Saudi Arabia: An Overview Of Saudi Arabia's Foreign Investment And Employment

Last Updated: 2 October 2015
Article by Sumit Soni

In recent years businesses in Saudi Arabia, or those seeking to commence business operations, have dealt with a rapidly changing legislative landscape.

The introduction of Nitaqat (literally 'Zones'), which place employers in various colour-coded classifications based on the percentage of Saudis employed, heralded an increased focus on the hiring and retention of Saudi nationals. The Saudi Arabian General Investment Authority ('SAGIA') has instituted an overhaul of the foreign investment license application process which continues to be refined today.  And finally, there was the widespread work visa checks conducted in late 2013 and 2014, which resulted in the deportation of nearly one million undocumented and other illegally resident expatriates.  According to some sources, more than four million workers corrected their work permit status during this period which is an impressive feat by any measure.

In each case, businesses in Saudi Arabia were required to understand the new legislation, implement systems in order to comply with it and take steps to ensure that those systems were complied with by the local teams in Saudi Arabia.  This was by definition a reactive process with many companies initially finding themselves in a lower tier than expected of Nitaqat, or with a rejected foreign investment license application, or in some cases even without workers. 

These legislative changes do not occur in a vacuum, and for the leadership of businesses in Saudi Arabia, or businesses that conduct business with Saudi Arabia, it can be helpful to understand the underlying policy objectives behind these regimes. With an understanding of the policy objectives, companies doing business in Saudi can begin to proactively develop their operations in line with the objectives and in this way reduce the possibility of loss of competitiveness.  

For example, a large and increasingly well-educated young Saudi national workforce looking for opportunities means that businesses must provide opportunities to allow Saudi nationals to train, develop and take on leadership opportunities as they arise.  Similarly, the Kingdom's strategic plan to diversify away from a petroleum-based economy means that there are and will continue to be significant opportunities for businesses in sectors that build on other strengths of the Saudi economy (including its vast deposits of minerals and other natural resources).  These and other policy considerations will continue to inform legislative changes in the future.

Examples of such legislative changes abound.  For example, SAGIA continues to modify its policy with respect to the issuance of foreign investment licenses to fine-tune the balance between those applications that are successful and those that are rejected.  In late 2014, SAGIA introduced a "fast track" application process.  For those applicants that meet one of a number of criteria, a reduced set of documentation requirements and a promise of a quicker approval process awaits.  The criteria makes clear the types of applicants that the Kingdom is seeking: for example, companies publicly listed in their home jurisdictions, or those seeking to establish regional hubs for their operations in Saudi Arabia. In the future, those companies that successfully bid on major infrastructure and other projects could avail themselves of the "fast track" mechanism in order to comply with any requirements to establish, for example, Saudi manufacturing facilities in order to supply those projects.

Saudi Arabia's Wage Protection System ('WPS') requires employers to provide salary payment data to the Ministry of Labour and for salaries to be paid via electronic funds transfer.  In addition to ensuring that all employees are documented and all monthly salaries are paid to employees according to the terms of the relevant employment agreements, the WPS allows the Ministry of Labour to determine what percentage of payroll is being paid to Saudis vs. non-Saudis.  In time, this insight will permit the Ministry of Labour to analyse the seniority of Saudi nationals in organisations and to develop policies to encourage Saudi nationals to take on senior leadership functions. 

The previously described Nitaqat, the centrepiece of the Kingdom's Saudisation strategy, will also be developed further.  The third phase of this program, which was due to be implemented on 20 April 2015 but has been delayed for an unspecified period, will in some cases (based on sector or industry) significantly increase the percentage of Saudis required to be employed by larger businesses.  It will also more directly target small to medium enterprises.   

The Nitaqat regime introduced for the first time the possibility of employees being able to take on new employment without obtaining consent from the previous employer in the form of a so-called "no objection" letter.  For those companies finding themselves in the lower tiers of Nitaqat (namely yellow and red), the "poaching" of Saudi-based employees by local competitors in the higher tiers (premium and green) became a reality for the first time.  This introduction of the concept of a workforce that is able to move freely between employers may be expanded in due course, and in the long term employers should prepare for a possible liberalisation (or possible end altogether) of the sponsorship system.

Finally, at the time of writing the Ministry of Labour has recently announced a number of amendments to the Labour Law, including increased requirements for employers to train Saudi nationals.  The full impact of these additional amendments will become clearer in time.

There are three main points to be taken from the above:

  • Recognise the shifting legal landscape.  Those businesses that are ready for and can anticipate legislative changes will be best situated to respond quickly when change does occur.  
  • Stay apprised of new developments.  Often proposed changes in legislation will be publicly debated at length before being implemented. For example, the introduction of an eight-year residency limit for expats has been discussed recently by the Ministry of Labour.  While it does not appear this proposal will become law in the near future, knowledge of this proposal can be kept in mind when employers work through succession planning for expat employees.
  • Show value to the Kingdom.  While the legislative landscape will continue to change, the policy objectives will not. Those businesses that can objectively show a record of hiring and training Saudi nationals, building plants and infrastructure, and transferring technology onshore will continue to be valued and will be able react to new requirements in the most agile manner.

Recent developments indicate that the pace of legislative development (and business opportunity) in Saudi Arabia are set to continue to increase in the near term.  For those businesses that are willing to invest in the Kingdom and partner with Saudi authorities, access to those business opportunities will also continue to grow.  Jeddah, being a key commercial hub in Saudi Arabia as well as a major international seaport, will certainly be a central focus for such business opportunities. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions