Co-authored by Abdulrahman Al-Ohaly and Shahd Makhafah.
The Crown Prince of the Kingdom of Saudi Arabia ("KSA"), his Royal Highness Prince Mohammed bin Salman bin Abdulaziz Al Saud, approved the decision of allowing Foreign Engineering Consultancy Companies ("Engineering Companies") to invest in the KSA with 100% foreign ownership (''Decision'') during the recent Council of Ministers' meeting on August 7th 2017. This announcement followed last year's similar decision to admit full foreign ownership in Retail and Wholesale Businesses to operate in the KSA. Further to our comments in Arab News on August 9th 2017, this article provides an overview on this latest positive development for Engineering Companies wishing to explore the KSA market.
This decision is certainly a positive step forward and a potential game-changer for the construction sector. The KSA is going through drastic changes with the implementation of the National Transformation Plan ("Vision 2030") that aims to diversify the economy by attracting and encouraging foreign investments, and the Saudi Arabian General Investment Authority ("SAGIA") has recently eased some of the restrictions applied on foreign businesses to support this plan. Foreign engineers and consultants are looking to get involved in and benefit from the expansion of infrastructure the Kingdom is experiencing, and we expect that the new corporate structure will give them more confidence to proceed.
Prior to the Decision, Engineering Companies were established in the KSA under the form of a "professional company" required to be a ''general partnership'' type of company and governed by the Professional Companies Law. The establishment of a foreign Engineering Company was subject to certain limitations and conditions on the level of (i) its ownership structure, requiring a minimum ownership shareholding participation of twenty five percent (25%) by a KSA licensed engineer; (ii) the required type of company being a ''general partnership'', and (iii) the Ministry of Commerce and Investment along with the Saudi Council of Engineers being the only two authorities in charge of the licensing and incorporation, excluding SAGIA. Nevertheless, with the latest Decision and with SAGIA being KSA's licensing authority for foreign investment, Engineering Companies are now able to operate in the KSA as a limited liability type of company.
SAGIA has been proactive in welcoming the Engineering Companies applicants seeking the required licence. The latter is currently reviewing the necessary process and procedures to regulate the investment of Engineering Companies and has revealed some of the conditions to issue the required foreign investment licence, along with the Saudi Council of Engineers' requirements. Interested businesses should be aware of two conditions:
- they must have ten years (10) of experience within the engineering consultancy field; and
- should be operating in at least four (4) international markets, apart from the KSA.
The SAGIA Governor, Ibrahim Al Omar, confirmed that SAGIA is now receiving and accepting applications from Engineering Companies. We expect existing Engineering Companies already operating in the KSA market under the previous structure to start exploring a restructuring plan. We also anticipate that SAGIA will communicate further details in due course.
Following the liberalisation of retail and wholesale sectors last year, the engineering consultancy sector now appears to be next in line. There is plenty of new infrastructure to be built under the Vision 2030 strategy, so this is a real opportunity for existing businesses to strengthen their presence and for new foreign firms to enter the KSA market.
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