28 September 2015

Foreign ownership in Saudi Arabia

This article was written by Hamish Walton (partner) and Jamila Al Shalhoub (associate).

The Ministry of Commerce & Industry (MoCI) in the Kingdom of Saudi Arabia as well as the Saudi Arabian General Investment Authority (SAGIA), in response to a Royal Directive, have announced that they are investigating proposals to allow up to 100 percent foreign ownership in retail and wholesale trading entities in Saudi Arabia. Once a consultation process has been completed, the related reforms are proposed to be implemented next year.

SAGIA has stated that the advantages that would be provided to foreign firms would be dependent on the fulfilment of conditions, including indicatively  a commitment to invest in manufacturing and to recruit and train Saudi nationals. Full details will be provided in due course.

The reforms are seen as a response to falling revenues caused by the global decline in the price of oil and are targeted at attracting new foreign investment into the Kingdom.

The reforms appear to be specifically encouraging foreigners to invest in manufacturing within the Kingdom. Some of the advantages the consumer will be able to enjoy is to directly deal with the manufacturer and enjoy post sale services. According to the Saudi Gazette “The step aims to make Saudi Arabia an international centre for the distribution, sale and re-export of products. It is hoped the move might attract foreign companies and encourage them to manufacture their products in Saudi Arabia, then sell them directly to the consumer, who would benefit from the advantage of after-sales services”.

The relevant foreign investor will gain the advantage of no longer requiring a Saudi partner to operate wholesale and retail businesses, as is currently required at a minimum of 25% of the equity. This could have an impact not only on new entrants to the Kingdom, but also on existing manufacturing and associated wholesale and retail sales legal structures.

The Kingdom’s officials believe that by allowing broader investment opportunities this will facilitate a more competitive economy to the benefit of the end consumer. However, the government was also clear that one of the essential goals of the proposed reforms was to provide better job and training opportunities for Saudis, and eventually to position the Kingdom in becoming a hub for manufacturing, exporting and re-exporting goods.

The Kingdom is also looking at streamlining SAGIA processes to make it easier for all foreign investors from 2016.

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