The Ministry of Industry and Mineral Resources (MIM) has announced the next steps in the process of awarding the license for the largest mining site in KSA. Khnaiguiyah, situated in Al Rayn Terrane, spans 350km2 and is part of the Arabian Shield. The site has a 3D geological model and has already been subject to much exploration work, with over 100,000 meters drilled to date. According to the Saudi Geological Survey, with its estimated 26 million tons of zinc and copper, the site’s geological potential is huge.
Saudi Arabia’s mining sector has an estimated value of $1.3 trillion, and the country has 48 identified minerals, including large quantities of gold, phosphate, and copper. In addition, rare earth metals such as nickel and zinc are also mined in the Kingdom, generally for use in smart devices and computers.
The KSA mining sector is set to receive high levels of foreign investment over the coming decade, and as such, the government has released further concessions for mining and quarrying to private firms. Saudi Arabia’s national mining champion, Ma’aden, is owned by both the government and private shareholders. As is demonstrated by this rapidly growing company’s international joint ventures, the Kingdom welcomes investment from the private sector.
Since Saudi’s latest mining law was passed, more than 1,500 licensing requests have been submitted to the government. KSA aims to receive mining sector investments in the region of $170b by the end of the decade, and with rising demand for the metals required for the energy transition, this appears to be an achievable goal.
Revisions to the Saudi mining investment laws and regulations
The executive regulations of the Mining Investment Law offer many benefits for both the sector and its investors. A permanent committee will decide upon objections filed by government agencies and applications for allocation of the areas of mining complexes, and there are provisions for an Exploitation License and General-Purpose License in place of the Material Collection License. In addition, the export of mineral ores is subject to further regulation, and control procedures will support investors with licenses.
There is an increase in licensing procedure efficiency, with all license procedures being made electronic. There is also a more comprehensive violations and penalties regime, with maximum fines of up to SR1m for law violations, and transparency will be increased by publishing licensing records. Data is to be provided for mineralized sites, and precise decision periods are determined.
KSA has an estimated SR5 trillion in untapped mineral deposits, so revisions were designed to accommodate foreign investors with an interest in the mining sector and the Kingdom’s mineral industry. The revisions support the Vision 2030 reform plans, which aim to boost mining sector contributions to the overall national economy. The revisions were also backed by the Ministry of Energy, Industry and Mineral Resources (MEIMR), which aims to propel the mining sector’s contribution to GDP from $3b to $64b by 2030.
Benefits to KSA mining workers and local communities
The SAR2bn Khnaiguiyah project is predicted to generate 2,000 to 3,000 direct and indirect jobs for mining workers in the region. It will also contribute to the development of neighboring regions and mining projects, employing local people from those regions and boosting numbers of purchases from the local markets.
It will positively impact the development of communication networks in the areas surrounding the project and make a substantial contribution to the development of Saudi’s zinc and downstream copper industries.
The Mining Investment Law revisions demonstrate a healthy, modern approach to the KSA mining sector and are likely to develop more mining and exploration programs. The subsequent licensing processes are also extremely supportive toward potential investors in the sector, having been brought in line with industry standards. As a result, KSA is openly welcoming mining companies and investors to take full advantage of the many opportunities its mining sector is offering.
Nitaqat is an initiative launched by the Saudi Ministry of Human Recourses and Social Development(“HRSD”) to encourage the private sector to hire Saudi nationals, thus, decreasing Saudi unemployment and increasing the share of their participation in the labour market.
The initiative restricts certain positions in the private sector to be occupied only by Saudi nationals. Currently, there are five Zones; Red, Low Green, Medium Green, High Green, and Platinum. Nitaqat applies to all entities that have 6 employees and above.
HRSD would apply Nitaqat to place the Saudi entity into a zone based on the percentage of Saudization it holds. Each range has its privileges and limitations.
Since its application in 2011, Nitaqat has been subject to different changes and updates, the latest of which was in December 2021( the “Advanced Nitaqat”).
Nitaqat classifies entities by their sector, activities and number of employees using the International Classification Standard (“ISIC4”) over three years. By applying a specific equation using the Saudization percentage and number of employees, the entity will be able to know in which zone it falls for the first, second and third year onward.
While there is no specific minimum wage for a Saudi national generally under the Saudi Labour Law, the MHRSD would only count an employed Saudi national towards Nitaqat if his/her basic monthly salary is at least SAR 4,000, which was SAR 3000. However, those whose salaries are SAR 3000 and less than SAR 4000, including part-time workers shall be counted as ½ of the Saudi worker. In addition, flexible-hours workers shall be counted as 1/3 of the Saudi worker, provided the worker has completed not less than 168 hours in service. Handicapped worker will be considered as 4 workers, provided that his/her salary is not less than SAR 4,000.
The previous Nitaqt classified organizations under 85 categories, which have been condensed to 33 activities and placed them in the same category with common characteristics.
| 1 | Agricultural production, animal production, its services and equestrian clubs | 2 | Mines, Energy and Services
|
| 3 | Industries | 4 | Contracting, construction, building and cleaning |
| 5 | Operation and maintenance | 6 | Wholesale and Retail |
| 7 | Health Services | 8 | Accommodation, Recreation and Tourism |
| 9 | Ground transportation and storage | 10 | Sea and Air transport |
| 11 | Financial Institutions | 12 | Business Services |
| 13 | Social Services | 14 | Recruitment services and security guards services. |
| 15 | Personal Services | 16 | Combined Entities. |
| 17 | Higher Education | 18 | Girls’ schools, Kindergartens and Nurseries |
| 19 | Boys’ Schools and boys’ and girls’ complexes | 20 | International Schools |
| 21 | Selling Fuel
|
22 | Women’s goods Sale and maintenance of mobile phones |
| 23 | Restaurants with services that do not include fast food | 24 | Fast food and Ice-cream Shops |
| 25 | Cafés | 26 | Catering |
| 27 | Communication solutions | 28 | IT Solutions |
| 29 | postal activities | 30 | IT Infrastructure |
| 31 | telecommunications infrastructure | 32 | Operation and maintenance of communications |
| 33 | Operation and maintenance of information technology |
To explain how the equation works, the table below shows the values that need to be used to generate the minimum classification for each zone, then the Saudizatin percentage will be compared to the result to allocate the entity in the relevant zone.
| Activity | Zone | Curve Fixed Value | Absolute Fixed Value for the 1st year | Absolute Fixed Value for the 2nd year | Absolute Fixed value for the 3rd year |
| Industries | Low Green | 1.68 | 14.08 | 20.08 | 25.08 |
| Medium Green | 1.87 | 16.87 | 22.87 | 27.87 | |
| High Green | 2.08 | 20.47 | 26.47 | 29.47 | |
| Platinum | 2.08 | 23.87 | 28.37 | 32.87 |
Below is an example of an activity and the Nitaqat zones for the first year on the assumption that the entity has 19 employees (7 Saudis and 12 non-Saudis):
7%19× 100 = 36.84
Curve Fixed Value * log(total number of employees) + absolute fixed value for the relevant year
Nitaqat Low Green Value: 1.68× log(19)+14.08= 16.22
Nitagate Medium Green Value: 1.87× log(19)+16.87= 19.26
Nitaqat High Green Value: 2.08× log(19)+20.47= 23.12
Nitaqat Platinium Value: 2.08× log(19)+23.87= 26.52
Accordingly, the entity will be placed by comparing the Saudization percentage with the results we reached above:
From 0% – 16.21 falls in Red Zone.
From 16.22 – 19.25 falls in Low Green Zone.
From 19.26 – 23.11 falls in Medium Green Zone.
From 23.12 up to 26.51 falls in High Green Zone.
From 26.52 up to 100 falls in the Platinium Zone.
As the Saudization percentage is: 36.84%, which exceed the minimum range of the Platinium Range (26.52), then the entity shall be placed in the Platinium Zone.
Premium Range Companies:
High Green Range Companies:
Mid Green Range Companies
Low Green Range Companies:
Red Range Companies:
Saudi Arabia’s Vision 2030, which was launched by Saudi Crown Prince Mohammed bin Salman in 2016, is the major driver for current investment opportunities presented in the country. In the second quarter of 2021, Foreign Direct Investment in Saudi Arabia reached an impressive $1.4 billion. Through many incentivization programs and regulatory transformations, the government hopes to increase this to an annual figure of $100 billion by 2030.
With Saudi Arabia’s rapid economic recovery in the wake of the global pandemic, French companies and investors have an opportunity to leverage the array of new business and investment opportunities on offer within the Kingdom. However, to engage in business with the Saudi market, French companies will first need to familiarize themselves with the legal and regulatory factors that may affect their business operations in this rapidly transforming nation.
The aim of Vision 2030 is to create a more diversified economy that is less reliant on oil revenue. As part of this process, the National Transformation Program seeks to increase non-oil government revenue from SR163 billion to SR1 trillion by 2030.
The government hopes to achieve this goal by the development of public-private partnerships (PPP), encouraging foreign investment in the country, introducing value-added tax (VAT), and privatizing several sectors including transport, education, and healthcare. The vision also includes plans to invest heavily in renewable energy and to develop the nation as a hub of technology and entrepreneurship in the MENA region.
So far, Vision 2030 has already seen significant success, with a string of major international companies, including Siemens and Google, committing to multi-billion dollar investments in the country. Since the program was first launched, the government has pledged over $1 trillion in development schemes. This has led to the creation of over 550,000 new jobs for local Saudis, with a further 1 million expected to materialize before 2030. In addition, foreign investment licenses nearly doubled from 700 in 2018 to 1300 in 2020, demonstrating that there is a keen interest from within the international venture capitalist community to make moves towards Saudi Arabia.
In 2001, the Saudi-French Business Council was set up by the Saudi Arabian Chambers of Commerce & Industry with the aim to further develop business ties between both nations. French investment in Saudi Arabia now stands at $4.37 billion and trade between the two countries has nearly doubled over the past 10 years. French business leaders can build on this positive relationship history and take advantage of the plethora of new opportunities in the Kingdom created by Vision 2030.
The planned expansion of investments in infrastructure, healthcare, education, renewable energy, and tourism throughout the country will undoubtedly create a great number of prospects for French companies and investors across a broad range of sectors. Saudi Arabia has recently unveiled plans to invest over $100 billion to develop its renewable energy infrastructure and solar power capacity. France’s longstanding push towards increasing its use of renewable energy sources makes it a perfect partner for Saudi Arabia’s new infrastructure plans.
In addition to this, Saudi Arabia is positioning itself within the Gulf region as a hub of technological progress and development. However, achieving this status will be no easy feat without the assistance of foreign expertise and investment. French companies and technical experts may find themselves ideally positioned to enter this market given France’s highly developed digital sector.
Off the back of the National Transformation Program, there has been a significant lifting of red tape. Local business regulations have been streamlined and simplified, to create a more transparent and agile process. But as with any new business venture, French companies need to be aware of the laws regulating Saudi Arabia’s commercial sector before commencing activities in the region.
Expatriates can now have full ownership of their company based in Saudi Arabia without requiring the involvement of a local business partner. However, they will still need to obtain a MISA Entrepreneurial Licence issued by the Saudi Arabian General Investment Authority before commencing business within the Kingdom. Additionally, they will be required to apply for Commercial Registration and get a certificate from the Chamber of Commerce. For businesses operating in certain sectors, additional licensing may also be required. With these documents, you will be able to open a bank account and start operating your business within Saudi Arabia.
As a result of the government’s Saudization program, all companies operating within Saudi Arabia are required to employ a certain number of Saudis to maintain their business license. Employers are required to meet these quotas to ensure that the labor market continues to develop within Saudi Arabia rather than simply relying on imported foreign workers. This is particularly pertinent for companies operating in certain sectors such as marketing, where the percentage of Saudi employees must be at least 30% of the total workforce.
Other sectors, such as secretarial, translation, storekeeping, and data entry jobs, are prohibited from employing any non-Saudis. These new regulations will come into place in April of 2022. Any business operating in the Kingdom must adhere strictly to Saudization rules, or they may face penalties.
In addition to employment quotas, Saudi workers are also entitled to a minimum wage appropriate to their industry. This starts at 4000 SAR per month, but it increases to 7000 SAR for certain professionals, such as qualified dental professionals. If your company employs a Saudi national on a part-time basis, then they will only partially count towards your Saudization figures.
Saudi nationals and GCC residents in Saudi Arabia are not subject to any form of personal income tax. Businesses owned wholly by Saudis are subject to Zakat, which is a form of Islamic taxation set at a flat rate of 2.5%. However, businesses owned wholly by non-Saudi/GCC nationals will be subject to income tax.
If business ownership is a combination of Saudi and non-Saudi/GCC nationals, then Zakat and income tax will be paid in proportion to ownership. Income tax is set at a flat rate of 20%, but this increases to between 50% and 85% if the income is derived from oil and hydrocarbon production revenue.
In 2018, Saudi Arabia introduced VAT at a standard rate of 5%. However, it has now increased to 15% with an exception for the financial sector.
Vision 2030 has eased investment restrictions and streamlined registration processes for foreigners. This means that there has never been a better time for French investors to start doing business with the Kingdom.
France has always been a world leader in terms of innovation, so they are well-placed to accommodate the needs of Saudi Arabia’s growing technology sector. In the long term, this will be a mutually beneficial relationship for both French businesses and the people of Saudi Arabia.
French companies will have greater access to a market of almost 35 million consumers, where there is a growing middle class seeking innovative and high-quality products and services. As a rapidly developing and youthful nation, Saudi Arabia will benefit from more foreign investment and expertise, while they achieve their national transformation goals.
Hammad & Al-Mehdar is a new-age law firm bridging traditional and emerging business sectors for private sector companies, family offices and SMEs entering or operating in the Middle East. We help navigate essential legal and regulatory requirements to grow and succeed in the Middle East, with specialty in the Kingdom of Saudi Arabia given our 40-year track record. Our firm is forward thinking and has depth of knowledge in business of the past, present and future, and therefore well qualified to support French companies as they evolve their presence into Saudi Arabia and the wider MENA region. To discuss your business presence and expansion in Saudi Arabia contact Senior Associate, Samy Elsheikh.
Since its inception in 2016, Saudi Arabia’s Vision 2030 has been positioned as a transformative blueprint for the country’s future. And while there is no doubt that the plan — which aims to wean the economy off its dependence on oil and gas revenues and make the Kingdom a global investment powerhouse — will have a profound impact on virtually every sector of Saudi society, its legal implications are most far-reaching.
From the introduction of 5G and the accompanying increase in regulation to the need for businesses to embed new systems and ways of working, Vision 2030 is certain to have a major impact on Saudi law. Perhaps nowhere is this more evident than in the area of competition law, where the plan’s ambitious diversification and privatisation goals are likely to bring increased competition — and with it, the need for stricter enforcement.
With this in mind, here’s a closer look at some of the legal implications of Saudi Arabia’s Vision 2030.
5G & Regulation
The rollout of 5G networks is set to transform the way we live and work, and the Saudi government is keen to ensure that the country is ready for this next-generation technology. Abdullah Al-Sawahah, Minister of Communications and Information Technology, stated that “Saudi Arabia is determined to be a world leader in 5G to take early advantage of its benefits.”
To that end, the government announced in 2021, that they would designate the entire 6GHz radio band for unlicensed use. This is in line with global trends, as more countries are making large swaths of radio spectrum available for 5G deployment.
However, in order to ensure that the rollout of 5G in Saudi Arabia is done in a way that is safe and compliant with international standards, the government has also laid out a framework for telecoms companies. Under these new regulations, they must adhere to a number of strict security and privacy requirements and are advised of the need to develop disaster recovery plans and ensure that customer data is properly protected.
Information Security & Data Protection
With the rise of cloud computing and the increasing digitisation of society, the issue of information security and data protection is becoming increasingly important. The Saudi government has taken note of this trend and has introduced several regulations aimed at safeguarding consumer data.
Saudi Arabia’s Personal Data Protection Law was implemented by royal decree in 2021. This regulation sets out a number of strict requirements for businesses that process or store personal data.
Among other things, businesses must, in most cases, obtain prior consent from individuals before collecting, using, or sharing their data. They must also ensure that personal data is properly protected and take steps to ensure that any data breaches are promptly reported and resolved. The CITC has also published a set of guidelines on information security, which businesses are encouraged to adopt in order to protect themselves from cyber-attacks.
Competition Law
As Saudi Arabia moves away from its dependence on oil and gas revenues, the need for strong competition laws becomes increasingly important. This is especially true in the context of Vision 2030’s ambitious diversification plans, which are sure to bring new players into many sectors of the Saudi economy.
In late 2019, a new Competition Law was announced by Royal Decree. This new set of regulations is in line with international best practices and designed to ensure that businesses compete fairly, without resorting to anti-competitive practices such as price-fixing, bid-rigging, and illegal market manipulation.
The General Authority for Competition (GAC) has begun to increase its enforcement of competition law in recent years, and this is likely to continue as the Saudi economy becomes more competitive. In 2021, the GAC blocked its first transaction during a merger, signalling a new era of tougher enforcement.
“Competition filing has been a standard part of acquisition and investment transactions relating to Saudi Arabian companies, including technology companies, which have seen an investment boom over the last 2 years. Private equity and, to a certain extent, venture capital, investors and targets must now consider the impact of competition on their intended transactions” stated Abdulrahman Hammad, partner and head of the finance practice at Hammad & Al-Mehdar.
The Changing Future Of Saudi Arabia
The Saudi government’s Vision 2030 is a bold and ambitious plan that is sure to have a major impact on the Kingdom’s economy. While the full extent of these impacts is not yet known, it is clear that businesses will need to be prepared for a number of legal and regulatory changes. From new regulations on 5G and data protection to increased competition law enforcement, businesses will need to adapt in order to stay ahead of the curve.
The construction and contracting industry in Saudi Arabia is booming, with many high-profile projects underway or in the planning stages. The sector presents a significant growth opportunity for businesses, but it’s important to be aware of the legal compliance issues that need to be considered in order to operate successfully and avoid any potential penalties.
This article provides an overview of some of the key legal compliance issues that are relevant to the construction and contracting industry in Saudi Arabia.
Saudi Arabia’s construction industry has seen significant growth in recent years, with many large-scale projects nearing completion. Here are some of the most notable construction projects in Saudi Arabia:
Saudi Arabian law is uncodified and relies on a set of Shari’ah principles interpreted from Islamic religious texts. Currently, there is no complete set of construction laws regulating the industry, and parties are free to enter a contract as long as their agreements do not offend the fundamentals of Shari’ah.
With regards to procurement, an amended Government Tenders and Procurement Law (GTPL) was introduced in 2019 and sets out the rules and procedures for government contracting. Since the majority of major construction projects in Saudi Arabia are government-sponsored, this law is highly relevant to the industry.
The GTPL requires all government contracts to be tendered openly and transparently, with contracting authorities required to publish notices of contracting opportunities and award contracts to the winning bidder after a fair and open tender process.
The Saudi Arabian government has placed a number of restrictions on non-GCC foreigners owning property in the Kingdom. They may only own the property for the purpose of residency and are restricted from acting as a landlord or owning more than one property.
Businesses owned by foreigners can purchase real estate for the purpose of business activities, including accommodation for employees. Within the holy cities of Makkah and Medina, only Saudis are permitted to purchase properties.
In 2017, the government announced that contractors must register with the Saudi Contractors Authority. The authority is responsible for the regulation and control of the construction industry in Saudi Arabia. In 2020, it was discovered that out of 140,000 contracting companies, only 4000 were registered. It was subsequently announced that contractors won’t be awarded building permits or be able to bid on government projects if they are not registered with the authority.
As the Saudi Arabian construction industry continues to grow and attract foreign investment, additional regulation is likely to be introduced in order to ensure the sector remains compliant. In particular, the government is likely to focus on increasing transparency and preventing corruption in the industry. Foreign investors and contractors should ensure they are aware of the relevant regulations before entering into any construction contracts in Saudi Arabia.
As part of Saudi Arabia’s Vision 2030, the government seeks to transform the nation into a hub for technology and innovation. This transformation will have several legal implications, particularly with regards to data protection and cyber security.
In recent years, lenient cyber security implementation has made the Kingdom a global target for cyberattacks. To protect businesses and consumers, the government is implementing new laws and regulations to improve the security of the nation’s digital infrastructure.
The government is also working to create a more favourable environment for businesses and consumers by introducing new data protection laws and establishing regulatory frameworks related to cloud services and e-commerce. These efforts will help to attract foreign investment and encourage innovation within the Kingdom.
In 2020, Saudi Arabia experienced over 22 million cyberattacks, which cost the economy over $6 million. In a survey by VMware, 85% of Saudi Arabian security professionals reported an increase in cyberattacks during the pandemic, due to the increased number of employees working from their homes. Over the past few years, the government has begun to take steps to tackle the country’s long-standing cyber security vulnerabilities with the introduction of several new regulatory frameworks and governing bodies.
The National Cybersecurity Authority (NCA) was established in 2017 as the central authority for cyber security in Saudi Arabia. The NCA is responsible for developing and coordinating the Kingdom’s cyber security strategy, as well as overseeing the implementation of new laws and regulations.
In 2018, the NCA released a whitepaper outlining the minimum standards for cyber security that all organisations in Saudi Arabia must adhere to. This document includes requirements for risk management, incident response, data protection, and more. It was circulated amongst both private organisations and government bodies, to raise awareness and improve cyber security posture across the country.
In 2019, NCA established the Computer Emergency Response Team (CERT), which is responsible for responding to cyber incidents and providing technical and forensic support. Two years later, Saudi Arabia’s Communications and Information Technology Commission (CITC) announced the implementation of a cyber security regulatory framework that aims to raise the security levels of service providers in the IT, communications, and postal services sector.
In 2020, the Saudi government enacted a new e-commerce Law, which includes provisions on data protection. The law requires e-commerce businesses to take measures to protect the personal data of consumers and establishes penalties for companies that fail to do so. It ensures the reliability and trustworthiness of online business transactions while safeguarding consumer rights and protecting online users from fraud and deception.
In March 2022, a new standalone personal data protection law (PDPL) came into force to provide additional protection for Saudi citizens’ personal data. The law requires organisations to take steps to protect the personal data of Saudi residents, including obtaining written permission before collecting, using or sharing personal data. Data controllers will be required to register with Saudi Data & Artificial Intelligence Authority (SDAIA) and pay an annual fee. Failure to adhere to this new law may incur criminal penalties including up to two years’ imprisonment or a fine of up to SAR 3 million. At the time of writing, the PDPL Implementing Regulations will be postponed until 17 March 2023, in order to consider the public consultation responses. That said, businesses are aware of the regulations which will be enforced soon, and are therefore urged to implement operational realignment to ensure legal compliance with the law from 2023.
In 2020, the Saudi government also released a Cloud Computing Regulatory Framework (CCRF), which sets out the requirements for organisations that wish to provide cloud services in the country. Cloud Service Providers (CSPs) are required to register with the Communication & Information Technology Commission (CITC) before they can provide cloud services within Saudi Arabia. In the event of any type of security breach, CSP must inform the CITC and any affected subscribers of their services, without delay. Additionally, the CSP is not permitted to share, or use their subscribers’ data for any purpose, unless express permission is obtained from the subscriber.
As Saudi Arabia’s tech transformation continues, the legal landscape is also evolving to keep pace with these changes. By ensuring that its legal system meets the demands of the modern IT industry, the Saudi government is sending a clear message that it is committed to protecting the privacy and security of its citizens in the digital age. In the coming years, we can expect to see these laws evolve further as the Kingdom looks to stay at the forefront of the global tech landscape.
Education in Saudi Arabia has come a long way over the past few decades. In the 1970s, only 7,000 students were enrolled in Saudi universities and today that figure stands at over 1 million. There has been a concerted effort by the government to provide education for all its citizens, and the results are evident. The primary education enrolment rate has increased dramatically, and the country now boasts several world-class institutions of higher learning.
There are still some challenges to be addressed, however. The quality of education remains uneven, with attainment levels still lagging some of the leading developing nations. COVID-19 also put a strain on the sector as schools were forced to close, meaning students had to learn remotely. Nevertheless, the future looks bright for Saudi Arabia’s education sector.
The Saudi private sector has been playing an increasingly important role in education over the past few years. As part of Vision 2030, the government is aiming to increase the proportion of students in private schools to take the strain off public funding and boost attainment levels.
Saudi Arabia’s exceptionally young population has increased the demand for good-quality schooling, and many parents are now willing to pay for private education. This has created opportunities for a number of international school chains to enter the market. By the year 2025, it’s anticipated that there will be a need for an additional 980 private schools to support the 2.1 million new school seats that will be required. In 2018, private school enrolment sat at 13%, but by the year 2025, this will likely increase to 15% to match the 3.5% annual increase in the total number of Saudi students. As a result of these factors, the private education sector is expected to grow at a CAGR of 11% until 2026.
As part of the government’s plan to increase private participation to 25% of the education sector, they have created an “independent schools” program. This program aims to make 2,000 public schools independent, meaning they have full autonomy over their administration, financial support, and curriculum. It opens up even more opportunities for private investment and management of public schools.
Saudi Arabia has typically fallen behind its Gulf neighbours when it comes to quality of education. However, government efforts are starting to have a positive effect, and the country is now ranked 35th place globally for quality of education (up from 45th in 2020). However, attainment levels remain relatively low when compared to other nations.
To tackle this issue, the Saudi government has funnelled one-fifth of their budget into the education sector and made steps to increase private sector participation in the market. Their efforts were somewhat hampered by the COVID-19 pandemic, which forced students to switch to online home-based learning. This meant private schools had to drop their fees, resulting in reduced funding and staffing issues.
In 2017, the Saudi government opened the private education sector to 100% foreign ownership and investment. This means there are now plenty of opportunities for foreign businesses to get involved in the education sector without the requirement of a local partner.
In the same year, the government announced new regulations under the Tadarruj system to regulate the building requirements for private schools operating in the Kingdom. By 2018, over 113 private schools were shut down for not abiding by these new regulations and operating out of buildings not designed for educational activities. Private schools are now required to wholly own their school buildings in order to be granted the appropriate licensing. Their premises must also fulfil a number of criteria to ensure they are fit for purpose.
The government recently announced that by the end of 2022, the Human Resource Development Fund (HRDF) would withdraw their funding support for Saudi citizen teachers. Until now, the government had been paying up to 50% of Saudi teachers’ salaries. This funding program was previously initiated after a Saudi citizen minimum wage was introduced, but schools must now start paying these salaries in full. This may result in a fee increase to combat the shortfall in funding.
The government has made it a priority to address the issues affecting educational attainment within the Kingdom and is working hard to ensure that Saudi Arabia’s education sector continues to develop and improve. In the coming years, we can expect to see even more progress in this vital area.
Private institutes who are considering entering the education sector will need to consider a multitude of elements, which include:
Incorporation – navigating the registration structure, considering your location, core age demographic which you are targeting, incorporation legal requirements, regulatory legal approvals,
Funding & Finance – the financial resources required to incorporate and operate across Saudi Arabia, whether you should consider a joint venture or merger, feasibility and due diligence assessments, banking structure across the country
Real estate – land law considerations, development, and leasing requirements, musataha agreements with government entities and developers.
Construction and infrastructure – construction laws, operating and maintaining of new campuses and student accommodation.
Employment – contracts, review of HR policies, employment laws.
Technology – technology procurement, outsourcing arrangements, licensing agreements.
Our education specialists at Hammad & Al-Mehdar have been supporting the education sector and its related entities for decades and have delivered the full lifecycle of legal and corporate services for its clients.
To discuss your education entity contact us.
Saudi Arabia is going through a period of unprecedented transformation and rapid economic diversification. Thanks largely to the regulatory, legal, and social reforms under Vision 2030, the nation is opening up new opportunities for businesses and investors.
The Vision 2030 plan — championed by Crown Prince Mohammed bin Salman — set a clear goal to reduce the country’s dependence on oil. The government is investing in several growing sectors, such as renewable energy, tourism, technology, and education, in a bid to position Saudi as a regional hub of technological innovation, entrepreneurship, and economic opportunity.
The government’s strategic investments and reforms have already begun to bear fruit. The Saudi economy has flourished despite the pandemic, with foreign investment at an all-time high and the private sector playing an increasingly important role.
Legal reforms have played a significant role in this success. The government has taken steps to remove investment restrictions and develop a more regulated legal framework for businesses operating within the Kingdom. These reforms have brought Saudi in line with global standards of best practice and improved their positioning in the World Bank’s “ease of doing business” index from 59.16 out of 100 in 2016 to 71.56 in 2020. This figure is expected to grow at a rate of 4.6% each year.
In 2016, the government opened up multiple sectors to 100% foreign investment and ownership, allowing foreigners to fully own their businesses for the first time. In the same year, the process of obtaining a foreign investment licenses was eased dramatically, with the number of required documents reduced to three, and the maximum processing time capped at five days. In 2021, the number of foreign investment licenses issued jumped by 250% compared to the previous year, with 4,431 licenses issued in total.
The Vision 2030 strategy was designed with Saudi’s large youth population in mind and aims to reduce the local population’s reliance on public sector employment. More than half of the population is under 35, making the country one of the most youthful in the world. Saudi’s private sector economy was largely supported by foreign labour until recently, reducing employment opportunities for Saudi citizens. Under Vision 2030, the government has funneled nearly 20% of their total budget into their education system, with the aim of developing a more skilled and employable Saudi workforce.
According to the MSCI, Saudi Arabia topped the Emerging Markets Index in 2021, representing a 27% rise in total market value compared to the previous year. The country presents a unique opportunity for British investors, who are now welcome to visit the country freely since the adoption of a new visitor visa model. Additionally, the Saudi government has approved the issuance of a new foreign investor visa that allows potential investors to reside in the Kingdom, sponsor their family members, and engage in property and business ownership.
Many sectors across the country are growing at an accelerated rate since the start of the pandemic, providing ample opportunity for foreign skill sets and investment. Most notably, the telecommunications and IT sectors have seen a surge in recent years, with the latter expected to grow at a CAGR of 7.78% through 2025. The move towards economic diversification has also meant a shift away from the petrochemical industry, towards renewable energy and other sustainable sectors. In 2021, the government announced its intention to invest $100 billion in the development of the renewable energy sector by 2030.
The government has also paved the way toward developing the nation as a prime tourist destination for travelers seeking to explore Arabia’s rich heritage. The Vision 2030 strategy prioritizes tourism as a key economic enabler, with the aim of increasing the number of tourists to 100 million annual visitors by 2030. The rapid development of this previously unexplored sector presents the need for hospitality industry experts, who can help to develop the necessary infrastructure and establish best practices.
Vision 2030 presents a wealth of opportunities for UK investors looking to expand into new and rapidly growing markets. The Saudi government has made a concerted effort towards improving the ease of doing business in the country by focusing on developing a more highly skilled and employable local workforce. Sectors such as telecommunications, IT, renewable energy, and tourism are growing rapidly and offer ample opportunity for foreign investment and skill sets. The government has also made it easier for investors to obtain visas, making Saudi Arabia a more attractive destination for those looking to expand their business operations.
Digital assets are becoming increasingly popular all over the world, as investors see the potential for great returns. By the end of 2022, global owners of crypto assets are expected to exceed 1 billion. Although initially slow to gain mainstream adoption in the region, their popularity is quickly growing among GCC residents. In Saudi Arabia specifically, cryptocurrency ownership has rapidly increased over the past 5 years, with 77% of the population having some awareness of digital assets and 18% actively trading in crypto. This increased level of digital asset trading activity is creating a need for a clearer regulatory framework within the region.
Digital asset regulation differs from country to country across the GCC. Some take a more hands-on approach while others have been unhurried. Bahrain, an early adopter of crypto regulations, launched a directive in 2019. The directive states that no person may market or undertake business activities comprising regulated crypto-asset services from within the Kingdom of Bahrain, without obtaining a licenses from the Central Bank of Bahrain (CBB).
In 2020, the UAE’s Securities & Commodities Authority (SCA) published “The Authority’s Chairman of the Board of Directors Decision No. (21/R.M) of 2020 Concerning the Regulation of Crypto Assets”. This directive outlines SCA’s licensing regime for any ICOs, exchanges, marketplaces, crowdfunding platforms, custodian services, or related financial services based upon, or leveraging crypto assets that wish to operate within the country. It states that crypto trade service providers must be incorporated onshore within the UAE and obtain the correct licensing. They must also comply with the country’s anti-money laundering and counter-terrorism financing laws, cyber security compliance standards, and data protection regulations.
In contrast to its Gulf neighbours, Qatar took the decision to announce an outright ban on cryptocurrency trade, with the exception of security tokens in 2020. Citing sources of Islamic scholarship, the leadership determined that cryptocurrency trading was in breach of the Shari’ah principle of the forbiddance of riba (usury).
While interest in digital assets remains high within the Kingdom (34% of residents express an interest in investing), adoption remains lower than the global standard. However, within the Arab world, Saudi residents come in third place in crypto ownership. Younger higher-income Saudis (earning at least 30,000 riyals per month) are the demographic most likely to pursue crypto investment, while those over 45 years of age show the most hesitancy.
Saudi Arabia’s first non-fungible token (NFT) marketplace Nuqtah was launched in 2021, showcasing digitally tradeable art from leading Middle Eastern and North African artists. Founder, Salwa Radwa believes, “We are currently witnessing the revolution of what is known as the Internet, not only with blockchain technology, but ownership of virtual assets through NFTs”.
Princess Reem Al Faisal — one of the first women to document the hajj with her photography — recently entered the NFT world with the launch of her NFT collection “Makkah and Medina”. Her digitized historic images of the holy pilgrimage were sold on the OpenSea NFT marketplace, drawing greater attention to this form of digital asset trading within the Kingdom.
Cryptocurrencies have a quasi-legal status within Saudi Arabia. In 2018, the government placed an outright ban on banks processing any transactions involving cryptocurrencies. The government has repeatedly maintained that those who trade in cryptocurrencies are doing so illegally and have no financial protection and risk the loss of their assets. However, there are currently no legal penalties in place for people who choose to trade in digital assets, whether crypto, NFT, or otherwise.
Currently, this legal grey area presents a challenge to potential crypto investors within Saudi Arabia, who may be hesitant to engage in crypto-trading activity out of fear of possible legal repercussions. NFTs remain a safe option for many in the Kingdom as they are not currently considered to be cryptocurrencies, with their trade not falling under the blanket crypto ban.
With Saudi Arabia’s neighbors seeking to bring the world of digital asset trade under the control of a regulatory framework, it’s possible that the Kingdom may follow suit in the coming years. The country’s youth population maintain a keen interest in all things digital and will likely welcome the introduction of regulations that legitimise the crypto and digital asset space.