3 Reasons to Expand Your Business to Saudi Arabia
Recently I asked a business owner friend for his thoughts on expanding his business to Saudi Arabia. He asked me whether I thought that the timing was right. This is a question that businesses with a general interest in Saudi Arabia may ask and it is a valid one. Low oil prices and recent geopolitical tensions involving Saudi Arabia have dominated the news headlines for months.
Despite the sharp drop in oil prices and its involvement in the regional conflict, Saudi Arabia’s internal political and economic conditions are stable and the country enjoys consistent GDP growth. It is the largest free market and the leading investment destination in the Middle East region, offering a wide range of rewarding possibilities for potential investors. According to the International Finance Corporation/World Bank’s 2015 “Doing Business” report, Saudi Arabia is among the world’s top 50 countries for overall ease in doing business. In this post, I outline three key points that explain why Saudi Arabia is an ideal place for investment:
1. Booming service industry:
Saudi Arabia is a country of significant opportunities for Australian businesses. Although it is Australia’s second largest trade partner in the MENA region, many more possibilities remain to be explored. Although the country’s economy is based on oil, its non-oil sectors are growing rapidly and foreign direct investment (FDI) is playing a major role in that solid growth. As the Saudi government is keen to diversify the economy and there is a clear gap in the services industry that needs filling, Australia should consider exporting its services which comprise 75% of Australian domestic production and enjoy a strong reputation overseas.
2. Increased government spending and the growth of the private sector:
Increased government spending on social, infrastructure and other investment projects in Saudi Arabia will provide strong opportunities for private sector growth. In the long term it is expected that the private sector will grow exponentially through more economic deregulation and competition. The Saudi Arabian General Investment Authority (SAGIA) has identified six key sectors as prominent investment areas. These are energy, transport & logistics, ICT, health, life sciences and human capital.
In the energy sector, crude oil refining, petrochemicals, fertilizers, power and water and mining and metal are key investment areas. Another unique opportunity is the petrochemical sector which only Saudi Arabia has opened up for private investment in the Middle East. Saudi Arabia’s strategic location in the region will certainly help investors to connect with buyers in Europe, Asia and Africa to meet the increasing demand of the petrochemical markets.
Power and water is a crucial sector for Saudi Arabia as the Kingdom needs to ensure efficient power and water supply for its growing population and enormous development projects. Because the region is mostly desert and does not have adequate water supply, investment to address the water shortage challenge could generate solid returns.
Mining and construction are two relatively new areas that also have huge potential. The expertise and experience of Australian mining and construction companies put them in an advantageous position to tap these sectors in Saudi Arabia.
In a recent briefing, the Chairman of the Australia-Saudi Business Council (ASBC), Tom Harley also highlighted agriculture, education and health care as key growth areas in Saudi Arabia.
3. Great synergies between the two countries:
It is relatively a overlooked fact that great synergies exist between Australia and Saudi Arabia. Saudi Arabia is looking for the exact know-how and skills that Australian companies are specialised in and known for. For example, Australian construction company Laing O’Rourke won the major railway construction project in northern Saudi Arabia because of its experience in Australia’s similar desert terrain. The current or emerging synergies of interest between Australia and Saudi Arabia can also be seen in a number of other sectors including health care systems, agribusiness, and renewable energy, to name just a few.
So my emphatic answer to my friend’s question was “now or never”. Australian companies should seize the opportunities that are readily available in Saudi Arabia and secure their market share in this magnificent country with a long term perspective in mind.