Saudi Arabia: Saudi Arabia Update - November 2018

Last Updated: 30 November 2018
Article by Matthew Kirkham and Mahmoud Abdel-Baky

Welcome to our monthly update which provides a recap of recent legal developments, including finance and capital market developments, as well as updates on new legislation in the Kingdom of Saudi Arabia. This update is not an exhaustive list of all new developments and legislation, but a summary of topical developments that we feel may be significant for clients. 

Legal developments

Reforms to the Negatives List open more sectors to 100% foreign ownership

With foreign investment and privatization a priority, recent reforms have introduced a relaxation in the SAGIA regulations restricting sectors open to 100% foreign ownership. The end of October saw the removal of the following sectors from the SAGIA Negatives List:

  • labor services and jobs;
  • audio and video;
  • land transport;
  • brokerage;
  • healthcare services; and
  • education. 

These reforms present opportunities for increased FDI in the Kingdom and the capitalization in these thriving sectors.

Gulf Business – 26 October 2018

Saudi Gazette – 24 October 2018

World Bank ranks KSA fourth among G20 nations in business conducive reforms

The World Bank's Ease of Doing Business 2019 Report showed tremendous strides in the Kingdom's regulatory climate which bodes well for businesses. The report indicates that the 51 reforms have helped the Kingdom improve along four indices relating to doing business:

  • minority investors;
  • implementing contracts;
  • obtaining building licenses; and
  • cross-border trade. 

Saudi Gazette – 31 October 2018

Companies Law amendment reinstates shareholder derivative litigation

Companies Law has been amended to further imbue confidence in the Saudi marketplace. Effective in April 2018, the amendment reinstates the notion of shareholder derivative litigation, further increasing board accountability in joint stock companies and creating a regulatory climate that adheres to international standards. This topic was recently addressed by our team here.

Dentons – 15 November 2018

Saudi economy

Government-private partnerships proving successful in KSA market

Ten years after its US$2.5 billion IPO, the Saudi Mining Company (Ma'aden) has become one of the largest mining companies globally in terms of market capitalization through "coordination with major investments by the government in key infrastructure projects," according to Ma'aden's CEO. Growing cooperation between the government and private sector was further shown through the launching event of the Kingdom's first privately-owned satellite, BadrSat, by satellite company Shammas being attended by the Saudi Chairman of the Radio and Television Organization.

Saudi Gazette – 31 October 2018

Burgeoning cinema market presents a multi-billion dollar opportunity for investors

PricewaterhouseCoopers identified the Kingdom's newly lifted 35-year ban on cinemas as a potential US$1.5 billion market by 2030. The market is expected to create 1,000 jobs by 2020, and 3,000 jobs over the next five years.

Saudi Arabia's Development Investment Entertainment Company (DIEC) plans to use its SAR 10 billion budget for the development of the cinema sector in the coming years. Majid Al Futtaim, the Emirati holding company, has already established a cinema in Riyadh under its VOX Cinemas brand and plans to invest a further AED 2 billion into the Saudi market.

Saudi Gazette – 29 October 2018

PwC Middle East – 27 October 2018

US$200 billion in foreign investment opportunities planned by March 2019

The Minister of the Economy has announced new investment areas that will open to foreign investors by March 2019. These sectors include grains, healthcare, and water desalination. Deals are expected to produce a US$200 billion output from the privatization program. A further US$100 billion is expected from the Aramco IPO, now rescheduled to early 2021.

Growing interest from foreign investors has been clear. With assets valued at US$842 million, Norway's sovereign wealth fund (SWF) is expected to double its investment in the Kingdom. The SWF's Chief Executive has stated that investments in Saudi companies ''will not be changed based on political developments.''

Reuters – 26 October 2018

Reuters – 25 October 2018 

Future Investment Initiative sees US$50 billion in deals for the Kingdom

During the Future Investment Initiative summit, the Kingdom managed to secure 25 deals worth US$50 billion, in industries including oil, gas, and infrastructure. Notable investors include multinational corporations Hyundai, Norinco, Schlumberger, Halliburton, and Total – with the latter partnering with Saudi Aramco to create a retail network in the Kingdom.

Reuters – 23 October 2018

E-commerce sector flourishing under government initiatives

The Maroof platform is a Ministry of Commerce and Investment (MOCI) initiative launched in 2016 aimed at spurring e-commerce growth in the Kingdom. As of Q3 2018, more than 20,000 online stores have registered on the site.

The Kingdom has become one of the largest e-commerce markets in the MENA region. The Communications and Information Technology Commission (CITC) reported that e-commerce spending was approximately SAR 29.7 billion (US$7.9 billion) in 2016. The rapid development of the sector throughout the MENA region has led to a predicted market valuation of US$48.6 billion by 2022. In terms of the MENA region, the GCC is expected to contribute to 43% of the market, led primarily by the UAE and Saudi Arabia.

This success has been largely due to companies like Noon – the online retailer that partnered with eBay in June 2018. Among other projects, Noon has developed proprietary address

geo-tagging technology that will allow efficient and accurate deliveries to the otherwise fractured address system in the Kingdom. Currently, Noon has 85% coverage in the Kingdom and the UAE, with 100% coverage being its current objective.

Arab News – 1 November 2018

Logistic Middle East – 26 October 2018

Arabian Business – 13 October 2018

Privatization under the umbrella of the National Transformation Program 2020

NTP 2020, an economic action plan and part of Vision 2030, is gaining momentum in its focus on privatization. The non-oil sector of the economy saw an increased growth rate in October according to a recently released survey. The Emirates NBD Saudi Arabia Purchasing Managers' Index rose from 53.4 in September to 53.8 in October – with a value above 50 indicating expansion. The employment index saw similar growth and rose to a seven-month high of 51.3. However, this reflects that a mere 3.1% of firms hired more employees last month. This growth is being reflected in company forecasts, with approximately half of all firms predicting higher output within the coming year.

Nasdaq – 5 November 2018

Bloomberg – 1 November 2018

Positive Saudi economic performance on track with Vision 2030

The Kingdom has managed to decrease its fiscal deficit during Q3 amidst rising oil prices. The government reported a deficit of SAR 7.3 billion, a staggering 85% decrease from last year's value of SAR 48.7 billion. This performance is largely due to the growth of the oil and non-oil sectors in the Kingdom. 

With rising oil prices on the horizon, the consensus of economists is that the GCC member states will enjoy a period of economic prosperity in the coming years. According to the insight report published by Oxford Economics, Saudi Arabia's GDP will witness a growth of 2.6% in 2019, compared to -0.7% in 2017. 

Reuters – 31 October 2018

Forbes Middle East – 31 October 2018

Unemployment woes in KSA

The Kingdom still faces the daunting task of reducing unemployment. Unemployment remains at a record high of 12.9% as of Q2 2018, with the number of employed Saudi citizens shrinking from 3.15 million in Q1, to 3.13 million in Q2.

Failing to effectively tackle unemployment, Saudization and increasing taxation has hollowed out the Kingdom's expatriate population. The first three months of 2018 saw a 6% decrease in the expatriate workforce. Expats in the public sector bore the brunt of this policy, with 71% losing their government jobs. The largest sectors for expat workers remain education and health, with some 91% of all expats employed in said fields.

Saudi Gazette – 29 October 2018

Reuters – 27 October 2018

About Dentons

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