Kraft Foods Inc.
S.W.O.T. SAUDI ARABIA
Prepared by Team SAUDI ARABIA
Morreen Klement
Irvin Martinez
Coy Wineland
Alycha Dorsett
Karen P. Hardie
Prepared for Mr. Scott
MGMT 2863 – SPRING 2012
Completed on 4/10/2012
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Table of Contents
Executive Summary …………………………………………………………...………………….5
Saudi Arabia Strengths .......................................................................................................5
Saudi Arabia Weaknesses…….….……………………………………………………….6
Saudi Arabia Opportunities..…...........................................................................................7
Saudi Arabia Threats ….......................................................................................................8
Conclusions and Recommendations ……….………………………………………..……8
Introduction ………………………………………….……………………………………..…….9
The Report’s Scope ………………………….…………………………………………...9
Research Methods …………………………….……………………………………....…10
Saudi Arabia Strengths ……………………………………………………………………….....10
Education ………………………………………….………..…………………………...10
Economy ………………………………………………………………………………...11
WTO Member.............................................................................................................…...15
Saudi Arabia Road, Rail, & Port Infrastructure …............................................................16
Saudi Arabia Weaknesses………………………………………………………….…………….18
Political Forces outside Saudi Arabia …….......................................................................18
Culture …..….....................................................................................................................19
Saudi Arabia Opportunities............................................................................................................21
Favorable Taxes in Saudi Arabia ................................................................................…..21
U.S. – Saudi Arabia Relations …………………………………………………………..22
Promising Economic Growth……………………………………………………………23
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Limited Competition………………………………………………………………….….24
Saudi Arabia’s Threats……………………………………...……………………………………24
Unemployment…………………………………………………………………………..24
Terrorism…….…………………………………………………………………………...25
Summary…………………………………………………………………………………………28
Strengths…………………………………………………………………………………28
Weaknesses…………………………………………………………………………...…28
Opportunities…………………………………………………………………………….29
Threats……………………………………………………………………………………30
Recommendations………………………………………………………………………..31
References………………………………………………………………………………..32
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Table of Figures
GDP Rate Comparison, Figure 1………………………………………………………………..13
Road Map of Saudi Arabia, Figure 1...………………………………………………………….16
Rail Transport Map of Saudi Arabia, Figure 2…………………………………………………..17
Zakat – Religious Wealth Tax, Figure 3………………………………………………………....21
Saudi Arabia’s Real GDP 2000-Current, Figure 4……………………………………………....23
Unemployment Rate of Saudi Arabia 1980-Current, Figure 5………………………………..…24
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Executive Summary
A careful investigation of Saudi Arabia’s suitability as a future business environment for
the expansion into the food and beverage industry, has led Team Saudi Arabia to understand the
extraordinary strengths and opportunities, but also some underlying weaknesses, and threats that
riddle Saudi Arabia as a nation. Team Saudi Arabia has amassed an analysis to give a better
understanding of Saudi Arabia’s potential as a country in which Kraft Foods Inc. could possibly
branch out to conduct business.
Strengths
Saudi Arabia’s economy is showing growth in the area of economics and business
diversification within the Arab nations. Saudi Arabia is also known for its holy cities which
bring people to the country every year on pilgrimages. Saudi Arabia is also part of the WTO
since 1995; this single market involves key aspects of free movement of trade and service
between countries within the world. WTO demands transparency from its members in all trade
relations from its members. Saudi Arabia’s roads, railroads, and ports are very important in many
ways as far as transporting freight and materials. There is an expressway being linked together
starting in Northern Saudi Arabia ending in south eastern Saudi Arabia, which is a major asset.
There is a massive plan in place to build a comprehensive railroads system to connect the ports
so that they are available to link up the outer most areas of Saudi Arabia to bring the country
together by infrastructure. Some of Saudi Arabia’s major strengths come from a growing
economy by offering a great influx of religious pilgrims, being a member of a well establish
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organization such as the WTO, and having great ground works with infrastructure that make up
some of the major strengths of Saudi Arabia.
Weaknesses
Saudi Arabia has several weaknesses. Saudi Arabia's currency, the riyal happens to be on
the decline against the U.S. dollar. One of the main reasons for this is a lot of the countries Saudi
Arabia exports to use the dollar. Saudi Arabia is imbedded in history and its traditions are old
and saturated in religion, its people are proud and insist on doing things right as the Koran says
they should be done; thus the culture of Saudi Arabia is intertwined with their religion. This
poses a few obstacles: the pilgrimage to Mecca every year is observed by law and it last one
month at which time the factory would have to shut down. There is also the mandatory prayer
times that would force breaks during working hours for all practicing Muslim workers. Also,
because of laws imposed on the feminine gender, sending female executives into Saudi Arabia
would require extra education, as to educate them to what type of cloth they are required to wear
while in the country. The political unrest that surrounds the middle east is an area of concern.
Uprisings in Tunisia and Egypt led to the overthrow of their heads of state and sparked a wave of
protests throughout the Middle East and North Africa, now commonly referred to as the "Arab
awakening." These are a few of the weaknesses that riddle Saudi Arabia from a business stand
point.
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Opportunities
King Abdullah bin Abdul-Aziz Al Saud has enacted laws that encourage foreign trade
and tax breaks to companies that want to start business within Saudi Arabia, making it a more
inviting place to do business. Saudi Arabia also provides an excellent educational system that
allows men to go from grade school to college all sponsor by the state and thanks to King
Abdullah has allowed women to enjoy a college education in certain areas; providing for a welleducated workforce. Economic and trade ties are an important facet of overall United States Saudi Arabia relations. Saudi Arabia was the United States' 22nd largest goods export market in
2010. The U.S. goods and services trade with Saudi Arabia totaled $37 billion in 2009 (latest
data available for goods and services trade combined). Exports totaled $14.8 billion; Imports
totaled $22.6 billion. The U.S. goods and services trade deficit with Saudi Arabia was $7.8
billion in 2009.
Also, promising economic growth & extremely favorable corporate tax rates make Saudi
Arabia an appealing business ventures to many U.S. companies. Low competition into a
desperately needed product of food and beverages, make Saudi Arabia an extremely attractive
business opportunity for companies in our sector.
U.S. goods exports to Saudi Arabia in 2010 were $11.6 billion, up 7.4% ($799 million)
from 2009, and up 93% from 1994. The U.S. exports to Saudi Arabia accounted for 0.9% of
overall U.S. exports in 2010, down from 1.2% in 1994. The U.S. exports of agricultural products
to Saudi Arabia totaled $840 million in 2010. Leading categories include: coarse grains ($127
million), vegetable oils (excluding soybean oil) ($95 million), rice ($94 million), and dairy
products ($71 million).
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Threats
The threats of Saudi Arabia are few compared to other countries of the world.
Unemployment, and terrorism are the major threats that Saudi Arabia faces in our world today
nearly on an everyday basis. In the past decade, the unemployment of Saudi Arabia has been
10.8% for the last few years. Also terrorism has put a strain on the Saudi population. Saudi
Arabia is constantly under the threat of violence from radical religious leaders that may disagree
with the new rules more forward thinking policies, that have even given women the right to
work.
Conclusions and Recommendations
Saudi Arabia does have considerable downsides that pose a significant risk to expanding
our business into their country such as terrorism, extremely high unemployment rates, and
migration. However, Saudi Arabia’s strengths and opportunities outweigh the negatives. Saudi
Arabia does have a promising growth in economic areas and Saudi Arabia continues to have
strong ties with the U.S. as far as trade relations and investments. The lower corporate taxes, the
ability to move products and services freely throughout the Middle East, and limited competition
in the food and beverage industries have lead Team Saudi Arabia to recommend in favor of
moving forward and expanding business to Saudi Arabia.
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Introduction
Saudi Arabia is best known for being the birthplace of Islam, for a culture knee deep in
tradition, its beautiful architecture and devout faith. However, the core question remains, “Is it
beneficial for our company to venture into Saudi Arabia?” Team Saudi Arabia has studied Saudi
Arabia’s economy, trade, and the recent crisis that has plague. The Middle East and how that
would affect Kraft Food Inc. in expanding into the food and beverage sector in Saudi Arabia.
Reports Scope
The modern Saudi state was founded in 1932 by Abd Al-Aziz bin al-Rahman Al Saud
(Ibn Saud) after a 30 year campaign to unify most of the Arabia peninsula. One of his male
descendants is the king, as required by the country’s 1992 Basic Law. The government continues
to pursue economic reform and diversification, particularly since Saudi Arabia’s accession to the
WTO in December 2005, and promotes foreign investment in the kingdom. A rapidly increasing
population, aquifer depletion, and an economy largely dependent on petroleum output and prices
are all ongoing governmental concerns. Currently, Saudi Arabia is having problems with
unemployment, and migration issues as well as concerns with the depletion of water supply, the
strain of having to provide food for its increasingly large population and their dependency on oil
prices and output. However, the government is promoting foreign investment in the kingdom.
Team Saudi Arabia have also focused on the promising growth factor of the economy in Saudi
Arabia as well as the favorable corporate tax level, and the ability to move/export our product to
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surrounding nations with Saudi Arabia’s road, rail, ports. Limitations of the scope include
ongoing region unrest and possible terrorist attacks. (Reports, 2012)
Research Methods
Team Saudi Arabia used online and written publications as sources. Our sources included:
●
Online books
●
Database articles
●
Statistical figures
●
Government publications
●
Online webpages
In order to create a comprehensive and accurate country analysis of Saudi Arabia’s capacity for
future business ventures, we have gathered data together from the resources mentioned above.
Saudi Arabia’s Strengths
Education in Saudi Arabia
Education in Saudi Arabia & in the United States shares a few similarities. In Saudi
Arabia children are not obligated to attend school until the age of six. The education system is
primarily under the Ministry of Education, the Ministry of Higher Education and the General
Organization for Technical Education and Vocational Training. Primary education in Saudi
Arabia consist of six years, children have to pass the examination at the end of Grade 6 of
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primary school and obtain the Elementary Education Certificate. All national primary schools are
day schools and are not co-educational, which means that classes are segregated by gender.
Women are prevented from taking some subjects such as engineering, journalism, and
architecture. In Saudi Arabia, women in the labor force are mainly in the education sector. The
first group of women graduated from a law program in 2008. Women are not allowed to practice
law but the court has decided that women are able to work in courts to assist female clients. This
has still not been put into effect. Saudi Arabia’s literacy exceeds 85% among males and 70%
among females, however, there has been some unrest as to the curriculum that is being taught in
Saudi schools, in particular the following: Humanities and Social Sciences teach underline
religious content that some believe promotes hatred towards “non-believers”, and encouraging
terrorism. The Saudi Government has taken steps to remedy this problem and in 2009 the
Tatweer education reform program was launched and is overseen by an independent committee.
(Background Educational System in Saudi Arabia, 2012)
Saudi Arabia’s determination to improving their standards and dedication to education as
well as such high literacy amongst its people is a major advantage for a skilled and
knowledgeable work force; as well as the quality of the performance that can be expected from
the workers. This quality of workers would improve the well-being and health of our work force,
and would have ethically higher standards due to their level of education and knowledge.
The Economy of Saudi Arabia
In regards to its economy, Saudi Arabia has proven to be very resilient and presents
considerable strengths and opportunities to the operations of Kraft. Saudi Arabia has a large
economy based on oil. One of the main indicators of the strength of Saudi Arabia economically
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is its gross domestic product or GDP as reported in the CIA World Fact Book. In 1970, the GDP
of the country stood at $20 billion. By 2009, Saudi Arabia had a GDP of $375.76 billion and as
of 2011 the GDP of the country stood at $676.7 billion (Saudi Arabia, 2012). In comparison, the
GDP of the United States was $14.38 trillion in 2009 and rose to $15.04 trillion by 2011 (United
States, 2012). From this data it can be concluded that Saudi Arabia has a very strong and resilient
economy. Despite the onset of worldwide recession in 2009, the GDP of the country grew by
80% growth in the period from 2009 to 2011. This stands as a testament of the country’s capacity
for growth even during times of economic crisis. The GDP of the United States, in contrast, only
grew by 5% during the same time span. This shows that even when compared to the richest
country in the world, Saudi Arabia has a much more immense propensity for growth in regards
to its economy. This data aside, Saudi Arabia has been independently recognized for its
economic policies.
Saudi Arabia has received accolades from various international institutions and international
organizations in regards to its policies towards business. In 2009, the International Monetary
Fund commended Saudi Arabia on their attention to financial matters. In particular, they
commended their role in stabilizing the oil markets. More recently, in 2011, Saudi Arabia was
named 11 out of 183 in the Annual Doing Business Report released by the World Bank and the
International Finance Corporation (Public Affairs, 2012). This report designates rankings to
countries in regards to the ease of doing business with them. Saudi Arabia being named 11 out of
the 183 countries analyzed by this report indicates that it would be very easy for our company to
do business within Saudi Arabia. These two accolades indicate that it would be relatively fluid
for Kraft to integrate and execute its operations within Saudi Arabia. Saudi Arabia, through
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implementation of progressive policies, has also shown commitment to growing their economy
which could potentially provide our company with very valuable opportunities.
Despite a strong economy based on oil, Saudi Arabia is very committed to diversifying its
economy. Saudi Arabia has stated that its overall goal is to improve the economic conditions of
its citizens while retaining its Islamic values (Saudi Arabia – Economy, n.d.). According to an
article posted on Global Edge.com, the country’s current plan of economic reform aspires to”
eliminate poverty and decrease
Saudi Arabia's GDP Growth
development in infrastructure,
8
medical services, educational
6
capacity, and residential
4
housing.” The plan also aims
2
to” increase the real GDP by
15% over 5 years and calls for
0
2000
2002
2004
2006
2008
2010
2012
substantial government
-2
investment in human resource
-4
development in order to
Saudi Arabia GDP Rate
USA GDP Rate
Figure 1, GDP Rate Comparison
decrease Saudi unemployment” (Saudi Arabia: Economy – Global Edge, n.d.). According to a
report posted on website of the royal embassy of Saudi Arabia, the government entity that is
currently charged with overseeing and implementing all of these economic reforms in Saudi
Arabia is the Supreme Economic Council. According to that same report, one of the main ways
that the Council is seeking to expand the economy of the country is by privatizing many aspects
of Saudi Arabian life and infrastructure. The report states that “sectors that are now open to
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privatization include: telecommunications, highway management, railways, sports clubs, health
services, government hotels, education services, public parks, recreation centers, cleaning and
waste collection” etc. (Reports, n.d.)
Saudi Arabia has also taken steps legally to entice international corporations to invest
within the country. The Saudi Arabian Capital Markets Law passed in 2003 created the Arabian
Securities and Exchange Commission to “protect investor interests, ensure fair business
practices, promote and develop the capital market, and license brokers and securities to the
public.” The Foreign Investment Law “allows foreign investors to own property, transfer capital
and profits, claim full ownership of their projects, and enjoy a reduction in tax rates.” It also
protects foreign investors against confiscation of property without a court order or equitable
compensation. (Reports, n.d.) These changes that Saudi Arabia is currently working to
implement show the country’s commitment and vigor to encourage outside firms to invest in
Saudi Arabia and to further grow their economy beyond the one they currently have based on oil.
The aforementioned laws in particular could prove to be very beneficial to Kraft Foods, Inc. if it
were to set up operations in Saudi Arabia. These measures that have been taken by the Saudi
Arabian government show that in order to grow its economy, and diversify their industry, they
are trying to be as accommodating and welcoming to new, and foreign businesses as it is allowed
by their culture and religious law. A business environment such as this one is certainly an
incentive to begin operations in Saudi Arabia for, in the long run, it can be very beneficial in
allowing us to obtain our objectives as a business.
The only identifiable area of concern in regards to the economy of Saudi Arabia has to be
its high unemployment rate. In 2011 the unemployment rate stood at 10.9%, much higher than
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the 8.3% unemployment rate currently being reported here in the United States (Saudi Arabia,
2012). An unemployment rate this high indicates that Saudi Arabia is not producing at its fullest
capacity and could be indicative of the troubles that individual firms within the country have
reaching full production capacity. In retrospect, this could prove to be to the advantage for Kraft
Foods, Inc. because the jobs that our operations will provide could encourage Saudi Arabian
officials to be much more accommodating to our company than they would otherwise. This
information aside, all other economic indicators for Saudi Arabia are very strong and are of great
encouragement, and attest to the strong vitality for the country both on the world stage and as a
setting for the operations of Kraft Foods Inc.
WTO Member
Since 1995, Saudi Arabia has been a part of the WTO. The European Union is a common
market and customs union between member countries. This single market involves five key
aspects of free movement of trade and services between countries in the World:
1.
Trade Negotiations - The WTO agreements cover goods, services and intellectual
property. They spell out the principles of liberalization, and the permitted exceptions.
They include individual countries’ commitments to lower customs tariffs and other trade
barriers, and to open and keep open services markets.
2.
Implementation and monitoring - WTO agreements require governments to make their
trade policies transparent by notifying the WTO about laws in force and measures
adopted.
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3.
Dispute Settlement - The WTO’s procedure for resolving trade quarrels under the
Dispute Settlement Understanding is vital for enforcing the rules and therefore for
ensuring that trade flows smoothly.
4.
Building Trade capacity - WTO agreements contain special provisions for developing
countries, including longer time periods to implement agreements and commitments,
measures to increase their trading opportunities, and support to help them build their
trade capacity, to handle disputes and to implement technical standards.
5.
Outreach - The WTO maintains regular dialogue with non-governmental organizations,
parliamentarians, other international organizations, the media and the general public on
various aspects of the WTO and the ongoing Doha negotiations, with the aim of
enhancing cooperation and increasing awareness of WTO activities.
Along with the free movement of these things, Saudi Arabia and the other countries of
the Middle East enjoy a very stable economy as well as being proactive in their need to
infuse new industries for their economic well-being. (WTO | What is the WTO, n.d.)
Saudi Arabia’s Road, Rail, & Port Infrastructure
Roads
Saudi Arabia has a great number of roads and railroads throughout the country. The
backbone of the road and rail infrastructure in Saudi Arabia until 2013 consists of Transport 21,
a central part of the National Development Plan. There is a new road being established in Saudi
Arabia call the Atlantic Route Corridor. It will start in Northern Saudi Arabia stretching due
south, and then east to Waterford. It is due for completion in 2015. This one corridor will link
all of the major highways to one another having one huge highway throughout Saudi Arabia.
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Saudi Arabia has the most co-dependent transportation system in the EU, with roads carrying 86
percent of freight and 97 percent of
passenger traffic. (Reports, 2011)
Rail
Saudi Arabia has neglected the number of
roads and railroads throughout the country.
However, three years from now Saudi Arabia
Figure 2, Road Map of Saudi Arabia
will have one of the most extensive rail networks in the world. It will rival grids in such
advanced nations as Spain, France and Germany. Custodian of the Two Holy Mosques, King
Abdullah, has approved billions of riyals in recent years for the construction of multiple projects
to link cities on the Kingdom’s northern border with Jordan. The rail network will connect
Dammam on the east coast with Jeddah on the
west coast. High-speed trains will link Makkah
with Jeddah, Rabigh and Madinah. Dammam will
be connected to Jubail and Ras Al-Khair. These
projects will change the face of Saudi Arabia.
They will likely stimulate a new industrial
revolution in the Kingdom. Currently the kingdom
Figure 3, Rail Map of Saudi Arabia
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has 1,200 km of rail ways when the project is finish three to four years from now the Kingdom
will have 7,000 km of rail roads. (Reports, 2011)
Ports
Ports are a major advantage for Saudi Arabia concerning imports and exports. There are
15 ports in Saudi Arabia; furthermore, the majority of them are in Eastern and Southern Saudi
Arabia for a total of 9 ports. Western Saudi Arabia only had 6 ports and Eastern Saudi Arabia
does not many more The Jeddah Islamic Port is the busiest in the kingdom. It is the principal
commercial port and the main port of entry for pilgrims on their way to the Holy Cities of
Makkah and Madinah. King Fahad is the largest port. On the Eastern side the 2 major ports are
King Abdul Aziz Port and Jubail Commercial Port. (Reports, 2011)
Saudi Arabia’s Weaknesses
Political forces outside Saudi Arabia
The recent unrest in the Middle East has astonished the world, because it dictates a
change in the political field towards a more democratic sentiment in the region. However, it has
come at a price in lives and damages to business and infrastructure. When the democratic revolt
in Tusnia successfully ousted the old regime in favor of a more democratic government, it sent a
shock wave throughout the region that seems nearly unstoppable. The revolutions in Tunisia,
Egypt, Libya and Yemen were the result of developments within the countries themselves; deep
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economic and social malaise and the perception of the loss of domestic deterrence by ossified
regimes led by aging leaders. Whether the Arab and wider Islamic world’s democratic
awakening will actually prevail or produce only change at the top of authoritarian regimes, and
whether it will lead to a stable order or sustained chaos and radicalization, still remains unclear.
One thing, however, is already clear: The Middle East has awoken to democracy and
modernization and it sleeps no longer. The grassroots revolt will, of course, continue. Virtually
no country in the region will escape it, though when and where the next eruption will occur
remains uncertain. Iran, Syria, and Saudi Arabia are all candidates, with Saudi Arabia probably
posing the most difficulties for a revolt since King Abdullah has made major changes to
education, and has moved towards more equality for women. He has also established a more
favorable atmosphere for foreign investment and a connection with the world by becoming a
member of the WTO. These persistent upsets and violence in the region could adversely affect
the stability of Saudi Arabia; however, the kingdom is making great strides to breach the socioeconomic gap that it was left by its former ruler. (Blanchard, 2010)
Culture
The biggest problem with moving Kraft into Saudi Arabia is the religion standpoint of the
country. Muslims pray five times a day throughout and celebrate a month of Ramadan, which
little to no work is done (Shoult, 2006). There are labor regulations that may work in Kraft’s
favor for there is still eight work hours done a day during the workweek, the schedule of prayers
would need to be worked into the work day. This can become a problem for the sales for Kraft in
Saudi Arabia for they may be much lower. However, this problem can also be handled by
creating a skeleton crew during the month of Ramadan by recruiting the non-Muslim people in
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Saudi Arabia. One-third of the population of Saudi Arabia is made up of foreigners, who may not
be Muslim and could be used for the skeleton crew (Ham, 2004).
Another situation we would need to avoid is when sending over executives or managers
to train the future employees. Women have a lower social standing in Saudi Arabia than in
America, whether this pertains to the modest dressing or behavior with males in the same room
as the females. Therefore, when choosing who to send over, Kraft should send men and be sure
to train the women in the culture of the country. (Ham, 2004)
A drawback to selling Kraft is having to eliminate the selling of certain foods in Saudi
Arabia’s markets. The primary item would be pork related food. Pork is not consumed by our
potential consumers in Saudi Arabia, and supermarkets are careful not to sell any item that
contains pork or any pork by product. (Albala, 2011)
The current advertisements used in America for Kraft are aimed towards the female of
the household, which is based off of the American culture. However, unlike the United States, in
Saudi Arabia, the females do not do the shopping in the household. Instead, the shopping is done
by either the male or a servant. Thus, the advertisements for Saudi Arabia need to be redesigned
for the different market. (Albala, 2011)
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Saudi Arabia’s Opportunities
Favorable Taxes in Saudi Arabia
Foreign companies entering into joint ventures with Saudi companies that have been
recognized as developing projects by the Foreign Capital Investment Committee may receive a
five year tax holiday. The exemption only applies to the particular project for which the Foreign
Capital Investment Committee approval is granted. Other income may be held to fall outside the
exemption, and therefore, be taxable. Manufacturers of agricultural products may be granted a
ten year tax exemption. Corporate income taxes are levied on the profits of foreign shareholders
in a mixed company and the net profits of branches of foreign companies. Company tax rates,
which are applicable to limited liability and joint stock companies, are taxed between 25 to 45
percent depending on profit. Petroleum and other hydrocarbon producing companies, however,
are subject to a flat tax rate of 85 percent of net operating income. (Department of Zakat and
Income Tax, 2011)
Saudis and GCC nationals are not subject to income tax. Self-employed foreigners who are
resident in Saudi Arabia are not taxed on income from non-Saudi sources but only on Saudisource income. Foreign employees are not taxed on their wages and salaries. When applicable,
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income tax is levied by reference to the following table:
Zakat - Religious Tax Table
35%
30%
25%
20%
15%
Zakat - Religious Tax Table
10%
5%
0%
Figure 4, Zakat - Religious Tax Table
Zakat is the religious wealth tax imposed on Saudis and GCC nationals, and on companies
entirely owned by them. In case of mixed participation, zakat is assessed by reference to the
proportion of Saudi or GGC participation. Zakat rates are 2.5 percent of capital which is not
invested in fixed assets or long term investments or which relates to deferred pre-incorporation
expenses. (Department of Zakat and Income Tax, 2011)
Relations among United States & Saudi Arabia
U.S. relations with Saudi Arabia have long been based on common ancestral ties and shared
values. Besides regular dialogue on political and economic issues, the U.S. and Saudi Arabia
governments have had official exchanges in areas such as peacekeeping missions, and trade.
Since taking power in 2005, King Abdullah has created greater public space for domestic social
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reform debates and has promoted the concept of a strong national identity among Saudis in the
face of a determined domestic terrorism campaign. He also has codified royal succession rules,
begun restructuring the justice system, and taken clear steps to exert stronger government control
over religious authorities. Robust oil export revenues have strengthened the kingdom’s economic
position and provide Saudi leaders with significant financial resources to meet domestic
investment needs and provide social benefits. In this context, the United States and Saudi Arabia
continue to grapple with a core challenge identified by the 9/11 Commission in its final report:
defining a broader bilateral relationship that “leaders on both sides are prepared to publicly
defend. Current U.S. policy initiatives seek to help Saudi leaders address key domestic
economic and security challenges. (Saudi Arabia, n.d.)
Promising Economic Growth
Saudi Arabia’s economy has been
Saudi Arabia's GDP Growth
dominated by the oil industry. Robust
8
oil export revenues have strengthened
7
the kingdom’s economic position and
6
5
provide Saudi leaders with significant
4
financial resources to meet domestic
3
investment needs and provide social
2
benefits. The kingdom has extended
1
these benefits toward foreign investors
0
2000
2002
2004
2006
2008
Percentage change in GDP
Figure 5, Saudi Arabia GDP Growth 1
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2010
2012
who wish to start companies to
Kraft Foods Inc.
provide a more diverse economic climate in Saudi Arabia. While the rest of the world is still
struggling to bounce back from the housing market crash of recent years, Saudi Arabia has stood
fast and weathered the storm better than the Western nations. It is obvious from the chart above
that Saudi Arabia suffers a few setbacks in 2009, but it has steadily moved up and this year is
expected to reach a new high in its GDP. (Saudi Arabia, n.d.)
Limited Competition
Competition in the food and beverage industries is welcomed in Saudi Arabia, since they
already consume 45% of the all the feed barely traded in global markets. They also import
millions of sheep each year because they lack the grazing land to raise the sheep themselves.
Furthermore, thousands if not hundreds of thousand come for the pilgrimage to Mecca at which
time the Saudi government feeds all of them for the entire month, an amount of people that can
reach 2 million people. (Lippman, 2012)
Threats
Unemployment
Unemployment has become a major threat in Saudi Arabia’s economy today. As of the
August 2011 Saudi Arabia’s unemployment rate has soared to an estimated 25% percentage due
country’s single industry of oil. The following chart shows the official unemployment for the
kingdom; however, according to the CIA World Fact book, this only represents unemployment
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30
25
Saudi Arabia's Unemployment rate
among males. It fails to take
20
into account women whose
15
10
husbands have died and have
5
no other relative to take care of
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Percentage of Unemployed
them or young men who are
still at home and living from
Figure 6, Saudi Arabia's Unemployment Rate
the family coffers as is tradition in
Middle Eastern countries. (Saudi Arabia, n.d.)
Terrorism in Saudi Arabia
Since January 2011, political upheaval in the Middle East and North Africa has inspired a
new wave of youth activism in the kingdom and reinvigorated preexisting political reform
initiatives, while unrest in Bahrain and conflict in Libya has created concern about the security
consequences of political activism. Saudi citizens’ efforts to organize demonstrations for March
11, 2011 and recent government attempts to reinforce strict limits on political activism are
attracting new foreign attention to long-standing Saudi reform debates and generating concern
that public confrontations may undermine the country’s stability. Since March 4, the Saudi
cabinet, the Ministry of Interior, the advisory Shura Council, the Council of Senior Ulema, and
the Commission for the Promotion of Virtue and the Prevention of Vice have reiterated the
government’s ban on public demonstrations and urged Saudis to preserve national unity and
respect “Islamic traditions.” (Saudi Arabia, n.d.)
Significant related developments since mid-January 2011 include:
• The transmittal of several detailed advisory petitions to King Abdullah bin
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Abdelaziz from different and, at times, competing political groups.
• The accelerated use of Internet social media tools such as Facebook, Twitter, and
Youtube by Saudi citizens to follow and respond to recent regional developments
and to organize or express opposition to domestic political initiatives, including
planned demonstrations.
• Upon King Abdullah’s return to the kingdom in late February from a three-month
medical trip abroad, he issued royal decrees expanding a number of social and
economic benefit programs in what has been characterized by some observers as
a “reform stimulus” package worth an estimated $37 billion. Saudis reportedly
have flocked to government buildings seeking to register for new benefits and
programs, in some cases overwhelming the local offices’ ability to respond and
creating apparent frustration among some citizens.
• Authorities announced that candidate registration for long-delayed municipal
council elections will be held in late April 2011, and some reports suggested that
women would be granted undefined participation rights. Other plans for political
reform that correspond directly to recent public demands have not yet emerged. The
Elections have since happened and all municipal councils are now in power making 1/3 of all
councils elected by vote as of April 2011. (Reports, n.d.)
The fear that Saudi Arabia will be a victim of a terrorist attack is strong; weather the
likelihood of it is great or small. However, some experts note that a sustained terrorism campaign
by Al Qaeda in the Arabian Peninsula has targeted Saudi oil infrastructure directly for years
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without apparent success, and the kingdom has weathered episodes of domestic unrest in the past
without disruptions to oil output. Notwithstanding these facts, the current regional unrest and
renewed pressures for and against reform are highlighting the importance of the kingdom’s
domestic politics for global observers. U.S.-Saudi talks on bilateral nuclear cooperation
reportedly are underway, but no recent public comments have been made. The kingdom
launched the King Abdullah City for Nuclear and Renewable Energy in April 2010, to oversee
the country’s planned development of nuclear energy production and meet rising domestic
consumption needs. Like other oil exporting states in the region, Saudi Arabia has signaled its
intention to develop alternative energy generation methods to preserve its oil resources as an
export revenue source. Saudi Arabia signed a Memorandum of Understanding on Civil Nuclear
Energy Cooperation with the United States in 2008 in which it signaled its intent to forego
domestic uranium enrichment or spent fuel reprocessing in favor of procuring nuclear fuel from
market sources. (Blanchard, 2010)
Summery
Strengths
Saudi Arabia’s economy is showing growth in the area of economics and business
diversification within the Arab nations. Saudi Arabia is also known for its holy cities which
bring people to the country every year on pilgrimages. Saudi Arabia is also part of the WTO
since 1995; this single market involves key aspects of free movement of trade and service
between countries within the World. WTO demands transparency in all trade relations from its
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members. Saudi Arabia’s roads, railroads, and ports are very important in many ways as far as
transporting freight and materials. There is an expressway being linked together starting in
Northern Saudi Arabia ending in south eastern Saudi Arabia, which is a major asset. There is a
massive plan in place to build a comprehensive railroads system to connect the ports so that they
are available to link up the outer most areas of Saudi Arabia to bring the country together by
infrastructure. Some of Saudi Arabia’s major strengths come from a growing economy by
offering a great influx of religious pilgrims, being a member of a well establish organization such
as the WTO, and having great ground works with infrastructure that make up some of the major
strengths of Saudi Arabia.
Weaknesses
Saudi Arabia has several weaknesses. Saudi Arabia's currency, the riyal happens to be on
the decline against the U.S. dollar. One of the main reasons for this is a lot of the countries Saudi
Arabia exports to use the dollar. Saudi Arabia is imbedded in history and its traditions are old
and saturated in religion. Its people are proud and insist on doing things right as the Koran says
they should be done; for this reason the culture of Saudi Arabia is intertwined with their religion.
This poses a few obstacles: the pilgrimage to Mecca every year is observed by law and it last one
month at which time the factory would have to shut down. There is also the mandatory prayer
times that would force breaks during working hours for all practicing Muslim workers. Also,
because of laws imposed on the feminine gender, sending female executives into Saudi Arabia
would require extra education, as to educate them to what type of cloth they are required to wear
while in the country. The political unrest that surrounds the middle east of concern when
thinking of expanding the company into Saudi Arabia in early 2011, uprisings in Tunisia and
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Egypt led to the overthrow of their heads of state and sparked a wave of protests throughout the
Middle East and North Africa, now commonly referred to as the "Arab awakening." These are a
few of the weaknesses that riddle Saudi Arabia from a business stand point.
Opportunities
King Abdullah bin Abdul-Aziz Al Saud has enacted laws that encourage foreign trade and tax
breaks to companies that want to start business within Saudi Arabia, making it a more inviting
place to do business. Saudi Arabia also provides an excellent educational system that allows
men to go from grade school to college all sponsor by the state and thanks to King Abdullah
women are also now able to enjoy an college education in certain areas; providing for a welleducated workforce. Economic and trade ties are an important facet of overall United States Saudi Arabia relations. Saudi Arabia was the United States' 22nd largest goods export market in
2010. The U.S. goods and services trade with Saudi Arabia totaled $37 billion in 2009 (latest
data available for goods and services trade combined). Exports totaled $14.8 billion; Imports
totaled $22.6 billion. The U.S. goods and services trade deficit with Saudi Arabia was $7.8
billion in 2009. Also, with promising economic growth & extremely favorable corporate tax
rates make Saudi Arabia an appealing business ventures to many U.S. companies. Low
competition into a desperately needed product of food and beverages, make Saudi Arabia an
extremely attractive business opportunity for companies in our sector. U.S. goods exports to
Saudi Arabia in 2010 were $11.6 billion, up 7.4% ($799 million) from 2009, and up 93% from
1994. The U.S. exports to Saudi Arabia accounted for 0.9% of overall U.S. exports in 2010,
down from 1.2% in 1994. The U.S. exports of agricultural products to Saudi Arabia totaled $840
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million in 2010. Leading categories include: coarse grains ($127 million), vegetable oils
(excluding soybean oil) ($95 million), rice ($94 million), and dairy products ($71 million).
Threats
The threats of Saudi Arabia and few compared to other countries of the world.
Unemployment & terrorism are the major threats that Saudi Arabia faces in our world today
nearly on an everyday basis. In the past decade, the unemployment of Saudi Arabia has 10.8%
for the last few years. Also terrorism has put a strain on the Saudi population. Saudi Arabia is
constantly under the thread of violence from radical religious leader that may disagree with the
new rules more forward thinking policies, who has even given women the right to work.
Recommendations
Saudi Arabia does have considerable downsides that pose a significant risk to expanding
our business into their country such as terrorism, extremely high unemployment rates, and
migration. However, Saudi Arabia’s strengths and opportunities outweigh the negatives. Saudi
Arabia does have a promising growth in economic areas and Saudi Arabia continues to have
strong ties with the U.S. as far as trade relations and investments. The lower corporate taxes, the
ability to move products and services freely throughout the Middle East, and limited competition
in the food and beverage industries have lead Team Saudi Arabia to recommend in favor of
moving forward and expanding business to Saudi Arabia.
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References
Albala, K. (2011). Food cultures of the world encyclopedia. Santa Barbara, Calif.: Greenwood.
Background Educational System in Saudi Arabia. (n.d.). Home. Retrieved March 27, 2012.
Blanchard, C. (2010). Saudi Arabia: Background and US Relations. Congressional Research
Service.
Department of Zakat and Income Tax. (2011). Department of Zakat and Income Tax. Retrieved
March 27, 2012.
Ham, A., Shams, M., Madden, A. (2004). Saudi Arabia. Lonely Planet.
Information Office. (2012). The Kingdom of Saudi Arabia: Political, Economic, and
Development Initiatives. Saudi Arabia Embassy. Retrieved March 21, 2012.
Lacey , R. (2009). Inside the kingdom: Kings, clerics, modernists, terrorists, and the struggle for
saudi arabia. USA: Viking Adult.
Lippman, T. W. (2012). Saudi Arabia on the edge: the uncertain future of an American ally.
Washington, D.C.: Potomac Books.
Nydell, M. K., & McGregor, J. (1997). How to Live & Work in Saudi Arabia : A Practical
Handbook for Short and Longstay Visitors. How To Books, Ltd.
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Public Affairs. (2012). Press Release: Statement by IMF Managing Director Christine Lagarde at
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2012
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