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KINGDOM OF SAUDI ARABIA COUNTRY REPORT

MAR 2013

Kingdom Tower, Riyadh

The information contained herewith is for general information only and not to be construed as advice of any kind.

Accordingly BCA does not: Make any warranty, express or implied, regarding the accuracy, correctness, completeness or use of any of the information depicted within this report. BCA will also not assume legal liability for the use of any such information or acts or omissions

committed as result of the use of this information.

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Table of Contents

1. General Information ___________________________________________________ 3

1.1. Government Structure _________________________________________________ 3

1.2. Population __________________________________________________________ 4

1.3. Economic Indicators ___________________________________________________ 4

1.4. Economic Sectors _____________________________________________________ 5

2. Economic Forecast ____________________________________________________ 5

2.1. GDP Growth _________________________________________________________ 5

2.2. FDI Inflow ___________________________________________________________ 6

2.3. Overview of the construction sector ______________________________________ 6

3. The Construction Industry ______________________________________________ 6

3.1. National or Key Projects in Pipeline ______________________________________ 6

3.2. SWOT ______________________________________________________________ 7

3.3. Cost of Main Materials _________________________________________________ 8

3.4. Labour Cost __________________________________________________________ 8

3.5. Construction Cost and Trend ____________________________________________ 9

3.6. Forms of Contracts and Payment Terms ___________________________________ 9

3.7. Types of Available Projects ____________________________________________ 10

3.8. Business Cultures ____________________________________________________ 10

3.9. FDI ________________________________________________________________ 11

3.10. Setting Up Business ________________________________________________ 11

3.11. Sectors where Singapore construction companies can engage ______________ 12

3.12. Forecast and Analysis _______________________________________________ 12

3.13. Green Mark _______________________________________________________ 13

4. BCA, MND, Industry Engagements and Issues _____________________________ 13

4.1. Visits to Singapore by Government, Private Companies, Mission ______________ 13

4.2. BCA, MND Visits, Missions _____________________________________________ 14

4.3. Seminars, Conferences and BCA Engagements _____________________________ 14

4.4. Projects done by Singapore Companies __________________________________ 14

5. Assessment _________________________________________________________ 14

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5.1. Market Assessment __________________________________________________ 14

6. Travel and other information __________________________________________ 15

6.1. IES office in Saudi ____________________________________________________ 15

6.2. Flight connectivity ___________________________________________________ 16

6.3. Currency ___________________________________________________________ 16

6.4. Visa _______________________________________________________________ 16

1. General Information

1.1. Government Structure

The Saudi Arabian government is headed by the King and the Crown Prince, who is

appointed by the King himself to be the second in line to the throne. The King is

assisted by the Council of Ministers and advised by the Consultative Council. He is

also the commander in chief of the military.

The Council of Ministers consists of the Prime Minister (the King), the Deputy Prime

Minister (the Crown Prince who is also a Minister with portfolio), 21 ministers with

portfolio and seven ministers of state. The Council advises the King and facilities the

country’s development by drafting and overseeing implementation of internal,

external, financial, economic, education and defense policies as well as the general

affairs of the State. It is the final authority for financial, executive and administrative

matters.

Fig. 1 – King Abdullah bin Abdulaziz

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Fig. 2 – Crown Prince Salman bin Abdulaziz

The Consultative Council is a legislative body that consists of 150 members

appointed by the King for a four-year renewable term. Based on their experience,

they are assigned to one of the 12 committee, which deals with human rights,

education, culture, information, health and social affairs, services and public utilities,

foreign affairs, security, administration, Islamic affairs, economy and industry, and

finance. The Council proposes new laws and amends existing ones without prior

submission to the King.

Saudi Arabia is divided into 13 provinces, each with a governor, deputy governor and

Provincial Council. The Council consists of the Chairman (the governor), the vice-

chairman (the deputy governor) and at least ten private citizens. It advises the

governor, deliberate on the needs of their province, work on the development

budget, consider future development plans and monitor ongoing projects. It also

submits reports to the Minister of the Interior, which is passed on to the appropriate

government ministries and agencies for

1.2. Population

According to the Central Department of Statistics and Information of the KSA, the

total population stood at approximately 28.4 million in 2011 with a population growth

rate of 2.9%.

1.3. Economic Indicators

Based on the World Bank statistics, the GDP of the KSA was US$576 billion in 2011,

while the GNI per capita stood at US$17, 820, placing the country into the high

income economies.

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1.4. Economic Sectors

According to the Saudi Arabia Energy Information Administration, the KSA is the

world’s largest producer and exporter of petroleum liquid in 2010, where oil export

revenues have accounted for 80-90% of its total revenues and more than 40% of its

GDP. In recent decades, the Kingdom has increasingly diversified its economy to

lower its reliance on hydrocarbon revenues. Today, it produces and exports a variety

of industrial goods worldwide.

The private sector is also playing an increasingly larger role in the Saudi economy,

where it now accounts for 48% of the GDP largely due to the construction and

manufacturing sectors. The sector is expected to continue growing, especially as

Saudi Arabia opens its doors further to foreign investment.

2. Economic Forecast

2.1. GDP Growth

Fig. 3 – GDP Growth of KSA

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2.2. FDI Inflow

FDI inflow – US$28.1 bil (2010)

2.3. Overview of the construction sector

With Saudi Arabia, the largest economy in the GCC enjoying a period of

sustained growth fuelled by high oil prices and ongoing investment in massive

new infrastructure, interest is growing in the Kingdom's booming construction

industry. According to recent figures the construction industry in the Kingdom is

estimated to grow from its current $36.5 billion contract awards value in 2011 to

close to $43.8 billion by 2013.

3. The Construction Industry

3.1. National or Key Projects in Pipeline

Project Name

Value (US$mn)

Contractor/Consultant Client/developer Expected Completion

Status

King Abdulaziz Airport Expansion

7240 Saudi Bin Laden Group General Authority of Civil Aviation

2014 Construction

Madinah Airport Expansion

1500 NA General Authority of Civil Aviation

2016 Bids evaluation

Prince Mohd Bin Abdulaziz Airport

2400 NA General Authority of Civil Aviation

2016 Construction tender

Damman port expansion (1.5m TEU)

613 NA Saudi Ports Authority and Saudi Global Ports

2014 Planning

Jeddah monorail

5600 Bombardier Saudi Railway Authority

2014 Contract awarded

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Mecca MRT Phase 1

5330 Al Balad Al Ameen Co. Saudi Railway Authority

2017 Construction

Kingdom Tower

1200 Saudi Bauer Foundation Con.

Kingdom Holding Company

2018 Contract awarded

Jeddah Social Housing

332 Daewoo Engineering and Kele

Saudi Ministry of Housing

2016 Contract awarded

Jubail Industrial City

20000 Sadara Chemical Company

Saudi Aramco 2016 Planning

3.2. SWOT

Strengths

Saudi Arabia has the largest construction sector in the Middle

East.

Alongside active government spending, efforts are also being made to increase private investment.

The Ninth Development Plan for the Kingdom of Saudi Arabia sets out plans to invest SAR1,444bn (US$385bn) in social and economic infrastructure between 2010 and 2014.

Government-led activity boosted by oil windfalls is driving demand in the construction industry.

Ministry of Housing to build 500,000 social housing units during the next 5 - 7 years.(Projected value US$70 bn)

Weakness

The industry relies more heavily on government contracts than on a free market which is driven by the private sector.

In view of the global economic downturn and current legislation, Saudi banks have played a limited role in mortgage financing. This has contributed to increasing the pressure of obtaining affordable housing.

Permits for construction and development require lengthy process and can delay project.

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Opportunities

Large government investments in energy projects, infrastructure and affordable housing are being made.

Increasing private investment should provide opportunities for large foreign contractors to increase their involvement in the country.

New mortgage legislation that should soon be enacted will, in time, improve access to housing finance for middle- and lower-income Saudis and small- and medium-sized property developers.

Foreigners will be granted the right to buy real estate, according to the new foreign investment code. This will bolster demand and diversify the client base.

Emerging market in religious tourism to boost hotel and hospitality sector.

Threats

The entire Gulf Cooperation Council region suffers from rising input costs and reduced availability of labour.

Political stability is in doubt after various attacks – in which the country has appeared as a source as well as a victim of terrorism – although this threat has abated somewhat.

Though the Arab Spring did not affect the GCC much, there is still potential threat from future uprising.

3.3. Cost of Main Materials

Refer annex A

3.4. Labour Cost

Refer annex B

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3.5. Construction Cost and Trend

2012 saw a peak in the value of GCC projects awarded. With an estimated value of US$358bn in the pipeline, Saudi Arabia made up for 40% of the total awarded projects in the region. As a result Saudi Arabia's buoyant construction sector continues to show strength. The total value of contracts issued in the Kingdom's construction sector grew by 50% in H212 (following a 140% year-on-year increase in contract awards during 2011). Taking into account the normal lag of these types of flagship awards, we expect 2012 real construction industry growth of 9.3% and a similarly positive picture for 2013, where the forecast is 7.5% growth. However, on the back of the sheer size of the Saudi construction industry, the average growth rate of 5.1% is expected between 2013 and 2022, with construction value topping close to US$75bn in 2022.

3.6. Forms of Contracts and Payment Terms

Construction contracts in the private sector are generally based on FIDIC forms of contract and are amended to suit the particular conditions for each project. Employers prefer lump sum versus re-measured contracts, and normally exercise great control in the administration of the construction process by

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imposing various restrictions on the engineer’s (consultant) authorities under the contract. All contracts are subject to Saudi Arabian laws where Islamic Sharia is the prime source of legislation. Litigation and arbitration are both available for resolution of disputes in the private sector. Contracts, their documents and annexes shall be drafted in Arabic. Another language beside Arabic may be used, provided that Arabic is the prevailing language for interpretation and execution of the contract as well as for determination of its specifications, plans and communications relating thereto.

Within the public sector, however, construction contracts are based on the Standard Conditions for Public Works, which are amended to suit particular projects. These conditions are generally based on those given in the FIDIC Conditions of Contract for Works of Civil Engineering Construction, but with greater control given to the employer for the administration of the contract. All public work contracts are let on re-measured basis and subject to the Saudi Government Tendering and Procurement Regulations, as issued by Royal Decree M/58 dated 4.7.1427 AH. Disputes are referred to the Grievance Board and will not be dealt with under arbitration, unless a Special Council of Ministers Resolution is issued.

3.7. Types of Available Projects

Social housing, infrastructure, healthcare, port and transport.

3.8. Business Cultures

The Saudi corporate world is perhaps the most unfamiliar of any of the Gulf nations and in all likelihood, expats are going to have to remain flexible and learn new skills in order to make the most during their time in the country.

The business culture of Saudi Arabia is prototypically Arabic, in that a great emphasis is placed on personal relationships between business associates – Saudi businessmen will always prefer to do business with people they are familiar with, and who they feel they can trust. For this reason, nepotism is a characteristic feature of the Saudi business world, and is viewed as both natural and advantageous. One has to to remain patient during your first business meetings with your new Saudi partners – a significant chunk of time will be devoted to 'getting to know each other', before any 'actual business' is conducted. Don't get impatient: the forging of long-term, personal business relationships in Saudi Arabia is certainly worth the time and energy.

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The management style that predominates in Saudi Arabia is paternalistic and strictly hierarchical – decisions are made at the top level, and clear, direct instructions are then filtered down. To expect anything more egalitarian, would fly in the face of the established culture and traditions of the country. Business etiquette in Saudi Arabia reflects the intimate relationship between spiritual, personal and professional life mentioned above. Don't be shy to resort to flattery – it will stand you in great stead to appear (or better yet, to be) enthusiastic about Arabic culture and business practices. When greeting new associates, handshakes are common between men: start with the most senior person present, and proceed anti-clockwise around the group. Physical contact with women in public is frowned upon. Eye contact is also extremely important in Saudi Arabia – you will be judged on your sincerity by your ability to hold someone's gaze.

Finally, don't be surprised to hear people raising their voices, and emphatically expressing their emotions during business meetings in Saudi Arabia – this is seen as a sign of passion and engagement, and the ability to communicate in this way is a highly valued personal attribute in the Gulf region.

3.9. FDI

Saudi Arabia was the big regional winner in 2011 with 161 investments

worth $ 14.7 bn, establishing the Kingdom as the largest recipient of FDI in

ME by value.

3.10. Setting Up Business

Registration of a company in Saudi Arabia follows this 11-stage process:

1. Prepare the documents including legalisation by the Saudi consulate. This takes 2 weeks.

2. Submit an application to the Saudi Arabian General Investment Authority (SAGIA) and obtain an investment license. This takes 3 to 4 weeks and costs 2000 SR.

3. Obtain approval from the Companies Department at the Ministry of Commerce and Industry after submitting the Articles of Association and the company name. This takes 5 days.

4. Sign the Articles of Association in front of a notary public. This takes 2 days.

5. Publication of the company name and a summary of the Articles of Association in the official gazette. This takes 2 days and approximately 5500SR.

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6. Open a bank account, transfer the share capital and obtain a certificate stating that the capital has been deposited - a process which takes 2 weeks.

7. Register with the General Department of Passports, Ministry of Interior and the Ministry of Labor and obtain a work visa for the company manager. This takes 2 weeks.

8. Company manager getting his visa stamped at the Saudi consulate and obtaining his work permit and residence permit upon arrival in Saudi Arabia a process that takes 2 weeks.

9. Registrations with the Commercial Registry at the Ministry of Commerce and Industry and the Chamber of Commerce. This takes 2 days and costs 8100 SR.

10. Obtain a file number and certificate of business commencement by registering with the Department of Zakat and Income Tax (DZIT), Ministry of Finance. This takes one day.

11. Register with the General Organisation of Social Insurance. This takes one day.

There are several ways of doing business in Saudi Arabia, most common of these are:

Direct Exports Non Resident Execution of Projects Commercial Agents and Distributors Franchises 'Technical and Scientific Offices (Rep Offices) Permanent Branches Temporary Branches Sole Proprietorships 100% Self-Owned Companies (Limited, Joint Stock) Joint Venture Companies (Limited, Joint Stock)

3.11. Sectors where Singapore construction companies can engage

Social housing, mid-scale infrastructure, healthcare facility, industrial and

town master planning, hospitability in the holy provinces, airport

expansion.

3.12. Forecast and Analysis

The KSA government is aggressively investing in short-term projects to

fast track the country's development programs, which has accordingly

fuelled the robust growth of KSA's construction sector.

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Huge investment into the social infrastructure sector is likewise in the

pipeline, in part to appease the populace. Both the SAR1.44trn

(US$385bn) Ninth Development Plan(2010-2014), and social benefit

packages worth a total of US$130bn – the latter announced in response to

the protests which swept the region during 2011 – are heavy on social

infrastructure spending. Healthcare and education investment are also

growing, and the potential for private sector participation is increasing.

The annual Haj (the Muslim pilgrimage to Mecca) continues to place

intense pressure on the Saudi infrastructure framework. To cater for the

growing – if yet uneven – demand picture the government announced in

2012 a US$16.5bn transport revamp to modernise the transport system in

the holy city of Mecca. The scheme is accompanied by plans to increase

its current hotel capacity of 53,000rooms (32,000 of these are in Mecca

and Medina), by 60% over the next few years. Furthermore, many

countries like Singapore are pushing the Saudi government to increase the

religious visas.

3.13. Green Mark

LEED certification is currently adopted in Saudi.

King Abdullah University of Science and Technology (KAUST), KAUST's

new campus is the Kingdom of Saudi Arabia's first LEED certified project

and the world's largest LEED Platinum project.

Saudi Green Building Council (SGBC) is pushing for more new buildings in

adopting green building solutions in new infrastructure and construction of

new buildings.

4. BCA, MND, Industry Engagements and Issues

4.1. Visits to Singapore by Government, Private Companies, Mission

Saudi Arabia General Investment Authority (SAGIA) – Mar 2012

Saudi-Singapore Business Council (SSBC) – Sep 2012

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4.2. BCA, MND Visits, Missions

IES/BCA Housing Business Mission (Riyadh & Jeddah) – Apr 2012

MTI/BCA Jeddah Economic Forum – Mar 2013

4.3. Seminars, Conferences and BCA Engagements

SBF Middle East Country Briefing and Update Series - Spotlight on KSA Doing Business Seminar Series – Aug 2012

4.4. Projects done by Singapore Companies

1. Surbana Consultants - Master planners for the Al-Khobar Corniche; 2. Rotary Arabia - Tank farm project in Jubail by Saudi Aramco Total Refining

and Petrochemical Company (SATORP); 3. Changi Airport International (CAI) - Six year management contract for King

Fahd International Airport in Dammam that ends in 2014; and 4. NCS Smart Building Consultancy for the HQ building project by the

Ministry of Higher Education (MoHE) in Riyadh. 5. PSA International - Second container terminal at the King Abdul Aziz

Seaport in Dammam 6. Quantum automation – LED signage project in Riyadh 7. Transtel Engineering 8. Cutech Process Services

5. Assessment

5.1. Market Assessment

Singaporean companies are well-placed to play the role of a master planner or solutions integrator. Many have accumulated experience in urban infrastructure and townships, incorporating residential and commercial developments with educational, recreational facilities and transportation.

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In light of Saudi government’s plan to build 500,000 social housing units during the next 5 - 7 years, Singapore companies like Surbana can master plan and manages mass housing projects while companies like Contech Precast can transfer their precast technology to Saudi Arabia. The airport and hospitality sector is already busy with projects at every stage from feasibility through to construction/expansion to cope with religious tourism. The General Authority of Civil Aviation estimated that it will spend between US$10-billion and US$20-billion on developing and upgrading airports by 2020. The major investment sectors for Singaporean companies are oil & gas services and infrastructure development.

Sound understanding of the local business culture and landscape are

some of the major obstacles that Singaporean companies face. Those

who are not familiar with the market may not have the patience to

understand the importance of cultivating long term relationships (Wasta) in

the Kingdom. The local business environment is tough with many layers of

bureaucracy and having a good partner with ‘Wasta’ would provide a

smooth head start. On an ending note, only Muslims are allowed to work in

the holy cities.

6. Travel and other information

6.1. IES office in Saudi

1. International Enterprise Singapore, c/o Consulate General of the

Republic of Singapore - Kingdom of Saudi Arabia (Jeddah), Al-

Naeem District, Hera St Behind Danube, Madina Road Opposite

Masjid Al-Ghaith P O Box 18294, Jeddah 21415

Tel: 966-2-6073980/81

Fax: 966-2-6074280

Centre Director: Mohd Nordin Yatim

2. International Enterprise Singapore, c/o Embassy of the Republic of

Singapore - Kingdom of Saudi Arabia (Riyadh), Diplomatic Quarter,

P.O. Box 94378, Riyadh 11693, Kingdom of Saudi Arabia

Tel: +966-1-4884733/+966-1-4803855 Ext 222

Fax: 966-1-4830632

Centre Director: Feroz Siddiqui

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6.2. Flight connectivity

1. Singapore Airline flies thrice weekly to Riyadh and Jeddah

2. Saudi Air flies twice weekly to Abha, AlMadinah, Damman,

Jazan, Jeddah and Riyadh.

6.3. Currency

Currency exchange - 1 SGD equivalent to 3.02 SAR

6.4. Visa

Visa application is processed through appointed travel agent by the

Saudi Embassy. Approx. cost S$150 and 1month processing time from

obtaining Letter of Invitation from Saudi firms/Chamber of Commerce

to Visa application. Photos for visa must be 40 x 60 mm (non passport

standard size).