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UNCLAS SECTION 01 OF 11 RIYADH 000364 
 
SIPDIS 
 
SIPDIS 
 
DOC FOR GLOOSE AND THOFFMAN 
STATE PLS PASS USTR FOR PBURKHEAD 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN EPET PGOV SA
SUBJECT: SAUDI ARABIA'S INVESTMENT CLIMATE STATEMENT 
 
---------------------------------- 
2007 Investment Climate Statement 
---------------------------------- 
 
¶1.  Chapter Headings: 
 
-- Openness to Foreign Investment 
-- Conversion and Transfer Policies 
-- Expropriation and Compensation 
-- Dispute Settlement 
-- Performance Requirements and Incentives 
-- Right to Private Ownership and Establishment 
-- Protection of Property Rights 
-- Transparency of Regulatory System 
-- Efficient Capital Markets and Portfolio Investment 
-- Political Violence 
-- Corruption 
-- Bilateral Investment Agreements 
-- OPIC and Other Investment Insurance Programs 
-- Labor 
-- Foreign-Trade Zones/Free Ports 
-- Foreign Direct Investment Statistics 
 
----------------------------------- 
Openness to Foreign Investment 
----------------------------------- 
 
¶2.  Saudi Arabia in 2006 is experiencing an oil boom 
unprecedented since the mid 1970,s, with a government budget 
surplus of over $70 billion in 2006, and large infrastructure 
construction underway.  Nevertheless, foreign direct 
investments inflows were only about $5 billion in 2006. 
Improvement of the investment climate is an important part of 
the Saudi Government's broader program to liberalize the 
country's trade and investment regime, diversify an economy 
overly dependent on oil and petrochemicals, promote 
employment for a very young population, and become an active 
player in the World Trade Organization (WTO) following its 
accession in December 2005. 
 
¶3.  The Government encourages investment in infrastructure, 
including power, water, telecommunications and 
transportation.  Prospective investors will find attractive 
Saudi Arabia's economic stability, the largest market in the 
Gulf (with a population of over 24 million), sound 
infrastructure, a well-regulated banking system and 
relatively high per capita income. 
 
¶4.  There are also disincentives to investment, specifically, 
lack of transparency in the enforcement of intellectual 
property rights, a government requirement that companies hire 
Saudi nationals, slow payment of some government contracts, 
an increasingly restrictive visa policy for all workers, a 
very conservative cultural environment, and enforced 
segregation of the sexes in most business and social 
settings.  The government must take steps to ensure that 
there is a transparent, comprehensive legal framework in 
place for resolving commercial disputes. 
 
¶5.  Prospective foreign investors want standardized treatment 
for corporate taxes, access to a skilled, motivated labor 
force, the enforcement of foreign arbitration awards to be 
upheld in practice, clear and transparent mechanism to reduce 
and stop counterfeit products from entering Saudi Arabia, and 
protection of intellectual property rights that meets 
international standards. 
 
¶6.  The foreign direct investment law, revised in 2000, 
permits foreigners to invest in all sectors of the economy, 
except for specific activities contained in a &negative 
list8 that are off limits to foreign investors.  This list 
continues to shrink as Saudi Arabia attempts to liberalize 
trade.  Foreign investors are no longer required to take 
local partners and may own real estate for company 
activities.  They are allowed to transfer money from their 
enterprises outside of the country and can sponsor foreign 
employees.  They are also eligible for low-cost funding from 
the Saudi Industrial Development Fund (SIDF) for up to 50 
percent of a project cost.  The new foreign investment law 
established minimum levels of investment which are currently 
agricultural projects USD 6.67 million, industrial projects 
USD .27 million, and company service projects USD 0.13 
million.  However, to ensure compatibility with WTO rules, 
these requirements should be removed through application of 
national treatment. 
 
¶7.  In April 2000, the Council of Ministers established the 
Saudi Arabian General Investment Authority (SAGIA) to provide 
 
RIYADH 00000364  002 OF 011 
 
 
information and assistance to foreign investors, and to 
foster investment opportunities in energy, transportation, 
and knowledge-based industries (See www.sagia.gov.sa).  The 
Authority operates under the umbrella of the Supreme Economic 
Council, and is headed by SAGIA Governor Amr Al Dabbagh. 
SAGIA,s duties include formulating government policies 
regarding investment activities; proposing plans and 
regulations to enhance the investment climate in the country; 
and evaluating and licensing investment proposals.  All 
foreign investment projects must obtain a license from SAGIA. 
 Local investors continue to apply to the Ministry of 
Commerce and Industry,s Foreign Capital Investment Committee 
for licenses, and investments in specific sectors may require 
licenses from other government authorities, including, but 
not limited to, the Saudi Arabian Monetary Agency, the 
Capital Market Authority or the Communications and 
Information Technology Commission. 
 
¶8.  SAGIA set up an Investor's Service Center (ISC) to 
provide licenses to foreign companies, provide support 
services to investment projects, offer detailed information 
on the investment process, and coordinate with government 
ministries in order to facilitate investment procedures.  The 
ISC must decide to grant or refuse a license within 30 days 
of receiving an application and supporting documentation from 
the investor.   In 2006, SAGIA licensed 1,389 joint and 
foreign investment projects worth a total of USD 67 billion. 
The value of projects licensed increased by 25 percent from 
the previous year.  Actual foreign direct investments 
inflows, however, were limited to about $5 billion. 
 
¶9.  Unfortunately, to date SAGIA does not appear to have 
lived up to the high expectations engendered by its creation. 
Investors complain that impediments remain many outside 
SAGIA,s capability to correct.  To date, SAGIA has 23 
agreements with various Saudi government agencies and 
ministries to facilitate and streamline foreign investment 
procedures.  Some of these agreements include facilitating 
entry visas, establishing SAGIA branch offices at Saudi 
Embassies in different countries, facilitating the issuance 
of workers, visas, raising import tariff exemptions on raw 
materials to three years and increasing the exemptions on 
production and manufacturing equipment to two years, and the 
establishment of commercial courts.  To make it easier for 
businesspeople to visit the Kingdom, SAGIA can sponsor visa 
requests directly without having to ask a local company to 
sponsor such visits.  Saudi Arabia issued a decree stating 
that sponsorship for certain business visas are no longer 
required, but Saudi embassies have yet to implement the 
decree.  SAGIA opened a Women,s Investment Center in spring 
¶2003. 
 
¶10.  In February 2001, SAGIA developed a negative list of 
sectors off-limits to foreign investment (See 
www.sagia.gov.sa).  The sectors currently closed to foreign 
investment include three manufacturing categories and 15 
service industries.  The list includes real estate investment 
in Mecca and Medina, some subsectors in printing and 
publishing, some subsectors of telecommunications, 
audiovisual and media services, distribution services in 
wholesale and retail trade, land and air transportation 
services except railroad on a BOT basis,  and upstream 
petroleum.  SAGIA periodically reviews the list of activities 
excluded from foreign investment, and submits its reviews to 
the Supreme Economic Council for approval.  Although these 
sectors are off-limits to 100 percent foreign investment, 
foreign minority ownership in joint ventures with Saudi 
partners may be allowed in some sectors.  Insurance and 
telecommunications sectors were opened to foreign investors 
in 2004. 
 
¶11.  Under accession to the WTO, Saudi Arabia committed to 
opening additional service markets to foreign investment, 
including financial and banking services, maintenance and 
repair of aircraft and computer reservation systems, 
wholesale, retail and franchise distribution services, both 
basic and value-added telecom services, and 100% foreign 
equity investment in the computer and related services 
sector.  Saudi Arabia has not yet opened these markets 
pursuant to the WTO commitments. 
 
¶12.  Other government bodies, such as the Royal Commission 
for Jubail and Yanbu, and the Arriyadh Development Authority, 
have actively promoted opportunities in Saudi Arabia's 
industrial cities and other regions.  In addition to the 
majority government-owned Saudi Arabian Basic Industries 
Corporation (SABIC), private investment companies, such as 
the National Industrialization Company, the Saudi Venture 
 
RIYADH 00000364  003 OF 011 
 
 
Capital Group, and the Saudi Industrial Development Company 
have also become increasingly active in project development 
and in seeking out foreign joint venture partners. 
 
¶13.  The Saudi Industrial Development Fund (SIDF) is an 
important source of financing for investors.  SIDF is a 
development finance institution affiliated with the Ministry 
of Finance.  The main objective of SIDF is to support the 
development of the private industrial sector by extending 
medium to long-term loans for the establishment of new 
factories and the expansion, upgrading and modernization of 
existing ones.  Foreign investors are eligible to receive low 
cost financing for up to 50 percent of project costs (i.e., 
fixed assets, pre-operating expenses and start-up working 
capital). Loans are provided for a maximum term of 15 years 
with repayment schedules designed to match projected cash 
flows for the project in question. 
 
¶14.  Saudi Arabian regulations currently close oil 
exploration, drilling, and production to foreign investment. 
The national oil company, Saudi Aramco, presently conducts 
all oil exploration and development.  Foreign companies, 
under current Saudi law, cannot purchase a stake in Aramco or 
take an equity position in the upstream oil sector.  In July 
2003, however, the Ministry of Petroleum announced an auction 
to open up part of the Ghawar area to foreign investors for 
non-associated natural gas exploration.  In January 2004, six 
companies competed in the auction for the three offered 
blocks. Russia,s Lukoil, China,s Sinopec, and a joint bid 
by Italy,s Eni and Spain,s Repsol were awarded blocks, 
signing 40-year exploration and production contracts with the 
Saudi Minister of Petroleum in March 2004.  The deals mark 
the first time since nationalization of ARAMCO in 1980 that 
foreign oil companies have been permitted to carry out 
petroleum exploration activities in Saudi Arabia.  Saudi 
Arabia, as part of its WTO Accession Agreement with the 
United States, made a broad range of positive commitments 
that should result in the substantial opening of its energy 
service market.  These commitments should allow U.S. energy 
service firms to compete on a level playing field for energy 
services projects associated with oil and gas exploration and 
development, pipeline transport of fuels, and management of 
consulting services. 
 
¶15.  In contrast, there is no prohibition on foreign 
investment in refining and petrochemical development and 
there is significant foreign investment in the downstream 
Saudi energy sector.  Foreign investment in the full 
hydrocarbon sector will be vital in the coming decades if 
Saudi Arabia hopes to expand production and refining capacity 
to meet expected growth in international demand.  Exxon Mobil 
and Shell are the largest foreign investors in Saudi Arabia; 
both are 50% partners in refineries with Saudi Aramco.  Saudi 
Aramco announced the selection of two firms, ConocoPhillips 
and Total, to join as equity partners in two new USD 4 to 5 
billion export refineries in the country scheduled for 
completion in 2009. Both firms are currently engaged in 
negotiating the terms of these joint ventures. 
 
¶16.  In addition, Exxon Mobil, Chevron Texaco, and Shell, as 
well as several other international investors, have formed 
joint ventures with the Saudi Arabian Basic Industries 
Corporation (SABIC), a Saudi parastatal, to build world-scale 
petrochemical plants that utilize gas feedstock from Saudi 
Aramco.  Aramco selected the Dow Chemical Company as its 
partner in a joint venture company to construct, own and 
operate a chemicals and plastics production complex in Saudi 
Arabia,s Eastern Province. 
 
¶17.  The government uses its purchasing power to encourage 
foreign investment.  In 1985, the Saudi Government reached an 
agreement with American defense contractors for "offset" 
joint venture investments with local investments equivalent 
to 35 percent of the program's value. British and French 
defense firms also have offset requirements.  Offset 
requirements are likely to remain components of major defense 
purchases and have been incorporated into other large Saudi 
Government contracts. 
 
¶18.  Joint ventures almost always take the form of limited 
liability partnerships.  There are, however, disadvantages. 
Foreign partners in service and contracting ventures 
organized as limited liability partnerships must pay in cash 
or kind 100 percent of their contribution to authorized 
capital.  SAGIA,s authorization is only the first step for 
setting up such a partnership.  Still, foreign investment is 
generally welcome in Saudi Arabia if it promotes economic 
development, transfers foreign expertise to Saudi Arabia, 
 
RIYADH 00000364  004 OF 011 
 
 
creates jobs for Saudis, and expands Saudi exports. 
 
¶19.  Industrial projects previously required at least 25 
percent capitalization, sometimes higher for specific 
industries, but Saudi Arabia committed to removing this 
requirement as part of WTO accession.  Additionally, 10 
percent of profits must be set aside each year in a statutory 
reserve until it equals 50 percent of the venture's 
authorized capital. Professionals, including architects, 
consultants, and consulting engineers, are required to 
register with and be certified by the Ministry of Commerce 
and Industry, in accordance with the requirements defined in 
the Ministry's Resolution 264 from 1982.  These regulations, 
in theory, permit the registration of Saudi-foreign joint 
venture consulting firms.  As part of its WTO accession 
commitments, Saudi Arabia generally  allows consulting firms 
to establish an office in Saudi Arabia without a Saudi 
partner.  However, offices practicing law, accounting and 
auditing offices, design, architectural, and engineering, 
civil planning, healthcare services, dentistry, and 
veterinary services, must have a Saudi partner; the foreign 
partner,s equity cannot exceed 75 percent of the total 
investment. 
 
¶20.  In 2002, the Supreme Economic Council announced the 
approval of a privatization strategy and procedures, sectors 
on offer to domestic and foreign investors, and a timetable 
to transfer certain public services to the private sector. 
Twenty state-owned companies handling water and drainage; 
saline water desalination; telecommunications; mining; power; 
air transportation and related services; railways; some 
sectors of roadways; post services; flour mills and silos; 
seaport services; industrial cities services; government 
portions of SABIC, banks, and local refineries; government 
hotels; sports clubs; some municipality services; some 
educational services; some social services; some agricultural 
services; and some health services were slated for 
privatization. 
 
¶21.  As a result of the privatization strategy, the Saudi 
Telecommunications Company (STC) floated a minority stake 
(approximately 20%) on the stock market in January 2003, 
netting the Saudi Government close to $4 million in proceeds. 
 An additional 10% has since been offered for private 
ownership.  The initial public offering of 50% of the 
formerly state-owned National Company for Cooperative 
Insurance (NCCI) was completed in January 2005.  The first 
SABIC offering went public on December 17, 2005 for 35 
percent of the newly-formed Yanbu National Petrochemical 
Company (YANSAB), capitalized at $1.5 billion.  YANSAB will 
be SABIC,s largest petrochemical complex and the IPO 
represents $533 million of the company,s capital. 
 
¶22.  In July 2003, the government took significant, 
long-awaited steps to lower the corporate tax rate on foreign 
investors to a flat 20%; however, separate rates will apply 
to investments in hydrocarbons.  The flat tax replaced a 
tiered system with tax rates as high as 45%. While this is a 
welcome step toward a more balanced treatment for foreign and 
Saudi owned capital, there are privileges and preferences in 
Saudi Arabia that favor Saudi companies and joint ventures 
with Saudi participation.  For example, domestic corporate 
partners do not pay corporate income tax, but are subject to 
a 2.5 percent tax on net current assets, or "Zakat." 
 
¶23.  Limited liability companies with at least 50 percent 
Saudi equity receive preferences for public sector tenders. 
Companies or citizens from Gulf Cooperation Council (GCC) 
countries (Saudi Arabia, Kuwait, Bahrain, Qatar, UAE, and 
Oman) may currently own land or engage in internal trading 
and distribution activities. Similarly, only joint ventures 
with at least 51 percent GCC ownership interest are permitted 
to export duty-free to other GCC countries.  Together, these 
conditions can disadvantage a foreign investor attempting to 
operate a wholly foreign-owned company in Saudi Arabia. 
Conditions are expected to improve, as SAGIA becomes more 
engaged in identifying and reducing barriers to foreign 
investment.  The government announced in 2002 it would ease 
restrictions on the issuance of visas to foreign businessmen 
to allow greater access, and decreed in 2005 that sponsor 
requirements for business visas would be lifted.  However, 
implementation has not yet occurred, and visiting business 
people typically receive short duration, single-entry visas. 
 
¶24.  American and other foreign firms are able to participate 
in Saudi government-financed and/or government-subsidized 
research and development programs on a national treatment 
basis. 
 
RIYADH 00000364  005 OF 011 
 
 
 
--------------------------------- 
Conversion and Transfer Policies 
--------------------------------- 
 
¶25.  There are no restrictions on converting and transferring 
funds associated with an investment (including remittances of 
investment capital, earnings, loan repayments, and lease 
payments) into a freely usable currency at a legal 
market-clearing rate. There have been no recent changes, nor 
are there plans to change remittance policies.  There are no 
delays in effect for remitting investment returns such as 
dividends, return of capital, interest and principal on 
private foreign debt, lease payments, royalties and 
management fees through normal legal channels.  There is no 
need for a legal parallel market for investor remittances. 
 
¶26.  There is no limitation on the inflow or outflow of funds 
for remittances of profits, debt service, capital, capital 
gains, returns on intellectual property, imported inputs, 
etc. Since 1986, when the last devaluation occurred, the 
official exchange rate has been 3.745 Saudi Riyals per U.S. 
dollar.  Transactions occur using rates very close to the 
official rate. The Saudi Arabian Monetary Agency (SAMA), the 
Central Bank, has intervened at times to keep the exchange 
rate fixed. 
 
------------------------------ 
Expropriation and Compensation 
------------------------------ 
 
¶27.  The Embassy is not aware of the Saudi Government ever 
expropriating property. There have been no expropriating 
actions in the recent past or policy shifts that would lead 
the Embassy to believe there may be such actions in the near 
future. 
 
------------------ 
Dispute Settlement 
------------------ 
 
¶28.  Saudi commercial law is still developing, but in 1994 
the Saudis took the positive step of joining the New York 
Convention of 1958 on the Recognition and Enforcement of 
Foreign Arbitral Awards.  Saudi Arabia is also a member of 
the International Center for the Settlement of Investment 
Disputes (ICSID, also known as the Washington Convention). 
However, dispute settlement in Saudi Arabia continues to be 
time-consuming and uncertain.  Even after a decision is 
reached in a dispute, effective enforcement of the judgment 
can still take years.  The Embassy suggests that American 
firms investing in Saudi Arabia include in contracts a 
foreign arbitration clause.  Such clauses are not, however, 
allowed in government contracts without a decision by the 
Saudi Council of Ministers. 
 
¶29.  Saudi litigants have an advantage over foreign parties 
in almost any investment dispute because of their first-hand 
knowledge of Saudi law and culture, and the relatively 
amorphous dispute settlement process.  Foreign partners 
involved in a dispute find it advisable to hire local 
attorneys with knowledge of Saudi legal practices.  Many 
Saudi attorneys, in turn, retain non-Saudi (and particularly 
American) lawyers to facilitate the handling of disputes 
involving foreign investors. 
 
¶30.  In several cases, disputes have caused serious problems 
for foreign investors.  For instance, Saudi partners have 
blocked foreigners' access to exit visas, forcing them to 
remain in Saudi Arabia against their will.  In cases of 
alleged fraud, foreign partners may also be jailed to prevent 
their departure from the country while awaiting police 
investigation or adjudication of the case.  Courts can impose 
precautionary restraint of personal property pending the 
adjudication of a commercial dispute.  As with any investment 
abroad, it is important that U.S. investors take steps to 
protect themselves by thoroughly researching the business 
record of the proposed Saudi partner, retaining legal 
counsel, complying scrupulously with all legal steps in the 
investment process, and securing a well-drafted agreement. 
 
¶31.  In December 2005, the Saudi government announced the 
formation of the Saudi International Arbitration Commission 
(SIAC), the first formal arbitration program for the business 
community.  The SIAC falls under the Saudi chapter of the 
International Chambers of Commerce, and has adopted the same 
arbitration system employed by the International Court of 
Arbitration.  The Government, due to past fiscal constraints, 
 
RIYADH 00000364  006 OF 011 
 
 
had in the past fallen into arrears on payments to private 
contractors, both Saudi and foreign.  Some companies carried 
Saudi Government receivables for years before being paid. 
The Government appears committed to clearing remaining 
arrears. 
 
¶32.  The Saudi legal system is derived from the legal rules 
of Islam known as the Shari,a. The Ministry of Justice 
oversees the Shari,a-based judicial system, but most 
Ministries have committees to rule on matters under their 
jurisdiction. Many disputes which would be handled in a court 
in the U.S., in Saudi Arabia are handled through 
administrative processes within the relevant ministry. 
Generally, the Board of Grievances has jurisdiction over 
disputes with the government and commercial disputes.  In 
November 2005, a royal decree passed approving the 
establishment of commercial courts. 
 
¶33.  Of interest to investors who have disputes with private 
individuals are the Committees for Labor Disputes (under the 
Ministry of Labor), and the Committee for Tax Matters (under 
the Negotiable Instruments Committee, also called the 
Commercial Paper Committee).  The Ministry of Finance has 
jurisdiction over disputes involving letters of credit and 
checks, while the Banking Disputes Committee of the Saudi 
Arabian Monetary Agency (SAMA) adjudicates disputes between 
bankers and their clients. Judgments of foreign courts are 
not yet accepted and enforced by Saudi courts, despite Saudi 
Arabia's signature of the New York Convention.  Monetary 
judgments are based on the terms of the contract; i.e., if 
the contract were in dollars, the judgment would be in 
dollars; if unspecified, the judgment is denominated in Saudi 
Riyals.  Non-material damages and interest are not included 
in monetary judgments. 
 
¶34.  Saudi Arabia has a commercial law that is generally 
applied consistently.  Bankruptcy law was enacted by Royal 
Decree no. N/16 dated 4/9/1416H (corresponding to 1/24/96). 
Articles contained in the law allow debtors to conclude 
financial settlements with their creditors through committees 
under the Saudi Chambers of Commerce and Industry or through 
the Board of Grievances.  Designated as the Regulation on 
Bankruptcy Protective Settlement, the law is open to ordinary 
creditors except in the case of debts of expenditures, 
privileged debts and debts, which arise pursuant to the 
settlement procedures. 
 
---------------------------------------- 
Performance Requirements and Incentives 
---------------------------------------- 
 
¶35.  Under the 1969 Labor and Workman Regulations, 75 percent 
of a firm's work force and 51 percent of its payroll must be 
Saudi, unless the Ministry of Labor has granted an exemption. 
In practice, the percentage of Saudis employed by a firm is 
often far less.  The number of Saudis in the private sector 
labor force is approximately 10 percent.  More Saudis work in 
the public sector.  In 1996, the Saudi Government implemented 
a regulation establishing a quota system that required each 
company employing over 20 workers to increase the number of 
Saudi employees by a minimum of five percent.  The government 
increased the requirement by five percent per annum, and 
would have reached 45 percent of a firm's workforce in 2005. 
However, the recently published 2005 Labor Law set a standard 
limit requiring that Saudi Nationals constitute 75% of a 
firm,s workforce.  Companies not complying with the Saudi 
minimum personnel rule will not be given visas for expatriate 
workers. Few firms have been able to meet these requirements. 
 Foreign firms are under constant pressure to employ more 
Saudis.  The list of jobs/positions that may no longer be 
held by non-Saudis is expanding. 
 
¶36.  Investors are not currently required to purchase from 
local sources or export a certain percentage of output and 
their access to foreign exchange is unlimited.  There is no 
requirement that a share of foreign equity be reduced over 
time.  The Government does not impose conditions on 
investment such as locating in a specific geographic area, a 
specific percentage of local content or local equity, 
substitution for imports, export requirements or targets, or 
financing only by local sources.  Investors are not required 
to disclose proprietary information to the Saudi government 
as part of the regulatory approval process. 
Nonetheless, the Saudi Industrial Development Fund (SIDF) 
will provide additional incentives and better term loans to 
foreign investors who set up their manufacturing facilities 
in Jizan, Hail, and Tabuk. 
 
 
RIYADH 00000364  007 OF 011 
 
 
--------------------------------------------- 
Right to Private Ownership and Establishment 
--------------------------------------------- 
 
¶37.  Domestic private entities have the right to establish 
and own business enterprises and engage in all forms of 
remunerative activity.  Private entities generally have the 
right to freely establish, acquire, and dispose of interests 
in business enterprises.  Certain activities are reserved for 
state monopolies and Saudi citizens. 
 
------------------------------ 
Protection of Property Rights 
------------------------------ 
 
¶38.  The Saudi legal system protects and facilitates 
acquisition and disposition of private property, consistent 
with Islamic practice respecting private property.  Non-Saudi 
corporate entities are allowed to purchase real estate in 
Saudi Arabia according to the new foreign investment code, 
although it is unclear how this policy is being implemented. 
Other foreign-owned corporate and personal property is 
protected, and the Embassy knows of no cases of government 
expropriation or nationalization of U.S.-owned assets in the 
Kingdom. 
 
¶39.  Saudi Arabia recently undertook a comprehensive revision 
of its laws covering intellectual property rights, to bring 
them in line with the WTO agreement on Trade Related Aspects 
of Intellectual Property Rights (TRIPS).  The Saudi 
Government undertook the revisions as part of Saudi Arabia's 
accession to the WTO, and promulgated them in coordination 
with the World Intellectual Property Organization (WIPO). 
The Saudi Government recently updated their Trademark Law 
(2002), Copyright Law (2003), and Patent Law (2004) with the 
dual goals of TRIPS-compliance and effective deterrence 
against violators. 
 
¶40.  The current Law on Patents, Layout Designs of Integrated 
Circuits, Plant Varieties and Industrial Designs has been in 
effect since September 2004.  Largely due to a lack of 
adequate resources and technical expertise, the patent office 
issued slightly more than 40 patents and had a large backlog 
of more than 9,000 applications dating back to issuance of 
Saudi Arabia,s first patent law in 1989.  The office 
recently streamlined its procedures, hired more staff and 
reduced the backlog.  Protection is available for product and 
product-by-process.  The term of protection was increased 
from 15 years to 20 years under the new law, but patent 
holders can no longer apply for a routinely granted five-year 
extension.  Pharmaceutical companies have complained of 
problems related to the terms of protection for their 
products. 
 
¶41.  American companies with patents pending have also 
expressed concern that the new patent law will result in 
denial of patent protection when applied retroactively to a 
pending patent application.  Pending cases since 1989 have 
been reportedly denied because the applications were not 
filed within one year of the product,s inception. 
 
¶42.  The Saudi Government has revised its Copyright Law, is 
devoting increased resources to marketplace enforcement, and 
is seeking to impose stricter penalties on copyright 
violators.  The Saudi Government has stepped up efforts to 
force pirated printed material, recorded music, videos, and 
software off the shelves of stores.  However, many pirated 
materials are still available in the marketplace.  An Islamic 
ruling, or &fatwa,8 stating that software piracy is 
&forbidden8 backs enforcement efforts.  Saudi Arabia 
remains on the Special 301 Watch List for 2008. 
 
¶43.  Trademarks are protected under the Trademark Law.  Trade 
secrets are not specifically protected under any area of 
 
SIPDIS 
Saudi law; however, they are often protected by contract. 
The Rules for Protection of Trade Secrets came into effect in 
¶2005.  Saudi Arabia has one of the best Trademarks Law in the 
region, but enforcement still  lags, and procedures are 
inconsistent. 
 
---------------------------------- 
Transparency of Regulatory System 
---------------------------------- 
 
¶44.  There are few aspects of the Saudi government's 
regulatory system that are transparent, although Saudi 
investment policy is less opaque than many other areas. Saudi 
tax and labor laws and policies tend to favor high-tech 
 
RIYADH 00000364  008 OF 011 
 
 
transfers and the employment of Saudis rather than fostering 
competition.  Saudi health and safety laws and policies are 
not used to distort or impede the efficient mobilization and 
allocation of investments.  Bureaucratic procedures are 
cumbersome, but red tape can generally be overcome with 
persistence. 
 
--------------------------------------------- ------ 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ------ 
 
¶45.  Saudi Arabia has generally free and open financial 
markets, although foreigners are still not permitted to 
invest in the stock market.  These limits are gradually 
relaxing.  Financial policies generally facilitate the free 
flow of private capital and currency can be transferred in 
and out of Saudi Arabia without restriction.  In 2003, SAMA, 
the Central Bank, enhanced and updated its 1995 Circular on 
Guidelines for the Prevention of Money Laundering and 
Terrorist Financing.  The enhanced guidelines are more 
compliant with the Banking Control Law, the Financial Action 
Task Force (FATF) 40 Recommendations, the 8 Special 
Recommendations on Terrorist Financing, and relevant UN 
Security Council Resolutions. 
 
¶46.  Credit is widely available to both Saudi and foreign 
entities from the commercial banks, and is allocated on 
market terms.  Credit is also available from several 
government credit institutions, such as the Saudi Industrial 
Development Fund (SIDF), which allocates credit based on 
government-set criteria rather than market conditions. 
Companies must have a legal presence in Saudi Arabia in order 
to qualify for credit.  The private sector has access to term 
loans, but there is no true corporate bond market. IPOs are 
gaining steam as the Saudi stock market evolves with new 
regulations and a Stock Market Commission in place.  The IPO 
market will likely develop in a much faster pace as 
commercial banks and other underwriters gear up to help 
private Saudi firms go public under the law's streamlined 
registration procedures. 
 
¶47.  As part of the economic reforms initiated for accession 
to the WTO, Saudi Arabia liberalized licensing requirements 
for foreign investment in the financial services.  In 
addition, the government increased foreign equity limits in 
financial institutions from 40% to 60% to entice further 
foreign investment.  In the last few years, the Saudi 
government has taken steps to increase foreign participation 
in its banking sector by granting operating licenses to 
foreign banks.  Deutsche Bank, J.P. Morgan and the National 
Bank of Bahrain are among those currently licensed to operate 
in the Kingdom. 
 
¶48.  The legal, regulatory, and accounting systems practiced 
in the banking sector are generally transparent and 
consistent with international norms.  The Saudi Arabian 
Monetary Agency (SAMA), which oversees and regulates the 
banking system, generally gets high marks for its prudent 
oversight of commercial banks in Saudi Arabia.  SAMA is the 
only central bank in the Middle East that is a member and 
shareholder of the Bank for International Settlements in 
Basel, Switzerland. 
 
¶49.  The new Capital Markets Law, passed in 2003, allows for 
brokerages, asset managers, and other non-bank financial 
intermediaries to operate in the Kingdom.  The law created a 
market oversight body, the Capital Market Authority, and an 
independent, publicly held stock exchange, Tadawul, both 
established in 2004.  New financial firms established under 
the new law will drive an increase in corporate and consumer 
finance activity.  In 2005, HSBC, Osul Financial, and 
Saudi-Swiss Financial received licenses to provide investment 
banking and brokerage services.  In addition, licenses were 
also granted to Deutsche Bank, BNP-Paribas, Muscat Bank, 
National Bank of Kuwait, as well as to the State Bank of 
India, and National Bank of Pakistan.  Foreigners, with the 
exception of GCC citizens, may only invest in the stock 
market through mutual funds.  There is an effective 
regulatory system governing portfolio investment in Saudi 
Arabia. 
 
¶50.  After a record year in 2005, the Saudi stock market 
performed unevenly in 2006, at one point suffering a single 
month drop in market capitalization of approximately 30%. The 
market stabilized, and in 2006, the Tadawul All Share Index 
(TASI) closed at 54,440 points, with market capitalization 
declining approximately 50% over the previous year to USD 650 
billion. 
 
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------------------- 
Political Violence 
------------------- 
 
¶51.  The Department of State continues to warn American 
citizens to defer non-essential travel to Saudi Arabia due 
largely to targeted attacks against American citizens that 
have resulted in deaths and injuries.  There have been a 
number of anti-Western attacks in Saudi Arabia since May 
¶2003.  Terrorists have targeted housing compounds, 
businesses, and Saudi government facilities with 
vehicle-borne explosives and automatic weapons causing 
significant civilian deaths and serious injuries, and in 
separate incidents have held hostages and killed individual 
Westerners, including American citizens.  On December 6, 
2004, terrorists carried out an armed attack against the U.S. 
Consulate General in Jeddah, which resulted in casualties 
among the Consulate staff and damage to consulate facilities. 
 
¶52.  The U.S. Embassy, working closely with Saudi security 
officials, periodically advises American citizens of 
potential security concerns. 
 
------------ 
Corruption 
------------ 
 
¶53.  Saudi Arabia has some, albeit limited, laws aimed at 
curbing corruption.  For example, the agency law 
theoretically limits a Saudi agent's commission to five 
percent of the value of a contract. 
 
¶54.  Foreign firms have identified corruption as an obstacle 
to investment in Saudi Arabia. Government procurement is an 
area often cited, as is de facto protection of businesses in 
which senior officials or elite individuals have a stake. 
Bribes, often disguised as  &commissions," are reputed to be 
commonplace. 
 
¶55.  Ministers and other senior government officials 
appointed by royal decree are forbidden from engaging in 
business activities with their ministry or government 
organization while employed there.  There are few cases of 
prominent citizens or government officials being tried on 
corruption charges. 
 
¶56.  In June 2004, the Council of Ministers approved the 
Tenders Law of Saudi Arabia, which is expected to 
significantly improve transparency within government 
procurement.  A June 2003 law requires the publication of 
select details of government contracts as well as projects 
listed in the government's project. 
 
-------------------------------- 
Bilateral Investment Agreements 
-------------------------------- 
 
¶57.  Saudi Arabia has signed 17 bilateral investment treaties 
with other countries, including most recently in 2006 India, 
Turkey, Spain, Singapore, and Switzerland.  At present, 
however, there is no bilateral investment treaty in force 
between the United States and Saudi Arabia, although both 
sides have exchanged draft texts for review.  GCC countries 
and their nationals receive favorable investment treatment 
derived from GCC agreements. 
 
--------------------------------------------- 
OPIC and Other Investment Insurance Programs 
--------------------------------------------- 
 
¶58.  The Overseas Private Investment Corporation (OPIC) no 
longer provides coverage in Saudi Arabia.  In 1995, OPIC 
removed Saudi Arabia from its list of countries approved for 
OPIC coverage because of Saudi Arabia's failure to take steps 
to comply with internationally recognized labor standards. 
Details on OPIC programs and coverage can be obtained at. 
www.opic.gov. The U.S. Export-Import Bank provides financing 
and political risk insurance in Saudi Arabia. 
 
------ 
Labor 
------ 
 
¶59.  The Ministry of Labor and the Ministry of Interior 
regulate recruitment of expatriate labor. In general, the 
government encourages recruitment of Muslim workers, either 
from Muslim countries or from countries with sizable Muslim 
 
RIYADH 00000364  010 OF 011 
 
 
populations.  The largest groups of foreign workers now come 
from Bangladesh, Egypt, India, Pakistan, the Philippines, and 
Yemen.  Westerners compose less than two percent of the labor 
force, and the percentage is dropping as Saudis and 
less-expensive expatriates from developing countries replace 
them. 
 
¶60.  Since September 1994, the Ministry of Labor has been 
required to certify that there are no qualified Saudis for a 
particular job before an expatriate worker can fill that job. 
 In addition, the original sponsor must approve all transfers 
of expatriate workers from his sponsorship to another.  While 
group visas are available for unskilled and some skilled 
workers recruited abroad, the Ministry of Labor is actively 
trying to limit the numbers of visas being issued in its bid 
to create more job opportunities for Saudis. 
 
¶61.  Saudi labor law forbids union activity, strikes, and 
collective bargaining. However, the Government allows 
companies that employ more than 100 Saudis to form "labor 
committees."  By-laws detailing the functions of the 
committees were enacted in April 2002.  To date, no labor 
committees have been established.  There is no forced or 
compulsory labor, but domestic workers are not covered under 
the provisions of the new labor law issued in 2005.  The SAG 
is expected to issue by-laws on employment of domestic 
workers in the near future. 
 
¶62.  Overtime is compensated normally at time-and-a-half 
rates.  The minimum age for employment is 14.  The Saudi 
government does not adhere to the International Labor 
Organization's (ILO) convention protecting workers' rights, 
but is taking steps to enhance its cooperation with ILO in a 
number of areas.  A July 2004 decree addresses some workers, 
rights issues for non-Saudis, and the Ministry of Labor has 
begun taking employers to the Board of Grievances.  Some of 
these penalties include banning these employers from 
recruiting foreign and/or domestic workers for a minimum of 
five years. 
 
------------------------------- 
Foreign-Trade Zones/Free Ports 
------------------------------- 
 
¶63.  Saudi Arabia does not have duty-free import zones or 
free ports.  It has begun to permit transshipment of goods 
through its ports in Jeddah and Dammam. 
Saudi Arabia is a member of the Gulf Cooperation Council 
(GCC), which confers special trade and investment privileges 
within the six member states (Bahrain, Kuwait, Oman, Qatar, 
Saudi Arabia, and the UAE).  Saudi Arabia is also a member of 
the Arab League, which agreed to negotiate an Arab free trade 
zone. 
 
------------------------------------- 
Foreign Direct Investment Statistics 
------------------------------------- 
 
¶64.  Accurate, up-to-date data on foreign direct investment 
in Saudi Arabia is difficult to obtain.  Problems include 
double counting in domestic/foreign joint ventures, 
historical versus current market valuations, domestic 
financing by foreign firms, difficult-to-tabulate profit 
reinvestments by foreign firms, and the relatively small, 
off-the-books investments by Asian entrepreneurs and others, 
often disguised under a Saudi sponsor. 
 
¶65.  Figures provided in this section are taken from United 
Nations Conference on Trade and Development's (UNCTAD) "World 
Investment Report 2006, FDI from Developing and Transition 
Economies ) Country Fact Sheet."  Following are key FDI 
indicators as provided by the referenced report for 2005 (all 
figures are in USD millions unless otherwise indicated): 
 
FDI Inflow                4628 
FDI Outflow               1183 
FDI Inward Stock          26066 
FDI Outward Stock         3711 
 
FDI Inflow as % of GDP    8.5 
FDI Outflow as % of GDP   1.2 
 
FDI Inflow as % of GFCF   9.4 
FDI Outflow as % of GFCF  2.4 
 
GDP = gross domestic product 
GFCF = gross fixed capital formation 
 
 
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