Global Investment House-Kuwait- Saudi Economic and Strategic Outlook – Foreign Investment – March 2008 -Saudi Arabia started the process of attracting Foreign Direct Investment (FDI) long ago when it issued the first Foreign Investment Law in 1956. Another Law followed in 1962 and, in 1979, Saudi Arabia issued a more comprehensive Law, which included wide-ranging incentives for investment, such as exemption of customs duties for production inputs, nominal rental rates for land for the establishment of projects, financial assistance in the form of soft loans and exemption of exports from taxes and duties. The 1979 Foreign Capital Investment Law had granted industrial and agricultural projects a 10-year tax holiday and a 5-year tax holiday for other projects, provided that national capital formed 25% of the project capital and on condition that this percentage did not decrease during the holiday period. The Law was amended to grant an addition 10-year tax holiday to expansions of existing projects. But, to enjoy the incentives, the 1979 Law required that foreign investments be at least 25% Saudi, among the specified projects of the national development plans and of high technical content with foreign expertise to facilitate the transfer of technology.
The new 2000 Foreign Investment Law provided the legal structure necessary to attract additional investment. One of the features of the new Law was its departure from tariff incentives and use of other FDI-promoting measures in conformity with the recent global liberalization of trade and investment.
In its 2006 report, SAGIA indicated it had licensed more than 4,500 new projects worth more than US$100bn since its inception, and that foreign capital accounted for 46% of those licensed investments. The agency also reported that FDI inflows had increased significantly in the last five years, from US$183mn in 2001 to US$18.3bn in 2006. This meant total inflow in FDI stock reached US$51bn at the end of 2006 as reported in World Investment Report, or 13% of GDP, with the United States standing as the Kingdom’s largest investor, followed by Japan and the United Arab Emirates.
The country has also undertaken a series of reforms and initiatives. A new capital markets law was approved in mid-2003, strengthening the management and operations of the stock market. The 2004 tax law reduced corporate income tax on foreign companies from 45% to 20% (except in the hydrocarbon sector, where tax rates are still between 30% and 85%). In 2005, Saudi Arabia removed the minimum capital investment requirements on foreign investors (except in wholesale trade and retailing services). A new government procurement law was also passed under which 100% foreign-owned companies could bid for government contracts. Saudi Arabia intends to be among the top ten competitive nations in the world for inward investment by 2010. The authorities looks to attract US$300bn of investment in 'energy-intensive industries' over the next 13 years. A further US$100bn of investments is also being sought for 'knowledge-based' industries and a similar amount for transportation ventures. Variety of industrial projects, transport developments, building of six new cities, liberalization initiatives as well as oil and gas ventures are certain to increase the level of investment desired by the country.
© 2008 Al Bawaba (www.albawaba.com)
