The Saudi coffee market is valued at SR15 billion annually. Coffee consumption has risen sharply in Saudi Arabia, with 18,000 tons imported per year worth SR203 million. The growth of the coffee processing industry has helped boost the large Saudi coffee shop market. Bonnon Coffee is a major local Saudi brand that competes with global coffee chains, with plans to continue strategic growth through new outlets and focus on its core coffee shop business.
Enzyme, Pharmaceutical Aids, Miscellaneous Last Part of Chapter no 5th.pdf
Saudi coffee market valued at SR15b; Bonnon Coffee plans expansion
1. Saudi coffee market valued at SR15b
Financial Services Monitor Worldwide
Coffee consumption has risen sharply in the Kingdom of Saudi
Arabia whereby 18,000 tons worth SR203 million are imported.
The growth in coffee processing has helped boost the Saudi
market for cafes to a notable SR 15 billion.
The latest statistics issued by the International Coffee
Organization (ICO) showed that 1.4 billion cups of coffee are
consumed a day worldwide.
Within the coffee shop industry, Bonnon Coffee AA part owned
by the SEDCO Holding Group - is a local Saudi brand that
competes with global coffee chains.
The company was established in 2006 and Salem bin
Mohammed Bin Mahfouz serves as chairman of its management
board. It has grown steadily ever since to compete with major
multinational companies by opting for high-quality products and
providing constantly its clientele with outstanding service.
The CEO of Bonnon Coffee Ltd Khalid Bin Hamad has
forecasted that coffee sales would rise by 77 percent in 2016,
thereby overtaking tea sales, which are projected to rise by 49
percent only amid the stiff competition of global and local
companies. Given the positive outcome reflected in local
consumption, these sales are expected to increase especially in
the areas targeted for development by the government.
CEO of SEDCO Holding Group Anees Ahmed Moumina reckons
that the current proliferation of cafes is normal because working
conditions have contributed to the widespread use of cafes
among of Saudi youths. He further said: AAAmong the
company's top priorities next year will be continued strategic
growth through the installation of more outlets, the introduction
of advanced ways of giving prominence to the Bonnon brand
and focusing on the company's core business, particularly in
Bonnon coffee shops, which provide a drive-thru sales
serviceA[yen].
2. Khalid Bin Hamad also indicated that the company, under its
brand AABonnon CoffeeA[yen] provides its clientele with all
varieties of coffee products that suit all palates and mindsets
under one commercial roof that values authentic culture. It also
values the palate's natural transformation in modern times.
He said Bonnon Coffee has devised outlets in a bid to satisfy
the growing demand for fast coffee through specialized small
sale channels both indoor and outdoor, to reach out faster to the
largest number of consumers and at the lowest cost, in order to
compete for a very limited segment of prime locations that are
suitable for a drive-thru facility. Its brand coffee shop located
in Red Sea Mall was also recently renovated to add a modern
touch to its atmosphere and upgrade its menu offering.
Bonnon Coffee is planning to come up with new varieties of
coffee delicacies based on clear commercial concepts and
vision. The company has sought throughout its foundation stage
and development to secure its own brand AAGenuine Coffee
HabitatA[yen] by coming up with all modern and genuine coffee
products of the highest quality and in consonance with
consumer satisfaction.
Bonnon Coffee branches currently stand at 14 in the Western
Region. Sales growth at most of Bonnon's outlets ranged
between 12 percent and 35 percent in 2013 and operating profits
rose to 28 percent from 6 percent three years ago. The company
has ambitious plans to expand in both Saudi Arabia and
neighboring markets.
2014 Global Data Point. All Rights Reserved. Provided by
SyndiGate Media Inc. ( Syndigate.info ).
Full Text: COPYRIGHT 2014 SyndiGate Media Inc.
http://www.syndigate.info/
Source Citation:
"Saudi coffee market valued at SR15b." Financial Services
Monitor Worldwide 9 Dec. 2014. Business Insights: Global.
Web. 4 Feb. 2015.
Document URL
http://bi.galegroup.com/global/article/GALE|A392904136
3. Document Number: GALE|A392904136
Country insight: Saudi Arabia
FT/IMG
High-Level Summary
Country Insight Headlines
Key Recommendations
Risks and Opportunities
Global Insight
Regional Insight
Country Insight Headlines
Credit Environment Outlook
Supply Environment Outlook
Market Environment Outlook
Political Environment Outlook
Detailed Analysis
Short-Term Economic Outlook
Long-Term Economic Potential
Market Potential
FX Risk
Transfer Risk
Business Environment Quality
Business Continuity
Insecurity / Civil Disorder Risk
Expropriation / Nationalisation Risk
Background
Perspectives
The Economy
Politics
Commercial Culture
Statistical Reference
Key Indicators and Forecasts
User Guide
Overall Country Risk Rating: DB3b
4. (A)
Slight risk: Enough uncertainty over expected returns to warrant
close monitoring of country risk. Customers should actively
manage their risk exposures.
Rating Outlook: Stable [right arrow]
[GRAPHIC OMITTED]
Country Insight Headlines
Credit Environment Outlook (A)
* Financing conditions are improving; in May 2013 credit to the
private sector rose by 14.0% year-on-year (y/y). Positive short-
term credit conditions should ease non-payment risk and
payment delays.
* The riyal will remain pegged to the dollar, eliminating a
degree of trade-related currency risk. However, any significant
weakening of the dollar will push up the price of imports.
Supply Environment Outlook (A)
* Saudi Arabia has heavily invested in its logistics and
infrastructure in the wake of strong economic and demographic
growth, with significant upgrades in transport links and many
more planned.
* The country's judicial system moves slowly, and is vulnerable
to interference from the ruling elite, with poor enforcement of
intellectual property rights.
Market Environment Outlook
* The Saudi authorities are trying to chart a course between
ensuring stability and creating employment. The government
will therefore remain committed to an expansionary fiscal
policy, which will prove to be the primary driver of economic
growth in the short term.
* A rapidly growing middle class will fuel demand for luxury
goods, while demand for lower cost goods from other segments
will also increase.
Political Environment Outlook (A)
* The government is extremely sensitive towards any 'spill-over'
of regional unrest and has taken pre-emptive action to halt any
internal dissent.
5. * The primary risk to political stability is over the succession
following the death of the king.
Key Recommendations
* HR policies should account for the Nitaqat scheme for the
hiring and training of Saudi nationals.
* SDs constitute minimum recommended terms for trade with
Saudi Arabia. However, tighter terms are advised when trading
with new customers or the public sector, which can delay
payment.
* Keep an eye on how the government allocates its cash. The
sectors which receive funding will also attract private
investment and will show the strongest growth.
* Be aware that although local security and political risk is low,
it is set to rise over the next few years.
* Companies should be aware of government sensitivities; jobs
and stability will determine government decision-making.
Global Insight
Trend: Stable [right arrow]
Headline Global Issues:
* Commodity markets send mixed signals about demand and the
global outlook.
* Quantitative easing is obscuring the picture by distorting asset
markets.
* Europe and the 'BRIC' economies as a group require close
monitoring.
Global Growth Forecast
[GRAPHIC OMITTED]
The global economic outlook will remain conflicted until well
into 2014, with uneven growth over time and geography.
Positively, growth in US is becoming embedded following
household and corporate deleveraging; however, fiscal issues
will act as drag. Although Chinese growth came in below
expectations in Q1 2013 at 7.7% y/y, the level of growth, allied
to that in other emerging economies, will help sustain global
growth. Moreover, the euro zone has largely survived the
immediate crisis in Cyprus, although in the short to medium
6. term considerable reform is needed to ensure the zone's
integrity and survival.
We remain concerned about the quantitative easing programmes
in the US, Japan, UK and euro zone. The expansion of the
programme in Japan has destabilised the government bond
market, while pushing down the value of the yen, adding further
volatility to global currency markets. Commodity price
volatility has seen gold prices hit a four-year low and
benchmark oil prices falling below USD100 per barrel in April.
IR - true
Commodity Prices
Dec-12 Jan-13 Feb-13 Latest
Aluminium (USD/tonne) 2,086 2,038 2,053 1,890
Copper (USD/tonne) 7,962 8,049 8,070 7,631
Gold (USD/ounce) 1,686 1,671 1,628 1,644
Oil (USD/barrel) 110 113 116 107
Cocoa (USD/tonne) 2,702 2,520 2,454 2,437
Coffee (US cents/lb) 164 169 162 159
2012 2013f 2014f
Aluminium (USD/tonne) 2,018 1,950 2,025
Copper (USD/tonne) 7,947 8,010 8,500
Gold (USD/ounce) 1,669 1,690 1,700
Oil (USD/barrel) 112 110 114
Cocoa (USD/tonne) 2,641 2,400 2,500
Coffee (US cents/lb) 203 190 210
Source: Haver Analytics/D&B
While the US swings back into 2%-plus growth, the euro zone
stumbles into another year of recession and Japan deepens
quantitative easing, most emerging markets are growing quite
briskly. Since 2008, low-income emerging market growth per
capita has achieved a historical high of 3% per annum. That is
not true in high-income markets, where it is close to zero, or
7. mid-income ones, where it has been confined to a 2% level
since 2008. If OECD economies outside the US and mid-income
economies weaken further, our global growth forecast for 2013
could dip below that of 2012.
The emerging market boom weathered the 2008 crisis but
forecasts for 2013-17 suggest lower growth for Asia-Pacific, the
Middle East, Latin America and Sub-Saharan Africa than in the
mid-2000s. What if capital, credit and labour allocations in
emerging markets have been based on over-exuberant pre-crisis
premises, and the 'supercycle' falters? The world shipping fleet
has overexpanded since 2008; mining firm profits were down
sharply in 2012; and dips in oil/copper prices hint at less
resource-intensive world growth. Low inflationary pressure is
helpful for a range of economies, but a rebalancing may be
under way.
Recommendations
* Look for opportunities in second-tier emerging markets at a
healthier point in the business cycle.
* Business plans based on a snap-back to the growth levels of
recent years are likely to be frustrated.
* Sales strategy needs to adjust nimbly to new patterns of trade
and investment.
* Emerging markets in South America and mid-income
Southeast Asia offer opportunities.
* Most of Europe still needs tighter credit control.
Regional Insight
Trend: Deteriorating [??]
IR - true
Headline Regional Issues:
* Government spending of hydrocarbon exports is the growth
driver across the region.
* Average annual oil prices should remain flat in 2013
compared with 2012, although spot prices will be volatile and
susceptible to security events such as the attack on the Algerian
gas facility.
* Security issues related to the Arab Spring and the on-going
8. crisis in Europe will continue to impact negatively on growth
across the region.
* Military strikes against Iran's nuclear sector remain a
possibility, raising security risks.
IR - true
Regional Growth Forecast
[GRAPHIC OMITTED]
Despite a flat oil price, government spending of oil revenues
will drive growth in the oil-rich countries through a series of
mega-projects related to infrastructure development (albeit at a
slower rate than in 2012 for the majority). Meanwhile, oil-poor
countries will continue to benefit from job opportunities in,
trade with, investment from, and economic assistance from the
oil-rich countries. Overall, we expect the region as a whole to
grow less strongly in 2013 (3.5%) than in 2012 (4.4%), but
growth is expected to pick up in the following few years.
However, in the short term the risks to the forecast are on the
downside as a result of global economic uncertainties,
particularly the fallout from the crisis in Europe, and, in the
medium term, from the impact of US shale gas on global oil
prices and restructuring in emerging markets.
Outlook for Key Regional Countries
[GRAPHIC OMITTED]
The region's largest economy, Saudi Arabia, will see real GDP
growth fall from 8.5% in 2011 to 3.5% in 2013 and 3.6% in
2014 as oil prices stagnate, and as the government slows its
infrastructure spending. Similarly, Qatar's prodigious double-
digit growth rate from 2006 to 2011 has slowed and will
average 5.2% in 2013-14, before picking up as government
expenditure increases ahead of the 2020 soccer World Cup. The
impact of international sanctions will leave Iran's economy
stagnant to at least 2015. However, the UAE will continue to
recover from its 2009-10 debt crisis, expanding by 4.0% in 2013
and 4.8% in 2014.
Meanwhile, in the larger non-hydrocarbon dependent
economies, Egypt will see improved growth as the economy
9. recovers: although the political situation will remain tense we
expect growth to pick up from 1.8% in 2011 to 4.4% in 2014.
The Israeli economy's reliance on hi-tech exports will see
growth slow in response to the global situation, from 4.6% in
2011 to 3.0% in 2013, before rebounding slightly to 3.3% in
2014; this on the proviso that security issues with the
Palestinians do not deteriorate significantly.
Recommendations
* Opportunities related to the construction sector and upstream
and downstream hydrocarbon sectors will be available in the
oil-rich countries as they boost their infrastructure and
production capacities.
* Closely monitor political developments in all countries, but
particularly in Algeria, Bahrain, Egypt, Iran, Iraq, Jordan,
Lebanon, Libya, Syria and Yemen, as these will impact on
business risk.
IR - true
* Amid sanctions on the financial/ hydrocarbon sectors, stay
vigilant on companies with ties to Iran.
Country Insight Headlines
Credit Environment Outlook
(A)
Current Issues
IR - true
* Financing conditions are improving; in May 2013 credit to the
private sector rose by 14.0% y/y. Positive short-term credit
conditions should ease non-payment risk and payment delays.
* The expansion of the oil industry is forecast to increase FX
reserves to USD850bn by end-2017.
* Although Saudi Arabia is committed to the Gulf Co-operation
Council (GCC) currency union, it remains a distant prospect.
Risks and Opportunities
* The lack of reliable data on Saudi companies' financing status
heightens uncertainty and risk attached to doing business in the
country.
* The riyal will remain pegged to the dollar, eliminating a
10. degree of trade-related currency risk. However, any significant
weakening of the dollar will push up the price of imports.
Trade Terms & Transfer Situation
Trade Terms Transfer Situation
Minimum Terms: SD Local Delays: 0-2 months
Recommended Terms: SD FX/Bank Delays: 0-3
months
Usual Terms: Up to 90 days
Source: D&B
Recommendations
* SDs constitute minimum recommended terms for trade with
Saudi Arabia. However, tighter terms are advised when trading
with new customers or the public sector, which can delay
payment.
IR - true
* It is unnecessary to hedge against exchange rate risk when
invoicing in US dollars.
Supply Environment Outlook (A)
Current Issues
* Saudi Arabia has heavily invested in its logistics and
infrastructure in the wake of strong economic and demographic
growth, with significant upgrades in transport links and many
more planned.
* Local workforce productivity is low; restrictive labour
conditions and an inadequately educated workforce are among
the most problematic factors for doing business in the kingdom.
IR - true
Risks and Opportunities
* The country's judicial system moves slowly, and is vulnerable
to interference from the ruling elite, with poor enforcement of
intellectual property rights.
* Extensive infrastructure development will lead to a more
efficient logistics network.
Natural Disaster Impact as a Percentage of GDP
11. [GRAPHIC OMITTED]
Recommendations
* Long time frames should be planned for in litigation matters
involving local courts.
* HR policies should account for the Nitaqat scheme for the
hiring and training of Saudi nationals, who display low levels of
productivity.
Market Environment Outlook (A)
IR - true
Current Issues
* The authorities are trying to chart a course between ensuring
stability and creating employment. Government spending will
remain the primary driver of economic growth in the short term.
* Key to long-term growth potential will be government
initiatives to create employment opportunities for the rapidly
expanding national labour force, especially women, and
narrowing the skills gap between local and foreign labour.
Risks and Opportunities
* A rapidly growing middle class will fuel demand for luxury
goods, while demand for lower cost goods from other segments
will also increase.
IR - true
* The government's fast-tracking of 500,000 affordable homes
for Saudis highlights opportunities within the construction
sector.
Nominal GDP Forecasts
[GRAPHIC OMITTED]
Recommendations
* Keep an eye on how the government allocates its cash. The
sectors which receive funding will also attract private
investment and will show the strongest growth.
* Long-term operational strategies should factor in possible
increases in water and electricity pricing as subsidies are eased.
Political Environment Outlook (A)
Current Issues
* The government is extremely sensitive towards any 'spill-over'
12. of regional unrest and has taken pre-emptive action to halt any
internal dissent; however demonstrations by the marginalised
Shi'a population could constitute an increasing risk in the next
few years.
* The government will continue to take a supportive stance
alongside its Gulf neighbours against any external or domestic
threat; otherwise relations with most other Gulf states will
remain cordial.
Risks and Opportunities
* The primary risk to political stability is over the succession
following the death of the king.
* Political awareness and debate has increased thanks to social
networks; over three million Saudis are regular users of such
services. The government will try to limit their use to control
dissent.
Political Freedom
Electoral Pluralism/ Functioning
Process Participation of Govt.
Saudi Arabia 0 0 1
Average for the region 3 5 3
OECD 12 15 11
Freedom of Assoc./ Rule of
Expression/ Org. Rights Law
Belief
Saudi Arabia 3 0 2
Average for the region 6 3 4
OECD 15 12 14
Personal
Autonomy/
Rights
Saudi Arabia 2
13. Average for the region 6
OECD 14
Source: Freedom House
Recommendations
* The local security and political risk environment is low (albeit
set to rise), but companies should be aware of government
sensitivities; jobs and stability will determine government
decision-making.
* Pre-emptive compliance with the employment of Saudis will
ease bureaucratic obstacles.
Detailed Analysis
The following sections analyse in more detail the nine core
elements that influence the risks and opportunities involved
when doing business in/with a given country.
The core categories that we analyse as part of our broader risks
and opportunities model are as follows:
Short-Term Economic Outlook
Long-Term Economic Potential
Market Potential
FX Risk
IR - true
Transfer Risk
Business Environment Quality
Business Continuity
Insecurity/Civil Disorder Risk
Expropriation/Nationalisation Risk
IR - true
Descriptions for each of these categories can be found in the
User Guide section of this report.
Short-Term Economic Outlook
The Saudi authorities are trying to chart a course between
ensuring stability and creating employment. The former requires
the government to maintain high levels of current expenditure in
order to keep public sector wages high and consumer prices low
through subsidies. The latter entails strong growth in capital
14. expenditure, in order to diversify the economy and lay down
strong foundations for future non-oil growth. The government
will therefore remain committed to an expansionary fiscal
policy, which will prove to be the primary driver of economic
growth in the short term. Oil growth will actually contract in
2013, as the government lowers output, after having raised it
over the past few years to meet market supply shortfalls.
Risks and Opportunities
* The government's huge spending plans will create myriad
opportunities, especially in construction and ancillary services.
It is progressing with plans to build a number of economic cities
and a housing scheme to build 500,000 houses is being fast-
tracked.
* Development of the petrochemicals industry has been central
to Saudi's diversification strategy, but the fall in feedstock
prices in the US has undermined the competitiveness of the
Saudi petrochemicals sector. SABIC recently laid off large
numbers of staff.
* Although credit risk is generally low in Saudi Arabia, state-
owned entities are notoriously slow payers. While this is little
more than an administrative nuisance to large multinationals, it
can cause cash flow concerns among smaller suppliers.
Imports
[GRAPHIC OMITTED]
IR - true
Import growth will accelerate in the short term, as demand for
imported inputs rises. In particular, construction-related goods
will see a sharp rise, although recent point of sale transactions
show that consumer demand is also picking up, as Saudi
nationals enjoy higher salaries and the population swells from
greater numbers of immigrant workers. Investment, both
domestic and foreign, will also rise, as strong government
spending creates investment opportunities.
Real GDP Growth and Inflation
[GRAPHIC OMITTED]
A contraction in oil GDP, as oil output is lowered, will pull
15. down overall real GDP growth, which we anticipate will slow
from 6.8% in 2012, to 3.5% in 2013. However, non-oil growth
will stay strong, driven by sustained levels of consumption.
This will inevitably exert upward pressure on prices, although
subsidies will prevent prices from any meaningful increases. We
see inflation remaining broadly stable over 2013-14.
Recommendations
IR - true
* Keep an eye on how the government allocates its cash. The
sectors which receive funding will also attract private
investment and will show the strongest growth.
* Be prepared for increasing pressure to hire locals, but also
growing difficulty in finding competent candidates with
relevant skills.
* Expect to have to manage cash flow very carefully; long
payment terms and slow payment systems may strain finances.
Long-Term Economic Potential
We expect Saudi Arabia's average real GDP growth rate to
remain healthy in the next five years. The country's real GDP
will average 3.9% in 2013-17, less than the 4.9% growth
witnessed in 2008-12. However, this reflects oil output, rather
than domestic demand and non-oil activity, which we anticipate
will remain robust. Key to long-term growth potential will be
government initiatives to create employment opportunities for
the rapidly expanding national labour force, especially women,
and narrowing the skills gap between local and foreign labour.
Risks and Opportunities
* Saudi Arabia's large oil reserves, coupled with oil prices
remaining high, will ensure sustained economic growth in the
medium term.
* Longer-term growth will be driven by government plans to
reduce its dependence on crude exports in favour of refining,
processing and manufacturing.
* Attempts to diversify the economy are reliant on boosting
national labour force participation in the private sector, a
process which will prove challenging and costly for foreign
16. companies.
* Structural reforms aimed at increasing the flexibility and
productivity of the local labour force may provoke local
opposition, and are therefore likely to be tentative and
piecemeal in nature.
IR - true
* High levels of recurrent government spending and a flat oil
price threaten the fiscal position in the longer term.
Population Dynamics
[GRAPHIC OMITTED]
The country's population growth rate is high, and will remain
strong, with a gradual decline in fertility rates likely to be
offset by inward migration. The growth in working age
population is particularly amenable to long-term economic
growth; the majority of the population is under 25, with up to a
third of the population under the age of 15. But this depends on
the creation of employment opportunities for the rising number
of market entrants in the private sector, especially women
graduates. To this end, the government has launched several
'Saudisation' schemes to encourage further employment of
Saudis in the private sector, most recently the Nitaqat scheme,
introduced in 2011.
Changes in Wealth, 2000-08 (average per year)
IR - true
[GRAPHIC OMITTED]
Gross fixed capital formation exceeded SAR3.8tn in 2003-12,
providing a powerful base for future economic development.
However, intangible (human) wealth has fallen dramatically in
recent years, dragging the country's average annual wealth
growth below the regional average. Furthermore, relatively high
levels of population growth will reduce the rate of growth in
GDP/capita, while putting added pressure on the provision of
public services. Subsidies on water and electricity are expected
to be reduced in the long term to better manage demand as the
population expands, squeezing purchasing power.
Recommendations
17. * Hiring policies should increasingly take into account further
increases in the 'Saudisation' factor.
* Long-term operational strategies should factor in possible
increases in water and electricity pricing as subsidies are eased.
* Look for opportunities associated with infrastructure
development.
Market Potential
Despite the government's attempts to diversify the economy, oil
will still account for the bulk of government revenue in the
coming years. However, healthy demographic increases and a
rise in disposable incomes present significant market
opportunities across a number of sectors, with consumer goods,
construction, utilities and related sectors expected to witness
significant growth. Saudi Arabia's tariffs are low across the
board, with few barriers to trade, despite occasional delays
sometimes experienced within the GCC.
Risks and Opportunities
* Saudi Arabia ranks highest in the Middle East for local
supplier quantity, and third (behind the UAE and Qatar) for
local supplier quality, growing domestic sourcing options.
IR - true
* A rapidly growing middle class will fuel demand for luxury
goods, while demand for lower cost goods from other segments
will also increase.
* The government's fast-tracking of 500,000 affordable homes
for Saudis highlights opportunities within the construction
sector
* Importers are expected to benefit from a series of free-trade
agreements (FTAs) signed by the GCC, in particular with Asian
countries
Expected Average Nominal GDP Expansion (USD): 2012-16
[GRAPHIC OMITTED]
IR - true
At USD727bn in 2012, Saudi Arabia's economy is the second
largest in the MENA region. By 2017, we expect that nominal
GDP would have risen to USD1.1bn, returning an annual
18. average growth of 8.6%. This is relatively slow compared to
recent trends; in the decade to 2012, average annual nominal
GDP growth was as much as 14.8%. The anticipated slowdown
in growth is primarily on account of flat oil production; growth
will be driven instead by non-oil activity and domestic demand.
As well as consumer goods, construction is expected to be a
particularly rapidly growing sector, as the kingdom struggles to
house its growing population. A booming construction sector
will also fuel demand in related sectors such as utilities, power
and water, telecoms and transport.
Main Restrictions on Imports
Saudi Arabia Iran Algeria Qatar
Tariff barriers
Overall Weighted mean tariff 3.9 19.6 8.6 3.8
Manufactures 4.2 21.2 8.9 3.8
Primary products 2.8 12.5 7.8 4.0
Share of tariff lines 0.0 56.5 53.2 0.2
w/international peaks
Manufactures 7.6 57.0 53.6 0.0
Primary products 0.2 50.4 49.9 1.1
Services Restrictiveness Index 42.5 63.3 38.3 60.1
Source: World Bank
Saudi Arabia's tariffs were already low prior to the country's
accession to the WTO in 2005; the country began phasing in a
5% common external tariff mandated by the GCC in 2003, with
most tariffs well below WTO limits. Further tariff reductions
took place in 2009, bringing the number of products enjoying
tariff exemption or reduction to 851. The GCC agreed an FTA
with Singapore in 2008, with similar deals with China and India
expected in the coming years. Meanwhile, imports from the
UAE are sporadically subject to delay, due to occasionally cool
relations between the two countries.
Recommendations
* Opportunities exist for exporters of branded Western goods
19. and services, despite vocal opposition to Western policies from
some quarters.
* Be aware that FTAs touted between the GCC and other
countries, in particular China and India, are likely to take
considerable time and effort to finalise.
FX Risk
Since June 1986, the central bank has fixed the riyal's middle
rate against the US dollar at SAR3.75:USD. The authorities are
committed to defending the pegged rate and have sufficient
reserves to support it due to a series of ongoing current account
surpluses. We do not believe that this arrangement will change
in the foreseeable future, unless a GCC common currency
replaces the riyal, itself unlikely for some years. Emphasis on
the fixed exchange rate has led to the loss of control over some
monetary factors; the government cannot easily use interest
rates to manage the money supply as interest rates must reflect
those of US interest rates in order to maintain the relative value
of the currencies. In addition, inflation is prone to imported
pressure when the US dollar weakens as most imports are priced
in other currencies.
IR - true
Risks and Opportunities
* The riyal's peg to the US dollar is expected to remain in place,
despite calls for a revaluation during the global financial crisis.
* The continued expansion of the oil industry is forecast to
increase foreign reserves to USD850bn by end-2017.
* Although Saudi Arabia is committed to the GCC currency
union, it remains a distant prospect.
Current Account
IR - true
[GRAPHIC OMITTED]
Saudi Arabia's balance of payments saw a strong recovery in
2011-12, following a collapse in exports during 2009 as a result
of the global financial crisis. While exports are expected to
increase steadily, the current account surplus will narrow
considerably to less than 2.0% of GDP by 2017, as imports rise
20. in response to strong domestic demand. FDI inflows will
become less linked to oil market developments, as efforts to
boost the non-oil sector gain pace.
Import Cover (months)
[GRAPHIC OMITTED]
Saudi Arabia's FX reserves are estimated at USD710bn in 2013,
one of the largest in the world. In the absence of a sovereign
wealth body, Saudi deposits much of its spare funds in the
reserve account. As a result, import cover is a very comfortable
30 months, although this is expected to decline slightly as
import values rise.
Recommendations
* Do not expect monetary union with the rest of the GCC to
take place anytime soon.
* Saudi's commitment to the US peg is strong, so do not expect
any imminent change to the exchange rate regime.
* Do not react to reports that may suggest Saudi will trade its
oil in currencies other than oil. This is highly unlikely.
* Hedging against exchange rate risk is unnecessary when
invoicing in US dollars.
IR - true
Transfer Risk
Saudi Arabia accepts the obligations of IMF Article VIII
(General Obligations of Members). Countries that do so agree
not to impose restrictions on current payments or discriminatory
currency practices, and to maintain the convertibility of foreign-
held balances and furnish information such as data on FX
reserves consistent with IMF policies. The country maintains an
exchange system free of restrictions on the making of payments
and transfers for current international transactions.
Risks and Opportunities
* Licensed foreign companies are able to transfer money freely
from their enterprises overseas, and there are no exchange
controls or restrictions on the repatriation of profits.
* Portfolio investment by non-residents is restricted to mutual
funds managed by Saudi banks. In addition, commercial banks
21. require permission from the central bank to lend to non-
residents.
IR - true
* There are controls on the purchase of property by non-
residents: overseas investors can purchase real estate as needed
for their business (including housing for staff), but any
purchase must total a minimum of SAR30m.
Restrictions
Trade
restrictions restrictions restrictions
on on payments on
non-residents for invisible payments
accounts and other for imports
current
transfers
Saudi Arabia 1 0 0
Middle East 0.14 0.50 0.64
OECD average 0.06 0.35 0.06
Capital
Flows
restrictions
on inward
direct
investment
Saudi Arabia Yes
Middle East
OECD average
Financial Sector Provisions
special special special
treatment treatment treatment
22. for deposits for deposits for lending
in foreign held by non to noncurrency
residents residents
Saudi Arabia No Yes Yes
Middle East
OECD average
Source: IMF
Further to its acceptance of Article VIII of the IMF's Articles of
Agreement, Saudi Arabia has made no use of Article XIV,
which provides for exchange controls subject to certain
provisos. All FX controls are administered by the central bank.
The few restrictions that exist include investment in portfolio
shares; transactions with Israel are prohibited.
Total Foreign Debt
[GRAPHIC OMITTED]
Saudi Arabia's low foreign debt burden and international
investment position preclude the kind of imbalances on the
balance of payments that could trigger an emergency
introduction of new transfer regulations and controls.
Recommendations
* Given the stability of the currency peg, it is unnecessary to
hedge against exchange rate risk when invoicing in US dollars.
* When invoicing in euros, exchange rate risk is limited to
changes in cross rates between the euro and the US dollar.
IR - true
* We estimate that foreign liabilities are very low in relation to
GDP, at around 19%, and thus pose an extremely low risk of
non-payment.
Business Environment Quality
Saudi Arabia's business environment has seen marked
improvements in recent years, thanks largely to the country's
macroeconomic performance and the government's efforts to
liberalise the investment climate. The country has the highest
ranking of any Arab country in the World Bank Doing Business
23. survey and achieved the highest score of any Arab nation in the
World Economic Forum's Competitiveness Report for 2012-13.
Yet key challenges remain, above all local workforce
productivity; the World Economic Forum identified restrictive
labour conditions and an inadequately educated workforce as
among the most problematic factors for doing business in the
kingdom.
Risks and Opportunities
* Saudi Arabia ranks 124th out of 185 countries surveyed in the
World Bank Doing Business survey for success in enforcing
contracts; the survey found that contracts take an average of
635 days to enforce, with enforcement costing 27.5% of the
claim.
IR - true
* The World Economic Forum identified inefficient government
as an obstacle to doing business; however several sections of
the civil service are more efficient than others, particularly
those pertaining to the oil sector.
* The country's judicial system moves slowly, and is vulnerable
to interference from the ruling elite, with poor enforcement of
intellectual property rights.
* A new enforcement law, introduced in 2012 as part of a suite
of laws pertaining to mortgages, may have a positive impact on
the wider enforcement of contracts, although it may take a
considerable period of time to become effective.
Corruption Perceptions
[GRAPHIC OMITTED]
The perception of corrupt practices in Saudi Arabia is poor by
regional standards; the country ranks joint lowest in the GCC in
Transparency International's Corruption Perception Index. The
country took steps in January 2013 to ratify the United Nations
Conventions Against Corruption (UNCAC), an agreement it
signed in 2004. However it is unclear as to what effect this
move will have on the day to day conduct of business in the
short term.
Ease of Paying Taxes
24. [GRAPHIC OMITTED]
Saudi Arabia has a low taxation burden, with no sales or VAT.
Saudi and GCC firms are only liable to pay the religious zakat
(alms) tax, calculated at a rate of 2.5% of the taxpayer's net
worth per year. Non-Saudi businesses pay a flat tax of 20% of
profits, with differing rates for natural gas (ranging from 30-
85% of the internal rate of return) and oil (85%). Changes to the
taxation regime for Saudi and GCC citizens are not anticipated.
While there is periodic discussion about the introduction of
income tax for expatriates, this is unlikely in the short term, as
it would undermine competitiveness.
IR - true
Recommendations
* Allow for delays in invoice payment in order to manage cash
flows.
* Similarly, long time frames should be planned for in litigation
matters involving local courts.
* Local HR policies should take into account the Nitaqat
scheme for the hiring and training of Saudi nationals.
Business Continuity
IR - true
Saudi Arabia has heavily invested in its logistics and
infrastructure in the wake of strong economic and demographic
growth, with significant upgrades in transport links with many
more planned. It remains to be seen however whether such
projects, often hampered by supply shortages and financing
issues, can keep pace with population growth. In particular, the
country's infrastructure remains vulnerable to flooding in big
cities, as highlighted by three major floods since 2009.
Risks and Opportunities
* Total handled cargo at Saudi Arabia's nine ports increased by
21% between 2008-12; the country ranks 37th in the World
Bank's Logistics Performance Index, but only 51st for customs
services.
* Several major projects initially envisaged as private finance
initiatives have suffered delays due to the lack of financing
25. available, leading the government to convert them into state
projects.
* Despite low annual rainfall, underinvestment in drainage
systems will continue to cause flooding in the event of modest
rain in major cities.
Natural Disaster Impact as a Percentage of GDP
[GRAPHIC OMITTED]
Disaster Risk: Flood risk is the most perennial in Saudi Arabia;
scarce rains have encouraged underdevelopment of effective
drainage systems, with floods particularly affecting major cities
such as Mecca and Jeddah, surrounded by mountains. Floods in
2009 and 2011 caused USD900m and USD300m worth of
damage respectively. Promises to improve drainage and flood
defence systems have resulted in little progress; heavy rainfall
in May 2013 caused flash floods in the capital Riyadh, and
northern, southern and western parts of the country, with more
than 20 reported deaths. Meanwhile, Saudi Arabia's Western
region has experienced three minor earthquakes since 2004, but
damage in each case was negligible, with no recorded loss of
life. The country announced in April 2013 that it would build a
series of emergency earthquake shelters, after tremors from
earthquakes in Iran earlier in the year were felt in the region.
Logistics Performance Index
[GRAPHIC OMITTED]
IR - true
Logistics and Infrastructure: Saudi Arabia invested heavily in
its logistics and infrastructure in recent years, in particular its
transport links. The country continues to heavily invest in road
links and train networks, including the Mecca monorail,
Haramain High Speed Rail, the Land Bridge and the North-
South Mineral Line. However, shortages of building materials
and labour continue to delay the completion of key
infrastructure projects; while the bottleneck was loosened
somewhat by the global recession in 2009, shortages have
recently resurfaced, particularly of cement. In April 2013, King
Abdullah personally ordering the import of 10m tonnes of
26. cement, together with the construction of up to four cement
plants by 2016, with SAR3bn (USD800m) assigned for the
scheme. The quality of basic infrastructure still varies between
regions, with water shortages and electrical brown-outs not
uncommon at peak times.
Recommendations
* Be prepared for potential higher flood premiums following
recent flooding incidents.
* Ensure access to water and electricity supplies.
* Be aware that into the medium term internal supply chains
will continue to rely on road-based freight services as train
projects are likely to take time to come on stream.
IR - true
Insecurity / Civil Disorder Risk
The Al Saud family's grip on power in the kingdom is expected
to remain intact in the medium term. Protests and disturbances
are rare, but have occurred with increasing frequency in recent
months in Shi'a areas in the Eastern Province. However, the
protests have remained localized and do not pose a significant
threat to the political legitimacy of the ruling family. The
primary risk to political stability is over the succession
following the death of King Abdullah bin Abdulaziz Al Saud. In
the event of the king's death, a transfer of power to Crown
Prince Salman bin Abdulaziz Al Saud, is expected to run
smoothly. However Salman's age (77), and the dwindling
number of direct male descendants of the country's late founder
King Abdulaziz Al Saud, makes the transfer of power to the
next generation an ever-closer reality.
Risks and Opportunities
* Effective counter-terrorist measures adopted since 2005 have
dramatically reduced the threat of domestic terror attacks, but
risks remain, especially emanating from neighbouring Yemen.
* Political awareness and debate has increased in recent years
thanks to social networks; over three million Saudis are regular
users of the service.
* Pay increases and other benefits for unemployed nationals in
27. early 2011 prevented Arab Springlike protests, but without
deep-rooted reform, such measures will not be effective
indefinitely, particularly in the Shi'a dominated east of the
country.
Business Cost of Terrorism
[GRAPHIC OMITTED]
World Economic Forum surveys show terrorism risk is limited
for businesses. Since suffering domestic terror attacks in 2003-
04 the security situation has improved markedly. The
government has cracked down on terror cells operating inside
the country, while also offering rehabilitation programmes for
domestic militants. However a significant number of Saudis,
including rehabilitation graduates, are believed to be operating
with the Al-Qaeda in the Arabian Peninsula (AQAP) in
neighbouring Yemen. Such individuals may pose a terrorist
threat to the country in the future.
Level of National Grievance
[GRAPHIC OMITTED]
Although Saudi Arabia avoided the widespread unrest of the
Arab Spring (including in neighbouring Bahrain and Yemen),
there is widespread dissatisfaction in the country over wealth
inequalities, unemployment and perceptions of corruption,
fanned by a growing use of social networks. Protests over lack
of economic opportunity and elitism are possible if economic
grievances are not effectively addressed. The country's Shi'a
population, located mostly in the Eastern Province, has become
more vocal in recent years about discrimination in employment,
education and justice; such protests are expected to remain
largely non-violent and local in scope. However, neither these
protests nor more widespread economic grievances are likely to
question the political legitimacy of the House of Saud in the
near future.
Recommendations
* Monitor government terrorist threat assessments regularly.
* Businesses with higher numbers of Saudi employees are less
likely to draw the ire of local protestors with economic
28. grievances.
* Be prepared for a possible increase in political tensions in the
next few years.
Expropriation / Nationalisation Risk
As a net exporter of capital, Saudi Arabia continues to actively
seek to attract inward investment. The government has
gradually opened up several sectors to foreign investment,
including wholesale and retail trade, distribution services, air
transport and rail passenger transport, with other transport
related sectors predicted to follow. Several sectors will remain
off limits to foreign investors, while Saudi Aramco will
continue to insist that foreign companies form local
partnerships to be able to bid for contracts. Foreign companies
that fall out of favour may find that local partners seek to
renegotiate contracts and partnership agreements on less
favourable terms, but outright expropriation or nationalisation
of assets is unlikely.
Risks and Opportunities
* The government may nationalise large infrastructure projects
that have struggled to attract private funding, for example, the
Landbridge rail project in 2011.
* A new arbitration law was approved in April 2012, based on
the UNCITRAL model law, making arbitration in the kingdom a
more predictable process.
FDI Stocks
IR - true
[GRAPHIC OMITTED]
Saudi Arabia's inward FDI flows more than tripled between
2005-11, with inward flows forecast to rise to more than
USD20bn by 2017. The country's economic growth strategy
depends on massive investment in its energy sector and its basic
infrastructure, which will rely on plenty of FDI. There is little
or no intent to commit, or probability of, expropriation or
nationalisation of foreign firms; domestic interests may
combine to frustrate market entry, but not sponsor outright
expropriation.
29. Efficiency of the Legal System in Challenging Government
Regulations
IR - true
[GRAPHIC OMITTED]
Saudi Arabia is a signatory to the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, the
World Bank Multilateral Investment Guarantee Association and
the 'Washington Convention', the Convention on the Settlement
of Investment Disputes between States and Nationals of Other
States (although in the latter case, disputes pertaining to 'oil and
matters of sovereignty' are excluded). It is signatory to more
than 20 bilateral investment treaties, as well as multi-lateral
agreements through its membership of the GCC. In the World
Economic Forum's Competitiveness Report, Saudi Arabia is
second only to Qatar for challenging regulations, ranking higher
than France and the US.
Despite being a signatory to the New York Convention, foreign
arbitral awards often go unrecognised in the Saudi courts, in
some instances being reopened with judgments reversed. A new
arbitration law, based on the UNCITRAL model law and
approved in April 2012, is expected to make both arbitration in
the country and the enforcement of foreign judgments a
smoother process, but will take time to be absorbed by the local
judiciary.
IR - true
Recommendations
* While foreign access to the oil sector is likely to remain
restricted, sectors pertaining to real estate and transport
infrastructure are likely to see further liberalisation.
* Foreign investors that can demonstrate active compliance with
Nitaqat schemes are likely to be particularly favoured.
IR - true
Perspectives
The following sections provide an overview of the
broader/longer-term factors that influence the way that business
is done in Saudi Arabia. These factors provide the foundations
30. upon which the economy is built and the frameworks within
which business is done, and provide a richer insight into the
background influences that lie beyond the raw data and focused
insight that is supplied elsewhere in the report.
The Economy
Economic Overview
In common with its oil-rich neighbours, Saudi Arabia is
strongly dependent on the hydrocarbons sector, which directly
accounts for 50% of nominal GDP and the majority of exports
and government revenues. The sector is dominated by crude oil
production; natural gas production, oil refining and the
petrochemical industry are set to increase their share of GDP in
the short to medium term but oil production remains the
dominant activity at present. The performance of the
hydrocarbons sector can support or undermine growth;
government recycling of hydrocarbon revenues also determines
how the private sector performs.
Until recently, oil revenues were recycled by the government
mainly for recurrent spending rather than investment purposes;
this produced high levels of wealth within Saudi society.
Although the oil windfall has resulted in high standards of
living for some, anecdotal evidence suggests that poverty is
widespread.
Economic Framework
Industrial Relations and the Labour Market
The three main tenets of Saudi Arabia's labour policy are: a ban
on trade unions, including a comprehensive ban on union
activity, strikes and collective bargaining; a heavy reliance on
foreign workers; and a strategy of 'Saudisation' of the private
sector. The government does not adhere to the International
Labour Organisation Convention protecting workers' rights.
Saudi Arabia greatly depends on foreign labour; most Saudis
refuse to take unskilled or menial jobs as these are often
considered socially unsuitable. The policy of 'Saudisation' aims
to raise the share of Saudi nationals employed in the national
economy. Job creation for the young and a rapidly growing
31. population constitutes the most serious stress point in the labour
market.
The issue of labour market rigidity also needs to be addressed.
The most necessary reforms should include the liberalisation of
regulations governing the hiring and firing of Saudis. At
present, these include archaic regulations restricting the hiring
of women, lengthy dismissal procedures and high mandatory
severance pay in the public and private sectors.
Fiscal Framework
Oil is the most important source of fiscal revenues for the
government, comprising about 90% of total revenues. This
results in a series of alternating periods of fiscal surpluses and
deficits, which are directly related to world oil prices. There has
been pressure to diversify sources away from the current
dependence on oil revenue but other sources of revenues are
minimal at present. Indeed, Saudi Arabia has yet to introduce
VAT and income tax, despite pressure from the IMF to do so. In
the long term, dependence on oil revenues will increase Saudi
Arabia's fiscal vulnerability.
Monetary Regime
The main aim of the kingdom's monetary policy is to keep the
pegged exchange rate between the riyal and the US dollar. Thus,
controlling inflation has become less important. Emphasis on
the fixed exchange rate has also led to the loss of control over
some monetary factors; for example, the government cannot
easily use interest rates to manage the money supply as the
movement of interest rates must reflect those of US interest
rates in order to maintain the relative value of the currencies. In
addition, inflation is prone to imported pressure when the US
dollar weakens as most imports are priced in other currencies.
Exchange Rate Regime
Since 1986, the central bank has fixed the riyal's middle rate
against the US dollar at SAR3.75:USD. The government is
committed to defend the pegged rate and has sufficient reserves
to support the currency peg. Plans for a single GCC currency
are in place but the project has been disrupted by Oman and the
32. UAE announcing that they will not be joining: we expect that
focus on the project will be diminish, given the problems facing
the single currency euro.
Export Profile
Saudi Arabia is the world's largest net oil exporter: oil exports
account for around 90% of total exports. This high degree of
dependence makes the economy susceptible to downward swings
in world oil prices. However, the government is aware of this
problem and is using the present buoyant flow of revenue to
diversify the industrial base. The petrochemical industry has
been a successful component of this policy. However, much of
the industrialisation, including petrochemicals, is indirectly
reliant on oil through cheap energy prices (oil and gas are sold
internally at subsidised prices); consequently, the kingdom is
still vulnerable if a prolonged downturn in oil prices
materialises.
Asian countries form a large part of the export profile,
reflecting increased demand for oil. Exports destined for Asia
are likely to increase as those countries look to grow their
economies. The US and Western Europe will remain key
markets.
Export Mix
[GRAPHIC OMITTED]
Export Markets
[GRAPHIC OMITTED]
Import Profile
Given the dominance of oil production and the country's weak
industrial base, Saudi Arabia has to import most of its consumer
and investment goods. The composition of imports has remained
relatively stable. However, the huge industrialisation project
driven by government capital investment of oil revenues
increases the representation of inputs in the overall import
profile; imports of electrical machinery, transport equipment
and base metals tend to comprise over half of total imports. The
main risk lies in a prolonged weakening of oil revenues, as
Saudi Arabia will still need to import most of these goods in the
33. short to medium term.
Europe, Asia and the US are the main providers of Saudi
Arabia's imports. Within the euro zone, the largest import
partner is Germany, followed by Italy and then France.
Import Mix
[GRAPHIC OMITTED]
Import Sources
[GRAPHIC OMITTED]
Politics
Saudi Arabia has been ruled by the Saud royal family since the
country's formation in 1932. The conservative policies, with a
strict adherence to the extremist wahhabi interpretation of
Islam, adopted at that time, as well as the discovery of huge oil
reserves in 1938 continue to shape political and daily life in the
kingdom today.
A wave of terrorist attacks in Saudi Arabia after 2003 prompted
the government to alter its approach to the problem posed by
Islamist terrorism; security measures were increased, while
some limited political change was also introduced. In
recognition of the changing global and regional environment,
Crown Prince Abdullah bin Abdulaziz Al Saud announced
municipal elections. However, voter turnout was low, reflecting
the limited power that the municipal councils yield. Although
another round of municipal elections were held in September
2011, there have been few additional efforts to liberalise the
political environment, which continues to be dominated by the
royal family, supported by the conservative ulema (clergy) and
merchant families.
King Abdullah bin Abdulaziz Al Saud has ruled the kingdom
since 2005. While denying true democracy, the absolute rule of
the monarchy and its smooth succession ensure stability. King
Abdullah issued a decree announcing the establishment of the
Allegiance Institution in 2006. This formalises the method of
succession and opens the way for the eventual emergence of
younger rulers: King Abdullah is in his late 80s, while the new
crown prince, Salman bin Abdulaziz Al Saud, is in his mid-70s.
34. Constitutional Arrangements
Saudi Arabia is a monarchy without elected representative
institutions, except for 50% of the seats on the municipal
councils, which have limited power, or political parties. It is
ruled by the descendants of King Abdulaziz bin Al Saud, who
unified the country in the early 20th century. The political
system is based on the 1992 Basic System of Government, the
Qur'an and the Sunnah (the body of traditional legal and social
custom) as the constitution of the country; therefore, there is no
concept of separation regarding religion and state.
IR - true
Legislature: Members of the Consultative Assembly serve a
four-year term. Members are appointed by the king and only
have an advisory function. The Assembly reviews new laws that
are proposed by the Council of Ministers, but it is not
empowered to initiate laws in its own right. As such, the
Assembly is effectively a forum for debate with no oversight
authority; policy options can be mooted through it without any
endorsement or commitment by the monarch. However, it is also
a route for technocrats to enter government. Assembly members
have called for wider powers to push ahead with economic and
educational reform; this is happening, albeit very slowly, as
entrenched conservative interests attempt to block change.
Executive: The king is the head of state and rules according to
shari'a (Islamic) law, which forms the theological basis for
legislation. The king also takes the title 'guardian of the two
holy mosques', which underscores the importance of Islam in
the kingdom. Although the monarch's powers are technically
absolute, in practice, royal decrees and ministerial resolutions
function as the kingdom's legislative instruments. The king
governs with the assistance of an appointed Council of
Ministers, whose members have a four-year term of office,
which gives advice and makes recommendations to the king, and
reviews proposals put forward by the majlis al-shura
(Consultative Council). The Council of Ministers also examines
proposed royal decrees and directs government bureaucracy.
35. Final approval of council decisions rests solely with the king,
who is also the de facto prime minister.
Political Parties
The Saudi political system does not allow for political parties
and power is exercised by key figures within the ruling Al Saud
family. Key figures include:
King Abdullah bin Abdulaziz Al Saud: The current ruler
ascended to the throne in 2005, succeeding his half-brother,
Fahd bin Abdulaziz Al Saud, although he had been the regent of
the country since Fahd was hit by a stroke in 1996. He is quite
popular and people perceive him to be honest. He has proposed
bold steps to solve the Israeli-Palestinian conflict and to
promote inter-faith dialogue. With his team of advisors, he is
also the driving force behind the wave of economic reforms that
have introduced a certain degree of liberalisation in the business
sector.
IR - true
King Abdullah represents the reformist element, which believes
that Saudi Arabia must adapt to the changing global situation
and become more inclusive (including political liberalisation)
while retaining its Islamic credentials in order to forestall the
rise of militant Islam. However, he faces powerful opposition
from some royal family members. Despite some disagreements
with the US over the 'war on terror', Washington regards him as
a reliable ally due to his reformist outlook.
Crown Prince Salman bin Abdulaziz Al Saud: Governor of
Riyadh between 1963 and 2011, Salman is very popular and
enjoys high levels of support among the younger generations of
the royal family. He became next in line to the throne in June
2012 following the death of Crown Prince Nayef. Salman is
regarded as more conservative than Abdullah, and his positions
have been the subject of internal political disputes.
The al-Sudairi Brothers: Over recent decades, this group has
been the most powerful alliance within the royal family,
originally being made up of seven full brothers, headed by
former King Fahd. However, only Crown Prince Salman is still
36. politically active. As there are a number of potential candidates,
it remains unclear who might be the favourite candidate to take
over from Salman should he either become king or die. King
Abdullah has seemingly tried to divert power from the al-
Sudairi branch, promoting second generation royals to key posts
in late 2012 and 2013. These include Prince Mohammad bin
Nayef, who became minister of the interior in November 2012
and King Abdullah's own son, Prince Miteb, who was made
minister of the National Guard in May 2013.
Interest Groups
The Ulema (Clergy)
The ulema act as a conservative force, slowing reforms such as
allowing women to vote in municipal elections. The ulema
review government policies for compliance with shari'a law and
the government takes their views into account when
promulgating legislation. Crucially, the ulema's sway over large
sections of the Saudi population, many of whom view the ulema
as a comforting reference point in a fast-changing society, and
the under-developed nature of the civil society heighten their
political role. Preachers are no longer permitted to glorify jihad
(holy struggle). However, there are divisions within the ulema
regarding the role of wahhabism; some favour a more strictly
religious state than the current situation, while others want a
more tolerant and religious model, which has earned the support
of the non-Wahhabis and is advocated by Shi'a and liberals.
The Shi'a
Most Shi'a, which comprise around 10% of the total population,
live in the Eastern Province, the final province to be
incorporated into the modern Saudi state, which contains around
90% of the kingdom's oil reserves. The Shi'a has tended to be
marginalised economically and politically; however, King
Abdullah is working to improve relations by co-opting key
representatives of the Shi'a into the political and economic
system. Nevertheless, Sunni-Shi'a tensions have risen
throughout the region, initially driven by the conflict in Iraq
and exacerbated by problems in Lebanon and Yemen; unless key
37. grievances are addressed, tensions are likely to heighten in the
medium term, threatening security.
The Private Sector
Large merchant families with strong connections to the royal
family dominate the private sector. The business environment
has been very beneficial for the private sector. That said, some
within the private sector, mostly the young and Western-
educated, acknowledge the need for reform and change.
International Environment
The basic tenets of foreign policy were laid out by the founder
of modern Saudi Arabia, Abdulaziz bin Al Saud; he established
the basis of the bilateral relationship first with the UK and then
the US, which continues to shape external relations. Saudi
Arabia has always been one of Washington's staunchest allies in
the Middle East; the kingdom has supported efforts to reconcile
different positions within the Arab world and oil-exporting
countries. However, this regional leadership has often been
challenged by other ascending powers, such as Iran at present.
Diplomatic relations between Saudi Arabia and Iran have never
been smooth primarily because of both countries' aspiration to
be the regional leader and their conflicting religious views;
Saudi Arabia is the cradle of wahhabi Sunnism, whereas Iran is
the most important Shi'a country in the world. Iran's nuclear
programme is currently a key source of bilateral tensions.
Meanwhile, Saudi supports the opposition in the conflict in
Syria, the aim being to dilute the strong ideological links
between Tehran and Damascus as a means of lessening Iran's
regional influence.
The Arab League: Saudi Arabia is a founder of the Arab
League, which comprises 22 Arabic-speaking countries. It aims
to promote political, economic and cultural interests. The Arab
League created the PAFTA in 1997, which gradually eliminated
trade tariffs.
Saudi Arabia is also a founding member of the Organisation of
Petroleum Exporting Countries (OPEC), which is made up of 12
oil-producing states that control around four-fifths of global
38. reserves. Despite the difficulties in reaching an agreement
between the various producers on oil output, OPEC is
instrumental in setting the barrel price. Saudi Arabia plays a
central role in this process, contributing to the enforcement of
OPEC decisions: the kingdom is the largest producer and
therefore acts as 'swing' producer, adjusting its production to
preserve the official price on global markets.
Saudi Arabia was finally admitted as a member of the WTO in
December 2005; membership has made the trade regime more
transparent and more accommodating to non-resident
businesses. The kingdom is also a member of two regional free-
trade areas, the Pan-Arab Free-Trade Area (PAFTA) and the
GCC.
Commercial Culture
The commercial environment is improving significantly in many
respects, as reflected in key international rankings. Access to
credit is more readily available and the incidence of late
payment has declined, spurred by fiscal expansion against a
backdrop of high oil revenue. In the absence of current or
capital account restrictions, the transfer situation is favourable,
with strong oil-backed liquidity ensuring that local and FX/bank
delays are usually minimal.
The World Bank ranks the kingdom relatively well for property
registration, construction permits, paying taxes and starting a
business. However, several aspects of the commercial climate
still warrant careful attention such as contract enforcement and
closing a business. Corruption is also a significant problem.
Other commercial risks range from concerns over intellectual
property rights to a weak judicial system, which favours
peaceful dispute settlement in line with the principles of shari'a
law, sometimes to the detriment of sound business practice.
Export Payment Indicators
US Eximbank Full cover available
Atradius Full cover available
ECGD Full cover available
Euler Hermes UK Full ST cover available
39. Sources: Export credit agencies
Competitiveness
[GRAPHIC OMITTED]
Infrastructure
IR - true
The government is investing a good portion of its oil revenues
in infrastructure, as part of its programme to attract foreign
investment and diversify Saudi Arabia away from hydrocarbons.
The effects of the plan are evident; for example, domestic
cement production is rising rapidly.
The country has 156,000km of roads; about one third are paved.
Some cities are linked by motorways, such as Riyadh, Jeddah,
Dammam, Ras Tanura, Taif and Mecca. A causeway connects
Saudi Arabia with Bahrain. Generally, it is possible to access
all neighbouring countries via land. However, construction of
new roads can be challenging; climate and terrain conditions are
not conducive to building in the south. Railways are under-
developed, mainly because of the size of Saudi Arabia and the
elevated costs related to building a railway network in a
scarcely populated area. The government plans to expand the
national network, especially in the context of the construction
of new industrial cities.
Airport links are the easiest way to travel in Saudi Arabia.
There are three international airports and 25 domestic airports;
the government intends to expand existing facilities and
construct new airports. There are also 21 ports.
IR - true
The pipeline network is key to the national infrastructure. The
network is operated by Saudi Aramco and comprises more than
9,100km of pipeline, mainly for oil; condensate, liquid
petroleum, gas and other refined products are transported via
the pipeline as well.
Water supply constraints constitute a major challenge. Rainfall
is erratic and usually very low in most of the country; surface
water can be found in the west and southwest, and accounts for
40. a small percentage of total supply. Groundwater, via the
exploitation of renewable and non-renewable aquifers, as well
as desalination fulfils most of the total water demand. For these
reasons, Saudi Arabia is gradually phasing out water-intensive
crops and taking an increasingly active interest in purchasing
land abroad in order to ensure its food security.
Legal and Regulatory Environment
Judicial Environment
IR - true
Settling disputes is time consuming and costly, both by
European and American standards, as well as by regional ones.
The judicial system is based on shari'a law, which emphasises
the consensual settlement of conflict in the commercial field.
This area is usually highlighted as a key weakness by members
of the business community.
Positively, in 2007 King Abdullah approved extensive reform to
the judicial system; hence, commercial courts now deal with
disputes previously handled by committees within the Ministry
of Commerce and Industry, while labour courts similarly look
after disputes previously referred to the Ministry of Labour.
However, several challenges remain such as the lack of a
codification of legal rulings, although an official website has
been launched to publish Islamic legal rulings and give
prominence to those issued by recognised scholars. There are
plans for further reform including the codification of legal
rulings, the principle of precedent and the publication of legal
proceedings.
Bankruptcy and Insolvency
Corporate bankruptcy is regulated by the 1996 Code of the
Settlement for Preventing Bankruptcy. According to this
regulation, the local chambers of commerce and industry set up
committees where creditors and debtors can meet and seek
conciliation within this framework. If the two parties are unable
to find an agreement, the debtor can file a request to the Board
of Grievances requesting its intervention in order to obtain a
settlement. Although this code represents an improvement on
41. prior legislation and introduces a non-punitive process for
addressing insolvency, instruments of protection for both
creditors and debtors are limited. No official data on bankruptcy
is available.
Corporate Governance
The World Bank states that starting a business is a relatively
smooth process, especially compared with the regional average,
and Saudi Arabia is improving in this regard. The number of
required procedures is below the OECD average and far lower
than the regional average; it takes five days to set up a business,
less than both the regional and the OECD average; and the cost,
expressed as a percentage of income per capita, is much lower
than the regional average but slightly higher than it is in OECd
countries.
The Regulations of Companies Act permits various forms of
corporate organisation. The limited liability partnership is the
most common but joint venture arrangements are favoured, both
for public and local private firms, with respect to inward
foreign investments. All joint ventures require prior government
approval.
Corruption
Corruption is a serious obstacle to doing business. Indeed, the
kingdom is perceived as being far more corrupt than any other
Gulf country. This is unsurprising given that political activity in
Saudi Arabia is governed by association and not by
accountability; corruption is considered to be widespread within
the royal family due to the lack of independence in the
judiciary, as well as the lack of transparency in government
accounts, property rights and contracts. Royal family members
often profit from tenders, oil revenues, state-owned firms and
arms deals; moreover, the government budget does not include a
detailed breakdown of sources of revenues and expenditure, nor
is it subject to any independent oversight.
In this context, senior officials protect their business interests
and maintain their influence on the system. Consequently,
corruption is almost institutionalised. An organisation dedicated
42. to tackle corruption and improve efficiency in the public sector
was established in 2007 and a National Authority for Combating
Corruption was created in April 2011. Saudi Arabia has also
signed the UN Convention Against Corruption. However, given
the level of entrenched interests, we do not expect any
significant decline in corruption.
IR - true
Sanctions
There are currently no known international sanctions applied
against Saudi Arabia.
Statistical Reference
Key Indicators and Forecasts
Historical Data
2003 2004 2005 2006
Real GDP growth, % 7.66 5.27 5.55 3.16
Nominal GDP (LCUbn) 933 1,088 1,371
1,548
Nominal GDP (USDbn) 248.76 290.23 365.87
413.46
GDP per capita (USD) 11,138 12,502 15,219
16,672
Population (year-end, m) 22.33 23.21 24.04 24.80
Exchange rate (year- 3.75 3.75 3.75 3.75
average, LCU:USD)
Current account (USDbn) 28.05 51.93 90.06
99.07
C/A balance, % GDP 11.28 17.89 24.62 23.96
FX reserves (year-end, USDbn) 22.62 27.29 155.03
226.04
Import cover (months) 4.96 4.91 21.21 23.9
Inflation, annual ave, % 0.6 0.37 0.61 2.28
Govt balance, % GDP 4.5 11.4 18.4 21.0
2007 2008 2009 2010
43. Real GDP growth, % 2.02 4.23 0.1 4.75
Nominal GDP (LCUbn) 1,672 2,071 1,638
1,976
Nominal GDP (USDbn) 446.28 552.20 436.72
526.81
GDP per capita (USD) 17,499 21,103 16,290
19,193
Population (year-end, m) 25.50 26.17 26.81 27.45
Exchange rate (year- 3.75 3.75 3.75 3.75
average, LCU:USD)
Current account (USDbn) 93.38 132.32 20.95
66.75
C/A balance, % GDP 20.92 23.96 4.8 12.67
FX reserves (year-end, USDbn) 305.46 442.25 409.69
444.72
Import cover (months) 25.23 30.04 30.33 30.63
Inflation, annual ave, % 4.14 9.87 5.02 5.38
Govt balance, % GDP 12.2 32.5 -6.1 5.2
2011 2012
Real GDP growth, % 8.48 6.81
Nominal GDP (LCUbn) 2,511 2,727
Nominal GDP (USDbn) 669.51 727.31
GDP per capita (USD) 23,840 25,337
Population (year-end, m) 28.08 28.71
Exchange rate (year- 3.75 3.75
average, LCU:USD)
Current account (USDbn) 158.49 179.16
C/A balance, % GDP 23.67 24.63
FX reserves (year-end, USDbn) 540.68 664.2
Import cover (months) 32.76 31.69
Inflation, annual ave, % 4.88 4.04
Govt balance, % GDP 13.7 14.2
44. Source: Haver Analytics/D&B
Forecasts
2013f 2014f 2015f
Real GDP growth, % 3.5 3.6 3.9
Nominal GDP (LCUbn) 2937.41 3157.72 3419.81
Nominal GDP (USDbn) 783.3 842.1 912.0
GDP per capita (USD) 26716.78 28135.17 29862.74
Population (year-end, m) 29.3 29.9 30.5
Exchange rate (year-average, 3.75 3.75 3.75
LCU:USD)
Current account (USDbn) 127.6 92.5 57.2
C/A balance, % GDP 16.29 10.99 6.27
FX reserves (year-end, USDbn) 690.0 725.0 750.0
Import cover (months) 28.62 27.18 25.55
Inflation, annual ave, % 4.2 3.9 4.4
Govt balance, % GDP 6.1 3.4 0.9
2016f 2017f
Real GDP growth, % 4.1 4.2
Nominal GDP (LCUbn) 3727.59 4051.89
Nominal GDP (USDbn) 994.0 1080.5
GDP per capita (USD) 31913.94 34026.25
Population (year-end, m) 31.2 31.8
Exchange rate (year-average, 3.75 3.75
LCU:USD)
Current account (USDbn) 36.4 19.7
C/A balance, % GDP 3.67 1.83
FX reserves (year-end, USDbn) 780.0 830.0
Import cover (months) 24.26 23.84
Inflation, annual ave, % 4.9 4.5
Govt balance, % GDP -0.7 -1.1
45. Source: Haver Analytics/D&B
Comparative Market Indicators
Saudi Arabia Iran Algeria
Income per capita (USD) 25,337 7,355 5,291
Country population (m) 29 76 36
Internet Users (% of population) 47.5 21.4 14.0
Real GDP growth (% p.a., 2013-2022) 3-6 1-4.5 3-
5
Qatar US
Income per capita (USD) 95,427 49,658
Country population (m) 2 316
Internet Users (% of population) 86.2 77.9
Real GDP growth (% p.a., 2013-2022) 5-7 1.5-2.5
Source: Haver Analytics/InternetWorldStats.com/D&B
User Guide
Ratings and Indicators
Traffic Light System
The traffic light system used in this report gives you a speedy
way of assessing the balance of risks and opportunities in a
given country or category of analysis for that country. Three
traffic lights are used:
(G) Green: indicates that positive factors/influences dominate.
(A) Amber: indicates that there is a balanced mixture of
negative/positive factors/influences.
(R) Red: indicates that negative factors/influences dominate.
The traffic light indicators act as a quick guide to the overall
balance between the detailed analytical components covered
elsewhere in the report. This allows you to rapidly identify
areas of concern or promise, which you can then explore
further, either elsewhere in the report or via the content of the
46. other products in our portfolio. You should always use the more
detailed analysis as the basis for any further
investigation/assessment/decision-making.
D&B Risk Indicator
D&B's Country Risk Indicator provides a comparative, cross-
border assessment of the risk of doing business in a country.
The risk indicator is divided into seven bands, ranging from
DB1 to DB7. Each band is subdivided into quartiles (a-d), with
'a' representing slightly less risk than 'b' (and so on). Only the
DB7 indicator is not divided into quartiles.
The individual DB risk indicators denote the following degrees
of risk:
DB1 Lowest risk Lowest degree of uncertainty associated
with expected returns, such as export
payments and foreign debt and equity
servicing.
DB2 Low risk Low degree of uncertainty associated
with expected returns. However, country-
wide factors may result in higher
volatility of returns at a future date.
DB3 Slight risk Enough uncertainty over expected returns
to warrant close monitoring of country
risk. Customers should actively manage
their risk exposures.
DB4 Moderate risk Significant uncertainty over expected
returns. Risk-averse customers are
advised to protect against potential
losses.
DB5 High risk Considerable uncertainty associated with
expected returns. Businesses are advised
to limit their exposure and-or select
high-return transactions only.
47. DB6 Very high risk Expected returns subject to large degree
of volatility. A very high expected
return is required to compensate for the
additional risk or the cost of hedging
such risk.
DB7 Highest risk Returns are almost impossible to predict
with any accuracy. Business
infrastructure has, in effect, broken
down.
Headline Category Descriptions
These headline categories combine the analysis from a number
of detailed categories in order to provide focused analysis of
business-critical issues.
Credit Environment Outlook
This category assesses the factors that affect the country's credit
environment, and helps cross-border traders and investors
understand the level of risk related to non-payment or delayed
payment.
Supply Environment Outlook
This category covers the factors that could disrupt supply chains
associated with the country, thus allowing cross-border traders
and investors to assess risks in this area.
Market Environment Outlook
This category provides an assessment of the factors affecting
the market environment over the short- to long-term; this
assessment will help businesses involved in cross-border trade
and/or investment to make informed decisions about increasing,
maintaining or decreasing business links in a country.
Political Environment Outlook
This category helps cross-border traders and investors to
understand the risks associated with
expropriation/nationalisation, and also takes account of
intentional human actions that could affect the quality of the
business environment.
48. Detailed Analytical Category Descriptions
These analytical categories provide our most detailed, in-depth
coverage of the core components of risks and opportunities
associated with a given country. Together, they embody our
broadest, deepest assessment of a country's risk and opportunity
environment.
Short-term Economic Outlook
Analyses the economy/business cycle over the next 2-8 quarters,
identifying recession, recovery, growth or stagnation. Helps
businesses anticipate the impact of short-term developments in
the sphere of aggregate supply and demand.
Long-term Economic Potential
Assesses long-term economic prospects over the next 5-15 years
on the basis of trends in the physical environment, natural and
human capital, and demographics and labour supply. Helps
businesses foresee the long-term impacts on market potential of
factors such as ageing, resource depletion and innovation.
Market Potential
Covers the ability of foreign providers of goods and services to
access a target country's markets. This helps businesses
understand the practical and regulatory barriers, as well as
incentives and opportunities.
FX Risk
Looks at the risk of lack of FX, significant devaluation or
depreciation, or any instability of the exchange rate over the
next 90-180 days. This helps businesses anticipate the pressures
facing customers billed in foreign currency, or the risks if their
receivables are in local currency.
Transfer Risk
Covers the risk of existing or new regulations, requirements or
other government actions preventing, delaying or burdening
cross-border transactions. This helps businesses to anticipate
risks related to crossborder payments arising from the
regulatory environment.
Business Environment Quality
Assesses the risks and opportunities in the business
49. environment associated with regulations, institutions and
business culture. This helps businesses assess how intangible
aspects of the business environment can facilitate business
operations or otherwise.
Business Continuity
This category looks at factors that could affect the physical
supply chain due to the effects of natural phenomena or other
unintended consequences. This helps businesses anticipate the
likely/current impacts of extreme weather, seismic activity and
inadequate/improved infrastructure.
Insecurity / Civil Disorder Risk
This covers the risk of disruption of business operations and the
services of a functioning economy due to the negative effects of
intentional human action on civil peace and internal/cross-
border security. This helps businesses to understand the context
and risk spectrum for threats arising from social and political
disturbances.
Expropriation / Nationalisation Risk
This category assesses the risk of forcible/compulsory,
full/partial loss of control or ownership of assets at the hands of
a sovereign government, and whether or not there is
compensation or judicial redress. This helps businesses
understand the country's track record in this respect and
highlights the risks posed by acts of
expropriation/nationalisation.
Full Text: COPYRIGHT 2013 Dun & Bradstreet, Inc.
http://www.dnb.com/
Source Citation:
"Country insight: Saudi Arabia." D&B Country Report: Saudi
Arabia. Dun & Bradstreet, Inc., 2013. Business Insights:
Global. Web. 7 Feb. 2015.
URL
http://bi.galegroup.com.glacier.sou.edu/global/country/SA
Document Number:
GALE|A349224741
50. Sample Student Industry Analysis
Executive Summary
Company Description
Seg and Cycle the City is a Koblenz, Germany based company
specializing in offering rentals for recreational vehicles
(Segways, bikes, tandems and inline skates), guiding and
informational services to mainly tourists, locals and their
visitors, students or for event entertainment purposes. The
company will begin operations in April, 2010, as a Limited
Liability Company (Unternehmensgesellschaft). The company
will take advantage of the increasing popularity of Segway
scooters: two-wheeled, self-balancing electric vehicles invented
by Dean Kamen in 2001, as a new, more exiting and relaxing
alternative to walking tours for tourists to enjoy the sights and
atmosphere of the city. Also, the company will provide high
quality MP3 Audio-City Guides to capture the large number of
visitors who are more independent-minded, not willing to
participate in guiding services offered by the tourism board of
Koblenz and thereby gain significant market share.
Mission Statement
“Seg and Cycle the City is a speciality tour operator committed
to providing a unique, entertaining, memorable and educational
experience of the city that meets the needs of both kinds of
tourists: those who seek a guided experience and those who are
more independent minded.
We will take pride in doing our best to present our city tour in a
memorable way and leave our customers with the image that
Koblenz is a place to go back to. We will achieve this by
building strong personal relationships with our customers
51. during our guided tours and by suggesting journeys for the
individual exploration.
As an advocate for sustainability, we want to promote the use of
environmentally friendly transportation devices and, thereby,
improve the image of our beloved city. We will also fulfil this
mission of sustainability by providing an affordable opportunity
for college students to rent a bike.”
Industry Analysis & Trends
The services provided by Seg and Cycle the City as a player in
the service industry are affected by the developments in the
recreational and sports equipment rental trade and by
developments in the city and bike tourism industry in Germany,
Rhineland Palatinate and, specifically, Koblenz.
Size and Growth
The personal service industry in Germany generally shows a
stable performance with relatively stable revenue regardless of
the difficult economic situation. A high employment rate,
increased wages, and a decreasing inflation rate have increased
disposable income, which especially benefits the leisure
industry (German Chamber of Commerce e.V).The following
graph shows that the service industry (blue line), as the leading
sector concerning economic added value in the Koblenz
(including surrounding communities) underwent major growth
compared to other main sectors from 1992 to 2005. Since 2004,
growth rate appears to be stable and rather low, but remains in a
leading position.
Travel Germany, Rhineland-Palatinate and Koblenz
52. In 2006 the German travel market has proven again to be an
engine of growth for the German economy, generating an added
value of 94 billion Euros.
City tourism is an especially booming market in Germany, with
a total of 2.2 million days of stay per year (including 1.51
million daytrips). Germany’s 82 cities with more than 100,000
inhabitants (Koblenz with 106,000 inhabitants belongs to them)
achieved 4.4 % more overnight stays in 2008 (Deutschen Reise
Verband). In 2006 tourism accounted for 8% of the Gross
Domestic Product in Germany and ranks third in its economic
significance.
A comparison of the number of day trips throughout the federal
states shows that Rhineland- Palatinate is in fifth place with 175
million day trips. Concerning the intensity of Tourism
(overnight stays per 1000 inhabitants) among the federal states,
Rhineland-Palatinate ranks fifth (Graph #1 and #2 attached in
Appendix). Travel expenses have increased per person and day
by around 25% to 540 Euro per trip for domestic vacations.
Travelling to Rhineland- Palatinate enjoys increasing popularity
especially among foreign visitors from Belgium and the
Netherlands, followed by Great Britain and the USA (Deutscher
Tourismusverband e.V).
Seg and Cycle the City will benefit from the growing tourism
industry in Koblenz that is anticipated as a result of urban
reconstruction and the improvement of the city’s image during
and after the National Garden show in 2011. The tourism sector
in Koblenz already proves to be stable with an increasing
tendency (Koblenz city council - statitics department).
Bike tourism
20.9 million Germans used their bikes in 2007 as leisure
activity on holidays. 6.2 million people claimed to use their
53. bike “frequently“ to “very frequently“ (Deutscher
Tourismusverband e.V).In Rhineland-Palatinate, bike tourism
accounts for 0.341 billion or 10.2% (includes expenses for
lodging, food etc.) of the total economic added value of the
tourism industry and contributes 341 Mio. Euro to the federal
state‘s GDP. The federal state‘s government has endeavored to
develop the network of bike routes and guiding systems in the
state in order to encourage people to use bikes and more
environmental friendly means of transportation in the city
(Europaeisches Tourismus Institut an der Universitaet Trier
GmbH). Seg and Cycle the City will take advantage of this
development and contribute to the state’s efforts. The federal
department of transport also initiated the projects www.skater-
land.de (skater-country) and www.radwanderland.de (bicycle
country) that provide detailed information about routes events
and services for bikers and skaters in Rhineland-Palatinate.
Maturity and Trends
Recreational and leisure equipment rental
The lifecycle stage of recreational and sports equipment rental
is mature but is unlikely to decline as result of an increased
interest in physical activity and health. On the other hand, the
fear of a deepening recession has caused discretionary spending
to dry up in 2008 and 2009. Due to the increased acceptance of
product rental among consumers during the 2003 to 2008
period, the industry experienced a considerable expansion.
Furthermore, the industry is anticipated to experience growth in
the years ahead as a result of greater leisure time availability
and new trends in fitness activities. Moreover, the oncoming
retirement of the baby boomer generation, which will have more
available leisure time has demonstrated a desire to continue to
be active after leaving the workforce, representing an
opportunity for Seg and Cycle the city to cater to this group.
54. (Forecast for the Sports and Recreation Facilities in the US -
includes tourist guide services-) (IBIS World).
The aging population is an advantage for Segway tours because
the company provides the
older generation a more relaxing, strenuous alternative to
walking tours. Statistics about
bike tourists in Rhineland-Palatinate revealed an average age of
53.5 which is 6 years older
than the average age of the whole population (46.9) and the age
of the average tourist in
Rhineland-Palatinate(49.5) (Europaeisches Tourismus Institut
an der Universitaet Trier
GmbH). Competition in this industry is described as being stiff
and
increasing because they compete in several ways: price, product
range and location. Seg and
Cycle the City will outstrip their competition by offering
favorable financing arrangement for
students, an innovative product range, and a central location,
which is the perfect starting
point for touring the city or region .
Economies of scope are another key success factor in the
industry. Firms that offer a wide range of rental products
increase customer and revenue
numbers.Therefore, Seg and Cycle the City plans to invest
55. additional capital each year to
expand the product variety and add for example a small number
of skateboards, tricycles or
exotic tandems (for more than two people) and test its
profitability before acquiring a large
amount of these products.
Climate Change and increasing awareness of environmental
concerns are increasingly important for the image of a tourism
destination as well as for individual lifestyles. Koblenz can
benefit from the services provided by Seg and Cycle the City
because they promote sustainability by offering
environmentally friendly means of transportation, including the
Segway, a vehicle that gives off zero-emissions thanks to its
electric battery power source.
The growing awareness of the importance of healthy living will
also benefit the business of
Seg and Cycle the City. During vacations the opportunity to be
active is especially
restricted. For this purpose, Seg and Cycle the City will develop
an ideal and customized
service that offers visitors the possibility to be active also
during vacations.
An entertaining and fun outdoor experience while spending time
with the family
and friends is of the company’s main concerns.
56. As a recent transportation invention Segway is not in its mature
stage of the product lifecycle and should rather be considered
as in its introduction stage, which provides an excellent
entrepreneurial opportunity to take advantage of being the first
company in the Middle Rhine region to offer Segway tours and
achieve a large market share. Segways are well suited for rental
because its purchasing price is significantly high enough that
there is little incentive for clients to purchase one (IBIS World
2).
Vulnerability to Economic Factors
The services offered by the company can be categorized as
leisure activity and are universally associated with luxury
spending, which closely ties the industry’s revenues to the
development of discretionary income and consumer confidence.
Unemployment and economic recession negatively impacts the
level of disposable income within a household, which
determines the amount spent for leisure activities and travel.
However, there is a counter cyclical trend in the travel industry,
as reduced disposable income forces people to take short-
distance trips and boosts city tourism in the own country (IBIS
World 2).
Risk Analysis
In the long term, the industry faces the threat from retailers
offering finance packages or low rates to increase sales.
Financing packages are less likely to attract visitors in Koblenz
as the majority of visitors stay only for a weekend or are
passing through to explore the rest of the Rhine valley.
Although, the company benefits from a low number of
competititors that offer Segway, bike and tandem tours, they
face the challenge to make customers comfortable and aware of
their services, especially with the new transportation technology
of Segways. The knowledge about and popularity of Segways,
however, is spreading thanks to the recent movie” Paul Blart:
57. Mall Cop“(2009), starring Kevin James, who plays a mall cop
driving around the mall on his Segway through the mall.
Seasonal Factors
City tourism as well as recreational and outdoor activities are
highly seasonal. Seg and Cycle the City’s business will be
affected by preferred times for travel and outdoor activities in
the spring and summer, and during holidays, such as Christmas
and new years. Adverse weather conditions, such as excessive
rain, long winters and cold temperatures reduce the demand for
outdoor activities and guided city tours. Consequently, the
company’s positive cash flow will occur during the warm
season from April to October, when city travel and outdoor
activities increase and special events in Koblenz capture
tourists. In order to avoid cash shortages and operate effectively
in the slow seasons, Seg and Cycle the City will use the winter
seasons to promote its services of indoor corporate and private
events, as well as to plan and market for the summer season.
The following statistic shows the monthly fluctuation in the
number of overnight stays over one year in Koblenz that will
affect our business.
Number of city tours in its seasonal course and compared among
the years (Koblenz city council - statitics department)
Barriers to Entry
High start-up costs due to the high capital that is necessary to
acquire equipment (applies especially for Segways), restricts
the number of new entrants to this market. Also, in contrast to
most other federal states there is currently no standard to
authorize Segways for use on public roads in Rhineland-
Palatinate. The responsibility is delegated to the cities.
Following the example set by the owner of Segway Worms (also
located in Rhineland Palatinate) Seg and Cycle the City will
58. make the effort and invest the time to receive a special
authorization from the city, which will make it harder for
competitors to enter the market. Nevertheless, few
governmental regulations for leisure equipment rental, low
running costs, and expertise required attracts a high number of
competitors in the overall rental and bike industry (IBIS World
2).
Technological Factors
The bike industry constantly develops new products with added
features, which
makes it difficult for Seg and Cycle the City to choose the right
models the company will rent
out that best meet the needs of customers. The Internet is also
an important technology for the
owners because travellers are increasingly researching vacation
destinations and prefer to
reserve tours and other services online or via Email.
Regulatory Issues
Segways are accepted in Rhineland-Palatinate for the use on
private property. In Rhineland- Palatinate regulations require a
special permit issued by the administrative district for
operations of Segways on public roads for which Seg and Cycle
the City will be the first in Koblenz to file (Registration)
(Works).
Supply and Distribution
Seg and Cycle the City will purchase and lease Segway scooters
from the authorized Segway
59. dealer in Koblenz. Other equipment will be mainly bought in
used condition from private owners or suppliers of Gottlieb-
bikes and then refurbished.
Bibliography
· Deutschen Reise Verband. “Fakten und Zahlen zum deutschen
Reisemarkt 2008.” 2009. Deutschen Reise Verband website. 19
April 2009 <www.wissen.dsft-
berlin.de/Fakten_und_Zahlen_zum_deutschen_Reisemarkt_2008
/Info-alle-1195-4-1.0.html - 16k>.
Numbers and facts of German tourism industry in 2008 by the
German travel association.
· Deutscher Tourismusverband e.V. “Tourismus in Deutschland
2007.” May 2008. Germany the Travel Destination. 17 April
2009 <http://www.germany-tourism.de/>.
This source by the German National Tourist Board gave
information about the German tourism industry in 2007.
· Email quote byDierks, Mr. - Segway-Koblenz. Segway leasing
Anne Schellenbach. 27 April 2009.
· Europaeisches Tourismus Institut an der Universitaet Trier
GmbH. Regionalwirtschaftliche Effekte des Radtourismus in
Rheinland Pfalz. Trier, June 2007.
This study by the European Tourism Institute gave information
about bike tourism in Rhineland-Palatinate.
· Europaische Reiseversicherung AG und DTZ.
Qualitaetsmonitor Deutschland-Tourismus Ergebnisse
2007/2008. 2008. 24 April 2009
<http://qualitaetsmonitor.dwif.de//index.php?option=com_conte
nt&task=view&id=6&Itemid=5>.
This survey among visitors in Germany was conducted by the
European travle Insurance Group and the German National
Tourist Board.
60. · Federal Statistical Office. “Statistical Yearbook 2008 - For the
Federal Republic of Germany.” September 2008. Federal
Statistical Office website. 25 April 2009
<http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Share
dContent/Oeffentlich/AI/IC/Publikationen/Jahrbuch/Einfuehrun
g,property=file.pdf>.
· Forschungskreis Tourismus Management Trier e.V. “Die
Wertschöpfung des Tourismus in der Region Mittelrhein.” Juli
2008. IHK Koblenz. 17 April 2009 <http://www.ihk-
koblenz.de/servicemarken/Branchen/anhaengsel/tourismus_gast
gewerbe/regionen/wertschoepfungsstudien/ENDBERICHT_MIT
TELRHEIN_2007__korrigierte_Endfassung.pdf>
This source estimates the added value of the tourism industry in
the Middle Rhine region.
· German Chamber of Commerce e.V. “German Chamber of
Commerce e.V.” March 2009. IHK Koblenz website. 17 April
2009 <http://www.ihk-
koblenz.de/produktmarken/standortpolitik/anhaengsel/zahlen_un
d_fakten/konjunkturberichte/dihk_deutschland/sonderauswertun
gen/Dienstleistungsreport_Fruehjahr_2009.pdf>.
· Telephone interview with Greulich, Dr. Bernd. Corporation
taxes and UG Anne Schellenbach. 28 May 2009.
· Groundspeak Inc. Geocaching - The Official Global GPS
Cache Hunt Site. 12 May 2009 <http://www.geocaching.com/>.
· Hans-Boeckler-Stiftung. Lohnspiegel. 2009. 29 May 2009
<http://www.lohnspiegel.de/main/LohnundGehaltsCheck>.
This source states average salaries for around 250 professions.
· IBIS World 2. “53229 - Health Furniture, Party Supplies &
Other Rental in the US - Industry Report.” 28 January 2009.
IBIS World Website. 19 April 2009
61. <http://www.ibisworld.com/industry/default.aspx?indid=1371>.
· IBIS World. “71399 - Miscellaneous Sports & Recreation
Facilities in the US - Industry Report.” 2 April 2009. IBIS
World Website. 19 April 2009
<http://www.ibisworld.com/industry/default.aspx?indid=1657>.
· IHK Koblenz. “Umfrage Standortzufriedenheit IHK Koblenz.”
2008. IHK Koblenz website. 20 April 2009 <http://www.ihk-
koblenz.de/produktmarken/standortpolitik/anhaengsel/zahlen_un
d_fakten/standortanalysen/umfrage/Umfrage_Standortzufrieden
heit_IHK_Koblenz.pdf>.
Survey about satisfaction with location by the chamber of
commerce in Koblenz.
(Wirtschaftsfoerderungsgesellschaft am Mittelrhein mbH)
COFFEE SAUDI/.DS_Store
__MACOSX/COFFEE SAUDI/._.DS_Store
COFFEE SAUDI/Country insight SAUDI.docx
Country insight: Saudi Arabia
FT/IMG
High-Level Summary
Country Insight Headlines
Key Recommendations
Risks and Opportunities
Global Insight
Regional Insight
62. Country Insight Headlines
Credit Environment Outlook
Supply Environment Outlook
Market Environment Outlook
Political Environment Outlook
Detailed Analysis
Short-Term Economic Outlook
Long-Term Economic Potential
Market Potential
FX Risk
Transfer Risk
Business Environment Quality
Business Continuity
Insecurity / Civil Disorder Risk
Expropriation / Nationalisation Risk
Background
Perspectives
The Economy
Politics
Commercial Culture
Statistical Reference
Key Indicators and Forecasts
User Guide
Overall Country Risk Rating: DB3b
(A)
Slight risk: Enough uncertainty over expected returns to warrant
close monitoring of country risk. Customers should actively
manage their risk exposures.
Rating Outlook: Stable [right arrow]
[GRAPHIC OMITTED]
Country Insight Headlines
Credit Environment Outlook (A)
* Financing conditions are improving; in May 2013 credit to the
private sector rose by 14.0% year-on-year (y/y). Positive short-
term credit conditions should ease non-payment risk and
payment delays.