The Kingdom of Saudi Arabia unveiled a record budget for the 2013 fiscal year. According to Fitch Ratings, overall spending has been increased by nearly 20% over the past year. In fact, spending in every sector will increase between 20-30%. For example, the budgeted capital spending is 28% higher in FY13, while spending on the Education and Healthcare sectors will increase by nearly 36%. Saudi Arabia’s increased spending is part of the its policy to create economic diversification and reform, in turn decreasing their dependence on oil revenue and creating new jobs for the local population.
In tandem with aggressive economic growth and spending, the government has been seeking to boost local and private foreign investors in the Kingdom. Over the past few years, it has overhauled previously restrictive foreign direct investment laws to allow businesses to be wholly-owned by foreigners. At the same time, it has significantly increased the availability of resources to foreign investors through its investment arm, the Saudi Arabian General Investment Authority (SAGIA). In addition, despite the political unrest in the Middle East and worldwide global recession, the Kingdom has remained relatively stable and, thus far, unaffected.
The Kingdom’s expansionary policy has created significant opportunities for foreign investors. However, although many multi-national corporations have penetrated the market, individual investors and small to medium enterprises (SMEs) still find it difficult to do so. This is due to a combination of factors. First, individual investors and SMEs often lack the access to global consulting firms that assist many larger businesses. Second, the Kingdom, unlike its neighbor the United Arab Emirates, has not engaged in aggressive advertising to advocate foreign investment. Third, although the government has implemented significant reform, its complex legal system, based on Shari’ah law, is confusing to outsiders.
Finally, and perhaps most critically, the Saudi culture and society remains extremely conservative. Those unfamiliar with cultural norms and customs are often shocked upon their arrival in the Kingdom. On a few cross-border transactions that I have consulted on, that lack of awareness has typically been the most likely precipitator of frustration between either party.
Saudi Arabia is perhaps one of the most attractive foreign investment economies in the world. Investment opportunities exist in virtually every sector. But, as with any investment, it is necessary to be fully informed. A thorough knowledge, either through professional consultation or self-education, of the risks, laws, traditions and customs is a critical prerequisite.
Over the next couple of weeks, I will be writing a series of blog posts that address the most important differences and similarities of doing business in Saudi Arabia. I will focus on different investment vehicles, setting-up a business, regulatory laws (including IP protection), locating resources, and customs and traditions.
If you have any individual questions, feel free to contact me.