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DE RUEHRH #0118/01 0180614
ZNR UUUUU ZZH
R 180614Z JAN 09
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC 9913
INFO RUCPCIM/CIMS NTDB WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS RIYADH 000118 
 
SIPDIS 
 
USTR FOR JASON BUNTIN 
USDOC FOR TYLER HOFFMAN 
DEPT FOR EB/IFD/OIA 
 
E.O. 12958: N/A 
TAGS: OPIC KTDB USTR SA
SUBJECT: SAUDI ARABIA INVESTMENT CLIMATE STATEMENT 
 
REF: 08 SECSTATE 123907 
 
--------------------------------- 
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, while certainly impacted by the global financial 
crisis, particularly the decline in the price of oil, is 
well-positioned to continue its recent economic success.  Foreign 
direct investment inflows were over $24 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.  In its "Doing Business 
2009" report, the International Bank for Reconstruction and 
Development ranked Saudi Arabia 16th out of 181 economies in terms 
of ease of doing business. 
 
¶3.  The government encourages investment in transportation, 
education, health, information and communications technology, life 
sciences and energy, as well in six "Economic Cities" 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 a lack 
of transparency in the enforcement of intellectual property rights, 
a government requirement that companies hire Saudi nationals, the 
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, there is not yet 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 list."  This list 
continues to shrink as Saudi Arabia works to liberalize trade and 
investment.  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; the chief exception being 
capitalization requirements in specific services, such as 
insurance. 
 
¶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 $24 billion. 
 
¶9.    Investors complain that impediments to investment remain, many 
outside SAGIA's ability 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 has also begun 
to implement a decree stating that sponsorship for certain business 
visas is no longer required. 
 
¶11.  In February 2001, SAGIA developed a negative list of sectors 
off-limits to a controlling interest foreign investment (See 
www.sagia.gov.sa).  The sectors currently closed to foreign 
investment include three manufacturing categories and 12 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 some unexplored areas 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 the 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 Rub 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 had 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.  While Aramco and Total have 
signed an agreement with a local contractor to build temporary 
facilities in support of construction , both this project and the 
ConocoPhillips project have recently been put on hold due to 
difficulty obtaining financing in the current global credit market. 
 
¶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 large-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 in 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, or 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; and 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.  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 hotels, sports clubs, some municipality services, some 
educational services, some social services, some agricultural 
services, some health services, government portions of SABIC, banks, 
and local refineries 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) (to be 
capitalized at $1.5 billion).  YANSAB will be SABIC's largest 
petrochemical complex and the IPO netted $533 million in 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." 
 
--------------------------------- 
Conversion and Transfer Policies 
--------------------------------- 
 
¶26.  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. 
 
¶27.  There is no limitation on the inflow or outflow of funds for 
remittances of profits, debt service, capital, capital gains, 
returns on intellectual property, or imported inputs with the 
exception that bulk cash shipments greater than 60,000 riyals must 
be declared at the point of entry or exit.  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 
------------------------------ 
 
¶28.  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 
------------------ 
 
¶29.  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. 
 
¶30.  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. 
 
¶31.  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 on 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. 
 
¶32.  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. 
 
¶33.  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 over commercial disputes. 
 
¶34.  Of interest to investors who have disputes with private 
individuals are the Committee 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. 
 
¶35.  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. 
 
¶36.  Saudi Arabia has a commercial law that is generally applied 
consistently.  A 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 
--------------------------------------- 
 
¶37.  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.  The public sector features a higher percentage of Saudi 
employees.  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.  On the other hand, 
while the list of positions that may no longer be held by non-Saudis 
is expanding, the Ministry of Labor have relaxed these requirements 
in certain industries. 
 
¶38.  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 the 
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. 
 
¶39.  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. 
 
¶40.  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. 
 
¶41.  The government has not notified the WTO about any measures 
which would 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. 
 
¶42.  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 at 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. 
 
-------------------------------------------- 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
¶43.  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 
----------------------------- 
 
¶44.  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. 
 
¶45.  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.  In 2008 the Violations Review 
Committee created a website and has populated it with information on 
current cases. 
 
¶46.  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 just over 40 patents and had a large backlog (more 
than 9,000 applications dating back to issuance of Saudi Arabia's 
first patent law in 1989).  The office has since streamlined its 
procedures, hired more staff, and reduced this 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. 
 
¶47.  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. 
 
¶48.  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. 
These efforts included stepping up raids on shops selling pirated 
goods in 2008.  However, many pirated materials are still available 
in the marketplace.  An Islamic ruling, or "fatwa," stating that 
software piracy is "forbidden" backs enforcement efforts.  Saudi 
Arabia remains on the Special 301 Watch List for 2008. 
 
¶49.  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. 
 
¶50.  Saudi Arabia has not signed and ratified the WIPO internet 
treaties. 
 
--------------------------------- 
Transparency of Regulatory System 
--------------------------------- 
 
¶51.  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. 
 
¶52.  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 
government agencies 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 
--------------------------------------------- ----- 
 
¶53.  Saudi Arabia has generally free and open financial markets, 
although non-GCC foreign investors may only invest in the stock 
market through mutual funds and "swap agreements."  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 (with the exception of 
previously mentioned limits on bulk cash movements).  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 9 Special Recommendations on Terrorist 
Financing, and relevant UN Security Council Resolutions. 
 
¶54.  Historically, credit has been widely available to both Saudi 
and foreign entities from the commercial banks, and has been 
allocated on market terms.  The global financial crisis of 2008 has 
substantially reduced this availability to all parties, resulting in 
the delay or cancellation of some projects.  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. 
Most IPOs have been put on hold as the Saudi stock market's 
volatility has spiked in response to the global financial crisis. 
The IPO market will likely take some time to recover as skittish 
investors are not likely to return to the market in the near 
future. 
 
¶55.  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. 
 
¶56.  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. 
 
¶57.  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, which was established 
in 2004, and opened the stock exchange to public investment.  New 
financial firms established under the new law will drive an increase 
in corporate and consumer finance activity.  By late 2008 more than 
100 companies had received licenses to provide investment banking 
and brokerage services.  As of August 2008, foreigners can now 
invest in the stock market through "swap agreements" with local 
investment houses.  These allow foreign investors to hold Saudi 
securities for a period ranging from three months to four years, but 
without any voting rights.  There is an effective regulatory system 
governing portfolio investment in Saudi Arabia. 
 
------------------ 
Political Violence 
------------------ 
 
¶58.  The Department of State urges American citizens to consider 
carefully the risks of 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.  In separate incidents, 
terrorists 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 at Abqaiq in the Eastern 
Province. In February 2007, four French tourists were killed in a 
terrorist incident on a desert track north of Medina. 
 
¶59.  The U.S. Embassy, working closely with Saudi security 
officials, periodically advises American citizens of potential 
security concerns. 
 
---------- 
Corruption 
---------- 
¶60.  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. 
 
¶61.  Despite the fact that corruption has been identified by foreign 
firms as an obstacle to investment in Saudi Arabia, authorities have 
taken some recent steps toward combating it. In April 2007, the King 
established the National Authority for Combating Corruption that is 
to report directly to him.  This commission embodies the 
government's determination to implement a national strategy aimed at 
eliminating corruption of government employees.  To what extent the 
Commission will be empowered to eradicate corruption remains to be 
seen on the ground." 
 
¶62.  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 
------------------------------- 
¶63.  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 
-------------------------------------------- 
 
¶64.  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 
----- 
 
¶65.  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, although this percentage 
is increasing as they seek to take advantage of the relatively 
stable Saudi economy during a time of global economic uncertainty. 
 
¶66.  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 (except in cases of non-payment of 
wages for three consecutive months or more).  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. 
 
¶67.  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 Majlis al-Shura, a consultative assembly with a 
role in the legislative process, has passed a law covering domestic 
workers, which is now with the King and the Council of Ministers for 
review. 
 
¶68.  Overtime is normally compensated 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 
--------------------------------- 
 
¶69.  Saudi Arabia does not currently have duty-free import zones or 
free ports.  It does permit transshipment of goods through its ports 
in Jeddah and Dammam. 
 
¶70.  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 
------------------------------------ 
 
¶71.  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. 
 
¶72.  Figures provided in this section are taken from United Nations 
Conference on Trade and Development's "World Investment Report 2008 
Country Fact Sheet."  Following are key FDI indicators as provided 
by the referenced report for 2007 (all figures are in USD millions 
unless otherwise indicated): 
 
FDI Inflow                    24318 
FDI Outflow                   13139 
FDI Inward Stock              76146 
FDI Outward Stock             22050 
 
FDI Inflow as % of GDP        20.2 
FDI Outflow as % of GDP       5.8 
 
FDI Inflow as % of GFCF       30.1 
FDI Outflow as % of GFCF      16.3 
 
GDP = gross domestic product 
GFCF = gross fixed capital formation 
 
RUNDELL