1. "There is no god but God:
Muhammad is the Messenger of
God."
Saudi Arabia
2. About Saudi Arabia
Officially known as the Kingdom of Saudi Arabia.
The largest Arab state in Western Asia by land area.
Saudi oil reserves are the largest in the world, and Saudi Arabia is
the world’s leading oil producer and exporter.
Birthplace of Islam, the kingdom has a special place in the region.
5. Market Analysis
• Population Size
• Description of Labor Force
• Consumer Purchasing Power
• Distribution
• Trade Restrictions
6. Population Description and
Characteristics
• The population of Saudi Arabia is
approximately 22,757,092, which includes
5,360,526 non-nationals.
• 42.52% of the population is aged 0-14.
• 54.8% of the population is aged 15-64.
• 2.68% of the population is 65 years old or older.
7. Labor Force
• Saudi Arabia’s labor force
is 7 million people, 35%
of this population consists
of non-nationals
– Agriculture
12%
– Industry
25%
– Services
63%
9. Consumer Demand
• Water is scarce in Saudi Arabia
• Foodstuffs (which includes beverages) are
among the largest commodities imported
• Significant changes have been made regarding
irrigation, but there are still many efforts that
Saudi Arabia must overcome before they will be
self-sufficient
10. US Top 25 Export Destinations
for Bottled Water
US Exports: Top 25 Export Destinations for Bottled Water
10000
This market would be viable for our
product, currently – very few
bottled water distributors export
product to Saudi Arabia and the
only local competition would be
government based irrigation
companies whose primary focus is
supplying water to agricultural
businesses.
9000
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1997
1998
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2001 YTD
2002 YTD
3000
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Money in $1,000 Dollars
7000
11. Restrictions
• Saudi Arabia is the only country in the world
which bans women from driving.
• Banned products: alcohol products, weapons,
and any item that is held to be contrary to the
tenets of Islam
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Non-Islamic Religious Materials
Pork Products
Pornography
Christmas Decorations
Fashion Magazines
12. Distribution
• Railways: 1,389 km
• Highways (paved): 44,104 km
• Ports and Harbors: total of 13
• Airports with paved runways: 70
• Heliports: 5
13. Tariffs and Duties
• Some Saudi industries are protected by the
imposition of 20% import duties on certain
commodities.
• Contractors must buy equipment and materials
from a Saudi importer or manufacturer. If
supplies are not available locally, the
contractors are allowed to import from foreign
sources. Tariff rates vary from 0 – 4%.
• Items produced in the Kingdom are assessed at
an import tariff of 20%.
Saudi Arabia is sustained by an oil –based economy with strong government controls over major economic activities. Saudi Arabia has the largest reserves of petroleum in the world, ranks as the largest exporter of petroleum, and plays a leading role in OPEC. Due to increased spending for education and other social programs, the government of Saudi Arabia announced plans to begin privatizing the electric companies, which follows the on-going privatization of the telecommunications company. The government is expected to continue calling for private sector growth to lessen the kingdom’s dependence on oil and increase employment opportunities for the swelling Saudi population. Shortage of water and rapid population growth will constrain government efforts to increase self-sufficiency in agricultural products.
Saudi Arabia’s borders consist of Jordan, Iraq, & Kuwait to the north, Persian Gulf, Qatar and United Arab Emirates to the east, Yemen and Oman to the south, and The Red Sea and Gulf of Aqaba to the west. Saudi Arabia is divided into 13 provinces. The capital and largest city in Saudi Arabia is Riyadh.
The south and southeast of the country are occupied entirely b the great Rub al-Khali desert. In addition to the Rub al-Khali, Saudi Arabia has four major regions. The largest is Nejd, a central plateau, The Hejaz, which stretches along the Red Sea from the Gulf of Aqaba south to Asir and is the site of the holy cities Mecca and Medina. Asir, extending south to the Yemen border, has a fertile coastal plain. The Eastern Province extends along the Persian Gulf and is the oil region of the country. Saudi Arabia is more than 1/5 the size of the US.
Bonnie Stevenson provided an analysis of Saudi Arabia’s political system, their economic system and their regional trade group. To continue this discussion, I will provide you with an overall market analysis, which includes the population size, the characteristics of the Saudi work force, consumer purchasing power, distribution and trade restrictions that we face upon the introduction of our new bottled water product in this international market.
The Saudi population growth is 3.27%
The Birth Rate is 37.34 births per 1,000 population
The Death Rate is 5.94 deaths per 1,000 population
Net Migration Rate is 1.32 per 1,000 population
Gender Ratio:
At Birth: 1.05 male(s)/ female
15-64 years: 1.41 male(s)/female
65 years +: 1.22 male(s)/female
Total Population: 1.23 male(s) / female
Life Expectancy Rate is 68.09 years with males being 66.4 years and female being 69.85 years of age.
Ethnicity: 90% Arab and 10% Afro-Asian
Religion: Muslim
Language: Arabic
Literacy Rate (% of population over aged 15 that can both read and write): 87.9% Male and 74.2% Female
The cultural environment in Saudi Arabia is highly conservative; the country adheres to a strict interpretation of Islamic religious law (Shari’a). Cultural presentations must conform to narrowly defined standards of ethics. Men and women are not permitted to attend public events together and are segregated in the work place.
12% of the population consists of farmers and Nomads. Primary agricultural products are wheat, barley, tomatoes, melons, dates, citrus fruits, mutton, chickens, eggs, milk, camels, sheep, goats, and horses.
25% of the labor force is employed in industrial businesses which are crude oil production, petroleum refining, basic petrochemicals, cement construction, fertilizers, and plastics.
Until the 20th Century, Arabia has no formal money and banking system. To the degree that money was used, Saudis primarily used coins having a metallic content equal to their value for storing value and limited exchange transactions in urban areas.Currently, there are twelve private commercial banks operated in the kingdom, providing full-service banking to individuals and to private and public enterprises. Eight are Saudi owned and four are joint ventures with foreign banks.
Saudi Arabia’s revenue from exports is approximately $81.2 billion. 90% of the products exported are petroleum and petroleum products. Saudi’s primary exporter partners are Japan, United States, France, South Korea, Singapore, and India.
Saudi Arabia imports machinery and equipment, foodstuffs, chemicals, motor vehicles, and textiles and are $30.1 billion on average. They import products from the United States, Japan, Germany, Italy, France and the United Kingdom.
GDP per sector:
Agriculture – 6%
Industry – 47%
Services – 47%
Household income or consumption by percentage share: Lowest 10% and Highest 10%
Inflation Rate: .5%
Our product should be very successful in this country. Our product can be used on all consumer levels. The climate is dry and hot and somewhat humid, all of which provide us with several marketing messages that will help infiltrate this market. In addition, Saudi Arabia is trying to promote tourism in the coastal areas, allowing us to reach other non-nationals.
Our product is in high demand. We will need to provide a solid product at a reasonable price point. By doing so, our company should be successful in this market.
Saudi Arabia has a large volume of imports. They are set up to receive product via ocean or air freight and the product can be distributed throughout the country via railway, highway, air, or ocean freight. This should not be a substantial obstacle to overcome. It will need to be determined how to handle point of purchase of our product. Services is a large percentage of economic market in Saudi Arabia, but the exact number of establishments that handled this type of merchant trade was unavailable. Electricity is country wide. We must determine if we will provide direct point of purchase via vending machines throughout the country or concentrate primarily on distribution through grocery stores and other food service merchants. Further analysis regarding how our product will be sold to the end-user must be determined prior to entrance into this international market.
Railways are the least developed means of transportation in the kingdom. There are vast distances to cover, in often adverse environment conditions, and it is inevitable that airline services seem to be a more practical mode of transportation to a country undertaking a major development program.
With the massive increase in traffic that has ensured from the Kingdom’s industrial and agriculture development, it has been necessary to upgrade many of the inter-city roads to expressways, with anything up to eight lanes for traffic. The cities have become congested by the growth in traffic and a number of cities now enjoy the benefits of modern ring-roads which serve to speed vehicles on their way to reduce congestion and pollution in city centers.
Some Saudi industries are protected by the imposition of 20% import duties on certain commodities. Most consumer goods, however, are duty-free. Other items carry duties of 12% of the total cost, which includes insurance and freight.
In line with Saudi government directives and in order to assist Saudi business, contractors must buy equipment and materials from a Saudi importer or manufacturer. If supplies are not available locally, the contractors are allowed to import from foreign sources. Tariff rates vary from zero to 4%.
Items, which are produced in the Kingdom, such as aluminum or wooden frames, are assessed at an import tariff of 20%. In most cases, however, contracts provide for the import of supplies and machinery duty-free.
Goods are usually cleared quickly through customs at Saudi seaports. Original export documents should be stamped and attested to by Saudi consular authorities in the country of origin. This will make clearing customs far easier.
Income taxes of Saudi and expatriate employees working in the Kingdom were abolished in 1975. All Saudi citizens and all Saudi companies, however, must pay a religious tax -- zakat -- of 2.5% annually on profits and on the assessable amount for individuals.
In general, Saudi law requires that all foreign and Saudi companies pay a tax on profits earned in the country. Companies with joint-ventures having at least 25% Saudi ownership are exempt from income tax for a period of ten years.
A company's tax status is determined by the tax department of the Ministry of Finance upon receipt of the company's records and activities in the Kingdom. These records must be submitted in Arabic.
US and Saudi accounting procedures are used in auditing companies.
Different tax rates are applied to companies working in petroleum or hydrocarbon industries. The final payment to a company is dependent upon a certificate being received from the Ministry of Finance stating that the contractor is either exempt from paying taxes or has paid all the due taxes. The foreign partner in a joint-venture does not pay zakat.
In May 1993, the Minister of Finance and National Economy stated that all foreign companies which are actively involved in the capital expansion of various industrial projects in Saudi Arabia will be exempted from paying taxes on profits made in the Kingdom. Foreign investors are to be encouraged to reinvest their profits, which accrue to them from joint ventures. The Minister went on to say:
"The prime objective of this decision is to encourage foreign participation in industrial projects and to acquire foreign technology. Such exemption will require that foreign capital be used for the development of Saudi industries and it will be applied for a period of ten years from the date a joint company begins its industrial production."
Corporate Taxes: Corporate tax is levied on net income. No distinction is made among the various forms of business organization, and the applicable tax is computed on the same basis regardless of whether the entity is a limited liability or joint stock company of a "joint venture". Income tax on Saudi business organizations is assessed on the foreign shareholder's or partner's share of the entity's net income. Once such tax is paid, no additional taxes are levied on distributed profits.Saudi corporate tax rates range from 25 percent (on annual taxable income of up to SR 100,000) to 45 percent (on annual taxable income of over SR 1 million).Under current practice, supply contracts whereby a foreign, non-resident company exports goods to Saudi Arabia would not generate income subject to Saudi tax. However, supply contracts under which the foreign, non-resident company also furnishes services in Saudi Arabia would be taxable in its entirety (i.e., on income derived from the export of goods as well as provision of services), although the value of supplied goods can usually be deducted as an expense item.
Personal Income Taxes: Salary and benefits of non-Saudi employees are not subject to income tax at present. However, non-Saudis who derive income from investments in Saudi businesses or from professional activities, and who are non-residents, are taxed at rates ranging from five percent (for taxable income up to SR 16,000) to 30 percent (for taxable income over SR 66,000).The Zakat is a wealth tax levied on Saudi and GCC nationals, wholly Saudi or GCC-owner entities, and Saudi and GCC shareholders in limited liability companies. The rate is approximately 2.5 percent of an individual's net worth or of an entity's assets (less specified deductions).
Other Taxes: Currently, no local, regional, property or other sales taxes are imposed.
Tax Treaties: Saudi Arabia has not entered into a tax treaty with the United States. However, the United States allows tax credits for income taxes paid in Saudi Arabia.
