Companies in the GCC are expanding in Saudi Arabia to tap the massive opportunities being created by $3 trillion worth of foreign investment entering the kingdom as part of the Saudi Vision 2030, by either setting up a totally new business license or opening up a branch, as the country undergoes massive development works.
As many as 88,858 new business licences were issued by Saudi Government authorities in the first quarter of 2023, according to Small and Medium Enterprises General Authority, also known as Monsha’at. More than 40,000 new companies were added to this in the third quarter. With this, the total number of small and medium enterprises (SMEs) exceeded 1.27 million in the third quarter of 2023.
The Saudi government seeks to attract $3 trillion in foreign investment to promote economic development, transfer foreign expertise and technology to Saudi Arabia, create jobs for Saudi nationals, and increase Saudi Arabia’s non-oil exports, according to a latest report by the US Department of State.
Earlier, the Saudi Government also announced the new Shareek programme, an initiative designed to generate $3.2 trillion of domestic investment – by the government, the Public Investment Fund, and the private sector – into Saudi Arabia’s economic development.
In October 2021, Saudi Arabia announced its National Investment Strategy, which will help it deliver on its Vision 2030 goals. The National Investment Strategy outlines investment plans for sectors including manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure, and health care, it says.
“The strategy aims to grow the Saudi economy by raising private sector contribution to 65 per cent of total GDP and increasing foreign direct investment to 5.7 per cent of total GDP. The National Investment Strategy aims to raise net foreign direct investment flows to $103 billion annually and increase domestic investment to about $450 billion annually by 2030,” the report says. “Investment opportunities in Saudi Arabia’s mining sector continue to expand. In June 2020, the Saudi Arabian Government approved a new law allowing foreign companies to enter the mining sector and invest in the kingdom’s untapped domestic mineral wealth, projected at $1.3 trillion.”
With the development of infrastructure, housing, investment in energy, power, utility and industries, Saudi Arabia will need hundreds of thousands of new professionals and workers to manage this transformation. That is why owners of businesses in the GCC countries are now setting up companies in Saudi Arabia to tap the opportunities.
Aziz Ali, chief executive officer of Evergreen Businessmen Services, says, “Business licensing is still a complex process in Saudi Arabia and the cost of a business licence ranges from 55,000 to 130,000 Saudi riyals – depending on the types of business, including government fees and the partnership fees paid to the local partner, wherever applicable. “The government fee for the Ministry of Investment Saudi Arabia (MISA) business license ranges from 2,000 to 62,000 Saudi riyals. One needs careful guidance on the local laws and regulation in order to obtain the right kind of license without much hassle. However, lack of guidance, help and support could land a foreign investor in delays and additional cost burden.
“While Saudi Arabia offers 100 per cent foreign ownership in local businesses in almost all categories of business, most people still prefer taking a local partner in licensing which is cheaper and costs mere half the amount of a 100 per cent foreign ownership license. Besides, the presence of a local partner in the license helps in certain benefits such as local tax emption and other benefits.”
The government fees for a trade licence with a local partner range from 2,000 to 15,000 Saudi riyals. One could find a local partner for 10,000 riyals. The presence of a local partner helps businesses in taxation and other benefits.
The local partners remain active in the company, unlike in the UAE, where the foreigners obtain the full power of attorney from the local ‘sleeping’ partner to run the business including maintaining the company bank account that gives the foreigner full control over financial matters of the business. In Saudi Arabia, the local partner remains an active partner and he has full access to bank account and transaction.
“A local partner could be a blessing or a serious problem, depending on the person involved. If the local partner is good, then the investor doesn’t have to worry much. We have a pool of some good Saudi Arabian nationals who protect the interests of the business owners,” Aziz Ali says. “We help the investors with a selection of good Saudi Nationals that help the foreign investors.”
Saudi Arabia is the largest country in the Gulf region with a population of 32.2 million, and the largest economy in the Arab World with a GDP of $1.1 trillion. According to the International Monetary Fund (IMF), Saudi Arabia was the fastest growing G20 economy in 2022 with overall growth of 8.7 per cent, driven by strong oil sector performance.
However, robust private consumption and non-oil private investment, including in giga projects, spurred strong 4.8 per cent growth in the non-oil economy. Saudi Arabia has foreign reserves of approximately $402 billion. The Saudi Arabian Government seeks to increase the sector’s contribution to GDP by $64 billion, reduce imports by $9.8 billion, and create 200,000 direct and indirect jobs by 2030.
Saudi Arabia is launching an $800 billion project to double the size of Riyadh city in the next decade and transform it into an economic, social, and cultural hub for the region. The project includes 18 “mega-projects” in the capital city to improve liveability, strengthen economic growth, and more than double the population to 15-20 million by 2030. The Saudi Government is seeking private sector financing of $250 billion for these projects with similar contributions from income generated by its financial, tourism, and entertainment sectors.