Doing Business in Saudi Arabia

Overview

On Wednesday 5th February, the second in our UK-wide series called “Doing Business in Saudi Arabia” took place in Bristol. The day was focused on Infrastructure & Construction and was a great success with our sponsor AEI Saudi and supporting partner Clyde & Co. 

This workshop looked to address key questions and concerns about entering the Saudi market, while analysing the wide range of opportunities available across the infrastructure and construction sectors. Attendees heard firsthand from companies that have successfully worked with Saudi Arabia, providing an unbiased view of the opportunities, challenges, and practical steps for overcoming obstacles. Following the workshop, there was an opportunity to network and engage directly with panellists.

 We welcomed representatives from over 50 companies across the South of England to hear from our expert panellists, as well as through an engaging presentation from Dr. Mohammed AlSwaidan, CEO of International Investment Gate, who shared insights into the opportunities within the real estate sector and how to best access it.  

Key Take Aways

Through the panels and presentations, there were numerous key insights for businesses looking to enter the region. Firstly, the Kingdom’s ambition and momentum within the sector is undeniable, even as ambition and timeframes begin to mismatch. 

Secondly, innovation remains a central focus as KSA looks to position itself as a global exporter of disruptive technologies and infrastructure expertise. This has been driven by a focus on localising skills through growing domestic training and education.

Thirdly, the demand for specialist expertise only continues to grow. Tier 1 companies in areas like consultancy and logistics are thriving but their capacity is reaching its limit. Tier 2 and 3 companies with niche expertise and fresh ideas are now finding their place in the market as the sector demands further capacity. These smaller companies have the opportunity to become key players. 

Fourth, demand for data centres, logistics, transport support, and technical service providers is increasing rapidly. Sustainability goals are driving transformation and new levels of quality are being reached. This links to increasing demand for waste and water management that have seen a growth in private public partnerships. 

Fifth, the unprecedented opportunities for UK companies in KSA are not limited to the media grabbing Giga Projects like NEOM. More minor projects are equally important and are often more accessible for UK companies to invest in while possessing similar opportunities. 

Last but not least, commitment to the market in the long-term is critical. KSA no longer encourages fly in – fly out models of doing business in the same way it used to. UK businesses must learn the rules surrounding headquartering and acknowledge that doing business in Saudi requires time on the ground, sustained investment, meeting face-to-face, and building relationships with your partners/customers.. 

Panel 1 Insights

Panel 1 focused on providing an overview of growth within the infrastructure and construction sector and how these fit into Vision 2030. The panel also explored some of the larger projects in the Kingdom while briefly touching on potential opportunities for stakeholders to provide a comprehensive understanding of the market environment. 

Nathaniel Horrock-Burns from Clyde & Co encouraged the audience to see beyond the Giga projects and not lose focus on the smaller projects that have a lot to offer in all industries. He argued that there are lots of smaller, ambitious time framed projects, but with these time frames and scale, companies have to be careful about how much they can take on. Knowing capacity limits will be essential but providing this is accounted for, there are significant opportunities for smaller UK companies. 

Nathaniel also highlighted the wide range of markets open to opportunity. While transport is a core industry with a high demand for investment, utilities like the water industry, sewer and treatment projects are other high demand areas. Moreover, he spent time explaining the importance of the new Civil Transaction Laws that represent the modernisation and codification of laws. This is designed to invite new investment and provide clarity for investors.

Marcus Siddons, Director at Baker Wilkins & Smith, spoke about his company’s involvement in various PIF and non-PIF projects. Again, he discussed time scale pressures with Vision 2030 being over halfway and lots has to be delivered in the next several years. Alongside this, he complimented Nathaniel’s comments by highlighting that while opportunity is rife, companies have to be selective to avoid capacity constraints. 

Marcus highlighted other sectors of opportunity like data centres and material testing while reinforcing the overarching theme of sustainability within the sector. Marcus also reinforced the understanding that the time it takes for a company to set up in the Saudi markets and prepare frameworks is significant and it takes time for companies to invest until they see returns. As he said, Saudi Arabia is “not a get rich quick scheme” and instead requires investment and patience. In summary, Marcus explained that to be successful in Saudi, UK companies need “real investment, real time, and real talent to make it work”. 

Riyaz Kazi, joining virtual from Deloitte, discussed his experience with the transformation of the transport industry. As he notes, to unlock the economy you need to unlock the transportation and efficiency of the increased population that is going to emerge in some major cities. Within this was the revolutionising of the operations and maintenance of highways alongside the changes in how contracts were designed to become performance based and achieve better outcomes. Riyaz also noted that while there remains a huge push on highways, there is now a push for new ways of travel. He highlighted heliports and drone powered autonomous vehicles demonstrating how the Saudis are “very much planning for the future”. 

Riyaz also went into NEOM’s sub-projects like Oxagon that represents the industrial heart of NEOM. This will be a next generation port, supply chain, and logistics platform. Within its different zones, tenants have already been signing up and will go live this year or next. From this, he discussed the differences between the proponent arm (the owner of the vision of the assets that will be constructed and designed) and the project arm (overseeing the delivery and design of the projects). This introduced the way to lead international consultants and sub-consultants at both a local and international level work together to deliver on Vision 2030 projects. 

Dr Wissam Al-Daoud, program director for Trojena project at Bechtel, discussed supply chains, capacity, management, and operations along with the progression in the Saudi economy that these projects represent. Dr Wissam discussed how Bechtel has built up from smaller projects in the oil and gas industry, into the Riyadh Metro project, and then on to NEOM and this reflects how the scope and scale of the Saudi economy has changed over the decades. 

Talking about Trojena, he used the project to illustrate the challenges within the local supply chain. With his team of 500 people at Trojena, it takes him 18 hours to get there and with steel being manufactured in Dubai, it takes two days by truck to reach them. This extremely remote location creates massive logistical challenges. It is here that Dr Wissam called attention to the opportunity that the market has to build a better network to supply these remote projects. 

Again, Dr Wissam focused on the saturation of Bechtel and as big companies struggle, it is an opportunity for tier two firms to enter now or miss huge opportunities. Moreover, as prices rise, PIF is looking to build partnerships, but that local presence is essential, highlighting Bechtel presence in Saudi since 1976 as part of their success. Lastly, he noted that when construction is completed, there is a knowledge gap within the management systems and operations that will then take over the projects. 

Panel 2 Insights

Panel 2 delved into the practicalities of getting into the Saudi market alongside common pitfalls that a UK business may fall into. The speakers reinforced the idea of Saudi Arabia being a long term market, and set out some initial steps a company could take, including reaching out to advisory and legal firms to establish sector specific requirements, learn from trusted advisors like SBJBC and AEI Saudi, and develop working relationships and partnerships with Saudi companies. Abdulaziz AlGhifaili, UK and Europe Director at MISA, made a comment from the audience that companies can reach out to MISA and take advantage of their free of charge advisory services, which help companies choose the right providers and advisors.

The sponsor of this event, AEI Saudi, specializes in assisting international and UK firms to establish themselves in the KSA market. They have been offering expert advice since 2012 and with their team based in Riyadh, can be a trusted partner in any company’s exploration of this dynamic market. AEI Saudi has a strong track record, helping set up 75 companies within the Kingdom and getting set up times down to 83 days on average. 

Adam Hosier, cofounder of AEI Saudi, began with an acknowledgment that the market has changed beyond recognition in the last five years and positive reforms are happening every year. He suggests that the first step for any SME is to fly in and visit KSA, meet your potential partners, and fly out. However, in the long term, Saudi is beyond the fly in fly out model, so to get that first and then second contract, SMEs must build a presence and “commit don’t commute”. Adam highlighted that for SMEs looking to conserve cash flow, they can start building a pipeline, get close to a contract, and then when the company believes it is three months out, move into the Kingdom. 

Similar to panel 1, Adam again notes that while tier one firms have all the projects in Saudi, they’ve run out of internal capacity and are looking for tier two to pull in and assist. In particular, they need help in building and housing workers; support services are in high demand. To begin this process, he discussed using an employment service provider while the company learns the market, what Universities to hire from, and build internal employment programs. Additionally, with market entry, it can be essential to work with a platform partner to help develop an interim market model and prepare thoroughly before commitment.

Adam noted one success story in particular about a high-end consultancy in ticket sales. The lesson from their success was being cutthroat to ensure the last 5% of payment after experiencing delays, immediately stopping delivery of the final stages, and threatening to report the buyer. This is an example that the market has changed, and you can be more aggressive to help mitigate common issues surrounding late or non-payment. Additionally, Adam noted that when it came to following the Saudization requirements, an international company must ensure they have good advice on what levels to achieve. It is challenging to revert to a lower level of Saudization so caution and seeking trusted advice is always recommended.

Stefano Pucello, International Trade Advisor with the Department of Business and Trade (DBT), used his time on the panel to discuss what DBT can do to support businesses entering the Saudi market. He suggests using an international trade advisor to develop an understanding of what you want to do in the market, the different routes to market, depending on whether the company is selling goods or services, and access the personnel overseas with critical sector specific knowledge. He also suggested that companies should use trade missions run by SBJBC and DBT to gain exposure to stakeholders and learn as much as possible about the market. 

Stefano also explained to attendees about UK Export Finance (UKEF) and the role they can play in protecting against financial challenges. UKEF can work with a company to act as a guarantee to banks and protect international transactions. UKEF can also help a company cover capital issues and. help guarantee up to 80% of the contracted terms should payment required by the contract fall through. 

Stefano used his success story of a food and beverages consultancy securing a contract with the King Salman Foundation Park to show that unique services are required and well sought after. He encouraged UK businesses to consider how their goods or services could find a unique niche in the Saudi market.

Atif Mulla, legal director at Clyde & Co, raised many points surrounding the common pitfalls of entering the market and how to customize your approach while mitigating risk. He suggested that legal advice should always be sought and that a strong knowledge of the sector, the regulatory environment, and what approvals might be needed is essential. As an example, a law firm can only operate with a license from the Ministry of Justice and with Saudi shareholders; a financial services firm requires the approval of the Saudi Central Bank and while entity incorporation may only take three months, licensing may take longer, and companies must be prepared for this. 

In addition, some sectors face restrictions for international investment or incorporation. Oil and Gas for example are not available for foreign investment however, a foreign entity can provide ancillary services. Atif also highlighted that new laws are being designed to provide a streamlined regulatory framework. Once, foreign investors had to go to various ministries but now, investors just need to go to the Saudi Business Centre which acts as a regulatory hub. However, even with streamlining services, Atif warns that companies should still seek advice to ensure they are following regulations. 

This advice is particularly important when it comes to knowing if a company requires a regional headquarters within the Kingdom. Atif raised the point that if a company is in contract with a public entity, then they must have a physical presence in KSA. Therefore, it is critical to keep a careful eye on requirements and ensure that trusted advice is available. 

Within Atif’s discussion, the point was raised that on Saudization requirements, most of the information can be found on MISA’s interactive website which highlights all the details and answers to many of the questions asked at the debate. 

Presentation

Between the two panels, Dr Mohammed AlSwaidan of International Investment Gate gave a valuable presentation on an overview of the infrastructure and construction sector and in particular how to buy real estate in Saudi Arabia. The first slide gave a good overview of the Kingdom’s total projects to provide attendees with a sense of the scale of the 255+ total projects and $1.7 trillion invested. 

Dr Mohammed then took the audience through the two different ways to buy real estate in Saudi. Firstly, Direct Ownership. This requires a license, a minimum value of SAR 30 million assets, and is limited to the related business property only. Secondly, there is the subscription to real estate funds. For this, you are required to be a qualified investor if your investment exceeds SAR 200,000 (£40,000) and it must be done through a licensed Capital Investment Company from the Capital Authority Market (CMA). 

Finally, he took everyone through a Common Fund Structure, a screenshot of which is below. This was an invaluable discussion on the right way for UK investors to enter the Saudi market.

Summary

Another huge thank you to our sponsor, AEI Saudi, and our supporting partner, Clyde & Co, for helping make this event such a success. SBJBC, AEI Saudi, and Clyde & Co are always ready to assist in providing insights, webinars, and practical advice for businesses looking to Saudi Arabia as a new market for entry. For any enquires please reach out here:

SBJBC

Website – https://www.sbjbc.org/

Email – info@sbjbc.org

AEI Saudi

Website – https://www.aeisaudi.com/

Email – adam.hosier@aeisaudi.com

Clyde & Co

Website – https://www.clydeco.com/en

Email – Priya.Sehdev@clydeco.com or Harry.Pictonturbervill@clydeco.com