Global : Taking a series of measures to improve the country’s investment climate.

Published June 5th, 2006 - 01:48 GMT
Global Investment House – Saudi Arabic Economic & Strategic Outlook – Industrial Sector – With the government making all-out effort to woo the private and foreign investors, the industrial sector has shown strong growth in the biggest economy of the region. The government has provided strong budgetary support to infrastructure development by allocating SR22.5bn in 2006 budgets which includes SR18bn worth of new projects. By providing a strong infrastructure base, the government has made it lucrative for the private players to enter the industrial sector. The results are bearing fruits as Jubail, the burgeoning industrial hub of the country, was named the city with the best economic potential in the Middle East by the Financial Times' Foreign Direct Investment (fDi) magazine.

 

Since its inception in April 10, 2000, Saudi Arabian General Investment Authority (SAGIA)  has, so far, licensed 3112 projects (upto Nov-2005) amounting to SR152bn. Foreign investors, from 82 countries, contributed 57.8%, i.e. SR 87.9bn of the total licensed investments, whereas the Saudi share amounted to SR64.1bn i.e. 42.17% of the total investments SAGIA, in its 2Q-2005 report for investments in the country reflected a record 4,596% increase in licensed investments’ value, a 46-fold increase compared with the same period from 2004. Combining both quarters of 2005, the SR65bn investment flow for the first half of 2005 shows a net increase of 1,670% compared with the figures from 2004 when licensed investments totaled SR3.7bn.

 

Total Finance for Licensed Projects

Activities

No. of Projects

Total Finance (SR bn)

Saudi Share (SR bn)

Foreign Share (SR bn)

Industrial

1,246

121.5

59.3

62.2

Service

1,857

30.1

4.8

25.5

Agricultural

9

0.5

0.1

0.3

Total

3,112

152.0

64.2

88.0

Source: SAGIA

 

<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Saudi Arabia attracted SR97.7bn cumulative foreign direct investments in 2005, These projects do not include investments in oil, gas and mineral exploration. Japan occupied the first position among countries of the world investing in the Kingdom during 2005 with a flow reaching SR8.7bn, followed by the UAE, Bahrain and the US. As to cumulative investments, the most important countries that invested in the country until the end of 2005 are: US with SR35.34bn invested in 265 projects, Japan with SR17.15bn in 35 projects, and the UAE with SR11.68bn in 84 projects. Most of the foreign investments during the year 2005 were concentrated in the industrial sector.

 

Saudi Arabia is improving its railway network to improve transportation in the country with SR15bn railway expansion project that links the Kingdom's east and west coast regions. The project involves construction of 950 km new tracks between Riyadh and Jeddah and another 115-km line between Dammam and Jubail as well as upgrading of the existing rail link between Riyadh and Dammam.

 

Improving the investment climate….

Saudi Arabia has taken a series of measures to improve the country’s investment climate, removing obstacles facing private investors, allowing foreign manpower recruitment and speeding up licensing procedures. Supreme Economic Council, in charge of economic reforms, approved the implementation of 17 agreements between the Saudi Arabian General Investment Authority (SAGIA) and relevant government departments to make Saudi Arabia more investment-friendly.

-          The agreements encourage the private sector to set up specialized universities and colleges in conjunction with renowned world universities, foster industrial projects by giving exemptions on customs tariffs, and granting facilities such as entry visas to foreign investors.

-          They also feature streamlining judicial procedures to resolve trade disputes, strengthening guarantees for investors, promoting women’s input in investment and speeding up the process of collecting imports from entry ports.

-          Other measures include offering special incentives to locals and foreigners who invest in less developed areas of the vast Kingdom and drafting plans to raise the operational capacity of Saudi ports.

-          Agreements include reducing the time for getting investment permission and trade registration in order to begin foreign projects and their activities as well as offering special incentives for projects that contribute to the GDP by easing the process of bringing in the expatriate workers they need and incentives to attract projects that will employ large numbers of Saudis.

-          Another agreement involves finding the mechanisms to solve the problems facing different investment sectors especially industrial projects and offering them longer customs’ exemption periods and providing the workers they need while taking into consideration the special nature of this sector.

A Riyadh Chamber of Commerce and Industry report revealed that the total amount of money invested in Saudi Arabia's industrial sector over the past 30 years has come up to US$68bn. The investments were spread over 3,636 factories and industrial plants. Mineral products, motors and machinery sector are in the forefront, in this respect, as it has 997 functioning factories or 27% of the total number of working factories. The chemical and plastic products sector, however, has the major part of these investments, with US$42bn or 62% of the total capital invested in these factories.

 

In order to improve the production of metals within the country and reduce dependence on imports, a group of Saudi investors and businessmen are planning to form a consortium to build the first aluminum smelter in the Kingdom. The gigantic project, which is estimated to cost US$2bn, will be built in the proposed second industrial city of Jubail (Jubail 2). The smelter will have a production capacity of 500,000 tons in the beginning. SABIC signed four agreements to increase steel production at the HADEED affiliate in Jubail. By 2006, annual metals production will increase to 5.5mn tons of long and flat steel products, up from 3.9mn tons at the beginning of 2004.

 

In an effort to provide support to the technology intensive industry, SAGIA and Intel Capital have announced a co-operative effort to help establish an independent  US$100mn venture capital investment company fund to invest in technology companies located in or having a connection with the Kingdom of Saudi Arabia. Intel will aid in the management of the fund. Intel separately announced a US$50mn fund to invest in leading technology companies in the region.


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