A Critical Analysis of the Government Strategies for Attracting Foreign Direct investment in Saudi Arabia - Dissertation Example

FDI potential is measured by comparing the country’s FDI levels to its economic size. In this regard, Saudi Arabia ranked 138th out of 140 countries in terms of its FDI potential (UNCTAD, 2004). Closing the gap between FDI potential and actual FDI performance is very important to Saudi Arabia because under the leadership of King Abdullah, Saudi Arabian officials have made a commitment to attracting FDI to Saudi Arabia. Saudi Arabia’s economic plans include the construction of large cities and the enhancement of Saudi Arabia’s global competitiveness.

These economic strategies necessitate attracting FDI and foreign partnerships (Blanchard, 2009). In its efforts to liberalise FDI entrants Saudi Arabia repealed its previous investment law and replaced it with the Foreign Investment Law 2000. The new law created a new licensing authority for facilitating the processing and approval of FDIs: Saudi Arabia General Investment Authority (SAGIA) (Foreign Investment Law, 2000). The idea is to make FDI entry easier and to reduce the time involved in establishing FDIs in Saudi Arabia.

Additionally, corporate taxes were reduced from 45% to 30% (Hussein, 2009). This research study analyses the regulatory and policy strategies employed by Saudi Arabia to attract FDI inflows and to minimize FDI outflows with a view to identifying the extent to which these strategies are successful and can be improved to close the gap between FDI performance and FDI potential. . usion 32 Recommendations 32 Conclusion 35 Bibliography 42 Chapter One Introduction to the Study Research Aims/Objectives Saudi Arabia’s new Foreign Investment Law 2000 is a liberalized approach for attracting FDIs.

The new 2000 law is arguably a major improvement over its previous investment law. For instance, unlike the previous law, the 2000 law permits foreigners to own property and projects (Foreign Investment Law, 2000). With the creation of SAGIA, FDIs are processed faster and entrants have greater certainty relative to the FDI criteria for. Moreover, together with the European Union (EU), the US, China, Japan, South Africa and Brazil, Saudi Arabia is among the G20 leaders and has demonstrated a commitment to efficiently and effectively regulating its financial markets (Eichengreen & Baldwin, 2008).

In the Middle East, Saudi Arabia’s regulation of its financial markets is among the region’s most advanced. Nevertheless, Saudi Arabia’s regulatory framework contains a number of restrictions that have the potential to negatively influence FDI performance in Saudi Arabia (International Monetary Fund, 2006). The restrictions on FDIs reveal that although, FDI inflows are remarkable, they can be improved. The aims of this research are therefore to: Identify and analyse Saudi Arabia’s FDI regulatory framework with an emphasis on the Investment Law 2000.

To identify and analyse the strengths and weaknesses of Saudi Arabia’s FDI regulatory framework. To determine why Saudi Arabia’s FDI performance is not commensurate with its FDI potential. To identify how and why Saudi Arabia’s FDI regulatory framework facilitates the gap between its FDI performance and its FDI potential. To identify Saudi Arabia’s FDI performance trends and its FDI potential. To