Foreign investment in saudi arabia

Foreign Investment in Saudi Arabia
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Abstract:
The aim of this dissertation is discussion and critical analysis of foreign investment laws in Saudi Arabia.
Foreign investment has a very complicated history since it was first introduced by the oil companies of western
developed countries. The history of investment in the oil industry through concession agreement, the
establishment of the ARAMCO, the effects of the government to indigenise the industry together with the shift
of power and control over the natural resources of the country led to a change in the perception of foreign
investment in Saudi Arabia and the Arab world.
This dissertation, regarding the legal security of foreign investment law in Saudi Arabia, is divided into the
following sections:
Firstly, it sets out the background of KSA and its relation with the WTO. In addition it sheds light on the
reasons for investment in Saudi Arabia and the increased willingness of foreign companies to invest in KSA.
Secondly, it discusses the law which governs KSA: Islamic Shari'a Law. This section also considers how
consistent Shari'a Law is with international law as well as examining the judicial structure in KSA and its
effectiveness.
Thereafter, the study examines the history of FDI as well as legislative history in KSA.
The following section, considers the most important features of the new foreign investment laws in KSA with
particular focus on the Foreign Investment Act and its rules and laws together with other relevant laws. It also
considers the negative aspects of foreign investment.
The next section examines the resolutions of foreign investment disputes in KSA through litigation and
arbitration after giving a brief description about litigation in KSA together with KSA's attitude towards
arbitration.
The subsequent section consists of discussion and critical analysis of foreign investment in Saudi Arabia.
Finally, the dissertation summarises the findings and concludes with the main themes of the dissertation
together with some recommendations.
Introduction
Globalisation is the order of the day with most countries initiating reforms to liberalise their economies and
integrate with global economies to achieve rapid economic development. A significant number of countries
have joined the World Trade Organization (WTO) during the last five years which has further accelerated the
process of globalization. Furthermore, with many countries due to join the WTO during the next three to four
years, the world is progressing towards becoming a global village.
Globalization is ushering the era of low trade barriers and global competition. Companies can no more entirely
depend upon their domestic markets. Besides, many developing countries have been opening up their
economies to accelerate development and are striving hard to mobilize funds for developing infrastructure and
industry through Foreign Direct Investment (FDI). A large number of multinational companies and investment
groups are seeking entry to seize the opportunities offered by the emerging economies which offer immense
prospects in the areas of telecommunications, power, transport, roads, real estate, manufacturing, banking
and insurance etc.
Foreign direct investment (FDI) is defined as a long-term investment by a foreign direct investor in an
enterprise which is resident in an economy other than that in which the foreign direct investor is based. The

FDI relationship consists of a parent enterprise and a foreign affiliate which together form a transnational
corporation (TNC). In order to qualify as FDI the investment must afford the parent enterprise control over its
foreign affiliate.
In the last few years, FDI has grown in importance in the global economy, the emerging market countries such
as China and India have become the most favoured destinations for FDI and investor confidence in these
countries has soared. As per the FDI Confidence Index of Kearney for the year 2005, China and India hold the
first and second positions respectively, whereas United States has slipped to third position. The report also
discloses that despite rising costs, Eastern Europe enjoys better FDI prospects, while Brazil and Mexico have
recovered from lower confidence levels.
By establishing overseas ventures, a company can offset seasonal fluctuations in sales and increase profits in
general through exposure to a greater number of prospects. Further technical proficiency is often increased by
expanding into markets with greater expertise in certain areas of technology.
In addition, expanding into foreign markets can minimize a company's risk of losing market shares to
customers who themselves take advantage of the global competition to source goods and services from
foreign markets.
However, the decision to go international must be made with care as there are many risks and potential
obstacles to consider. Cultural and language barriers are among the most obvious of these considerations.
Variations in religious beliefs, societal norms and business negotiation styles all have an impact on how
business needs to be conducted when dealing with foreign counterparts. Language barriers may present an
obstacle when trying to communicate the benefits and advantages of a company's products and services
overseas.
Other difficulties inherent when expanding into foreign markets include economic and political risks, shifting
borders and the instability of some foreign governments which can pose a threat to the security of a business
overseas. Foreign exchange and the issue of intellectual property protection also need to be considered. In
some of the emerging economies, legal and economic systems are not as developed as those of the United
States and other developed countries.
A company that wishes to establish business overseas needs to be familiar with the host country's culture and
determine the feasibility of marketing its product or service in that environment. Market conditions must be
assessed to ensure that a new company can win a share of the foreign market. Tariffs, duties and compliance
with the host country's import, health and environmental regulations are other important issues to consider as
well. As companies make overseas investments, particularly in R & D, several factors dominate their location
decisions including lower costs, higher quality labour, the protection of intellectual property rights, reliable
educational systems and sophisticated IT infrastructures.
This Dissertation presents a detailed study on the legal environment in the Kingdom of Saudi Arabia to
evaluate the risks as well as benefits of Foreign Direct Investment.
Chapter I
General Background about Saudi Arabia
Saudi Arabia and the WTO
Investment in Saudi Arabia
Increased willingness of International Companies to invest in Saudi Arabia
General Background about Saudi Arabia
Extending across most of the northern and central Arabian Peninsula, Saudi Arabia is a young country that is
heir to a rich history. In its western highlands along the Red Sea, lies the Hejaz which is the cradle of Islam
and the site of the religion's holiest cities, Mecca and Medina. In the country's geographic heartland is a region

known as Najd (“Highland”), a vast arid zone that until recent times was a rich pastiche of warring and feuding
Bedouin tribes and clans. To the east, along the Persian Gulf, are the country's abundant oil fields which since
the 1960s, have made Saudi Arabia synonymous with petroleum wealth. These three elements: religion,
tribalism and untold wealth have fuelled the country's subsequent history.
It was only with the rise of the Saudi family from Najd which the country is named after and its eventual
consolidation of power in the early 20th century that Saudi Arabia began to take on the characteristics of a
modern country. The success of the Saudis was due in no small part to the motivating Al Salafyah, an austere
form of Islam that was embraced by early family leaders and which became the state creed. This deeply
religious conservatism has been accompanied by a tribalism in which competing family groups vie for
resources and status which has often made Saudi society difficult for outsiders to comprehend. Enormous oil
wealth has fuelled huge and rapid investment in Saudi Arabia's infrastructure. At present Saudi Arabia is
looking to develop its basic structure of governments and judiciary by passing several laws.
In the mid-20th century, most of Saudi Arabia still embraced a traditional lifestyle that had changed little over
thousands of years. Since then, the pace of life in Saudi Arabia has accelerated rapidly. The constant flow of
pilgrims to Mecca and Medina (vast throngs arrive for the annual hajj, and more pilgrims visit throughout the
year for the lesser pilgrimage: the Umrah) had always provided the country with outside contact, however
interaction with the outside world has expanded with innovations in transportation, technology and
organisation. More recently, petroleum has wrought irreversible domestic changes in educational and social
as well as economic areas. Modern methods of production have been superimposed on a traditional society
by the introduction of millions of foreign workers and by the employment of hundreds and thousands of Saudis
in non-traditional jobs. In addition, tens of thousands of Saudi students have studied abroad, mostly in the
United States as well as in the United Kingdom. Television, radio, and the Internet have become common
medias of communication and education, in addition highways and airways have replaced traditional means of
transportation.
Saudi Arabia, once a country of small cities and towns has become increasingly urban; traditional centres
such as Jeddah, Mecca and Medina have grown into large cities and the capital Riyadh, a former oasis town,
has grown into a modern metropolis. Many of the region's traditional nomads, the Bedouins have settled in
cities or agrarian communities. The sedentary population of the country view the few remaining Bedouin who
maintain a traditional desert lifestyle with deep ambivalence. They are at the same time, a link to the country's
past and its solid foundation.
1.2 Saudi Arabia and the WTO
World Trade Organization (WTO) membership represents one of the key steps for a country to integrate into
modern international economic relations. The basic objective of membership is the liberalisation and
development of international trade in order to reach sustainable economic growth and total prosperity of
signatory countries. The membership is supposed to help access to markets in other countries under more
beneficial conditions, serve as an important signal to foreign investors regarding stability and predictability of
the economic system, decrease risk factors for potential investors, develop the trade economy, modernise
industry and reform economic legislation. The important prerequisites for WTO Membership are political
support to the accession process: implementation of effective reforms of the foreign trade system and
economic legislation to create a trade market and a legal system which is comparable to the systems of
developed trade economies.
Saudi Arabia, the world's largest oil exporter and among the world's twenty largest economies acceded the
World Trade Organization (WTO) on December 11, 2005 as the 149th Member after twelve years of strenuous
negotiations and multilateral trade agreements. For the Kingdom, which is unique in its socio-economic-
religious fabric unlike the other 148 members of the World Trade body, the accession is considered to be a
significant move although the Kingdom is not new to international trade as this accounts for 70% of the
country's GDP. The signing of the agreement was preceded by anticipation of favourable and adverse
developments to the Saudi Arabia's economy and society. A year has gone by since the Kingdom joined the
WTO, the issues and concerns that preceded the accession continue to exist. Furthermore, the life of common
citizens has not changed much although changes on the investment and business front have been taking

place albeit in a slow and steady manner. Although one cannot expect miracles in the short span of one year,
it is essential to consider whether the country is progressing in the right direction to realize its intended
objectives of reforms, globalisation and accession.
This dissertation reviews the objectives behind the accession, reforms undertaken and the experiences of
China and India who acceded to the WTO during the last five and ten years respectively. Furthermore, this
dissertation identifies that the major objective behind this accession is to explore the possibilities of Foreign
Direct Investment.
It is important to remember that neither the advantages nor the challenges of WTO membership are felt
immediately after accession. While some substantial changes took place during the accession process,
others will take place over the coming years. The WTO membership does not guarantee success in world
trade.
Instead, the WTO provides a framework for economic and other reforms which should help Saudi Arabia to
become competitive in foreign markets and at the same time, provide an attractive environment for
investment. Over time, new market opportunities will emerge for competitive and entrepreneurial firms to
appear.
There are significant differences between Saudi Arabia and the countries that acceded to the WTO prior to it in
terms of natural resources, socio-culture, agriculture, industrial and technological bases as well as the
educational and skill levels of the national workforce. Currently, Saudi Arabia is largely dependent upon an
expatriate workforce which to some extent may cut into cost competitiveness due to the high cost of having an
expatriate workforce compared to that of China, India and other emerging Asian economies who are endowed
with low cost quality workforces.
The most important factor is to raise the competitiveness of domestic products. The situation in the initial
years of China's entry into the WTO reminds us of the unevenness of advantages and disadvantages in
different industries and the uncertainty of their changes. Since the impact is unavoidable what we should do is
to get to know, master and use the WTO rules and regulations as soon as possible in order to grasp the
advantages while avoiding the disadvantages and trying our utmost to turn the challenges into opportunities.
Despite the numerous challenges, accession of the Kingdom to the WTO is likely to have an extensive effect
on the structure of the Saudi economy and its society. The private sector is poised to play a bigger role in
diversifying the economy, sustaining the growth momentum initiated by reforms and large budgetary
allocations, creating new jobs and integrating with the global economies.
1.3 Investment in Saudi Arabia
Although Saudi Arabia is the world's largest oil exporter, it is not able to fully exploit its competitive advantage
in petrochemicals due to the closed nature of the EU market. In fact, Saudi Arabia imports base oil from
Europe in order to make lube oil. The EU has somehow managed to exclude the oil producers in the region
from some of the downstream processing. WTO accession promises to change this and will make Saudi
Arabia a major petrochemical manufacturer in the world.
Moreover, with accession to the WTO Saudi Arabia can maximise its competitive advantage where it has a
natural advantage. The country has the cheapest feedstock in the world. Feedstocks (natural gas, natural gas
liquids or naphtha out of oil) are needed to make petrochemicals. The cost to Saudi Arabia is below $2 a barrel
whether it is in gas barrel equivalents or in oil. This allows Saudi Arabia to start taking over the markets.
Germany is the largest producer of petrochemicals in the world today. Despite Saudi Arabia being the third-
largest exporter of German products, Germany does not cooperate with Saudi Arabia in petrochemicals or any
energy-based industry. By 2015 Saudi Arabia is expected to emerge as the largest producer of petrochemicals
in the world.
Another important advantage is natural gas. Natural gas is sold by Saudi Aramco to the users, whether they
are electricity companies, water desalination companies, SABIC or the private sector at 75 cents per million
BTUs or the equivalent of $4.35 per barrel. The Germans who are competing with the Saudis, are buying at

the equivalent of $62 a barrel today. Hence there is an enormous difference between the two.
Other major fields where there is much potential for investment is in the power, agriculture and transport
sectors where there are enormous opportunities and challenges available to foreign investors.
1.4 Increased willingness of International Companies to invest in Saudi Arabia
With regard to investing in projects in Saudi Arabia, foreign entities are no longer required to take Saudi
partners (except banking and insurance services). Foreign investment may take one of two forms: (i) a joint
venture with a Saudi partner (with no minimum share requirement for the Saudi partner); or (ii) a 100-percent
foreign-owned enterprise. Also, foreign investors are now permitted to own real estate in Saudi Arabia for
company and housing purposes. In addition, the Kingdom has withdrawn the minimum capital requirements
that were applied to agricultural, industrial and services projects. Furthermore, the Government encourages
foreign direct investment in infrastructure including power, water, telecommunications and transportation.
The Foreign Direct Investment Law, revised in the year 2000, permits foreigners to invest in all sectors of the
economy except for oil exploration, drilling and production. There is no prohibition on foreign investment in
refining and petrochemical development. Foreign companies are also eligible for low-cost funding from the
Saudi Industrial Development Fund (SIDF) for up to 50 percent of a project cost.
The new Foreign Direct Investment Law had established minimum levels of investment for agricultural projects
(USD 6.67 million), industrial projects (USD 1.33 million), and service projects (USD 0.53 million).
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 are no delays for remitting investment returns such as
dividends, return of capital, interest and principal on private foreign debts, lease payments, royalties and
management fees through normal legal channels. Furthermore, there is no limitation on the inflow or outflow
of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property and
imported inputs.
Chapter II
The public law in Saudi Arabia
2.2 Islamic law and International Business Law
2.3 Judicial structure in Saudi Arabia
2.4 The effectiveness of the Saudi Arabian judiciary and application of the laws
2.1 The public law in Saudi Arabia
The dogma of Islamic legal science consists of legal opinions which are supported by one or more of the
primary or subsidiary sources (masadir) or proofs (adillah) of the Shari'a. There is almost unanimous
agreement among the scholars of the different schools of jurisprudence that the Quran and the Sunnah of the
Prophet are the only primary sources. In view of Saudi Arabia's accession into the WTO, it has passed its own
basic law so that other WTO members who are dealing with the Kingdom may know the legal risks involved in
the Kingdom.
In the Kingdom of Saudi Arabia, Islamic Shari'a is the law applicable to all judicial matters. It should be applied
according to the Hanbali school of jurisprudence, however if there is no rule in this school which can be
applied to the case being dealt with, or if the application of some rules of the Hanbali school are not in the
interests of the public, the other three schools of jurisprudence (Hanafi, Shafei and Maliki) can be consulted.
However, considerable changes in the country both economically and socially, particularly over the last few
decades, as well as Saudi Arabia's interest in welcoming FDI have resulted in Royal Decrees, Ministerial

Decisions and Administrative Circulars being issued in many fields of activity such as business, banking,
intellectual property rights, labour, social security and arbitration, etc. Such legislation is intended to
supplement the Shari'a Law and is approved of by it because it is not contrary to Shari'a principles.
In 1993, the Basic Law was passed by Saudi Arabia. The Basic Law of Saudi Arabia is a charter divided into
nine chapters, consisting of eighty-three articles. It is in accordance with Shari'a and does not override Islamic
laws. Presently Basic Law is considered as a constitution of Saudi Arabia.
Despite Basic Law being promised since the era of King Feisal it was only implemented by King Fahd in 1992.
The resulting Constitutional Government is fundamentally different from Western style social order. Article 1 of
the Basic Law of Government states that 'God's Book and the Sunnah' are the substantive constitution of
Saudi Arabia, being only amended by reforms of state organisation. The Saudi Arabian monarchy is religion
bound and the new Consultative Council is subject to nomination and re-nomination by the king. In addition,
the Kingdom has three different wings: the Judicial Council, the Executive Council and the Regulatory Council
with the king being the head of these three councils.
Islamic law and International business law (Is Islamic law inconsistent with international business law?)
The Islamic law is developed from the origin of its tradition. The main sources of this law are the Quran and
Shari'a Laws whereas the international law is developed by way of customs. Under Islamic law, contracts
which involve speculation are not permissible and are considered void. However, Islamic law does not prohibit
general commercial speculation. Rather the concern is to prohibit forms of speculation which are regarded as
akin to gambling. The test is whether something has been gained by chance rather than by productive effort.
Of course this distinction presents practical difficulties. The distinction between general commercial
speculation in genuine commercial trading and speculation regarded as gambling is not very clear. In each
case the commercial substance of the transaction must be analysed to evaluate whether or not it is
permissible under Islamic law. The best way of understanding how the distinction is drawn is to look at some
examples. If an Islamic financier was to provide capital by way of an equity interest in a vehicle being set up to
operate a new Shari'a compliant business, such funding would be regarded as acceptable since the
speculation in this case is the commercial speculation as to whether or not the new venture will succeed. On
the other hand, speculation undertaken when entering into a conventional over-the-counter derivative would
not be permitted, the gain being regarded as deriving from chance rather than involving the necessary
productive effort.
Contracts where one party is regarded as having gained unjustly at the expense of another party are also
considered void. Again it is not clear exactly what would amount to unjust enrichment and each contract is
considered on a case by case basis. It should be noted that the Shari'a principle of unjust enrichment is wider
in its scope than the principle as applied by the English laws of restitution as the Shari'a not only applies to an
enrichment of one party at the expense of another which cannot be justified, but also to the enrichment of one
party who exercises undue influence or duress over another. For example, it is not possible for a creditor to
benefit financially from penalising a non-performing or defaulting debtor by charging and retaining a default
fee. Although it is possible to charge a default fee and pay the proceeds of that fee to charity since it is
considered that the obligation to pay this fee would serve to encourage the debtor to discharge its contractual
obligations in a timely manner.
Under Islamic law, money is regarded as having no intrinsic value and also no time value and is seen merely
as a means of exchange. Since as noted above, Islamic principles require that any return on funds provided
by the financier be earned by way of profit derived from a commercial risk taken by the financier, the payment
and receipt of interest (riba) under Islamic law is prohibited and any obligation to pay interest is considered
void. Contracts which contain uncertainty (gharrar), particularly any uncertainty as to one of the fundamental
terms of the contract, such as the subject matter, price or time for delivery are again considered void. Again,
the Islamic principle of gharrar is wider than the English common law principle of uncertainty. Whereas case
laws such as G. Scammel & Nephew Ltd v Ouston have established that an agreement may not be binding if
a definite meaning cannot be given due to the vagueness or uncertainty of certain terms, the Shari'a principle
is wider in two main ways. Firstly, whereas English common law will permit some vagueness provided that it
can be resolved by interpretation, or by examining the intention and/or conduct of the parties, the Shari'a
requires absolute certainty on all fundamental terms. Secondly the Shari'a does not permit a contract where
uncertainty may arise out of the actual subject matter or substance of a contract. For example a conventional

insurance arrangement is not permitted (haram) on the basis of, amongst other things, uncertainty ( gharrar)
on the basis that it is uncertain whether the insured event will occur or not. However a major break through in
Saudi Arabia is that an Insurance law has been passed and …
Judicial structure in KSA
Since Saudi Arabia is an Islamic state, its judicial system is based on Islamic law ( Shari'a) for both criminal
and civil cases. At the top of the legal system is the King, who acts as the final court of appeal and as a source
of pardon. The Saudi court system consists of three main parts, the largest being the Shari'a Courts which
hear most cases in the Saudi Arabian legal system. The Shari'a courts are organised into several categories:
Courts of the First Instance (Summary and General Courts), Courts of Cassation and the Supreme Judicial
Council. Supplementing the Shari'a courts is the Board of Grievances which hears cases that involve the
government. The third part of the Saudi court system consists of various committees within government
ministries that address specific disputes, such as labour issues.
In April 2005, a royal order approved in principle, a plan to reorganise the judicial system. On October 1 st
2007, a royal order approved the new system. Changes included the establishment of a Supreme Court and
special commercial, labour and administrative courts. Shari'a refers to the body of Islamic law. It serves as a
guideline for all legal matters in Saudi Arabia. In the Shari'a and therefore in Saudi Arabia, there is no
difference between the sacred and the secular aspects of society. Muslims derive Shari'a law primarily from
the Holy Qur'an and secondarily from the Sunnah, the practices and sayings of the Prophet Muhammad
during his lifetime. The third source is 'Ijma', the consensus of opinion of Muslim scholars on the principles
involved in a specific case occurring after the death of the Prophet. Analogy (Qias) is the fourth source of law.
In Saudi Arabia the criminal law, like many other countries places the burden of proof on the state and the
Shari'a presumes that a defendant is innocent until proven guilty. Only in serious crimes or in cases of repeat
offenders is one likely to witness severe punishments.
With regard to the judicial system in Saudi Arabia, the Judiciary Act conferred Shari'a courts with general
jurisdiction over all judicial matters such as criminal, civil, property and matrimonial claims, etc. The Shari'a
courts do not decline jurisdiction unless other judicial bodies have been given exclusive jurisdiction. The
translation of Article 26 of the Judiciary Act reads: "The Courts (Shari'a Courts) shall have a jurisdiction over
all types of disputes and crimes except those excluded by Law ...". There is another judicial body which is
completely independent from the Shari'a Courts, namely the Board of Grievances which was initially formed
as an administrative court. Furthermore, there are a number of committees that are empowered to adjudicate
certain disputes which are linked to the Board of Grievances such as the Customs Committee, the Committee
for Implementing Sea Port Codes, the Committee for Implementing Copyright and Trademark Codes, the
Committee for Implementing the Private Medical Establishments Codes and the Committee for dealing with
claims related to Commercial Deception. There are also a number of quasi-judicial committees which are
completely independent from the Shari'a Courts and the Board of Grievances, such as the Commercial Papers
Committees, the Saudi Arabian Monetary Agency's Committee for Banking Disputes and the Commissions for
the Settlement of Labour Disputes.
Being of potential importance, the Shari'a judicial system was regulated in the early days of the unification of
Saudi Arabia since that time, these regulations have been amended three times. The first step towards
regulating the Shari'a Courts was taken in 1927 by the issuing of the Formation of the Shari'a Courts Act. This
Act contained twenty-four Articles regulating Shari'a Courts, judges and other related matters. In 1938 another
regulation was issued called the Concentration of the Shari'a Judicial Responsibilities Act. This Act was a
significant step along the road to improving the system. It included 282 Articles giving a detailed regulation of
Judges and their supervision, the Courts, their types and jurisdiction, etc. In 1952 a further regulation which
maintained the same name was issued. However, this regulation did not make significant changes to the
previous regulations.
Finally, the current Judiciary Act was issued in 1975. It contains several sections covering various aspects of
the judicial system such as provisions securing the independence and impartiality of the courts, the types of
courts and their jurisdiction, the judges, their appointment and promotions as well as the role of the Ministry of
Justice.
Judges are expected to perform their judicial functions independently and impartially. The translation of Article
1 of the Judiciary Act provides that: "Judges are independent and not subject to any authority in rendering

judgment.... No person shall have the right to interfere in the judicial process".
The Judiciary Act has also affirmed the independence of the judiciary in various ways such as in Article 2,
which states that judges are not allowed to be discharged from their posts. Also, Article 3 provides that they
are not to be transferred to other posts without their consent or as a result of promotion. Article 4 provides that
judges cannot be prosecuted except according to their disciplinary regulations. To further enhance their
independence, the Act, in order to distance the judiciary from the influence of the executive power, provides
that the Supreme Judicial Council is the authority that deals with all aspects related to judges, such as their
appointment, discharge, transfer, promotion, and discipline.
Article 5 states that the Shari'a Courts consist of:
(1) Supreme Judicial Council;
(2) Court of Appeal;
(3) General Courts; and
(4) Summary Courts.
The Supreme Judicial Council as it is today is a result of its development over many years. It has legislative,
administrative and judicial powers. Its judicial powers constitute the highest in the Kingdom of Saudi Arabia. It
is considered as the final Court of Appeal. The Council is composed of eleven members. Five of these
members represent the Permanent Board who are full-time members appointed by a Royal Order at the rank
of the President of the Court of Appeal.
The other five are part-time members. They are: the President or the Deputy of the President of the Court of
Appeal, the Deputy of the Minister of Justice and three of the most senior general court judges. This is in
addition to the President of the Supreme Judicial Council who is appointed by a Royal Order and regarded as
the chairman of the General Assembly. The chairman of the Permanent Board is also appointed by a Royal
Order.
Article 9 of the Act provides that meetings of the Permanent Board are invalid unless three members are
present except when reviewing sentences of execution, amputation and stoning in which case all members
have to be present. The General Assembly meetings are not valid unless all members are present. The
decision of both the Permanent Board and the General Assembly require a simple majority. The head of this
committee is the most senior member of the two Supreme Judicial Council members.
The Court of Appeal was initiated in 1927 by the Formation of 'The Shari'a Courts Act' and has undergone
considerable changes since then. The current Judiciary Act has devoted Articles to this Court covering various
aspects related to it. The draftsmen of the current Judiciary Act whilst bearing in mind the unification of the
Shari'a principles which are to be applied by the General and Summary Courts, stipulated a single Appeal
Court, the location of which is to be in Riyadh. However, it is permitted for some of the Court's departments to
hold their meetings in another city provided that a resolution to that effect is issued by the Judiciary Act. This
Court is composed of a President and a sufficient number of judges, some of whom are nominated as
deputies of the President according to the seniority of their joining the Court of Appeal. The General Assembly
of the Court of Appeal consists of all its judges.
The President of the Court of Appeal is the most senior member of the Court and is appointed by a Royal
Order on the recommendation of the Supreme Judicial Council. The other members of the Court of Appeal are
also appointed in the same way. However, in order to be appointed as a judge in the Court of Appeal there are
some requirements necessary such as the requirement to be over forty years of age and to have completed a
period of at least two years in the judicial post below.
The Court of Appeal is divided into three divisions: the Criminal Division, the Family Division and the Other
Cases Division. However, it is permitted to create more divisions as the need arises. The head of each
division is either the President of the Court of Appeal or one of his deputies. The Criminal Division of the Court
of Appeal hears appeals from all Shari'a general courts. Normally an appeal is heard by three judges;
however, five judges are required to hear appeals involving execution, amputation or stoning. The Family
Division consists of three judges. It hears appeals involving matrimonial disputes, such as divorce and validity

of marriage, adoption and inheritance, etc. The Other Cases Division deals with appeals which are outside the
jurisdiction of the other two divisions, such as disputes involving real estate, actions founded on contract or
tort, and other similar civil matters.
Akin to the Court of Appeal, the General Court came into existence as a result of the formation of the Shari'a
Courts Act under the name 'Shari'a Court'. It was given the name General Court by the current Judiciary Act,
which provides that the Court consists of one or more judges according to the size of the court which
corresponds with the size of the town or city in which it is located. These courts are either class A or class B.
Class A courts are located in cities and towns, whereas class B courts are situated in villages. The
requirement of the appointment and the promotion of Judicial Members of these Courts are listed in the Act.
It should be noted that the prevailing opinion of Muslim scholars is that it is prohibited for the Court of Appeal
to make a new trial in which it hears the whole evidence directly from the parties involved. Hence, the Appeal
Court assumes a supervisory role over the general courts to ensure that the decisions of these courts are in
compliance with the Shari'a Law. It can be said therefore that this court is more concerned with appeals on
questions of law rather than of fact.
Apart from this structure, Saudi Arabia has the Board of Grievance which has been created specifically to deal
with disputes which involve the government.
The effectiveness of the Saudi judiciary and application of the laws
As earlier mentioned, Saudi Arabia has in place a strong judiciary to solve disputes. Since the King and his
advisory councils respect the independence of the judiciary, there is not much interference from them. The
King only interferes in rare cases where public interest is involved. In other cases he may only exercise his
pardoning power. In most of the commercial contracts an arbitration clause has been incorporated. Saudi
Arabia's judiciary has given respect to the arbitration clause and the judiciary's attitude towards arbitration has
changed significantly. Saudi Arabian courts give a lot of reverence to commercial agreements and deliver their
verdict in such cases faster than in other cases.
Chapter III
History of FDI in Saudi Arabia
Legislative History of FDI in Saudi Arabia
Conclusion
3.1 History of FDI in KSA
The Kingdom of Saudi Arabia has a population of around 22 million people, of whom approximately three
quarters are Saudis. The growth rate of the population is over 3% and the demographic structure is very
young, with 65% aged less than twenty-five in the Year 2000. At current population growth rates, the
population will have more than doubled by 2020. The prospect of having to find gainful employment for the
youth of today weighs heavily on the government. There is an awareness that radical steps must be taken to
create the necessary jobs and a concern that if unemployment were to spiral, social unrest could ensue. As a
consequence, education has become a priority for the government with most educational institutions
administered by the state and private establishments not having much presence in the Kingdom. Furthermore,
Saudi Arabia has invested heavily in healthcare and facilities are generally financed directly by the
government through the establishment of hospitals and clinics as well as generous incentive and support
programs for private-sector institutions. Nonetheless, budgetary constraints, the rapidly growing population
and new medical technologies are causing the government to rethink how healthcare will be financed.
The Saudi government has been using oil revenues to finance a determined program of infrastructural,
industrial and agricultural development while pursuing a far-reaching program of modernising the Kingdom's
health and educational systems. In major reforms from past policies, the domestic price of petroleum products,
electricity, water, telephones, visas and work permits as well as air travel were significantly increased, with the
intention of reducing the reliance on oil revenue. In the sixth Five Year Development Plan (1995-99) the role of

the private sector is a particularly important theme. The plan mentions the sale of government assets as a
means of rationalising government expenditures but does not provide a specific privatisation program or
timetable for state sales.
The government is now determined to offer set of initiatives to open up more of the economy to the private
sector. A number of announcements by key ministers in past months are signalling that a wide-ranging
economic reform effort is gradually crystallising. The major areas which Saudi Arabia is opening up for foreign
investors are power, transport, telecommunication, insurance, ports, education, health, information technology
and other related areas.
The systematic privatisation of port operations has already got under way. Acting on recommendations of the
SEAPA (Saudi Seaports Authority), the government has recently approved plans for a systematic programme
of privatisation that aims to raise productivity levels in the ports by providing greater incentives for private
companies to invest in their running. Under the plans, the government will retain ownership of the ports and
the SEAPA will maintain its supervisory role. However, private companies have now starred bidding for ten
year operation, maintenance and management contracts.
Membership in the WTO will accelerate Saudi Arabia's markets becoming more liberalised. In addition,
membership in the WTO will help Saudi Arabia to exports its oil and petrochemicals to world markets without
any hindrance. It will also entail reviewing the country's entire trade regime. Saudi Arabia is currently enjoying
the status of a developing country in the WTO and is therefore given a period of grace of between five-ten
years in which to adapt legislation and trading practices. Progress is also expected in the liberalisation of the
financial services sector with Saudi Arabia already having passed many commercial regulations in the fields of
brokerage, insurance and commercial banking activities.
The Kingdom of Saudi Arabia realised that in order to achieve its dream economic goals, it requires a steady
flow of technology and expertise from world markets. Therefore, its policy is to welcome foreign capital and
invite it to participate in economic development projects in cooperation with Saudi businesses. The
government's established policy is not to impose any restrictions on the movement of capital in and out of the
Kingdom and to always respect private ownership.
In addition, foreign investment which fulfills the requirements of the Foreign Capital Investment Code enjoys
all the privileges of national capital and is entitled to the same treatment, protection and incentives awarded to
national capital. The Code requires that foreign capital be invested in economic development projects other
than negative lists and that it is accompanied by technical knowledge. Development projects are defined by
the Ministry of Industry and Electricity.
Saudi Arabia actively encourages foreign investment, especially if the projects have a strong and fundamental
developmental effect on the country's economy and promote industrialisation and technology transfer. Saudi
law requires that technology transfer should occur in any foreign invested projects. Moreover, foreign
investors can invest and own their property in their own name. However, the petroleum and mineral extraction
industries are owned and controlled by the government and are generally closed to foreign investment.
3.2 Legislative History of FDI in KSA
Saudi Arabia has a vast number of competitive advantages in many strategic sectors at regional and global
levels which yield significantly higher returns on investment. Of course, it is no surprise that Saudi Arabia is
ranked first with regard to prices of energy provided for investment projects. As a consequence, many foreign
countries are attracted by Saudi Arabia's opportunities. As such, Saudi Arabia continues to be a natural choice
for investors in all energy intensive industries. However, the competitive advantages in today's Saudi Arabia
run much deeper than just energy. Rather it is about creating a world-class business environment that
combines an ease of conducting business with low costs. It is also about unfettered access to regional
markets and financial services. Above all, it is about Saudi Arabia's vision and its shared commitment. To fulfil
its commitment in the international scenario Saudi Arabia has passed many laws which will help foreign
investors to continue investing in it without any fear of losing their investment unjustly. WTO membership also
acted as a catalyst to make the Kingdom's legal environment more stable.

Due to Saudi Arabia's domestic needs as well as its willingness to share the benefits of a free market, it has
passed many laws including the Foreign Investment Act 2000. With regard to investing in projects in Saudi
Arabia, foreign entities are no longer required to take Saudi partners (except banking and insurance services).
Foreign investment may take one of two forms: (i) a joint venture with a Saudi partner (with no minimum share
requirement for the Saudi partner); or (ii) a 100-percent foreign-owned enterprise. Also, foreign investors are
now permitted to own real estate in Saudi Arabia for company and housing purposes. In addition, the Kingdom
has withdrawn the minimum capital requirements that had applied to agriculture, industrial and services
projects. The Government encourages foreign direct investment in infrastructure, including power, water,
telecommunications and transportation.
The Foreign Direct Investment Law revised in 2000, permits foreigners to invest in all sectors of the economy
except for oil exploration, drilling, and production. However, there is no prohibition on foreign investment in
refining and petrochemical development. Foreign companies are also eligible for low cost funding from the
Saudi Industrial Development Fund (SIDF) for up to 50 percent of a project's cost.
The idea for an Arab-wide investment promotion association came from the Saudi Arabian General Investment
Authority (SAGIA), the Economic Development Board of Bahrain and the Dubai Development and the
Investment Authority (DDIA). Prince Abdullah bin Faisal bin Turki, the SAGIA's governor, stated that Arab
governments had taken few steps to unify their approach. "There has been too little work to effect cooperation;
there has been no clear mechanism to guide inter-Arab cooperation in the area of FDI regulation and
promotion," he told an international conference on investment. He said the formation of the proposed Arab-
wide investment promotion institution would enhance national efforts and complement the efforts of
specialised agencies like the Inter-Arab Investment Guarantee Corporation and the Arab Monetary Fund.
Saudi Arabia has established a cooperative insurance system based on Islamic Law and has taken a number
of steps to liberalize the regime as permitted by Islamic Law. The most important steps are: (i) permitting the
distribution of surplus insurance operations between shareholders and policy holders at a ratio of 90/10
respectively; (ii) allowing foreign insurance providers to establish and operate branches in Saudi Arabia
(implementing regulations expected before May 2006); and (iii) providing a three-year transition period
(starting April 13, 2005) during which foreign entities already providing non-cooperative insurance services in
The Kingdom may continue to do so and moreover, may offer new products and services to clients, as set out
in the Saudi Services Schedule. Foreign consulting firms are allowed to establish an office in Saudi Arabia
without a Saudi partner except for offices practicing law, accounting and auditing offices, design, architectural,
and engineering, civil planning, healthcare services, dentistry and veterinary services. These services
mentioned in the latter paragraph can be established in Saudi Arabia although the foreign partner's equity
cannot exceed 75 % of the capital.
In compliance with the TRIPs agreement of the WTO, Saudi Arabia has established new IPR laws and
enforcement mechanisms to provide full protection for copyrights, trademarks, geographical indications, trade
names, commercial data and protection of confidential data, border measures and patents, layout designs of
integrated circuits, plant varieties and industrial designs. Provisions for penalties for violations have been
substantially strengthened. Furthermore, measures have been taken to streamline the application process and
reduce the patent backlog by hiring new patent examiners.
The corporate tax rate for foreign companies is fixed at 20%. However, separate rates will apply to
investments in natural gas and in oil and hydrocarbon production. The new rate replaces a tiered system that
went 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 that favour Saudi Arabian 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 % tax on net current assets (Zakat).
As part of the commitment to the WTO, multilateral dispute settlement to resolve international trade disputes
has been adopted. Furthermore, disputes between foreign investors and the government can be solved by the
Board of Grievance together with effective arbitration regulations being put into place to solve foreign
investment disputes.
Chapter IV

4.1 Foreign Investment Act Rules
4.2 The Executive Rules of the Foreign Investment Act
4.3 Negative List (Except Investment)
4.4 Company Laws
4.5 Relevant Laws
Conclusion
Foreign Investment Act
This law contains eighteen articles. It commences with various definitions and terminology and explains that
the Supreme Economic Council is responsible and has the authority to issue laws and legislation for foreign
investors. It also contains a list of fields which are excluded from being invested in by foreign investment as
referred to in Article 2. In addition the Act allows investors to obtain more than one license in different fields. It
also offers overseas investors the opportunity to own their business without any restrictions or become
business partners with local nationals as mentioned in the fourth and fifth Articles.
Some of the privileges and advantages that are available to foreign investors is that they have all the comfort
and flexibility guarantees that are provided by the national project. Another privilege is that they can resell their
share in the market as well as have the right to transfer the necessary amounts of money to fulfil their money
obligations as stated in Articles 5 and 6. Furthermore, they have the right to own real estate which is
necessary to carry out their legal business or for accommodation purposes as mentioned in the previous
article.
On the security side, foreign investors are protected when resolving any disputes as stated in Article 11, under
no circumstances is the confiscation of any assets belonging to foreign investments allowed except by a ruled
government law. In addition, it is not permissible to force the change of ownership partially or wholly with the
exception of where it is in the interest of the general public. In this case, fair trade compensation will be
awarded according to regulations and the law.
In the case of any legal infringement, it will be necessary for the General Investment Authority to notify the
foreign investor in writing and in advance depending on what violation has been committed. However, if an
investor continues to break the law then action will be taken against them through the investment authorities in
Saudi Arabia. The penalty will be either taking some or all of their privileges or the setting of a fine which will
not exceed (500000 SAR) which is equivalent to (71000 British pounds). In extreme cases breaking the law
could result in the foreign investor's business license being cancelled. This decision and ruling can only be
issued and passed by the Board of Directors of the General Investments Authority in Saudi Arabia. The foreign
investor has the right to appeal against this ruling to a higher authority entitled Diwan al Madhalem.
In the case of a dispute occurring between a foreign investor and the Saudi Arabian government in relation to
an investment, it is stated in Article 13 that the issue should be resolved in an amicable manner. If the matter
still remains unresolved then it will be settled according to regulations. The articles also states that all foreign
investors in Saudi Arabia are required to adhere to taxation laws and any other amendments they hold. This is
also considered to be an advantage for foreign investors due to the low tax rate and customs tariffs in Saudi
Arabia which are set by 5%. In order to benefit from this, foreign investors have to obey the Saudi Arabian law
rules and regulations and the international agreements that are part of this.
The Executive Rules of the Foreign Investment Act
This Act consists of eight chapters and contains twenty-six articles. It commences with various terminology
and definitions. The second chapter discusses different investments fields in Saudi Arabia. The third chapter
shows the benefits, incentives, privileges and guarantees that foreign investors will enjoy. The fourth chapter
contains Articles 6, 7 and 8 which explain the conditions and rules of the license. These four chapters were
already mentioned in the previous chapter of the Foreign Investment Act and are repeated here.

The fifth chapter discusses in detail (eight articles) how to obtain a temporary or permanent license as well as
the limitations of each. It also lists the necessary documents, paperwork, forms and information required for a
foreign investor to obtain a license. Furthermore, it lists the offers, privileges and guarantees that the foreign
investor will enjoy.
This executive rule also explains the commitments the foreign investor has to make such as: following and
executing the correct steps when making investments and in accordance to a time scale presented by the
Investment Authority in Saudi Arabia. Additionally, carrying out and fulfilling all the conditions and the main
objective of the investment which is based on the license granted to them and agreed upon. Furthermore, it is
not permissible for a foreign investor to add any extras or make any amendments to the license without the
permission of the Authority in Saudi Arabia, as well as following the regulations by having an appointed
accountant for their facilities and a budget approved by one of the charter accountants' offices.
The seventh chapter is regarding the infringement of the investment laws in Saudi Arabia by foreign investors.
The investment authority has formed a committee whose main focus is to carry out inspections and to check
through investors' books, documents and all related paperwork. If any contraventions are found, they will
create a report and present it to a board consisting of three members. One of the members will be a law
consultant who will look into the case and review the license's conditions; the board members will listen to the
defendant's testimonies, study the case and then suggest what it sees as a suitable resolution. In the case of a
major law violation, the board will take appropriate action. The foreign investor has the right to object to this
ruling and re-appeal to the investment authority within thirty days. The investment authority will look into the
case and will pass its verdict within a period of thirty days of the re-appeal day.
In the case of foreign investors who have been accused of infringement, the investor can take the case one
step further to the Diwan al Madhalem within a period of sixty days.
The last chapter is assigned to deal with the settlement of disputes between foreign investors and their local
Saudi partners. A committee which is assigned by the investment authority (an independent authority) is called
the 'Investment Disputes Settlement Committee'. This committee consists of two members and a director who
will consider the dispute and try to work out a way to resolve the conflict in an amicable manner. If a settlement
is not reached through this process then they will refer the case to arbitration.
Negative List (Except Investment)
There are logical reasons for not allowing foreign investors to invest in some fields in Saudi Arabia. These
reasons are divided into the following four sections:
Political Reasons:
There are political reasons which relate to national security. Therefore foreign investors are not permitted to
invest in the following fields:
Manufacturing civilian explosives;
Catering services for military sectors;
Manufacturing machines ,instruments and military garments;
Security and detection.
Economical Reasons:
This relates to economical stability and security and to ensure peace of mind for the citizens of the country.
Other reasons have links to politics, for example investing in oil fields is not permitted as well as everything
connected to the oil like producing, exploring and mining for it. This is because it is the country's main natural
resource and forms the country's most important economical pillar as Saudi Arabia relies and survives on the
income of oil. Therefore if this field was open to investment by foreigners it would be taken over by foreign
companies which would result in the Saudi government coming under great pressure as it could result in the
Saudi economy becoming under the control of foreigners. This has occurred in some regions such as the
South Asian Tiger countries when after having been infiltrated by foreign investors, overseas investors have

destroyed the economies of the host countries. For reasons such as these, there has been a ban on foreign
investment in Saudi oil. This ban excludes the other mining fields.
To protect local national investors, foreign investors are excluded from the following fields:
Real estate agency;
Some of the services which fall under publishing and printing.
Audio and visual services;
Business trade agents;
Inland transport services ( buses) this excludes railway transportations;
Searching for underwater resources;
Recruitment and employment services (private house maids and drivers).
Religious reasons:
Real estate investing in the two holy cities of Mecca and Medina;
Hajj and Umrah touring services.
Medical reasons:
Nursing and natural therapy services;
Blood banks, toxic centres and quarantine medial places.
Generally speaking these areas are excluded for foreign investors. However there is room to amend them by
either adding to the negative list or even erasing certain areas from this list although changes will only take
effect after consideration by the Foreign Investment Authority Board.
Company Laws
Company laws are considered to be the main body of legislation which govern companies. The Saudi Arabian
company laws approve of eight different types of companies. The most popular forms are: limited liability
companies (LLC), general companies, limited companies and joint stock companies.
Other types of companies which are not as popular are companies limited by shares and joint ventures.
Shari'a Law also defines some other types of companies which however, cannot be used by foreign investors.
Foreign investors usually establish companies that have limited responsibilities. Partnerships and joint stock
companies are only established in exceptional cases.
Different types of companies.
It is possible for foreign investors to enter the Saudi labour market in the following legal ways:
Limited liability companies (LLC);
Share holding companies;
Foreign company's branches;
Technical and scientific offices for foreign companies;
Private establishments.
The Limited Liability Company

The Limited Liability Company is a company which consists of two or three partners who are responsible for
the company's debts. The total number of partners in the company should not exceed fifty members;
furthermore the capital of this company in the form of shares should not exceed five hundred thousand Saudi
riyals.
Share Holding Company
Companies with share holders make stakes in the company with capital. Otherwise, the license for this type of
company is established by a royal decree.
Branches of Foreign Companies
After the general investment authority has come to a decision to allow foreign companies to open branches,
they must proceed in this venture according to the foreign investment capital system. Additionally, the foreign
company should apply with the required necessary documents to the Companies General Management Office
where all the documents and papers will be examined to see their validity.
The Technical and Scientific Offices for Foreign Companies
This organisation deals with foreign companies who would like to open additional branches or offices
throughout Saudi Arabia. The organisation offers its technical and scientific services to the company's
representatives, agents, consumers and product distributors. These services are offered after a company is
officially registered in the business registry and a registration certificate is handed to the company's manger.
Private Establishment ( The Main Branch)
The regulations also explain the Commercial Agent System. The commercial agent is someone who signs a
contract with a commercial brand giving him the right to market the brand and execute business deals. This
can be either an agent or a distributor and in return the agent receives a profit, a commission or other
benefits.
The rules and regulations allow companies to transform from one form of company to another form according
to the decision taken by the company to amend its contract, system and its circumstances whilst at the same
time fulfilling its establishment conditions and the chosen type of company it wants to transform to. Note: it is
not permissible for a cooperative company to transform to any other type of company although other types of
companies are allowed to transform to a cooperative one.
Relevant Laws
Anti Money Laundering Law
This law consists of twenty-nine articles; these articles provide definitions and introductions. A total of eleven
definitions present precise and conclusive meanings such as money laundering, property, process,
instrumentalities, criminal activities and confiscation.
The International Money Laundering Law deals with all aspects of money laundering and several regulations
which govern monetary establishments and companies. Furthermore, it publishes a decision to construct a
financial intelligence unit and defines its jurisdiction and rule. These articles also point out the punishment
which will be dealt to anybody who participates in money laundering and clears any misconceptions in settling
any disputes.
Capital Market Law
This law which consists of sixty-seven articles commences with the explanation of various terminology and
definitions. The contents give details of the jurisdictions of the Capital Market Law authority and the process of
creating committee members who will be responsible for the Capital Market Law. These members consist of
experts from all fields who will each be allocated a specific task. The articles also explain how to deal with

negotiable securities and constructing a centre to deposit the negotiable security as well as creating a dispute
settling committee together with setting boundaries for regulating intermediaries. It also explains investment
funds and programs for group investments, as well as the law of information disclosure. The law covers
criminal circulation fraud based on internal information as mentioned in article forty-nine. It also explains the
requirements for granting agency and procurement restrictions as well as restricted offerings in shares.
Towards the end of this chapter, thirteen articles commencing from Article 55 to Article 67 discuss the
punishment laws, offences and penal provisions.
Gas Supplies and Pricing Law
This law consists of nineteen articles. The first article explains terminology and definitions which are related to
'gas'. It also details the different types of gas, its transportation and its retail. The second article concerns
licensing the activity under the applicable law. The rest of the articles are regarding the ownership and
operation of the facility and the right to use the network's capacity.
The law also refers to the rights of marketing, sale and technical services including: standardisation and quota
allocation; licensing conditions and provisions; licensing fees and insurance; and disputes.
Patents law
This law consists of sixty-two articles and commences with the explanation of various terminology and
definitions. The law goes into great detail about the technical specifications of inventions. It also provides
details of the exceptions that are not considered as inventions. As the Kingdom of Saudi Arabia follows the
Islamic Shari'a Law, if there are any inventions which contradict the Shari'a, they will be considered null and
will not be granted a patent certificate.
Trademarks Registration Laws
This law deals with business trade marks registered on the business license as well as the regulations
regarding the transfer of ownership, the rules and regulations for private businesses and companies, the
settlement of any disputes and the places to go to solve disputes. A point to note here is that this law was
issued quite a while ago in the year (1984). During the reign of King Fahad bin Abdul-Aziz this law was
amended and there was an addition made to it (Trademarks Registration Law) in the year 2000. Furthermore
all these laws were issued before the Kingdom joined the WTO which means that the laws require further
amendments and additions.
Copyright Law
This was royal decree no: M/41 dated 30/8/2003 and consists of thirty-four articles. Firstly it lists various
terminologies: different categories of writers who will be protected by the law; also the writers' rights;
transferring the writers' copyright; the copyright law to protect the writer; its period; and the laws for innovation
and punishment. The seventh chapter includes three articles giving details about general laws.
Labour Law
This is one of the major laws introduced in the Kingdom as it is a royal decree: no. M/51 dated 27/9/2005. It
includes sixteen chapters which contain 245 articles. Its main features are the following:
Definitions

General Provisions
Employment Units
Employment of the Disabled
Private Offices for Recruitment of Citizens and Private Offices for Recruitment from Abroad
Training and Qualification of the Employer's Workers
Qualification and Training Contract of Workers other than the Employer's
Work contract
Duties and Disciplinary Rules
Termination of Work Contract
End-of-Service Award
Wages
Working Hours
Rest Periods and Weekly Rest Days
Leaves
Protection Against Occupational Hazards
The Cooperative Insurance Companies Control Law
This law consists of twenty-five articles which discuss the law of insurance in Saudi Arabia as well as the
tariffs and required prevention insurance together with dispute solving and the necessary conditions to provide
insurance licensing.
Natural Gas Investment Taxation Law
This law consists of fourteen articles which in precise detail discuss the fields of investments in natural gas as
well as the outcome of working and investment in natural gas. It also considers the tax bowl. Furthermore, it
defines the price of tax, the tax year and explains how to calculate annual income.
Real Estate Law
Even though there are not many articles regarding this regulation as it only has eight articles it is considered
to be one of the most profitable fields as it allows foreign investors to own property in Saudi Arabia. This will
grant an opportunity to many people, especially foreigners who have lived in Saudi Arabia for a long time to
own property.
The context of the second article is concerned with allowing people who live legally in Saudi Arabia to own
property for accommodation purposes after obtaining permission from the Ministry of Interior. It also discusses
the granting of permission based on (treatment in the same manner of) Saudi Arabia's own official consulates,
embassies and accommodation for ambassadors and working staff. The same law applies to international and
regional organisations based on what has been agreed upon, on the condition that they obtain a license from
the Ministry of Exterior. However there is an exception to this rule: foreigners cannot own properties in the holy
cities of Mecca and Medina.

It is permissible for companies and establishments to own real estate and to carry out their business activities.
This includes accommodation for themselves and for their staff after obtaining the legal license. In order to
obtain a license a company is required to buy real estate to build their project with a minimum total cost of at
least 30 million Saudi riyals although this amount can be altered by the Minsters' Board.
Chapter V
Background
Settlement of investment disputes though litigation
Litigation in KSA
Settlement of investment disputes though arbitration
International instrument on arbitration
Arbitration under the Islamic Sharia
Saudi Arabian attitude towards arbitration
Conclusion
5.1 Background
On the whole, it is possible for investment disputes to be resolved through a myriad of methods which may
comprise of one or more of the following: arbitration, conciliation, litigation (judicial settlement) and negotiation.
The most favoured method of resolving disputes between groups is the negotiation method as it is a course of
action which is voluntary hence both sides are pursuing the course of their own accord, therefore this results
in less disagreements and a successful resolution. With regards to Islamic Shari'a, the preferred method
utilised in order to resolve conflicts from when Islamic Shari'a Law was first established is conciliation. In the
present age however, conciliation is not regarded as being able to offer the best resolution in investment
disputes.
The importance of having independent and effective facilities in place in order to resolve investment disputes
before foreign investors make any investment decisions in the host country cannot be underestimated. In the
next section, I consider litigation (judicial settlement) together with arbitration of investment disputes, as part of
this section I will also consider the Saudi Arabian stance on these methods.
In addition, one must not neglect to note that compromise in foreign investment disputes relies quite
extensively on the differing attitudes of two parties towards the treatment of foreign investments: the host
country (usually from capital exporting and developed countries) and the home country (which is usually
developed and imports capital).
The home country together with its multinational corporations is of the viewpoint that having international
dispute settlement systems which are dedicated to safeguard investment by foreign groups is in the interests
of monetary growth.
In conclusion, the crucial characteristics of this viewpoint are: unrestricted movement is essential to overseas
investments, furthermore it is important for foreign investment to have a dispute settlement system in place
which is both impartial as well as effectual; the inviolability of foreign investment agreements, hence the
permanence of contract is fundamental to investors; the international minimum standard; full recompense
must be awarded for the procurement of foreign property; the worldwide rule on the security of investments
should be generated by treaties; finally foreign investment conflicts should be resolved by means of overseas
arbitration.
The view of the host state (developing countries) include the rules that there is no freedom of entry for foreign
investment and that the developing country has the prerogative to screen any investment and exclude an
investment which is harmful to the interests of the host state; the sovereignty of the state includes the

restructuring of contracts (the doctrine of rebus sic stantibus) as opposed to the sanctity of contracts (pacta
sunt servanda); the national standard of treatment; the localization of foreign investment contracts; that state
contracts are different from ordinary commercial contracts.
The view highlighted above is one which is utilised by the Saudi Arabian government when resolving
investment disputes. It will be considered further in the discussion of the Saudi Arabian viewpoint of employing
arbitration as a method of reaching a resolution.
5.2 Settlement of Investment disputes through Litigation
The role of domestic courts in the resolution of disputes has increased in recent times. As a consequence of
experience, the courts have developed the confidence to construe the conventions of international law and
embody them in their own local legal structures. Furthermore, they have given consequence to them via
domestic enforcement methods.
Aspects of law which have expanded as a result of domestic courts construing and embodying the
conventions of international law are mainly in the areas of human rights, the environment and business
transactions.
The function of a national court in resolving an investment dispute is focused on presenting a solution against
foreign countries that have impeded foreign investor's rights. Furthermore, the court offers a solution to the
nationals of the host country upon whom the actions of the foreign companies have had a negative impact.
Legal action by overseas investors in national courts: This is a provision which is offered in many countries
and is considered as a method of encouraging the security of overseas investment by multinationals as a
result of easy access to their own local courts in order to resolve investment conflicts which have occurred
from agreements created in host countries. Nevertheless, the situation is still complex as the home state does
not have automatic authority over agreements made by its citizens in a foreign country. However this is not
the case if the host state has agreed to partake in a forum selection which gives the home country the right to
have the jurisdiction in such conflicts. However, most countries are resolute in ensuring that they have the
authority in cases such as these. However regarding America, the Foreign Sovereign Immunity Act allows
courts in the USA to have authority over the business acts of sovereigns of foreign countries which could result
in effects in the US. Nevertheless there are some who have immunity to this law as a result of the act of state
doctrine and sovereign immunity.
Exemptions are imperative in instances where active international order founded upon the parity of countries
would become unbalanced. For example if the local courts of one country implemented its authority over
another country.
5.3 Litigation in Saudi
In Saudi Arabia investment disputes come under the jurisdiction of the Shari'a Courts. The Ministry of Justice
governs the Shari'a Courts under the Judicial Code of 1975. The Shari'a Courts have three sections: Ordinary
Courts; Summary Courts; and Courts of Appeal. A Judge in a Shari'a Court must be have Saudi Arabian
nationality and be of good conduct; furthermore he must possess a degree in Islamic Shari'a from an Islamic
Shari'a College. The role played by the Minister of Justice is a supervisory one concerned with the judiciaries'
principles of independence and neutrality. The particular features of investment conflicts have resulted in the
development of a judicial authority whose sole responsibility is to adjudicate such conflicts. The Ministry of
Commerce governs the Special Committee for the Settlement of Commercial Disputes in order to deal with
disputes in the commercial and investment sector.
In 1987 a competent judicial organisation was established in order to deal with investment disputes in Saudi
Arabia. This board is known as The Board of Grievances (Diwan al-Madhalem). Although the Board was re-
structured in 1955 with a focus on becoming more autonomous, the Board's president was under the
immediate command of the King who had complete authority to endorse or disallow any of the Board's

proposals or findings.
As foreign investment in Saudi Arabia continued to increase, in 1983 the Government re-structured the Board
under a new code turning it into a judicial administrative tribunal granting it increased judicial authority in
lawsuits which dealt with the Government and private foreign investors.
Nonetheless, because the Board continues to be linked to the Monarch's approval, it is criticised for not being
totally autonomous. The authority of the Board of Grievances extends over conflicts as a result of government
contracts, commercial agreements and administrative decisions. Furthermore, in accordance with Article 8,
cases made by government civil servants against the government as well as appeals against administrative
decisions on the basis of formal defects, violations of applicable codes and their implementation rules in
addition to abuses of power which have been filed by interested parties are within the Board's jurisdiction.
Furthermore, the Board's authority covers compensation claims made against the government; criminal cases;
civil servant's disciplinary cases; conflicts regarding agreement between private parties and government
agencies; as well as cases filed under the Anti-Bribery and Anti- Forgery Codes.
Besides the constraints the Board of Grievances faces in its ability to adjudicate and litigate in foreign
investment conflicts, litigation itself is a process which has the possibility of being lengthy and drawn out. In
addition, local courts are viewed by foreign investors as deficient in the knowledge required to adequately
deal with foreign investment transactions. Furthermore, the publicity that comes with local court hearings is
viewed by foreign investors as violating their private investment dealings. Most importantly however, foreign
investors are not convinced of the neutrality of the domestic courts.
As a result, arbitration is the preferred means of resolving any investment transactions disputes which have
arisen. Therefore, in the following section I consider the function of arbitration in the resolution of investment
disputes in Saudi Arabia.
5.4 Settlement of Investment disputes through Arbitration
Arbitration has been utilised as a method to resolve disputes since time began and differing variations of it
existed in different regions. In 1974 the earliest rules of arbitration were established in the Jay Treaty between
Great Britain and the United States. This treaty allowed a dispute between the two countries to be finally
resolved by means of neutral arbitration and showed the criterion arbitrators should be applying. In addition,
the Jay Treaty resulted in the significant international arbitration rule that the tribunal has the authority make
judgements in its own jurisdiction. Furthermore, it resulted in arbitration being viewed as a judicial process
rather than a diplomatic process.
The First Hague Peace Conference in 1899 established the rules of international arbitration between states:
'international arbitration has as its object the settlement of disputes between states'. The advantages of
arbitration were quickly appreciated as it was increasingly utilised as a way of making judicial settlements.
These benefits incorporate: parties are able to decide on the forum, procedures, places an time periods;
furthermore the idea that arbitrators are able to make judgements in disputes in a just and sensible way.
There are three types of arbitration: inter-state disputes; international commercial arbitration; international
investment arbitration. The main focus in this study is on arbitration investment disputes where overseas
investors have made agreements with the host country.
5.5 International instruments on arbitration
International legal arbitration rules have been laid out in numerous arbitration mechanisms. This section
considers international and regional mechanisms which form the basis of international regulations.
(i)The 1962 Hague Rules
The International Bureau of the Permanent Court of Arbitration issued the 1962 Hague Rules. The Court made
the rules available to attendees of the Hague Conventions as well as other investors wishing to utilise them.

(ii)Arbitration Tribunal of the International Chamber of Commerce
Based in Paris, The Arbitration Tribunal offers arbitration facilities for international investment disputes. It also
allows any individual, company or country to include an 'ICC clause' in their contracts.
(iii)The 1966 Convention on the Settlement of Investment Disputes
The Centre for the Settlement of Investment Disputes (ICSID) was established in the 1966 Convention.
(ICSID) and is a World Bank sponsored endeavour to safeguard overseas investments by means of a treaty
mechanism with the view that making a mechanism available for settling investment disputes would
encourage foreign investment to go into developing countries and hence assist the economic development of
developing countries. The ICSID provides equilibrium to both foreign investors and their home countries, as
well as the developing countries. The ICSID establishes a tribunal where the investor is given a platform and
takes care of disputes involving foreign investors and home states that are party to the Convention and who
comply with the ICSID's tribunal.
(iv) North American Free Trade Agreement (NAFTA)
NAFTA which is a regional mechanism covering the USA, Canada and Mexico generated a significant
quantity of overseas investment agreements. In addition it administers and resolves foreign investment
disputes between parties involved.
(v) Energy Charter Treaty
The Energy Charter is a regional mechanism which was adopted in fifty-one states in December 1991. This
treaty also deals with arbitration in order to resolve conflicts between parties. The aim of the Energy Charter is
to create open, proficient, safe and sustainable energy markets. Furthermore, it strives to advance a
constructive climate which is beneficial to energy interdependence built on a foundation of trust between
countries. The Energy Charter is a sectorial treaty and provides for the settlement of disputes which have
occurred as a result of accusations of standards being violated therefore has substantive rules. Article 26 of
the treaty deals with three forms of conflict settlement: courts or tribunals of the host state; procedures from
the original treaty; procedure on the basis of ICSID arbitration.
The subsequent bilateral and multilateral agreements that also have arbitration clauses and to which the
Saudi Arabian government has a part in may be listed as well.
(vi) 1976 Agreement on the Guarantee of Private Investment between the Government of the United States
and the Saudi Government
OPIC is allowed to guarantee the investments of American nationals in Saudi Arabia against political perils
under this Agreement. Furthermore, it also permits arbitration as a way of resolving conflicts between
American investors who are guaranteed by OPIC and the Saudi Arabian government.
(vii) 1974 Agreement on the Establishment of the Inter-Arab Investment Guarantee Corporation (IAIGC)
This Agreement established in 1974, makes arbitration available as a method of resolving conflicts amongst
countries who are its members as well as the Corporation as part of investment guaranteed as laid out in the
Agreement. In this agreement however, any conflicts must follow the processes of negotiation and conciliation
and then arbitration if the first two methods do not work. The terms of the Agreement dictate that each party
assigns one arbitrator; thereafter they jointly appoint the chairman. If the appointments result in any conflict
then the Secretary General of the Arab League should be requested to make the appointment. The terms of
the Agreement, the IAIGCs By-Law as well as other relevant contractual provisions are the features which
make up the applicable law.
(viii) The Unified Agreement for Investment of Arab Capital in Arab Countries
This Agreement makes three ways available to resolve investment disputes: arbitration, conciliation and the
Arab Investment Court.
(ix) Agreement for Promotion, Protection and Guarantee of investments among member States of the
Organisation of Islamic Conference.

Article 17 of this Agreement deals with resolving disputes through arbitration and conciliation. In the
Agreement, detailed arbitration procedures are laid out.
5.6 Arbitration under the Islamic Sharia
Arbitration is recognised as a method of settling disputes between parties in Islamic Shari'a. One can see
examples of this in the two sources of Shari'a Law: the Holy Quran and the Sunna. Examples can also be
found in the manuscripts of the jurists of Islamic Jurisprudence in earlier periods.
The Quran states:
If ye fear a breach between them twain, appoint (two) arbiters, one from his family, and the other from hers; if
they seek to set things aright. Allah will cause their reconciliation: for Allah hath full knowledge, and is
acquainted with all things.
Another verse, no. 65 reads:
But no by the Lord, they can have no (real) faith, until they make thee [the prophet] judge in all disputes
between them, and find in their souls no resistance against the decisions, but accept them with the fullest
conviction.
One can comprehend from these examples that arbitration was practised by the Prophet Mohammed quite
regularly in order to settle conflicts between tribes as well as individuals. Furthermore he was also in the habit
of appointing arbitrators and recognising the decisions they made.
5.7 Saudi Attitude towards arbitration
In Saudi Arabia, arbitration is recognised as an instrument in resolving disputes. An example of this is when
the Saudi Arabian government utilised arbitration as a method of resolving the conflicts it experienced with
overseas oil companies and their concession agreements.
Al Samaan states that the Saudi Arabian government's attitude transformed as a consequence of the result of
the 1958 Aramco Arbitration Award. In addition, Al-Samaan views the award as demonstrating that the
arbitrators had little understanding of Islamic Shari'a as well as the fundamental tenets of commercial
transactions; the interests of the Western states were favoured by the award and resulted in the laws of the
host state being prevented from being applied. As a consequence, the Saudi Arabian government approached
arbitration with a negative view.
In the 1970s however, this attitude was revised as the government changed its view. This change of attitude
was as a consequence of the economic boom together with the involvement of overseas companies in
business and industrial ventures in Saudi Arabia. An Arbitration Code which would sanction arbitration under
the approval of the Prime Minister was established.
Saudi Arabia agreed to the New York Convention (1958) on the Recognition and Enforcement of Foreign
Arbitral Awards (NYC) in 1994. The most important reason why the Convention was agreed to was to help
foreign arbitral awards enforced by Saudi Arabian courts possible. Consequently, the NYC is now considered
to be a component of the Saudi legal system.
From the time of the economic boom in the 1970s, at a national level the government began to utilise
arbitration more and more in resolving disputes with overseas investors. The Arbitration Code was
implemented as a national framework for arbitration in 1983.
The Code offers arbitration as a feasible alternative to other methods of settling disputes which occur in civil
and commercial deals in Saudi Arabia's territorial domain. According to the Code, arbitration is not allowed
where conciliation is not permitted. In addition it is not allowed in criminal situations; personal status situations;
as well as public order offences (including gambling and interest situations). Arbitration can only be carried out
by a party with full legal capacity; in addition it is available to both Saudi nationals and foreign parties. Two
forms of instruments are offered in the Code: arbitration clause and arbitration agreement. Furthermore,

parties are able to have an existing conflict go through the arbitration process, or concur to go through
arbitration to resolve any disputes which may occur in the future.
Article 1 of the Code states:
Arbitration may be agreed to in relation to a specific existing dispute and it may also be agreed beforehand to
resort to arbitration in connection with any dispute that may arise as a result of the execution of a particular
contract.
The Code clearly indicates that both national and foreign investors are eligible to make use of arbitration as
part of the legal system.
Chapter VI
6.1 Does Saudi law attract foreign investors and make them feel comfortable in making
investments in Saudi Arabia?
Are these laws enough or do they need to be improved?
To what extent are foreign investors protected by Saudi laws?
Are these laws functioning at present or do they need to be activated?
The extent of foreign investor confidence towards laws in KSA
Problem and Deficiencies
6.1 Does Saudi law attract foreign investors and make them feel comfortable in making
investments in Saudi Arabia?
The Saudi Arabian investment situation is considered to be a very attractive environment for foreign investors
as a result of transparent and unambiguous laws which protect the foreign investor. Saudi Arabia further
entices foreign investors by offering incentives and features which they inevitably find themselves unable to
resist. Some of these features are:
The foreign investor may have more than one license in a variety of different fields.
The foreign investor has the right to fully own his investment.
The foreign investor has the same rights, privileges and guarantees that local investors have.
Foreign investors are offered financial support in the form of simple loans as well as having import
duties waived.
In the year 1979 a law was passed which allowed foreign investors to invest their capital in the agricultural
and industrial sectors. Furthermore the law decreed that for a period of ten years they would be excluded from
any taxation for any other projects they were involved in for five years. This period was then extended to
twenty years in an effort to encourage foreign investors to establish more projects. However, it was under the
condition that the locals should have a partnership percentage of 25% from the total capital in the project and
would not decrease this percentage during the tax exclusion period.
These privileges, benefits laws which offered them all the guarantees required to invest in Saudi Arabia made
foreign investors feel that they were in a safe environment and resulted in some major foreign investment
projects in Saudi Arabia. I will discuss this subject in the third chapter.

6.2 Are these laws enough or do they need to be improved?
The first foreign investment law was introduced in 1956. The main focus at the time was on investment in the
oil sector taking into consideration that oil is Saudi Arabia's main natural resource. Following this law there
was another law passed in the year 1962 followed by another law in the year 1979 until an expanded law was
issued in the year 2000, followed by the last law in 2005 after Saudi Arabia joined the WTO.
In brief there is a big difference between the law that was introduced in 1979 and the ones introduced in the
years 2000 and 2005 in the following aspects: the investment percentage-wise foreign to local; the tax
percentage; and the restrictions on the foreign investor. I will not go into detail, but what can be noted here is
that Saudi Arabia established new rules whenever they were needed according to the international economic
market. In this manner Saudi Arabia whilst catering for the foreign investor, is heading in the right direction for
economical growth by setting useful laws for the Saudi economic market as well as attracting foreign
investors.
6.3 To what extent are foreign investors protected by Saudi laws?
There are numerous positive and negative aspects of Saudi Arabian law in reference to the protection of
overseas investment in Saudi Arabia. The proliferation of the Foreign Investment Law is one of the most
notable accomplishments of the Saudi Arabian regulatory authority. An additional accomplishment is the
founding of a regulatory organisation: SAGIA. Ramaday (2007) states that the SAGIA has played a
fundamental role in cutting through Saudi Arabia's legendary bureaucracy. The SAGIA launched a functional
and effective structure which was totally different to the way in which Saudi Arabian government departments
usually operate. Furthermore the SAGIA has sixteen delegates from government agencies at its disposal in
order to speed up approvals and decisions. It is not unusual for Saudi government approvals such as these to
take up to thirty days on the condition that all necessary paperwork is completely organised, furthermore
finding an excuse for approvals not taking place because of a previously unheard of reason is commonplace
in Saudi Arabia.
As Dr Yahya states in his critical reviews, the SAGIA has had its fair share of problems in the last six years as
it came across both internal and external impediments. On the internal side, the SAGIA faced deficiencies in
strategic focus, employees' lack of integration and budget constraints in addition to shortages in human
capital. As a consequence of the SAGIA having to deal with these concerns, its capability to enliven the
investment climate was affected. Once the situation of the internal process had improved, the SAGIA tackled
the external domestic difficulties which stemmed from its disjointed and indistinct legal jurisdiction (i.e.) legal
authority which overlapped with other government departments. The Government also faced some type of
opposition which had a negative effect on trade and negotiation agreements. Another challenging task faced
by the SAGIA involved trying to positively develop Saudi Arabia's portrayal in the international business
sphere.
Each aspect of the SAGIA in Saudi Arabia has been critically reviewed by Dr.Yahya. Although his viewpoint
greatly differs from that of Dr. Ramaday, both criticise and commend the organisation. There is not a single
example of a regulatory authority like the SAGIA in the past. Furthermore, for a country like Saudi Arabia
where a regulatory system is still in the development process as well as in a contemporary commercial
regime, the launching of an organisation like the SAGIA is an achievement. However, merely setting up an
organisation is inadequate. To date the SAGIA has been considered simply as a license issuing authority for
overseas investors. In the six years since the SAGIA has been in operation, it has not fulfilled any noteworthy
tasks. Furthermore, it lacks any type of monitoring structure to observe any irregularities and the performance
of overseas investment companies. Promoting and facilitating overseas investment in Saudi Arabia is another
of the SAGIA's responsibilities, however at present the organisation has not fulfilled its tasks.
Are these laws functioning at present or do they need to be activated?
There is no doubt that the investment laws in Saudi Arabia are activated and have been employed since they
were established. Furthermore, a committee has been appointed by SAGIA to follow up these laws. There was

also a royal decree issued in the year 2007 which instructed the establishment of the Special Commercial
Court whose job focuses on receiving commercial complaints and cases both from local investors and foreign
investors. The Special Commercial Court will examine these cases within the boundaries of the issued laws
and then pass judgment. There are also other appeal courts that work in accordance to the law and in an
effective method to implement, follow-up and rectify these regulations. Based on this, high ranking government
personnel are assigned the responsibility of ensuring that these laws are appropriate.
The extent of foreign investor confidence towards laws in KSA
There is no doubt that overseas investors are extremely interested in these laws which can be seen in the
increasing amount of foreign investors wanting to invest in Saudi Arabia. Indeed, the SAGIA reports that more
than 4500 new projects are being given permission to commence ventures with a cost exceeding 100 million
US dollars at the onset only with 46% of funds being invested by foreign companies. Another report indicates
that the flow of foreign geared investment is on the increase as in the last five years, the amount of foreign
money increased from $183 million in the year 2001 to 18,3 billon US dollars in the year 2006. This means
that the total foreign geared investment flow had reached 51 billion US dollars at the end of 2006 as was
reported in the World Investment Journal. This figure represented 13% of the total gross domestic product for
Saudi Arabia.
This is a clear indication that foreign investors have confidence in Saudi Arabia's investment laws.
6.6 Problem and Deficiencies in the Judicial System
Previous to the Foreign Investment Law being promulgated, overseas investors were restricted to investing in
Saudi Arabia only as part of a joint venture. Although the Foreign Investment Law has resulted in several
alterations in Saudi Arabia's overseas investment system, there still remain numerous flaws and problems
which hinder the promotion of overseas investment. The fundamental problem is that Saudi Arabia's judicial
system which although based on Islamic Sharia, is difficult to comprehend. As a result foreigners find the
judicial system complicated. The difference between Saudi Arabian and western countries' judicial systems is
an important aspect which potential overseas investors take into consideration when making an investment
decision. As a consequence, a complete account of Saudi Arabia's judicial system is a strong requirement for
overseas investors.
Saudi Arabian litigants have direct understanding of Saudi Arabian law, culture and the somewhat
unstructured dispute resolution system hence they have the upper hand over overseas parties in nearly all
investment conflicts. Overseas associates in conflicts view it prudent to acquire local legal representatives
with knowledge of the Saudi Arabian legal process. Similarly numerous law practices employ non-Saudi
(particularly American) attorneys to assist in disputes with foreign investors.
A shortage of local qualified lawyers results in investors facing difficulty in settling complicated, commercial
conflicts. To combat this problem, Saudi Arabian law firms engage foreign lawyers from around the world.
However, for domestic issues, lawyers from Arab countries are usually employed and lawyers from western
countries are employed for commercial issues. An additional problem faced by foreign investors is the
judiciary's competence as their proficiency does not extend beyond Islamic Sharia concerns. Another aspect
which makes some foreign companies reluctant to invest in Saudi Arabia are concerns regarding the Saudi
Arabian judiciary's independence as they believe that the judiciary is heavily influenced by the Government.
The Foreign Investment Act is very unclear in terms of conflict settlement. In fact, Article 13 simply states that
any conflict which occurs between either the government and an investor or between an investor and his
Saudi Arabian associate should be settled amicably. However, Article 26 of Executive Rules only mentions
conflicts between the government and investors, although it lays out a procedure for when a dispute cannot
be resolved amicably between a Saudi partner and an overseas investor. The Investment Dispute Settlement
Committee will be established by the board to resolve any conflicts concerning the investment license. If the
Committee is unable to settle the conflict in a manner which is agreeable to both parties, then the conflict will
be resolved by means of arbitration under the terms of the Arbitration Act and its Executive Rules. However,
the Executive Rules of Investment Act does not present a process between an overseas investor and the
Saudi Arabian government via arbitration. This is because Article 3 of Arbitration Code 1983 and Royal
Decree No. 58 proscribe government departments from resolving their private disputes via arbitration without
acquiring permission from the President of Council of Ministers.

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