Regional leader
Saudi Arabia is located in West Asia, on the Arabian Peninsula, with a population of 35.9 million. It includes a predominantly desert area from the Arabian Gulf to the Red Sea. The Kingdom of Saudi Arabia is the largest economy in the Middle East region and the world’s largest oil exporter. It is also the center of the Islamic world, welcoming scores of pilgrims to Mecca and Medina each year.
Saudi Arabia’s political system is an absolute monarchy. Since 2015, Salman bin Abdulaziz Al Saud has been on the throne. He will be succeeded by acting Prime Minister Mohammed bin Salman. The Kingdom of Saudi Arabia is located at the crossroads of trade routes from Europe, Asia, and Africa. In 2021, the gross domestic product was $833.5 billion ($23,186 per capita). In the GDP structure, services account for 46.7% of GDP, industry for 45.5%, and agriculture for 2.3%. 99% (752,000) of businesses are small or medium-sized enterprises.
Saudi Arabia is an economy based on oil and hydrocarbon trading. The Kingdom has 17% of the world’s oil reserves (267 billion barrels). Saudi Arabia produces more than 11.5 million barrels of oil and 120 million cubic meters of gas daily. Due to Russia’s invasion of Ukraine, state-owned oil giant Aramco saw a record net income of $161.1 billion in 2022 (up 46.5% in a year). Saudi Arabia’s other natural resources include iron ore, gold, copper, bauxite, and phosphates.
Population of Saudi Arabia
Saudi Arabia’s population is 35.9 million. As in other countries in the region, Saudi Arabia’s labor force is fueled by foreign workers from Asia and Africa. Expatriates constitute about a third of the population (about 13.5 million). The largest foreign communities, each over one million, are Indians, Pakistanis, Bangladeshis, Egyptians, and Filipinos. Western citizens make up a total of 1% of the population (118,000).
The official language in the country is Arabic, and the business community employs English. Since the beginning of the 21st century, Saudi Arabia has been experiencing massive urbanization. According to estimates, 85% of the population now lives in major cities such as Riyadh (7.2 million), Jeddah (4.6 million), Mecca (2 million), Medina (1.5 million), and Dammam (1.2 million). This trend indicates that Saudi authorities will gradually increase spending on construction, health care, education, and urban services.
Importance of Islam in Saudi Arabia
Saudi Arabia is the center of the Islamic religion. The Kingdom is home to the holy cities of Mecca and Medina, sites where pilgrims from all over the world visit. Religion has a far-reaching impact on the state’s affairs, determining citizens’ daily lives, people-to-people relations, and government-citizen relations. Deviations from Islam are subject to penalties, which also apply to foreigners.
Islam also affects tariff and non-tariff barriers. Materials affronting Islamic customs, including religious items, pornography, alcohol, and pork, are illegal. If the items in question are confiscated, it is difficult to secure another visa later on. Fridays, which by custom remain public holidays, and the Ramadan period require special attention from entrepreneurs seeking to expand their business to Saudi Arabia.
Economy of Saudi Arabia
Saudi Arabia is a member state of the Organization of the Petroleum Exporting Countries (OPEC) and a member of the G20 forum grouping the world’s largest economies. In 2022, the Saudi economy achieved the highest growth (8.7%) among G20 countries. In addition to the energy market, sectors of the economy experiencing growth include real estate, financial services, insurance, and construction.
Saudi Arabia’s currency is the Saudi riyal (SAR). The economy is dependent on imports of food, medicines, parts, and semi-finished products. As a result, the authorities are implementing the “Vision 2030” economic diversification program. The strategic plan, aimed at reducing Saudi Arabia’s dependence on oil, focuses on three pillars: society, the economy, and the so-called “ambitious nation,” or expansion of the “third sector.”
The authorities are increasing spending to develop public service sectors such as healthcare, education, infrastructure, and tourism. The “Vision 2030” plan includes the ROSHN project, which aims to develop construction and a project to build a network of luxury resorts on the Red Sea. In turn, the NEOM project is to construct a smart city of that name in Tabuk province. According to plans, the city will be powered by 100% renewable energy. The construction cost will be about $500 billion.
By implementing “Vision 2030,” the Saudi authorities want to increase the share of non-oil exports in GDP from 16% to 50% by the end of the decade. By 2030, they also intend to direct additional investment to support the development of small and medium-sized enterprises. In 2019, the role of the private sector has been expanded, such as through public-private partnership projects regulated by the National Center For Privatization (NCP).
International trade
Saudi Arabia is the world’s 19th largest economy by gross domestic product, 24th largest exporter, and 31st largest importer. Saudi exports are worth $286.5 billion, and imports are $152.7 billion. Saudi Arabia’s main trading partners are the United Arab Emirates, China, India, Egypt, the United States, Singapore, Belgium, Turkey, South Korea, and the Netherlands.
The group of most imported goods includes industrial machinery (10.9%), motor vehicles and parts (9.99%), electrical machinery (9.09%), oil and mineral fuels (4.84%), pharmaceuticals (4.54%), iron and steel (3.58%), precious stones and metals (3.47%), cereals (2.73%), plastics (2.52%), and precision instruments (2.41%). In addition, imported goods include iron and steel, aircraft, furniture, copper, chemicals, clothing, dairy products, meat, ships, boats, and rubber.
The largest group of exported goods are oil and mineral fuels (74.2%), plastics (8.29%), organic chemicals (5.01%), ships and boats (1.34%), fertilizers (1.25%), aluminum (0.857%), industrial machinery (0.725%), precious stones and metals (0.714%), inorganic chemicals (0.713%), and electrical machinery (0.662%). The following are motor vehicles and parts, iron and steel, copper, chemicals, ores, and aircraft.
Trade agreements
Saudi Arabia has signed trade agreements with Gulf Cooperation Council (GCC) countries. Saudi Arabia has economic ties (common market and customs union) with Bahrain, Qatar, Kuwait, Oman, and the United Arab Emirates. Under the Greater Arab Free Trade Area Agreement (GAFTA), Saudi Arabia has free access to Kuwait, Bahrain, Qatar, Oman, the UAE, Jordan, Egypt, Iraq, Lebanon, Morocco, Tunisia, Palestine, Syria, Libya, and Yemen.
Saudi Arabia has also signed bilateral agreements with the following countries:
China
India
United States
Agreements with associations of countries:
Gulf Cooperation Council (GCC)
European Free Trade Association (EFTA)
Agreements concluded by the GCC:
Singapore
Saudi Arabia – European Union relations
Initially, Saudi Arabia-European Union relations operated based on the 1988 EU-Gulf Cooperation Council Cooperation Agreement. In subsequent years, bilateral relations intensified. In October 2021, the two sides agreed on political and technical cooperation.
In 2021, the first bilateral trade consultations also took place. The European Union is Saudi Arabia’s second trading partner after China (14.8% share of its trade). Saudi Arabia is the EU’s 17th trading partner (1.1% share of the Union’s trade). The trade between the two sides is worth 40 billion euros.
Saudi Arabia imports machinery and equipment from the EU and exports oil and petrochemical products. Companies from EU countries are working on several projects under the “Vision 2030” plan. These include the development of the Riyadh metro line, energy, construction, tourism, culture, industrial machinery, and pharmaceuticals.
Opportunities and challenges
Products imported into Saudi Arabia are subject to a 5% duty, regulated by the Gulf Cooperation Council. A protectionist tariff ranging from 12% to 20% applies in specific cases. Importing into Saudi Arabia requires a commercial invoice, freight bill, certificate of origin, insurance confirmation, and compliance certificates. Detailed terms and conditions, and a search engine for specific goods, can be found on the Saudi Customs website.
The Saudi Arabian General Investment Authority (SAGIA) regulates foreign investors’ access to the market, issues licenses, and handles entities. The so-called “Saudization” program requires hiring a specific number of Saudi nationals. Based on their number, a company receives one of six categories that affect, among other things, the application for business visas. So-called industrial and economic cities are the two main types of special economic zones, offering incentives and breaks for investors.
Saudi standards often differ from European ones, especially for the food and medical industries. Detailed information may be found on the Saudi Food & Drug Authority and the Saudi Arabian Standard Organization websites. Islamic requirements, including halal, apply to meat subject to ritual slaughter rules, which is marked with a certificate of compliance. Cosmetics and food must not contain alcohol or zoonotic products, including gelatin. For the cosmetics industry, restrictions apply to keratin, colistin, hyaluronic acid, etc.
Potential for cooperation for entrepreneurs is infrastructure projects within the framework of the “Vision 2030” plan in the tourism and accommodation industry and construction in general, among others. With population growth, rising wages, and increasing urbanization, opportunities are growing in the furniture, food, medical, fashion, etc. industries. The most commonly purchased electronics items in Saudi Arabia are air conditioners, computers, navigation systems, and mobile phones.