Topic: What FI Law reforms are required to ensure S.A strategic development?
The above topic question is being chosen because it is a must for the researcher and the readers to be aware of the law and its reforms not just in general formation but also to recognize foreign investment laws and how it ensures the strategic development of Saudi Arabia, the need to gather resource information towards FI laws and how it works and applied in the Kingdom and to come up laws needed by the region in order to boost business economy trade, keeping substantial grounds in certain services like, those coming from oil and gas industry as well as telecoms and there creates some of the research questions relating to main keywords of the topic question, these questions came from knowledge formation and thinking by the researcher and how PhD thesis assumes relevance upon imposing answers to the questions, a brief overview of possible answers in order to provide ample amount of information regarding foreign investment laws and certain reforms which are geared towards foreign investment processes of Saudi Arabia. The questions are important as they will serve as basis for the assimilation and construction of literature review, in terms of secondary research foundations forming in critical assessment and appraisal of several useful literature studies.
Ideally, upon ensuring strategic development for Saudi Arabia, foreign investments, in such laws and reforms are needed in order for the Kingdom to actively participate in the business market functions there is, to keep business on track and have a safe zone towards economy development and processes of the Saudi region. Auty (2001, quoted from, Ramady, 2005 in Chapter 11), indicated that, “Kingdom of Saudi Arabia has set itself the objective of reducing the economy’s vulnerability and heavy dependence on oil market fortunes, and has opted for decentralized, private market-based economic activities”. The need for Saudi Arabia to be a part of the World Trade Organization, upon enabling huge Saudi world market share and the Kingdom will use Foreign Direct Investment in order to foster technology transfer and domestic economic stimulus (Najem, 2003 quoted from, Ramady, 2005 in Chapter 11).
(Quoted from, Ramady, 2005 in Chapter 11)
http://www.springerlink.com/content/u1823813302322u1/
Research Questions:
1. What are the current Foreign Investment Laws like in Saudi Arabia?
Current foreign investment laws like in Saudi Arabia are amiably present for the purpose of doing business operations in the Kingdom, allowing of business expansion, merging and acquisition frontiers as well as improvement on the investment climate is visible and functioning and pays essential domain for the Saudi’s government systems and network structures. For example, the Kingdom has business, commercial foreign investment law, as being determined consistently. The foreign investment law on entrance to the state for example will be allowing debtors to assume law reforms particular on the oil and gas investment laws as Saudi’s business economic law is open for trade and other underlying agreements as deemed possible.
a.) What is the current economic situation like?
The current economic situation of the Kingdom integrates stability and sustainable business economy as the Kingdom is open to foreign investments to enter into the market stature and cycles for instance, there assumes that Saudi Arabia have an oil business boom wherein other countries are benefiting from the situation and that more business entrants and expansion were seen in the Kingdom, coming of investments are evident enabling the economic situation on the right perspective and valuation.
b.)What is the current Foreign Investment like?
The foreign investment of the Kingdom is like outbound ways as there implies to certain in-flows such as of 18 billion dollars during the year of 2007 and early of 2008, as foreign investment laws do incurs program integrating liberalization towards the Kingdom’s business and investment regime, diversify an economy overly dependent on oil and petrochemicals, promote employment for stable population and is a core player in World Trade Organization in the year 2005. The foreign investment law of Saudi permit foreigners to invest in the sectors their economy, except for specific activities as it can be off limits to foreign investors (Abdel-Rahman, 2003). Aside, Saudi’s foreign investors are no longer required to take local partners in business sectors and other activity of the investment process. The investors are allowed to transfer money from their enterprises outside of the country and can sponsor foreign employees. Minimum capital requirements to establish business entities have generally been eliminated other than capitalization requirements to which Saudi Arabia is being committed during accession to the WTO like for, insurance business driven.
c.) What are the current Foreign Investment Laws?
The current investment laws do assume Saudi government encouragement into investment such as those related to communications technology, life sciences and energy from within economic development. Saudi Arabia have open service markets to foreign investment, including financial and banking services, maintenance and repair of aircraft and computer reservation systems, wholesale, retail and franchise distribution services, both basic and value-added telecom services, and investment in the computer and related services sector. Thus, Saudi Arabia’s FI laws currently close oil exploration, drilling, and production to foreign investment. National oil company Saudi Aramco presently conducts all oil exploration and development within Saudi Arabia. However, foreign companies, under current Saudi law, cannot purchase a stake in Aramco or take an equity position in the upstream oil sector.
d.)How the Foreign Investors view on the current Foreign Investment Laws?
The foreign investors view foreign investment laws as a means of standardized treatment for corporate taxes, access to a skilled, motivated labor force, the consistent enforcement of foreign arbitration awards, as well as precise and transparent mechanism to reduce and stop counterfeit products from entering the Kingdom as well as ample protection of intellectual property rights that meets international standards. There is combination of FI groups in its function as well as role as the number of other FI bodies has helped facilitated economic liberalisations, stimulating both growth in the national economy on the back of diversification, privatisation and export-orientation, and attracted greater foreign investment and participation (Abdel-Rahman, 2003).
2. How and why the current Foreign Investment Laws fail to advance Saudi Arabia’s economic?
Foreign investment laws fail to advance Saudi economy for one reason, it can be because some of the prospected foreign investors have complaints for example, the situation notifying that, there were not in appearance to have high expectations like, the SAGIA (2001), as the iinvestors complain that impediments remain as there have agreements with various Saudi government agencies and ministries to facilitate and streamline foreign investment procedures.
a.) What groups of organisation or governmental associations are involve, impact or have some influence to the establishment of the current Foreign Investment Laws?
There is SAGIA which developed a negative list of sectors off-limits to foreign investment (quoted from, www.sagia.gov.sa). The sectors currently closed to foreign investment include three manufacturing categories and 13 service industries. SAGIA periodically reviews the list of activities excluded from foreign investment, and submits its reviews to the Supreme Economic Council for approval. Although these sectors are off-limits to 100 percent foreign investment, foreign minority ownership in joint ventures with Saudi partners may be allowed in some sectors (Saudi Arabian General Investment Authority, 2001; UNCTAD, 2001). There was also Royal Commission for Jubail and Yanbu, and the Arriyadh Development Authority, have actively promoted opportunities in Saudi Arabia’s industrial cities and other regions. In addition, private investment companies, the National Industrialization Company, the Saudi Venture Capital Group and the Saudi Industrial Development Company have also become increasingly active in project development and in seeking out foreign joint venture partners. The Saudi Industrial Development Fund, important source of financing for investors which is a development finance institution affiliated with the Ministry of Finance as well as to support the development of the private industrial sector for expansion, upgrading and modernization of existing business domains sectors (Saudi Arabian General Investment Authority, 2001; UNCTAD, 2001).
b.)What are the benefits or disadvantages for Foreign Investors?
Foreign partners in service and contracting ventures organized as limited liability partnerships must pay in cash the contribution to authorized capital. SAGIA’s authorization is one better step for setting up such business partnership in the Kingdom and as of today’s time, foreign investment is being welcome in Saudi Arabia given the fact that there promotion towards economic development, transferring of the foreign expertise to the Kingdom as there creation of jobs and expanding export zones of the Kingdom. The investment regulations does permit registration of Saudi-foreign venture consulting businesses as Saudi Arabia allows business operations to establish office in the region with or without a partner. However, some of the offices practicing law and other services, must ensure a Saudi partner and the partner’s equity cannot exceed over seventy five percent of the business total investment.
c.) What are the factors that cause the Foreign Investment Laws to fail?
The factors that cause foreign investment laws to fail are found within the situation directed to foreign investors as there eligibility to receive low cost financing for particular business costs such as fixed assets and working capital as loans are provided for a maximum term with repayment schedules designed to match projected cash flows for the project in question. Another, is by means of some FI disputes have caused serious problems for foreign investors. For instance, Saudi partners have blocked foreigners’ access to exit visas, forcing them to remain in Saudi Arabia against their will. In cases of alleged fraud, foreign partners may also be jailed to prevent their departure from the country while awaiting police investigation or adjudication of the case. Courts can impose precautionary restraint of personal property pending the adjudication of a commercial dispute. As with any investment abroad, it is important that U.S. investors take steps to protect themselves by thoroughly researching the business record of the proposed Saudi partner, retaining legal counsel, complying scrupulously with all legal steps in the investment process, and securing a well-drafted agreement.
d.)What are the major aspects of the Laws, that concerns the Foreign Investors the most?
The aspect on transfer policy as well as conversion concerns foreign investors as there no restrictions on converting and transferring funds associated with an investment into a freely usable currency at a legal market-clearing rate. There have been no recent changes, nor are there plans to change remittance policies. There are no delays in effect for remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties and management fees through normal legal channels. There is no need for legal parallel market for investor remittances. There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains and returns on intellectual property, imported inputs and others.
3. Why Saudi Arabia needs Foreign Investments?
Saudi Arabia needs foreign investments in order to strengthen their business grounds and be able to solidify their economic status over other neighbouring countries, they need foreign investment for humanitarian relations and peace keeping as well as the fact that, there is no requirement that share of foreign equity, the Kingdom does not impose conditions on investment such as locating in specific geographic area, percentage of local content or local equity, substitution for imports, export requirements or targets, or financing only by local resources as investors are not required to disclose proprietary information to the Saudi government as part of the regulatory approval process.
a.) What are the current Saudi Arabia’s economic needs?
The Kingdom realizes that achieving its ambitious economic goals requires a steady flow of technology and expertise into the country. Therefore, its policy is to welcome foreign capital and invite it to participate in economic development projects in cooperation with Saudi business. The Saudi government established policy is not to impose any restrictions on the movement of capital into and out of the Kingdom and always to respect private ownership. In addition, foreign investment that fulfils the requirements of the Foreign Capital Investment Code enjoys all privileges of national capital and is entitled to the same treatment, protection, and incentives accorded to national capital. Saudi Arabia is fully committed to increasing private sector participation in economic growth. Privatization is a key element of the Kingdom’s economic liberalization and a host of sectors are being opened to the private sector. Telecommunications, electricity, airlines, postal services, railways, port services and water utilities are some of the potential areas for investment.
b.)How Foreign Investment benefits Saudi Arabia?
Saudi Arabia actively encourages foreign investment, especially if the projects have a lasting developmental effect on the country’s economy and promote industrialization and technology transfer. Saudi law requires that any project involving foreign capital result in “economic development” and transfer needed technology. Moreover, foreign investors must find Saudi partners in order to benefit from Saudi investment incentives and practically speaking, to obtain authorization from the relevant Saudi authorities. The petroleum and mineral extraction industries are owned and controlled by the government, and are generally closed to foreign investment.
c.) What are the benefits and disadvantages for the current Foreign Investors?
The one disadvantage can assume that, most foreign investment is carried out through limited liability companies organized for this purpose by the foreign investors and their Saudi partners. The investment firms are being formed in accordance with Saudi company law and registered in the present time, only foreign capital invested in foreign-owned branch office will qualify for investment license evidence (Aitken and Harrison, 1999; Borensztein, De Gregorio and Lee, 1998). Aside, some benefits can be: exemption from customs duties, no restriction on repatriation of profits as well as procurement of the national products by the Kingdom’s bilateral trade agreements.
d.)Why the current Foreign Investment Laws needed to be reform?
The FI laws needs reforming stature since, Saudi Arabia undertook reform of foreign investment laws as such with coverage to intellectual property rights along with WTO agreement on Trade Related Aspects of Intellectual Property Rights and the Kingdom have updated their Trademark Law, the Copyright Law as well as the Kingdom’s Patent Law (Aitken and Harrison, 1997; de Mello, 1997; 1999) along with compliance and effective deterrence against violators. The law allows foreign firms to own a majority stake in companies in the kingdom. The maximum income tax rate for foreign firms came down from 45 percent up to 20 percent. Saudi Investment Authority, looking after some foreign investments, has put in place better process in lieu for decisions on investment applications.
4. What kind of Foreign Investment Law Reforms does Saudi Arabia need?
Saudi Arabia needs foreign investment law, the law which assumes direct investment over the Kingdom as such those FI related to oil and gas industry. The law reforms linking to the process of ‘Saudization’ have been protected in conjunction with acceptable benchmarks, allowing foreign capital and labour guarantees on business rights and participating domains, Saudi FI laws, those intended to preserve the national, cultural and religious identity of the kingdom are to be maintain as while committed to other reforms on assimilation of investment matters, as investment reforms that adds positive drive for investors to invest more business possibilities in the Kingdom
The Foreign Investment Law, enacted by the Saudi Arabian General Investment Authority, allow foreign investors to own property, transfer capital and profits, claim full ownership of their projects and enjoy a reduction in tax rates (Aitken and Harrison, 1999; Borensztein, De Gregorio and Lee, 1998). The law protects foreign investors from confiscation of property without a court order or expropriation of property except for public interest against an equitable compensation. Thus, foreign companies are encouraged to invest in the insurance sector, the outcome of the Kingdom to increase foreign investment and expand the country’s economic base to invite international trade options.
a.) What other countries have the similar situation as Saudi Arabia?
Other countries have similar situation as such found in Gulf Cooperation Council countries such as, Kuwait, UAE and Qatar may engage in internal trading and distribution activities. Similarly, only joint ventures with at least 51 percent GCC ownership interest are permitted to export duty-free to other GCC countries. Together, the conditions can be disadvantage in foreign investor attempting to operate wholly foreign-owned company in Saudi Arabia. Conditions are expected to improve, as foreign investment in support by SAGIA then becomes engaged in identifying and reducing barriers to foreign investment inside the Kingdom.
b.)What are their Foreign Investment Laws like and the results of their regulatory framework? (similar situation)
The foreign investment laws are of solid investment background, the enterprise policies are of similar cycle and process as there reflects open market into private business policies as the Kingdom’s new FI law allowed foreign ownership of business operations, as Saudi have endowed better business economy over other countries and a difference in operations as the Kingdom is leader in oil and gas industry. The result of the regulatory framework is pointed constantly on investment capital and revenues along with similar laws on business entrance as well as expansion conditions and there both may have no restrictions in terms of their foreign exchange and the recognition of profits and capital as a result of rigorous foreign investment actions and realizations.
c.) How are the Foreign Investment and the Foreign Investment Laws in other countries?
The Kingdom plays strategic role into oil markets, as there would be naive to think that the Saudis are willing to give up any sovereignty that would impact this role. Several countries like, Kuwait and United Arab Emirates tends to open their upstream oil sectors to foreign investment because of lack of capital, experience, technology and profitability (Aitken and Harrison, 1997; de Mello, 1997; 1999). The Saudi oil sector does not lack any of these attributes. Foreign investment in the oil sector will not benefit the Saudis, because it will not add much to GDP, improve technology or reduce unemployment. In addition, foreign investment in the oil sector could force Saudi Arabia to violate some OPEC quota, a pressing situation that happened also in Venezuela nation.
d.)What are the differences in Foreign Investment Laws, between Saudi Arabia and other countries?
The differences of foreign investment laws between Saudi Arabia as compared to several MENA states, it is believed that the Kingdom does not need FDI in order to finance the capital transformation of the domestic economy and some other countries need strong foreign investment, and that Saudi does hold the financial resources to fund its own ongoing economic reform and modernisation. But it does require foreign participation to stimulate production and competitiveness as well as capitalise on technological assimilation in industries outside of the energy sector
e.) What does the Foreign Investment Laws needed to be changed, to increase Foreign Investors?
For a possible change, foreign investment law needs sort of dramatic change from previous investment law, into new investment law as there allows foreigner a hundred percent ownership as well as the property required for the business operation, while enabling FI strength to be found in the context of adjustable economy given effectiveness of the Kingdom’s local business to level up to the global companies. For instance, foreign investors will be holding up investment licenses into diverse business activity. The new foreign investment law had brought significant changes to previous business regulations of Saudi Arabia as the foreign investors and their non-Saudi employees will be sponsored under the new licensed firm. Another significant change will be reduction in the corporate tax rate for foreign companies with stable profits for example, with percentage ratio of 45 percent to 30 percent (Aitken and Harrison, 1999; Borensztein, De Gregorio and Lee, 1998)
. The new FI laws then enable Saudi companies to carry forward corporate losses for an unspecified number of years. There needs streamlining of foreign investment application process by creating certain shop facility. It will be required to respond to investment applications within couple of days, the foreign investor is allowed to do business with freedom of business exercise.
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REFERENCE
Abdel-Rahman, A-M. M. 2003. Foreign Direct Investment in the Kingdom of Saudi Arabia: trends, Sources and determinants’, Unpublished manuscript.
Aitken, B. and Harrison, A. E. 1999. Do Domestic Firms Benefit from Direct Foreign Investment. American Economic Review.
Aitken, B. and Harrison, A. E., Hanson, G., and Harrison, A. E. 1997. Foreign Investment, Export Behavior and Spillovers. Journal of International Economics, 43:103-32.
Borensztein, E., De Gregorio, J. and Lee, J-W. 1998. How does Foreign Direct
Investment Affect Economic Growth ?. Journal of International Economics, 45: 115-35.
de Mello, L. R. 1997. Foreign Direct Investment in Developing Countries and
Growth: A Selective Survey. Journal of Development Studies, 34(1):1-34.
de Mello, L. R. 1999. Foreign Direct Investment-led Growth: Evidence from Time Series and Panel Data. Oxford Economic Papers, 51:133-51.
Saudi Arabian General Investment Authority (SAGIA). 2001. Database. Kingdom of Saudi Arabia, Riyadh.
UNCTAD. 2001. Foreign Direct Investment and the Challenge of Development, World Investment Report. United Nations.
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