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Business Environment in Saudi Arabia
 
 
 

General

For the last 60 years, Saudi Arabia has assumed a vital economic role and has been situated on the centre stage of the global economic and political scene. While the market was once dominated by American and British firms, and later Japanese corporations, Korean and Chinese companies have now aggressively entered the market and have posed serious challenges to entrenched multinational corporations. The Saudi market has newly become an arena for unbridled competition. As companies must adapt and embark on creative means to sustain their positions in dynamic markets, multinational corporations must also find a comprehensive approach to dealing with cultural and political developments. Having a competitive edge demands familiarity with market nuances and peculiarities in addition to providing quality product and service.

According to the IMF, the Saudi economy expanded about 4% in 2010 as increased public expenditure paves the way for sustained economic recovery. Specifically, the growth in the manufacturing sector led by the petrochemicals industry is expected to see strong demand from Asia. $70 billion of investment in the petrochemical sector by 2011 is expected. Likewise, power generation, water treatment, telecommunications, transportation and infrastructure sectors are expected to register strong growth. Specifically, the construction sector will be one of the main beneficiaries of continued large government outlays.

Saudi Arabia was the United States’ 20th largest trading partner in 2009 and also the 20th largest export market. Total bilateral trade was around $33 billion, a 51% decrease from 2008 due to lower oil prices. However, total bilateral trade as measured in quantity grew by 0.15% Total US exports were $10.2 billion, down 13% from 2008. Total Saudi exports to US amounted to $21.4 billion, down 61% from 2008.

Inflation was not a major concern in 2009, falling from 9.2% in 2008 to 4.4%, largely due to the global economic slowdown.

Commercial Disputes Settlements

The enforcement of foreign arbitration awards for private sector disputes has yet to be upheld in practice. Furthermore, government agencies are not allowed to agree to international arbitration without approval from the Council of Ministers, which is rarely granted.

Intellectual Property Protection

Intellectual property protection has steadily increased in the Kingdom. Over the last seven years, Saudi Arabia has comprehensively revised its laws covering intellectual property rights to bring them in line with the WTO agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). The Saudi Government undertook the revisions as part of Saudi Arabia’s accession to the WTO, and promulgated them in coordination with the World Intellectual Property Organization (WIPO). The Saudi Government updated its Trademark Law (2002), Copyright Law (2003), and Patent Law (2004), with the dual goals of TRIPs-compliance and effective deterrence against violators. In 2008 the Violations Review Committee created a website and has populated it with information on current cases. The patent office continues to build its capacity through training, has streamlined its procedures, hired more staff, and reduced its backlog. In September 2009, the King approved a mechanism to protect Exclusive Marketing Rights (EMR) for certain pharmaceutical products which lost patent protection when Saudi Arabia transitioned to a new TRIPS-compliant patent law in 2004. 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. The Council of Ministers issued a resolution on 23/11/1428H (December 3, 2007) approving the Law of Trademarks for GCC countries.

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. The Saudi Government remains committed to stopping counterfeit products from entering into the country.

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 favour Saudi and GCC nationals. However, most Saudi defence contracts are negotiated outside these regulations on a case-by-case basis. Saudi Arabia published its revised government procurement procedures in August 2006. Foreign suppliers participating in government procurement are required to establish a training program for Saudi 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. The number of commercial banks operating in the Kingdom in 2008 amounted to twenty two, including branches of the National Bank of Kuwait, Deutsche Bank, Muscat Bank, National Bank of Bahrain, Gulf International Bank (GIB), Emirates Bank (EB), J.P. Morgan Chase N.A, BNP Paribas, National Bank of Pakistan (NBP), and State Bank of India (SBI).

Shipping

Saudi Arabia gives preference to national carriers for up to 40% of government-related cargoes. Two local companies take full advantage of this situation.

Standards and Labelling

As part of the GCC Customs Union, the six Member States are working toward unifying their standards and conformity assessment systems. However, each Member State continues to apply its own standard or a GCC standard. A new ICCP mandates that a Certificate of Conformity must accompany all consumer goods exported to Saudi Arabia. Labelling and marking requirements are compulsory for any products exported to Saudi Arabia.

Market Opportunities

The government is planning to spend $400 billion on roads, airports and energy projects over a five year period between 2009 and 2014. $70 billion of this expected to be invested in 2010.

Saudi Arabia has the biggest IT market in the Gulf region, with a forecast value of $3.7 billion in 2010 expected to rise to $5.2 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. This development should stimulate increased demand for mobile broadband services in the long term.

Saudi Arabia’s ambitious rail plans are fuelling activity in the infrastructure sector, with $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. Desalination forms the backbone of the government’s water strategy. $6 billion a year has been committed by the government to bolstering the water sector over the next two decades.

The state-owned Saudi Electricity Company (SEC) intends to invest $28 billion to add approximately 13GW of power in the next three years. The utility company also plans to spend $70 billion by 2018 to add 25GW to meet the growing demand from a rapidly increasing population.

 
 

 



 


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