Doing Business in Saudi Arabia

A Hot Tip about Business Environment in Saudi Arabia

Posted on: 6 May 2010

Market Overview

• According to the IMF, the Saudi economy will expand 4.0% this year 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. US$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 U.S. exports were $10.2 billion, down 13% from 2008. Total Saudi exports to U.S. amounted to $21.4 billion, down 61% from 2008.

 

Market Challenges

• 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.

 

Business Visas: All visitors to Saudi Arabia must have a Saudi sponsor in order to obtain a business visa to enter Saudi Arabia. On the positive side, in May 2008, the United States and Saudi Arabia signed an agreement to grant reciprocal 5-year, multiple-entry visas for business travelers. This agreement represents a significant step forward in the visa process.

 

Delayed Payments: Although the Saudi Government is keen to resolve any payment disputes and has reduced its arrearages in the last few years, the problem persists and American companies should check with the U.S. Embassy or Consulates if they encounter a problem.

 

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 favor Saudi and GCC nationals. However, most Saudi defense 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 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. 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. Labeling and marking requirements are compulsory for any products exported to Saudi Arabia.

 

Travel Advisories: Americans visiting Saudi Arabia are advised to check the U.S. State Department’s website for the latest information on travel to Saudi Arabia.

 

Market Opportunities

• The government is planning to spend US$400 billion on roads, airports and energy projects over a five year period between 2009 and 2014. US$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 US$3.7 billion in 2010 expected to rise to US$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 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. Desalination forms the backbone of the government’s water strategy. US$6bn 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 US$28bn to add approximately 13GW of power in the next three years. The utility company also plans to spend US$70 billion by 2018 to add 25GW to meet the growing demand from a rapidly increasing population.

 

Market Entry Strategy

• American exporters are not required to appoint a local Saudi agent or distributor to sell to Saudi companies. For complete information and regulations on registering a business in Saudi Arabia, please visit the Saudi Arabia Government Investment Agency (SAGIA) .

 

• Although the Saudi Government encourages foreign investment, a U.S. firm is strongly encouraged to seek in-country legal counsel on the best approach. The U.S. Commercial Service can assist by providing a list of local attorneys, which may be associated with American law firms.

 

 

 

Read the full market research report


Posted: 06 May 2010

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