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Saudi Arabia Entering The Market

Sitting on twenty five percent of the worlds oil reserves and with the capability of producing 10 million barrels per day, Saudi Arabia is not somewhere our fuel-reliant society can afford to ignore. Run by the Al Saud royal family, the Islamic state has strong economic ties with the West. Saudi Arabias Mecca and Medinah are two of the worlds holiest places in Islam, with two million Muslims making the pilgrimage to Mecca each year. The number one oil producer in the world is a strong trade partner of both the US and the UK and, petroleum exports account for 75% of the governments income.

Why Expand to Saudi Arabia

While Saudi Arabia is a tough market to penetrate, and partnerships can be difficult to establish, the Saudi affection for UK products and services mean that once you get inside, you should receive a warm reception. With one of the most rapidly expanding populations in the world, the country faces huge pressures on its infrastructure.

With $40bn set aside for infrastructure projects, and the government concentrating efforts on improving the education and employment rate of its population, there are great opportunities for companies setting up a business in Saudia Arabia. The fact that the UK is the Saudis second biggest foreign investor, behind the US, shows the kingdoms commitments to investment, with the World Banks report, ranking Saudi Arabia twenty-third in world, up from thirty-eighth in and outperforming all other Arab states.

Main Industries in Saudi Arabia

• Oil: With 45% of budget revenues, 45% of GDP, and 90% of export earnings all coming from the nations oil reserves, this is easily Saudi Arabias biggest commodity.
• Power and Water: Saudi Arabias growing population is going to put extra pressure on the countrys infrastructure. The government has already set aside US$200bn to improve and develop its power and water technology. The state owned electricity companies are being corporatized with a view to eventual privatization. Water subsidies are also being reduced with the aim of creating a more commercial, demand based market.
• Vocational, technical and business education: With high unemployment and the issues with population growth, the Saudis are keen to improve and invest in its population through education.
• Construction (includes mass transport infrastructure): As with its utilities infrastructure, Saudi Arabias transport links are also facing increasing stress as the nations numbers increase. $40bn has already been pledged to improve transport links.
• Information and Communications technologies: As with the electricity companies, the government is also looking to make the telephone networks more corporate with a view to improving the technology and eventual privatization.
• Oil, gas and petrochemicals: To meet the demands of its growing population, the Saudis are creating large projects to generate extra jobs, with UK Trade and Industry estimating $630bn of investment opportunities in oil, gas and petrochemicals over the next 20 years.
• Financial Services: The government are keen to invest in financial services in an attempt to create more diversity in its predominantly oil based economy.

Consumer Goods: The Saudi affection for British names is evident through the presence of consumer brands in its economy such as Marks and Spencers, BAE, Harvey Nichols and Rolls Royce. With high oil revenues driving the consumer market, there is a lucrative prospect for companies expanding a business in Saudi Arabia.

Challenges

Aside from the bureaucracy and effort required to penetrate the Saudi market, one of the greatest challenges facing investors is contract enforcement. With no civil court system for resolving contract disputes or bankruptcies and no legislation for the protection of shareholders or investments, there are difficulties involved in operating in the country. There is also an absence of legislation regarding access to credit, although the government is making efforts to find resolutions to all of these problems and many foreign businesses, including names from the UK, have a presence in the kingdom.

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