Foreign direct investment: A strategic move toward sustainable free enterprise and economic development in Saudi Arabia

Abstract

Foreign direct investment (FDI) has been viewed in many circles as one of the key drivers for economic development. Irrespective of their ideological differences, most countries around the world have been competing to attract FDI. China, for example, is a country formally characterized by communist ideology. It has been highly proactive in formulating policies amenable to FDI so much so that in 2003, China overtook the United States as the biggest recipient of FDI, having attracted U.S. $53 billion from Organisation for Economic Co‐operation and Development (OECD) countries and elsewhere. In this article, an attempt is made to critically examine aspects of FDI, especially with reference to economic development in Saudi Arabia. The research study in this article reports new research findings based on a survey of Saudi managers/enterprises that highlight the current status of FDI in the Kingdom of Saudi Arabia. In particular, the study finds that while Saudi managers generally welcome FDI into the country, at the same time, they do retain ambivalent attitudes toward its perceived benefits.

The Development of Saudi Arabia in King Fahd’s Era

“…There are not enough trained staff supporting the Council members. This has contributed to reducing the quality of the performance of their work (Ramady & Saee, 2007).…”

Does Saudi Arabia’s economy benefit from foreign investments?

“…For decades, the Saudi Arabian economy was based on income from the oil sector as the main national income source; thus, economic booms in Saudi Arabia historically have been the result of high oil prices (Albassam, 2011;Belayachi and Haidar, 2008;Ramady and Saee, 2007). Therefore, one can argue that oil prices direct growth in the Saudi economy.…”

“…The report mentioned many challenges for the Saudi economy, including the high rate of unemployment, especially among young people, and the need to improve the education and health systems. Ramady and Saee (2007) commented on the economic reforms by the Saudi government, as follows, "[M]ost neutral observers praise the recent economic reforms of the Kingdom of Saudi Arabia, including the adoption of the new Foreign Investment Law allowing foreigners to own land and the introduction of a comprehensive and inspiring privatization strategy. But most observers also agree that the pace of reform has to be much more urgent and that reforms be transparent, realistically budgeted, and, above all, professionally implemented" (p. 54).…”

“…According to Alkhathlan (2011), "by training the local work force and upgrading the technical and managerial skills, it [FDI] helps in raising the efficiency and productivity of the factors and hence competitive strength in the international market" (p. 137). Ramady and Saee (2007) examined the relationship between FDI and economic development in Saudi Arabia. The study collected data though surveys sent to Saudi managers/enterprises in Saudi Arabia to obtain their perception of the government's act to attract foreign investments.…”

“…According to the study, even though 85 percent had a positive attitude toward attracting foreign investors, 65 percent of the participants thought FDI would not help ("strongly disagree") to solve the unemployment problem of the Saudi economy. Based on the study's results, developing the education system must be a priority for the Saudi government so as to produce skilled workers, which will help to reduce and control the country's high unemployment rate (Ramady and Saee, 2007). Additionally, Ramady and Saee (2007) argued that "the Saudi Arabian government can further stimulate FDI by promoting stable, predictable, non-discriminatory, and transparent systems of investment and regulation" (p. 55).…”