SAUDI ARABIA INVESTMENT CLIMATE STATEMENT

UNCLAS RIYADH 000107

C O R R E C T E D COPY (PARA SUBJECT TAG)

SIPDIS

USTR FOR JASON BUNTIN
USDOC FOR TYLER HOFFMAN
DEPT FOR EEB/IFD/OIA

E.O. 12958: N/A
TAGS: ECON OPIC KTDB USTR SA
SUBJECT: SAUDI ARABIA INVESTMENT CLIMATE STATEMENT

REF: 09 SECSTATE 124006

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2010 Investment Climate Statement
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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

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Openness to Foreign Investment
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2. Saudi Arabia, while suffering little from the global shocks of
late 2008, was impacted by regional crises in 2009, in particular
the default of two major Saudi business concerns on almost $20
billion in debt and Dubai's restructuring of $26 billion owed by its
real estate parastatals. Foreign direct investment inflows were
over $38 billion in 2008, but, reflecting global trends, were
significantly lower in 2009. Improvement of the investment climate
continues to be 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, and
promote employment for a young population. In its "Doing Business
2010" report, the International Bank for Reconstruction and
Development ranked Saudi Arabia 13th out of 181 economies in terms
of ease of doing business, a marked improvement from 2005, when it
ranked 67th.


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
government requirement that companies have a program to 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, although the Saudi
government is making progress towards establishing a commercial
court system, there is not yet a transparent, comprehensive legal
framework in place for resolving commercial disputes.


5. 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." 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 been substantially
reduced (and are currently 500,000 Saudi riyals for companies and
1,000,000 for industrial concerns); the chief exception being
capitalization requirements in specific services, such as
insurance.


6. 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. 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.


7. 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.


8. 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.


9. 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 is no longer required
for certain business visas.


10. In February 2001, SAGIA first published a negative list of
sectors off-limits to a controlling interest foreign investment (See
www.sagia.gov.sa). SAGIA has reduced the number of sectors closed
to foreign investment to 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.


11. 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.


12. Government bodies such as the Royal Commission for Jubail and
Yanbu, and the Al-Riyadh 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.


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. There is no prohibition on foreign investment in refining and
petrochemical development and there is significant foreign
investment in the downstream Saudi energy sector. 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 2012.



15. 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.


16. 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.


17. 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.


18. 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.


19. 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.


20. 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."

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Conversion and Transfer Policies
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21. 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.


22. 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.

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Expropriation and Compensation
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23. 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.
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Dispute Settlement
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24. 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.


25. 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.


26. 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.


27. 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.


28. 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.


29. 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.


30. 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.


31. 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.

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Performance Requirements and Incentives
--------------


32. 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. 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.


33. 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.


34. 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.


35. 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.


36. The government has not notified the WTO about any measures
which would be inconsistent with the 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.


37. 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 five (5) year,
multiple entry visas at Saudi embassies, consulates, and ports of
entry (but has not yet fully implemented this policy). The
government also announced that foreign business visitors will no
longer need to provide invitation letters from Saudi businesses to

receive visas.

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Right to Private Ownership and Establishment
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38. 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.

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Protection of Property Rights
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39. 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.


40. 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) and promulgated changes 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.


41. The current Law on Patents, Layout Designs of Integrated
Circuits, Plant Varieties and Industrial Designs has been in effect
since September 2004. The patent office continues to build its
capacity through training, has streamlined its procedures, hired
more staff, and reduced its 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. In December 2009, the Saudi Council of Ministers approved
the Kingdom's accession to both the Intellectual Property Owners
Association Patent Cooperation Treaty (PCT) and its Implementing
Regulations and the Patent Law Treaty (PLT) adopted by the
Diplomatic Conference in Geneva on June 1, 2000.


42. In September 2009, the King approved a mechanism to protect
Exclusive Marketing Rights (EMR) for certain pharmaceutical
products which lost patent protection when Saudi Arabia transitioned
to a new TRIPS-compliant patent law in 2004. EMR protection in
Saudi Arabia expires on the same date the patent expires in the
United States or the European Union. Applications for EMR
protection should be submitted to the General Department of
Industrial Property at King Abdulaziz City for Science and
Technology for approval and transfer to the Saudi Food and Drug
Authority.


43. 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. In January 2010,
the Ministry of Culture and Information referred the first-ever
copyright violation case to the Board of Grievance, Saudi Arabia's
highest court, for deterrent sentencing. 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 continuing raids on shops selling pirated goods in

2009. 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 2009, but is in the
process of an Out-of-Cycle Review that may lead to their removal.


44. 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, and the
Saudi Customs Authority has significantly stepped up its enforcement
efforts. Saudi Arabia received anti-counterfeiting and piracy
awards from the World Customs Organization in 2009 for organizing
the first Pan-Arab conference on this issue, building the capacity
of the Customs Authority, and translating WCO documents into Arabic.
Saudi Customs provided information about its extensive seizures to
enforce trademark rules for the 2009 Special 301 Out-of-Cycle
Review.


45. Saudi Arabia has not signed and ratified the WIPO internet
treaties.

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Transparency of Regulatory System
--------------


46. 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.


47. 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.

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Efficient Capital Markets and Portfolio Investment
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48. 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.


49. 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,
followed by the default on $20 billion in debt by two Saudi business
concerns and the debt restructuring in Dubai, 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
allocate 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.


50. 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.


51. 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.


52. 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.

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Political Violence
--------------


53. In the most recent Travel Warning for Saudi Arabia, the
Department of State urges U.S. citizens to consider carefully the
risks of traveling to Saudi Arabia. The last major terrorist attack
directed against the civilian population was an attack against
French nationals in 2007. Significant enhancements in the capacity
and capability of Saudi security and intelligence forces have
greatly improved the security environment. Although much improved,
the changes remain fragile and reversible.

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Corruption
--------------


54. 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.


55. 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." The General Auditing Bureau is also charged
with combating corruption.

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Labor
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56. 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.


57. 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.


58. 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.


59. 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.

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Foreign-Trade Zones/Free Ports
--------------


60. Saudi Arabia does not currently have duty-free import zones or
free ports, but does 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
--------------


61. Figures provided in this section are taken from United Nations
Conference on Trade and Development's "World Investment Report 2009
Country Fact Sheet." Following are key FDI indicators as provided
by the referenced report for 2008 (all figures are in USD millions
unless otherwise indicated):

FDI Inflow 38223
FDI Outflow 1080
FDI Inward Stock 114277
FDI Outward Stock 23130

FDI Inward Stock as % of GDP 24.4
FDI Outward Stock as % of GDP 4.9

FDI Inflow as % of GFCF 46.1
FDI Outflow as % of GFCF 1.3

GDP = gross domestic product
GFCF = gross fixed capital formation

SMITH