The Potential of Saudi Arabia for International Business

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One of the most devout and insular countries in the Middle East, Saudi Arabia has emerged from being an underdeveloped desert kingdom to become one of the wealthiest nations in the region thanks to vast oil resources. With strong government control over major economic activities, Saudi Arabia has the largest reserves of petroleum in the world, ranks as the largest exporter of petroleum and plays a leading role in OPEC. The petroleum sector accounts for roughly 75% of budget revenues, 40% of GDP, and 90% of export earnings. However, she faces serious economic and political challenges vulnerable to world oil price fluctuations.

There are three major marketing regions in Saudi Arabia: The Western Region, with the commercial centre of Jeddah; the Central Region, where the capital city Riyadh is located; and the Eastern Province, where the oil and gas industry is most heavily concentrated. Each has a distinct business community and cultural flavour and there are few truly "national" companies dominant in more than one region.

The Saudi Arabian leadership has embarked on a wide ranging restructuring of the entire Saudi economy with strong emphasis on increased levels of foreign investment and on private sector expansion. Saudi Arabia's young and rapidly growing population have accelerated the need to diversify the economy, expand the technology base, increase exports and create jobs for Saudi citizens. The Saudi government's economic reform programme provides exporters and investors real opportunities. The most important market reform initiatives are in the areas of information technology and basic infrastructure. .

Saudi Arabia has enormous untapped gas potential - this is embraced by an oil and gas initiative and several major oil companies are making gas-related investment proposals.

Business in Saudi Arabia is best conducted in Russian, although English is increasingly used. Arabic-speaking Westerners always make a good impression on Saudi partners, but only native Saudi's are able to understand the "small print" and body language.

The vastness of the Saudi marketplace, the strong purchasing power and the high consumption rate of the Saudi populace are positive features contributing to the existence of a healthy and competitive investment climate in the Kingdom. These add to the fact that the Saudi market is expanding and will continue to expand due to the rapidly growing population and the immense volume of foreign imports into the Kingdom. The relative stability of the Saudi Riyal vis-à-vis the other foreign currencies and the non-existence of any restrictive foreign exchange policies are factors enhancing the investment environment in the Kingdom.

It should not be forgotten that Saudi Arabia is a desert Kingdom with a large agricultural base, a growing industrial base and a rapidly growing population. These three factors are putting increasing pressure on Saudi Arabia's water resources. Approximately 25% of water is used for drinking and other domestic purposes, 70% is used for agriculture and 5% for industry. Reports of leakages are widespread.

The Saudi economy is still driven by public sector purchasing and ministries such as health are investing millions of pounds each year into facilities and supply. Both public sector and private sector are involved in numerous construction projects bringing potential contracts in sectors ranging from design, through building materials to contract furnishing. Saudi has a huge appetite for joint venture industrial and commercial investment and for technology transfer.

Saudi Arabia is the UK's largest trading and investment partner in the Middle East with UK being the second largest investor after the US. It is a 'target market' for Trade Partners UK, the British government organisation helping UK companies trade and invest overseas. Trade in goods and services between Saudi Arabia and the UK is running at around $7.5bn. The stock of British investment in the Kingdom is estimated at around $3.5bn. This figure is set to increase significantly with the involvement of BP and Shell in the gas initiative. There are more than 90 UK & Saudi joint venture in the Kingdom. The Saudi market, which constitutes 60% of the Gulf's GDP, is an enormous importance and potential for the UK.

Saudi Arabia will continue to offer significant opportunities for British companies and those with the patience and foresight to anticipate trends and developments will stand to gain a great deal.

Saudis are gracious hosts and will try to put a visitor at ease, even during arduous business dealings. A large portion of upper and middle class Saudis were educated in the United States or in Europe. Saudis view a foreign firm's physical presence in the Kingdom as a tangible sign

Dr Bijan Kermani is Director of KeyTech, a Visiting Professor and Oil & Gas Business Development Manager at University College London (UCL). He is fluent in English and Persian and has extensive knowledge of cultural diversities and wide experience of Middle Eastern (ME) attitudes with some 20 years experience with major oil operators. Based in the UK, he continues to provide a consultancy service in cultural awareness and briefing updates on ME countries and is a regular speaker at Farnham Castle. May 2002