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Originally published:
Jul-17-2003
Legal System
Based on Islamic law, several secular codes have been introduced; commercial disputes handled by special committees; has not accepted compulsory ICJ jurisdiction
Economy
Currency: Saudi riyal (SAR)
Inflation (%): -.04% (1998), -1.6% (1999), -.07% (2000), -.05% (2001), 0.7% (2002),
1.5% (2003)
Real GDP Growth Rate: 1.69% (1998), -0.78% (1999), 4.54% (2000), 1.80% (2001)
GDP Per Capita: $10,998 (1998), $10,526 (1999), $11,006 (2000), $10,600 (2001)
Leading Markets (2001): United States (18.3%), Japan (17.4%), South Korea (10.2%), Singapore (5.4%)
Leading Suppliers (2001): United States (17.7%), Japan (10.4%), Germany (7.9%)
SAR per US Dollar: 3.7504 (As of July 17, 2003)
Top Industries: Crude oil, refined petroleum, machinery and transport equipment
General Economic Situation
The Saudi Arabian economy is based primarily on the production of oil. They are the world's leading producer and exporter of oil, accounting for 90% of the country's exports, 45% of GDP, and nearly 75% of government revenues. About 25% of GDP comes from the private sector. State revenues of Saudi Arabia are set to surge in the current fiscal year by at least 30% over budget figures on the back of high oil prices and output. Nonetheless Saudi Arabia was not expected to completely eliminate a projected $10.4 billion deficit for the year. The Kingdom is actively working towards accession to the WTO. Admittance to the organization would boost commercial activity and rapidly advance economic reform and diversification efforts, which have been stalled in recent years.
Saudi Arabia's unemployment rate has been steadily increasing over the past several years, just recently having topped 30%. Saudi Arabia's current five-year plan, covering the period 2000-2004, deals extensively with the challenges posed by Saudi demographics and unemployment. The plan's solution is to restructure the Saudi economy in order to find the needed jobs in the private sector - in the near term by replacing expatriates (job "Saudi-ization") and for the long term through greater investment for economic diversification and growth.
Business Climate
In April 2000, the government implemented a more liberal foreign investment law that permits foreigners to invest and own property without a Saudi partner, accords foreign firms national treatment, and guarantees repatriation of profits and capital. In February 2001, the government's "negative list" of sectors off-limits to foreign investors included the oil sector, military equipment and uniforms, printing and publishing, telecommunications, transportation, electricity, wholesale and retail trade. Foreign workers are subject to a 30% income tax.
Saudi Arabia is a member of the following organizations: The United Nations, The International Monetary Fund, The World Bank Group, The Gulf Cooperation Council, and The Arab League. Saudi Arabia has also signed economic and commercial cooperation agreements with most of the Islamic Countries as well as with its trading partners of Africa, Asia, America and Europe.
Credit and Collections
- Collection Experience: Fair - Good
- Exchange Delays: 3+ months
- Preferred Credit Terms: Unconfirmed L/C
- Minimum Credit Terms: Unconfirmed L/C
Risk Assessment
The economy is expected to pick up through 2003 due in large part to an increase in oil production. This will help to compensate for the decrease in global supplies from Iraq and Venezuela over the past six months. A delay in the implementation of the Natural Gas Initiative, a USD 25 billion, 30-year project designed to increase Saudi Arabia's natural gas production and distribution capacity, has hindered diversification.
Low levels of foreign debt are keeping the country's external financial position strong. However, as a result of a lack of diversification, the Saudi economy remains vulnerable to developments in the oil market. The September 11th tragedy has complicated relations with the United States and had caused increased regional instability.
In order to minimize the risk of accruing bad debts, exporters should obtain credit references on Saudi Arabian importers with whom they do business through credit rating agencies, and/or commercial banks. Legal action can be both costly and lengthy, and may not be worthwhile for relatively small debts. Commercial, diplomatic or consular officers are not able to assist in the collection of debts, but they may be prepared to offer advice on the best means of settling outstanding difficulties.
Country Risk Rating: (A4) An already patchy payment record could be further worsened by a deteriorating political and economic environment. Nevertheless, the probability of a default is still acceptable.
Sources for further information on doing business in Saudi Arabia
Owens OnLine: Provides information that is specific to the credit industry in Saudi Arabia.
Saudi Arabia Business Guide: Provides detailed information on doing business in Saudi Arabia including business opportunities, foreign trade and investment policy, marketing, shipping, and business regulations and procedures. There is also a section on resources and information which presents useful contact information for conducting business in the Kingdom.
Saudi Arabia Embassy in Washington: Official site of the Saudi Arabian Embassy in Washington D.C. Provides current news stories on Saudi Arabia, as well as more general information on Saudi Arabia's history, government, economy, culture, and agriculture. There are also sections devoted to Travel and the Consulate, and Multimedia and Saudi TV.
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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including the Saudi Arabia. For further information, contact info@abc-amega.com.
P>This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.
Risk Assessment information: Coface Country Rating.
Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," July 2003.
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