THIS
POST WAS ORIGINALLY PUBLISHED JUNE 25, 2011
MENA Mining
(III): Saudi Arabia (II)
In my Blog posts I frequently
touch the issues of investments in mining
Here I would like tor
reproduce this slide from my earlier post:
2011 Africa - Investment Destination for Miners (Part I) this helps to understand existing risks for investors
in mining.
According to the
latest World Bank’s publication Doing Business in the Arab World 2011, Saudi Arabia is No.1 in Arab World as to ease of
doing business. Indeed, it holds the top ranking position in the ‘protection of
investors’ ratings.
In 2010 the Saudi Council of Ministers adopted a Ninth Five-Year Development Plan (2010-14) – here an important role is allocated to development of mineral resources. Alongside with detailed analysis of the previous years, the plan lists the goals for 2010-14. In particular, on the issue of foreign investments, it sets, among the others, the following tasks:
·
Increasing
investment opportunities in exploring and manufacturing mineral wealth and
providing all possible incentives and support for such activities.
·
Providing a
safe, attractive, efficient and transparent investment environment.
·
Incentivising
national and foreign investors to set up mining projects, especially those
closely related to existing projects in other productive sectors.
Source: MINERAL RESOURCES part of Plan
Looking at investor attraction issues, here I would like to divide it into two components:
(i) Country Specific; and (ii) Industry Specific.
Country
Specific
Financing.
The Kingdom is a
member of the Multilateral
Investment Guarantee Agency (MIGA) and SAUDI ARABIAN GENERAL INVESTMENT AUTHORITY (SAGIA) provides all necessary assistance to foreign investors.
SAIGA’s Website is the first thing that any investors should visit, before
making any moves. There is a comprehensive set of all relevant information –
starting from the process of obtaining a license, cost of doing business, and download center that has very useful documents.
Another
valuable for investors organization is the Saudi Industrial Development Fund (SIDF). SIDF provides financial assistance in the form of short term
loans to investors, plus offers technical, administrative, financial and
marketing advice. The loans are medium and long-term for up to 50 percent of
the total cost of the project. The payback period is up to 15 years, with a
two-year grace period from the start of production. As the previous, the
Website is meticulously worked out and has a very detailed information for
investors.
Legal.
The Kingdom has
established a highly supportive legal and regulatory framework. Under
Foreign Investment Code foreign investors can own 100% of a
business with or without a Saudi partner. Comprehensive information,
including numerous links is provided on this Webpage: A Brief Overview of Saudi Arabian Legal System, while some other links include Legal considerations for new Investors. Saudi Arabia Investment guide 2010 by Al-Ghazzawi Professional Association and Herbert
Smith LLP. There is a certain issue with investors’ anxiety on specific legal
aspects of doing business. Here what the actual investor says: “The
legal system of Saudi Arabia, Shariah, is sometimes viewed as an area of
concern in the West and among major investors. In Bariq’s experience, although
all dealings are Shariah compliant, there is no differentiation in practice at
all.” (Saudi Arabia: A destination of choice for investors Arab News, January 25, 2011)
Material Assistance.
Industrial
projects get electricity, water, and other fuels to at low prices. The
Kingdom’s industrial parks feature a variety of public utilities: high quality
roads, electricity supply systems, desalinated water plants, sewage,
communications facilities and services, as well as all necessary utilities
infrastructure (mosques, fire stations, medical facilities, restaurants, post
offices and police stations). Available land is located throughout Saudi Arabia
in different industrial cities at nominal charges. Land for other uses is
available on lease or sale. For development of industrial projects Saudi Arabia
has advanced, state-of-the-art engineering supply and construction/contracting
companies (equipment suppliers, maintenance, etc.)
Industry
Specific
Leading position in world industry. Saudi Arabia is one of the Top 20 Emerging Mining Countries as cited
by Business Monitor International.
Advantageous geographic position. Ample domestic, regional and neighboring markets in the Middle East and
Asia for high grade, industrial raw materials from the Kingdom.
Third Pillar. Mining
sector is advancing as the third pillar of the Saudi economy at a projected
rate of 9.1%.
Industrial
Minerals is an essential segment of Saudi Arabia’s Non-Oil Mining sector, and
its Saudi Diversification Plan
In its current Ninth Development Plan “calls for intensification of efforts to maximize exploitation of
discovered mineral deposits and promote appropriate regulatory frameworks in
order to attract investment into this promising sector, thereby increasing its
contribution to GDP”.
Practical
incentives for miners. Flat
corporate tax rate of 20% ; absence of mineral royalties; highly competitive
energy costs; import duties exemptions for approved mining equipment - 5% on
other imported equipment. This all affects mine production costs, as it is
shown on the following slide:
Substantial Developments in Infrastructure. As an example, an extensive rail network that benefits mining projects
(see map in the previous post).The North-South railway is only one element of a
national rail and road building program that drastically changes the
accessibility to mining sites.Moreover, it is expanding continuously, as it is
seen from the recent news: “… King
Abdullah has ordered the linking of the new Hazm Al-Jalameed-Ras Al-Zour rail
with Dammam through Jubail Industrial City… new rail will connect the major
industrial facilities in Jubail, Ras Al-Zour and Northern Border Province with
King Fahd Industrial Port and Commercial Port in Jubail and the King Abdul Aziz
Port in Dammam.”
There are
also some challenges for investors, looking for Saudi Arabia –
and according to certain analysts – these are: limited
availability of drilling and lab facilities; and inadequate
quantities of water supply systems. So these are possible areas for
urgently required investments.
This ends my brief overview of investment attraction
of Saudi Arabia’s mining sector. Comments are welcome
UPDATE.
The upcoming issue of the International Resource Journal publishes the interview with Dr. Abdullah Basodan—the chairman of United Mining Investments Company (UMIC):
“A continent rather than a country” - this discusses opportunities and recent events in non-oil mining in Saudi Arabia. READ HERE
The upcoming issue of the International Resource Journal publishes the interview with Dr. Abdullah Basodan—the chairman of United Mining Investments Company (UMIC):
“A continent rather than a country” - this discusses opportunities and recent events in non-oil mining in Saudi Arabia. READ HERE
