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 Introduction
In pursuit of the policy of free market enterprise, economic diversification, structural shift from building the
infrastructure to the production of goods and services and the subsequent increasing reliance on the private sector as the major economic force, the
Kingdom of Saudi Arabia invites Foreign companies to participate in the following areas which are essential to its current and future economic growth:
- Import-substitution and export-oriented joint ventures.
- Projects contributing to technological progress in the Kingdom and the development of established factories through improvement of production methods and minimization of production costs.
- Projects directly related to the current economic development in the Kingdom which include, but are not limited to, the following:
- Industries utilizing locally abundant raw materials from petrochemical or petroleum products.
- Food industries utilizing locally abundant agricultural products.
- Specialized industries in the fields of maintenance and the manufacturing of spare parts and equipment.
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The Foreign Management
In most of the industrial joint ventures, the foreign partner supplies the management, technical expertise, and part of equity resources, if they are desired, depending on the collaboration arrangements. The Saudi partner provides local supervision, local skilled and unskilled labor, and handles local business contacts, apart from participating in the equity resources. For further details on establishing joint ventures in the Kingdom, Industrial Licensing Regulations and Procedures.
With a foothold in the Saudi Arabian market, there will be numerous business opportunities for:
- Companies providing labor-saving equipment and services.
- Training services either directly delivered or as part of a product package.
- Managerial services either directly delivered or as part of a product package.
- Nearly all areas of health, personnel, and services.
In addition to the section on growth targets during the sixth development plan that we discussed in Chapter Two of this guide, the following list of principal growth areas of the Saudi Arabian economy provides tips on prospective commercial opportunities in the Kingdom:
- Industry: Most industrial activities in the Kingdom are carried out by the energetic Saudi private sector. The structure of the Saudi Arabian industrial sector is composed of three distinct sub-sectors: petrochemicals, oil refining, and other manufacturing. The main objectives of the Kingdom’s industrialization are:
- To reduce the Kingdom’s dependence on the export of crude oil as the major source of income
- To increase Saudi Arabian private sector participation in the economic development of the country
- To create new job opportunities.
- To establish an advanced industrial and technological base.
- Export oriented industries such as petrochemical, papers, glass plastics, etc. are expected to do well during the sixth plan period. Over the next few years the petrochemical industry is expected to grow at an average rate of more than 8 percent annually. Thus foreign investors are invited to join the Saudi Arabian private sector to invest in new industries that utilize modern technology, and to expand investment in import substitution and export-oriented industries including basic, supporting and downstream metal and petrochemical industries
- Mining and quarrying: The Saudi government has prioritized the diversification of the Kingdom’s economy and the utilization of the country’s extensive mineral wealth. The mining industry is promising in the next few years, especially with the initiative of the Ministry of Petroleum and Mineral Resources to develop new mines to produce phosphate, iron, bauxite and other precious and non-precious metals. In 1993 Petromin extracted 189,353 tons of ore. Net gold production amounted to around 670,000 ounces between 1989-1993. The Directorate General of Mineral Resources is currently pursuing the exploitation of the mineral fields throughout the Central
and Western regions of the Kingdom. The government’s investment in this sector has already exceeded seventeen billion Saudi Riyal (more than U.S. $4.5 billion).
- Foreign investors are offered tax exemption, long term extraction concessions and other incentives to invest or establish joint ventures in this growing Saudi
industry.
- Transportation, telecommunications and information technology: During the fifth development plan (1990-1994) the Kingdom’s main road network increased by about 2,100 KM, to about 43,000 KM. Rail freight volume grew by 36 percent to about 2.1 million tons. Air passenger volume grew from 20.3 million departure and arrival to 25.1 million. The cargo handled in the Kingdom’s major ports rose from 63.7 million tons to 83 million tons.
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The Sixth Development Plan
In addition to upgrading the road network and domestic airports in the Kingdom during the sixth development plan, the government is planning to link Dammam and Jubail Industrial City with a new railroad. Furthermore, to enhance and modernize the fleet of Saudi Arabian Airlines, the government has already purchased from two American companies (Boeing and McDonnell Douglas) commercial airplanes worth more than six billion dollars. The Saudi Ministry of Post, Telephone and Telegraph awarded the U.S.
firm of AT&T four billion dollars contract to upgrade and expand the telephone network in the Kingdom.
- Electricity: Saudi per capita consumption of gas, water and electricity is one of highest in the world. Over the past two decades electricity consumption rate increased by more than 20 percent annually. Power generation expanded from 4,214 megawatts in 1979 to 18,238 megawatts in 1994. Over the sixth development plan period (1995-1999) electric generation capacity will be raised by more than seven thousand megawatts.
- Other important areas of growth prospects during the sixth development plan (1995-1999), include banking and insurance, leasing, travel, and consumer products such as food and beverages, clothing, soap, cosmetics, etc.
A further consideration for business opportunities is the procurement of government contracts. Government contracts are often offered through tenders. There is no central tenders’ board in Saudi Arabia, and every government agency may extend contracts. Bids for tenders must be applied for by local agents. In most cases, government contracts awarded to foreign companies require 30 percent of the total work to be subcontracted to a Saudi Arabian contractor.
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