Ushering in a New Era of 

Foreign Investment

 

 

  

The production, processing and distribution of natural gas is one area in which Saudi Arabia welcomes foreign investment.

      Over the past half century, Saudi Arabia has planned and brought to fruition a phenomenal expansion and development of its economy. Starting as a nation whose economic backbone was rudimentary agriculture and limited commerce, the Kingdom ended the 20th century as a regional and global economic power, one with a diversified economic base that produces and exports to all parts of the world a variety of industrial and consumer goods.

            This change and growth was realized in steps: first the government formulated a series of five-year development plans whose primary aim was to establish a modern infrastructure vital for economic diversification and expansion. More than a trillion dollars was spent on building roads, airports, seaports, telecommunications facilities and other modern amenities such as hospitals, universities and schools. As these necessities were being put in place, the government took the initiative to diversify the economy away from sole reliance on oil exports, even as it was modernizing and expanding the oil and gas sectors to optimize returns from the nation’s vast oil and gas reserves. Refineries and petrochemical plants were established to provide feedstock for basic industries that manufacture industrial and consumer goods.

     With industrial expansion proceeding at a steady pace, Saudi Arabia then moved into the next phase of its economic expansion program by encouraging greater participation of the private sector in industrial, agricultural and commercial ventures. This was achieved by providing billions of dollars in loans and other incentives, as well as technical assistance to private companies. By the mid-1980s thousands of private enterprises were turning out a variety of goods and offering services that previously were the domain of foreign companies and manufacturers.

     The private sector’s contribution to the national economy has been growing steadily in recent years, now accounting for 48 percent of the gross domestic product (GDP) at constant prices, and is expected to accelerate in the future. Success brings with it confidence and enterprise, encouraging Saudi firms to branch out in different directions and challenge foreign competitors both in markets in Saudi Arabia and overseas.

  Natural gas that was once flared is now used as fuel and feedstock for Saudi Arabian industry (above). Saudi technicians work at an offshore gas oil separation plant (below).

            With the Saudi Arabian economy firmly rooted and on the road to sustained growth, and the private sector playing an ever-growing role in its ongoing development, the Kingdom is now entering a new, historic phase designed to enable the country to successfully deal with the opportunities and challenges of the 21st century. This new phase entails allowing foreign companies to invest in Saudi Arabia with greater ease.

Saudi Arabia's political, economic and social stability, its vast oil and gas reserves, and its modern infrastructure, combine to make it particularly attractive to foreign investors who have invested in hundreds of joint ventures, such as petrochemical facilities.

            Foreign investors have always been welcome in Saudi Arabia and have for decades been active in the Kingdom. Many factors join to make the country particularly attractive to foreign investors. These include the nation’s exceptional political, economic and social stability; access to a modern economic infrastructure; the availability of inexpensive energy supplies due to the proximity of oil and gas reserves to the industrial areas; and the Kingdom’s geographical position at the crossroads of Asia, Europe and Africa. As a result, investors from all over the world have joined Saudi partners to set up ventures aimed at supplying products to the vibrant domestic economy, as well as export their goods to the other Gulf Cooperation Council (GCC) states and countries as far away as Japan and Mexico. As an example, American companies have already invested more than nine billion dollars to establish some 340 major joint venture manufacturing plants and factories.

Building on this foundation, Saudi Arabia has taken a series of steps this year to expedite the process and open the door further to foreign investments, which along with ongoing investments by the government and the Saudi private sector will facilitate greater diversification and expansion of the national economy in every area in the coming years.

Foreign firms have recently presented proposals for investment in the transportation of gas.

            The first step in this direction was taken during the tour of Deputy Prime Minister and Commander of the National Guard Crown Prince Abdullah Bin Abdul Aziz to Europe, North America and Asia in 1998. Meeting with Crown Prince Abdullah, executives of major international oil and gas companies discussed investment opportunities in the Kingdom, especially in light of its stability and the availability of huge oil and gas reserves. “I indicated to them at that time that we welcome, and we will be willing to look into, any investment ideas that might be of benefit to both sides,” Crown Prince Abdullah said later.

            In the following months, various foreign companies made initial proposals for investing in the Saudi energy industry, as well as in other areas.

  

The Kingdom boasts thousands of modern industrial plants, including steel works.

            In the meantime, the Kingdom established the Supreme Council for Petroleum and Minerals (SCPM) in January 2000 to oversee the operations of the Kingdom’s oil industry. One of the council’s first actions was to form a special ministerial committee to deal with these investment proposals. In the second half of April, the committee began meeting with representatives of 12 international oil companies that had presented proposals for investing approximately 100 billion dollars in Saudi Arabia. These proposals cover a wide range of areas in the gas industry and downstream oil operations, from production, processing, transportation and distribution of gas to refining, transporting and marketing of oil and building the required infrastructure.

The control room of a natural gas plant.

            In an interview with the Saudi Press Agency in March, Crown Prince Abdullah explained that such investments will benefit not only the foreign investors, but also all segments of the Saudi economy, enhancing economic growth, creating new job and training opportunities, and facilitating the transfer of technology. “All this will take us a long way toward the creation of a solid and integrated economy that realizes the full economic potentials of the oil and gas industry and will open new investment opportunities for the Saudi private sector,” Crown Prince Abdullah said, explaining that while the major investments will be made by foreign companies, Saudi investors will also benefit from them. They will have supporting roles for these projects through the execution of secondary works, such as services, drilling, maintenance, supply and transport. Qualified Saudi investors could participate in these directly or through partnerships with foreign companies, and in the near-term, Saudi capital can be involved through the purchase of shares in such ventures.

 

                               

 Drilling past and present: in the desert some 50 years ago (right) and along the Arabian Gulf recently (left)

            Meanwhile, the SCPM held a series of discussions to determine in which areas of the energy sector foreign investments would be most beneficial to Saudi Arabia, as well as to the foreign companies. Minister of Foreign Affairs Prince Saud Al-Faisal, who chairs the SCPM, said in a press conference in Jeddah on May 3 that foreign investment should focus on the gas sector. He added that in discussions with major international oil companies, the SCPM had emphasized that the Kingdom is looking for a long-term partnership with qualified and reputable firms, and that it intends to develop the gas sector in all its stages, including exploration, drilling, production, transport and distribution.

      Prince Saud said the foreign companies were told that investments in the gas sector would be open to them in the following cases:

  • For areas where Saudi Aramco, the national oil company, is currently producing natural gas, foreign companies would be given opportunities for investment in the post-production phases.

  • For areas where gas has been discovered but is not yet being exploited, foreign companies will be allowed to contribute in its development as well as participate in post-production phases.

  • For areas where gas has not yet been discovered, foreign companies will have the chance to invest in exploration, in addition to development, production and post-production.

        Prince Saud explained that the companies were offered investment opportunities extending from the production of gas to processing, transporting and distributing it, in conjunction with Saudi Aramco.

            While discussing foreign investments in the gas sector and the downstream oil industry, the SCPM also reviewed proposals for foreign participation in the development of other projects outside the energy field. These include power generation stations, desalination plants and petrochemical complexes.

Probing for oil under the desert sands once involved the use of high explosions (above),  a task now performed by seismic vibrator vehicles (below).

            As discussions were proceeding with representatives of the international oil companies, primarily on investments in the energy sector, Saudi Arabia took steps to further open the door to foreign investments.

            On April 11, Saudi Arabia    introduced a new foreign investment law that gives foreign investors the right to the same benefits, incentives and guarantees offered to Saudi Arabian individuals and companies. It also allows foreign investors to own property and real estate, either jointly with a Saudi partner or independently. 

            The new law also permits foreign investors to remit abroad their shares, either from selling their portion or from the profits earned by a project, or to use it in any legal manner. The investor is also authorized to remit overseas the necessary sums to meet any contractual obligations pertaining to the project.

            The foreign investment law protects the property of foreign investors from confiscation, except in cases where the public interest requires such action, and then only in return for fair compensation. It also reduces taxes on profits by foreign companies.

            On the same day, the Saudi Arabian General Investment Authority (SAGIA) was formed. Prince Abdullah Bin Faisal Bin Turki, who as head of the Royal Commission for Jubail and Yanbu supervised the establishment of these two vast industrial cities on the Arabian Gulf and the Red Sea, was appointed to head SAGIA. Based in Riyadh, the organization was made responsible for approving licenses for foreign investments, both temporary and permanent. Its duties include formulating the Kingdom’s policies for the promotion and enhancement of domestic and foreign investment, and devising executive plans and regulations appropriate for the creation of a good investment climate in Saudi Arabia. Its proposals in this regard will be sent to the Supreme Economic Council (SEC), a new entity established in August 1999 to bring about greater qualitative and quantitative economic growth.

The growing cadre of highly skilled and educated Saudi Arabian workers, such as this engineer at a SABIC petrochemical plant in Jubail (above), is an asset to domestic and foreign companies seeking to invest in the Kingdom's burgeoning economy.

            SAGIA will follow up and evaluate the performance of both domestic and foreign investment, and conduct studies on investment opportunities in the Kingdom and ways of promoting them. Beginning September 2000, SAGIA will open service centers at the Chamber of Commerce and Industry in Riyadh, Jeddah and Dammam.

            Minister of Industry and Electricity Dr. Hashim Yamani described the introduction of the foreign investment law and the formation of SAGIA as major steps in eliminating any obstacles and expediting procedures that may have hampered the flow of foreign capital into the Kingdom.

            Deputy Minister of Industrial Affairs at the Ministry of Industry and Electricity Saleh Al-Husseini perceives the new steps as laying out the welcome mat for foreign investors.  When the formulation of the foreign investment law was assigned to the ministry, it interviewed foreign investors, reviewed other countries’ experiences, and consulted with academics and consultants to ensure that it would achieve the goal of attracting greater investments from all over the world.

A Saudi technician at the Hidada Steel Company in Jeddah.

            In formulating the new law, the ministry considered policy, as well as institutional, procedural and legal issues, he explained. In terms of policy, internal flexibility was critical.  Consequently the SEC was given authority to propose changes to the law as necessary in order to stay competitive in the region and the world.  SAGIA was formed with the primary purpose of facilitating the foreign investment process. “We will not create another bureaucracy,” Mr. Al-Husseini stated. “Instead we will consider thirty days the maximum amount of time to gain approval for foreign investment proposals.”

            A key to expediting the approval process is the streamlining of procedures through SAGIA, which is conceived as a “one-stop shop.”  Representatives of all concerned government ministries and organizations will be on site at the SAGIA headquarters so that necessary signatures can be quickly gathered.

Saudi Arabia's spectacular economic growth has made it an economic powerhouse that exports products, such as those produced at the Saudi Cable Company (above).

            The legal approach was four-pronged: transparency is guaranteed; full national treatment is given to foreign investors; more options for dispute settlement are offered; and sectors for investment will now be noted by a negative, rather than a positive, list, thereby making it easier for foreign investors to pinpoint areas for investment, Mr. Al-Husseini said.

            How will this work for the foreign investor? The investment authority will facilitate investment by reducing the amount of documentation necessary and streamlining the necessary procedures. When a foreign investor first visits the SAGIA headquarters, an officer will be assigned to expedite the investment and registration process. The foreign investor needs three documents to open his application: a letter declaring his or his company’s decision to invest in Saudi Arabia, copies of the home country company registration if he represents a company, and his Saudi partners’ agreement to invest if he has Saudi partners. An important change in the law, Mr. Al-Husseini noted, is that a Saudi partner is no longer required.

Flamingoes feeding next to the Ibn Sina Methanol Plant (above) attest to Saudi Arabia's success in achieving spectacular growth and development while preserving nature and the environment.

            The officer will gather the necessary approvals from different government ministries and organizations from their representatives housed in the SAGIA headquarters. Within a maximum of 30 days the foreign investor can expect a clear “yes” or a “no,” which can be appealed through the Diwan Al-Medallum (Board of Grievances). After an approval to invest is given, the SAGIA officer will continue to work with the foreign investor to expedite company registration and facilitate the procurement of all necessary facilities and resources, such as land, telephone and power service.

            Mr. Al-Husseini explained that the effective rate of taxation has been reduced to only 30 percent, as the government will cover one-third of the present 45 percent tax.                              Furthermore, investments now have an unlimited carry-over loss, and taxes are only incurred from the day when past losses are covered by profits.

            Meanwhile, various government agencies are continuing to pursue ways to facilitate foreign investment in the Kingdom, Mr. Al-Husseini added. Among these are easing of visa regulations, replacement of the Iqama (residence permit) with an investor’s card, easing of entry into the Kingdom and travel within the Kingdom, and self-sponsorship of individual investors.

            As these steps were being rapidly introduced, the first conference on investment opportunities for foreigners was held in London in June. Hosted by the Saudi Arabian Council of Chambers of Commerce and Industry and the Arab-British Chamber of Commerce, the two-day conference was opened on June 20 by British Minister of State for Foreign and Commonwealth Affairs Peter Hain.

            During the conference, SAGIA Governor Prince Abdullah Bin Faisal Bin Turki suggested that investment banks could be set up in the Kingdom specifically to provide loans and investment services for Saudi and foreign investors. Chairman of the Saudi Arabian Council of Chambers of Commerce and Industry Ismail Abu-Dawoud said joint projects are desirable in the area of water desalination, power generation and energy production.

            Prince Abdullah told the more than 500 participants, including representatives from the World Bank and international financial institutions, as well as European and Arab businessmen, that the new steps taken by the Kingdom present investment opportunities that have never been available to foreign investors, and in the process open a new chapter in Saudi Arabia’s successful efforts to expand and diversify the national economy.

 


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