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Saudi Arabia Eyes for Increased Investments from European Companies

Saudi Arabia Eyes for Increased Investments from European Companies

Saudi Arabia Eyes for Increased Investments from European Companies

Last Updated on November 9, 2021

  

Despite the cultural, political and economic dissimilarities, the largest Arab economy and biggest oil exporter Saudi Arabia has long enjoyed a close relationship with certain European countries including the UK, France and Germany. Even for Europe, the Gulf region has always remained crucial both for economic and political reasons. Saudi Arabia, among the seven Gulf countries, occupies a special place in the Gulf–EU relationship.

Saudi Arabia announced its Saudi Arabian Vision 2030 in April 2016 outlining a comprehensive economic reform plan for diversifying the country’s oil-based economy. Private sector participation (PSP) was initiated as a cornerstone of Vision 2030 with a strong focus on strengthening the private sectors, attracting foreign investments and facilitating foreign company registration in Saudi Arabia.

The global economic downturn caused by the pandemic and lower oil prices, however, have necessitated an immediate need to rapidly embark upon social and economic policy reforms to restructure the economy and spearhead a campaign to convince and woo foreign multinationals from Europe and other parts of the world to materialize the targeted plan of vision 2030 and take the private sector contribution to the country’s GDP from 40% to 65%.

Though there has been some important privatisation over the last few years including Saudi Telecom and Saudi Electricity companies, the real privatisation drive started post covid and as of now, 16 government-run organisations are undergoing privatisation process including agriculture, water, tourism, health, housing, labour, education, energy, information technology, social development, energy, environment, communication, municipalities, social development and transportation.

Saudi Arabia has long implemented Public-Private Partnerships (PPPs) and privatisation projects, however, there was no formal laws to govern PPPs. The long-awaited Private Sector Participation Law (PSP Law) was passed by the government on 17th March 2021 providing financial and regulatory support for privatisation schemes, including financial guarantees, tariff subsidies, land ownership rights, tax benefits, custom duty preferences, foreign exchange and interest rate protections and easily obtainable permits and approvals.

The country offers several business and financial incentives to lure foreign investors for doing business in Saudi Arabia which include Saudi Industrial Development Fund (SIDF) loan up to USD 320 million for green and brownfield manufacturing projects, Kafalah loan guarantee scheme to SMEs, Interest-free loan up to 0.8 million USD for small enterprise development, Loans and grants by Human Resources Development Fund (HDRF), 100% Foreign ownership of company, land and properties, Full repatriation of capital and profits, Indefinite carry forward of loss, No Value-added Tax and sales tax, Nil personal income tax, No property tax, import duty exemption on raw materials and spares, tax incentives on investments made in underdeveloped provinces for 10 years etc.

The work sponsorship regulation has also been relaxed and engaging and retaining foreign employees have become much easier now.

Seeking to attract foreign investment above USD 100 billion annually, a National Investment Strategy (NIS) was recently announced by Crown Prince Mohammed bin Salman on 11th October to further diversify the economy.

NIS rolled out comprehensive investment plans for several key sectors such as manufacturing, transport and logistics, tourism, digital infrastructure, health care and renewable energy and is expected to raise foreign direct investment of USD 103 billion annually. The strategy would also increase annual domestic investment to 1.7 trillion riyals by 2030, the Saudi Press Agency (SPA) reported.

The agency also quoted Prince Mohammed as saying,

“Today, the kingdom embarks on a new investment era to empower Saudi and international private-sector investors with more and better opportunities.”

Prince Mohammed added “the NIS will draw up comprehensive investment plans for sectors, including manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure, and health care,” SPA reported.

 

The fundamental strategy among the various measures lies in the formation of special economic zones with the competitive regulatory framework and attractive incentives; rebuilding strategic supply chains and providing innovative financing solutions to accelerate capital creation.

Saudi Arabia has planned for more than SAR 12 trillion capital injection into the country’s economy by 2030 through investment. While the Shareek programme initiatives are set to inject SAR 5 trillion; the Public Investment Fund, will contribute SAR3 trillion and an additional SAR 4 trillion will be mopped up through investments facilitated by the NIS, of which some SAR2 trillion is expected to be foreign investment.

Economic recovery is in sight with improved oil prices and remission of covid 19 infections and with aggressive policy reforms, there can be good business and investment prospects for European companies in Saudi Arabia. The GDP growth is expected to be 2.4% in 2021 and touch 3% in the medium term, as per the Gulf Economic Update of the World Bank.

The Kingdom focuses on increasing annual trade with Europe which is currently pegged at approximately 61 billion euros. It also aims to increase the number of Saudi students in European schools and universities for further enhancing the Saudi potential and capabilities, accelerating reforms & transformations and forging stronger & long-lasting ties with Europe


  

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