SAUDI ARABIA

by Arafat

Country Background 

• The history of the Kingdom of Saudi Arabia dates back to about 1747.
• The foundation of the modern Kingdom of Saudi Arabia took place on September 23, 1932, a day that is commemorated as National Day
• The Kingdom of Saudi Arabia, with an area of about 865,000 square miles, occupies the bulk of the Arabian Peninsula, located in the southwest of Asia.
• In summer, midday temperature in the desert can soar to over 100 deg. F. Humidity in the coastal regions may approach 100 percent at times. Rainfall ranges from none at all for up to 10 years in the Rub Al-Khali, to 20 inches a year in the mountains of Asir Province.
• Population of 16.9 million
• Although it is still the world's greatest oil exporter and possesses the largest oil reserves, The non-oil economic sector's share increased from 46 percent in 1970 to 67 percent in 1992
• Education is free from kindergarten through university and available to all.
• Government offices are open Saturday through Wednesday, The weekend in Saudi Arabia is Thursday and Friday
• The Islamic calendar is based on the beginning of the Islamic era.
• Saudi currency is Riyal. One U.S. dollar is equivalent to 3.75 Saudi Riyals.
• The flag of Saudi Arabia bears the Muslim creed: "There is no god but God: Muhammad is the Messenger of God." 

Main Challenges

• Inflation 
• was not a major concern in Saudi Arabia in 2010, remaining stable at just over 5.0%. The rate of inflation is not expected to change much in 2011, if at all.
• Commercial Disputes Settlements: 
• The enforcement of foreign arbitration awards for private sector disputes has yet to be upheld in practice
• Business Visas: 
• All visitors to Saudi Arabia must have a Saudi sponsor in order to obtain a business visa to enter Saudi Arabia.
• Intellectual Property Protection: 
• The Saudi Ministerial Council in December 2009 approved the Kingdom’s accession to both the Intellectual Property Owners Association Patent Cooperation Treaty (PCT) and its Implementing Regulations and the Patent Law Treaty (PLT) adopted by the Diplomatic Conference in Geneva on June 1, 2000.
• Counterfeiting: 
• Although anti-counterfeiting laws exist, manufacturers of consumer products and automobile spare parts are particularly concerned about the widespread availability of counterfeit products in Saudi Arabia.
• Arab League Boycott: 
• The Gulf Cooperation Council (Saudi Arabia, Kuwait, Bahrain, Oman, Qatar, and the United Arab Emirates) announced in the fall of 1994 that its members would no longer enforce the secondary and tertiary aspects of the Arab League Boycott. The primary boycott against Israeli companies and products still applies.
• Government Procurement: 
• Government contracts on project implementation and procurement strongly favor Saudi and GCC nationals.
• Banking: 
• Although the Saudi central bank, SAMA, has granted licenses to a number of foreign financial institutions to open branches in Saudi Arabia, these banks are only being allowed to provide investment banking and brokerage services, as applicable.
• Shipping: 
• Saudi Arabia gives preference to national carriers for up to 40% of government-related cargos. Two local companies take full advantage of this situation.
• Standards and labeling: 
• As part of the GCC Customs Union, the six Member States are working toward unifying their standards and conformity assessment systems.
• Travel Advisories: 
• Americans visiting Saudi Arabia are advised to check the U.S. State Department’s website at http://travel.state.gov/travel/cis_pa_tw/tw/tw_932.html for the latest information on travel to Saudi Arabia.

Major Opportunities

• Saudi Arabia, the construction leader in the Gulf area, has budgeted US$385 billion on roads, airports and energy projects for the five-year period from 2010 to 2014. 
• Saudi Arabia has the biggest IT market in the Gulf region, worth about US$3.3 billion in 2010 and expected to grow to about US$4.6 billion by 2014.
• All three of Saudi Arabia’s GSM operators are in the process of implementing higher data transmission speeds over their 3.5G networks.
• Saudi Arabia’s ambitious rail plans are fuelling activity in the infrastructure sector, with US$30 billion worth of contracts under way or at the bidding stage.
• Saudi Arabia is the third largest consumer of water per capita in the world, but has limited groundwater to tap.
• The state-owned utility Saudi Electricity Company (SEC) intends to invest US$70 billion by 2018 to add 22MW to the nation’s power-generating capacity in order to meet the growing demand from a rapidly increasing population.

 Doing Business in Saudi Arabia

• A lengthy process, requiring much patience and perseverance. But first know your market. In Saudi you are looking at 3 centres: Jeddah, Riyadh and Eastern Province. The best vehicle for initial familiarisation is the Trade Mission.
• Allow 2 years to decide on the right sort of partner and to establish a good working relationship. Imperative to visit and re-visit the market to achieve this.
• Joint ventures and local manufacture are very welcome and foreign principals can now hold a controlling interest.
• Women can also conduct successful business in the Kingdom, although it is not always easy. Don’t be daunted!
• Competition. Most ME markets are price sensitive. Saudi Arabia is cash-rich and the Golden Goose may lay an egg at Fortune and Mason prices, if the product is special; but Sainsbury/Tesco prices are the rule of thumb.
• Priority Sectors: Training and Education; Oil & Gas; Water and Water management; Power; Health; Construction.

Using an agent/distributor

•  Agent/distributor relations are governed by the Commercial Agency Regulations of the Kingdom of Saudi Arabia that is administered by the Ministry of Commerce and Industry. 
• Saudi businesspeople cannot act as commercial agents unless their names are entered into the Register maintained by the Ministry of Commerce and Industry.
• In July 2001, the Council of Ministers cancelled a decree compelling foreign companies with government contracts to appoint a Saudi service agent.
• The old decree also specified a maximum commission of 5%. Some government contracts, however, still require a minimum participation by a Saudi entity. In addition, government contracts.
• Terminating an agent/distributor agreement can be difficult even though Saudi policy has changed to permit registration of a new agreement over the objections of the existing distributor. 

Establishing an office

To establish an office in Saudi Arabia, a foreign company needs to submit to related Saudi authorities a copy of its articles of association as incorporated in the country of origin, a copy of its commercial registration, a written approval by the board of directors of the company, its chief executive officer/president or a similar entity related to their decision to open a subsidiary office stating the name of the city and the name of the subsidiary’s manager.


Joint ventures/licensing

• Under the Foreign Investment Law, a foreign investor may either set up his/her own project or do so in association with a local investor.
• If the latter option is chosen, foreign investors may structure their enterprise as a limited-liability company, which is the most commonly used approach.
• Most foreign companies prefer to establish a limited-liability company (LLC) because it is simple to incorporate and manage.
• Limited-liability companies can be owned 100% by foreign investors or have a mixed ownership.
• Licenses should be obtained from the Saudi Arabian General Investment Authority (SAGIA).
• Foreign companies may qualify for a favorable tax treatment or other economic incentives from the Saudi Government, especially if Saudi investors join in the newly formed company’s capital.

Selling to the government

• In 2001, the Saudi Council of Ministers repealed a 25 year-old decree requiring foreign contractors to have a Saudi agent in order to bid for contracts.
• Under the new decree, foreign companies interested in operating in Saudi Arabia without a Saudi agent can open offices and appoint representatives to pursue business opportunities directly with various government agencies and departments.
• There is no central tender board in Saudi Arabia.
• Every government agency has full contracting authority.
• Foreign companies interested in bidding on a government project must make themselves known to that specific government agency/ministry offering the project.
• When a project becomes available, the government agency/ministry selects bidders from a list of prequalified/known companies and invites them to bid for that particular project.
• The law states that all qualified companies and individuals will be given opportunities in dealing with the Government and will be treated equally.
• The law also states that locally manufactured products and those of a non-Saudi origin of equal quality will have priority in dealing with the Government.
• Saudi Government Contacting & Procurement Law also affirms that all government bids be announced in the official gazette Umm al-Qoura (Arabic), in two local newspapers, as well as in the electronic media. Projects which do not have a contractor must be advertised both inside and outside Saudi Arabia.
• Foreign companies can provide services to the Saudi Arabian government directly without a Saudi service agent, and can market their services to other public entities through an office that has been granted temporary registration.

Distribution & sales channels

There are three major distribution and sales regions in Saudi Arabia:

1. The Western Region, with the commercial center of Jedd ah.
2. The Central Region, where the capital city of Riyadh is located.
3. The Eastern Province, where the oil and gas industry is heavily concentrated.

Electronic commerce

• Internet services are freely available and the main cities have several Internet service providers and Internet cafés.
• High-speed DSL is available.
• States of the Arabian Gulf increased their IT spending by 12 per cent.
• Investments in the region’s IT industry reached $213 billion by the end of 2010, buoyed by rapidly growing investment in software, according to a regional consultancy firm.
• Saudi Arabia’s IT businesses generated revenues of around $4 billion in 2010 and retained the country’s status as one of the largest IT market in the Gulf.
• Saudi Arabia’s IT sector is expected to maintain a strong growth rate of 10 per cent through 2013.
• Internet users in Saudi Arabia increased to over 11 million in the first nine months of 2010.
• Almost half of all Saudi Internet users reported that they purchased products and services online and through their mobile handsets in 2010.
• The same study estimates the number of e-commerce consumers in Saudi Arabia to exceed 3.5 million, representing 14.3% of the population.
• The Saudi Government has already passed a number of regulations to control and monitor electronic transactions, i.e., regulations for e-transactions and cyber crime.

Openness to foreign investment

• After 12 years of negotiations, Saudi Arabia finally joined the WTO in 2005.
• Part of the requirements for Saudi Arabia’s acceptance into the organization was a promise to open the nation to more foreign investment.
• Saudi Arabia has embraced this new openness, and designated six “economic cities” as the primary sites of foreign investment and economic growth.
• The Kingdom is one of the least indebted countries in the world.
• Saudi Arabia demonstrated its global economic status by taking a leading role, on behalf of the oil sector, at the 2010 G-20 Summit in Seoul, South Korea.
• Saudi Arabia continued to show positive progress towards full compliance with its WTO requirements after it joined the organization in 2005
• Saudi Arabia, despite fears stemming from global economic uncertainty tied to the sovereign debt crisis and euro zone crisis, benefitted greatly from stable global oil prices and what appears to be a new global average price for crude oil in 2010.
• Though bolstered by strong performance in the oil sector, the Saudi economy still witnessed rises in inflation over the first three quarters of 2010 and a five year low in stock market volumes in the Saudi Stock Exchange, Tadawul All Share Index (TASI).
• Improvement of the investment climate continues to be an important part of the Saudi government's broader program to liberalize the country's trade and investment regime, diversify an economy overly dependent on oil and petrochemicals, and promote employment for a young population
• "Doing Business 2011" report, the International Bank for Reconstruction and Development ranked Saudi Arabia 11th out of 181 economies in terms of ease of doing business, a marked improvement from 2005, when it ranked 67th. Also, in its "Corruption Perception Index 2010" report, Transparency International ranked Saudi Arabia 50th out of 178 countries in terms of perceived levels of public sector corruption, demonstrating significant progress from 2008, when it ranked 80th..

Right to private ownership & establishment

• Domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity.
• Private entities generally have the right to freely establish, acquire, and dispose of interests in business enterprises. Certain activities are reserved for state monopolies and Saudi citizens.

Business customs

• Business visitors should inform their Saudi hosts of their travel plans and agenda, but may have better success scheduling a specific meeting once they have arrived in Saudi Arabia.
• The religious holidays of Ramadan and Hajj and the daily prayer breaks should also be taken into consideration when scheduling business meetings.
• Saudi businesses are unlikely to finalize any serious negotiation without such a face-to-face meeting, as doing business in the Kingdom is still mostly personal.
• Proper attire at business meetings is essential, as it is a sign of respect for the person with whom you are meeting.
• Conservative business suits are recommended
• Business cards exchanged are usually printed in English on one side and Arabic on the other.
• Meetings are conducted at a leisurely pace, with the parties involved enjoying cordial discussion over coffee and tea.
• Saudi business executives like to feel comfortable with their business partners before agreements or contracts are signed.
• Saudi custom regarding greetings is rather ritualized. When entering a meeting full of people, a Saudi will greet each person individually with a handshake while standing. The same is expected of visitors. Learning some appropriate Arabic phrases for such occasions is appreciated.

Local time, business hours, & holidays

OFFICIAL HOLIDAYS:

• Eid Al-Fitr: 9th-14th of February (1st-3rd of Shawal)
• Eid Al-Adha: 18th- 24th of April (10th-12th of Thu-Alhejah)

WORKING HOURS (GMT +3):

• Saturday till Wednesday (7:30am till 12:30pm) and (4:00pm till 7:30pm)
• Thursday (7:30am till 1:00pm)

Fact Facts

Population	22,023,506
Capital	Riyadh  city
Area	1,960,582 sq km
Ethnic Groups	Arab 90%, Afro-Asian 10%
Religions	Muslim 100%
Major Language	Arabic (official), English
Monetary Unit	1 Saudi riyal (SR) = 100 halalah
Major Industries	crude oil production, petroleum refining, basic petrochemicals, cement, construction, fertilizer, plastics
Major Export	petroleum and petroleum products 90%
Major Imports	machinery and equipment, foodstuffs, chemicals, motor vehicles, textiles
GDP	$191 billion (1999 est.)
GDP per capita	purchasing power parity - $9,000 (1999 est.)

References:

• Doing Business in Saudi Arabia, O'Kane, Michael
• http://www.globaltrade.net/f/business/text/Saudi-Arabia/Selling-Using-an-Agent-or-Distributor-in-Saudi-Arabia.html
• http://www.buyusainfo.net/z_body.cfm?dbf=ccg1%2Cbmr11%2Cmrsearch1&search_type2=int&avar=19999&country=Saudi%20Arabia&logic=and&loadnav=no
• http://www.state.gov/e/eeb/rls/othr/ics/2011/157351.htm
• http://www.the-saudi.net/business-center/business-etiquette.htm
• http://www.mondaq.com/article.asp?articleid=3629