Business and Entrepreneurship in Saudi Arabia

Opportunities for Partnering and Investing in Emerging Businesses

Edward Burton

• Publisher: Wiley
• Year: 2016
• Print ISBN: 9781118943960
• eBook ISBN: 9781119296171
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

An investor's crucial guide to the changing face of Saudi Arabian business

Business and Entrepreneurship in Saudi Arabia is an essential reference guide, informing investors on the key issues that define how business will be done as the nation's family-owned businesses change hands. Supported by the U.S.-Saudi Arabian Business Council, this book introduces the reader to the new Saudi entrepreneur and explains why Saudi Arabia's boom deserves more of the world's attention. As the heads of family-owned businesses age and corporate boards are reshaped, business practices will be influenced by the ascension of the country's young leaders. Interviews with young Saudi entrepreneurs describe the challenges, triumphs, failed attempts, and successful endeavors they experience every day as time-tested traditional models bump up against more modern, innovative ideas and methods. The book's companion website features a variety of useful tools and documents that help readers implement the concepts presented, and the firsthand information provides deep insight into the future of these companies.

Saudi Arabia is profoundly influencing the technological advances of multiple industries through increasing collaboration and in-country partnerships with communities around the world. The evolution of the Kingdom's family-owned businesses is becoming more important to investors as young Saudis claim their legacies, and this book provides an insightful understanding of the changing nature of Saudi business.

• Meet the emerging entrepreneur class of Saudi Arabia
• Learn how the Saudi boom affects global business
• Discover what investors need to know about the Saudi economy
• Examine how time and technology is reshaping the way business is done
• Gain useful insight into the direction management of the Kingdom's growth will take over the next five years

The Saudi economy constitutes thirty percent of the Arab world's GDP, and sixty percent of the population is under the age of thirty. Business and Entrepreneurship in Saudi Arabia provides essential information investors need to navigate the changing tide of doing business in Saudi Arabia.

Chapter 1
The Kingdom's Modern Economy and Economic Might

THE MODERN SAUDI ECONOMY AND THE NATIONAL DEVELOPMENT PLANS

From the moment Standard Oil of California (SoCal), through its subsidiary California-Arabian Standard Oil Company (CASCO), struck oil from famous well Dammam No. 7 in Dhahran in 1938, the trajectory of the Kingdom's development and fortunes has never strayed far from the flow of the black liquid gold. Throughout its modern history, oil revenues have allowed Saudi Arabia to achieve an unimaginable level of economic development within a seemingly fleeting period of time.

In 1945, before mass-generated and distributed electricity came to the Kingdom, before Saudi Arabia had a national monetary regulator and the country's official currency had been minted (just 10 years before), and before the nation's road systems were built, its finances were in disarray and the world's powers expected it to slide into bankruptcy. Through direct subsidies and revenues from oil production, the United States and the United Kingdom kept the Saudi Kingdom from economic ruin. It was the exceptional leadership of His Majesty, Ibn Saud, and that of his sons and a cadre of able advisors that formed the masonry substructure upon which all future national gains would be built. The careful, methodical, and prescient approach to managing the Kingdom's state and economic affairs is what helped transform the nation from a primarily agrarian and trading nation into the nineteenth-largest economy in the world that it is today. Before the discovery of oil, 90 percent of Saudi Arabia's population subsisted as nomads and peasant farmers.

To understand how the Kingdom's economic and financial affairs are managed today, one must grasp and appreciate the fiscally conservative approach its chief financial stewards have always taken. Insight in this regard comes from Dr. Mohammed Al-Jasser, the former minister of economy and planning (MoEP) and former governor of the Saudi Arabian Monetary Agency. Dr. Al-Jasser is now the secretary general of the Strategic Partnership Office of the Council of Economic and Development Affairs (CEDA). In a speech he gave at the Saudi Arabian General Investment Authority's (SAGIA) Seventh Annual Global Competitiveness Forum (GCF) on January 19, 2014, then economy and planning minister Al-Jasser stated:

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I would not be divulging a secret when I tell you that Saudi policy making is a very patient process that takes a long-term view. Policy makers in this country first determine where the long-term interest of the country lies. Then they work diligently and patiently toward that goal. Short-term conditions may change from time to time and may put tremendous pressure on us to change course, but we generally try to keep our eye on the ball and resist short-term temptations.¹

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Since the 1930s, the production of oil and its revenues to the Kingdom heavily influenced economic planning. In large measure, because of the underdevelopment of its infrastructure and regional political issues, the period between 1930 and 1970 saw inconsistent growth in the Kingdom's oil production and export capacity. World War II disrupted the development of the oil industry in Saudi Arabia. Until 1945, Saudi Arabia recorded total revenues of less than US$4 million per year. However, by 1949, revenues climbed to US$85 million, approximately 60 percent coming from the production and export of oil.²

In 1970, however, Aramco was still a foreign controlled company. It began to expand the production of oil several times greater than pre-1970s levels. As the industry's production and infrastructure began to take off and oil revenues grew at faster rates, the Saudi government moved to establish a formal strategic planning process to ensure the integration of all aspects of the Kingdom's human, natural, and fiscal resources, institutions, and its economic and social interests into the deliberative process in shaping the nation's medium and long-term development goals.

The first Five-Year Development Plan was approved in 1970. Since then, there have been a total of nine such plans adopted and implemented. See Table 1.1.

Table 1.1 Chronology: Kingdom of Saudi Arabia Five-Year Development Plans

First Development Plan	1970–1975 G	(1390–1395 AH)
Second Development Plan	1975–1980 G	(1395–1400 AH)
Third Development Plan	1980–1985 G	(1400–1405 AH)
Fourth Development Plan	1985–1990 G	(1405–1410 AH)
Fifth Development Plan	1990–1995 G	(1410–1415 AH)
Sixth Development Plan	1995–2000 G	(1415–1420 AH)
Seventh Development Plan	2000–2005 G	(1420–1425 AH)
Eighth Development Plan	2005–2010 G	(1425–1430 AH)
Ninth Development Plan	2010–2015 G	(1431–1436 AH)
^*Tenth Development Plan:	2015–2020 G

^*Tenth Development Plan is currently being considered by the Saudi government and is expected to be a new part of a 15-year transformational period for the Saudi economy.

G = Gregorian Calendar; AH = Islamic Calendar, also referred to as the Hijri Calendar.

Although economic planning in Saudi Arabia was given thoughtful attention by King Abdulaziz Al-Saud, it was his son, King Faisal Bin Abdulaziz Al-Saud, who brought a new level of depth, range, and analysis to bear on planning the growth of the nation. Having taken over complete management of a badly mishandled economy and virtually all aspects of governance from his half-brother Saud Bin Abdulaziz in 1964, King Faisal began an unprecedented period of carefully planned economic expansion and government growth. King Faisal acquired the expertise of imported Western technocrats and experts who assumed positions alongside Saudis in government entities around the Kingdom. The beginning of this period witnessed a dramatic increase in the number of expatriate workers in Saudi Arabia, a phenomenon that the Kingdom is still grappling with today. Correcting the imbalance of an over reliance on foreign labor in the place of a higher number of employed Saudis is one of the greatest economic and social challenges facing the country, in this century or the last.

The president of the Kingdom's central planning organization, Hisham Mohiddin Nazer, submitted the first Five-Year Plan to King Faisal on August 16, 1970 (13/6/1390 AH). The rationale, objectives, and goals of the current, Ninth Year Development Plan (2010–2015) are reminiscent and elementally similar to those articulated in President Nazer's submission to King Faisal in 1970. He stated the plan objectives as:

The general objectives of economic and social development policy for Saudi Arabia are to maintain its religious and moral values, and to raise the living standards and welfare of its people, while providing for national security and maintaining economic and social stability. The objectives will be achieved by:

1. Increasing the rate of growth of gross domestic product
2. Developing human resources so that the several elements of society will be able to contribute more effectively to production and participate fully in the process of development
3. Diversifying sources of national income and reducing dependence on oil through increasing the share of other productive sectors in gross domestic product.³

In viewing the similarities between the themes, rationale, and objectives of the First Development Plan and the most recent, the Ninth Development Plan, the comparisons between the Kingdom's economic and industrial profile during the 1970–1975 period of the First Plan and the 2010–2015 period of the Ninth, throws a strong light on the vision, foresight, and analytical powers the nation's planners have possessed since early in the creation of its modern economy.

During the preparation of the First Development Plan leading up to 1970, the Kingdom faced an economic crisis unlike the economic turmoil facing it during the writing of the Ninth Development Plan, but a crisis nevertheless. Because of the nation's poorly managed economy by King Saud and the inexperienced close family members he appointed to key government positions, during the late 1950s and early 1960s, the Kingdom's finances were in very bad shape. Its currency was on a steep decline against all of the currencies of its trading partners. It was a nation whose market was flooded with foreign goods and possessed of virtually no global expo...

Table of contents

• Cover
• Title Page
• Copyright
• Table of Contents
• Dedication
• Preface
• Acknowledgments
• About the Author
• Introduction
• Chapter 1: The Kingdom's Modern Economy and Economic Might
• Chapter 2: Innovation in Saudi Arabia: The Kingdom's March Toward the Future
• Chapter 3: The Development of Family-Owned Businesses in Saudi Arabia
• Chapter 4: Entrepreneurship in Saudi Arabia Today
• Chapter 5: Exploring Saudi Entrepreneurism and Opportunities for Business
• Chapter 6: New Horizons for the Kingdom and for Its Domestic and Foreign Businesses
• Index
• End User License Agreement