Saudi Arabia’s fast-growing economy is creating opportunities for both exporters and investors. These are further boosted by economic reform, market liberalisation, a growing private sector and moves to diversify the economy away from dependence on oil and gas. Yet for foreign companies, faced with contracting or stagnating domestic markets, Saudi remains a land of opportunity; not surprising when considering that nearly half of all MENA GDP comes from this one country.
The statistics speak for themselves:
- Largest economy in the Arab world
- Largest population in the Gulf region: 50% of Saudis are under the age of 25
- Education sector spending accounts for 25% of all government expenditure
- $28bn Health and social development budget in 2016
- $57bn Government defence and security budget in 2016
- Multiple mega-projects such as the Riyadh Metro at $22bn
Designated a ‘High Growth Market’ by UK Trade & Investment, Saudi Arabia is the UK’s largest trading partner in the Middle East with combined UK exports of visible goods and services amounting to £7 billion in 2014.
Benefits for UK businesses exporting to Saudi Arabia include:
- UK’s largest trading partner in the Middle East
- Growing diversification within the Saudi economy
- Massive government investments in transport, infrastructure, healthcare, education and energy
- common use of English in business
So why is Saudi so often left out of carefully considered Middle East strategies? For many years, Saudi has been viewed as ‘just too difficult’ with companies preferring to enter the Middle East through the UAE, Qatar or Bahrain.
Things are changing however, and more foreign companies are seeing success in Saudi, either directly or through local companies. The evidence can be seen across all the major cities with new business parks not just being built but already fully occupied with Western companies proudly displaying their logos for all to see.
Of course, challenges remain and success is often hard won but there are common themes and characteristics to the approaches adopted by foreign companies who have seen success in Saudi:
PLAN – planning can seem an endless cycle but the reality is that setting out clear goals, strategy, budgets and timescales is vital.
PATIENCE – there is a wealth of opportunity but it is important to be realistic and build a pipeline of qualified, validated opportunities; setting the right expectations to company leadership avoids corporate fatigue.
PRESENCE – there is no substitute for being on the ground. Managing the market remotely is almost impossible and many Saudi clients are unsympathetic towards those who try to win business from bases elsewhere in the Gulf. Being in Saudi does not necessarily mean setting up an entity or forging an exclusive local partnership; there are various operating models for foreign companies which are low-risk and low-cost.
PARTNER – the perceived need for a local partner often animates legal, compliance and tax departments. There are many examples of foreign companies supplying goods or services without a local partner. Equally, there are examples of highly successful partnerships forged over time and, critically, on the right terms.
PAYMENT – payment risk is often a major concern of foreign companies. Mitigation is best achieved by close relationships with customers and partners.
In essence, the differentiator between success and failure is commitment: commit to the market and reap the rewards.
A foreign company must source professional, independent advice and this must come from consulting practices that are on the ground in the Kingdom and can provide practical advice rather than just regurgitate regulations from the internet.
At AEI Saudi, we help foreign companies explore and engage in the Saudi market armed with relevant knowledge from experienced, independent professionals based in Saudi. To find out more about how we can help, feel free to send us an email at [email protected]