Saudi Arabia aims to slash red tape to attract more foreign investors

Saudi Arabia is looking to cut red tape and make it easier for foreign investors to pump cash into the kingdom, its latest effort to establish itself as the Middle East's premier investment hub amid stiff competition.

The country plans to introduce a new 'one-time registration process' for investors under updated investment rules, eliminating the need for several licenses and pre-approvals and "significantly reducing paperwork and bureaucratic hurdles," the Ministry of Investment said in a statement sent to Bloomberg News.

The updated law - announced in August and due to take effect in 2025 - will also provide equal treatment for foreigners and locals, freedom to manage investments and repatriate funds, and the ability to appeal penalties and violations. Additionally, investors are set to have more flexibility in how they choose to resolve disputes, including by doing so outside the court.

The changes come as the kingdom struggles to meet its own targets for attracting the kind of foreign direct investment that's critical to Crown Prince Mohammed bin Salman's Vision 2030 agenda to diversify the Saudi economy away from oil.

Foreign investors and law firms caution that the success of the new measures will hinge on how the laws are implemented. The Ministry of Investment said it plans to publish details on those rules for public consultation by late September.

"Practical application is everything," said Graham Coop, a partner at Pinsent Masons in London. "Once we see the implementing regulations and how they're implemented in practice, we'll be better able to judge whether the new investment law and regulations will actually have all the positive effect."

Despite its efforts, Saudi Arabia faces stiff competition from hubs like Dubai and Abu Dhabi, which have financial centers that follow English Common Law and business-friendly regulations that have helped attract foreign investment, global firms and talent for years.

Ambitious target

The kingdom took in just over $19 billion in FDI inflows last year, according to its own calculations. That was above the annual average of $17 billion from 2017 to 2022, but shy of the year's goal of $22 billion. By 2030, it hopes the figure will grow to north of $100 billion a year.

While that seems elusive for now, cutting bureaucratic red tape would be a first step.

Cassidy Lyon, who works with business executives on foreign investments as managing director of Emerging Markets Intelligence & Research, said a top challenge newcomers face is a laborious process that requires going to multiple government agencies for approvals.

"It takes away from their time of setting up," Lyon said. "A lot of their focus is on trying to get through that initial process."

More foreign money may also improve the kingdom's finances at a time when some of the crown prince's flagship projects are said to be grappling with funding constraints.

Saudi Arabia faces at least three more years of budget deficits; the new regulations may boost non-oil revenues and help cut that fiscal shortfall, according to the law firm BLK Partners.

One-stop shop

Said Kiwan, who manages Middle East operations for the US-based tech firm Convergint Technologies LLC, recently went through the process of obtaining a license to operate in the kingdom. He said it required being "pre-prepared" and knowing which agencies to speak with for specific requirements.

As part of the overhaul, the ministry intends to address such concerns by setting up dedicated service centers.

Umera Ali, a partner at the law firm Dentons, said the new rules may create a 'one-stop shop' for investors. "If there's a lot less bureaucracy, that may make a difference," she said.

For Ali, other notable elements in the new law include what's expected to be narrower list of restrictions on investment activities.

The healthcare company Eva Pharma, which operates in the Middle East and Africa and opened an office in Saudi Arabia last year, said it's optimistic reforms will help speed the process of establishing manufacturing facilities and accelerate its production timeline.

But a "swift implementation of the new law with clear, actionable guidelines" will be needed, said Karim Nashed, the firm's chief financial officer.