Successfully investing in Saudi Arabia


updated on 16 June 2023 | reading time approx. 4 minutes


How do you assess the current economic situation in Saudi Arabia?

Saudi Arabia is the largest economy in the MENA region. Since the announcement of Saudi Vision 2030 in 2016, in which the Kingdom set out to modernize the country and establish Saudi Arabia as an investment power­house, an economic transformation has taken place. 

In Q1 2022, GDP grew at its fastest rate in more than a decade. Saudi Arabia's GDP is expected to grow steadily by a total of 18.35 percent between 2023 and 2028. This is due to oil production, which climbed to its highest level since Q4 2018. High oil prices have improved external and fiscal balances and are expected to continue to do so. Growth accelerated to 7.6 percent in 2022. Non-oil sector growth slowed somewhat in 2022, due to strong oil revenue growth driven by volume and prices. In 2023, the oil sector is expected to grow by 3.3 percent and the non-oil sector by 3.8 percent. 

How would you describe the investment climate in Saudi Arabia? Which sectors offer the largest potential? 

Vision 2030 will strengthen the development of new economic sectors such as logistics, health, education, in­fra­struc­ture, entertainment, clean energy, defense, tourism and mining. This is expected to free the Saudi eco­nomy from its dependence on oil and create more private sector jobs for a young and growing population. To achieve these goals, the Saudi government has taken further steps to improve the country's investment climate to attract foreign investors and increase domestic and international private sector participation in the economy.

In 2021, labor law reforms were implemented aimed at increasing the mobility of workers. The resolution allows foreign employees to change jobs without the employer's consent. In addition, since 2015, retail and wholesale companies can be 100 percent foreign-owned. The country ranks 62nd out of 190 countries on the World Bank's 2020 Doing Business Index and is among the 10 economies that have improved the most after im­ple­men­ting regulatory reforms. Starting a business is now easier, as a one-stop shop has been established that com­bines several procedures before and after registration. Saudi Arabia has made dealing with construction per­mits easier by introducing an online platform and allowing the Civil Defense to approve permits after they have been issued. The country facilitated imports and exports by expanding its electronic trade portal, enabling risk-based inspections, establishing an online platform for certifying imported goods, and improving infra­struc­ture at the Port of Jeddah. So there are investment opportunities for entrepreneurs. Small and medium-sized enterprises currently account for one-fifth of national GDP. By 2030, however, this share is expected to reach 35 percent.

What challenges do German companies face during their business ventures into Saudi Arabia? 

Foreign investment is prohibited in certain sectors that are on the negative list. In the industrial sector, explo­ration, prospecting and production of petroleum substances, with the exception of activities related to mining, are currently closed to foreign participation. In the services sector, activities such as supplying the military sec­tor, security and detective services, real estate investment in Mecca and Medina, tourist orientation and con­sul­ting services related to Hajj and Umrah, or fishing are prohibited for foreign investors; these activities require a local partner or must be wholly owned by Saudi nationals.
In some areas, only partial foreign ownership is allowed, requiring foreign investors to partner with a Saudi share­holder who holds a certain minimum percentage of the company's share capital. What that percentage is depends on the sector. For example, currently 40 percent of shares in insurance companies must be held by one or more Saudi nationals.

In addition, foreign investors wishing to invest in Saudi companies must apply for a foreign investment license issued by the Saudi Ministry of Investment (MISA). Companies must also apply for a commercial registration. Depending on the sector, licenses and permits from other authorities may also be required.

The Saudization program aims to increase the proportion of Saudi local workers and decrease the proportion of foreign workers. A foreign worker can only be hired if an equally suitable Saudi worker is not available. In 2011, the current Minister of Labor decided to introduce the so-called Nitaquat system, which supports the Saudi nationalism program. However, the Saudization quotas do not apply to companies that decide to establish or relocate their headquarters in Saudi Arabia.

What is the status of sustainable energy - such as solar power - in Saudi Arabia, the largest oil exporter? What impact is the change in energy policy having on foreign investors?

Renewable energy accounted for only 0.02 percent of Saudi Arabia's final energy consumption in 2017. Saudi Arabia plans to generate 50 percent of its energy from renewable sources by 2030 and achieve net-zero emis­sions by 2060. Most of the renewable energy will come from solar power generated by huge farms in the desert. On November 10, 2021, Saudi Arabia's energy minister announced that the kingdom plans to invest 380 billion riyals (101 billion dollars) in renewable energy projects and another 142 billion riyals in energy distribution by 2030. The latest MESIA report, released in January 2023, listed that Saudi Arabia is making remarkable pro­gress in increasing the use of renewable energy and reducing dependence on fossil fuels.

By 2030, Saudi Arabia plans to build the future metropolis of Neom City in the northeast of the desert nation, between Egypt, the Red Sea and Jordan. It is to cover an area of 25,000 square kilometers, making it 32 times the size of New York City. The city is to be powered 100 percent by renewable energies such as solar energy, wind energy and green hydrogen. 

Saudi Arabian authorities are planning several other projects in areas such as the Red Sea, Madinah, Qurayyat, Jeddah and Wadi Al-Dawasir to achieve the national goal of net zero emissions.

In your opinion, how will Saudi Arabia develop? 

Due to the many reforms in recent years, as well as those expected in the near future to fulfill the Saudi Vision 2030, Saudi Arabia will be an increasingly important business location in the Middle East in the future. The coun­try will attract more and more foreign investors, companies and employees in the nonoil sector.


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Tarek Antaki

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