Investment

Investment Evaluation
5th Round 17-19 December 2011
Riyadh Economic Forum
in The Kingdom of Saudi Arabia

1
Study Questions
Study Questions
The availability
of a national
strategy for
investment
The ability of
foreign direct
investment to
achieve its
objectives
The investors’
views on
investment
attractions,
obstacles and
how these
change with the
passage of time

5th Round 17-19 December 2011 2
Study Objectives
Study Objectives
Evaluation of
Investment
Environment in
the Kingdom
Analyzing the
current status of
foreign direct
investment, its
attractions and its
obstacles
Exploring means
and tools to
improve
investment
environment

Methodology
Methodology
Secondary Data
Statistics and
reports issued by
diﬀerent
international and
local relevant
authorities
Primary Data
Questionnaires
of a sample of
foreign investors
(200 companies
and institutions)
Questionnaires
of a sample of
national
investors
(225 companies
and institutions)

Methodology
Methodology
Interviews
Some
professors,
authors and
thinkers
Some Consuls
of member
countries in
OECD
Oﬃcials of
development
funds, banks
and
commercial
chambers
Oﬃcials of
relevant
government
and semi
government
authorities

Methodology
Methodology
Studying the experiments of some
countries in the field of foreign
direct investment

(40%)
(20%)
(0%)
20%
40%
60%
80%
100%
2001
8.5%
71.2%
20.3%
(40%)
(20%)
(0%)
20%
40%
60%
80%
100%
2010
-21.8%
88.9%
32.9%
(40%)
(20%)
(0%)
20%
40%
60%
80%
100%
Average 2001-2010
-8.2%
79.5%
28.5%
Relationship between consumption,
investment and gross domestic product
Consumption rates are constantly increasing (fixed prices)
Net ExportsConsumptionInvestment

59.8%19.2%
21.0%
Consumption + Net Exports invested not invested
Relationship between
consumption, saving, investment
and GDP
Inability of diﬀerent investment
authorities to attract and invest
national savings
Average savings ranged between 2 – 40% during the period 2001 – 2009 of the GDP (current prices)
Average non-invested savings amounted to 52.4% of total savings at the rate of 21% of GDP.

0%
10%
20%
30%
40%
50%
60%
70%
2001 2010
30.5%29.7%
56.8%
62.5%
Buildings & transport means
Machinery & equipments
Gross Fixed Capital Formation GFCF
Dominance of buildings and transport means on the
formation of gross fixed capital
0
50
100
150
200
250
300
350
347.8
127
2001 2010
‫ر#"ل‬ ‫'&%"ر‬
Total GFCF (billion SAR)

Surplus Current expendieure Capital expenditure Revenues deficit
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
169,266
55,608
153,808
-22,150
513,118
77,332
295,267
140,520
9
Gross Fixed Capital Formation GFCF
The decline in investment expenditure rates compared to current expenditure
rates devitalized the role of government investment in development
2009-2001
2000-1975

0
500,000
1,000,000
1,500,000
2,000,000
1,713,844
1,525,803
1,407,215
1,533,734
1,037,351
749,013
2011 2010 2009 2008 2007 2006
Total SAMA
investments
in bonds and
bank deposits
abroad
SAMA investments increased at the rate of 228% during the period 2006 –
August 2011 despite unrest in foreign capital markets, and also despite the
dire need for these investments locally

As for local investments
•Public Investment Fund oﬀered loans amounted to SAR 160
billion until 2010.
•The Fund contributed in 79 companies; 42 of them are
national companies, and 37 are Arabic and joint companies.
•The Fund’s share in these companies reached about SAR
138 billion.

Investment
Attraction
Factors
Political
stability
Economic
freedom
No Taxes
Gov.
loans
Purchasing
power
Infrastructure
Local
savings
Location Natural
Resources
Cov.
expend
The study aﬃrmed the
existence of several
attractions (favorable
of local investment
environment).

Investment obstacles
The study aﬃrmed the existence of several obstacles
(negativisms of investment environment).
Nonexistence of national investment strategy
Multiplicity of investment supervising authorities.
Poor investment awareness.
Bureaucracy of government bodies.
Immigrant labor recruitment system.
Unattractive incentives and facilities provided to investors in less
developed regions.

Public sector monopolizes the exploitation of national resources
Restrictions imposed on recruiting immigrant labor
Ineﬃcient skilled national labor.
Poor commercial judicial system.
Insuﬃcient data about Saudi economy.
Insignificant exports subsidies.

Poor supervision over public joint-stock companies.
Nonexistence of local investment law.
Local investment provisions, stipulated in the executive regulation of
foreign investment law and Investment Public Authority, are not
eﬀectuated by the Authority, and they remained inactivated provisions.

Local investment challenges
Local investors face diﬀerent challenges; the most
important of which are as follows:
Great expectations in a negative investment environment.
Transferring, establishing and building advanced technologies.
Increasing productivity levels.
Enhancing of specialization.

Local investment challenges
Local investors face diﬀerent challenges; the most
important of which are as follows:
Accelerating privatization program.
Increasing non-oil exports (85 – 90% of total exports are crude oil) and
(50 – 45%) of non oil exports are petrochemicals.
Coordination between private, public and semi public sectors
investments .

Opinions of local investors regarding investment obstacles
and the change rate between 2005 and 2010
2011 data
31%
-‐7%-‐7%
13%
34%25%
-‐9%
-‐29%-‐25%
-‐35%
50%
50%
62%
62%
65%
64%
68%56%
36%
45%
19%
57%
69%
49%
31%
39%
77%
85%
61%
80%
Protectionlevel
Illegalmethods
Publicutilities
Bureaucracy
Infrastructure
2005 data
Negative change
Positive change
Poorcommercial
judicialsystem
Unexpectedchanges
inlaws
Behaviorsof
governmentofficials
Economicstatistics
Lawsandregulations
inconsistent
withinvestment

Important indicators
56%
of local
investors still
view that the
commercial
judicial system
is weak and
constitutes an
investment
obstacle
68%
of investors still
resort to illegal
methods to
facilitate their
business (bribe,
instrumentality
and wangling)
64%
of investors still deem
the behaviors of
government oﬃcials
as an investment
obstacles, and this
rate increased at the
rate of 25% compared
to the rate of 2005.

Important indicators
62%
of investors
deem the
bureaucracy of
government
bodies as an
investment
obstacle; this rate
increased at the
rate of 13%.
65%
of investors
deem public
utilities as
investment
obstacle; this rate
increased at the
rate of 34%.
78%
of investors view
that the
recruitment system
is an investment
obstacle.

0
200
400
600
800
45 64
86
143
120 105
125
190
276
413
534
639
2005 2006 2007 2008 2009 2010
FDI Flows FDI Stocks
21
(SAR billion)
Development of foreign direct investment flows

Development of foreign direct investment flows
•The Kingdom occupies advanced ranks at the global level; as it occupied rank 12 in
2010, rank 11 in 2009, and rank 8 in 2008.
•The Kingdom occupies 29th rank in FDI Performance and FDI Potential indicators .
•Total FDI outflows amounted to SAR 83.1 billion during the period 2000 – 2009,
equivalent to 18% of total FDI inflows.
•UNCTAD views that the FDI inflows to the Kingdom are not consistent with its
economic significance.
•The Investment Authority still grant licenses to enterprises of low financing (the
capitals of 40% of total licensed enterprises in the fields of education, information
technology, transport and insurance range between SAR 400.000 to 2.5 million.

Impact of FDI on Saudi economy
0
125
250
375
500
61 70 84 97 101
225
254
299
235
375
2005 2006 2007 2008 2009
Saudi laborersTotal laborers
Expectations anticipated from FDI decline to only 8.000 jobs annually (for
every Saudi employed, 2.7 immigrant laborers are employed)

Impact of FDI on Saudi economy
0
50.000
100.000
150.000
200.000
98.623
160.558
128.359
40.997
Centeral region
Eastren region
Westren region
Other regions
23.01%
37.46%
29.95%
9.56%
 Balanced development
90.5% for five
administrative regions
9.5% for the eight other regions
(less developed regions)

Prince Abdulaziz
Bin Musa’ed
(Hael)
Expectations
• Employing 30 thousand
Saudis
•Investing SAR 30 billion
(USD 8 billion)
City of Economic
Knowledge
( Madina)
Expectations
• Employing 20 thousand
Saudis
•Investing SAR 25 billion
(USD 6.6 billion)
•Incurred losses until the end
of 2010 amount to SAR 174
million; more than 5 % of the
capital.
•Share price as of 30/11/2011
reached SAR 9.9
King Abdullah
Economic City
( Rabe’)
Expectations
• Employing one million Saudis
• Investing SAR 101 billion
(USD 27 billion)
• Incurred losses until the end of
2010 amount to SAR 1200 million;
more than 14% of the capital.
•Share price as of 30/11/2011
reached SAR 6.7, a 33% decline
from share’s nominal value.
Jazan Economic
City
(Jazan)
Expectations
• Employing 100
thousand Saudis
• Investing SAR 27
billion
(USD 7.2 billion)
Economic Cities

-‐31%
-‐18%
-‐36%
24%3%
10%
27%
9%
-‐15%
-‐3%
33%
49%
43%
49%
63%
60%
41%
58%
58%
54%
54%
52%
80%
61%
85%
39%
57%
31%31%
49%
69%
57%
19%
2011 data
Bureaucracy
2005 data
(negative change
(positive change
Protectionlevel
Illegalmethods
Publicutilities
infrastructure
Developedlands
Behaviorsof
Governmentofficials
Economicstatistics
Poorcommercial
judicialsystem
Unexpectedchanges
inlaws
Lawsandregulations
inconsistent
withinvestment
Views of
foreign
companies
regarding
investment
obstacles
and the
change rate
between
2005 and
2011

0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Sudden
changes Infrastructure
Dumping
Regulations
Investment
opportunities
Data
Availability
Skilled labor
Laws
inconsistent with
investment
BureaucracyAvailability of
industrial lands
Public
utility
property
rights
Oﬃcials
behavior
Illegal system
Visas
Law
protection of the
authorities
Local
Foreign and
joint investor
27
Agreements and
Disagreements of
the views of local
and foreign
investors
regarding
investment
obstacles

0% 10% 20% 30% 40% 50% 60% 70%
1
2
3
4
5
6
7
8
Some general features of the sample of
foreign and joint investment facilities
0.5% of them operate in foreign markets only.
65% of them operate in local market only.
51% of them employ less than 10 Saudis
17% of them employ less than 10 employees
47% of them employ between 10 and 50
employees
(6%) of them where the rate of local capital is
more than 50 million
53% of them where the foreign capital is less than
50 million
37.5% of them operate in industrial activities

0
10
20
30
40
50
60
70
Sudden
changes Personal
security
commercial
justice
system
Visas
Illegal
methods
Oﬃcials
behavior
property
rights
Public
utility
Availability of
industrial
lands
Bureaucracy
Laws
inconsistent
with
investment
Skilled
labor
Data
Availability
Number of
invest
opportuniti
es
Entrance
in com.
activity
Dumping
Infrastructure
High
Med
Low
29
0
10
20
30
40
50
60
The significance of investment obstacles
from the point of view of foreign investors
The significance of investment obstacles
from the point of view of local investors
Sudden
changes Personal
security
commercial
justice
system
Visas
Illegal
methods
Oﬃcials
behavior
property
rights
Public
utility
Availability of
industrial
lands
Bureaucracy
Laws
inconsistent
with
investment
Skilled
labor
Data
Availability
Number of
invest
opportuniti
es
Entrance
in com.
activity
Dumping
Infrastructure

•It is characterized by the adoption of a flexible
incentives system and the direction of the
foreign investors towards the developmental
needs with higher priority in Malaysian
economy.
• It attempted to modify incentives and tax
exemptions from time to time, according to
industry type, capital volume, technology level,
enterprise volume, and its marketing
tendencies, whether to local market, or to
foreign markets, or both.
30
Malaysia
Experience
Experience of Other Countries

• Oﬀering great facilities and incentives for investors in special economic
regions and less developed regions, which ranged between 30 – 50 % of
the human capital.
• It focused on investment projects relevant to science gardens and
technology.
Poland
Experience

• It is characterized by the existence of an investment supervising authority with a
specific role of eliminating bureaucracy, in addition to the cancellation of the role of
the authority to permit licenses, and implementing the principle of“one stop shop”.
• The establishment of a permanent ministerial committee to improve investment
environment and continuously direct and supervise the functions of the Authority.
• Treating local and foreign investments with the same spirit, enthusiasm and
consideration.
Turkey
Experience

• It is characterized by the existence of one higher
authority to supervise both local and foreign
investments.
• The Implementation of promotion strategies to find
the suitable foreign partner for the local partner, and
vice versa.
• Incentives are focused on the attraction of capitals
and investors to enterprises aiming at technology
transfer, acquisition and establishment.
Singapore
Experience

Recommendations

First Recommendation
Restructuring the Public Investment Authority in a way that
enables it to suﬃciently attend to both local and foreign
investments equally as stipulated in its executive regulation,
to be one stop shop, to follow-up and evaluate all
investment projects, to focus its eﬀorts on finding true
partnerships between big multinational companies and
public and private Saudi capitals in order to establish
projects at international levels and smart specializations.

Justifications
•The necessity to implement what is stipulated in the executive regulation of the
Public Investment Authority regarding some investment related tasks which were
not implemented by the Authority.
•Endeavoring to attract non-invested national savings amounting to 52%.
•The main task of the Public Investment Authority is to find the suitable foreign
partner for local investors and the suitable national partner for foreign investors.
•International level projects are not carried out except with major international
companies.
•Permitting licenses for small-sized projects led to nothing but unfair competition
with the local investors, and with no real benefit for national economy.

Second Recommendation
Commitment to prepare a special investment budget for the
State to deduct, as a minimum, a fixed proportion of State
revenues to finance particular projects of distinguished
nature, and to attract private sector and international
companies to participate in financing, implementing and
managing these projects.

Justifications
•Eradicating or decreasing unemployment problem could not be carried out
eﬀectively unless by creation of job opportunities.
•Designating a fixed proportion for investment expenditure prevents exerting extra
pressures on budget revenues for the favor of current expenditure and leads to its
rationalization.
•Most indicators imply the preference of local investment over foreign investment
from economy and security aspects.
•A great proportion of financial surpluses are invested abroad which deprives the
local economic cycle from these surpluses.
•It is considered an eﬀective method for increasing the savings of citizens.

Third Recommendation
Increasing investment incentives and facilities attracting
investments in less developed regions provided that the
State assumes the costs of developing infrastructure and
public services, and contribute in the capitals of major
projects in these regions.

Justifications
•Despite the importance of the steps adopted to grant investors in these regions tax
discounts and increase the limit of industrial development fund, but these steps
are not suﬃcient to incite major companies to invest in less developed regions.
•Infrastructures, public utilities and logistics in less developed regions do not foster,
until now, intensive investments in major projects in these regions.
•The data of Public Investment Authority indicate that Central, Eastern and Western
regions absorb 90.5% of FDI flows, whereas the other eight regions absorb only
9.5%.
•It is necessary to establish projects dedicated for these regions and that the
government investment should promote and contribute in the capitals of these
projects in high proportions.

Fourth Recommendation
The Economic Cities Authority should prepare and propagate
interim plans, and realistic annual implementation programs in
coordination with the companies responsible for the
development of these cities and the investors therein, and to
publish the results of implementation programs transparently in
order to promote confidence in these regions. The Authority
should not also oﬀer these companies for subscription unless
after a passage of several years since their establishment and
after these companies prove their feasibility.

Justifications
•Despite the passage of five years, the implementation rates are still low and they did not
go beyond the design stage and coordination with relevant authorities in most projects
and industrial, service, commercial and residential regions in these cities.
•The promotion campaign of these cities were accompanied with great expectations and
promises of hundreds of thousands jobs, and hundreds of productive, residential and
service projects. Although it is well recognized that there cities are in need of longer
periods of time, people need to recognize real interim objectives and tangible
implementation of these objectives.
•Investors in companies responsible for the development of these cities, whose share
values declined under their nominal values, are looking forward to fair returns and values
for their shares.
•Success of the interim plans and propagating this success will restore the confidence of
people in these projects.

Thank you for your
Attention

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