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Business & Economy

Local partner condition may be scrapped to bolster FDI

JEDDAH: New steps being taken to increase the flow of foreign investments into Saudi Arabia this year have raised the expectations of the business community.
A triple sectorial committee, including Saudi Arabian General Investment Authority (SAGIA), Ministry of Commerce and Industry, and Ministry of Labor, is seriously reviewing factors that hinder investment in the Saudi market, Asharq Al-Awsat reported Saturday.
Quoting sources, the report said that the study is aimed to facilitate global companies’ investment in the Saudi market and to present them with incentives.
The daily also stated that the committee’s review would shift the current situation to a new standpoint, which eliminates all obstacles slowing down global investment.
The condition to have a local partner in a foreign investment project for it to be granted access to the Kingdom’s direct market has reduced the scale of foreign investment in Saudi Arabia.
The condition for the need for a local partner is likely to be removed when the committee concludes its studies, the report indicated.
James Reeve, deputy chief economist and assistant general manager, Samba Financial Group, said: “Saudi Arabia needs to attract FDI to help stem losses of international reserves.”
He told Arab News: “The main obstacle for foreign investors is the lack of clarity on bankruptcy laws. That, and the hiring and firing of nationals.”
Reeve said: “Retail is the main growth sector of the next few years. It is already in pretty good shape. One might expect some consolidation (i.e. fewer smaller independent outlets) and some bigger players.”
Said Al-Shaikh, group chief economist of the National Commercial Bank, commented: “Probably one of the things making it difficult for foreign investors is the issue of legal enforcement.”
The lengthy process of resolving commercial disputes is a major concern, he said. “Within the legal system there are until now no special courts for commercial disputes. They go to general courts.”
Al-Shaikh said: “The lengthy process in obtaining licenses is another hindrance.”
Fawaz Alfawaz, a Riyadh-based economic consultant, told Arab News: “It really depends on the type of investments we the Kingdom aspires to. The existing state of the economy makes energy intensive and distribution more attractive because of the cost structure in the Saudi economy. But as the Kingdom strives to modernize its economy the types of foreign investment we need becomes radically different.”
Alfawaz added: “SAGIA can help with streamlining the bureaucracy, the information, the rules and regulations but the heavy lifting is really on the total eco-system starting with public sector, private sector to find the right partners and the productivity of the Saudi labor market.”

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