liquid market in the region (valued at an estimated $500 billion dollars)<br />
opened its doors to qualifying foreign investors.<br />
Allowing full U.S. ownership of the retail sector is part of the Kingdom’s long-term strategy<br />
to strengthen U.S.-<strong>Saudi</strong> economic ties while encouraging investments in the private nonoil<br />
sector. This is a positive step for both economic powers as they meet the challenges and<br />
opportunities of a shifting global economy.<br />
www.saprac.org<br />
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U.S. Exports to <strong>Saudi</strong> <strong>Arabia</strong> in 2013 (USD 19 bi)<br />
Source: US Trade Representative<br />
https://ustr.gov/countries-regions/europe-middle-east/middle-east/north-africa/saudi-arabia<br />
Written by: Nourah Aleidi<br />
Edited by: Nabaa Hashmi<br />
www.saprac.org<br />
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Work Cited<br />
"Annual Report of FDI Into <strong>Saudi</strong> <strong>Arabia</strong> 2011." National Competitiveness Center (2011)<br />
<strong>Saudi</strong> <strong>Arabia</strong>n General Investment Authority, 11 Dec. 2011. Web.< http://www.sagia.gov.<br />
sa/PageFiles/4132/Annual_Report_FDI%20_SAUDI_ARABIA.pdf><br />
"Investment Country Profiles <strong>Saudi</strong> <strong>Arabia</strong>." United Nations Conference on Trade<br />
and Development, Feb. 2013. Web.< http://unctad.org/en/PublicationsLibrary/<br />
webdiaeia2012d17_en.pdf><br />
"<strong>Saudi</strong> <strong>Arabia</strong> | United States Trade Representative." <strong>Saudi</strong> <strong>Arabia</strong> | United States Trade<br />
Representative. Office of the United States Trade Representative, 5 June 2014. Web.<br />
< https://ustr.gov/countries-regions/europe-middle-east/middle-east/north-africa/saudiarabia><br />
1717 Pennsylvania Avenue NW<br />
Suite 1025<br />
Washington DC<br />
Tel : 1 202 559 9250<br />
www.saprac.org<br />
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