Foreign investment and country risks in Saudi Arabia Dissertation

Foreign investment and country risks in Saudi Arabia - Dissertation Example 1.2 Introduction The research report is about the FDI prospects in Saudi Arabia. The researcher has made an attempt to conduct primary research with the help of interviews ad questionnaires to analyse the topic along with an in-depth analysis of some previous researches of the topic. 1.3 Background According to Vazquez, Fournier & Flores (2009, pp.257-270), Saudi Arabia, being a developing country, has a large amount of foreign direct investment. The country’s government has made heavy investments in the infrastructure so that FDI is attracted. The government welcomes FDI as it brings in technology, employment opportunities, trained workforce, makes efficient use of domestic raw materials and enhances economic development. As per Korgstup & Matter (2005), forty five percent of the GDP and 90% of the export earnings are from the petroleum sector. The country’s economic development is also dependent upon 6 million overseas workers. With the signing of the World Trade Orga nization agreement, many opportunities have opened for investment in the country especially in the oil and service sector where the country is concentrating on producing the products rather than exporting raw materials. According to Benbya, Passiante and Belbaly (2004, pp. 201–220)m Foreign Direct Investment (FDI) may be defined as a long-term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based. This involves a parent enterprise and a foreign affiliate that together make a transnational corporation (TNC). For such an agreement to be termed as FDI, the parent firm should have the control over the other affiliate. However, Korgstup & Matter (2005) argues, any sort of investment in a foreign land should done carefully as there may be several risks involved and many issues may occur over the course of the investment. For example language and cultural barriers in Saudi Arabia limit the scope of the investment tremendously and therefore the investor should have a through understanding of the market he is venturing. Moreover, there may be differences in business negotiation styles, religion, social norms and etiquettes that may impact the FDI. The report of UNCTAD (2002), on Foreign Direct Investment to the Middle East countries recorded a decrease of 33% dropping in 2002, from $6.7 billion in 2001 to $4.5 billion in 2002, that accounted for approximately 2.8% of total FDI inflow in the Developing Countries. This was mainly due to the regional political unrest, which in turn had an impact on their global business relationships. Moreover, according to Korgstup & Matter (2005) the region along with Saudi Arabia is not a plausible place for foreign investment due to such unrest and investors are seeking new markets for their future investment due to these political vagaries. 1.3 Aims of the Dissertation: 1.3.1 The objectives of the research are to: 1.Identify the various ris ks that a foreign investment faces in Saudi Arabia and how they affect foreign direct investment. Foreign direct investment is essential for Saudi Arabia and is essential for the growth of the country. However, there are many problems and difficulties that foreign investors have to face when they invest in Saudi Arabia, which deters new investors to explore this market. In this research an attempt will be made to identify these problems and issues that are causing difficulties for these foreign firms that in turn are affecting foreign direct