BUSINESS IN SAUDI ARABIA

Business in Saudi Arabia

Business in Saudi Arabia

Opportunities and challenges in doing business in Saudi Arabia

Introduction

The evolved finances remain as the motor of international growth, but the demand from developed markets has been flattened because of an aging community, excessive supply of items, market polarisation and retail concentration. Along with rising protectionism, these factors have limited the growth prospects and profitability for Saudi Arabia exporters selling their products there. Therefore, they are compelled to discover the appearing markets for diversification.

Saudi Arabia is a very distinct country today from the state formed in 1932. Over the decades, the country's economic profile has vastly improved, although, politically, an absolutist lineage is in charge. The Saudi modern state emerged only in the early 1950s, coinciding with the development of oil resources in the country.

Oil dominates the country's economic activity and is pivotal to the Kingdom's diplomatic relations with the West. Currently, oil makes up 50% of Saudi Arabia's nomina gross domestic product (GDP) and 90% of export revenues.1 The country holds about 25% of the world's oil reserves and is by far the largest exporter of oil. In 2009 the country achieved the remarkable feat of generating 12.5 million barrels of oil per day, the result of a technically complex infrastructure development that cost $100 billion over a five-year period.2

Although the country's oil reserves could last for over 70 years, the depletion of oil supplies elsewhere could increase pressure on Saudi's oil resources.3 Therefore, the Saudi government has developed a strategy to reduce dependence on oil, diversify the economy, and build industrial infrastructure for the future. The government has been working on a plan to grow its petrochemical sector, with a strong emphasis on ploughing investment into alternative energy projects.

A major focus has been on infrastructure development, social services, education and housing. Rising oil prices in 2008 gave Saudi Arabia leeway to reduce its debt from about 100% of the GDP to less than 20%.5 As a result, government spending has been the main driver of economic activity, and the government has pledged to spend $400 billion on infrastructure and hydrocarbons investment over the next five years.

If oil resources dwindle and the social security net weakens, Saudi Arabia's massive welfare state could be engulfed in a cauldron of social discontent. Saudi Arabia has a significant number of young people, most of them unemployed and uneducated, making up over 60% of the total population. The growing middle and professional classes are largely liberal-minded and fervent champions of economic reform, but they remain small in relation to the wider population. Widespread poverty and economic inequalities have bred social tensions in Saudi society. The government is mindful of the social cleavages and their implications for the future stability of the Kingdom. Thus, placing social development at the centre of economic modernisation is crucial to the country's development strategies.

One of the important pillars of the Kingdom's development plans is to increase skills and broaden the absorptive capacity of the labour ...