Saudi economy opens to foreigners

New investment is needed to stimulate employment

By Middle East correspondent Frank Gardner

The way business is done in Saudi Arabia is about to change dramatically.

On Tuesday the official Saudi press agency announced a new investment law which will allow foreigners to own 100% stakes in industrial projects.

They will even be allowed to own property related to the project - an unprecedented step in a country long opposed to foreigners owning any Saudi assets.

For years, foreign investors have had to navigate their way through a legal and bureaucratic maze if they wanted to do business in the largest economy in the Middle East.

They have always had to find a local partner who has held at least a 51% stake in any joint venture.

But Saudi Arabia badly needs foreign investment and the new law, which also offers some tax incentives, is clearly designed to make that happen.

Survival tactics

The country's population of native-born Saudis is growing at an estimated 4% a year.

School and university leavers are pouring onto the job market, expecting their government to find them employment.

Oil accounts for 70% of state revenues

But the Saudi civil service is already heavily over-staffed and its salaries eat up a large proportion of government oil revenues.

Saudi planners have worked out that if their economy is to survive it must attract foreign investors, who they hope will employ more Saudis.

Analysts say it is too early to tell whether the new law will achieve that aim, but the fact that Saudi Arabia is prepared to offer such radical incentives shows there are powerful forces for reform at the top of the Saudi leadership.