Within the last week, we have seen several announcements by the Kingdom of Saudi Arabia (KSA) that demonstrate its on-going commitment to strengthening regulations in order to encourage foreign investment. Perhaps most notable, is the announcement by the Ministry of Commerce & Industry (MOCI) suggesting that Saudi Arabia may consider opening its doors for trading entities to be completely foreign owned.
Following a Royal directive, reinforced publicly in a speech given by Custodian of the Two Holy Mosques King Salman at an event in Washington on Friday, MOCI, together with the Saudi Arabian General Investment Authority (SAGIA) has announced that it will consider trade and investment regulations to ensure they facilitate business with, and provide the necessary incentives for, international companies seeking to invest in the KingdomThe directive aligns with the Kingdom's long-term strategy which promotes the economic diversification of Saudi Arabia to raise the standards of living for citizens and balance development. A key pillar of the diversification plan is to increase the contribution of the non-oil sector and move towards a knowledge based economy.
The directive emphasises the Kingdom's desire to open the way for foreign companies to invest in the wholesale and retail sector, attracting international manufacturing companies and increasing competitiveness. The Kingdom has welcomed offers and bids from companies wishing to invest in KSA, providing that the offers contain future manufacturing plans (including specific timelines), in addition to plans for technology transfer, employment and training of KSA citizens.
Currently, in order to invest in the wholesale and retail sector in Saudi Arabia, businesses need a local Saudi Arabia participant to hold at least 25% of the share capital with the total share capital of the company being a value of at least SAR26.67 million. In its statement, MOCI has suggested that we could potentially see amendments to rules and regulations in relation to these trading entities with the current foreign ownership percentage committed to by the Kingdom in the World Trade Organisation (WTO) potentially reaching 100% foreign ownership.
An amendment of this nature would be a significant development for foreign investment in the Kingdom leading to greater opportunities for foreign companies to participate in this sector. It may also cause current Saudi Arabia investors to re-visit their current relationships with their Saudi Arabia partners and potentially re-negotiate terms or preferred routes to Saudi Arabia.
Review of Commercial Agencies Law - Call for participation
The directives outlined above, come exactly one week after MOCI invited views on the commercial agencies regulations in Saudi Arabia.
On the 31 August, the Ministry announced that it is currently working on a new draft of commercial agencies regulations, as well as distribution and commercial privilege, to replace the current regulations that were introduced in 1962. The review is underpinned by the Ministry's desire to develop the regulations to meet the present and future needs of the Kingdom and be consistent with the best comparative regulatory practices.
MOCI invited interested parties to express their views and suggestions, through participation in a questionnaire, on the effectiveness of the commercial agencies regulations. The questionnaire can be found in Arabic and English on the Ministry's website
The invitation from the Ministry is open for comment until 4 October 2015.