Current investment climate
Despite the challenges of 2020, the overall investment climate is expected to continue its buoyant trajectory in 2021 and beyond. As economic diversification initiatives continue, analysts forecast that foreign direct investment in 2021 may reach US$ 5.3 billion, a significant increase on the US$ 4.6 billion investment seen in 2019.
- Outbound: The first half of 2020 saw outbound M&A reach US$ 3.3 billion in deal volume. The Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund, continues to make high profile investments, diversified across sectors and geographies. In 2020, the PIF acquired equity stakes in two major Indian companies: Reliance Retail Ventures Limited, India’s leading retail business, and Jio Platforms, India’s leading digital services platform. The PIF’s mission is to become the world’s most impactful investor and it aims to grow its assets under management to US$ 2 trillion by 2030.
- Inbound: While inbound M&A in the first half of 2020 topped US$ 3.1 billion in deal volume, Saudi Arabia is seeking greater international investment into its economy. Vision 2030 sets out a progressive agenda to unlock state-owned assets for the private sector and to privatise selected government services. This offers extensive and novel opportunities for those wishing to invest in Saudi Arabia.
- Domestic: The first half of 2020 saw domestic M&A activity of US$ 15.9 billion by deal volume. Within Saudi Arabia, the PIF is funding domestic expansion through investment in strategic companies and funding projects, driving the country’s economic diversification. Over the last few years, for example, the PIF has launched Roshn, a new company to develop world-class urban communities, and acquired a majority stake in ACWA Power, to support the development of the Kingdom’s renewable energy sector.
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 laws continue to evolve to support foreign inbound investment. Opportunities for investment are growing as a result of the privatisation initiative and progressive stock exchange reforms.
- 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 Tadawul, subject to certain limits. For example, each QFI may not own 10 per cent or more of the shares or convertible debt instruments of any Saudi issuer and the maximum proportion of the shares or convertible debt of any Saudi issuer owned by all foreign investors should not exceed 49 per cent in aggregate.
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.
The Privatisation Programme aims to develop the role of the private sector in the provision of services and the availability of
Government assets, reforming its state-owned enterprises. This is a central part restructuring the domestic economy in line
with the Vision 2030. The National Centre for Privatisation & PPP is enabling the privatisation of a range of important
sectors. It represents a fundamental change in approach as historically the Saudi Arabian Government has provided key services that are typically provided by private sector companies in other countries.