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
© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.