Barriers and threats to Foreign Direct Investment (FDI) in Saudi Arabia: A study of regulatory, political and economic factors

The overarching purpose of this thesis is to identify and study barriers that have had the most effect on Foreign Direct Investment (FDI) and how these barriers have affected investors with plans of investing in Saudi Market. The barriers have been divided into three factors; political factors (the effect Arab Spring, Iran nuclear program and activities of terrorist groups have had on Saudi Arabia, regulatory factors (bureaucracy rules, government rules and social culture) and economic factors (effect of macroeconomic variables and exchange rate on FDI). After proper evaluation of literature and concepts, it became evident that the above factors have had effect on FDI, and this culminated in the design of a conceptual framework as well as some propositions for each of the factors; political factor (stability in government, internal and external conflicts, and international relations), regulatory factors (liberality, regulation, bureaucracy and impact on culture), and economic factors (growth rate, stability of currency, economic variables and market size). Needed data were obtained from interviews conducted on participants who gave their views concerning FDI sector (government officials, independent consultants and foreign investors). Furthermore, an inductive approach was used to identify the effect of changes to the current currency policy of Saudi Riyal pegged with US$ in a fixed exchange rate. Results have shown that regulations currently been put in place by the government as well as societal customs, have had adverse effect on FDI. However, political stability being enjoyed by Saudi Arabia has been pivotal in attracting foreign investment into the country. Added to this, acts of terrorism and the Iranian relationship have in no way affected FDI coming into the country. Though it became clear that any attempt by the government to acquire nuclear weapons, will have a negative effect on Saudi Arabia. The current economic standing of Saudi Arabia has attracted more foreign investments, as the country has been enjoying economic stability. It was also discovered from the studies that the increasing price of oil has had varying effect on FDI. Inflation has not been a major barrier to foreign investments. Current exchange policies have favored FDI; it became evident that any alteration of this policy will have a negative effect on FDI. In term of theoretical contribution, the study found that the literature does not fit with the Saudi Arabian case as high inflation rate, as well as the external and internal crises weren’t found to be as barriers for FDI in Saudi Arabia. In addition, the research has contributed a conceptual framework based on previous studies integrating regulatory, political and economic factors that can be used for any further research on FDI. In term of practical contributions, the study explored possible effect of new potential risks such as Arab Spring and nuclear weapon. The research will be useful for both regulator and investors as it clearly identifies the action necessary to attract FDI as well as provide a set of guidelines for investors who intend to enter Saudi market