International Trade in Saudi Arabia

News Related to International Trade in Saudi Arabia

Business outline for Saudi Arabia

Main Industry Sectors

Agriculture accounts for 3% of the GDP and employs 15% of the active population. It is not a very productive sector despite the huge state investments. Saudi Arabia imports most of its agricultural and food product requirements because of the geographical and climatic contraints. Water scarcity is a serious regional problem that the country is likely to face in the coming years, as growing cultivation of wheat presents a strong threat of water depletion.

The industrial sector represents two thirds of the GDP. It is dominated by non-manufacturing activities (oil drilling). The industrial sector portion, other than oil, is growing due to Saudi state investments, to diversify the economy, the kingdom having tapped into its financial reserves accumulated by the soaring oil prices.

Lastly, services represent 22% of the GDP. This sector is mainly dominated by tourism, financial and insurance services and the banking sector.

Economic Overview

The Saudi Arabian economy is entirely based on oil. The country has the largest oil reserves in the World and is also the World's biggest oil producer and exporter. Oil accounts for more than 90% of the country's exports and nearly 80% of government revenues. The recovery of the demand in 2010 helped to stabilize growth and offers hope for a favorable recovery in 2011.

The big construction works policy led by the government as well as direct foreign investments and the solidity of the banking and financial system have allowed this country to become the first economy in the region and one of the major ones in the world.

Inflation, which had reached a record 10% in 2008, mainly due to the increase in the prices of food products has decreased. In addition to this, the kingdom's authorities wish to abolish all the existing subsidies, which will in fact lead to an increase in prices.

The government wants to reduce the kingdom's dependence on the oil sector by diversifying its economic activities and in developing mainly the agricultural, food, and industry sectors. The kingdom has a stable and high-quality banking and financial system.

Private investments are supported by generous government financing and incentive plans. The standard of living is one of the highest in the region with USD 15,352 GDP/inhabitant. The country is still marked by an unemployment rate of about 11%. Tourism generates highly significant revenues (nearly 4 million tourists per year), exclusively on account of the pilgrimage to Mecca.

FDI in Figures

Long hampered by its unattractive regulatory framework, foreign investment in Saudi Arabia recovered thanks to its accession to the WTO in late 2005 and especially thanks to the adoption of a more favorable investment legislation in April 2000.

Saudi Arabia is the main recipient of the foreign direct investments in the Gulf and Middle-East with USD 24.3b. FDI stocks are constantly on the increase. The Saudi Arabian government has invested massively in national infrastructures in order to attract investments. FDIs are among the most efficient means of diversifying national economy and providing investment for the young generations. The authorities welcome FDI according to their capacity to bring in technology, employ and train the workforce, aid economic development and valorize local raw materials.

With controlled inflation and relatively stable exchange rates, openness to foreign capital in upstream gas, as well as extensive privatization programs are among the advantages attracting the investors into the country. The dynamic performance of the banking sector is driving the growth of the non-oil sector. Lastly, access to the world's largest oil reserves, very low energy costs and a high standard of living are decisive factors for foreign investors.

FDI Government Measures

According to the law on foreign direct investment, revised in 2000, foreigners are now allowed to invest in all sectors of the economy, except for specific activities on a €śnegative list€?.  This list continues to shrink as Saudi Arabia attempts to liberalize trade.

Foreign investors are no longer required to take local partners in a number of sectors and may own real estate for company activities. They are allowed to transfer their company money outside the country and can sponsor foreign employees.

In order to facilitate investments in the Kingdom, the Saudi Arabian General Investment Authority (SAGIA) has set up an Investment Services Centre (ISC). The ISC must decide to grant or refuse a license within 30 days of receiving an application from an investor.

Country Strong Points

Once Saudi Arabia became a member of WTO in 2005, the foreign investment climate in the Kingdom substantially improved. From an investor's point of view, the country's strong points are economic stability, the large local market with a high spending power (and a population of over 27 million), sound infrastructures and a well-regulated banking system.

Country Weak Points

The week points are the inadequate legal framework in resolving commercial disputes, the lack of transparency in applying the intellectual property legislation, the government imposed quotas of Saudi employees in companies, the delayed payment of some government contracts, a restrictive visa policy for all workers, a very conservative cultural environment and enforced segregation of the sexes in most business and social settings.

Foreign Trade Overview

The foreign trade share in Saudi Arabia is nearly 90% of the GDP. The country recorded a highly significant trade surplus in 2008. Despite the falling oil prices, the country should show a positive balance in the forthcoming years.
Saudi Arabia's main export partners are the United States, China and Japan, followed by Germany and U.A.E., as well as the Southeast Asian countries. The country exports mainly crude oil (the black gold represents 90% of its exports), plastics, organic products and chemicals.

Its main import partners are the United States, Japan, China and Korea, followed by other Asian countries (India, Taiwan, Singapore). Saudi Arabia mainly imports vehicles, machinery, electrical equipment, iron, steel and food products.

In order to promote international trade, attract foreign investment and diversify the non-oil sectors, the government has announced plans to establish four "economic cities" in different regions of the country.