KSA wants global business, but nurtures a hostile environment instead
3 Min Read
Saudi Arabia had targeted $19 billion in foreign investment for 2020 but instead couldn't go over $5.4 billion. A toxic business environment, surprise taxes, and the use of kidnapping and torture are all reasons behind the decline in foreign investment in the kingdom.
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Prince Mohammed failed to change many of the old deterrents to investment. Then Saudi Arabia added new ones.
Saudi Arabia wanted the draw in the world's best companies in order to modernize its economy and take it further away from dependence on oil exports, and the country's de facto leader, Mohammad bin Salman (MBS) vowed to improve his country's business environment and make Saudi Arabia a global hub for innovation.
Uber Technologies, General Electric, and other companies (some large, some small) were hit by tax assessments, which totaled in the tens of millions of dollars for some. Bechtel Corp., a construction company, sent its contractors home and was stuck trying to collect $1 billion in unpaid bills.
An article by The Wall Street Journal delved into the problems behind Saudi Arabia's business climate and explained what had been going on behind the scenes these past few years, and why Saudi Arabia couldn't even break the $6 billion mark for foreign investment in 2020 when its target was $19 billion.
Not ready for investment
First of all, there's the matter of the planned projects that didn't happen. Some businesses are interested in Saudi Arabia, but the economic environment is still not ready for them, as the country is a tough place to do business. A slow bureaucracy, an outdated legal system, and a poor track record in human rights make businesses wary of dealing with the country.
Although big changes were promised, the assassination of journalist Jamal Khashoggi in 2018 made some giants wary of dealing with bin Salman's regime.
Surprise taxes
Secondly, on top of the old deterrents to foreign investment, new ones were added. Amid a need for cash when the pandemic hit in 2020, the kingdom levied retroactive taxes on dozens of foreign firms, making some giants face huge tax liabilities, and sometimes fines.
An overnight tripling of the value-added tax rate in 2020 certainly did not help.
Defense giant Northrop Grumman reduced its presence in the country in 2019 after the military failed to pay the company for the equipment it provided.
Drug companies cannot protect their intellectual property in the kingdom, because domestic companies have been allowed to manufacture generic versions of drugs still under patent or regulatory data protection.
Torture for talking
A third matter is that of physical safety. Some investors were arrested on alleged corruption charges, some Saudi and some foreign. One American was detained in an airport holding cell in Saudi Arabia last year for three days and was deported without any explanation.
A Palestinian small business owner who did landscaping for Saudi universities and royal palaces tried to petition and then sue investment officials over disputed fees. He was given only two minutes to plead his case before a judge, who then ruled against him.
The Palestinian, Suleiman Salehiya, spoke to The Wall Street Journal in 2018. Police raided his home in the middle of the night after that, bound him, stuffed him in an SUV, and then took him to a small cell where he was tortured for 18 days, for speaking with a foreign journalist.
“They shouted in my face, pounded on the table, and gave me electric shocks,” he said. “My crime is that I respected the law and followed it.”
