gif World Islamic Finance Review Figure: Saudi Arabia’s Strategic Targets


• become the global capital of energy provision. Upstream and downstream petrochemicals, power generation, water and minerals have high eco- nomic significance globally.


• act as a transport and logistical hub between East and Eest. Saudi Ara- bia’s roads, railways and air networks create a potential consumer base of over 250 million people, and the time duration of a journey across the country is just three hours or so.


• transform its knowledge-based in- dustries, such as healthcare, life sci- ence, education and information technology. These industries are all vital drivers of long-term, sustain- able development.


Investment Potential of the Kingdom of Saudi Arabia – Key Rankings


• Ranked first for easy facilitation of property registration


• Fourth in the world for fiscal freedom


• Seventh most rewarding tax system in the world


• Seventh for easy facilitation of tax- paying


• Seventh biggest free labour market (as per the World Economic Forum)


• Twenty-third largest economy in the world


• One of the world’s fastest growing countries: the average income per capital is forecasted to rise from US $20,700 in 2007 to US $33,500 by 2020


• World’s fastest reforming business climate


• Largest free market in the MENA (Mid- dle East and North Africa region)


• Represents 25 per cent of the total Arab GDP


• Contains 25 per cent of the world’s oil reserves


• 13th out of 181 countries for the overall ease of doing business glo- bally


• Largest recipient of Foreign Direct In- vestment in the Arab world


• World’s 18th and 21st largest export- er of merchandise and commercial services, respectively


44 Global Islamic Finance February 2011


T


he Kingdom of Saudi Arabia (KSA) is blessed with a strategically effective geographic location, a strong oil- based economy, and a strong macro-economic outlook with highly ef- fective government controls. The country


plays a leading role in the Organisation of Petroleum Exporting Countries (OPEC), possesses more than 25 per cent of the world’s oil reserves, and ranks as one of the largest petroleum exporters. The rising oil prices have boosted economic growth, government revenues, and Saudi stake in foreign assets.


Renowned as a powerhouse of the Middle East, and ranked as one of the top 20 des- tinations most attractive to foreign direct in- vestment, Saudi Arabia has a high potential for investment. Its robust economy, low-cost energy supply and lucrative markets are im- portant contributions towards Saudi Arabia’s emerging status as one of the world’s top ten most financially competitive nations.Current- ly, Saudi Arabia is undergoing an interesting transformation and is focussing on capitalis- ing on the advantages which make it a com- petitive player. The government’s visionary approach and strategic planning has lead the country to set strategic targets (Figure A), in order to attain accelerated growth and de- velopment at the forefront of global finance.


Significant Investment Opportunities for Conventional and Islamic Business


Saudi Arabia provides ample business oppor- tunities for both Islamic and conventional in- vestments. With the exception of few prohib- ited (Halal) areas of business, it provides an attractive hub for investors. To deal with the current global financial crisis, Saudi Arabia introduced a fiscal stimulus package for the fiscal year 2009-2010. Calculated as a share of the country’s GDP, it is the largest stimu- lus plan offered by any of the G20 countries. The country has also announced a five year, US $500 billion investment plan. The govern- ment is aiming to offset the liquidity crunch by the direct injection of capital into stressed financial institutions.


It has also provided liquidity through the cen- tral bank in order to stabilise the country’s financial systems. Saudi Arabia is undertak- ing aggressive reforms and investments to attain a high-powered mission to become one of the world’s top ten most competitive economies by 2010. It has been ranked as the easiest place to do business in MENA re- gion, and the fast reform of its economy has contributed to its rise from the 67th to the 13th position in the World Bank’s Ease of Do-


ing Business Index in a small span of just four years. It ranks number one in the Middle East for doing business, and third and seventh in the world for ease of registering property and ease of paying taxes respectively. The region offers more than the world’s most competi- tive energy prices: it provides a world-class business environment with opportunities to easily conduct business, at a strategic geo- graphic location and with a comparatively low contribution of capital. The Saudi Ara- bian General Investment Authority (SAGIA) is the government body that facilitates invest- ment, providing investors with a progressive regulatory environment, generous financial incentives and one of the world’s most sta- ble currencies.


Saudi Arabia provides investor-friendly regu- latory, financial and tax incentives. It has established specialised credit institutions to provide long-term funding to investment in major sectors of the economy such as indus- try, agriculture and real estate. Foreign Capi- tal Investment Regulations provide a range of incentives and easy access to funds such as Saudi Investment development fund, pub- lic investment fund, Real estate development fund, Saudi Arabia Agriculture bank, com- mercial banks and regional & International financial programs.


The Saudi Industrial Development Fund of- fers interest-free loans to industries of up to 50 per cent of the total project cost. Soft loans are repayable in five to ten years, af- ter a one or two year grace period from the date of production. Although the loans are interest-free, a minimal administrative fee of 2.5 per cent is usually charged. Furthermore, commodities imported to the Kingdom for in- dustrial production are exempt from import duty. This exemption includes spare parts and all plant and equipment required for the establishment of the company. The cost of capital required for investment is minimal, as industrial facilities are permitted to charge low or nominal rental fees, and subsidised rates for water and electricity.


Saudi Arabia does not impose exchange con- trol regulations on incoming and repatriated funds, profits or salary paid to foreigners. Saudi law does not prescribe any specific debt-to-equity ratios for a prerequisite to do- ing business in the country. Trade barriers are minimal, as hardly any goods require im- port licenses. Foreign exchange for imports is readily available, and there are no restric- tions on financial transfers or exchange con- trols in existence. Although the benefits listed above imply Saudi Arabia’s readiness to lead a global transformation towards the develop- ment of knowledge-based economies, poten- tial developers still have to be prepared to face several bottle necks. These include bu- reaucracy, an absence of good ethics within


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