The Kingdom of Saudi Arabia ("Kingdom"), on Friday September 04 2015, announced the issuance of Royal Directives addressed to the Saudi Arabian General Investment Authority (“SAGIA”) and the Ministry of Commerce & Industry (the MoCI) to examine all trade and investment regulations, in order to facilitate the business of international companies in the Kingdom and provide them with the necessary incentives including unrestricted foreign direct investment in certain sectors in the Saudi market.
In light of the new Royal Directives, a joint statement was issued by the Minster of MoCI and the Governor of SAGIA which highlights the Saudi government's desire to encourage foreign direct investment in the wholesale and retail sector. Such plan is proposed to be implemented by lifting the foreign ownership limitation imposed by the Kingdom's commitment to the World Trade Organization (WTO) which would allow international companies to own (100%) of the business. This incentive would be subject to the international companies' future plans to manufacture their products in the Kingdom, the technology transfer, and the employment and training of the Kingdom's citizens.
The objectives of the new Royal Directives, as stated by the Minster of MoCI and the Governor of SAGIA in this regard, are the following:
- Directly attracting international manufacturing companies.
- The international companies may sell their products directly to the consumer.
- Taking advantage of a unique after sale service.
- Increasing competitiveness.
- Providing good opportunities for Saudi youth.
- Training and developing the abilities of the Saudi youth in training centers belonging to the investing companies.
- Encouraging the foreign companies to manufacture their products in the Kingdom.
- The Kingdom would be an international center for distributing, selling and re-exporting products.
Currently, and according to the Kingdom's commitments to the WTO, wholesale and retail trade services are open for foreign investment with the following limitations:
- Foreign equity limited to 75%.
- Minimum foreign investment of Saudi Riyals 20 million (US$5.3 million).
- Minimum size of outlets may be prescribed.
- Minimum of 15% Saudi employees to be trained each year.
The Royal Directives instructed related government authorities to issue the conditions and regulations that will govern foreign direct investment in the wholesale and retail sector. Thus, it is too early to assess fully the impact this initiative will have on foreign companies selling goods and services to KSA customers via Saudi agents. However, it is safe to say that both existing foreign companies selling goods or services to KSA customers via Saudi agents and those wishing to do so will need to examine and assess the new Royal Directives' objectives carefully.
How the Royal Directives will be implemented remains to be seen but this initiative will undoubtedly play a significant role in contributing to the on-going growth of the Saudi economy.
In respect of further developments in the foreign investment sector, the SAGIA Governor has recently announced that SAGIA will be implementing its Fast Track Procedure to all types of investments. In the past, the Fast Track Procedure was limited only to certain businesses such as multinational companies and publicly listed companies. However, based on the SAGIA Governor's announcement, beginning January 2016 SAGIA will apply its Fast Track Procedure to all applications and will require only 3 documents to be submitted by foreign investors and has promised less than 5 business days' for completion of the application.
As with many new, important announcements like the above, it may take some time for the whole impact of the initiatives to be absorbed by the market and to be fully reflected in practice.
As a firm we have successfully made a number of Fast Track Procedure applications. In some cases the SAGIA licence was issued in as little of one week - although it should be noted that it still takes time to gather together all the application documents and even when the SAGIA licence is issued certain other steps will need to be taken for the new entity to be fully operational.