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Full Foreign Ownership in the Saudi Trading Sector

Guiding Principle

As part of its plan to diversify the economy, the Saudi Cabinet decided to allow 100% non-Saudi owned companies to practice trading in the country. The decision abandons the previous requirement allowing only joint-ventures with a local share of no less than 25% to take part in that field. With the aim to transfer the country into an investment powerhouse, the decision is to attract multinational wholesalers and retailers to enter or expand their investment in the Saudi market. This came as part of the Saudi government’s efforts to face the challenges emerged because of the drop at the global energy prices, the main source of income for the Kingdom.

A. Saudi Vision 2030

On April 2016, the Saudi Cabinet approved the new plan for the transformation of the economic dependence of the state on oil to investment. The new plan, “Saudi Vision 2030″[1], is based on three pillars: First that Saudi Arabia is the heart of the Arab and Islamic worlds; the second pillar is turning Saudi Arabia into global investment powerhouse; the third pillar is transforming the location of Saudi Arabia into a global hub connecting three continents, Asia, Europe and Africa.

The Vision’s targets – by or before 2030 – to double the capacity of Saudi Arabia in transferring ARAMCO[2] into an industrial giant working around the world, transferring the Saudi Public Investment Fund (PIF)[3] into the largest sovereign wealth fund in the world, stimulating major Saudi companies into being multinational corporations.

The Vision includes reducing the bureaucratic procedures, expanding serving the electronic services. Adopting transparency by having a centre measuring the performance of the government agencies.

B. 100% Foreign Wholesaler and Retailer in the Saudi Market

With a volume, reaching up to SAR 400 billion[4], wholesale and retail market in Saudi Arabia is the largest in the MENA region[5]. On the accession of Saudi Arabia to the WTO[6], the country pledged to open its wholesale and retail distribution activities to non-Saudi investors. The pledge, however, did not include commercial agencies activities that are restricted for Saudi citizens only.

In line with the above pledge, Saudi Arabia has allowed first joint ventures with local share no less than 51% to practice trading. The second step was increasing the limit for the share of the non-Saudi investment to 75%.

Finally, Saudi Arabia decided on 14.06.2016 to allow 100% non-Saudi owned companies to practice trading in the country as part of its transformation plan to diversify the economy.

Saudi Officials expect that the size of the market will draw the interest of multinational retailers and wholesalers in light of the new decision. The market is experiencing a rapid growth as the Saudi population is growing at 2 percent annually.

The decision comes in line with those in the vision of Saudi Arabia in 2030, which contained a trend to ease restrictions on the ownership and foreign investment in the retail sector to attract regional and international brands, including contributing to the creation of job opportunities for the citizens in this sector.

C. Conditions of forming a 100% non-Saudi Owned Trading Company

To achieve the target of the decision, forming a 100% non-Saudi owned trading company is subject to several conditions. The Saudi Minister of Commerce and Investment advised that the foreign investor desiring to form 100% foreign trading company in the Kingdom should meet the following conditions:

  1. The investor legal structure is a company operating at three international market at least;
  2. The capital of the formed company, Saudi subsidiary, should be no less than SAR 30 million[7];
  3. The investor shall invest an amount no less than SAR 200 million[8] over the first five years from obtaining the license;
  4. The investor shall abide by the concerned regulations concerning the minimum limit of appointing Saudis at the local subsidiary

[1] Website: http://vision2030.gov.sa/en/node

[2] Saudi Aramco, officially the Saudi Arabian Oil Company, most popularly known just as Aramco (formerly Arabian-American Oil Company), is a Saudi Arabian national petroleum and natural gas company based in Dhahran. Saudi Aramco’s value has been estimated at anywhere between US$1.25 trillion and US$10 trillion, making it the world’s most valuable company.

Saudi Aramco has both the world’s largest proven crude oil reserves, at more than 260 billion barrels (4.1×1010 m3), and largest daily oil production. Saudi Aramco owns, operates and develops all energy resources based in Saudi Arabia. According to a 2015 Forbes report, Aramco is said to be the world’s largest oil and gas company. For more info, please visit: https://en.wikipedia.org/wiki/Saudi_Aramco

[3] Saudi Public Investment Fund, founded in 1971. Its main task is to invest in productive projects of a commercial nature which cannot be privately solo implemented, either due to the inexperience or inability to provide capital. The Fund turned with time into a portfolio of the State property of commercial nature. Fully owns many companies not included in the financial market, and owns majority stakes in major companies listed on the market.

[4] About US$ 106 billion. US$ 1 = SAR 3.74.

[5] For more information, please visit: https://en.wikipedia.org/wiki/MENA

[6] Website: https://www.wto.org/

[7] About US$ 7,999,000.

[8] About US$ 53,329,000.

July, 2016 Hany Kenawi
Meyer-Reumann & Partners, Saudi Office
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