Saudia: Kingdom’s Doors ‘Fully Open For Investment’

When Abdullatif A. Al-Othman was picked to head the state-owned Saudi Arabian General Investment Authority (SAGIA) some 29 months back, he was a wash-ashore from Dhahran with a strong conviction to inflict changes the likes of which the SAGIA had never seen.
As the chief of SAGIA, he immediately fell under the critical watch of every one.
But Al-Othman managed to eventually earn a reputation as a competent administrator, a commercial wizard and a person well-versed in economic diplomacy.
An engineering graduate from King Fahd University of Petroleum and Mineral (KFUPM) with a Master’s degree in business administration from the Massachusetts Institute of Technology (MIT), Al-Othman has had a meteoric rise in his career from an engineer to the vice president of Saudi Aramco.
Ghazanfar Ali Khan, Riyadh Bureau Chief of Arab News, caught up with the SAGIA chief to know about his future vision, his mission and his decision that made this regulatory authority to deliver and to make a difference.

Excerpts from the interview:

Let me start with a simple and straight forward question. If I am an international investor, why should I come to Saudi Arabia? What makes Saudi Arabia a viable and promising investment destination?
This question is at the heart of SAGIA’s mission. With a GDP exceeding $700 billion, Saudi Arabia is the largest Arab economy, and one of the largest G20 economies.
It has an increasingly open and dynamic economy, with over $540 billion in trade volume, and is a leading recipient of foreign direct investments totaling $208 billion.
In addition to the blessing of plentiful oil and other mineral resources, Saudi Arabia’s geography located between Asia, Africa and Europe, gives the Kingdom the opportunity to play a much larger role in commercial terms.
Saudi Arabia has a solid well-endowed and securely governed financial and banking system.
This has allowed us to prosper even while many countries were struggling in the most recent world economic crises.
We see this as vital for the establishment and growth of investments. However, our longer term potential lies with our people.
Saudi Arabia has a very young population with an estimated 60 percent under the age of 21, the very nature of this demographic is important, as can be seen in contrast with mature regions such as Western Europe and Japan where an aging population presents a huge economic challenge.
The efforts by the Kingdom to develop high quality education at all levels, for males and females, represents the government’s commitment to nurturing this potential, and as a consequence offering investors a rich and versatile workforce.
So in a nutshell, we have the natural reserves, human capital, large and growing economy, location, infrastructure and pro-business leadership.

Can you tell us more about the role which SAGIA plays as far as FDIs are concerned?
Since its creation in 2001, SAGIA’s role has been comprehensive, yet well coordinated and vital to the progress of our economy and our people. In addition to promoting and attracting investments, we monitor and give recommendations on investment climate, investment policies, help develop investment opportunities in untapped areas as well as monitor investment performance.
A key part of SAGIA’s focus is to provide best-in-class services to investors, and to improve continually its offering. Central to SAGIA’s efforts is its “one stop shop” concept/desk.
Staffed with well-trained professionals, it streamlines the process of investment for foreign investors in particular.

Can you highlight some of the landmark steps, which the Kingdom has taken in its drive toward encouraging foreign investments?
Since its inception, Saudi Arabia has had a long record of actions and initiatives to encourage and support foreign investments.
The Kingdom has become an attractive destination for some of the most successful foreign investments globally, from the early years of oil exploration, to the development of our chemical industries, to a more recent highly sophisticated partnerships between the private sector and international partners.
Today, we are proud to be “second home” of many leading international corporations and the list is growing. However to look to recent landmarks, I would point to the year 2000, when Saudi Arabia enacted the Foreign Investment Law, which attracted a lot of international investors.
Key features of Foreign Investment Law included opportunities to participate in almost all activities, allowing 100 percent ownership of business entities, low cost of startup, minimal capital requirements, low tax regime, access to financing and equal treatment with local investors.
This led logically to our accession to the World Trade Organization in 2005, which cemented our integration with trading partners and announced a new era of open economic development to the broader business world.
More recently in our membership of the G20 Group of countries has underlined our importance in a regional and international sense, through giving us further opportunity to promote global business and investment environment stability.
Over the years, Saudi Arabia has become a party to over 20 bilateral investment treaties, which represents clear evidence of its legal and policy commitment to providing a safe, secure, non-discriminatory environment for foreign investors.
Today, thanks to the free trade agreements with 17 Arab countries, any product made in the Kingdom can be exported to well over 300 million consumers without any duties and within a radius of a three-hour flight.

Given Saudi Arabia’s fiscal strength, why the strong drive toward foreign investments? What is the government policy in this regard?
Actually the drive for private sector participation and hence foreign investments is a means to an end.
The underlying goal is the diversification of our economy. Foreign investments, in addition to local ones, facilitate our ability to reach that goal.
Saudi Arabia understands the risks related to building an economy that is over-reliant on oil, regardless of how strong and lucrative that resource may be. The FDI, although it is less than 10 percent of the total investment, is a vote of confidence in our economy and business environment.
It enhances competitiveness and brings in cutting edge knowledge and management practices.

How would you assess Saudi Arabia’s progress toward economic diversification? Please answer this question with special reference to SAGIA’s efforts in this direction.
The Kingdom is moving steadily toward reducing its reliance on petroleum as a single source for its economy. The nonoil sector reached 50 percent of GDP in 2012, with manufacturing, trade and utilities leading this growth and diversification. Both oil-based and new sectors are seeing exciting development possibilities.
Our new growth sectors include health care, transportation, IT, food manufacturing and renewable energy.
Both Saudi and foreign companies are playing a role in building the sustainable future of the economy through these new sectors.
The government’s substantial investments in infrastructure have played a key role in the growth of economy, and have helped to incentivize private sector interest through enhancing the prospects for international competitiveness.
The contribution of foreign firms has been considerable in our diversification efforts; they bring leading technologies, share vital knowhow and expertise, and develop Saudi workers and managers.
Their contribution is based on what they see as rewarding business opportunities.
We expect that they are able to make a good return on their investment; our relationship with foreign investors must be “win-win.”
This helped propel strong economic performance. GDP growth, in the Kingdom, has annually averaged five percent over the past five years, in spite of the global financial crisis and regional challenges.
This growth is expected to continue. In fact, the International Monetary Fund estimates the Kingdom will see average annual growth at a healthy four percent in the next five years.
Such results are due in no small measure to reforms in the business environment.
Measures such as reducing the capital required to start a business, facilitating exports of goods by Saudi firms, and attracting FDIs to develop key strategic sectors have fostered a competitive economic climate.
The beneficiaries are Saudi and foreign investors and the ultimate beneficiary is the national economy as the Kingdom’s investment climate started to compare well regionally and globally.

There have been criticism that process of applying for an investment license from SAGIA are time and effort consuming. How would you respond to these criticisms?
We are well aware and thankful for such feedback for the areas where we need to improve. Indeed during the last 18 months, we did experience delays at our service centers.
As part of process to modernize our systems and procedures to streamline applications and compliance, things did slow down more than we would have expected.
However, today we can confidently say that the teething problems are behind us, and we really appreciate the patience and understanding we got from our customers.
Today, we believe we have struck a good balance of ensuring compliance and timely processing of transactions.
As part of the development initiative, SAGIA launched the ‘Fast Track Service’ and the ‘Investor Care Team’, which exist to facilitate and support investors.
The ‘Fast Track Service’ guarantees investors, large and small, a response within five working days of submitting their application.
Our current average for all new licenses (both Fast and Normal Tracks) is about 7 days and customers are able to check the status of their application on SAGIA’s website (investor tools and online services).
They can also check our average service time for main services instantly live from our system through www.sagia.gov.sa (go to investor tools and average service time).

A recent article in the Economist magazine suggested that Saudi Arabia’s interest in foreign investment is shifting, and that the Kingdom, represented by SAGIA, is becoming “picky”, thus, rendering the doors to investment in Saudi Arabia “half open” as they put it!
I read the article you refer to and again while welcoming constructive comments, I believe that on this occasion the Economist got its facts wrong, or at least wrongly interpreted them.
Saudi Arabia’s investment gates are fully open and we are welcoming investors in all fields.
Investors, who are committed to create a win-win relationship, fullfil the pre-set requirements and abide by the Kingdom’s laws and regulations are all welcome on the same footing.
The Kingdom is fully open to many types of foreign investor; from small, high-growth firms to large, well-established multinationals.
In almost all situations, foreign investors can operate fully on the same basis as Saudis.
The Kingdom is the only country in the region that allows foreign Investors to own up to 100 percent of a Saudi enterprise, without co-investors or middlemen. The liberal equity ownership rules are expressly designed to promote foreign investment from all over the world.
I suspect that the comments in the Economist were responding to a very important part of SAGIA’s role which is to ensure compliance of licensed entities to our laws and to make sure that businesses are doing what they were licensed to do. In this capacity, SAGIA must ensure that all investors maintain all the requirements that entitled them to their licenses and abide by the Kingdom’s laws and regulations.
In small number of cases where there have been problems, the majority of canceled licenses have been due to the egregious non-compliance with rules, often involving businesses that were engaged in activities that they were not licensed for, or involving the abuse of residency regulations as opposed to the creation of any real investment.
In all cases, ample time was given to the related investors to correct their status.
It is very important to highlight that by carrying out this vital duty, SAGIA makes sure that the investment climate in the Kingdom is kept clean, efficient and fair, which is not only a legal requirement of the Kingdom itself, but also a valued expectation of the international foreign investment community.

Since you’ve mentioned creating jobs for the Saudis, you must have heard some say that Saudization may be a hindrance in the way of inviting foreign investments; what would you say to that end?
The Kingdom is exerting huge efforts to develop education at all levels, and provide young Saudis with the best educational opportunities inside and outside the Kingdom, thus developing the young Saudis into a talented and versatile workforce upon which the investors, local or foreign, can rely.
Recent experiences of prominent business enterprises in Saudi Arabia testifies that qualifying Saudis and creating jobs for them will have a positive effect across the gamut of Saudi and foreign enterprises.
Investors with a long term view, seeing Saudization as an opportunity, can and will benefit from the huge investments the Kingdom has made in human capital programs.
Already, there are success stories for local and international firms, both large and small, which have achieved Saudization levels well in excess of the minimum requirements.
For example, GE’s workforce in the Kingdom is 71 percent Saudi, while Sipchem boasts Saudization of 68 percent. Al-Zamil Group has subsidiaries with Saudization ranging from 20 percent to 60 percent. Al-Fanar, another local investor who makes electrical devices, has a plant that is run by 700 Saudi female technicians.
In addition to the above, Boeing, the world’s largest aerospace company, has achieved Saudization of 64 percent, JGC’s Saudization levels are at 23 percent from a total of 800 employees, and Samsung currently employs 77 Saudi nationals that constitute 18 percent of the total number of employees in the Kingdom.
These are just a few examples among many that have proven to succeed with a Saudi workforce.
The key point is that Saudi workers are capable, willing and proud to have jobs that put their education and skills to test.

Don’t you think that your actions of establishing criteria and scrutinizing licenses affect FDI and rankings?
First I want to stress that our interest is to help investors succeed and fully protect their rights.
Our actions of ensuring compliance are in the interest of all, the country, the public, and investors who do not want to see fraudulent unlawful actions done in the name of investors. Also, we have identified some licenses in low quality investments and are working with them to help the serious ones upgrade their investments.
This is not only a legally sound action but also a nice gesture from us confirming our desire to help investors succeed. As you know, in return for the privilege of being licensed, investors are expected to positively contribute to the objectives behind foreign investment namely economic diversification, knowledge transfer and job creation.
Attributing decline in ranking and FDI to our corrective actions is an unfounded attempt by those who want to resist improving their performance. The ranking is done primarily based on survey and the majority of the participants are local and not foreign   investors.
As to Foreign Direct Investments, 90 percent comes from less than three percent of the licenses and most of these are in premier status and well performing investments.
Finally, our ranking and FDI have been declining for the last five years while our corrective action has lasted less than 18 months.
We believe the current decline of FDI is more of a result of global trends, geopolitics around us and business cycles.  Investors know that we have the economy, the growth, the business environment and above all the government commitment.

Is there any plan to open new areas for investment? SAGIA possibly has had a negative list of areas in which foreign investment is not allowed. Your comments please.
The negative list is very limited list and it is continuously reviewed.
We are, as a matter of fact, one of the few countries that allow investments in retail sector. We also allow 100 percent ownership to investors in various sectors.

What would you like to say about the opportunities available for Saudi and foreign entrepreneurs and workers, who are looking for lucrative investments and jobs respectively?
I would like to emphasize that this period of time is exceptional and critical, not only for national economic development, but also for the future of the Middle East region and beyond. Saudi Arabia has coped with the global economic crisis and came out with a robust, energetic and growing economy. The Kingdom is witnessing one of its most exciting periods of economic development.
We are experiencing the longest period of sustained growth in our history. On average we are spending more than $80 billion to $100 billion on projects annually, and we must seize this opportunity to maximize the economic impact of these projects in creating sustainable industries and businesses.
As an important part of the Kingdom’s economic development approach, SAGIA is committed to an open economy and it promises interested foreign direct investors a welcoming and supporting environment and a pro-business government that will go out of its way to help them.
Finally, SAGIA takes a constructive, collaborative approach to doing its business: its mission is to help investors succeed for their own benefit and that of the Kingdom.

Originally published on www.arabnews.com/