Pasting the article with my views from Arab News. Will write more about this later.
Expats face obstacles in obtaining Saudi licenses
JEDDAH: FADIA JIFFRY | ARAB NEWS STAFF
Saturday 14 July 2012
Expatriate businessmen are searching for ways to legally establish a business in Saudi Arabia, but find they are not eligible for a license and find it virtually impossible to find alternative methods to obtain one.
An alternative to setting up a business without the need for a Saudi sponsor could be through the Saudi Arabian General Investment Authority (SAGIA). In that case, SAGIA acts as the general Saudi sponsor for those expatriates planning on setting up businesses in the Kingdom.
Naser Al-Tawayan, head of media at SAGIA, said that Article 6 of the Executive Rules of the Foreign Investment Law states, “The license applicant should have come to Saudi Arabia for investment. Expatriates who currently reside in Saudi Arabia cannot apply for a foreign investment license.” Al-Tawayan added that, “SAGIA is responsible for granting foreign investment licenses to foreign investors. The establishment of 100 percent foreign owned companies is permitted in most cases. All sectors are open for foreign investment, except a few that were deemed to be closed for sovereign or infant industry nature.”
According to Ali Shah, CEO of business-consulting firms ASCS and VRS, there are many reasons the government does not allow expatriates to set up their businesses legally.
“One of the major reasons is the influence the ‘free’ presence of foreign entities of different scales may have on the traditions, culture, social structure or even security of the Kingdom,” Shah said.
Shah said Saudi society is nonetheless being compromised because of the ever-increasing population of expatriates. He suggests that a regulated and well-monitored system of allowing expatriates to run their businesses can legally be implemented.
The Foreign Investment Law further states that SAGIA is responsible for granting a foreign investment license to foreign investors.
“Allowing expatriates to set up businesses legally on their own will definitely add to the economy,” says Shah. “The only harm I can see is the entrance of undesirable crime-oriented entities, but that can be countered through effective law enforcement and intelligence.”
Expatriates residing in the Kingdom claim that the government should pay attention to the foreigners who have been already living in the country for several years.
“I believe they should be given the opportunity to buy homes and have some sort of a permanent residence free of sponsorship that leads to citizenship based on track record,” said Shah.
Paul Gamble, chief economist and head of research at Jadwa Investments, assumes the government does not allow expatriates to set up their businesses legally because it could undermine the position of locally owned businesses.
“There is no reason that foreign-owned business would harm the Saudi economy,” says Gamble. “If it is a good business – one that generates products and services that are better than, cheaper than or different to those already available – then everyone benefits. Foreigners may choose to transfer more of their profits abroad, but if their business is successful they may prefer to invest more in the Kingdom. They will face the same restrictions on hiring foreign labor as locally owned firms.”
Many expatriates from countries like Egypt and Syria demand investing in the Kingdom rather than back at home due to the revolutions.
Shah says it is a good opportunity for Saudi Arabia to attract such investors if the main focus is on reduction of unemployment and contribution to the market.
“If this privilege is given, monitors and regulations also have to be set up to protect everyone’s rights,” said Shah. “In the case of Syria, I think they should be given any and every concession and privilege possible under the current conditions.”
“The Kingdom has proven to be one of the most stable investment destinations in the region,” said Gamble. “It also has one of the strongest and best performing economies. It is therefore an attractive opportunity for investors from across the region.”
“The original policy of SAGIA to allow any expatriate should be brought back, and in fact, the umbrella of SAGIA should get much bigger and accommodate expatriates that have been here a long time,” says Shah.
He adds, “The condition that they leave on exit-only does not help. This will totally resolve the Saudization issue if a major condition is for businesses to train and hire locals.”