DOING BUSINESS IN SAUDI ARABIA: AN OVERVIEW OF THE LEGAL CLIMATE
Although the Saudi Arabian government has been attempting to diversify the Saudi economy for over 20 years, the central source of Saudi prosperity is the petroleum industry. The petroleum industry is mature. Hence, the government is beginning to realize that it needs foreign investment in order to decrease the dependence on oil and to encourage sustainable growth and development.
Foreign investors look at many factors in making the decision to invest in another country. One of the main factors is the stability of the government. Stability has not been a problem in Saudi Arabia. Another major factor is the overall investment climate, especially the structure of the legal system and its predictability, as well as the commercial laws. The commercial laws must not be restrictive and protectionist, nor obscure.
These are problems in Saudi Arabia. The system of laws is based on Shari'ah, religious law with its roots in the Quran. The commercial law is also protectionist, which means that Saudi Arabia is not currently a member of GATT or the WTO. In addition, financial infrastructure is unevenly developed, at least partly because of the problem of modernizing commercial law in a country ruled by religious law that did not deal with many of our modern problems or issues.
Still, the government is interested in foreign investment and has made some efforts to encourage that. It is currently reviewing the Foreign Capital Investment Act with changes planned to facilitate foreign investment, while providing new incentive and tax exemptions for foreign investors. The intent of this business guide is to provide an overview of the Saudi legal system and its operation so that foreign investors can make good decisions in developing their financial relationships within the kingdom.
By the end of 1995, the total volume of foreign investment in the Kingdom was approxi...