Saudi Arabia A Budding Business Opportunity

Transcription

1 Saudi Arabia A Budding Business Opportunity March 2016

2 Opening More Doors for U.S. Investors September marked Custodian of The Two Holy Mosques King Salman s first visit to the United States since ascending the throne in January His visit came at a critical time for the region (only weeks after the U.S. signed its nuclear deal with Iran and amid rapidly declining oil prices) and stood to reaffirm the historic Saudi-American relation. Beyond politics, King Salman took his visit as an opportunity to stress the importance of the strategic U.S.-Saudi partnership and the Kingdom s commitment to further strengthening economic ties. This commitment was solidified at the highly anticipated U.S.-Saudi Investment Forum held on September 4th 2015, when the Saudi Arabian General Investment Authority (SAGIA), in collaboration with the U.S.-Saudi Business Council and the Council of Saudi Chambers announced the Kingdom s plans to expand U.S. investor access to the Kingdom by allowing full U.S. ownership of key retail and wholesale businesses. Saudi Foreign Direct Investment & Trade facts Source: United States Trade Representative 2

3 The reform, drafted by SAGIA and the Saudi Ministry of Commerce and Industry is set to take affect this year, and will open exclusive doors for U.S. investors across several industries where foreign ownership is currently capped at 75%. This puts U.S. investors and businesses at a competitive advantage. Allowing foreign investors to own 100% of certain businesses is a measure that will benefit everyone, said governor of SAGIA Abdullatif Al-Othman to Oxford Business Group. The Authority is also set on streamlining its investment rules and visa regulations for investors. The announcement by SAGIA, which came in line with orders by King Salman is part of the Kingdom s continuous efforts to diversify the economy and encourage more investment in the private sector. Their efforts have resulted in a promising $2 trillion worth of investment opportunities across 12 sectors including transportation, real-estate, healthcare and education. According to director of Investment Regulations, Ayedh Al-Otaibi, Saudi Arabia is one of the few countries in the region that allows 100 percent foreign ownership of investment projects. Any restricted investment activity is also under constant review with the aim of permitting more activities. Al-Otaibi added the Foreign Investment Act has gone 3

4 FDI To Saudi Arabia By Country (2011) beyond to welcome individual entrepreneurs in activities that are in target sector, innovative in nature and involve commercialization of patents (Arab News). The reform not only offers U.S. businesses the opportunity to tap into a growing consumer market, but it is also part of the Kingdoms commitment to creating employment opportunities for a high youth population while also improving competitiveness, technology and skill transfer. Rashid Al- Tayeb, vice-chairman of the public sector in Booz Allen Hamilton emphasized the role investors play in adding local economic value. The foreign investor who wants to Source: SAGIA 4

5 invest in any sector in Saudi Arabia is also responsible to serve the Kingdom. For instance, the investor can serve the Kingdom by creating jobs in Saudi Arabia, and we see that this is something important and positive (Al Arabiya News). According to Oxford Business Group, retailers will in fact be required to provide their manufacturing plans, proposed technology transfer and targeted employment of Saudi nationals in their licensing application. Easing restrictions for U.S. investors gives them greater access to the largest economy and consumer base in the Gulf. According to Economist Intelligent Unit (EIU), the country s retail market is valued at $100 billion and is set to exceed $130 billion by Despite a government budget deficit amounting to $98 billion in 2015, and forecasts of slower growth in 2016, consumer spending is on the rise, albeit, at a slower rate. According to EIU, "The growing spending power of Saudis, combined with a rising population, will ensure further growth in spending in but the rate is set to decline, FDI Inflow by Sectors in 2010 (Total USD 28 bi) Source: SAGIA 5

6 US FDI Flows in Saudi Arabia ( ) in USD Million Source: UNCTAD to an annual average of 5.1% (compared with 8.7% in ) as overall demand is softened by lower oil prices, and initially, reduced global foodstuffs prices." Nonetheless at a growth over 5%, the consumer market remains promising. The announcement came just a few months after the Saudi Stock Exchange, Tadawul- the largest and most liquid market in the region (valued at an estimated $500 billion dollars) opened its doors to qualifying foreign investors. Allowing full U.S. ownership of the retail sector is part of the Kingdom s long-term strategy to strengthen U.S.-Saudi economic ties while encouraging investments in the private nonoil sector. This is a positive step for both economic powers as they meet the challenges and opportunities of a shifting global economy. 6

7 U.S. Exports to Saudi Arabia in 2013 (USD 19 bi) Source: US Trade Representative Written by: Nourah Aleidi Edited by: Nabaa Hashmi 7

8 Work Cited "Annual Report of FDI Into Saudi Arabia 2011." National Competitiveness Center (2011) Saudi Arabian General Investment Authority, 11 Dec Web.< sa/pagefiles/4132/annual_report_fdi%20_saudi_arabia.pdf> "Investment Country Profiles Saudi Arabia." United Nations Conference on Trade and Development, Feb Web.< webdiaeia2012d17_en.pdf> "Saudi Arabia United States Trade Representative." Saudi Arabia United States Trade Representative. Office of the United States Trade Representative, 5 June Web. < Pennsylvania Avenue NW Suite 1025 Washington DC Tel :

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