Saudi Arabia – Not Just for Oil

oil fieldsSaudi Arabia – Not Just for Oil

When one thinks of Saudi Arabia and international trade, oil typically comes to mind first, but times are changing. The price of oil has been on the decline over the past couple of years and as such Saudi Arabia has been diversifying its economy. As a result, opportunities exist for exporters.

Saudi Arabia is the 19th largest exporter and the 20th largest import market in the world. Among the top exports is of course, oil, but also plastics, metal goods, construction materials and electrical appliances. In terms of imports, the country’s leading commodities are vehicles, machinery, electronic equipment and pharmaceuticals. U.S. exporters of these products have found Saudi Arabia to be an excellent market for decades.

Trade Lanes

Diversification and Infrastructure

Diversification is important for Saudi Arabia in order to grow its economy and as such government investments in infrastructure and non-oil industries are on the rise. Not surprising, the construction sector is the largest driver of economic activity in Saudi Arabia after oil particularly as government-sponsored projects such as hospitals, specific industry-related economic hubs and infrastructure are driving most of this need.

Indeed, ambitious infrastructure projects are underway with five rail projects to connect not only the major cities within the country but also to serve as a link between the Red Sea and the Persian Gulf as well as with the six other countries of the Gulf Cooperation Council (GCC). This is an interesting development for many reasons, as the Arabia Peninsula is one of the only regions of the world that jumped to modern air and ocean ports infra structure without first developing a rail network. For U.S. exporters, especially those shipping to major inland points such as Riyadh (the nation’s capital), the presence of rail cargo could lower the cost of inland delivery substantially and increase delivery times.

Expansion plans are also underway at airports in Riyadh, Jeddah, Madinah, Nijran, and Tabuk primarily for passengers but will undoubtedly benefit cargo also.

Furthermore, ocean port projects include expansion of the country’s largest port in Jeddah, as well as improvements to ports in Jazan, Al-Madhaya and Fursan. Inland ports are also being built in specific industry-related economic hubs known as Economic Cities.

Along with infrastructure investments, Saudi Arabia has identified several industries for further development such as healthcare, life sciences, automotive, information technology, logistics, alternative energy and manufacturing.

Because of the high volume of imported automobiles and automobile parts, there are particularly high expectations to expand the domestic automobile manufacturing industry. Currently there is local production of light trucks only on a small scale by Isuzu, Daimler, Volvo and MAN. Tata, Jaguar and Land Rover are considering local assembly operations in Saudi Arabia.

In addition, Saudi Arabia is the world’s largest importer of defense equipment and as a result, the government is also working towards developing a manufacturing base for weapons parts and components.

Trade

The Department of Customs at the Ministry of Finance oversees all merchandise moving through Saudi customs ports. In addition, the Saudi Food and Drug Authority (SFDA) are empowered by the Saudi Council of Ministers to have a representative at eight Saudi ports of entry with Saudi Custom officials to regulate and control the entry of medical devices. As such, medical devices are only allowed entry into Saudi Arabia through the three major international airports, two seaports in Jeddah and Dammam, and three land entry points.

On the global front, Saudi Arabia joined the World Trade Organization (WTO) in 2005 and as part of this trade organization is committed to its rules including transparency in trade requirements and more accommodating to non-Saudi businesses. Being a WTO member, Saudi Arabia is expected to bind its tariffs on over three fourths of U.S. exports of industrial goods at an average rate of 3.2%, while tariffs on over 90% of agricultural products are set at 15% or lower.

Additionally, as a member of the Gulf Cooperation Council (GCC), Saudi Arabia applies an external tariff of 5% for most products, with a limited number of GCC-approved country-specific exceptions.

Despite being a member of WTO, Saudi Arabia still favors Saudi businesses. In addition, there are also concerns of counterfeit products. In some consumer goods, for example, it is estimated that as much as 50% of the entire Saudi market is counterfeit. In order to restrict the entry of counterfeit products, the Saudi Customs Authority now requires all imported goods to clearly display the “Country of Origin” or “Made in ….” on items in an irremovable manner.

So, Saudi Arabia is much more than oil. True, oil still remains a leading export commodity but the country is working hard to diversify from its dependence and as such suppliers of numerous industries such as automotive, pharmaceutical, consumer goods and manufacturing should benefit as this country opens its doors further to global trade.

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