Saudi Arabia this month introduced reforms to its investment law in a bid to attract foreign direct capital, streamline financial processes and continue diversifying its economy away from oil.

Background

The new law, published on Aug. 11, replaces the older foreign investment law from 2000 and applies to both local and foreign investors in Saudi Arabia. The amended investment law, which enters into force on Feb. 7, 2025, is designed to improve the business landscape in Saudi Arabia as it grows closer to its Vision 2030 deadline for a more diversified economy.

What it entails

The new law, which provides an equal platform to both Saudi and foreign investors, allows them to invest in the country's special economic zones without bias. Foreign investors will also enjoy freedom of investment across sectors. However, national security-related sectors will be restricted to Saudi nationals. The law also redefines share capital — which is the money raised by a company in exchange for shares of either common or preferred stock — and it lifts the requirement to obtain a foreign license before incorporation for companies with 100% foreign investment as well as for Saudi companies with international stakeholders. Per the new legislation, investors need to register themselves with the Investment Ministry directly. The law is also likely to allow for the granting of new investment incentives. More importantly, investors can avail themselves of alternative dispute resolution methods such as arbitration, mediation and conciliation under the new law.

Why it matters

Saudi Arabia is pushing to develop various non-oil sectors in its economy, as it looks toward future-proofing itself before the middle-of-the-century net-zero deadline. Under Crown Prince Mohammed bin Salman's directive, Riyadh has looked to center itself as a modernizing, new economic powerhouse in the Gulf. However, to compete with glitzier investment destinations such as Dubai, Saudi Arabia has had to make several changes to its business environment in order to attract investment.

Saudi Arabia ranked 16th in the annual IMD World Competitiveness Ranking published in January by the World Competitiveness Center of the International Institute for Management Development, moving up from 17th in 2023 and 24th in 2022. The UAE ranked higher, in seventh place. The investment law amendment is designed to reassure investors that the kingdom is moving on from a licensing regime to one of a unified law that applies to both foreigners and locals alike. With the removal of the word "foreign" from the name of the investment law, Riyadh looks to equalize the participation of international and local investors in its economy.