September 25, 2012
SAUDI ARABIA – ECONOMIC SCAN
Today many companies are trying to expand their business in other countries. The country of Saudi Arabia is one of the many countries these companies are looking to expand to. The business opportunities of Saudi Arabia need to be addressed as quickly as possible for companies to get a jump start on their competition and potentially reap the benefits. I will conduct and overview of Saudi Arabia based on population and their growth rate, competitiveness, certain economic freedoms, the ease of doing business, and corruption. After all this information has been gathered it will lead to an informed decision whether to continue research doing business in Saudi Arabia.
According to the CIA Factbook website the world population as of July 2012 is at 7,021,836,029. The population of Saudi Arabia is 26,534,504 which make it the 46th largest country in the world. It is expected to have a 1.523% growth rate in 2012, which ranks it 78th out of 230 countries, putting it above average compared to the rest of the world. (CIA-The World Factbook) Due to the current growth rate, the market size is showing stable growth and creating a potential market for companies looking to expand.
According to the Global Competitiveness Index, Saudi Arabia is transitioning from a stage 1 economy to a stage 2 economy. This means their economy is moving a factor-driven economy to efficiency-driven economy. Saudi Arabia has an oil-based economy that is strongly controlled by the government. Their petroleum exports account for 90% of all there exports. The GCI ranked Saudi Arabia as the 2nd most competitive in its region only behind Qatar. (World Economic Forum, 35) The country has seen a number of improvements in its competitiveness recently which has resulted in solid institutional framework, efficient markets, and sophisticated business. Some problematic factors I came across in doing business with Saudi Arabia include; restrictive labor regulations, inadequately educated workforce, and access to financing. (World Economic Forum, 308)
The Heritage Foundation compares ten economic freedoms from property rights to financial freedoms to determine the risk of investment in a country. Saudi Arabia’s score fell slightly from last year but still scored a 62.5 and ranked 74th most free out of 179 countries. Its average makes it slightly above the world average but still leans towards the less free side. The main reason for its score dropping slightly from last year is due to the huge increases in government spending and a notable drop in labor freedom. There levels of monetary freedom, investment freedom, and property rights are average. The legal system remains a problem due to ease of political influence. Investment freedom is low because of heavy bureaucracy and lack of transparency by government. Last their monetary stability is very weak and is affected by price controls. (2012 Index of Economic Freedom, 361)
How easy is it to do business in Saudi Arabia? Saudi Arabia is a monarchy that is ran by the King and Prime Minister Abdallah. The main language is Arabic and it has a high income category. The following information was pulled from a database and compared Saudi Arabia to the rest of the world in 10 individual categories. The categories of registering property, dealing with construction permits, starting a business, paying taxes, and protecting investors all scored high. Getting electricity, getting credit, and trading across borders only scored average. Unfortunately, enforcing contracts and resolving insolvency scored relatively low compared to the rest of the world. (World Bank Group – Saudi Arabia)
The Corruption Perceptions Index was put together by Transparency International as a way to rate countries levels of corruption. The Corruption Perception Index ranks countries/territories based on how corrupt their public sector is...