Legal protection of foreign direct investment in Saudi Arabia

Abstract

Developing countries are converging in their Foreign Direct Investment (FDI) policies. This reflects not just the external pressure to liberalise economic policies but also the growing realisation that Multi National Corporations (MNCs) have played and will continue to playa leading role in transnational investment. This is particularly so when it comes to the exploration for and development of oil and gas resources. The role of MNCs In the explorations and development of petroleum resources in Saudi Arabia since the 1930s has indeed been significant. Saudi Arabia has been seeking economic diversification since the 1970s. It dec~ded to change its development strategy so as to become less dependent on oil revenues. The Kingdom thus embarked upon various legal and policy reforms to improve the investment climate in the country. This subject is highly important to foreign investors in Saudi Arabia because of the potential returns offered by what is becoming a more attractive investment environment. A key issue for foreign investors is the availability of an adequate legal framework for foreign investment which facilitates the establishment and operation of their business in Saudi Arabia and provides them with adequate protection for their investments. However, there are concerns which have arisen amongst foreign investors. These concerns mainly stem from a sense of legal uncertainty and unpredictability of the laws and dispute settlement systems relating to FDI in Saudi Arabia, including where relevant Shari'a which is fundamental to the Saudi legal system. This study is therefore concerned with the identification and analysis of these legal problems - both existing and perceived - in the laws of Saudi Arabia as well as the stability of investment agreements under Shari' a which is necessary for conducting business there. As the title of this study indicates, its primary objective is to examine the legal security and protection ofFDI in Saudi Arabia. The examination of this topic will be conducted in the light of the rules relating to FDI which are designed to provide effective protection for foreign investment. Since Shari'a is the main source oflaw within the Saudi legal system, the relevant Shari'a principles will also be addressed in this study. The study also examines the mechanisms available for the settlement of foreign investments disputes in Saudi and asks whether or not these mechanisms provide independent and impartial bodies capable of settling such disputes. The study is intended to make an original contribution to current and prospective foreign investors' understanding as well as to inform proposals for action on the part of the Saudi government.