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FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7824
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UNCLAS RIYADH 000326 
 
SIPDIS 
 
SIPDIS 
 
USTR FOR JASON BUNTIN 
USDOC FOR TYLER HOFFMAN 
EB/IFD/OIA 
 
E.O. 12958: N/A 
TAGS: OPIC KTDB USTR SA
SUBJECT: SAUDI ARABIA INVESTMENT CLIMATE STATEMENT 
 
REF: 07 SECSTATE 158802 
 
--------------------------------- 
2008 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 is experiencing an oil boom unprecedented 
since the mid 1970,s with a government budget surplus of 
over $10 billion in 2007.  Foreign direct investment inflows 
were over $18 billion in 2007.  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 transportation, 
education, health, information and communications technology, 
life sciences and energy, as well in six &Economic Cities8 
that are in various states of development.  The Economic 
Cities are to be new, comprehensive developments in different 
regions focusing on particular industries.  Prospective 
investors will find attractive Saudi Arabia's economic 
stability, the largest market in the Gulf (with a population 
of over 27 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, a 
restrictive visa policy for all workers, a very conservative 
cultural environment, and enforced segregation of the sexes 
in most business and social settings.  Further, 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 consistent enforcement of foreign arbitration 
awards, a clear and transparent mechanism to reduce and stop 
counterfeit products from entering Saudi Arabia, and the 
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 in many sectors 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.  Minimum capital requirements to establish 
business entities have generally been eliminated other than 
capitalization requirements to which Saudi Arabia committed 
during its accession to the WTO in specific services, such as 
for insurance companies. 
 
¶7.    In April 2000, the Council of Ministers established the 
Saudi Arabian General Investment Authority (SAGIA) to provide 
information and assistance to foreign investors, and to 
foster investment opportunities in energy, transportation, 
and knowledge-based industries (See www.sagia.gov.sa).  SAGIA 
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 
for licenses, and investments in specific sectors may require 
licenses from other government authorities, including, but 
not limited to, the Saudi Arabian Monetary Agency (SAMA), 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 2007, SAGIA licensed 1,483 joint and 
foreign investment projects worth a total of $89 billion. The 
value of projects licensed increased by 33% percent from the 
previous year.  Actual foreign direct investments inflows, 
however, were limited to about $18 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.  SAGIA has 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.  SAGIA opened a Women,s Investment 
Center in spring 2003. 
 
¶10.  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. 
 
¶11.  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 13 
service industries.  The list includes real estate investment 
in Mecca and Medina, some subsectors in printing and 
publishing, audiovisual and media services, land 
transportation services excluding the inter-city transport by 
trains, 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. 
 
¶12.  Pursuant to commitments it made when acceding to the 
WTO, Saudi Arabia has opened 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 
investment in the computer and related services sector. 
 
¶13.  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 
Capital Group, and the Saudi Industrial Development Company 
have also become increasingly active in project development 
and in seeking out foreign joint venture partners. 
 
 
¶14.  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. 
 
¶15.  Saudi Arabian regulations currently close oil 
exploration, drilling, and production to foreign investment. 
National oil company Saudi Aramco presently conducts all oil 
exploration and development within Saudi Arabia.  However, 
there are legacy foreign operations in the Partitioned 
Neutral Zone with Kuwait.  Foreign companies, under current 
Saudi law, cannot purchase a stake in Aramco or take an 
equity position in the upstream oil sector. 
 
¶16.  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. Shell, in a consortium with Total 
and Saudi Aramco, 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.  In 
February 2008, Total withdrew from the South Rhub Al Khali 
Company consortium,s exploration program after disappointing 
initial results. 
 
¶17.   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. 
 
¶18.  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 refining capacity to meet 
expected growth in international demand.  ExxonMobil and 
Shell are the largest foreign investors in Saudi Arabia; both 
are 50% partners in refineries with Saudi Aramco.  Saudi 
Aramco has also announced the selection of two firms, 
ConocoPhillips and Total, to join as equity investors in two 
new 400,000 barrel per day export refineries scheduled for 
completion in 2011. Both firms are currently engaged in 
negotiating the terms of these joint ventures. 
 
¶19.  In addition, ExxonMobil, Chevron Texaco, and Shell, as 
well as several other international investors, have formed 
joint ventures with SABIC, a Saudi parastatal, to build 
world-scale petrochemical plants that utilize gas feedstock 
from Saudi Aramco,s existing operations at Ras Tanura. 
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. 
 
¶20.  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, 
creates jobs for Saudis, and expands Saudi exports. 
 
¶21.  Industrial projects remain subject to capitalization 
requirements that vary depending upon the value of the 
venture, 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. 
 
¶22.  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. 
 
¶23.  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. 
20 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. 
 
¶24.  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 close to $4 billion 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. 
 
¶25.  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 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." 
 
¶26.  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. 
 
--------------------------------- 
Conversion and Transfer Policies 
--------------------------------- 
 
¶27.  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. 
 
¶28.  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. SAMA, the Central Bank, has intervened at 
times to keep the exchange rate fixed. 
 
------------------------------ 
Expropriation and Compensation 
------------------------------ 
 
¶29.  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 
------------------ 
 
¶30.  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 (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. 
 
¶31.  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. 
 
¶32.  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. 
 
¶33.  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, 
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. 
 
¶34.  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. 
¶35.  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 SAMA,s Banking Disputes Committee adjudicates 
disputes between bankers and their clients. Judgments of 
foreign courts are not consistently 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. 
 
¶36.  In October 2007, King Abdullah issued a royal decree to 
overhaul the Kingdom,s judicial system, including allocating 
7 billion SAR (approximately 1.9 billion USD) to train judges 
and build new courts.  The decree establishes two Supreme 
Courts*a general court and an administrative court*and 
specialized labor and commercial tribunals.  This 
announcement has not yet been implemented. 
 
¶37.  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 
--------------------------------------- 
 
¶38.  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 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 
positions that may no longer be held by non-Saudis is 
expanding. 
 
¶39.  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. 
 
¶40.  Nonetheless, the SIDF will provide additional incentives 
and better term loans to foreign investors who set up their 
manufacturing facilities in Jizan, Hail, and Tabuk.  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. 
 
¶41.  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. 
 
¶42.  The government does not maintain any measures that it 
has notified the WTO to be inconsistent with requirements of 
the Agreement on Trade-Related Investment Measures (TRIMs), 
nor does it maintain any measures that are alleged to violate 
the WTO TRIMs text. 
 
¶43.  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.  In November 
2007, Saudi Arabia announced that it will begin issuing 
foreign business visitors one (1) year, multiple entry visas 
from Saudi Embassies, Consulates and ports of entry.  The 
government also announced that foreign business visitors will 
no longer need to provide invitation letters from Saudi 
businesses to receive visas. However, the policy change has 
not yet been implemented, and it is unclear when the new 
business visas will be issued. Under existing procedures, 
business visitors typically receive short duration, 
single-entry visas. 
 
-------------------------------------------- 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
¶44.  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 
----------------------------- 
 
¶45.  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. 
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.  Saudi Arabia does have a system of recording 
security interests. 
 
¶46.  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. 
 
¶47.  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, when this law 
went into effect the patent office had 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 has 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. 
 
¶48.  An unknown number of pharmaceutical products lost patent 
protection when Saudi Arabia transitioned to a new 
TRIPS-compliant patent law in 2004.  Products that had 
applications for patents pending under the old law (and 
enjoyed patent protection while their applications were 
pending) were reviewed as new cases under the new law. 
These products were then denied patents because it was 
determined that they were not "novel" because they had been 
publicly patented in other jurisdictions more than a year 
before their cases were considered in Saudi Arabia. 
¶49.  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. 
 
¶50.  Trademarks are protected under the Trademark Law.  The 
Rules for Protection of Trade Secrets came into effect in 
¶2005.  Saudi Arabia has one of the best trademarks laws in 
the region, but enforcement still lags, and procedures are 
inconsistent. 
 
¶51.  Saudi Arabia has not signed and ratified the WIPO 
internet treaties. 
 
--------------------------------- 
Transparency of Regulatory System 
--------------------------------- 
 
¶52.  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 
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. 
 
¶53.  There are no informal regulatory processes managed by 
NGOs or private sector associations.  While proposed laws and 
regulations are generally not published in draft form for 
public comment, some ministries permit public comments 
through their websites.  There are no private sector or 
government efforts to restrict foreign participation in 
industry standards-setting consortia or organizations. 
 
--------------------------------------------- ----- 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
 
¶54.  Saudi Arabia has generally free and open financial 
markets, although non-GCC foreign investors may only invest 
in the stock market through mutual funds.  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. 
 
¶55.  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 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 at 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. 
 
¶56.  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.  SAMA granted ten foreign bank licenses to 
operate in the Kingdom in December 2005, including to BNP 
Paribas, Deutsche Bank, J.P. Morgan, National Bank of Kuwait, 
National Bank of Bahrain, Emirates Bank, Gulf International 
Bank, State Bank of India and National Bank of Pakistan. 
 
¶57.  The legal, regulatory, and accounting systems practiced 
in the banking sector are generally transparent and 
consistent with international norms.  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 
other than Israel,s that is a member and shareholder of the 
Bank for International Settlements in Basel, Switzerland. 
 
¶58.  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.  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. 
 
------------------ 
Political Violence 
------------------ 
 
¶59.  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. 
 In February 2006, terrorists attempted an attack on Saudi 
oil facilities in Abqaiq in the Eastern Province. In February 
2007, four French tourists were killed in a terrorist 
incident on a desert track north of Medina. 
 
¶60.  The U.S. Embassy, working closely with Saudi security 
officials, periodically advises American citizens of 
potential security concerns. 
 
---------- 
Corruption 
---------- 
 
¶61.  Saudi Arabia has some, albeit limited, laws aimed at 
curbing corruption.  The Tenders Law of Saudi Arabia, 
approved in 2004, has improved transparency within government 
procurement through publication of such tenders.  Further, 
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.  The National Authority to Combat Corruption and the 
General Auditing Bureau are charged with combating corruption. 
 
 
¶62.  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. 
 
 
¶63.  Saudi Arabia has signed but not ratified the UN 
Anticorruption Convention.  Saudi Arabia is not a signatory 
of the OECD Convention on Combating Bribery. 
 
------------------------------- 
Bilateral Investment Agreements 
------------------------------- 
¶64.  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 
-------------------------------------------- 
 
¶65.  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.  Saudi Arabia is a member of the Multilateral 
Investment Guarantee Agency. 
 
----- 
Labor 
----- 
 
¶66.  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 
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. 
 
¶67.  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. 
 
¶68.  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, 15 labor 
committees have been established.  Domestic workers are not 
covered under the provisions of the new labor law issued in 
¶2005.  The Saudi government has been promising the imminent 
issuance of a law covering domestic workers for over a year. 
 
¶69.  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. 
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 
--------------------------------- 
 
¶70.  Saudi Arabia does not have duty-free import zones or 
free ports.  It does permit transshipment of goods through 
its ports in Jeddah and Dammam. 
 
¶71.  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 
------------------------------------ 
 
¶72.  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. 
 
¶73.  Figures provided in this section are taken from United 
Nations Conference on Trade and Development's "World 
Investment Report 2007, 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                    18293 
FDI Outflow            753 
FDI Inward Stock              51828 
FDI Outward Stock             5211 
 
FDI Inflow as % of GDP       14.9 
FDI Outflow as % of GDP      1.5 
 
FDI Inflow as % of GFCF       32.1 
FDI Outflow as % of GFCF           1.3 
 
GDP = gross domestic product 
GFCF = gross fixed capital formation 
FRAKER