A downward trend is noticing in the sector of Foreign Direct Investment opportunity in Saudi Arabia, flows in recent years, according to the World Investment Report 2017. After Turkey and the United Arab Emirates, Saudi Arabia is considered as the third largest Foreign Direct Investment (FDI) recipient in Western Asia where last year estimated data showed that FDI inflows fell by 8.5% compared to the previous year, USD 7.45 billion in amount which is the lowest FDI figure since 2014.Since the date of joining in World Trade Organization (WTO) in 2005, Saudi Arabia is maintaining the commitments through taking initiative for joining in the Government Procurement Agreement, as agreed during the Kingdom's accession process to the WTO. The specialists in the related sector have found out the reason for decreasing the foreign direct investment such as political and social tensions, reduced access to credit, arising the new policy called “Saudization”, favor a domestic labor force. But the government is trying to attract the foreign investors through investing heavily in national infrastructure also the government of Saudi Arabia has realized that Foreign Direct Investment is one of the most effective ways to diversify the economy and provide employment for younger generations. The strong point of investment is the economic stability, the large local market with a high spending power where the population is over 27 million. Besides, sound infrastructure and a well-regulated banking system attract foreign investors to invest as fdi in Saudi Arabia.
The role of government in Saudi Arabia
As foreign direct investment opportunity in Saudi Arabia and under the privatization program, the opening of the retail and wholesale sectors to 100% foreign ownership has recently announced by the government. Saudi Arabia has been developed a lot due to the foreign direct investment (FDI) because it has contributed to transfer technology, employ and train the national workforce, foster economic development and enhance local raw materials. The foreign investors attract to Saudi Arabia because of the controlled inflation and relatively stable exchange rate, openness to foreign capital in upstream gas and at the same time extensive privatization programs throughout the country. Besides, investors basically invest Saudi Arabia considering two sectors. One is oil sector and another is non-oil sector, the performance of the banking sector is driving the growth of the non-oil sector whereas to get the opportunity of accessing the largest oil reserves of the world, very low energy costs and a high standard of living are decisive factors for foreign investors to invest in Saudi Arabia.
Inward flow of foreign direct investment (FDI) was estimated in the amount of USD 8,012 in 2014 which increased USD 8,141 in 2015 but found in the decreasing amount of USD 7,453 in 2016. The data of FDI stock showed that USD 215,909 was the amount in 2014 which increased 224,050 in 2015 as well as found the increasing amount USD 231,502 in 2016. Number of Greenfield Investments were 97, 92,90 consecutively in the year 2014, 2015, 2016. 4.2% of GFCF was found in both the year 2014 and 2015 as FDI inwards whereas the rate was 4.5% in 2016. FDI stock contributed in GDP in 28.5% in 2014, 34.4% and 36.2% were the rate found in 2015 and 2016 consecutively. You can figure out foreign direct investment opportunity in Saudi Arabia upon above information.
Form of Company Preferred by Foreign Investors
Foreign investors prefer the formation of joint stock companies and limited liability partnerships in case of their investing in Saudi Arabia where they get the opportunity to establish a branch of a foreign company which can be owned by a single foreign entity except individuals.
Form of Establishment Preferred by Foreign Investors
As a sole proprietor, foreign investors will not be allowed to run their business in Saudi Arabia and that is the reason behind choosing joint stock companies and limited liability partnerships as the formation of investment. If the foreign individual operates a branch of a foreign company, only in that case he/she can get the opportunity to conduct business as a sole proprietor in Saudi Arabia.
Attitude toward Foreign Direct Investment
To liberalize the country's trade and investment regime, improving the climate of investment is an important part of this country program which can diversify an economy overly dependent on oil, and promotes employment for a young population. The government of Saudi Arabia is encouraging the foreign investors in the following sectors such as transportation, education, health, information and communications technology, life sciences, and energy for the various stages of development. But sometimes foreign workers don’t get facility for the restrictive visa policy in Saudi Arabia and at the same time extremely slow payment under some government contracts, a very conservative cultural environment and enforced segregation of the sexes in nearly all business and social settings may hinder the access of foreign workers in Saudi Arabia. On the other hand, for resolving commercial disputes, there is no framework maintaining international standards.