Why Set Up Business in Saudi Arabia?
Why Should One Invest in Saudi Arabia
Saudi Arabia is best known among investors for its tremendous oil industry, with approximately 260 billion barrels of oil reserves comprising roughly one-fifth of the world’s supply. While the oil industry’s largest player may be largely off limits to investors, they can benefit from a number of other industries within the relatively wealthy nation. Saudi Arabia is the largest free market economy in the Middle East and North Africa holding 25% share of the total Arab GDP. The Kingdom`s geographic location provides easy access to export markets in Europe, Asia and Africa. It has a continuously expanding domestic market (annual population growth of 3.5 percent), which is adding to a young and consuming population with strong buying power.
Saudi Arabia investment environment reflects traditions of liberal, open market private enterprise policies and its Foreign Investment Law allows 100 percent foreign ownership of projects and real estate. The Kingdom has an impressive record of political and economic stability and has a modern world-class infrastructure. The country represents a very attractive investment destination when energy prices are on the rise. But some investors question the long-term sustainability of the country’s economy given its dependence on a limited resource like crude oil. And whether or not the government’s diversification into other industries will work out remains to be seen. According to the World Bank, Saudi Arabia was rated 13th out of 183 countries in terms of general ease of doing business in 2009. This is an encouraging sign for those organisations doing business in Saudi Arabia, the largest of the Gulf States. In recent years, Saudi Arabia has experienced a shift in its national business model. There has been an increase in privatisation and the corporatisation of companies. This has created a positive environment for the import of consultancy services from abroad. The shift from a nationalised to privatised business model means that Saudi Arabia is rapidly becoming a profitable place for doing business and setting up operations. However, political and social tensions, reduced access to credit and the policy of ‘Saudisation’, which started in 2011 and favours a domestic labour force, have all been obstacles to FDI. Still, the Government has invested heavily in national infrastructure to attract investment, and FDI is seen as one of the most effective ways to diversify the economy and provide employment for younger generations. The Government recently announced the opening of the retail and wholesale sectors to 100% foreign ownership and has launched a large privatisation programme. The authorities welcome FDI due to its ability to transfer technology, employ and train the national workforce, foster economic development and enhance local raw materials. The country’s controlled inflation and relatively stable exchange rate, openness to foreign capital in upstream gas, as well as extensive privatisation programmes are among the advantages attracting investors to the country. The dynamic performance of the banking sector is driving the growth of the non-oil sector.
Low Energy Costs
Lastly, access to the world’s largest oil reserves, very low energy costs and a high standard of living are decisive factors for foreign investors. Saudi Arabia’s government has taken measures to privatize certain industries, such as electricity and telecom, in order to open up its market to further investment from the outside, particularly in non-energy markets. There is relatively little crime in Saudi Arabia. The level of violence is far less than one would find in a city of comparable size in the United States, Canada or Europe, and the security level is high. Generally, Western people say they feel safe. During last decade the Saudi government has put a lot of effort to make Saudi a safe country by deploying a lot of resources. Security is a must here in the Kingdom and the Saudi government is fully committed to maintain it.