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Saudi Arabia: Market Profile

Picture: Saudi Arabia factsheet
Picture: Saudi Arabia factsheet

1. Overview

Saudi Arabia is an oil-reliant economy, boasting the largest proven crude oil reserves in the world. As the negative short-term effects of structural reforms dissipate and government balances improve, Saudi Arabia's economic growth will continue to strengthen in the short term, buoyed by recovering oil prices and an expected ramp-up in oil production.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

January 2015
King Salman ascended to the throne after King Abdullah died.

April 2016
Vision 2030 economic diversification plan launched.

June 2017
Saudi Arabia sparked a diplomatic crisis by leading an air, land and sea blockade by Arab countries, in an attempt to get Qatar to cut its alleged connections with terrorism and distance itself from Iran.

June 2017
King Salman named his son Mohammed bin Salman first in line to the throne.

September 2017
Ban on women driving formally lifted, it allowed women to drive in 2018.

Sources: BBC Country Profile - Timeline, Fitch Solutions Political Risk Analysis

3. Major Economic Indicators

Graph: Saudi Arabia real GDP and inflation
Graph: Saudi Arabia real GDP and inflation
Graph: Saudi Arabia GDP by sector (2017)
Graph: Saudi Arabia GDP by sector (2017)
Graph: Saudi Arabia unemployment rate
Graph: Saudi Arabia unemployment rate
Graph: Saudi Arabia current account balance
Graph: Saudi Arabia current account balance

e = estimate, f = forecast
Sources: IMF, World Bank
Date last reviewed: October 8, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Saudi Arabia merchandise trade
Graph: Saudi Arabia merchandise trade

Source: WTO
Date last reviewed: October 8, 2018

Graph: Saudi Arabia major export commodities (2017)
Graph: Saudi Arabia major export commodities (2017)
Graph: Saudi Arabia major export markets (2017)
Graph: Saudi Arabia major export markets (2017)
Graph: Saudi Arabia major import commodities (2017)
Graph: Saudi Arabia major import commodities (2017)
Graph: Saudi Arabia major import markets (2017)
Graph: Saudi Arabia major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: October 15, 2018

4.2 Trade in Services

Graph: Saudi Arabia trade in services
Graph: Saudi Arabia trade in services

Source: WTO
Date last reviewed: October 8, 2018

5. Trade Policies

  • Saudi Arabia has been a member of WTO since December 11, 2005.

  • The country's Gulf Cooperation Council (GCC) membership means that it is part of a single market and customs union with a common external tariff. A tariff of only 5% is imposed on the majority of items imported to Saudi Arabia from non-GCC countries, and there is a single point of entry where tariffs are collected once imports enter the GCC.

  • Overall the average applied import tariff for goods entering Saudi Arabia is 3.4%. This is the second highest out of all six GCC states – tied with the Qatar and just behind the UAE which has an average applied tariff rate of 3.2%. While on average Saudi Arabia has some of the lowest import tariffs in the MENA region, there are significant non-tariff barriers to trade in the country.

  • For cultural and religious reasons, an import tariff of 200% is levied on cigarettes and tobacco products (GCC tariff).

  • VAT of 5% was introduced in January 2018.

  • Saudi Arabia has a domestic metal manufacturing industry which is protected by tariff measures.

  • For cultural and religious reasons, all imports of alcoholic beverages are banned.

  • Various import bans exist on sensitive goods such as high energy air-conditioners, cars older than five years, and equipment used in water desalination processes.

  • In order to import a wide variety of consumer goods (such as basic foodstuffs and packaged pharmaceutical products) to Saudi Arabia, special approval is required from the relevant government authority.

Sources: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

In March 2017, the Saudi King commenced a month-long visit to the Asian region in order to strengthen trade, security and cultural ties.

6.2 Multinational Trade Agreements

Active

  1. GCC: Saudi Arabia is a founding member of the GCC, a political and economic organisation established May 25, 1981. In January 2015, the GCC implemented a customs union and free trade agreement (FTA) that allows free movement of local goods among member states. Saudi Arabia's trade with these countries is tariff-free. Other members of the GCC are Bahrain, Oman, Qatar, Saudi Arabia, and the UAE. This agreement helps member states to leverage one another's industrial capacity and logistics networks. The geographic proximity of these countries and their general adoption of free trade economic policies are factors that foster a competitive business environment. Only imports on certain sensitive goods from GCC countries face tariffs, and there is freedom of movement between GCC countries without customs or non-customs restrictions. In 2017, the GCC was the source market for 9% of Saudi Arabia's imports (with 6.5% of total imports coming from the UAE) and the destination for 5.8% of Saudi Arabia's exports (the UAE again being Saudi Arabia's largest trade partner in the GCC, receiving 3.5% of exports). Saudi Arabia negotiates FTAs through its GCC membership.

  2. Greater Arab Free Trade Area (GAFTA): GAFTA came into force on January 1, 1998. In March 2001, it was decided to speed up the liberalisation process, and on January 1, 2005 the elimination of most tariffs among the GAFTA members was enforced. GAFTA activates the Trade Facilitation and Development Agreement and eliminates most tariffs among the GAFTA members. The 17 members of GAFTA are: Algeria, Bahrain, Egypt, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, UAE and Yemen. GAFTA was declared within the Social and Economic Council of the Arab League as an executive programme to activate the Trade Facilitation and Development Agreement and the elimination of most tariffs among the GAFTA members. The GAFTA saw tariffs between 17 Arab states rapidly decline from an average 15% in 2002 to 6% in 2009.

  3. GCC-European Free Trade Association (EFTA) (Iceland, Liechtenstein and Switzerland): The GCC and the EFTA signed an FTA on June 22, 2009 which entered into force on July 1, 2014. The Agreement covers the progressive elimination of tariffs in trade in services and manufactured goods as well as investment, and other trade-related issues, such as protection of intellectual property, and is fully consistent with provisions of the WTO. In addition, bilateral arrangements on agricultural products between three individual EFTA States and the GCC form part of the instruments establishing the free trade area between both sides. As a single entity, the EFTA is one of Saudi Arabia's largest import partners. Between 2014 and 2017, total trade between the GCC and EFTA grew by 22%.

  4. GCC-Singapore: The GCC-Singapore FTA (GSFTA) became effective on September 1, 2013. GSFTA eliminates most tariffs (99%) of Singapore's exports to the GCC. This is a comprehensive agreement covering trade in goods, rules of origin, customs procedures, trade in services and government procurement among others. Key sectors benefitting include telecommunication, electrical and electronic equipment, petrochemicals, jewellery, machinery and iron and steel-related industry. The recognition of the halal certification of Singapore's Majlis Ugama Islam Singapura (MUIS) will also pave the way for trade in halal-certified products to gain faster access to the GCC countries, such as Saudi Arabia.

Under Negotiation

  1. GCC-Australia: Australia and the GCC commenced FTA negotiations in July 2007.  Australia and the GCC share a significant economic relationship, encompassing trade and investment across a broad range of goods and services. Total trade between Australia and the GCC reached USD8.4 billion in 2017. The GCC is a key market for agricultural exports, such a livestock, meat, dairy products, vegetables, sugar, wheat and other grains. The agreement provides an opportunity to address a range of tariff and non-tariff barriers related to food exports that will benefit the food and drink sectors in Saudi Arabia. With a large proportion of world petroleum resources and a rapidly growing population, the GCC's prospects for continued trade growth are strong. The agreement will also help maintain a level playing field for automotive imports to the GCC market. These factors, along with a plurilateral FTA, will help sustain growth in Saudi Arabia's trade and investment relations with the country.

  2. GCC-China: The first-round negotiations of the GCC-China FTA commenced on April 27, 2005. Greater trade liberalisation will help develop the industrial and service sectors. Saudi Arabia mainly exports commodities, such as oil, to China, and imports electrical goods and machinery from China. Trade liberalisation with the GCC will help the group integrate and grow with mutual cooperation and comprehensive tariff reduction. In 2017, China accounted for 12% of the GCC's total global trade.

  3. United States-Middle East: In May 2003, the United States-Middle East Free Trade Area (US-MEFTA) initiative was proposed, with the eventual goal of establishing an FTA between the United States and a range of countries in the Middle East. The countries targeted to join MEFTA are: Algeria, Bahrain, Egypt, Iran, Iraq, and Israel (and through Israel, the Palestinian Authority), Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia and Yemen. US-MEFTA includes a wide range of trade and investment issues, such as market access, intellectual property rights, and labour and environmental issues. US-MEFTA will help in growing commercial and investment opportunities by identifying and working to remove impediments to trade and investment flows between member states. This expands the scope of markets for businesses in Saudi Arabia to export products to and will significantly reduce trade costs. In July 2003, the United States and Saudi Arabia signed into force the Trade and Investment Framework Agreement (TIFA), with the aim of regulating all commercial matters between member states.

Sources: WTO Regional Trade Agreements Database, FTA websites, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Saudi Arabia FDI stock
Graph: Saudi Arabia FDI stock
Graph: Saudi Arabia FDI flow
Graph: Saudi Arabia FDI flow

Source: UNCTAD
Date last reviewed: October 8, 2018

7.2 Foreign Direct Investment Policy

  1. The Saudi Arabian General Investment Authority (SAGIA), established in April 2000, is responsible for FDI promotion, licensing and regulations as well as offering support services to foreign investors. SAGIA's primary goal is to facilitate and encourage investment wherever possible.

  2. Related law and regulations on foreign investment are well established, however, some restrictions still remain for FDI, such as limits on foreign ownership and business activity in core sectors of the Saudi Arabian economy including upstream oil and gas production.

  3. Non-residents are permitted to own property without a Saudi partner or sponsor. Saudi investment law allows 100% ownership of projects by foreigners (except for activities ruled out by the negative list) and relaxes rules for sponsoring foreign employees.

  4. Industries barred from foreign involvement are published in the country's negative investment list.

    This includes upstream oil production, manufacturing of military hardware, real estate in Mecca and Medina, recruitment and employment services, some printing and publishing activities, media services and land transportation.

    In addition, special licensing requirements are in place for a wider range of industries, including pharmaceuticals, air and maritime transport, hydrocarbon exploration, ports, livestock farming, and advertising and media.

  5. Local worker hiring requirements are also in place. Government efforts to encourage the employment of Saudi nationals over expatriates have been enshrined in a clear plan known as Nitaqat, by which every company is divided into a sector with a different quota for the employment of Saudi workers, depending on the size of the firm.

    Those businesses meeting the criteria are classed as platinum or green, those failing are classed as yellow or red. Expatriate employees may move freely from the latter categories to the former (employers permission is usually required), while companies under the former categories gain advantages in terms of employing expatriate workers.

  6. Though the law no longer requires that non-resident companies must find local partners, this method remains the most effective way of doing business in Saudi Arabia, as domestic entities will have a greater knowledge and experience of dealing with licensing, procurement and other bureaucratic procedures.

  7. Saudi Arabia remains one of the most conservative Gulf States, especially in relation to admitting foreigners into the country and for women. The Kingdom still has no form of leisure tourism visa in place yet (though intends to introduce one in 2018), and all non-GCC foreigners wanting to enter the country still therefore need to have a local sponsor. Visas are currently only issued for business travel, for foreigners with Saudi Arabian relatives, for transit purposes and for religious pilgrimage purposes.

  8. Privatisation schemes and the public listing of state-owned entities are aims outlined in Saudi Arabia's 'Vision 2030' document.

Sources: WTO - Trade Policy Review, ITA, US Department of Commerce, Fitch Solutions
Date last reviewed: August 15, 2018

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Prince Abdulaziz Bin Mousaed Economic City (PABMEC) in Hail, Knowledge Economic City (KEC) in Madinah, King Abdullah Economic City (KAEC) in Rabigh, and the Jazan Economic City (JEC)- No restrictions on sponsoring foreign employees

- Ability to carry forward losses indefinitely

- Indefinite exemption from all income taxes

- Minimum capital requirement and no restrictions on repatriation of capital

- Accelerated investment application, business registration and setup process, with a guaranteed decision for foreign investment applications within 30 days of submission to SAIGA

- No personal income tax and a minimal 20% corporate tax for foreign companies

- Moderate utilities rates

- No export duties within the 17 countries of GAFTA

- Few restrictions on currency conversion, exchanges and transfers

- Duty drawback, a customs refund for raw material imports that are processed and exported as finished goods

- Preferential treatment for national products in Saudi Government procurement

- Export credit, financing, guarantees and insurance through the Saudi Export Programme

- Financial support for the training and employment of Saudis from the Human Resources Development Fund

- Low-cost loans from the Saudi Industrial Development Fund and Public Investment Fund

- Customs duties exemption on imported machinery, equipment, raw materials and spare parts, if they are for industrial use. Low land rental and utilities rates – net leasing rate/annum: SAR700/sq m; service charge: SAR120/sq m (total service charge: SAR820/sq m, to be paid annually in advance on a quarterly basis)

- Exemption from import fees for selected raw materials imported for manufacturing products

- Contract term – minimum two years; no escalation during the first two years; year three onward: 5% per annum

- Modern infrastructure and education facilities

Sources: US Department of Commerce, Fitch Solutions

8. Taxation – 2018

NIL

9. Foreign Worker Requirements

9.1 Localisation Requirements

The Saudi Arabian government has launched a local workforce hiring localisation policy called 'Saudisation', which is intended to boost the employment of Saudi nationals and reduce reliance on foreign labour. In line with Saudi Arabia's economic diversification strategy 'Vision 2030', the Saudi Arabian government has ramped up the enforcement of its 'Saudisation' policies in order to try and achieve its aim of 50% of all employment in the country's private sector to be occupied by Saudi Nationals. Employers must consider Saudi nationals for any positions before they hire a foreign worker. Before a company can apply for a work permit for a foreign national they want to employ, they must advertise the job opening for two weeks on a government jobs portal.

Certain positions are reserved strictly for Saudi nationals and businesses must pay certain charges for every foreign national they hire. There are also specific 'Saudisation' targets set for specific firms or sectors, and if these are not complied with there is strong potential for businesses not to get the work permits of their foreign workers renewed or to be denied work permits for new foreign employees.

9.2 Obtaining Foreign Worker Permits for Skilled Workers

Applicants must have an offer of employment by an employer willing to sponsor their application and from there the applicant must provide proof of education qualifications and various medical records.

9.3 Visa/Travel Restrictions

All citizens of non-GCC states must apply for a visa before entering the country. To be granted a visa to enter Saudi Arabia (only for business, medical or religious purposes) the applicant must be sponsored by a Saudi national. Saudi Arabia still has no form of leisure tourism visa in place.

Sources: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
A1 (Stable)
13/04/2018
Standard & Poor'sA- (Stable)
17/02/2016
Fitch Ratings
A+ (Stable)
11/06/2018

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
94/189
92/190
92/190
Ease of Paying Taxes Index
3/189
69/19076/190
Logistics Performance Index
52/160
N/A55/160
Corruption Perception Index
62/176
57/180N/A
IMD World Competitiveness36/6336/6339/63

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank40/202
Short-Term Economic Risk Score51.558.867.5
Long-Term Economic Risk Score66.365.767.1
Political Risk Index Rank117/202
Short-Term Political Risk Score70.872.572.5
Long-Term Political Risk Score58.156.758.7
Operational Risk Index Rank

52/201
Operational Risk Score6161.761.5

Source: Fitch Solutions
Date last reviewed: October 8, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Saudi Arabia's economic fortunes are heavily tied to global hydrocarbon prices. While Brent prices have started to recover since 2016, any renewed slump in prices would have a negative impact on the government's financial commitments towards infrastructure and social services.

OPERATIONAL RISK
Saudi Arabia remains one of the top MENA regional performers in terms of its operating environment. This competitiveness is largely associated with the Kingdom's larger trade volumes and inward FDI flows compared to its peers, its well-developed taxation and financial systems and its superior logistics network to those of many other MENA states. When compared directly to its peers in the GCC, Saudi Arabia's is outranked quite significantly overall by the likes of the UAE, Qatar, Bahrain and Oman.

Source: Fitch Solutions
Date last reviewed: October 16, 2018

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Saudi Arabia short term political risk index
Graph: Saudi Arabia short term political risk index
Graph: Saudi Arabia long term political risk index
Graph: Saudi Arabia long term political risk index
Graph: Saudi Arabia short term economic risk index
Graph: Saudi Arabia short term economic risk index
Graph: Saudi Arabia long term economic risk index
Graph: Saudi Arabia long term economic risk index

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: October 8, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Saudi Arabia Score61.563.0
61.8
62.6
58.6
MENA Average47.649.348.148.844.1
MENA Position (out of 18)53557
MENA Average47.649.348.148.844.1
MENA Position (out of 18)53557
Global Average49.649.7
49.9
49.1
49.8
Global Position (out of 201)522454
51
73

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Saudi Arabia vs global and regional averages
Graph: Saudi Arabia vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
UAE
72.8
67.879.668.675.3
Qatar
66.263.963.171.566.5
Bahrain
64.658.468.5
71.460.1
Oman
62.851.059.864.476.0
Saudi Arabia
61.563.061.862.658.6
Jordan
58.254.959.159.060.0
Kuwait
55.152.351.752.464.1
Morocco
52.839.862.054.854.6
Egypt48.546.046.456.445.3
Tunisia
46.242.352.447.342.8
Iran
43.248.738.350.835.1
Lebanon42.747.950.041.332.4
Algeria
41.644.031.742.947.9
West Bank and Gaza
34.046.436.831.621.2
Libya
28.244.426.029.213.4
Syria
28.242.930.027.012.7
Iraq
27.243.725.228.611.3
Yemen
22.030.623.018.516.1
Regional Averages47.549.348.148.444.1
Emerging Markets Averages46.848.047.545.746.0
Global Markets Averages49.649.7
49.949.149.8

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: October 8, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Saudi Arabia

Graph: Major export commodities to Saudi Arabia (2017)
Graph: Major export commodities to Saudi Arabia (2017)
Graph: Major import commodities from Saudi Arabia (2017)
Graph: Major import commodities from Saudi Arabia (2017)

Note: Graph shows the main Hong Kong exports to/import from Saudi Arabia (by consignment)
Date last reviewed: October 8, 2018

Graph: Merchandise exports to Saudi Arabia
Graph: Merchandise exports to Saudi Arabia
Graph: Merchandise imports from Saudi Arabia
Graph: Merchandise imports from Saudi Arabia

Note: Graph shows Hong Kong exports to/import from Saudi Arabia (by consignment)
Exchange Rate HK$/US$, average
7.76 (2013)
7.76 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Source: Hong Kong Census and Statistics Department
Date last reviewed: October 8, 2018

Graph: Merchandise imports, Poland
 

2017
Growth rate (%)
Number of Saudi residents visiting Hong Kong13,179
-28.7

Sources: Hong Kong Tourism Board, Fitch Solution


2017
Growth rate (%)
Number of Middle Eastern residents visiting Hong Kong129,816-0.3

Sources: Hong Kong Tourism Board, Fitch Solution
Date last reviewed: October 15, 2018

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Saudi Arabian companies in Hong Kong N/A
N/A
- Regional headquarters
- Regional offices
- Local offices


11.3 Treaties and agreements between Hong Kong and Saudi Arabia

Saudi Arabia and China entered into a bilateral investment treaty (BIT) in May 1997. Saudi Arabia has DTA and IPPA with China and concluded the DTA with Hong Kong in August 2017.

Source: Hong Kong Department of Justice

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

The Arab Chamber of Commerce & Industry
The Arab Chamber of Commerce & Industry (ARABCCI) was established in Hong Kong in 2006 as a leading organisation at promoting commercial ties between Hong Kong/China and the Arab World. From a base of eight founding member companies, ARABCCI has now evolved to include an ever-growing number of members. The Chamber is run by business experts for business professionals, dedicated to opening enormous trade opportunities by providing extensive information and professional services to its members.

Address: 20/F, Central Tower, 28 Queens Road, Central, Hong Kong
Email: info@arabcci.org, secretariat@arabcci.org
Tel: (852) 2159 9170

Source: The Arab Chamber of Commerce and Industry, Hong Kong

Consulate of the Kingdom of Saudi Arabia in Hong Kong
Address: Suite 6401, Central Plaza, 18 Harbour Road, Wan Chai, Hong Kong
Email: info@saudiconsulate.org.hk
Tel: (852) 2520 3200
Fax: (852) 2520 3266

Source: Consulate of the Kingdom of Saudi Arabia in Hong Kong

11.5 Visa Requirements for Hong Kong Residents

Visa application must be completed prior to travel. Visas are currently only issued for business travel, for foreigners with Saudi Arabian relatives, for transit purposes and for religious pilgrimage purposes.

Source: Visa on Demand

Content provided by Picture: Fitch Solutions – BMI Research