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Foreign Direct Investment

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown.

FDI flows to Saudi Arabia had gradually declined due to political factors and lower oil prices; however, economic diversification and new projects outside the oil and gas sector helped reverse the trend. According to UNCTAD's World Investment Report 2022, FDI inflows in Saudi Arabia remained resilient despite the pandemic, increasing by 20% to USD 5.39 billion in 2020, up from USD 4.56 billion one year earlier and to 19.28 billion in 2021. Policy interventions aimed at diversifying investment seem to be effective: key investments in financial services, retail, e-commerce, and ICT have been reported. The stock of FDI in the country increased in 2020 and reached USD 241 billion. The United Arab Emirates, the United States, France, Singapore, Japan, Kuwait and Malaysia are the main investors in Saudi Arabia. The investments are mainly oriented towards the chemical industry, real estate, fossil fuels, automobiles, tourism, plastics and machinery. Meanwhile, outflows from Saudi Arabia decelerated sharply in 2020 (-64% to USD 4.9 billion) before regaining momentum at USD 23.86 billion in 2021.

The Kingdom has pushed to increase FDI in recent years as part of the Vision 2030 plan to end reliance on fossil fuels, and it is aiming for USD 100 billion in annual FDI by 2030. Moreover, Saudi Arabia adopted seven “Guiding Principles for Investment Policymaking”, including non- discrimination, investment protection, investment sustainability, enhanced transparency, protection of public policy concerns, ease of entry for employees, and the transfer of knowledge and technology; and the Saudi Arabian General Investment Authority was upgraded, becoming the Ministry of Investment. Recently, Saudi Arabia also launched a SEZ program that focuses on non-traditional industries, which include cloud computing, tourism, renewable energy, and logistics. Political and social tensions, reduced access to credit and the policy of “Saudization”, which favours the domestic labour force, have all been obstacles to FDI. Nonetheless, the government has invested heavily in national infrastructure to attract investment, and FDI is seen as one of the most effective ways to diversify the economy and provide employment for younger generations. The government opened the retail and wholesale sectors to 100% foreign ownership and has launched a large privatization programme. The authorities welcome FDI due to its ability to transfer technology, employ and train the national workforce, foster economic development and enhance local raw materials. The country's controlled inflation and relatively stable exchange rate, openness to foreign capital in upstream gas, as well as extensive privatisation programmes are among the advantages attracting investors to the country. The dynamic performance of the banking sector is driving the growth of the non-oil sector. Lastly, access to the world's largest oil reserves, very low energy costs and a high standard of living are decisive factors for foreign investors. Nevertheless, foreign investment is currently prohibited in 10 sectors, including oil exploration, drilling, and production; fisheries; security and detective services; and real estate investment in the holy cities of Mecca and Medina.

 
 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 4,5635,39919,286
FDI Stock (million USD) 236,376241,775261,061
Number of Greenfield Investments* 13488147
Value of Greenfield Investments (million USD) 12,52610,1629,502

Source: UNCTAD - Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Country Comparison For the Protection of Investors Saudi Arabia Middle East & North Africa United States Germany
Index of Transaction Transparency* 9.0 6.4 7.0 5.0
Index of Manager’s Responsibility** 9.0 4.8 9.0 5.0
Index of Shareholders’ Power*** 7.0 4.7 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Saudi Arabia

Strong Points

Once Saudi Arabia became a member of the WTO in 2005, the foreign investment climate in the Kingdom substantially improved. From an investor's point of view, the country's strong points are:

  • Economic stability
  • Largest world oil reserves, important position in OPEC
  • A large local market with a high spending power (and a population of over 35 million)
  • A strategy of economic diversification (with the program Saudi Vision 2030)
  • Sound infrastructure
  • Consolidated finances
  • Well-regulated banking system
Weak Points

While the country has undertaken reforms to encourage foreign investment, the legal framework in resolving commercial disputes is considered by some to be inadequate. There is a lack of transparency in applying intellectual property legislation, and the Government imposes quotas of Saudi employees in companies. Cases of delayed payment of some government contracts have been reported. The traditionally conservative cultural environment, including the enforced segregation of the sexes in most businesses and social settings, may discourage certain investors who are not accustomed to such practises.

Other weak points are:

  • High dependence on hydrocarbons sector
  • High unemployment rate among natives, and under-employment of women
  • Economy is dependant on public spending
  • Weak political governance
  • Weak economic transparency
  • Deteriorated regional geopolitical environment.
Government Measures to Motivate or Restrict FDI
According to the law on foreign direct investment, being licensed to operate in Saudi Arabia as a foreign investor is necessary to obtain any permit to start operations. In 2018, the Saudi Council of Ministers approved full foreign investments in the transport, recruitment, audio visual and real estate sectors. Foreign direct investments (FDI) can be made in Saudi Arabia in all business activities that are not restricted to those which must be exclusively undertaken by Gulf Cooperation Council nationals or companies owned by them, the negative list (oil and mining sector, some services, etc.). Foreign investors are no longer required to have local partners in a number of sectors and may own property for company activities. They are allowed to repatriate their company money and can sponsor foreign employees, subject to certain criteria in accordance with the Nitaqat (Saudisation) programme. In 2016, Saudi Arabia authorised the acquisition of 100% of assets by foreign investors in retail and wholesale trade. A privatisation program has also been launched. The government also tries to attract FDI in the sectors of renewable energy and entertainment.

In order to facilitate investments in the Kingdom, the Ministry of Investment has set up an Investment Services Centre (ISC). The ISC must decide to grant or refuse a license within 30 days of receiving an application from an investor. The Saudi Centre for commercial arbitration has also been created, which assures foreign investors an inexpensive fee in case of commercial arbitration.  

The Saudi government launched Saudi Vision 2030, an ambitious development program that foresees important opportunities for foreign investors in the sectors of education, housing, health and energy, among others.

Invest Saudi was created by the Ministry of investment (MISA) to be the national investment promotion brand of the Kingdom and offer several services to investors. Saudi Arabia's incentives and support schemes are specifically designed to encourage investment with the potential to diversify and improve the Kingdom's competitiveness. The incentives include financial, fiscal and employment support. The MERAS facilitates services with government agencies.

Nevertheless, other recent governmental initiatives aimed at favouring employment of Saudi citizens may discourage foreign investors: cost of working permits for foreigners, quota of foreign worker employees, stricter policy of localisation and introduction of a VAT since 2018.

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Investment Opportunities

The Key Sectors of the National Economy
Oil sector, automobile industry, building, information and communication technologies, health, pharmaceutical industry, defence.
High Potential Sectors
Franchising, tourism, banking, electricity, mines.
Privatization Programmes
The Privatization Program, is one of the executive programs launched by the Council of Economic and Development Affairs (CEDA) to achieve the objectives of Vision 2030. The targeted sectors are linked to ministries of Education; Communications and Information Technology; Municipal and Rural Affairs; Environment, water and agriculture; Transport; Sport; Energy; Housing; Health; the Haj and Umrah and Labor and Social Development.
Tenders, Projects and Public Procurement
Saudi Tenders
Tenders Info, Tenders in Saudi Arabia
DgMarket, Tenders Worldwide
 

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors
Telecommunications, electricity, water, hydrocarbons.
Sectors in Decline
Insurance
 

Finding Assistance For Further Information

Investment Aid Agency
Ministry of Investment
Invest Saudi
Other Useful Resources
Saudi Chambers Council
Gulf Consulting House
Doing Business Guides
Doing business guide Saudi Arabia (Deloitte)
 

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