Saudi Arabia: What happened in 2021 and significant events in 2022
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This publication has been written in collaboration with Zamakhchary & Co., our alliance firm in Saudia Arabia.
Explore our overview of key developments below.
key areas in 2021 and 2022
Vision 2030 initiatives to promote the private sector: Enabling the private sector is a key strategic objective of Saudi Arabia’s ambitious Vision 2030 internal reform programme, which aims to support a diversified, thriving economy. Further progressive legal reforms are expected in 2022 to build the required legal and regulatory frameworks to facilitate business, build an advanced capital market open to greater foreign investment and enhance private sector growth.
Special Economic Zones may be established: 2022 may see the Government establish new Special Economic Zones (SEZs) with bespoke regulations. SEZs are expected to further boost investment. Sector-based SEZs (often focused on manufacturing, logistics and services) can incentivise foreign investors to enter the local market, with few or no restrictions on foreign investment, more favourable regulatory and operating environments and tax holidays.
Read more in the Z&Co guide to Special Economic Zones in Saudi Arabia.
Proposed Amendments to Rules on the Offer of Securities and Continuing Obligations to Regulate an Additional Option for Capital Increase: The Saudi Arabian Capital Market Authority (CMA) may introduce amendments to enable public companies to increase their capital by way of a new issuance of shares in which existing shareholders’ pre-emption rights would be suspended. This method of capital increase would be in addition to the current options to increase capital through rights and capitalisation issues, debt conversions, acquisition of a company or asset purchases.
In a public consultation carried out in October 2021, the draft amendments set out the requirements for this type of capital increase, including the minimum requirements for the contents of the shareholder circular to approve the issuance. Key points to note include that the increase in capital for an issuance in which pre-emption rights are suspended must not exceed, for each issue, 10% of the issuer's capital, the categories of potential investors is limited to qualified clients and institutional clients only and investors may not dispose of their shares within six months of acquiring them.
New companies law regime: A new companies’ law regime may be approved in 2022. The Government published a draft new Companies law in July 2020 which, if enacted, would replace the existing regime.
Key changes proposed by the draft law include a new type of simple joint stock company and codified directors’ duties. This would introduce, for the first time, a set of codified directors’ duties applicable to all types of companies. Once enacted, it could see Saudi Arabia increasingly aligned with international corporate governance standards. The impact of this is likely to be improved management practices, greater legal certainty for directors and strengthened investor confidence.
Creating a more modern and transparent system for establishing and managing companies will support the Vision 2030 pillar of “developing a thriving economy” and the Vision Realization Programs which underpin it, including the Privatisation Program. Bringing the local regime for companies more in line with aspects of international and regional best practice should help international investors become more comfortable with the prospect of investing in Saudi Arabia’s growing private sector.
Anti-concealment law compliance grace period: Businesses in Saudi Arabia in which foreign nationals and companies have invested should ensure they comply with the Anti-Commercial Concealment law (Saudi Arabia Royal Decree No. M4/1441 dated 19 August 2020 and Saudi Arabia Cabinet Decision No. 785/1441 on the Approval of the Anti-Commercial Concealment law) by 16 February 2022. The grace period for rectification of breaches was originally due to end in August 2021 but has been extended until February. 2022 highlights Vision 2030 measures to promote private sector development, economic diversification and foreign investment will continue. 2022 highlights New regimes for public private partnerships and public sector participation are expected to provide the legal framework for the privatisation of public services and government-owned assets. 2022 highlights The anti-concealment regime will come into force and promote compliance with the foreign investment regime. Severe penalties may be imposed where a company makes use of side arrangements that enable foreigners to carry on business activities which they are restricted from carrying on under the Kingdom’s foreign investment regime. The severity of the penalties will depend on whether the breach constitutes a criminal offence.
Private Sector Participation implementing regulations expected to come into force: Implementing regulations are expected to be issued to supplement the new Public Sector Participation law (PSP law) which came into force in July 2021. The National Centre for Privatisation and the Public Private Partnerships (PPP) consulted on draft regulations in June 2021. The new regime is expected to promote the privatisation of public services and divestment of government-owned assets in order to secure more foreign investment.
Public Private Partnerships Law and implementing regulations: Implementing regulations are expected to be issued to supplement a new PPP law, which was approved in 2021. The PPP law provides a comprehensive framework for the regulation of arrangements between the Saudi Government and private sector entities in relation to the provision of infrastructure and other public services projects. The PPP law and the implementing regulations are expected to come into force following publication in the Official Gazette. The timeline for implementation is not known.
Regulations expected regarding Government contracts with foreign companies: Regulations are expected to be issued that give effect to the Government’s policy, announced in 2021, to restrict Saudi Arabian government agencies, institutions and funds from entering into contracts with foreign counterparties which do not have their regional headquarters in the Kingdom. The policy is expected to take effect from 1 January 2024.
Sustainability initiatives: 2022 is likely to see a range of sustainability initiatives, as the Kingdom works towards its pledge to achieve net zero carbo emissions by 2060. The pledge was announced at the first Saudi Green Initiative Forum in October 2021. Renewable energy initiatives are expected to be a key focus, as Saudi Arabia plans to generate 50% of its energy from renewable sources by 2030.
Fintech ecosystem - open banking: In 2022, the Saudi Central Bank is expected to introduce measures to facilitate open banking following the announcement of its open banking policy in January 2021. The Saudi Central Bank is expected to consult with market participants on a new regulatory framework for open banking and the use of enabling technologies, such as application programming interfaces (APIs). Enabling the use of new technologies to offer innovative products and services in the financial services sector is a key aim of the Financial Services Development Program, under the umbrella of the Vision 2030. This move is expected to diversify the financial services sector and enhance Saudi Arabia’s existing supportive environment for Fintech start-ups.