Empowered by the vision of Gov. Amr Al-Dabbagh, SAGIA has streamlined regulations to encourage new business development and put the nation on more competitive footing. In just five years, Saudi Arabia has risen from the 67th to the 11th position on the World Bank’s Ease of Doing Business Index; the country ranks No. 1 in the Middle East.
The significance of these changes can be seen in the rising level of foreign direct investment in the Kingdom. US Undersecretary of Commerce for International Trade Francisco J. Sanchez has led two trade delegations to Saudi Arabia in the last six months populated by companies eager to invest in business and industry here. Sanchez noted in 2011 that total trade between the two countries will grow by 10 percent. “Our total two-way trade with Saudi Arabia is about $33 billion. US exports to Saudi Arabia totaled $10.8 billion in 2009,” he said.
Investment interest in the Kingdom is going global. Chinese companies, Indian companies, Malaysian companies, Korean companies and even Gulf entities are securing a foothold in local industries.
Established in 2000 as the “guardian angel” of business in Saudi Arabia, SAGIA’s primary role is to identify investment opportunities that are linked to the Kingdom’s competitive advantages. It provides value-added business services and solutions to investors and business owners, such as the one-stop-shop offices centralizing the critical services necessary to invest in or to set up and operate a business in Saudi Arabia. SAGIA serves as the main point of contact between investors and other national and regional agencies within the Kingdom as well as private-sector organizations to develop and refine business laws and policies.
According to the International Monetary Fund (IMF), the Saudi economy will expand 4 percent this year as increased public expenditure paves the way for sustained economic recovery. The growth in the manufacturing sector, led by the petrochemicals industry, is expected to see strong demand from Asia. Huge investment is expected in the petrochemical sector; likewise, power generation, water treatment, telecommunications, transportation and infrastructure sectors are expected to register strong growth. The construction sector will be one of the main beneficiaries of continued large government outlays. The government is planning to spend $400 billion on roads, airports and energy projects over a five-year period between 2009 and 2014.
Saudi Arabia has the biggest IT market in the Gulf region, with a forecast value of $3.7 billion in 2010 expected to rise to $5.2 billion by 2014. All three of Saudi Arabia’s mobile telephone companies are in the process of implementing higher data transmission speeds over their 3.5G networks. This development should stimulate increased demand for mobile broadband services in the long term.
Saudi Arabia’s ambitious rail plans are fueling activity in infrastructure, with $30 billion worth of contracts under way or at the bidding stage. The Saudi Electricity Company (SEC) intends to invest $28 billion to add approximately 13GW of power over the next three years. The utility company also plans to spend $70 billion by 2018 to add another 25GW to meet the growing demand from a rapidly increasing population.
SAGIA licenses projects under the new Foreign Investment Act, which allows for 100 percent foreign ownership. In addition, foreign investors can open a sales-administration/marketing office to complement their industrial or non-industrial projects. SAGIA has a broad mandate on all matters relating to foreign investments in industry, services, agriculture, and contracting. LLCs are a popular corporate vehicle among foreign investors in Saudi Arabia because they are simple to establish and administer, and the personal liability of each of the partners is limited to the individual partner’s contribution to the company’s share capital.
Initially SAGIA focused on three strategic business sectors: energy, transportation and knowledge-based industries. In energy, it focused on four sub-sectors: anything that relies on gas as feedstock, such as petrochemicals; anything that relies on petrochemicals as raw material, such as finished plastic products; any energy-intensive industries, such as minerals; along with power and water. Saudi Arabia’s global petrochemical market share has been increasing rapidly. It is expected to climb to 14 percent in five years, which underscores its attraction to foreign investors.
Saudi Arabia is now in the middle of a new and massive economic boom, and one that is being carefully engineered to truly transform the Saudi economy in a lasting manner unlike some of the short-lived employment gains of the 1970s largely due to imported labor.
The global business community — bankers, investors, manufacturers and consultants — is beating a path to the Kingdom’s doors.
According to SAGIA, Saudi Arabia attracted billions of riyals in investments to the six new economic cities. Al-Dabbagh said no country can have every kind of industry. “Every country has its own competitive advantages — its core competencies,” he said. “They are what attract foreign direct investment. Saudi Arabia’s core competitive advantage is energy. Its second advantage is its location as the hub between the East and the West.”
The Kingdom is one of best-managed economies today, with a better banking-regulatory framework. It has maintained the flow of debt, finance and project finance. In recent years Saudi Arabia has devised ways and means for public as well as debt finance. Saudi Arabia is one of the most preferred destinations at a time when debt finance and public finance are not available in the rest of the world.”
SAGIA’s main focus is to promote foreign investment in petrochemicals, aluminum, steel, fertilizers and infrastructure. SAGIA hopes to create the biggest construction site in the world today. It has more than 20 airports slated for upgrades and expansion, seaports, hubs and knowledge-based industries, including health, education, schools and universities under construction. There are about $600 billion worth of investment opportunities that are available in Saudi Arabia from now until 2020.
“In energy, in transportation, in knowledge-based industries, we believe that they could function as engines of growth for the international business community to compensate for any loss of revenues as a result of last year’s global economic slowdown,” Al-Dabbagh said. “The recession produced surplus capacity in contracting and construction companies, so Saudi Arabia accelerated the infrastructure development to take advantage of this window of opportunity.”
Constant reform has been the buzzword at SAGIA. It introduced 140 new laws and executive by-laws over the past few years. It has introduced dozens of new, pro-business policies and procedures. Today if you want a license you can get it in 24 hours.
“We provide national treatment for foreign investors,” said Al-Dabbagh. “Foreign companies can own up to 100 percent. Saudi Arabia has a competitive tax regime. It has signed avoidance of dual taxation treaties with many countries. Then there are bilateral investment treaties. All these have helped in attracting huge foreign direct investment.”
Al-Dabbagh said the Kingdom’s the second competitive advantage is location. There are about 250 million consumers within three-hours of flight time to the center of Saudi Arabia. So SAGIA is not promoting Saudi Arabia only on the strength of its own market but as the launch pad for 250 million consumers. “That means we need to develop our transportation infrastructure; we need to have the right legislative environment, and we need to have multi-service providers in all aspects — airports, airways, seaports, roads, rail, and so on. Only then can we integrate the various transport modes. We have made a great deal of progress, but the sky’s the limit in terms of potential.”
The eight economic cities spread across the country will by 2020 have generated 1.3 million new jobs, accommodated 2.4 million people, and have increased GDP per capita from $13,000 to $33,000. This is a new model, it is a public-private partnership promoted successfully by SAGIA. “SAGIA would like to marry international intellectual capital with Saudi financial capital,” Al-Dabbagh said. “For a country that is an exporter of capital, the flow of investment is not as important as the flow of knowledge, ideas and innovation.”
