Saudi investment law updated to attract $100bn by 2030

In a bid to strike a balance between local requirements and the rights of foreign investors, the amendments put foreign investors on an equal footing with Saudis

Andre Cojocaru

Saudi investment law updated to attract $100bn by 2030

Amer Ziab Al-Tamimi

last update on 12 Sep 2024

It is the economic goal of most forward-looking countries: to bring more money in from the outside. This is no surprise. Foreign direct investment (FDI) can usher in new skills, networks, and industries while setting up the potential for long-term relationships.

Gulf states have sought FDI for several years, developing healthy competition to attract more investment to help diversify their economic base. Countries committed to sustainable development encourage FDI in part to ensure that big projects succeed in generating economic and social returns, but foreign money tends to flow to jurisdictions where laws are clear and enforced.

As a result, governments often legislate and regulate to protect investors from commercial and political risks. Last month, Saudi Arabia did the same, announcing that its investment regulations would be amended.

One purpose is to reduce bureaucratic restrictions and obstacles, in line with the objectives of Vision 2030, an ambitious nationwide reform programme launched by Saudi Crown Prince Mohammed bin Salman. And one of the most important changes is that investors will soon need to register their projects only once, without the need for multiple licenses and approvals.

The new laws are the result of studies conducted by Saudi experts and specialists who identified the obstacles hindering foreign investment in the country. Full details of the legal and executive regulatory procedures are expected shortly.

Modern legislation

Financial experts at a recent Fintech conference in Riyadh felt the Saudi financial system was the fairest, encouraging foreign companies to invest. They also felt that Saudi Arabia provided favourable legislation for investors, guaranteeing rights, facilitating procedures, and reducing bureaucratic obstacles. The assurances cover sectors such as finance, manufacturing, tourism, and distribution.

Investors will soon need to register their projects only once, without the need for multiple licenses and approvals

By amending its investment laws, Riyadh wants to enhance the role of non-carbon industries and increase their contribution to the country's gross domestic product (GDP). It wants non-oil exports to account for around half of the Kingdom's total export value, with FDI helping to create jobs and reduce the unemployment rate to below 7%.

Flows and ambitions

Saudi Arabia had direct investment flows of $19bn in 2023. This is an increase on the average rate of annual FDI from 2017-22 of $17bn, but it is still far from the ambitions of Vision 2030, which wants $100bn of annual FDI by 2030. Changes are therefore needed to make the Kingdom a safe haven for investment, offering legal protection, political stability, and appropriate administrative facilities.

Capital flows to countries when investors feel that their rights are protected, and that the value of the investment will not be diminished by a fall or deterioration in the exchange rate of the local currency. Investors also want to be clear on their rights and know they can freely transfer their foreign currency earnings anywhere in the world.

Economic feasibility

While privileges and facilities are available to investors, the economic viability of the investment remains a key factor, so countries must identify suitable projects.

Saudi Arabia has several huge projects within its development plans, including new urban areas and resorts, such as NEOM in the country's north-west. These will generate revenues and profits for investors, but for impartial advice, some companies and consultancies offer services to investors that include economic feasibility studies for Saudi projects.

Courtesy of Neom — A design for the 500-metre parallel structures, known collectively as The Line, in the heart of the megacity of NEOM on the Red Sea.

These typically indicate the level of risk, expected rate of return, method of financing, percentage of loans, and shareholder rights, as 'leverage' financing rates vary from one project to another and from one sector to another. In addition, Article 10 of the old law, enacted in 2000, states that the Investment Authority "shall provide all those interested in investment with all necessary information, clarifications, and statistics".

Modifications and incentives

The most important amendments to the updated investment system are those that put Saudi and non-Saudi investors on an equal footing. The amendments also emphasise "freedom to use the investment activity, freedom to transfer capital without delay, and emphasis on the protection of intellectual property and confidential commercial information".

Enshrining these rights should reassure investors who identify economically feasible investment projects, while the granting of management rights to the foreign investor is also of great importance. Once they allocate their money to something, investors typically want to either take over the management of the project themselves, or else appoint their choice of manager, perhaps with specialist knowledge or experience.

This addresses a longstanding complaint that investors have encountered in Arab countries and one that investors in the Gulf have cited since the mid-1970s: that they have been denied the ability to supervise and manage their investments.

The new investment laws underscore the importance of adapting to global economic changes and the need to balance local requirements with the rights of foreign investors. They emphasise the importance of labour market regulations that are compatible with investor requirements, as well as issues of ownership transfer and project liquidation, which ensure investor rights.

The changes address a longstanding investor complaint about the Gulf: that they are denied the ability to manage their investments

The Saudi authorities are clearly keen to attract investment and channel it into Vision 2030 projects. While the trajectory is positive, the numbers are still below expectations. While $29bn of FDI was envisioned for 2024, the first quarter total was £2.5bn. In 2022, foreign investment was concentrated in the transportation and storage sector ($14bn) and the manufacturing sector ($11bn). Riyadh now wants to attract investment to new special economic zones (SEZs), including King Abdullah Economic City, Ras Al-Khair SEZ, Jazan SEZ, and the Cloud Computing SEZ.

Promising conditions

Policymakers hope that by improving investor rights in law in Saudi Arabia, the country's other advantages will turn heads. With its vast land mass, rich natural resources and 32 million population, investors will know that there is significant consumer capacity, given that per capita income was around $31,500 in 2023.

Demographically, the median age for Saudis is 25 years, with around 63% of the population under the age of 30, according to the 2022 census data. Far from sclerotic and complacent, the country's people are its dynamo. Together with its political stability and a national leadership committed to sustainable development, investment in Saudi Arabia seems increasingly secure.

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