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|Saudi reforms tell a tale of success in raking in FDI|
Ali, Special to Gulf News
Article Date: October 27, 2008
Economic reforms pay off as shown by growing inflow of foreign direct investment (FDI) in Saudi Arabia. FDI allows long-term commitments, as opposed to investments in stock markets.
According to World Investment Report 2008 of the United Nations Conference on Trade and Development (Unctad), inward FDI amounted to $24.3 billion (Dh89.1 billion) in 2007, showing a hefty growth of 33 per cent. The FDI in 2006 was $18.3 billion, up from $12.1 billion in 2005. The inbound FDI had averaged merely $245 million for the 1990-2000 period.
The extraordinary progress is a result of on-going economic reforms, kick-started with the drive to join the World Trade Organisation (WTO). Saudi Arabia acceded to WTO in December 2005 following decade-long negotiations. Credit must be extended to Foreign Investment Law (FIL) enacted in April 2000.
The law allows foreign firms to own a majority stake in companies in the kingdom. The maximum income tax rate for foreign firms came down from 45 per cent in 2000 to 20 per cent. Saudi Arabian General Investment Authority (Sagia), which looks after foreign investments, has put in place a one-stop-shop process besides a 30-day deadline for decisions on investment applications.
Conversely, the law barred foreign investments in 22 areas including exploration, drilling and production of oil, and thereby dubbed as "negative list". However, officials have since eased the restrictions, granting foreign investors the opportunity to invest in such sectors including insurance services, wholesale and retail trade, air and train transport, and communications. Thanks to the Supreme Economic Council (SEC), currently the list includes only 13 activities. SEC forms and oversees the kingdom's economic policies.
As part of WTO accession, Saudi authorities agreed to grant 60 per cent foreign equity shareholding for joint projects.
Also, foreign banks were permitted in the form of locally incorporated joint stock companies or as branches of international financial institutions.
Undoubtedly, investors like Saudi Arabia as the country has the largest gross domestic product (GDP) in the region. IMF statistics put Saudi GDP at $380 billion in 2007. Saudi GDP stands to cross $500 billion mark in the not-too-distant future.
In 2007, Saudi Arabia emerged as the largest recipient of inbound FDI in Western Asia, a region that includes the six-nation Gulf Cooperation Council (GCC). Still, inbound FDI should help in overcoming unemployment among nationals and strengthening the kingdom's competitiveness.
According to the Ministry of Economy and Planning, the unemployment rate among Saudi nationals was 11.2 per cent in the first half of 2007.
The authorities need to create about 160,000 jobs to eliminate unemployment and cater to new entrants. Saudi economy particularly needs foreign investments in industries capable of generating employment for the locals.
Additionally, the authorities want to make the kingdom one of the top ten most competitive economies in the world by 2010. There is plenty of good news. The Global Competitiveness Report for 2008-2009 has ranked Saudi Arabia at number 35 among the world's 134 economies covered in the study.
The kingdom has advanced nine notches in a span of one year. The World Economic Forum issues the annual report that ranks economies based on their performance of Growth Competitiveness Index. The Saudi experience shows that sustained reforms can help meet economic challenges.- The writer is Member of Parliament in Bahrain.