Transcript: Achieving business success in Saudi Arabia
There are eleven audio pieces in the 'Achieving business success in Saudi Arabia' series. Read the individual audio transcripts by clicking below.
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Introduction to Achieving business success in Saudi Arabia
Well good afternoon everyone and welcome to this webinar. As Chris said it builds on the webinar that we provided a few months ago in December 2015 and I’d like to welcome those new attendees.
We’re going to go through a few slides; so we’ll just recap some of the information that we provided in December - a bit about the history of the kingdom, the politics, the royal family and such like, and then we’re going into the meat of this update which is all around the Vision 2030, the national transformation project which has been launched in recent weeks and is going to have a huge impact on the way that all foreign companies do business in the kingdom.
So as I’m sure some of you will be aware Saudi is quite a young country. It was founded in 1932 by His Majesty King Abdulaziz, lbn Saud; and King Abdulaziz was the first king of the modern Saudi State.
However the house of Saud itself has actually had a relationship with the people on the Arabian peninsula for about 350 years and this is a key point in differentiating the government of the Kingdom of Saudi Arabia from other regional governments and in particular those that have been subject to an Arab spring movement; so in Libya, Tunisia, Egypt, Iraq, Syria where there have been a ruling leader for just a few decades. The House of Saud has had a relationship with the people here for hundreds of years and so they’re fully woven into the fabric of government, of business, of life.
What we find with many of our clients that come to the Kingdom is they have many preconceptions about the Saudi market; about the kingdom itself and in most cases those are turned into misconceptions when they actually get here; when they get on the ground in the kingdom you realise that it’s a fantastic place to do business. It is the largest market by pretty much every measure for everything in the Middle East and North Africa region in the Arab world. There’s no substitute for actually getting on the ground in the kingdom.
We’ll talk a little bit more about planning a visit and when to come and those sorts of things later.
It's worth bearing in mind that in the 1930’s the kingdom was one the poorest countries in the world. The principle sources of revenue were from agricultural exports; so the odd sort of sheep going over to Egypt, and of course the Hajj which is the annual pilgrimage to mecca that is made by Muslim. Today the Hajj remains a key focus for government; not only from a revenue perspective but of course the security challenges that are involved, the crowd control challenges that are involved. We’ve all seen the pictures of hundreds of thousands of people in mecca and Modena every year.
It accounts currently for about eight million visitors over the course of the year for religious tourist purposes; for pilgrimage and for visits to mecca and that sort of thing. So it's a massive part of Saudi life.
In 1938 though obviously everything changed when they discovered oil in the Eastern Province. Initially the importance of oil wasn’t necessarily fully understood and the Americans were given the exportation rights to the oil in the Eastern Province and a new company was created called Aramco which is the Arabian American Oil Company; of course now a very famous company and in recent months has had even a higher profile as being valued as the most valuable entity in the world; with Bloomberg recently valuing it at about $3.5 trillion. We’ll talk about this in a few slides time that part of it at least is likely to be subject to a flotation on one or two stock markets in the world.
Government and royal family
So the government itself, the kingdom can appear to be quite a complex and opaque market to enter and one of the reasons is because of the difference in terms of institutions, in terms of personalities, obviously there are language differences and understanding what is effectively an absolute monarchy works versus democratic parliamentary or constitutional monarchy based systems elsewhere in the world.
So we’re just going to go through of the key personalities and obviously it's not compulsory to know all this information but it's useful to have as background.
There are three photos on the right hand side of the screen. The top photo is His Majesty King Salman, bin Abdulaziz lbn Saud. We know from his name that he is a son of King Abdulaziz; so King Abdulaziz was the founding king who created the kingdom in 1932 and he actually had 76 children and in Saudi Arabia the succession is called agnatic succession; it follows in agnatic pattern which is brother to brother rather than father to son. King Abdulaziz had 36 sons and so the succession has followed those sons brother to brother up until very recently.
The reason why it changed recently is simply because most of the brothers have now passed away and there’s only two or three left; and of those only really King Salman has an interest in politics and obviously he is now the King.
Last year in 2015 the succession changed dramatically. It was a dramatic change because for the first time they’ve had to reach into the next generation; so the pool of grandsons of King Abdulaziz.
The Royal Family in Saudi Arabia it's not like the British royal family that I’m sure we’re all keen supporters of. There are 25,000 members of the Saudi royal family; about 12-14,000 princes. Now obviously within that group there are some who are politically active, some who are active in business and the two key grandsons currently are the Crown Prince, Prince Muhammed bin Nayef who is also the Minister of Interior, and the real man of the moment Prince Muhammed bin Salman who is the Minister of Defence, the Deputy Crown Prince, the Deputy Prime Minister, the Head of the Committee for Economic and Development Affairs, the Head of the Political Council, the Chairman of Aramco and the Head of the Royal Court; and he is also the principal sponsor of the Vision 2030 transformation project. So he’s got a very agenda basically.
The photos on the right hand side, the middle photo is Prince Nayef the Crown Prince and below him is the younger prince, Prince Muhammed bin Salman.
King Salman is about 80. His health is commensurate with an 80 year old, so he has good days and bad days. But the announcement of succession passing to the grandsons is a statement from the kingdom to say, “Don’t worry about succession, we have the Crown Prince, Prince Nayef, who is an extremely effective Minister of Interior, very well supported by the people and by the royal family. He is in his mid to late 50's and we have the young Prince Muhammed bin Salman the Deputy Crown Prince in his early 30's.
The statement from the House of Saudi is succession is now secure for the next 50 to 80 years.
The population, demographics and social trends
One thing that does differentiate Saudi from its neighbours, particularly in the Gulf, is the sheer scale of the country. The land mass, the borders are massively greater than anything that is faced in Kuwait or Bahrain or Qatar or the United Emirates. If you’re building a highway in Dubai the longest it's going to be is probably 100kms; whereas in Saudi Arabia it's 2000kms just to get across the kingdom.
There are 27 airports in Saudi Arabia versus five or six in the United Arab Emirates. In every way as I said earlier, by pretty much every measure for everything, Saudi is the largest market. Critically it also has a massive population when compared to hits near neighbours.
In Qatar there are approximately 250,000 Qatari nationals out of an entire population of about 2 million. In Saudi the population is 30 million and you can see the breakdown there on the slide that it's actually about between 20 and 22 million Saudi nationals and then about 9 million ex-patriots. So one in three people carry a foreign passport in the kingdom.
One of the preconceptions that people have about Saudi is that it's a very closed society and we always challenge that by saying one in three people carry a foreign passport; it's not exactly indicative of a closed society. And we’ll talk about social media and the demographics shortly.
Just to give an indicator of scale, that picture is of Saudi Arabia overlaid on Western Europe and you can also see it compared to its near neighbours and an attempt at cross referencing that with the landmass of New Zealand.
So in terms of demographics and social trends it is an extraordinary country from that perspective. Now a lot of countries in the Middle East have this demographic bow wave of various statistics, whether it's 60 percent under 25, 70 percent under 30.
The thing that makes Saudi different is the scale of the population. Thirty million people, 30 million consumers with a projected by 2030 to nearly 30 million people.
Again interestingly and perhaps not within most people’s conception of the kingdom, about 60 percent of undergraduates at university are female and that is obviously putting an increase in pressure on jobs which is already a significant issue and unemployment officially is in the low double digits, around 11 percent, but actually youth unemployment is a major issue in the kingdom with again statistics varying between 30 and 40 percent.
Now that’s obviously extremely worrying for the government because young unemployed males in particular are perhaps more susceptible to radicalisation and the internal threat that that brings to the kingdom.
From a social media perspective, the use of social media in social is endemic; you barely see anyone without a smartphone in their hand. I know that’s probably the same in New Zealand but it's not necessarily how one perceives Saudi’s to be in the kingdom.
They are one of the largest users of Twitter in the world and they are the largest uploader and downloader of YouTube videos in the world, according to YouTube statistics.
So it's again often an image of a closed shut off society but one in three people carry a foreign passport, huge use of social media and Twitter – even King Salman has a Twitter account – and it's reflective of a very young population.
Part of the reason why Prince Muhammed bin Salman the Deputy Crown Prince in his early 30's is leading the charge on the Vision 2030 and the national transformation project is because of his age.
Just before we get into the Vision 2030 stuff, some feedback from last time was that people would be interested just to hear a little bit about the business culture in Saudi Arabia.
We often get questions about how do we greet Saudi Nationals, what do we do if we come across Saudi women, should we talk about this, how many cups of tea should we have? The general point is don’t panic about meeting Saudi nationals or any other nationals in the Gulf. They’re not going to expect you to be an expert on a thousand years of Bedouin traditions and customs and practices. But there certainly are a few things that you can do just to show that you’ve got some understanding of those customs and practices.
People seem to get particularly worked up about hands and feet. So in Arab culture generally it's expected that you will drink tea or drink water or shake hands with your right hand. It's not the end of the world if you pick up a cup of tea with your left hand but it's just something to be aware of.
Likewise with feet, to show the soles of your feet or your shoes is considered quite rude, but again not the end of the world and it's not like you’re going to be taking your shoes and socks off anyway.
Two other points just to make here about religion and politics, is that although the Saudis and again Arabs in general are very hospitable and very welcoming it's best not to be drawn into any discussions around politics or religion because you never quite know how the discussion is going to go and the last thing you want to do is to accidentally offend somebody.
You will be invited - if you come to the kingdom you meet Saudis – if you have got distributors here you will be invited to their homes, you will be invited out for dinner. We always recommend that you accept those invitations. They won’t be offended if you say no but it's just a useful insight into Saudi life.
Women in particular do deserve a particular mention. I feel odd saying this but it is common place that there are Saudi women in the workplace. Saudi women work in pretty much all environments now. If you are in a meeting and there are Saudi women there leave it up to them to decide whether or not they want to shake your hand; that’s the principal point here. Some feel comfortable doing it and some don’t and just up to them.
I would also resist any temptation to try and engage Saudi women if you’re sat next to one on an aircraft or if you’re going through a shopping mall. Don’t approach them and try and find out what life is like as a Saudi lady. I think generally in a business environment let them engage you first.
A critical point is that meetings can work slightly differently, in the Arab world generally, but especially in Saudi. We say here timings can be casual; it's more punctuality is potentially a bit of an issue. So don’t be too strict with your scheduling for meetings. Don’t expect to have five meetings in five different locations within a three hour time span.
The working week in Saudi Arabia runs from Sunday to Thursday which can be difficult to manage if you’ve got various offices around the world, and of course for New Zealand companies you have the added issue of the time difference.
Something else to bear in mind of course is security. It is a dynamic environment involving security and threat picture. We advise that we always check the New Zealand government website for the latest travel advice and you can always contact New Zealand Trade & Enterprise for specific travel advice if you are travelling to different parts of the kingdom.
When you travel to the kingdom it's worth bringing some of the basics with you. Don’t forget a plug adaptor, don’t forget to let the Embassy know that you’re visiting the kingdom.
Without a doubt the most significant threat to your physical security or more safety is the driving in Saudi Arabia. Driving is a very low standard. They’re getting better but you have very large quantities of traffic on the road and not necessarily the lane discipline or the use of indicators and the standard that we’re used to in our home countries.
On to the main focus of this presentation which is the Vision 2030 National Transformation Project. This is actually the second transformation that the kingdom has been through. Most commentators look back at the 1960's as the first real transformation for the kingdom of Saudi Arabia into “the modern era.” In the ‘60s under King Faisal at the time the Saudis took some dramatic, if overdue, steps; for example the abolition of slavery in 1963, compulsory education for boys and girls, the construction of a national road network, the opening of international airports, the introduction of television. It was a massive transformation of life and society in the kingdom in the '60s.
Of course back then the Saudi population was just a few million and issues like jobs, housing, broadband, obviously they didn’t even feature on the agenda.
This time around the transformation is being driven by lower oil prices, by a stark realisation that there has been under investment, that there has not been enough encouragement for the private sector in the kingdom and perhaps a tacit acknowledgment that countries like the United Arab Emirates and Bahrain and to a certain extent Qatar are far better placed to weather moving from an oil based economy to a more diversified economy.
As I said initially, the Vision 2030 plan is also known as the National Transformation Project or the NTP. It is sponsored by Muhammed bin Salman, the young Deputy Crown Prince. He is sponsoring this in his capacity as the Head of the Committee for Economic and Development Affairs and the principle objectives of 2013 are to diversify the economy away from oil. They have identified a number of key sectors that they’ll be looking at, and critically and of most interest to business in the kingdom is a move to put more in the hands of the private sector; so privatisation of state owned enterprises, of services that are currently undertaken by government, as well as enabling the private sector through regulatory reform to be more efficient, to be more competitive and to deliver more services to Saudi nationals, as well as making the kingdom a hub in the region for imports, for business, for trade. These are the broad goals of Vision 2030.
Now they are broad goals because the detail is yet to be worked out. A few weeks ago a 112 page document was released which was the blueprint for Vision 2030. It's been written obviously under close stewardship of the Committee for Economic & Development Affairs but it's been principally written by consultants from Boston Consulting Group and McKenzie; so it has a lot of very floury language. But there are some key points that are of relevance.
There are two phases to it; there are some initial hard targets which will drive the regulatory reform in particularly to be achieved by 2020 and then there are broader and more strategic ambitions and targets that are in place for 2030.
One of the key things that Prince Muhammed has done is he has appointed the Ministry of Economy & Planning to be responsible for the implementation and the achievement of these targets. So there are teams from the Ministry of Economy & Planning deposited in other ministries and making sure that the Ministry for Housing for example is on track to meet its targets. The Ministry of Health is pushing forward its privatisation agenda.
The key focus for the 2030 Vision and the 2030 objectives are principally around unemployment, housing and tourism. There are softer targets which come out of that which are around health, so for example the introduction of a tax on fast food, on sugary drinks and on tobacco. Their other softer elements are entertainment, the introduction of cinemas into the kingdom, bowling alleys and that sort of thing; things that we obviously all take for granted but in Saudi are reflective of more cultural change on the back of this Vision 2030.
Just talking about unemployment as I mentioned the statistics before, but of course focusing on unemployment means great opportunities in training, particularly vocational training but also English language training there is going to be more and more undertaken in the kingdom, the expansion of further and tertiary education.
There are a number of specific targets in IT, vocational training, the employment of females, as well as the cost of employing a Saudi national. So one of the prohibitive elements to the [6.45] agenda is that it costs a lot of money to employ a Saudi compared to somebody from the Indian sub-continent and there’s a specific objective to reduce those costs.
In terms of housing this is critical issue in Saudi Arabia. We’re expecting about 11 million houses to be built over the coming years and the Ministry of Housing is very much front and centre of the transformation programme in terms of where money is going to be spent by the government to support the implementation of this target.
So yes they’re going to be working with the private sector, there’s going to be a big focus on public/private partnerships, so called PPP, but there is also going to be government money going into housing.
Tourism, it may sound odd to us to imagine people coming to the kingdom for tourist purposes, but we’re specifically talking about Islamic tourism. They already have eight million visitors every year to the kingdom for religious reasons; they’re looking to increase that by a significant number in the coming years.
Now that’s of interest to us because that means more hotels, it means training, more processes, plans, infrastructural development, more road, more rail, more metro; all opportunities that are open to New Zealand companies. The management has a specific objective to increase the number of museums in the kingdom, the number of tourists rising by over 20 percent, they’re going to reform the tourist visa system and a specific target that nearly 3.5 percent of GDP will come from the tourist sector within the next couple of years.
The current position: so where are we with Vision 2030? Well, the announcement was made as I said just a few weeks ago. People are still getting to grips with all of the different targets and essentially we are expecting a refinement over the summer; perhaps a second edition with a bit more detail coming out after the summer break.
The framework has been announced but there is no money yet allocated to the projects and so the details are to be confirmed.
By far the sort of headline grabbing, or the most headline grabbing announcement has been the intention to float part of Aramco and this is all around the creation of a new sovereign wealth fund in the kingdom, which will be the largest sovereign wealth fund in the world and the return on that investment will be used to offset reductions in oil price in the coming years.
Foreign policy and global factors
Now of course there have been other things going on besides Vision 2030 and the last webinar we touched on some of these. I just wanted to give an update on where the kingdom is with respect to these specific points.
Firstly in terms of Yemen and the foreign policy of the kingdom, when we last spoke the war in Yemen was at a very high tempo of operations both on the ground and in the air and indeed at sea. Things have slowed considerably and the peace and truce negotiations which have started in Kuwait in recent weeks are ongoing and the ceasefire has largely been held. There’s been nowhere near as many air strikes that there were in the first and second quarter of the year; and generally the foreign policy of the kingdom has cooled off a little bit.
Obviously with the general background of a cold war between Saudi and Iran going hot in Yemen, when you have those two countries on either side in an active campaign there’s great uncertainty and of course it's not particularly helpful to the resolution of issues elsewhere in the region, in Iraq or Syria for example. Things have cooled off a little bit and we’re seeing more diplomatic rhetoric, particularly from the Saudi Foreign Minister reaching out to the Iranians and some reciprocal noises coming from Iran.
There has been another dispute in recent weeks regarding Iranian pilgrims going to mecca, so it's a watching brief effectively at the moment but the good news is that the war in Yemen seems to have drawn hopefully to a close if not to a prolonged pause.
However there is always opportunity and we are expecting the Saudis to launch a significant humanitarian and reconstruction programme for Yemen for their interests now in Yemen and that will provide a number of opportunities for western companies in particular.
The oil price: so again everyone I am sure has been watching the oil price. The kingdom has been behind and it's no secret it's the kingdom’s policy of pumping non-stop about 10.2 to 10.3 million barrels of oil every day that has driven the oil price down.
The kingdom itself they say and indeed most economists agree that the kingdom can weather very low oil prices perhaps down to $20-30 a barrel provided they make a few changes to the economy. So the low oil price has actually spurred the economic reform of the kingdom and has had a positive impact. So for example we’ve seen the removal of subsidies on fuel, on electricity, on water.
There’s still no taxes on these utilities but the charges that people are now paying, which are still obviously by what we’re used to, they’ve effectively normalised the cost of consumption for electricity, water and in particular petrol.
What’s behind the Saudi policy is not a desire to hurt frackers in America or Shale Oil in Canada; it's all about containing the ability of the Iranians to raise funds to then spend in support of their interests in Iraq, Syria, Lebanon and the Yemen.
As the détente – and perhaps détente is too much of a strong word – but as things cool off with the Iranians the oil price has recovered. There’s been a slight spike in recent weeks because of the forest fires in Canada and disruptions to supply in Nigeria; but the Saudis are expecting the oil price to remain between $45 and $50 a barrel.
Bear in mind that Saudi is one of the cheapest places in the world to extract oil; it costs between $2 and $7 to extract a barrel from the ground in the Eastern Province with refining costs on top of that.
In our last webinar we reported that there was a significant cashflow crunch that the kingdom was delaying payments to contractors and spending was slowed significantly and a number of new projects had been either delayed or shelved.
There’s some good news in that most contractors that we’re aware of, certainly some of the bigger contractors, have now had pretty much all of their payments received. The cashflow crunch that the Ministry of Finance faced is widely viewed within government that they should have been prepared for it but they weren’t and they’ve hopefully learned their lesson.
One of the challenges that the kingdom faces is that they hadn’t borrowed any money on the international market since 1999. So just from an institutional perspective they didn’t necessarily have the know-how to do that and they didn’t have the track record in the debt market to have appropriate credit ratings or easy access to debt.
There’s been very broadly reported in the Western media that the Saudis recently raised about $10 million on the debt markets and that’s part of their strategy to reduce their deficit. And again this year they’re going to have a deficit of around $100 billion but reserves remain strong, about $650 billion in the bank and state owned enterprises valued at trillions and trillions of dollars.
One new point to raise is of course the US election which does affect all of us in some way and has a particular resonance in the Middle East. Currently it's quite difficult to read how the Saudis viewed the two candidates. They are certainly not happy with President Obama and the actions that the Americans have taken in the Middle East where it's generally viewed that the Obama administration has withdrawn the US from having a frontline role in the Middle East, preferring to allow regional powers to sort out regional issues. Of course this is a very complicated part of the world and what that effectively created was a power vacuum which has allowed the Iranians, supported by the Russians, to step in and that action has not been received well in Saudi Arabia.
Consequently generally they view Mrs Clinton as more of the same; a continuation of Obama’s policy, of a stand-off, stand-back arms-length relationship with the Middle East. That’s not to say that they are therefore preferring Donald Trump but general view amongst Saudis here is that his rhetoric is purely that and it designed to get him elected and that it will be tempered and measured particularly with regard to the Arab world once he’s in office. But as I said, it's very difficult to read and obviously people have different opinions and views.
The government’s official line is that they won’t support either candidate obviously.
Infrastructure and marketplace
Given the Vision 2030 transformation plan the market place still remains hugely attractive for foreign companies in pretty much every sector of the economy. In infrastructure yes some projects have been delayed or cancelled, for example the building of 11 new football stadiums has been cancelled, however the land bridge, the railway line across the kingdom, has been committed to the new causeway between the kingdom and Bahrain; has been committed to and indeed design work is under way. The new causeway between Egypt and the kingdom the MOU has now been signed for that; and Mecca metro project has been announced and indeed the Riyadh metro obviously carries on.
So there is in infrastructure a number of new projects coming on line. In aviation the new terminal at King Khalid Airport in Riyadh is open and is operational. Interestingly the Dublin Airport authority, the Irish Airport Authority won the contract to run that terminal and it's been used as a model for the other 27 airports in the kingdom which would all be subject to privatisation in the coming years.
So ground handling services have been privatised and now the terminal five operator at King Khalid International Airport has also been privatised, and we’ll start to see that rolled out across all the other airports in the kingdom.
Agriculture, food and food security remain a major sector for the kingdom for foreign companies and in particular for New Zealand as Chris said; that’s everything from New Zealand honey to New Zealand beef, milk powder. It's a very strong footprint in the kingdom already for New Zealand and there’s great opportunity for growth there.
Medical sector and education both feature heavily in the Vision 2030 documents and in particular the focus on bringing more of the private sector into the healthcare sector and the likely privatisation of Ministry of Health hospitals and state owned medical infrastructure; and a great push for the continued saudization of medical staff.
They’ve recently announced the compulsory saudization of all dentists in Saudi Arabia and that will continue at pace.
In education there have been significant changes in terms of the King Abdullah scholarship programme which is being refocused instead of sending 200,000 students every year overseas. It will focus on ensuring that everyone has equal access to education in the kingdom and that those wishing to study specialist subjects or to undertake a Masters or a PhD that is not necessarily available in the kingdom those people get the support that they need to attend university overseas.
Defence and security remains one of the largest sections of the national budget with about
$80 billion being spent in 2015 and we expect that number to be increased in 2016 reflecting additional requirements arising from the Yemen campaign.
Lastly but not leastly, in retail there’s significant opportunities for foreign brands, foreign retailers to enter the Saudi market. Again part of the benefit if you like of the low oil price that has spurred economic changes is already we’ve seen regulatory reforms to allow 100 percent foreign ownership of retail in the kingdom.
There has also been some significant new regulations taking effect, for example a new saudization law that all mobile phone shops have to be staffed by Saudi nationals and that particular policy is similar to the dentist’s policy where we’ll start to see the government picking off specific job roles or specific segments of the economy that will have to be 100 percent saudized.
So fast rates of growth all across the kingdom and as I’ve said before it's pretty much the biggest market by every measure for everything in the region.
How to do business?
How to succeed in Saudi Arabia. Now there is no magic formula, no blueprint, but this is something that we pulled together. We actually were asked to produce a “How to do business in Saudi Arabia guide” for the Times Newspaper and this is pretty much what we said: That success if often hard, one, in Saudi and there is no secret but there are a few key considerations that you need to be aware of. And indeed these apply to all markets really for responsible exporters and Saudi Arabia is no exception.
Planning is vital. Make sure that you take appropriate qualified advice from people on the ground in the kingdom and obviously first port of call must be New Zealand Trade & Enterprise at the Embassy. They can help you with understanding the market, the market research, setting appropriate budgets in terms of time, resources and funds to actually begin to develop the Saudi market.
You will certainly need patience. Saudi is not a market where you can just fly over and sweet talk the Saudis into a $10 million deal; it takes time. It is about relationships, people always say that, but it's worth bearing in mind that relationships can be built in a fairly short period of time, maybe three to six months. The key is prove yourself trustworthy and reliable and that you’re not going to let somebody down if they put their confidence in you.
And perseverance is very important. It can take time to get through the process of registering as a supplier, as a vendor, receiving requests for proposals, responding and submitting bids for tenders. It can take a number of visits, a number of trips. Perseverance is key and this comes back to planning which is to make sure you set the appropriate expectation with your boards that this could take six months or this could take a year of us going backwards and forwards of appointing a distributor, of finding the right operating model that suits us. So make sure you have sufficient corporate stamina to enact your plan for Saudi Arabia.
In terms of how to actually operate in the kingdom, presence is key. The mantra for our business, for AEI, is commit don’t commute. Tripping in even with a Dubai address on your business card can sometimes be negatively received. If you can show that you’re here in some way, shape or form, either through an incubator or some other model perhaps with a distributor or an agent or representative, it will really help your business development campaign; principally because the Saudi customer won’t think that you are 10,000 miles away or 17 hours away; he’ll think you’re just down the road and if he’s got a problem you can help him out.
Obviously key to delivering that in some operating models is having a partner. Now you don’t always need to have a partner but depending what you’re selling and to whom you’re selling you may need a local entity to help import, you may need a local entity to provide a bank account or to provide visas. But again I would recommend that when you start your planning process one of the key considerations is how you’re actually going to deliver your business in Saudi and think about your operating model, think about the contracting route and get in touch with New Zealand Trade & Enterprise for their advice and their views on how foreign companies actually do business in Saudi.
And of course payment. Now payment can be an issue in Saudi. Usually I would say payments are not often made on time but it's very unusual that somebody does not get paid. So it's usually some bureaucratic issue that results in a delay of payment and usually it can be between 30 and 90 days for a delayed payment; anything over 90 days there may be a specific issue.
Obviously if you can do business where you have a letter of credit in place or some other financial instrument that will enable you to process payments much quicker, but it always comes back to having the appropriate plan and setting the appropriate expectation with your FD, your Financial Director, so that he understands how cashflow is going to work on a particular project and that you’re planning is appropriate.
When to visit?
In terms of when to visit, it is important to make the most of your trip. Obviously if you’re coming to Saudi Arabia then why not take a trip into United Arab Emirates or Bahrain or Oman or other markets that you might be interested in in the region.
You can try to schedule meetings and obviously it's very important to get in touch with people before you arrive but be flexible and take account of the fact that people’s diaries are fairly fluid in Saudi Arabia.
Make sure you have appropriate time to apply for a visa. You will need to apply for a visa in advance and we recommend at least two weeks and ideally four weeks to get that processed.
Applications for females can take a bit longer and Muslim applicants are not eligible for business visit visas at certain times of the year.
It's also worth noting the Saudi working year. Obviously we’re now a few weeks into Ramadan and things have started to slow down and soon as Ramadan is over the summer months will really begin to bite and things will slow down significantly.
So unless you have ongoing projects obviously it's little point seeking to do business developments in Ramadan or July and August. The best time to come, or the next best time to come will be September and that will probably be around mid-September after there’s Eid holiday in early September.
It's also worth remembering that the weekend is a Friday and Saturday in Saudi Arabia so time your flights in and out appropriately. And it's also often worth visiting, if you’re a first time visitor, come to the kingdom when there is an exhibition on. There are various exhibitions running throughout the year and New Zealand Trade & Enterprise maintain a diary of exhibitions and there’s a few listed here for you.
New Zealand Trade and Enterprise partners with Arabian Enterprise Incubators
This slide you can just see briefly what we do as a business as AEI. As Chris very graciously said we work very closely with the New Zealand Embassy as well as a number of other western embassies in the kingdom.
We provide market entry consultancy, advice, guidance, hosted market visits, introductions to Palmers as well as legal and tax advice and advice on how to operate as a foreign business in the kingdom. And we provide support services; so a range of services that are available for foreign companies from an office in our incubator to accommodation, to transport, visas, security, procurement. Whatever is difficult for a foreign company to do in the kingdom we are here to help.
We’ve been established for about three and a half years and in that time we’ve helped just over 300 foreign companies with their journeys and their plans in the kingdom and as I said we now have seven New Zealand companies on our books including Heinz Watties; a range from frozen veg to cyber security.
Questions and answers
There’s a question from Stewart Hazledine: Can we expand on the point about illegal immigrants?
Well the illegal immigrants is about two million people who have overstayed their visas in the kingdom. It's principally in the western region which is near Jeddah, Mecca and Modena; so these are people who’ve entered the kingdom on a pilgrimage visa and they’ve overstayed and they’re working illegally.
Typically it's immigrants from the Horn of Africa who have either come on a pilgrimage visa and overstayed, or they’ve been trafficked here illegally often through Yemen.
Question from Mark Rushton: Saudization is an ongoing issue. Finding enough Saudis for 40 percent of the workforce is a problem.
Saudization is the Saudi government’s policy for the compulsory employment of Saudi nationals. The rate of Saudization is different for different sectors and in retail it is higher percentage than in perhaps a marketing department or a consulting business for example.
The point Mark raises is very true. There are lots of Saudis out there looking for jobs, but the work ethic, the quality of training, the experience of candidates is not necessarily what we’re perhaps used to.
It is improving.
It is improving and it's reflective of the current market which is again much better than it was five years ago and much better than it was 20 years ago and it's reflective of the general journey that the kingdom is on.
Getting the unemployment numbers down is a key focus for the government and a key measure of success of 2030 and I think we will see the Saudization targets and the whole system being strengthened in the coming weeks.
There’s a question here about how will the region react to Saudi being a hub given that Dubai also sees itself as that. How realistic is it for Saudi to become a hub centre in 2030?
Yeah I think it's a great question and certainly the whole strategy for the United Arab Emirates from the mid-80's was the hub strategy; to be the hub for pretty much everything in the Middle East.
Saudi is never going to be able to compete with Dubai in terms of Western tourism and in terms of the regional presence that it has for so many western companies without regulatory reform.
So the big question is if they want to become a competitor to Dubai they could probably do it in terms of being a hub for imports and exports but they need to radically change the importing processes and customs processes and improving the ports.
They could potentially have more foreign companies registered here but they need to change the approach to licensing foreign investment in the kingdom and expediting applications and that’s sort of thing.
So these sorts of issues will come up as the detail for Vision 2030 emerges over the coming weeks.
At the moment the Vision 2030 paperwork has set out the ambition and as I said in the previous slide the detail is lacking, but the plan will emerge hopefully in the next few weeks and months.
So next question.
About the oil price and its impact on Vision 2030?
Well the whole focus of Vision 2030 is to move away from a dependence on oil. So what we’re expecting is a great focus on public/private partnerships using private money to deliver public services and public projects.
So an oil price of between $45 and $50 a barrel won’t have a significant impact on Vision 2030 and if it dropped below $40 a barrel the kingdom can still weather that; it's just a case of those projects that are looking to be fully funded by government may be tweaked or reduced or whatever.
But the low oil price again should be seen as a spur really for economic change and reform in the kingdom. We’ve already seen that there have been significant changes and rapid change particularly in the retail sector that only a low oil price can force to happen.
When oil is $100 a barrel nobody really does anything because changes are needed, but when it's down at $40 a barrel that’s when change needs to happen.
I’ll quickly just go back to that point about the hub aspect. There is rivalry in the Gulf between the six GCC nations and often one country will try to dominate in a particular area. It's interesting to note that the Saudis some time back decided that financial services could be an area that they might want to compete with and there is an area in Riyadh called the King Abdulla Financial District. Fair to say, and I mean the intention was to attract financial institutions, banks etc. to come and occupy that space; fair to say that that has not been successful to date. A lot of that area is still under-occupied and they’re now looking at actually repurposing that. Any particular comments from that?
I think the King Abdulla Financial District is a classic example of a project in Saudi that has achieved the easy elements which is buildings but has not been accompanied by the regulatory reform to allow foreign banks to enter and to allow more foreign investment through the stock market.
Again King Abdulla Financial District is mentioned specifically in the Vision 2030 document as a key focus for getting foreign companies in there and forcing the hand of the Saudi Arabian government investment authority to make the changes necessary, to ensure that the economic cities but also the financial districts are full.
There’s a question about engineering product approval processes from Rajam. If you are looking to import things into the kingdom there are specific processes. You do need approvals depending on the nature of the product from various government bodies, for example the Saudi Arabian Standards Organisation. You’ll need certificates of conformity, certificates of origin and I would suggest if you need more information about that you just contact us directly.
What is the environment like for foreign contract, for example bringing equipment in, product supervision from external locations, heavy union government style industry protection limitations?
So generally in terms of union and government style industry protections and limitations, no none of that really exists. There is of course a focus on Saudi registered contractors; so in a number of cases the Saudi customer may only be able to spend their budget on a Saudi registered contractor. So for example the metro project in Riyadh is currently tendering its 20 year maintenance and support contract and it has said only Saudi companies can respond to that.
Now that doesn’t necessarily mean that foreign companies that have a Saudi presence can’t respond and there certainly are examples of that.
So in some instances a foreign contractor may need to be registered in Saudi or he may need to have a partner on the ground; and again the partner can help in terms of importing equipment and that sort of thing.
If you’re looking at bringing in manpower bringing in ex-patriot labour can be difficult depending on how long people are coming for. The visa system can be quite difficult to navigate and again if you’ve got a specific issue that you’re facing, I think that’s Rhys Cole, please drop us a line. We’ll send out a follow up email address for any issues when we send out the presentation.