Saudi Arabia - Market ChallengesSaudi Arabia - Market Challenges
Technical Standards and Regulations
Saudi Arabia continues to move toward adherence to a single standard, which is often based on International Organization for Standardization (ISO) or International Electrotechnical Commission (IEC) standards, in technical regulations to the exclusion of other international standards, such as those developed by U.S.-domiciled standards development organizations (SDOs). Saudi Arabia’s exclusion of these other international standards, which are often used by U.S. manufacturers, can create significant market access restrictions for industrial and consumer products exported from the United States.
Branding and Content
The Saudi market can be very sensitive to branding and materials content. U.S. companies are encouraged to familiarize themselves with Saudi traditions, customs, and strict observances of the Islamic faith to ensure that branding does not unintentionally offend local norms and practices.
Performance and Localization Requirements
Government-controlled enterprises in Saudi Arabia are increasingly introducing local content requirements for foreign firms. Aramco’s “In-Kingdom Total Value Added” program, for example, strongly encourages the purchase of goods and services from a local supplier base and aims to double Aramco’s percentage of locally-manufactured energy-related goods and services to 70 percent by 2021. Saudi Arabia’s military is reforming its procurement processes and policies to incorporate new Saudi employment and localized production goals. The SAG’s Vision 2030 program calls for 50 percent of defense materials to be produced and procured locally by 2030, and simultaneously seeks comparable increases in the number of Saudis employed in this sector.
The SAG is adopting progressively stricter quotas for hiring Saudi nationals. U.S. companies report increasing difficulties obtaining visas for expatriate professional employees. Firms also may face challenges in finding sufficient numbers of qualified Saudi nationals to fill particular jobs.
Intellectual Property Rights Protection
While the SAG has made significant progress in Intellectual Property Rights (IPR) enforcement in recent years, deterioration of the Intellectual Property (IP) situation occurred in certain sectors in 2017. Saudi Arabia was included on USTR’s Special 301 “Watch List” in April 2018, following an increase in the number of IP stakeholders’ complaints about the IPR situation in the Kingdom, particularly with respect to pharmaceuticals, software, digital and signal piracy, and counterfeit goods. (Saudi Arabia had previously been removed from USTR’s Special 301 report in 2010 following improvements in the Kingdom’s IPR enforcement regime.)
The SAG has shown improvements in combatting the proliferation of counterfeit products in recent years, with increased resources devoted to marketplace enforcement and stricter penalties for copyright and trademark violators. However, enforcement often remains uneven: stakeholders cited a decrease in overall counterfeit goods seizures over the course of 2016 amid changes in SAG leadership, while copyright enforcement remains hampered by an insufficient number of inspectors. Moreover, manufacturers of consumer products and automobile spare parts are particularly concerned about the availability in Saudi Arabia of cheap counterfeit products, often produced in China.
Companies which have significant experience with government procurement in Saudi Arabia report they have carried Saudi government receivables for years. The problem has become more visible since the sustained fall in oil prices commenced in 2014 and the SAG’s introduction of austerity measures. U.S. companies should contact the U.S. Commercial Service at the Embassy in Riyadh or Consulates in Dhahran or Jeddah if payment delays persist.
Unsolicited Contracts (Scams)
The U.S. Commercial Service in Saudi Arabia has noticed an uptick in the number of U.S. firms receiving unsolicited but seemingly attractive business proposals from scam artists. Businesses should be particularly wary of unverified Saudi “companies” and/or government entities promising lucrative business deals and demanding staggered payments to progress through a non-existing procurement process. Perpetrators of sophisticated internet scams use Saudi Arabia’s wealth and admiration for American products and services to lure unsuspecting U.S. companies and citizens with “419” type scams (named for a Nigerian law aimed at combating financial crimes). U.S. businesses should verify the identity of any potential “partner” and the veracity of proposals before committing any resources. If they have doubts, they are encouraged to contact the Commercial Service office in the U.S. Embassy in Riyadh, or U.S. Consulates in Dhahran or Jeddah, for verification assistance.
Commercial Disputes Settlements
In 2016, Saudi Arabia established the Saudi Center for Commercial Arbitration (SCCA), with arbitration rules that conform to internationally recognized standards and principles. The SCCA offers comprehensive and efficient dispute resolution services to both domestic and foreign firms. Some firms have already started incorporating the SCCA by reference in their contracts. SCCA arbitration awards can be enforced in local courts if they comply with Sharia law.
The enforcement of foreign arbitration awards for private sector disputes has yet to be upheld in practice. SAG agencies are not allowed to agree to international arbitration without express approval from the Council of Ministers, which is rarely granted.
According to the IMF, Saudi Arabia’s inflation rate averaged 2.6 percent as of October 2018. Costs went up faster for food and non-alcoholic beverages; transport; furnishings and health. In addition, prices rebounded for miscellaneous goods and services, recreation and culture, and fell for clothing and footwear.
Another challenge sometimes faced by U.S. visitors is the comparatively difficult process of obtaining Saudi visas. U.S. visitors are encouraged to contact the Saudi Embassy in Washington, DC to familiarize themselves with the visa requirements and process.
Saudi Arabia Trade Development and Promotion