In early February, the Supreme Economic Council (SEC) issued a
revised Negative List of industries in the Saudi economy in which
foreign investment is prohibited. The SEC recently announced that
it will permit foreign investment in the following three industrys
that appeared on the initial Negative List issued in February 2001:
electrical energy distribution services; pipeline transport
services; and educational services, including primary, secondary
and adult education.
The SEC decree allows foreign investors to own 100% of Saudi
entities (including branches of foreign companies) licensed to do
business in these industries. However, companies operating in these
industries remain subject to regulations promulgated by other
government ministries or regulatory bodies with primary
jurisdiction over the industry, which may nonetheless require Saudi
participation in the activity. The Ministry of Petroleum, for
example, may require a certain percentage of Saudi ownership
(including ownership by specific Saudi entities, such as Saudi
Aramco) in any company providing pipeline transport services of
petroleum or natural gas.
The SEC also announced that foreign investment in insurance
services would be allowed once a new insurance law, now under
review, is adopted by the Council of Ministers. The Saudi insurance
market is dominated by the National Company for Cooperative
Insurance, a government-owned cooperative (mutual) insurer that is
the only insurance company licensed in the Kingdom for a broad
range of insurance services. In addition, a large number of
unlicensed insurance companies are known to offer services through
Saudi agents. The opening of the Saudi insurance market to more
licensed companies will probably expand the market for traditional
insurance products (such as health and automobile insurance) as
well as investment linked insurance products (including whole life
insurance). However, the licensing of foreign and domestic
insurance companies is likely to lead to increased regulation for
the industry, including the imposition of local capital reserve
requirements.
Observers in the Kingdom also anticipate the opening within the
next two years of the Saudi telecommunication market to foreign
investors. The Saudi Telecommunications Company (STC) has a
monopoly on telecommunications services in Saudi Arabia. The new
Saudi Communications Commission (the SCC) has been given the task
of liberalizing the Saudi telecommunications market, including
opening the services industries to providers other than STC. It is
anticipated that the SCC will open the data services market in
early 2004 and the cellular GSM market in late 2004 by issuing
several licences to operators in each respective field. While it is
not known whether foreign investment will be allowed in such
activities, the need for technical expertise makes it likely that
any new licensees will be joint venture partnerships composed of
Saudi investors and foreign telecommunications and technology
companies. The significant cost of establishing new
telecommunications networks has led observers to predict that new
licensees may seek offshore capital for a portion of their funding
requirements.
Stephen Matthews and Ramsey Taylor