The Importance of Foreign Trade to the Economy of Saudi Arabia - Research Paper Example

Introduction Saudi Arabia focuses on the concept of free trade which is totally based on competition. In the country of Saudi Arabia there are no tariff barriers or foreign exchange controls. Imports of Saudi Arabia depend on competitive prices and punctual delivery. Retain and wholesale trades are controlled by country’s private sector. The fact is that Saudi Arabia follows liberal policy of trade. There are no price restrictions on importers, excluding the trade of alcohol and pork which are prohibited in Saudi Arabia.     The importance of foreign trade to the economy of Saudi Arabia is characterized by the following: Saudi Arabia is the world's leading exporter of crude oil. The country has large public financial assets which are abroad in form of liquid reserves. The kingdom’s private sector has its own foreign investments. Since the 1985, the country has made its reputation on the international market as an exporter of processed goods especially petrochemicals. From the past twenty years, the rapid growth process met with the development of the country as a vital market for the nations which are the world's major exporting countries. The role of foreign trade is expected to prove important in the development process, as the share of total exports will increase because of growing non oil exports in the Kingdom. Furthermore, development efforts in the industrial sector will also grow and will increase the country’s petrochemical exports is also expected to grow more. Starting Business in the Kingdom To start a business in Saudi Arabia one must have a good knowledge of the region. One should be ready to take extensive research into the business sector of the country. You must have a good and clear business plan, which includes a deep study of the market and competition in order to forecast results. You should also be ready to find the investment from your bank or through your resources, especially if you do not have any track record of the region. If you have a credible plan then this can attract government support as well as local support. (Shoult, 36) The Saudi law requires that anyone who is not the resident of the kingdom should have a local partner who has the majority interest and who controls the business. It means the partner can close the business if he feels like doing it. ( Shoult, 57) The requirement for the local partner is that it can be a company or an individual. The partner does not have to participate financially at all. In the kingdom there are many different ways that a local partner can be remunerated. The country’s local partner requirements are under review in some states of the country. But in order to encourage foreign investment, when the business is registered, one has to show the proof to the Ministry of Commerce that you have sufficient amount of money to invest in the country. The amount which is required varies from state to state. In most of the cases the required amount varies from $15,000 to $60,000 the initial investment is considered as a guarantee against all the liabilities. But at any time you may withdraw the investment. Many people think that this process is complicated and financially risky, but the reality is different. The most important point is that you must have local knowledge. You should also learn to consult a good lawyer any case of any mishap. An experienced lawyer’s help is really vital in protecting your interests. This rule applies even if you are opening a modest shop. Everyone knows that all over the world, people are running unofficial businesses but if anything goes wrong then you do not have any legal recourse whatsoever. (Shoult, 152) You should take care that these warnings should not put you off. There are many examples of people who have established successful and highly profitable businesses in the kingdom. All the operations are encouraged by the local authorities and your local partner might be supportive or he might just be a liability. The government takes extra care of export and manufacturing industries, particularly it helps in getting the land on which to construct a factory. If someone sets up a business in a the kingdom’s free trade zone, and there are many in the region, then all the import and export duties are exempted, which includes commercial taxes, property fees, land restrictions on the transfer of capital invested in the zone. An alternative way is to buy a going concern, which is comparatively a straightforward process as it does not require lodging capital or obtaining sponsorship. You just agree a price and transfer the ownership of the business. The Chambers of Commerce can help in start ups and are adept at cherry picking which are potentially profitable newcomers to the kingdom. If you succeed in winning the confidence and support of a Chamber of Commerce; it will help your cause to a great extent. (Shoult, 315-317) Doing business with Arabs, you will find it hard but polite bargaining and you will see that they are expert at it. You will have to be completely confident about your contractual agreement which you have done with your local partner. But be careful not to leave any gaps because Arabs are brilliant at exploiting them. In most of the cases, all the Arab businessmen meet their obligations completely. You will find the experience of doing business with Saudi’s friendly and pleasant. The relationship will be long lasting. While we're on the subject, the Arabs rarely say a direct “no” to a proposal, so it is very important that you must observe and listen carefully. If the response is ‘I’ll think about it’, then there is a very good chance that you will get the project. There are a lot of potential gains of starting and developing your own business. But you have to be brave because it is not meant for the faint hearted people. Another important point to remember is that you are not a citizen of the country and when you leave or sell your business, and then your partner has time on his side. (Shoult, 427) Legal Obligations The corporate law in Saudi is very much like the western world that means the businesses can be run either as limited liability operations or a private company. Setting up a new business or when buying a going concern can be a complicated process and one should obtain local legal advice about registration formalities. The foreigners can use a western-Arab joint law firm. The expatriates from the west are generally more qualified and the main reason for that is that they don’t find work if they are not well qualified. All these qualifications are carefully checked with the Saudi Arab’s issuing bodies, they don’t care from where they were obtained. Therefore it has been seen that the Western expatriates tend to occupy senior positions, with handsome salaries and with bonuses. People from south Asia; who are sometimes incorrectly referred to as TCNs ‘Third Country Nationals’ usually occupy unskilled or semi-skilled jobs and they are paid accordingly. (Shoult, 532) People with professional qualifications and experience as good as those of a westerner are also enjoying similar benefits, foreign worker remuneration is linked to what they would expect to earn in their own regions, in most of the cases which is generally higher for western workers. Now, this trend is beginning to change, especially in the field of technology. All you need is a powerful employer or a sponsor, which is a great weapon for anyone coming from abroad. After observing his skilful negotiating can be a good experience. (Shoult, 536) The concerned authorities are usually helpful and try not to be difficult unless they have good reasons for that. In most of the cases everyone’s working life in the region is easier if they are polite and patient. You should smile and seek advice that confers respect on the person asked and you will generally find that Arabs are very helpful and friendly. Interesting fact is that the recruitment of foreigners is an expensive exercise for employers in the country, which includes travel costs, recruitment consultant fees and legal expenses. As a result, few employers put their investment at risk by treating employees badly, and the great majority of expatriates have been prospering in the kingdom for many years. Works Cited: Shoult, Anthony. Doing business with Saudi Arabia. GMB Publishing, 2006. Print. Read More