Investment Climate

Openness to Foreign Investment
The Saudi Government generally encourages foreign direct
investment, particularly in the case of foreign investment in
joint ventures with Saudi partners.  Though Saudi Arabia
technically allows wholly foreign-owned firms to operate, such
ventures are rare.  With an eye to stimulating greater foreign
investment to strengthen the non-oil private sector, Saudi Arabia
is revising its 30-year-old investment code and tax code.  These
revisions may enhance the attractiveness of Saudi Arabia to
foreign investors.

The Government and the private sector actively promote investment
opportunities in Saudi Arabia, particularly partnerships with
Saudi businessmen that bring industry or transfer technology to
the Kingdom.  Currently the Government is focusing on attracting
investment in infrastructure, such as electric power generation,
but has yet to make such investments financially attractive.
Disincentives include a high tax rate on a foreign partner's
corporate profits, a Government policy of forced hiring of
Saudis, the practical requirement for a foreign investor to have
a Saudi partner, an ultraconservative cultural environment, and
an extreme desert climate.

The Ministry of Industry and Electricity periodically identifies
investment opportunities, as do the Saudi Chambers of Commerce
and Industry and private consulting houses.  Other Government
bodies, such as the Royal Commission for Jubail and Yanbu and the
Arriyadh Development Authority, have also been active in
promoting opportunities in Saudi Arabia's industrial cities and
other regions.  In addition to the majority Government-owned
Saudi Arabian Basic Industries Corporation (SABIC), private
investment companies, such as the National Industrialization
Corporation, the Saudi Venture Capital Group, the Saudi
Industrial Development Company, and the Arabian Industrial
Development Company, have also become increasingly active in
project development and in seeking out foreign joint venture
partners.

One sector closed to foreign investment is upstream oil
exploration and development, as the Saudi Government considers
this sector to be of strategic national interest.  All oil
exploration and development is conducted by the national oil
company, Saudi Aramco.  Conversely, the greatest foreign
investment in the Kingdom is found in a related sector--petrochemicals, where several major foreign firms have partnered
with Saudis to build world-scale petrochemical plants.

The Government uses its purchasing power to encourage foreign
investment.  In 1985, the Saudi Government reached an agreement
with American contractors under the Peace Shield defense
procurement program for "offset" joint venture investments
equivalent to 35 percent of the program's value.  One Peace
Shield offset program, the Al-Salam Aircraft Company in Riyadh,
which performs maintenance on civilian and military aircraft,
received FAA certification in September 1994.  AT&T (now Lucent
Technologies) undertook the first nondefense offset project in
connection with the $4 billion Sixth Telephone Expansion Project
(TEP-6).  British and French defense firms also have offset
requirements.  Offset requirements are likely to remain
components of major defense purchases.
Rules and Regulations Governing Investment
The current foreign capital investment code specifies three
conditions for foreign investments:

     1.  The undertaking must be a "development project."
     2.  The investment must generate technology transfer.
     3.  A Saudi partner should own a minimum of 25 percent
equity (although this last stipulation can be waived).

"Development projects" were defined in Ministry of Industry and
Electricity Resolution 11/k/w of February 12, 1990, to include
industrial, agriculture, health, contracting and specialized
service projects.
In an important development, the Minister of Industry and
Electricity issued a decree in September 1997 that declared
electric power generation to be an "industrial development
activity," and thus open to foreign investment in accordance with
existing foreign investment guidelines.

High technology projects are generally given priority, while
projects in construction, general operations, and maintenance are
discouraged.

The Saudi Government is considering revisions to the foreign
investment code with a stated aim of attracting more foreign
direct investment.  Although considerable attention is currently
being paid to these issues, the timing, scope, and content of the
revisions remain uncertain.

Corporate Organization and Liability
While Saudi law permits a variety of corporate structures, joint
ventures almost always take the form of limited liability
partnerships.  This form or organization does confer limited
liability (see below).  However, there are disadvantages.
Foreign partners in service and contracting ventures organized as
limited liability partnerships must pay in cash or kind 100
percent of their contribution to authorized capital.

Industrial projects normally require 25 percent capitalization,
although it may be higher for some industries.  Additionally, 10
percent of profits must be set aside each year in a statutory
reserve until it equals 50 percent of the venture's authorized
capital.

The Ministry of Industry and Electricity licenses direct foreign
investment, except for mineral concessions, which are governed by
separate agreements.  Otherwise, all proposals for new
investments, reinvestment, mergers, or acquisitions must go
through that Ministry's licensing process.  For ventures with
Government participation, the process is usually only a
formality.  On the other hand, for a purely private venture, the
process can involve a considerable amount of time and effort,
although this may vary depending on the Saudi partner's
involvement in the process.

Operating under the Foreign Capital Investment Regulations, the
Ministry of Industry and Electricity's "Foreign Capital
Investment Committee" screens all license applications and
counsels prospective investors.  License applications must be
accompanied by a formidable array of documents including a
feasibility study, an outline of the venture's proposed capital
structure and legal form, the partnership agreement, plans to
train Saudi nationals for technical and managerial positions, and
procurement plans for machinery and other equipment.  Applicants
must also submit permits to use specific patents, the foreign
partner's foreign certificate of registration, and authorization
from the foreign partner's board of directors.

Following the initial screening, the Foreign Capital Investment
Committee evaluates applications.  The Committee is chaired by
the Deputy Minister of Industry and Electricity and includes
representatives from other relevant ministries, including the
Ministries of Commerce, Finance, Agriculture, Planning and
Petroleum.  License applications approved by the Committee then
require the approval of the Minister of Industry and Electricity.

The new joint venture must apply for a commercial registration
number from the Ministry of Commerce.  Depending on the type of
business, additional approvals may be needed, such as from the
Ministry of Health in the case of a health care business.

The Foreign Capital Investment Committee evaluates projects using
a variety of factors.  Foremost is the project's compatibility
with Saudi Arabia's basic economic goals:

     1.  Economic diversification.
     2.  Access to modern technology.
     3.  Development of a trained Saudi labor force to reduce
         dependence on foreign labor.

The Committee looks with a special favor on projects involving
the transfer of high technology, preferring firms with experience
in the proposed field of investment.  The Committee evaluates
royalty arrangements and the price of equipment to be supplied by
the foreign partner.  Additionally, while there is no minimum
foreign equity requirement for joint ventures, more than nominal
investment is encouraged.  Intangible property is not counted
toward this investment, and a Saudi accountant must evaluate the
monetary worth of any contributions in kind.

The Embassy has heard reports that the Foreign Capital Investment
Committee will not license a second joint venture in a specific
industry sector until the Committee agrees the first venture is
"established."  While this would be beneficial to initial
licensees, it would also allow individual companies to tie up
industrial and commercial opportunities for extended periods
while they mobilized support for their own ventures.

Professionals, including architects, consultants and consulting
engineers, are required to register with and be certified by the
Ministry of Commerce in accordance with the requirements defined
in the Ministry of Commerce's resolution 264, published in 1982.

These regulations, in theory, permit the registration of
Saudi/foreign joint ventures.  However, according to business
sources, the regulations have never been fully implemented.  As a
result, most foreign consulting firms work as adjuncts to
established Saudi firms.

Foreign investors are denied national treatment in the following
sectors:  catering, cleaning, maintenance and operations of
facilities, power generation, trading, transportation, and
businesses that affect national security.

Saudi privatization efforts are embryonic, and the treatment of
foreign investors has not yet been decided.  In May 1998, the
Council of Ministers announced the establishment of the Saudi
Telecommunications Corporation (STC), the first phase of
privatization of telecommunications services.  STC will operate
as a wholly state-owned corporation for two years before starting
to offer shares to the public in stages.  It remains unclear
whether foreigners will be permitted to own shares and whether
STC will seek a foreign strategic partner in the privatization.
In a related development, the Saudi Government in May 1998 also
authorized private operation of postal services.  As of July 1998
there were already over 100 private postal offices across the
Kingdom, including some with foreign participation.  Saudi ports
have since 1997 begun "privatizing" port services by signing
long-term contracts with private providers.  Although foreign
companies have entered this market through joint ventures, so
far, no U.S. firms have taken part.  The Government has also
raised the prospect of privatizing the national airline, Saudi
Arabian Airlines (previously Saudia), although no clear decisions
have been made.

There is a clear hierarchy of privileges and preferences in Saudi
Arabia that favors Saudi companies and joint ventures with Saudi
participation.  For instance, only firms with at least 25 percent
Saudi ownership are eligible for tax holidays and interest-free
loans from Government credit institutions such as the Saudi
Industrial Development Fund.  Similarly, only foreign-owned
corporations and the foreign-owned portion of joint ventures are
subject to the corporate income tax, which can range up to 45
percent of net profits.

Only Saudi companies or citizens, or those from the other Gulf
Cooperation Council (GCC) countries (Kuwait, Bahrain, Qatar, UAE
and Oman) may own land or engage in internal trading and
distribution activities.  Similarly, only joint ventures with at
least 51 percent GCC ownership interest are permitted to export
duty-free to other GCC countries.

Taken together, the above represent a formidable array of
privileges and preferences which can severely disadvantage a
foreign investor attempting to operate his wholly-owned company
in Saudi Arabia.  The formerly common practice of Saudis
illegally lending their names to a foreign-owned and operated
business, so-called "cover-ups," was curtailed by Royal Decree
m/49 of May 21, 1989.  Saudis and foreigners who engage in such
"cover-ups" to evade Saudi commercial regulations are now subject
to severe penalties, including imprisonment, stiff fines, and
deportation for the foreigner.

While, theoretically, American and other foreign firms are able
to participate in Saudi Government financed and/or subsidized
research and development programs on a national treatment basis,
the Embassy is not aware of any examples.

One of the leading obstacles for foreign investors is restrictive
Saudi visa requirements, although the Saudi Government announced
new, more streamlined measures in May 1998 for business
travelers.  Investors or potential investors wishing to visit
Saudi Arabia must have a Saudi sponsor to obtain the necessary
business visa.  On rare occasions the Saudi Embassy or Consulates
may grant, at their discretion, sponsorless business visas to
employees of prominent American firms, but this practice is
unpredictable.  Business visas are currently valid for only one
entry for up to three months, although the U.S. Government is
hopeful that Saudi authorities will very soon agree to issuance
of two-year, multiple-entry visas to U.S. citizens on a
reciprocal basis.  Under existing rules, if a businessperson went
to Saudi Arabia, then departed to reenter Saudi Arabia, he or she
would need to reapply for a new visa including a new sponsorship
letter.  Businesswomen and naturalized Americans of Arab descent
often face difficulties when requesting visas.

To work in Saudi Arabia, a Saudi company must formally petition
the Ministry of Foreign Affairs on behalf of the American.  The
Saudi firm then sends the approved petition to the Saudi Embassy
in Washington or to the Saudi consulates in New York, Los
Angeles, or Houston.  The American would then would obtain the
visa either from the Embassy or one of the consulates.

Within three days of arrival in Saudi Arabia, the American must
go to the Ministry of Interior Passports Office and apply for a
residence permit called an "igama."  The Saudi employer holds the
American's passport while the American uses the igama for
identification purposes.  Whenever the American wants to leave
Saudi Arabia, the sponsor must get an exit/re-entry or exit visa;
then the American exchanges his or her igama for the passport.

Since the Saudi firm holds the passport, it has the potential to
exert great influence on the foreign employee's movements.
Americans who come to Saudi Arabia cannot directly bring their
families with them.  The employee can apply for his or her
family's visas only in Saudi Arabia and then must return to the
United States to accompany the family.

Conversion and Transfer Policies
There are no restrictions on converting or transferring funds
associated with an investment (including remittances of
investment capital, earnings, loan repayments, and lease
payments) into a freely usable currency and at a legal market
clearing rate.  There have been no recent changes, nor are there
plans to change remittance policies.  There are no delays in
effect for remitting investment returns such as dividends, return
of capital, interest and principal on private foreign debt, lease
payments, royalties and management fees through normal legal
channels.  There is no need for a legal parallel market for
investor remittances.

There is no limitation on the inflow or outflow of funds for
remittances of profits, debt service, capital, capital gains,
returns on intellectual property, imported inputs, etc.  There
is, however, a heavy tax (up to 45 percent) on corporate profits
and capital gains of the foreign partner in a joint venture.
Since 1987, the official exchange rate has been 3.7450 Saudi
riyals per U.S. dollar.  Transactions occur using rates very
close to the official rate.  The last devaluation of the Saudi
riyal occurred in 1986.  Conditions do not appear to warrant
another devaluation anytime soon.

Right to Private Ownership and Establishment
Foreign and domestic private entities have the right to establish
and own business enterprises and engage in all forms of
remunerative activity.  Private entities have the right to freely
establish, acquire, and dispose of interests in business
enterprises.  The Embassy is not aware of any private enterprises
competing with public enterprises; therefore, the concept of
"competitive equality" has not been tested with respect to access
to markets, credit, and other business operations such as
licenses and supplies.

Expropriation and Compensation
The Embassy is not aware of the Saudi Government ever
expropriating property.  There have been no expropriatory actions
in the recent past or policy shifts which would lead the Embassy
to believe there may be such actions in the near future.

Dispute Settlement
Saudi commercial law is still developing, but the Saudis have
recently taken positive steps such as joining the New York
Convention of 1958 on the Recognition and Enforcement of Foreign
Arbitral Awards.  Dispute settlement in Saudi Arabia continues to
be time-consuming and uncertain.  Even after a decision is
reached in a dispute, effective enforcement of the judgment can
still take years.

The Embassy suggests that American firms investing in Saudi
Arabia include in contracts a foreign arbitration clause; but
such clauses are not allowed in Government contracts without a
decision by the Saudi Council of Ministers.

Saudi litigants have an advantage over foreign parties in almost
any investment dispute, because of their first-hand knowledge of
Saudi law and culture and the relatively amorphous dispute
settlement processes.  Foreign partners involved in a dispute
find it advisable to hire local attorneys with knowledge of Saudi
legal practices.  Many Saudi attorneys, in turn, retain non-Saudi
(and particularly American) lawyers to facilitate the handling of
disputes involving foreign investors.

In several cases, disputes have caused serious problems for
foreign investors.  For instance, Saudi partners have blocked
foreigners' access to exit visas, forcing them to remain in Saudi
Arabia against their will.  In cases of alleged fraud, foreign
partners may also be jailed to prevent their departure from the
country while awaiting police investigation or adjudication of
the case.

Courts can impose precautionary restraint of personal property
pending the adjudication of a commercial dispute, according to
Royal Decree No. M/4 of October 2, 1989.  This decree has
diminished the incentive for individuals to physically detain
foreign partners pending the resolution of commercial disputes.
Thus, it is very important that foreign investors take steps to
protect themselves, by thoroughly researching the business record
of the proposed Saudi partner, retaining legal counsel, complying
scrupulously with all legal steps in the investment process, and
securing a well-drafted agreement.

There have been few investment disputes in recent years involving
American or other foreign investors or contractors in Saudi
Arabia.  A common phenomenon of the early 1990s was that the
Government, due to fiscal constraints, fell in arrears on
payments to private contractors, both Saudi and foreign.  Some
companies carried Saudi Government receivables without being paid
for years.

The problem was eased considerably in 1996, and the Government
appears committed to clearing remaining arrears, although in some
cases this will likely take several years.  In the current
straitened fiscal environment, some contractors are being paid in
bonds instead of cash.  Some contractors then sell these bonds at
a discount to local banks.

The Saudi Arabian legal system is derived from the legal rules of
Islam, known as the Shari'a.  The Ministry of Justice oversees
the Shari'a-based judicial system, but most ministries have
committees to rule on matters under their jurisdiction.  The
Board of Grievances generally speaking has jurisdiction over
disputes with the Government and commercial disputes.  Of
principal interest to investors who have disputes with private
individuals are the Committees for Labor Disputes (under the
Ministry of Labor, see below), and the Committee for Tax Matters
(under the Negotiable Instruments Committee, also called the
Commercial Paper Committee).  The Ministry of Finance has
jurisdiction over disputes involving letters of credit and
checks, while the Banking Disputes Committee of the Saudi Arabian
Monetary Agency (SAMA) adjudicates disputes between bankers and
their clients.  Judgments of a foreign court are not yet accepted
and enforced by the local courts, but the Saudis' signature of
the New York Convention may change this.  Monetary judgments are
based on the terms of the contract; i.e., if the contract is in
dollars, the judgment would be in dollars; if unspecified, the
judgment is denominated in Saudi riyals.

Saudi Arabia has a written commercial law that is generally
applied consistently.  The country has a written bankruptcy law
which was enacted by Royal Decree No. N/16 dated 4/9/1416 H
(1/24/96).  Articles contained in the law allow debtors to
conclude financial settlements with their creditors through
committees under the Saudi Chambers of Commerce and Industry or
through the Board of Grievances.  Designated as the Regulation on
Bankruptcy Protective Settlement, the law is open to ordinary
creditors except in the case of debts of expenditures, privileged
debts and debts which arise pursuant to the settlement
procedures.  In mid-June 1994, Saudi Arabia deposited Articles of
Acceptance to the New York Convention of 1958 on the recognition
and enforcement of foreign arbitral awards.  Saudi Arabia is a
member of the International Center for the Settlement of
Investment Disputes (ICSID--also known as the Washington
Convention).

Since 1996, Saudi Arabia has actively pursued its application for
accession to the WTO.

Performance Requirements/Incentives
Under the 1969 labor and workman regulations, 75 percent of a
firm's work force and 51 percent of its payroll must be Saudi,
unless an exemption has been obtained from the Ministry of Labor
and Social Affairs.  The Saudi Government recently implemented a
regulation requiring each company employing over 20 workers to
include a minimum of five percent Saudi nationals.  Companies not
complying with the five percent rule (which will increase in
annual increments of five percent) will not be given visas for
expatriate workers.

However, Saudis represent only about a quarter of the estimated 8
million workers in Saudi Arabia, so few firms have been able to
meet these requirements.  Foreign firms are under constant
pressure to employ more Saudis.

Investors are not currently required to purchase from local
sources or export a certain percentage of output, and their
access to foreign exchange is unlimited.  There is no requirement
that the share of foreign equity be reduced over time.  The
Government does not impose conditions on investment such as
locating in a specific geographical area, a specific percentage
of local content or local equity, substitution for imports,
export requirements or targets, or financing only by local
sources.  Investors are not required to disclose proprietary
information to the Saudi Government as part of the regulatory
approval process.

The Saudi Government is currently considering changes to the
Foreign Capital Investment Code.  There are reports that the
revised regulations will include new performance requirements--possibly including export incentives, import substitution
incentives, and local content requirements-- but no details have
been made public.

Protection of Property Rights
The Saudi legal system protects and facilitates acquisition and
disposition of private property, consistent with strong Islamic
dogma respecting private property.  Non-Saudis are not allowed,
however, to purchase real estate in Saudi Arabia, except in
extremely rare situations.  Other foreign-owned corporate and
personal property is protected, and the Embassy knows of no cases
of Government expropriation or nationalization of foreign-owned
assets in the Kingdom.  Regarding intellectual property rights,
the Saudi Arabian Government has acceded to the Universal
Copyright Convention; implementation began July 13, 1994.

Saudi Arabia has had a Patent Law since 1989, and the Patent
Office accepts applications, but it has only issued a few
patents.  Protection is available for product and product-by-process.  Product-by-process protection is accorded in the
pharmaceutical sector.  There are provisions in the Patent Law
for compulsory licenses for non-working and dependent patents.
The term of protection is 15 years.  The patent holder may apply
for a five-year extension.

Saudi Arabia has a Copyright Law.  However, this law does not
extend protection to works that were first displayed outside of
Saudi Arabia unless the author is a Saudi citizen.  The Saudi
Government has taken actions to enforce copyrights of U.S. firms,
and pirated material has been seized or forced off the shelves of
a number of stores.  Enforcement has been strongest for printed
material, recorded music, and videos.  Pirated software is still
easily obtained in Saudi Arabia, although it has been removed
from open display on store shelves.  A recent Islamic ruling, or
"fatwa" ruled software piracy to be "forbidden."  In 1996, Saudi
Arabia was moved from a "priority watch list" country to a "watch
list" country under the Special 301 provision in recognition of
its work to improve intellectual property protection.

Trademarks are protected under the Trademark Law.  Trade secrets
are not specifically protected under any area of Saudi law,
however they are often protected by contract.

There is no specific protection for semiconductor chip layout
design.  However, such protection would be provided under the
Patent Law and the Copyright Law.  This, and certain other
intellectual property concerns, are being addressed under the
TRIPS agenda issue, in connection with Saudi Arabia's application
to accede to the WTO.

Transparency of Regulatory System
There are few aspects of the Saudi Government which are
transparent, although Saudi investment policy tends to be less
opaque than many other areas.

Saudi tax and labor laws and policies tend to favor high-tech
transfers and the employment of Saudis, rather than fostering
competition.  Saudi health and safety laws and policies are not
used to distort or impede the efficient mobilization and
allocation of investments.  Bureaucratic procedures are
cumbersome, but Saudi red tape can generally be overcome with
persistence.

Efficient Capital Markets and Portfolio Investment
Financial policies generally facilitate the free flow of private
capital.  Currency can be transferred in and out of Saudi Arabia
with no restriction.  Credit is widely available to both Saudi
and foreign entities from the commercial banks and is allocated
on market terms.  Credit is also available from several
Government credit institutions, such as the Saudi Industrial
Development Fund, which allocates credit based on Government-set
criteria rather than market conditions.

The banking system, consisting of eleven commercial banks, nine
of which are joint ventures with Western banks, is sound.  The
legal, regulatory, and accounting systems practiced in the
banking sector are transparent and consistent with Western norms.

The Saudi Arabian Monetary Agency (SAMA), which oversees and
regulates the banking system, generally gets high marks for its
prudential oversight of the twelve commercial banks in Saudi
Arabia.  SAMA, for example, is the only Middle Eastern central
bank that has been invited to be a member and shareholder of the
Bank for International Settlements in Basel, Switzerland.

There is an effective, if nascent, regulatory system governing
portfolio investment in Saudi Arabia.  Saudi Arabia has a small
and thinly traded stock market established in 1985.  At the start
of 1998, total market capitalization stood at about $60 billion.
Only long buying of shares is allowed.  There is no short
selling, buying or selling of options or any other derivative
products, primary or secondary market for corporate bonds, or
secondary market for Government bonds.

Until recently, only Saudis could buy and sell shares on the
stock market.  SAMA, which also regulates the stock market, in
early 1997 gave permission to the Saudi-American Bank to
establish a closed end mutual fund of Saudi stocks to foreigners.
The fund, named the Saudi Arabia Investment Fund (SAIF), is
dollar-based and sold through the London exchange.

Political Violence
On November 13, 1995, a truck bomb was detonated outside a U.S.
military training headquarters in Riyadh, killing seven people,
including five Americans.  The bombing was the first act of
political violence in Saudi Arabia in over a decade and the first
terrorist incident to have specifically targeted foreigners.  The
four Saudi nationals who were apprehended and executed for the
terrorist attack claimed to be avenging the Government's
incomplete application of Islamic law and principles.  The attack
was roundly condemned by the Government, the religious
establishment, and the populace.

In June 1996, a U.S. military housing facility was bombed in the
Eastern Province killing 19 Americans and wounding more than 100.
Since these two bombings, security has been heightened at
official U.S. installations, residential compounds, and schools;
and the U.S. Embassy, working closely with Saudi security
organizations, periodically advises American citizens of
potential security concerns.

Other than the above events, Saudi Arabia has not been subject to
civil disturbances or political insurrections.

Corruption
Saudi Arabia has some, albeit limited, laws aimed at limiting
corruption.  For example, the agency law limits a Saudi agent's
commission to five percent of the value of a contract.  Ministers
and other senior Government officials appointed by royal decree
are forbidden from engaging in business activities with their
Ministry or Government organization while employed there.
Nonetheless, enforcement of even these laws is rare and there are
extremely few cases of prominent citizens or Government officials
tried on corruption charges.

U.S. firms have identified corruption as an obstacle to
investment in Saudi Arabia.  Government procurement is an area
often cited, as is de facto protection of businesses in which
senior officials or elite individuals have a stake.  Bribes,
often disguised as "commissions" are commonplace.  Giving or
accepting a bribe is not a criminal act under Saudi law.

Bilateral Investment Agreements
The Saudi Government appears to be moving forward in its pursuit
of bilateral investment agreements.  Saudi Arabia presently has a
bilateral agreement with France and is in the process of
negotiating one with Italy.
Negotiations on bilateral agreements are likely to take place
with some other European countries.  There is no bilateral
investment treaty in force between the United States and Saudi
Arabia.  Gulf Cooperation Council (GCC) countries and their
nationals receive favorable investment treatment derived from GCC
agreements.

OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) no longer
provides coverage in Saudi Arabia.  In 1995, OPIC removed Saudi
Arabia from its list of countries approved for OPIC coverage
because of the failure of Saudi Arabia to take steps to comply
with internationally recognized labor standards.   Details on
OPIC programs and coverage can be obtained by calling (202) 336-8575 in Washington.  The U.S. Export-Import Bank provides a
limited amount of financing and political risk insurance in Saudi
Arabia.

Labor
Recruitment of expatriate labor is regulated jointly by the
Ministry of Interior and the Ministry of Labor and Social
Affairs.  In general, the Government encourages the recruitment
of Muslim workers, either from Muslim countries or from countries
such as India and Sri Lanka with sizable Muslim populations.  The
largest groups of foreign workers now come from Pakistan, the
Philippines, India, and Egypt.

Westerners compose less than 2 percent of the labor force, and
the percentage is slowly dropping as they are replaced by Saudis
and less expensive expatriates from Third World countries.

Since September 1994, the Ministry of Labor and Social Affairs
has been required to certify that there are no qualified Saudis
for a particular job before it can be filled by an expatriate
worker.  In addition, the Ministry of Interior must approve all
transfers of expatriate workers from one firm to another.  On the
other hand, bloc visas are normally available for unskilled and
some skilled workers recruited abroad.

Saudi labor law forbids union activity, strikes, and collective
bargaining.  However, there is no forced or compulsory labor; any
required overtime, over and above the usual five and one-half to
six-day week, is compensated normally at time-and-a-half rates.
The minimum age for employment is 14.  The Saudi Government does
not adhere to the International Labor Organization Convention
protecting workers' rights.  Saudis generally prefer to invest in
labor-saving technology rather than utilize foreign labor when
given the choice.

Foreign Trade Zones/Free Ports
Saudi Arabia does not have duty-free import zones or freeports.
It has begun to permit transshipment of goods through its ports
in Jeddah and Dammam.

Major Foreign Investors

Investment (US$ billions, except where noted):

1995(E) 1996(E) 1997(E)

- Total
 Foreign Direct Investment   13.3      14.5      15.0

- U.S. Direct Investment 5.5 6.7 7.0

- Percent Share of Total
  Foreign Investment (percent)      41.3      46.2      46.7

Major Foreign Investors

  U.S.A., Japan, United Kingdom, Switzerland, France, Germany

Source : Ministry of Finance
 and National Economy; Saudi Arabian
Monetary Agency (SAMA); International Monetary Fund; U.S.
Department of Commerce; U.S. Embassy estimates; Ministry of
Industry and Electricity