Current investment climate
Following a lull in inbound M&A activity, analysts expect Saudi Arabia to be the centre of cross-border activity in the region going forwards, as economic reform and the recent inclusion of Saudi Arabia in MSCI’s Emerging Markets Index stimulate investment.
- Outbound: In 2018, the Public Investment Fund (PIF) invested US$ 45 billion in the world’s largest technology-focused investment fund, SoftBank’s Vision Fund (valued at over US$ 115 billion). The PIF plans nearly to double its assets under management to US$ 400 billion by 2020 and eventually grow to US$ 2 trillion before 2030.
- Inbound: The Vision 2030 offers extensive and novel opportunities for those wishing to invest in Saudi Arabia, enabled by relaxations in the foreign investment regime and a privatisation strategy led by the NCP.
- Domestic: Saudi Arabia’s changing demographics has led to demand for, and increased focus on, producing increasingly higher value goods and services. Consumer demand is spurred by the 70 per cent. of the population in Saudi Arabia which is under the age of 30.
Liberalisation of inbound foreign investment
Saudi Arabia’s foreign investment regime is one of the most formalised and transparent in the Middle East. The Kingdom’s economy and laws continue to evolve to support foreign inbound investment. Across all sectors, inbound M&A into Saudi Arabia reached US$ 8.3 billion in 2018.
- Foreign investment regime: The Kingdom operates a sector-based approach to regulating levels of foreign investment in domestic companies. Generally, full foreign ownership of local businesses is permitted with a foreign investment licence, provided that the business operates in a sector which in which foreign investment is not restricted or prohibited.
- Investing in listed companies: Qualified Foreign Investors (QFIs) can invest directly in companies listed on the Saudi Stock Exchange (Tadawul), subject to certain limits. Regulations permitting QFIs to invest directly in companies listed on Tadawul, originally issued in 2015, have been further liberalised by reducing the required assets under management to US$ 500 million from US$ 1 billion.
What do foreign investors need to know?
The first step in assessing the viability of an investment in Saudi Arabia is to determine whether the industry in question is open to foreign investment. If it is, then the following issues need to be considered:
- Can I invest? The maximum level of foreign ownership permitted may vary depending on the sector.
- How do I invest? Various government licences and approvals are usually required. These will have implications on timing and process.
- What else do I need to be aware of? There may be other restrictions or requirements on foreign-funded enterprises as compared with domestic Saudi-funded enterprises.
Saudi Arabia’s plan to reform its state-owned enterprises is a central part of restructuring the domestic economy. The NCP is enabling the privatisation of a range of important sectors. There should also be more targeted opportunities for M&A transactions and investment in initial public offerings (IPOs). Looking ahead, the Kingdom is looking to transform Saudi Aramco, the state oil producer, into a global industrial conglomerate through an IPO and this is expected to occur by 2020.