Foreign Direct Investment in the Mining Sector in Egypt and Saudi Arabia

Both—Saudi Arabia and Egypt—have recently taken steps to attract foreign direct investment into their mining sectors. With their Vision 2030 Saudi Arabia announced intentions to attract USD 170 billion of investment in the Kingdom’s mining and minerals sector. The Egyptian Minister for Petroleum and Mineral Resources announced plans to increase the contribution of the mining sector to the country’s GDP tenfold by 2026. To fulfill these goals and attract additional FDI both countries recently amended their mining laws and eased restrictions for foreign investment in these sectors. Still, challenges remain; in particular, in Egypt.

Saudi mining and investment regime

Investment in the Saudi mining sector was traditionally restricted to Saudi nationals (or citizens of other GCC countries). The new Saudi Mining Law issued in 2021 lifted barriers for FDI in the sector. With the entry into force of the new law, mining activities—except for oil and gas exploration, drilling and production—have been dropped from the so-called negative list that listed activities reserved for Saudi (and GCC) investment. Foreigner can now procure mining licenses without involving a Saudi partner. Still, they may have to engage a Saudi consultant for some licenses.

The license will be issued by the Ministry of Industry and Mineral Resources. Initially, a mining license may be granted for a 5 years term. They can be renewed for up to 10 additional years.

The license must be held by a Saudi entity. Hence, foreign investors need to use an existing or set up a new company in Saudi Arabia to procure a mining license. Furthermore, they must demonstrate they have the necessary technical expertise and financial means to conduct the business envisaged.

To show sufficient financial means the share capital of the Saudi entity holding the license must be at least SAR 100,000 (approx. USD 27,000), and the group applying for the license must (1) have procured full funding for the first two years of operations, (2) provide a financing proposal for the remaining term of the license, and (3) not have been declared bankrupt, been subject to insolvency proceedings, or their executive officer been convicted of a criminal offence within the last 3 years.

To show sufficient technical expertise the applicant must prove that they have no less than 5 years of experience in the mining industry. Where the applicant themselves does not have the necessary experience, they can hire a specialized operator who will manage the mining operations.

Egyptian mining and investment regime

In order to boost FDI in the mining sector, Egypt revised their Mining Law in 2014. The amendments, however, did not have the desired effect. The 2014 law was perceived as  largely favoring the state and lacking adequate protection for investors. Furthermore, obligations for foreign investors to engage in local joint ventures and stiff royalties where a point of concern. To address these issues Egypt revised the Mining Law again in 2019. Despite some improvements considerable issues remained.

A key improvement introduced with the most recent amendments was the lifting of the obligation to form local joint ventures for investments in the Egyptian mining sector. Still, the obligation to involve local partners was not entirely abandoned. The competent authorities may still require formation of a joint venture with the Egyptian government on a case-by-case basis.

The patchwork of regulatory authorities for the mining sector established under the Mining Law poses a considerable issue. Depending on where mining operations are located either the local governorate or the New Urban Communities Authority (NUCA) oversee operation and management of mining projects. The Egyptian Mineral Resources  Authority (EMRA) conducts technical supervision. Depending on the type and size of the mining operation licensing must be procured from either the Ministry for Petroleum and Mineral Resources, the EMRA, the relevant governate or the NUCA. These shifting authorities and responsibilities not only add to already convoluted Egyptian bureaucratic but also poses the risk of conflicting administrative directives and orders.

In addition, investment quotas and high dues remain a concern. Despite the 2019 amendments to the mining law introducing caps for royalties, they can still be significant. Moreover, and newly introduced financial obligations impose additional burdens. Depending on the material mined royalties at a rate of between 5 and 20% of the market value of extracted material will be due. In addition, social responsibility contributions in the amount of 1% of royalties due for mines and 6% of the royalties due for quarries are obligatory. Furthermore, investors must pay rent at a rate determined by the competent authorities for their mines and quarries. Rent amount may be re-assessed every 3 years. Finally, investors must commit to investment quotas. Licensees are required to commit exploration expenditures in the amount of 4 times the rent value due to their operations.

Short and ambiguous license terms also are a concern for investors. The initial term for exploration licenses is 2 years. They can be renewed for another term of 2 years as well as a third 2 years’ term where such additional renewal is justified due to technical concerns. An exploitation license can be issued for a total term of 15 years. The term for an individual exploitation license will be determined by the competent licensing authority at their discretion.

The natural resources sector is a designated investment sector under the Egyptian Investment Law. Consequently, investors in the Egyptian mining sector may benefit from general investment incentives under the Investment Law. The law affords staggered tax incentives, reduced customs rates, as well as utilities subsidies for companies operating in designated geographical areas; so-called investment zones. These investment zones are remote, underdeveloped parts of the country. They lack necessary infrastructure and connectivity, and qualified staff is typically difficult to retain in these areas. This makes them unattractive for many businesses. However, the investment zones include territory with significant mineral deposits such as Upper Egypt where substantial tantalite, iron, and titanium deposits are located. Hence, they will be of interest to mining investors.

To benefit from the incentives granted under the Investment Law, an investment vehicle must be incorporated within 3 years as of the Executive Regulations to the Investment Law entering into force. This deadline may be extended by ministerial decree. The current deadline will expire on 28 October 2023. It remains to be seen whether the deadline will be extended, or new sets of incentives issued.

Way forward

The most significant regulatory development for foreign investors in the mining sectors of Saudi Arabia and Egypt will be the lifting of foreign ownership restrictions. With Saudi Arabia dropping mining—except for oil and gas exploration, drilling and production—from the so-called negative list and Egypt dropping the requirement to engage in local joint ventures, foreign investors are not (in principle) free to invest in the countries mining sectors. However, some obligations to involve local partners remain. In Egypt, an obligation to set up a joint venture with the government may be imposed for individual investments. In Saudi Arabia certain licenses may require involvement of a local consultant.

Furthermore, investment quotas and (potentially) significant dues will have to be considered when assessing feasibility of investments in the Egyptian mining sector. 

Still, favorable tax treatment, reduced customs rates and other incentives may be available under the Egyptian Investment Law.

Despite some concerns the amendments to the Saudi and Egyptian mining laws and FDI regimes are largely positive. Foreign investors enjoy much more flexibility and protection under the new laws and investment incentives may aid in making investments viable despite of costs and other financial obligations. Still, dedicated review of regulatory constraints are highly advisable.