Saudi Arabia_Background_FINAL

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The Arabian Peninsula has the Red Sea to the west and the Persian Gulf to the east. Most of this

peninsula is home to Saudi Arabia. (Infoplease, 2007). Other countries that call the peninsula

home include Jordan, Iraq, Kuwait, Qatar, the United Arab Emirates, the Sultanate of Oman,

Yemen, and Bahrain (Map in Appendix 1). Like Canada, Saudi Arabia has provinces or emirates

which number 13 in total (Map in Appendix 1) and are further divided into governorates.


The Kingdom of Saudi Arabia which is located in the tropics has three main climatic zones

(Britannia online). Saudi Arabia contains the world's largest continuous sand desert, the Rub Al-

Khali, or Empty Quarter (Infoplease, online reference). Temperatures have been recorded to rise

as high as 130 °F (55 °C) in the summer with extremely low humidity and virtually no rainfall

(Britannia online). Along with the oppressive heat, it is common to have sandstorms ravage the

area. The second zone consists of a small area of steppes beginning in the western highlands

(Iraqi border) cutting across the country ending at Mecca. Although temperatures can reach

100°F (38°C) in the summer, the region sees more comfortable temperatures during the winter

months (Britannia online). Precipitation can be torrential in the summer months (May to

October) providing up to 19 inches (480 mm) a year (Britannia online). The third zone is a small

area of humid and mild temperature conditions, with long summers, in the highlands just north of

Yemen. This area as well experience a monsoon season during the months of March and April.

Although most of the country is dry, the coastal area does have very oppressive humidity

(Britannia online). However, during the winter months (December to February), most of the

country enjoys cooler, more tolerable temperatures. Some snowfall may occur in the southern

highlands (Britannia online).
Socio political history of people

Saudi Arabia was an absolute monarchy until 1992, at which time the Saud royal family

introduced the country's first constitution. It is thought that the first Arabs originated on the

Arabian Peninsula and is also considered the homeland of Islam, the world's second-largest

religion. Muhammad founded Islam there, and it is the location of the two holy pilgrimage cities

of Mecca and Medina (Infoplease, online reference).

The Kingdom of Saudi Arabia was created and ruled by a descendant of Wahhabi leaders, King

Ibn Saud (1882–1953). On his death in 1953, his eldest son, Saud, began an 11-year reign. In

1964, the ailing Saud was deposed and replaced by the prime minister Crown Prince Faisal.

King Faisal was assassinated by a kinsman in 1975. His successor was his brother, Prince

Khalid. After dying of a heart attack in 1982, Khalid was succeeded by his half-brother, Prince

Fahd bin 'Abdulaziz. Suffering a severe stroke in 1996, King Fahd passed authority to Crown

Prince Abdullah. In August 2005, King Fahd bin 'Abdulaziz died. His half-brother Abdullah,

who had been the de facto ruler of the country for the past decade, assumed the throne

(Infoplease, online reference).

In Feb. 2005, Saudi Arabia held its first elections ever: municipal council elections to choose

half of the new council members in Riyadh. The other half continued to be appointed, in keeping

with the previous Saudi system. Women were not eligible to vote, and less than a third of eligible

voters registered (Infoplease, online reference).

Its capital city, Riyadh is also the largest with 3.7 million followed by Jeddah (2.7 million) and

Makkah (1.6 million). The main language spoken is Arabic, although English is quite common

in the business communities. Saudi’s only religion is Islam and its tenets are enshrined as law.

About 85% of the population is Sunni Muslims and the remaining 15%, primarily on the east
coast, are Shiite Muslims (, online reference). Public practice of any other religion is

not allowed in Saudi Arabia. Prayers are said five times a day while facing the direction of the

sacred Ka'abah -- a black cube-shaped stone in the square of the Holy Mosque in Makkah.

Ramandan during the ninth month of the Islamic calendar, Muslims are expected to fast,

abstaining from food, drink and sexual activity from dawn to dusk. At least once in a lifetime,

Muslims should make the hajj to Makkah (, online reference).

Dominant economic activity

Oil and petroleum products petroleum refining, and basic petrochemicals are the mainstay of the

Arabian economy accounting for more than 90% of the country's income. Its oil region lies

primarily in the eastern province along the Persian Gulf (Infoplease, online reference). Other

natural resources include iron ore, gold and copper. The country also produces iron and steel,

processed foodstuffs, cement and electrical equipment. ammonia, industrial gases, sodium

hydroxide (caustic soda), cement, fertilizer, plastics; metals, commercial ship repair, commercial

aircraft repair, and of course, is famous for its massive construction mega-projects (Infoplease,

ipa, online reference).

Involvement with world economic organizations


GATT (General Agreement on Tariffs and Trade) had been in existence since 1947, as the

organization overseeing the multilateral trading system. Through the years, GATT evolved

resulting in the creation of the World Trade Organization (WTO) on 1 January 1995 (WTO,


Saudi Arabia announced its intention to join the WTO and negotiations focused on increasing

market access to foreign goods and services and the timeframe for becoming fully compliant
with WTO obligations. Saudi Arabia gained acceptance in December 2005 (WTO Press Lease,

2005) after 12 years of negotiations (see Appendix 3 for the press release in its entirety) (WTO

Press Lease, 2005).

United Nations

Saudi Arabia signed the UN Charter in 1945. The country plays a prominent and constructive

role in the International Monetary Fund, the World Bank, and Arab and Islamic financial and

development assistance institutions. One of the largest aid donors in the world, it still gives some

aid to a number of Arab, African, and Asian countries. Jeddah is the headquarters of the

Secretariat of the Organization of the Islamic Conference and its subsidiary organization, the

Islamic Development Bank, founded in 1969 (UN, online).


OPEC's mission is to coordinate and unify the petroleum policies of Member Countries and

ensure the stabilization of oil markets in order to secure an efficient, economic and regular

supply of petroleum to consumers, a steady income to producers and a fair return on capital to

those investing in the petroleum industry.

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent

intergovernmental organization, created at the Baghdad Conference on September 10–14, 1960,

by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. OPEC currently consists of 13 members

countries located across three continents, Asia, African and America: Qatar (1961); Indonesia

(1962); Socialist Peoples Libyan Arab Jamahiriya (1962); United Arab Emirates (1967); Algeria

(1969); Nigeria (1971); Ecuador (1973-2007); Angola (2007); and Gabon (1975–1994) (OPEC


Effects of globalization on the country
Saudi Arabia, as the world’s largest exporter of petroleum, has had some experience with

globalization. It is in its best interest to create a stable and long-term market with rich Western

economies where there is a large Saudi financial investment. This is in part achieved through

membership in OPEC and to achieve stabilization of the world oil market and to soften sharp

price movements (Infoplease, online reference).

Human Rights

There remains concern about human rights conditions in Saudi Arabia. Principal human rights

problems include abuse of prisoners and incommunicado detention; prohibitions or severe

restrictions on the freedoms of speech, press, peaceful assembly and association, and religion;

denial of the right of citizens to change their government; systematic discrimination against

women and ethnic and religious minorities; and suppression of foreign workers' rights

(Infoplease, online reference). Globalization brings human rights to the forefront and creates

pressure to resolve these issues.

Distortions in the Labor Market

Twenty three percent of Saudi’s population are foreigners (5.58 million). Of the remaining, 43%

are under 15 years old (Ho, 2005). The working age population (15-64 years) of Saudis is 54.8%

(Ho, 2005). Together with foreign workers a total of 77% of the population comprise the labour

force. Unemployment is rather high (13%) for two reasons. Foreign workers earn only a third

of the salary that nationals earn making them a cheap option (Ho, 2005). The other reason is the

generally poor work ethic of the local Saudis, who tend to favour comfortable government jobs

(Ho, 2005). As Saudi universities emphasize religious studies rather than technical skills, it is an

added complication to the unemployment rates. As well, it inhibits Saudis adjusting to the global

market and raising their competitiveness in the world (Ho, 2005).
The road to achieving globalization

Due to Saudi Arabia’s membership in the WTO, it must comply with its tenets. In order to do

so, the kingdom must to be committed to the following:

 Reducing government subsidies including the end of free medical services; market rates for

   energy (oil, electricity), wheat subsidies (Ho, 2005);

 Expand privatization by increasing opportunities for the private sector in over 20 sectors (Ho,


 Labour Market Reform, or Saudization by reducing it’s dependence of foreign workers (Ho,


 Stimulating open policy by introducing new foreign investment policies on foreign

   ownership, lowering tariff and excise taxes, lowering taxes foreign companies are required to

   pay (Ho, 2005); and,

 Revamping the university system by placing more emphasis on technical, scientific and

   engineering skills (Ho, 2005).

Description of chosen industry

Oil was discovered in Saudi Arabia by U.S. geologists in the 1930s, with large scale production

beginning after World War II. Saudi Arabia has as a result, enjoyed accelerated economic

growth. Saudi oil reserves are the largest in the world, and Saudi Arabia is the world's leading

oil producer and exporter. Oil accounts for more than 90% of the country's exports and nearly

75% of government revenues. Proven reserves are estimated to be 263 billion barrels, about one-

quarter of world oil reserves (see tables in Appendix 2). More than 95% of all Saudi oil is
produced on behalf of the Saudi Government by the giant Saudi ARAMCO (Infoplease, online


The nature of the legal/economic/labour market context for business operating
within this industry


Commercial and business deals in Saudi Arabia are regulated by Sharia or Islamic law. There are

quite a few similarities between it and western law. For example: All people are equal before the

law; a person is innocent until proven guilty; and the burden of proof is on the plaintiff. Written

contracts have a sanctity and legitimacy of their own. One big difference between Sharia law

and western law is the idea of reference to a precedent. A ruling issued by a judge is not binding

on other judges or on him in later cases (, sa_shariabiz, online reference).

Conflict resolution

Instruments for settling disputes are generally included in contracts. Commercial disputes are

normally settled through personal contact and negotiation or through the Saudi arbitration

system. There are arbitration and grievance boards set up for the settlement of disputes. Their

decisions may be accepted by both litigants or they may be appealed to the Sharia court. In

major disputes, the Council of Ministers may become involved (, SA_requirements,

online reference).

Performance requirements

Bid and performance bonds in the amount of 1% and 5% respectively of the contract value is

required from most foreign companies and must be backed by a Saudi bank. The name of

insurance companies underwriting these guarantees is provided by the government. The whole

guarantee can be fronted totally by a Saudi in some joint-ventures. Bonds are returned to the

contractor on final completion of the project even though the contractor remains liable for
defects of collapse of the structure for ten years -- unless the structure was not meant to last ten


With respect to construction projects, the Saudi company is responsible for providing an advance

payment of 10% of the cost of a project. This advance must be supported by the contractor with

a bank guarantee also of 10% of the project's cost. As work progresses, payments of up to 90%

will be made on the completed work. The remaining 10% will be held pending the final delivery

of the project or it may be paid against bank guarantees as the work advances (,

SA_requirements, online reference).

An overview of typical work processes in this industry

The business and cultural environment in the Kingdom is very conservative. Preparation, and

some basic knowledge of the Saudi business culture, can make the difference between a

successful business deal and a failed negotiation. It is important to note, however, that a majority

of Saudi business executives and government officials have studied and/or worked abroad, many

of them in the United States. They are therefore familiar with Western culture and are

comfortable with its differing approach to business, provided respect is shown for Saudi

customs. For instance, the emphasis put on personal relationships, body language, and proper

attire are all essential aspects of Saudi etiquette (US-SABC, online reference).

Doing business in Saudi Arabia is somewhat more challenging for women. Although the

environment is changing, there is still gender separation in the Kingdom. Women are not allowed

to drive, and are expected to dress conservatively, with long skirts most appropriate, sleeves at

elbow length or longer, and necklines that are unrevealing. When a Saudi woman appears in

public, she normally wears a voluminous black cloak called an ibayah, a scarf covering her hair

and a full-face veil (, sa_clothing, online reference). It is generally uncommon for
Muslim men to shake hands with women or engage in the conversational body contact that is

common when speaking to other men, although Saudis who have experience with Western

culture may be inclined to do so (US-SABC, online reference).
                                                                                       Appendix 1


The Saudi flag is green with the Arabic inscription in white translated as "There is no God but
God, and Muhammad is His messenger."




                                                                                              Appendix 2

Saudi Arabia

Official Title: Kingdom of Saudi Arabia

National name: Al-Mamlaka al-'Arabiya as-Sa'udiya

Sovereign: King Abdullah (2005)

Land area: 829,995 sq mi (2,149,690 sq km)

Population (2007 est.): 27,601,038 (growth rate: 2.1%); birth rate: 29.1/1000; infant mortality rate:
12.4/1000; life expectancy: 75.9; density per sq mi: 33

Capital and largest city (2003 est.): Riyadh, 3,724,100

Other large cities: Jeddah, 2,745,000; Makkah (Mecca), 1,614,800

Monetary unit: Riyal

Language: Arabic

Ethnicity/race: Arab 90%, Afro-Asian 10%

Religion: Islam 100%

Literacy rate: 79% (2003 est.)

Economic summary: GDP/PPP (2005 est.): $340.6 billion; per capita $12,900.

Real growth rate: 6.5%.

Inflation: 0.4%.

Unemployment: 13% male only (local bank estimate; some estimates range as high as 25%) (2004 est.).
Arable land: 2%.

Agriculture: wheat, barley, tomatoes, melons, dates, citrus; mutton, chickens, eggs, milk.

Labor force: 6.76 million; note: more than 35% of the population in the 15–64 age group is non-national;
agriculture 12%, industry 25%, services 63% (1999 est.).
Industries: crude oil production, petroleum refining, basic petrochemicals; ammonia, industrial gases,
sodium hydroxide (caustic soda), cement, fertilizer, plastics; metals, commercial ship repair, commercial
aircraft repair, construction.

Natural resources: petroleum, natural gas, iron ore, gold, copper.

Exports: $165 billion f.o.b. (2005 est.): petroleum and petroleum products 90%.

Imports: $44.93 billion f.o.b. (2005 est.): machinery and equipment, foodstuffs, chemicals, motor
vehicles, textiles.

Major trading partners: U.S., Japan, South Korea, China, Taiwan, Singapore, Germany, UK (2004).


    Saudi Arabia's Proven Oil Reserves (2000 to 2006) in thousand million barrels
Year                      2000     2001     2002     2003     2004      2005     2006
Proven Reserves                   262.8       262.7     262.8        262.7    264.3      264.2      264.3

Source: Opec Annual Statistics 2006

  World Crude Oil Production and Consumption (2000-2006), Million Barrels Per Day
Year                          2000   2001    2002   2003      2004    2005     2006
Total Production                       65.9      65.4       64.0       67.3       70.6     71.6      72.0
Total Consumption                      71.4      72.2       72.7       74.0       76.4     77.4      78.3

Source: Opec Annual Statistics 2006

Source :
                                                                                                Appendix 3

WTO General Council successfully adopts Saudi
Arabia’s terms of Accession
WTO General Council formally concluded today (11 November 2005) negotiations with
Saudi Arabia on the terms of the country’s membership to the WTO.

        > Accessions in general
                                   The General Council Chair, Ambassador Amina Mohamed of Kenya,
                 > Saudi Arabia
                                   congratulated Members for approving the accession of Saudi Arabia. “It is
                                   a great honour for me to witness the constructive spirit in which these
   > Statement by the Director-
                       General     negotiations have been completed. Members have taken not only a major
   > Statement by the Chairman     step towards better international economic cooperation but they have also
> Statement by H.E. Dr. Hashim     allowed the World Trade Organization to become more universal,” said
                     A. Yamani     Ambassador Mohamed.

                                   The conclusion of those negotiations was also welcomed by Director-
                     SEE ALSO:
                > press releases   General Pascal Lamy. “Today’s decision is a historic event for the WTO.
           > WTO news archives     Saudi Arabia is on its way to becoming the WTO 149th Member, paving the
       > Pascal Lamy's speeches    way for a stronger multilateral trading system. I look forward with great
                                   optimism to the Kingdom’s participation in the Hong Kong Ministerial
                                   meeting,” said Mr. Lamy.

                                   Saudi Arabia has been negotiating its membership since July 1993. It has
                                   completed its package of documents presenting the Kingdom’s terms of
                                   accession at the Working Party meeting on 28 October 2005. The legal
                                   texts, which run to some 600 pages, were formally accepted by the 148
                                   Member Governments of the WTO at today’s special session of the General
                                   Council. Dr. Hashim A. Yamani, Minister of Industry and Commerce, signed
                                   the Protocol of Accession with full powers, thus accepting the Protocol on
                                   behalf of the Kingdom. Saudi Arabia will become the 149th Member of the
                                   WTO thirty days later, on 11 December 2005.

                                   As a result of the negotiations, Saudi Arabia has agreed to undertake a
                                   series of important commitments to further liberalize its trade regime and
                                   accelerate its integration in the world economy, while offering a
                                   transparent and predictable environment for trade and foreign investment
                                   in accordance with WTO rules.

                                   Among the commitments undertaken by Saudi Arabia are the following:

                                         The WTO Agreement will be applied uniformly throughout Saudi
                                          Arabia’s customs territory.
                                         Saudi Arabia agreed to review a fee charged for the authentication
                                          of trade documents and to bring it into conformity with WTO rules
                                          within two years of accession.
                                         Saudi Arabia will eliminate any non-tariff measures that cannot be
        justified under WTO rules while maintaining the right to restrict
        the importation and exportation of a certain number of goods and
        services in order to protect public morals, the life and health of
        the population, national security interests, etc. In addition, Saudi
        Arabia has agreed to review the list of banned imports at least
        once a year and to remove items the importation of which would
        not compromise the legitimate objectives of the Kingdom.
       Saudi Arabia will not maintain any export subsidies on agricultural
       Saudi Arabia will ensure that its producers and distributors of
        natural gas liquids (NGLs) will operate on the basis of normal
        commercial considerations, based on the full recovery of costs and
        a reasonable profit.
       In areas such as the protection of intellectual property rights, the
        application of technical regulations and standards, as well as the
        protection of food safety and human, animal and plant life and
        health, Saudi Arabia will implement the relevant WTO Agreements
        in full from the date of accession (i.e. the Agreement on Trade-
        Related Aspects of Intellectual Property Rights, the Agreement on
        Technical Barriers to Trade and the Agreement on the Application
        of Sanitary and Phytosanitary Measures).


With the conclusion of market access negotiations on goods, Saudi Arabia
committed to gradually lowering trade barriers and expanding market
access for foreign goods. Saudi Arabia has bound all tariffs levied on
imports. At the end of the ten year implementation period, average bound
tariff levels will decrease to 12.4 and 10.5 per cent for agricultural and
non-agricultural products respectively. The individual tariff rates for
agricultural products will range from 5 to 200 per cent, with the highest
rates being applied to tobacco products and dates. Some 11 per cent of
non-agricultural products will be imported duty-free whereas the highest
tariff rate will affect wood, as well as iron and steel products. Most tariffs
(92.6 per cent) will be set at their final bound rates at the date of
accession. The remainder will mostly be implemented in 2008 and 2010,
but in no case later than 2015.



Foreign insurance companies will be permitted to open and operate direct
branches in Saudi Arabia. Commercial presence will also be permitted for
insurers that establish a locally incorporated cooperative insurance joint-
stock company, in which foreign participation is limited at 60 per cent. A
three year transition period will be given to existing foreign insurance
providers to convert to either a Saudi cooperative insurance company or to
a direct branch of a foreign insurance company. During this transition
period, existing foreign insurance providers will be able to continue
existing business operations, as well as offer new products and service
new clients.


Commercial presence of banks will be permitted in the form of a locally
incorporated joint-stock company or as a branch of an international bank.
Upon Saudi Arabia’s accession, the foreign equity cap for joint ventures in
banking will be increased to 60 per cent. While financial services can only
be provided by commercial banks, asset management and advisory
services may also be provided by non-commercial banking financial


Within three years from accession, Saudi Arabia’s commitments will allow
up to 70 per cent foreign equity ownership in the telecommunications
sector. These commitments apply to both basic telecommunication
services and value-added telecoms services. Public telecommunications
services will have to be provided by a joint stock company.


While Saudi Arabia will maintain some restrictions on the distribution of
goods inside the country, these restrictions will be phased out over a
three-year transition period.

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