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	Saudi Arabia		Info-Prod Country Guide
CHARACTERISTICS   INDICATORS   THE ECONOMY   INVESTMENT ISSUES   PROJECTS   PROSPECTS

Investment Issues Foreign Investment The total volume of foreign investment in Saudi Arabia reached US$ 22.5 billion in 1995, and the greatest number of investments came from the United States, Japan, France, Britain, South Korea, Taiwan, the Arabian Gulf countries, Syria and Lebanon. Most of the investments were made in the petrochemical, maintenance, airport services, electrical and electronic manufacturing, and the food and beverage industries. Saudi Arabia is the world's seventh most popular country for foreign investment. By the end of 1995, there was a total of 1,306 joint-venture projects between Saudi and foreign firms in the Kingdom. The share capital of the projects totaled US$ 34.4 billion with US$ 14.93 billion coming from foreign firms. A total of 621 of these projects were in the industrial sector and represented a total share capital of US$ 31.46 billion. The United States is the largest foreign investor in Saudi Arabia. American companies have invested US$ 11.94 billion in 229 joint projects, seventy-nine of which were in the industrsector and the remaining 150 in non-industrial projects. The average flow of foreign investment has picked up steadily in recent years. Foreign investments rose 34 percent in 1995 from the preceding year and have averaged US$ 106 million per month. In 1995 alone there was a total of 408 new joint-venture projects representing US$ 5.12 billion in share capital. Of these, 302 projects were in the industrial sand the remaining 106 in non-industrial projects, including services. After the US, Britain and Germany had the greatest amount of investments in joint-venture projects in the Kingdom. Privatization As the Saudis have traditionally resisted privatization, they prefer to refer to this project as "private sector participation." Private finance mechanisms being considered include BOT and BOOT. The recent US$ 700 million loan syndication raised for Saudi Petrochemical Company (Sadaf), the subsidiary of the majority government-owned Saudi Basic Industries Corporation (Sabot), was a milestone among corporate finance deals in the region. Also in the market is a US$ 500 million loan to finance Saudi Arabia's Ghuzlan Power Station expansion. Saudiization The Sixth Saudi Five Year Development Plan (1996-2000) aims to gain control over the Kingdom's heavy external debt and growing budget deficit by enhancing the private sector's role in the economy. The plan will accomplish this through two complementary strategies, "Saudiization" and privatization. At the beginning of 1996, there were 6.25 million expatriates from 190 different nations in the Kingdom. These workers are concentrated in the construction trades, and as cashiers, accountants, purchase managers and warehouse officers. Saudi Arabia's rapid development over the past two decades has been the main justification in allocating such a large number of jobs to non-Saudis. Huge infrastructure projects required extensive labor, but local work ethics made imported workers more desirable. Traditionally, the Saudi private sector has been unwilling to pay Saudis the salaries they demand, preferring instead to hire expatriate labor. Even now, salary levels provide little or no incentive for Saudis to work in positions typically held by expatriates, a trend which is expected to continue. The Saudi private sector employment constitutes only 16 percent of the total work force. The rate of Saudi employment in the industrial sector stands at 4 percent and in the services sector at 12 percent. In contrast, their share in the public sector stands at 79.2 percent. To increase Saudi presence in the private sector, the Saudi authorities are considering establishing a minimum Saudi wage, limiting the work day to eight hours and creating social insurance and pension plans similar to those available in the public sector. The al-Saud ruling family's push for "Saudiization" is motivated by a desire to eliminate possible threats from the Saudi middle class, a reality which has preoccupied the royal family in recent years. In the past, the Saudi middle class received public sector jobs and benefits and in return backed the al-Saud ruling family's monopoly over the Kingdom's economy, finances and politics. But over the last two years, budgetary constraints have left government ministries and agencies unable to provide the same level of jobs and benefits. It is estimated that 20 to 30 percent of Saudi Arabia's 1995 university graduates are unemployed. Bearing in mind that the middle class is the main target of opposition Islamic movements, the urgent need of the government to find employment alternatives for its traditional supporters is obvious. This latest plan calls for the absorption of 659,900 Saudis into the private sector. 340,000 new jobs will be created and 319,000 expatriates will be replaced. Of these, about 178,000 expatriates will be replaced within the service sector; 115,700 in clerical jobs, 35,000 in sales, 15,900 in the construction industry and 11,800 in managerial posts. Although the Sixth Plan is more forceful than previous plans in providing both incentives and mandatory measures to encourage "Saudiization," it seems that it will be impossible for the private sector to achieve all of the government's targets on its own. In spite of the early successes, especially in the banking, oil and petrochemicals sectors, the Kingdom has a long way to go. The greatest challenge may lie in the work ethic of young Saudis and their refusal to accept low wages or to become involved in intensive labor. Stock Exchange The Saudi securities market is not highly developed. Under the Banking Control Law, trading in shares is conducted through a department in the Saudi Arabian Monetary Agency (SAMA). Joint stock companies are the vehicle permitting ownership by a large number of public shareholders, and the formation of such companies has been encouraged by the government through its privatization policy. Trading on the exchange is restricted to wholly-owned or majority-owned Saudi companies. In general, only Saudi nationals may own or deal in shares, but under certain circumstances GCC nationals may also deal in or own shares. Further development of the stock exchange is under review by SAMA, and it is expected that Saudi banks will be given a broader role as coordinators and supervisors of the market. 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