The Kingdom of Saudi Arabia has an oil dominated economy with strong government controls over major economic activities. It possesses about 16% of the world's proven petroleum reserves, ranks as the largest exporter of petroleum, and plays a leading role in OPEC. The petroleum sector accounts for roughly 87% of budget revenues, 42% of GDP, and 90% of export earnings.
Saudi Arabia is encouraging the growth of the mineral sector in order to diversify its economy and to employ more Saudi nationals. This drive is headed by the State founded company Ma’Aden. Ma’aden is now among the fastest growing mining companies in the world and the largest multi-commodity mining and metals company in the Middle East.
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The Kingdom of Saudi Arabia is a country in the Middle East located on the Arabian Peninsula. It is the largest country in the Middle East and has a coastline with the Red Sea to the west and the Persian Gulf to the east. Saudi Arabia is the birthplace of Islam and home to Islam's two holiest sites in Mecca and Medina. King ABDALLAH bin Abd al-Aziz Al Saud incrementally modernized the Kingdom. Driven by personal ideology and political pragmatism, he introduced a series of social and economic initiatives, including expanding employment and social opportunities for women, attracting foreign investment, increasing the role of the private sector in the economy, and discouraging businesses from hiring foreign workers. These reforms have accelerated under King SALMAN bin Abd al-Aziz, who ascended to the throne in 2015. Saudi Arabia is a leading producer of oil and natural gas and holds about 16% of the world's proven oil reserves as of 2018. The government continues to pursue economic reform and diversification, particularly since Saudi Arabia's accession to the WTO in 2005, and promotes foreign investment in the Kingdom. In April 2016, the Saudi Government announced a broad set of socio-economic reforms, known as Vision 2030. Saudi Vision 2030 is a plan to reduce Saudi Arabia's dependence on oil, diversify its economy, and develop other industries such as the Mining Sector and in 2019 Saudi Arabia set up a new dedicated Mining Ministry. Saudi's Vision 2030 aims at increasing the mining sector's economic contribution to USD 26 billion (SAR 97 billion), 18,000 times more than 2015 revenues of USD 140 million (SAR 520 million).
Laws and Regulations
Applications for licences under the Mining Code may be made by individuals or legal entities, whether Saudi or non-Saudi (although foreigners are also subject to the foreign investment licensing requirements administered by the Saudi Arabian General Investment Authority).
Exploration and Exploitation
7 types of mining licences exist that allow licensees (who may hold multiple licences) to undertake, broadly speaking, activities related to non-exploitation/exploration and exploitation. Of importance to foreign participants, all non-Saudi applicants for licences under the Mining Code, except those applying for reconnaissance licences, must establish domicile in the KSA. The establishment of domicile is demonstrated by, among other things, a permanent address in the KSA and the presence of a licensee’s delegate or agent within the KSA.
The “non-exploitation” grouping includes licences for:
1. Reconnaissance – to survey and investigate a licence area for a period of two years (renewal possible for a single additional two-year period subject to certain requirements) and granting a non-exclusive right to examine the licence area for minerals and samples collection.
2. Exploration – to engage in detailed scientific and technical activities with the aim of discovering natural deposits of metallic or non-metallic ores in addition to the exclusive right to explore for all minerals specified in the licence in an area not exceeding 100 sq km for a period not exceeding five years (renewal possible for a period not exceeding five years subject to certain requirements).
3. Material Collection – to collect materials (limited to specimens, decorative work or materials for similar purposes) specified in the licence, without the use of power tools and equipment, on a non-exclusive basis.
With respect to the “exploration licence” category specifically, it should be noted that if such a licence holder proves the presence of exploitable minerals, and assuming all other obligations under the Mining Code are met, an automatic right exists to obtain an “exploitation” licence within the effective period of the exploration licence and within the exploration licence area. Obligations of exploration licences include, among others, minimum exploration activity expenditure (varying between Saudi Riyals (SR) 750 and SR 7,500 per sq km a year), notifying the Ministry of the location of field teams, submitting half-yearly reports on the progress of work and a comprehensive report on the expiration of the licence, and delivery to the Ministry of technical records, samples and any drill cores obtained from the licence area upon the termination or expiry of the licence.
The “exploitation” category of licences includes four kinds of licences that are differentiated by (i) type of mineral permitted to be extracted (as classified in Article 3 of the Regulations), (ii) duration of licence, and (iii) size of licence area:
Exploitation Mining – specified class 3 minerals; initial duration of up to 30 years (renewal possible for up to 30 years subject to certain requirements); licence area not to exceed 50 sq km.
1. Raw Materials Quarry – specified class 1 and 2 minerals; initial duration of up to 30 years (renewal possible for up to 30 years subject to certain requirements); licence area not to exceed 50 sq km.
2. Small Mine – specified class 1 and 2 minerals; initial duration of up to 20 years (renewal possible for up to 30 years subject to certain requirements); licence area not to exceed one sq km.
3. Building Materials Quarry – specified class 1 minerals; initial duration of up to five years; licence area not to exceed 0.25 sq km.
The various exploitation licences confer upon holders an exclusive right to extract minerals, as per the licence terms. If a licensee discovers any minerals not covered by the terms of a licence, the licensee may apply to the Ministry in writing within 90 days from the date of such discovery for an exploitation licence for these additional minerals.
An exploitation licensee, however, is not permitted to commence any development or mining activities in the licensed area unless a feasibility study has been submitted in acceptable form to the Ministry. Such study must include information regarding capital and operating costs of the project, expected rate of return on investment and proposed mining methods to be used. In addition to the feasibility study, an exploitation licence holder (with the exception of building materials quarry licences) must, during the term of the licence, furnish the Ministry with an environmental study prepared by a specialist. Such study must include a rehabilitation plan specifying how the licensee, at the end of the licence term and at the licensee’s expense, will rehabilitate the exploited area.
Fees and Taxes
The mineral resources licensing process in the KSA entails paying certain fees relating to matters such as licence application submission, licence issuance, renewal and extension, and licence transfer, and such fees vary in amount between the different types of licences. In addition, unless relating to privately owned land that is exempt, exploitation licences are charged a yearly surface rental fee of SR 10,000 per sq km.
Licensees are subject to (i) KSA income tax, or (ii) if income tax is not applicable, a severance fee representing 25% of annual net income or the equivalent of the income tax, whichever is lower, with any applicable Zakat being deducted from this amount. The current applicable income tax rate for mining activities in the KSA is 20% and an additional withholding tax of 5% is applied against distributions to shareholders outside of the KSA.
Bidding and Transfer of Licences
In certain limited circumstances, licences are granted on a competitive basis: (i) where the Ministry delineates a licence area as one requiring competitive bidding, for the award of an exploitation licence in the form of a public tender process, and (ii) where more than one applicant applies for a licence over the same area. In such cases, the winning applicant is determined on the basis of evaluating factors such as the respective technical and financial competence of the applicants, the proposed technical work program and commitment to the training and employment of Saudi nationals, with each of the respective criteria being given a weighting as set out in the Regulations.
After having been granted an exploration or exploitation licence, a licence holder may transfer such licence to another party that possesses the technical and financial capability and adequate experience to fulfil the obligations of the licence and that would also be qualified to obtain a similar licence under the terms of the Mining Code.
Saudi Arabia’s education system has gone through an astonishing transformation. When the Kingdom was established in 1932, education was available to very few people, mostly the children of wealthy families living in the major cities.
Today, Saudi Arabia’s education system includes over fifty public and private universities, with more planned; some 30,000 schools; and a large number of colleges and other institutions. The system is open to all citizens, and provides students with free education, books and health services.
While the study of Islam remains at its core, the modern Saudi educational system also provides quality instruction in diverse fields of arts and sciences. This diversity helps the Kingdom prepare its citizens for life and work in a global economy.
Saudi Arabia spends a larger portion of its GDP on education than the global average, and has achieved near universal literacy (95 percent of adults, 99 percent of youth) and enrolment rates. Saudi Arabia has a large number of both male and female bachelor’s degree holders.
The Saudi authorities have put in place educational reforms to incentives Saudi students to pursue scientific and technological academic studies in subjects more in demand in the private sector. Vision 2030 aims for 950,000 enrolled students in 2020, up from just over 100,000 in 2018.
The majority of employed Saudi citizens work in the public sector, and a central Vision 2030 goal is to reduce this to 20 percent by 2030. Conversely, Saudis are underrepresented in most private-sector industries, with a few notable exceptions such as agriculture, mining, finance, real estate, and utilities. Saudi employment in the private sector is hampered by high wage requirements and mismatched career expectations: private-sector employment provides lower wages and less job security than the public sector.
A strategy for increasing Saudi employment in the private sector is to encourage nationals to set up their own businesses. Vision 2030 recommends financial institutions allocate up to 20 percent of their overall funding to small and medium enterprises (SMEs) by 2030. This strategy started in 1974 with the establishment of the Saudi Industrial Fund, but it has doubled its capital in recent years, alongside allocated funding from banks for SMEs. So far, the new private-sector jobs tend to occur in industries with lower Saudization rates than 20 percent: construction, manufacturing, and wholesale and retail trade.
Boosting female labour force participation is an integral part of the Saudi Arabian economic transformation, as dual-income families will have a reduced dependency on the state for employment and social benefits. A number of incremental reforms in the last decade have facilitated female entry to the labour market.
To increase female employment rates in the private sector, Saudi Arabian authorities have sought to expand the job market in general, and for women in particular, through promoting entrepreneurship. Programs such as the Monsha’at, and the entrepreneurship programs for women through the Technical and Vocational Training Corporation (TVTC), aim to facilitate young entrepreneurship.