Investing Capacities of Saudi Arabia
From 2005 to 2013 mutual trade between the two nations increased fivefold, exceeding $1 billion. In total, it is not so much. However, the rates are satisfactory. What’s more, finished products prevail over commodites in the mutual supplies. By Saudi estimations, the potential scope of Russian-Saudi trade is $8 billion to $10 billion.
KSA, based on its economic needs, may have a demand for Russian seawater-desalination technologies (in large volumes), as well as railway, metallurgic, and oil and gas chemical equipment from the Russian Federation, according to the Russian-Saudi Business Council. Exchanges of experience and knowledge in agricultural ground irrigation and in the extension of agricultural areas can also be useful for both parties. In general, Riyadh has extended the landscape of its external economic policy to include Russia.
Stated another way, Russia is among the countries Saudi Arabia sees as a strong investment partner. One way, Riyadh shows its interest by interacting with Russia on aqua-culture, fishing, and fish processing. This was proclaimed during the negotiations between Russian Ambassador Oleg Ozerov and the officials of KSA’s Agricultural Ministry.
On May 25 to 30, 2015, in the business capital of Saudi Arabia, Jeddah, under the aegis of the Russian Chamber of Commerce and Industry, there was a Russian Roadshow. As the organizers of the meeting reported, the main point in the bilateral agenda was to gauge Saudis’ readiness to invest and to involve Russian businesses in KSA infrastructure development. The Kingdom has put up more than $500 billion. Meanwhile, eight industrial cities — as well as recreational zones, industrial zones, seaports, etc. — are being constructed with Saudi Arabia’s huge residential fund. Apart from producing, processing, and transporting oil and gas, perspective directions of collaboration include: railway construction; erection of heat and power plants with desalination equipment; mineral-deposit development, particularly phosphates, iron ore, lead, and zinc; agriculture; water supply and fishing; banking activity; tourism; health care; higher and secondary education; standardization and certification; and scientific and technological collaboration.
Saudi companies are very interested in collaborating with Russian companies on energy, railway construction, animal and fish breeding, veterinary methods, hydro-technical and irrigation construction, drop-irrigation systems maintenance, water-well drilling, health care, higher and secondary education, etc. Military-technical cooperation is also promising.
Saudi businesses also pay attention to the Russian markets. Given the current initiative to support investments into Russian projects, Saudi Roadshow participants considered the following fields most promising: energy, machinery, infrastructure development, oil and gas service, tourism (including religious tourism), halal-industry, interbank collaboration, wood and hardware exports, and cooperation in the field of high-tech and education.
According to information from the director of the Royal Initiative on Foreign Investments in Agriculture, Russia is among the high-priority countries for capital investments. The idea of this initiative is that Saudi investors, both state and private ones, invest in foreign cultivation of wheat, barley, rice, and soy, as well as in fish-processing and animal-breeding. The future supplies to Saudi Arabia will account for at least 50 percent of the product volume coming from Saudi investments.
To develop this initiative, the Russian delegation was invited to see a presentation of agro-industrial-complex projects and allied industries in Saudi Arabia. The estimated total of Saudi investments in 2014 was $5 billion. This program is also dependent on the fact that Saudi Arabia is one of Russia’s largest grain importers. One principle highlighted at the forum: Saudi Arabia is attracted to reasonable prices and high-quality products. But instead of traditional imports, Riyadh decided to import grain and other agricultural products produced in Russia based on long-term Saudi investments.
The objectives are clear; the tasks are defined. In Russia, it is time to say the phrase: “Let’s start working, Comrades!” The partners in Saudi Arabia have the same enthusiasm.
The procedure of establishing a business with the foreign capital in the KSA
The Kingdom of Saudi Arabia welcomes and encourages foreign investments. Large parts of the economy sectors are opened to foreign investors. However, there are some areas of business, operation in which is allowed only to businesses owned by the Saudis and, in some cases, to residents of member countries of the Cooperation Council for the Arab States of the Persian Gulf. These business sectors include exploration and production of oil; production and services related to defense and security; services related to the maintenance of the pilgrims; investments in real estate in some areas (such as Mecca and Medina); recruiting; intermediary services in the real estate market; publishing and printing sector and media; ground transportation; fisheries.
Foreign investments can be carried out mainly in two ways: a joint venture with a Saudi partner (with a minimum participation from the Saudis as a General rule doesn’t exist) and the company, fully owned by a foreign capital. Foreign investors are also allowed to purchase a property for business and private purposes but with certain restrictions. The government particularly encourages foreign direct investment in infrastructure, including energy, water, telecommunications and transport.
“The Act on foreign investment” adopted in 2000 requires any company with foreign participation, carrying out activity in the Kingdom, to have a special investment license. This license is issued by the Saudi Arabian General Investment Authority or SAGIA. That organization, in fact, operates as a “one window” service, carrying out a registration of business, and also allows visitors to pay required fees and provides consulting support.
To obtain the license one should meet the following requirements:
• Intended activities should not be included in the list of excluded activities, approved by the Supreme economic Council
of the KSA;
• Planned products must meet the requirements and standards of the KSA or of the European Union or the United States;
• Application for a license shall be made by a natural person arriving in the Kingdom to carry out investment activities or his representative;
• The investor must not have past cases of prosecution for a material breach of the provisions of the Act on foreign investments;
• The investor must not have in past cases of charges for financial and commercial violations in the Kingdom and beyond;
• The license must not violate the obligations of the Kingdom arising from the international agreements to which it is a party.
Licensing procedures and necessary documents for obtaining a license are contained in the so-called “The Investment guide” — a regularly updated document, which can be obtained in the office (business centre) of SAGIA or by visiting their website at: sagia.gov.sa.
The license shall be issued for a specific project, the parameters and cost of which should be disclosed in the applicant’s documents. There are requirements for the minimum investment amount for projects in various sectors of the economy. In particular, 25 million riyals $6.7 million USD) in agriculture, 1 million riyals (264.16 million USD) in the basic industry. These requirements apply to the total investment into the project, but in case of the Saudis being present as a partner, the foreign investors are able to participate in the project with a lesser amount. The investor can obtain two or more licenses for the establishment or participation in various enterprises.
Primarily the investor can obtain only a temporary license for the period of 3 months. This document allows the investor to obtain a Saudi business visa and to receive his identification card (Ikama).
Upon completion of the registration of the legal person in the established timeframe, he / she receives permanent license.
Company with foreign investments can be established in various legal forms. Several forms of legal entity for the implementation of foreign investment activities are applicable, such as: joint-stock limited liability company, joint stock company, general partnership, limited liability company, limited liability partnership or a joint venture. For the implementation of certain types of activities one may open a branch of a foreign company in the KSA. For some activities it is possible to establish an individual enterprise. “Investment guide” focuses on the first four forms listed above. In practice, the most popular organizational form for foreign investors is a joint stock company with limited liability. The minimum share capital for joint stock limited liability company with foreign participation is 500,000 Saudi riyals. Licensing of branches of foreign companies is carried out through SAGIA, and their registration by the Ministry of Industry and Trade. The minimum investment capital for a branch is 500,000 riyals (131 580 USD).
Russian Exports to Saudi Arabia
A large part of the Russian export to Saudi Arabia in 2016 (in 2015) consisted of deliveries of the following types of products:
- Генеральное соглашение между правительством РФ и правительством Королевства Саудовская Аравия (20 ноября 1994 года).
Food products and agricultural raw materials (HS codes 01-24) — 70% of the total volume of Russia’s exports to Saudi Arabia(in 2015 — 75%);
Chemicals and plastics (HS 28-40) — 13% of the total volume of Russia’s exports to Saudi Arabia (in 2015— 6%);
Wood and pulp and paper products (HS 44-49) — 7% of the total volume of Russia’s exports to Saudi Arabia (in 2015 — 4.9%);
Metals and their products (HS codes 72-83) — 6% of the total volume of Russia’s exports to Saudi Arabia (in 2015 — 10%);
Machines, equipment and means of transport (HS 84-90) is equal to 1.45% of the total volume of Russia’s exports to Saudi Arabia (in 2015 — 0.96%);
Mineral products (HS 25-27) — 1% of the total volume of Russia’s exports to Saudi Arabia (in 2015 — 1%).
The largest increase in Russian export to Saudi Arabia in 2016 in comparison to 2015, had been detected in the following commodity groups:
Articles of iron or steel (HS code 73) — height 7 713 481 USD;
Fats and oils of animal or vegetable origin and their cleavage products; prepared edible fats; waxes of animal or vegetable origin (HS code 15) — 4 714 263 USD;
Cocoa and products thereof (TN VED code 18) — an increase of 2173 015 USD;
Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof (HS code 84) — an increase of 1 013 299 USD.
The greatest reduction of Russian export to Saudi Arabia in 2016 in comparison to 2015, had been detected in the following commodity groups:
Cereals (HS code 10) — a reduction of 339 057 107 USD;
Ferrous metals (HS code 72) and a decrease of 67 007 053 USD;
Paper and paperboard; articles of paper pulp, paper or paperboard (FEACN code 48) — a decrease of 6 863 565 USD;
Wood and articles of wood; wood charcoal (HS code 44) and a decrease of 6 404 066 USD;
Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes (HS code 27) and a decrease of 4 927 872 USD;
Rubber and articles thereof (HS code 40) — decrease by 3 500 528 USD;
Pharmaceutical products (HS code 30) — a reduction of 2 461 668 USD;
Glass and glassware (HS code 70) is decrease of 1 677 038 USD;
Miscellaneous chemical products (HS code 38) — decrease of 1 480 207 USD;
Tools and devices optical, photographic, cinematographic, measuring, checking, precision, medical or surgical; their parts and accessories (HS code 90) — decrease of 1 439 524 USD;
Means of land transport other than railway or tramway rolling stock, and parts and accessories (HS code 87) — decrease of 1 374 509 USD.
Based on the data of the Federal customs service of Russia
Priority Focus of Trade and Economic Cooperation
Between Russia and Saudi Arabia:
Oil and Gas Industry:
- Mining exploration
- Processing and transportation of hydrocarbons
- Environmental protection
Trade, Economic, and Investment Collaboration:
- Oil-chemical industry
- Collaboration on quality-control in the market supply of products between the two countries to insure sanitary requirements and consumer safety.
Mineral Resources and Metallurgic Industries
Agriculture, Water Supply, Animal-Breeding, Fishing:
- Technologies for water-drilling, well restoration, water desalination, and repeated use of sewage systems
- Conducting research into animal-breeding
- Modern technology and applied studies in agriculture and animal-breeding
- Organization of animal-breeding training and visits from professional delegations
Transport and construction:
- Collaboration in municipal-economy services
- TEA (technical and economical assessment) development for building sea-transport machines
- Appointing high-skilled specialists, including seagoing personnel, to man the sea-transport and to provide assistance in their maintenance
- Special training of seagoing personnel for Saudi shipping companies in Russian sea academies and training centers
Cooperation in the Tourism (including Religious Tourism)
Scientific and Technological Research
Use of Outer Space for Peaceful Purposes
Collaboration in Higher and Vocational Education:
- Visit-exchanges between officials responsible for higher education, establishing cooperation between teaching personnel in fields of mutual interest
- Collaboration in different scientific areas as a whole and in applied areas, in particular, between the two countries’ institutions of higher education and research centers
- Exchange of information on standards for higher-education diplomas
- Information exchanges and participation in workshops, meetings, and conferences on scientific subjects in Russia and Saudi Arabia
- Exchanges of scientific periodicals, academic articles, and research results
- Exchange programs for bachelor’s degree students and high school students in medicine, health care, and other specializations.
Cooperation in Health Care (in particular, Radiation Protection)
Collaboration in Sports
Reference: According to information from the Russian-Saudi Intergovernmental Commission on Trade, Economy, Scientific and Technical Cooperation