Saudi Arabia’s foreign investment market substantially improved in 2005 when they became a member of the World Trade Organization (WTO). This strategic decision granted them better opportunities for trade partnerships and globalization. Foreign investors interested in Saudi Arabia favour its’ economic stability, large local market with high spending power, sound infrastructure and well-regulated banking system. Additionally, being the 27th largest merchandise exporter in the world (2017), the largest economy in the MENA region and the world’s largest oil exporter makes Saudi Arabia an attractive market for foreign investors.
However, what is most important to foreign investors when expanding into a new country?
The World Bank Group researched what international investors look for when investing in foreign countries and below are the highest ranking factors that contribute to whether an investor will invest in a country and how important that factor is to the investment’s success. The question is, is Saudi Arabia able to offer these factors desirable to foreign investors as they implement their privatization plan.
Adequacy of cash flow in the sectors
According to the study, adequate cash flow was the single most important factor when considering expanding into a new country. Knowing that there was potential for their costs to be covered and that they would be paid on time was crucial to determining the success of the investment. As many entities in the Kingdom are public sector and the government are in the process of implementing their privatization plan by encouraging foreign investors to take ownership of these entities, the spending power and availability of cash flow from the government is high. The general high spending power of the public in Saudi is another factor that contributes.
Stability and enforcement of laws and contracts
Another key consideration for foreign investors is having a clear and enforceable legal framework. Investors want to ensure that when they are entering a new country their rights will be upheld and enforced. Of those that responded, 66% said that having a stable and enforceable legal framework was a “deal-breaker” for investing in a country.
Saudi Arabia have eased the legal process for foreign investors to set up a company and introduce new formal policies such as the bankruptcy law, therefore making it more risk avert for investors. Formal bankruptcy laws allows investors to rely on the transparency of the law rather than personal connections and the explicit corporate law of Saudi Arabia provides a solid framework for companies to build upon.
Government responsiveness to needs and time frames of investors
Government administrative efficiency was ranked as fifth important in factors that affect whether an investor will invest in a country and 59% of respondents rated it as a “deal-breaker”. The amount of time that the government requires to process licenses and approvals can be costly to foreign investors, and they are less likely than domestic investors to tolerate long approval times.
In response, the Saudi government have introduced numerous online application systems that allow for license approvals from as little as hours to a few days. The Saudi government are making every effort to ensure that foreign investment in the Kingdom is attractive and easy. For example, the Saudi Arabian General Investment Authority (SAGIA) have introduced the electronic system for issuing investment licenses to save investors time and effort – available in just 4 hours or the announcement to issue cinema licenses immediately after the ban was lifted and the entertainment sector’s new portal, created to fast track permits.
Saudi Arabia are using their reformation to create an ideal environment for foreign investors to thrive in. The Vision 2030 objective, to create an attractive environment for both local and international investors and enhance their confidence in our economy, is being expressed through every avenue possible and in a modern and innovative manner, making the transition for foreign investors straightforward. This movement to increase and improve the private sector in Saudi is in full force and is proving to be effective as numerous companies bid for public sector entities. Saudi Arabia holds many of the qualities that foreign investors look for and their Vision 2030 improvements are paying off as the private sector increases in the Kingdom.