Introduction
The Saudi Arabia General Investment Authority
(SAGIA)
is an organization well-known in 2000 to perk up the business
surroundings and give confidence foreign speculation in the Kingdom of Saudi
Arabia. This organization was shaped out of the Kingdom's landmark Foreign
Investment Law of 2000 with the permission to broaden your horizons of economy
and endow with jobs for its escalating young population. The hatchling agency
was predictable to procure the prop up of other government ministries and
agencies in tumbling obstructions to investment-including the politically
susceptible "Saudiazation" plan, which gave service partiality to
Saudis over overseas workers-and in advertising Saudi Arabia as a convivial
location for remote investors. However, the commandment that had formed SAGIA,
gave it a small amount of tools to work with. Therefore, it had to stumble on a
way to oblige with the rest of the government to consequence change. SAGIA's
first governor, Prince Abdullah, retired in 2004, and it would be the core of
his descendant, Amr Al Dabbagh, to precede SAGIA's mission. It remnants to be
seen whether Al Dabbagh, a triumphant businessman could surmount the challenges
that had thus far obstructed the young agency.
Issues arise
To
perk up the country business surroundings and give confidence foreign business
investment in the kingdom of Saudi Arabia; the complicatedness of association across the government
bureaucracy with little power or possessions; effecting revolutionize in an
inauspicious political climate - both exterior and internal; human capital
expansion with the skill for premeditated planning and communications; and the
brunt of an individual self-motivated leader of an organization.
Firm Current Situation:
Saudi
Arabia economic trumpets have provided momentous chances for the government to
make targeted strategic changes and investments to put down the foundation for
a sustainable augment in the Kingdom’s long-term rate of economic development.
This chance has been coupled with determined hallucination on the part of His
Majesty King Abdullah, curator of the Two Holy Mosques, to give confidence the
economy’s progression and diversification afar the petroleum sector. Although Saudi Arabia is the world's prevalent oil
exporter, it is not able to fully utilize its cutthroat advantage in
petrochemicals due to the closed natural history of the EU market. In fact,
Saudi Arabia significance base oil from Europe in order to formulate lube oil.
The EU has somehow administered to eliminate the oil producers in the region
from some of the downstream processing. WTO accession guaranteed to
revolutionize this and will make Saudi Arabia a most important petrochemical
manufacturer in the world.
Furthermore, with attainment to the WTO Saudi Arabia can
capitalize on its aggressive benefit where it has an accepted advantage. The
kingdom has the cheapest nourish stockpile in the world. Nourish stocks
(natural gas, natural gas liquids or naphtha out of oil) are desirable to make
petrochemicals. The fee to Saudi Arabia is underneath $2 a container whether it
is in a gas container corresponding or in oil. This permits Saudi Arabia to
establish taking over the marketplace. Germany is the major manufacturer of
petrochemicals in the world today. Notwithstanding Saudi Arabia individual the
third-largest exporter of German products, Germany does not oblige with Saudi
Arabia in petrochemicals or any energy-based industry. By 2015 Saudi Arabia is
predictable to materialize as the major producer of petrochemicals in the
world.
Competitive profile, benchmarking
Another imperative improvement is characteristic gas. Common gas
is sold by Saudi Aramco to the users, whether they are electrical energy
companies, water desalination companionship, SABIC or the confidential sector
at 75 cents per million BTUs or the comparable of $4.35 per barrel. The
Germans, who are challenging with the Saudis, are selling at the equivalent of
$62 a barrel today. Hence there is a mammoth difference between the two.
Other major fields where there is much impending for investment is
in the power, agriculture and transport sectors where there are massive
opportunities and confronts available to foreign investors.
Equipped by record hydrocarbon revenues and gigantic financial,
treasury of more than US $500 billion, Saudi Arabia has the aptitude to persist
spending heavily on the rise its economy for many years to the fore, apart from
of the price of oil.
Action Plan
Within the next three years new phosphates, aluminum and iron
melting industries will add billions of dollars yearly to the financial system.
Much of this new industry and business improvement in the Kingdom is planned to
be led or attain in partnership with both domestic and foreign investors.
Prospects for augmented trade and speculation between the UK and Saudi Arabia
are momentous and expanding this. The Kingdom is positioned eighth among the
world's ten highest intensification economies by the International Monetary
Fund (IMF).Regular visits at Prime Ministerial and Ministerial level underline
the significance of the bilateral relationship, while enduring close contact
between the British and Saudi Royal families highlights the profundity of the
relationship. The country’s 2013 national budget exemplifies the need for Saudi
Arabia to linger a key target for British export efforts. It visualizes State
spending of US$218.7 billion, 19% up on 2012, with revenues projected to reach
US$320.6 billion.
The Kingdom proposes to spend more than US$367 billion over the
next ten years on a wide range of communications investments. Ambitious plans
include thousands of kilometers of new roads and railways, as well as airport
expansion, new urban transport systems, investments in water, sewerage, power
plants, telecoms and the IT sector and the construction of four million new
homes. Leading investment areas also include development of oil & gas
facilities, the petrochemicals sector, mining and the development of new
economic cities.
The non-oil economy is of growing importance, with petrochemical
sales at around US$12 billion a year. Saudi Basic Industries Corporation
(SABIC) has achieved production in excess of 50 million tones a year of
chemicals and intermediates, industrial polymers, fertilizers and metals and is
a significant force in the global petrochemicals market.
Resources/techniques
helpful to opening up the case study
SABIC, is 70% government owned and the Kingdom’s biggest and most
diversified assembling organization, dynamic in chemicals and intermediates,
mechanical polymers, manures and metals. A joint venture of the country’s oil
producer, Saudi Aramco and Dow Chemical, will add to petrochemical output when
a US$20 billion integrated complex comes on stream in an expanded Jubail
Industrial City in 2016. This wander, known as Sadara Chemical Company, is
forecast to become one of the world’s largest industrial
companies. The Government is focusing a large part of its spending
plan on the development of an ambitious industrial diversification strategy.
This is based on the creation of new economic cities and industrial clusters in
sectors unrelated to oil production. The strategy seeks to promote regional
economic development and generate hundreds of thousands of new jobs for the
local population. The projects are not only aimed at nurturing new
industries but also at providing attractive residential communities, with
social and educational infrastructure developed to international standards,
where people will want to settle for lifestyle and jobs.
Electricity generation also needs to grow substantially to cope
with the demands of an expanding population and industrial development. This is
creating opportunities along the whole supply chain for building acquisition,
gear suppliers, sub-builders and consultants. An estimated US$90 billion is
expected to be invested in water, sewerage and power projects over the next ten
years. Long discussed improvements to urban transportation are also likely to
go ahead. Finance Minister, HE Dr. Ibrahim Al-Assaf, says that US$53 billion
from the country’s 2012 surplus is to be allocated to additional transport
spending in 2013, mainly on mass transport systems in Riyadh, Jeddah, Dammam
and Mecca. These are huge projects and will create multiple contract
opportunities over several years for suitably qualified UK companies.
Alternate Resources/Solutions:
One sector where British firms are clearly leaders in the Saudi
market is defense. For almost half a century following the supply of British
Lightning fighters in the 1960s, defense sales have constituted one of the
pillars of UK/Saudi relations. The Al Yamamah military agreement to supply the
Royal Saudi Air Force (RSAF) with Tornado aircraft in 1985 represented the largest
ever export contract won by the UK. This relationship, augmented by
investment offset agreements, was reinforced with the signing of the Al Salam
contract in 2008, to provide Typhoon fighters and other equipment to the
RSAF. Saudi Arabia continues to spend heavily on the modernization
and expansion of its armed forces and security agencies. In 2012, BAE Systems
signed a US$3 billion contract to supply 22 Hawk trainer jets to the Saudi Air
Force. Defense and internal security remain major areas of opportunity,
with an increasing emphasis on technologies, where UK companies have proven
abilities. Anything that plays to the “Saudiazation” agenda and domestic
manufacturing is favored, whether civil or military. The Al Salam guard
bargain, for instance, stipulates that an airplane production line for the
Typhoon will be established in Dhahran. Offset investment deals related to
previous defense contracts have seen a number of joint ventures, civil and
military, established in the Kingdom, including a Tate & Lyle sugar
refinery and a GSK pharmaceutical manufacturing plant. Such speculations mix
well with the Saudi Government's wish to develop a broader and more
private-sector based economy and equip graduates who are currently unemployed
with the right skills.
The proportion of private sector schemes is likely to rise in
future as the Government seeks greater private sector participation in venture
improvement. This is liable to be reflected in private division power
improvements, water and wastewater ventures and inland advancement.
PESTEL Analysis
Political: Provinces
are divided into governors, district and centers. The king council’s of
minister is appointed by the king after every four years. All the business and
oil system is under control of ministries that are part of the cabinet. There
is no rule for the election as well as no political parties.
Economical: Saudi
Arabia was an economy based on subsistence agriculture by a population that was
largely itinerant until the discovery of oil. After the oil discovery
it becomes one of the wealthiest nations. It
is the largest exporter of petroleum industry.
Social: Its culture
is based on Islamic values and it is a culturally rich country. Social problems
are efficiently controlled by government because of the justice system.
Technological: According
to new government policy the country’s economy becomes less reliant on the oil
market. Companies and services came under privatization sector. This will promote the research and development sector (this
will promote the research and development sector.)
Environmental: General natural regulation is the
administration approved association determines to proscribe and line of attacks that may be planned for
the control of environmental effects.
Competitiveness of Petroleum Industry:
Firm strategy and
rivalry: Saudi Arabia has demonstrated their core competency in the global oil marketplace. Strategy is to focus on all the petroleum products by establishing
the company called SAGIA.
Demand
Conditions: Saudi Arabia consume and use 25% of petroleum products which
demonstrate comparatively high demand of local customers to this product.
SWOT Analysis
Strength:
· Strong Oil and Gas
Reserves
· Large refining and
petrochemical bases
Weaknesses:
· Unemployment
· Increase in population
· Need of higher paying
job
· Concentration of
Reserves
· Lack of worldwide
Retailing network
Opportunities:
· Foreing JVs for expansion
· Development of ruby
project
Threats:
· Risk of terrorist attack
on energy facilities
· New competition
Conclusion
The accession of Saudi Arabia to the World Trade Organization in
December 2005 set the stage as the Government showed that subsidies to state
owned industries were to be scaled back and management of utilities gradually
handed over to the private sector. Saudi Arabia is pursuing investments and
reforms that the Government is determined will position the Kingdom as one of
the world’s most competitive economies by the beginning of the next decade. In
2011, the Kingdom achieved its aim of attaining a top ten ranking in the World
Bank’s “Doing Business" Report, which tracks 183 economies and screens how
easy it is in them, to start medium to small scale enterprises. While this
ranking has since slipped slightly, Saudi Arabia General Investment Authority
(SAGIA) is now also seeking a top 15 ranking for the Kingdom in the World
Economic Forum’s “Global Aggressiveness" Report. These aspirations are
demonstrative of how the business environment in Saudi Arabia is gradually
improving for foreign investment. The result is an increasingly competitive
market. While abundant opportunities lie ahead for British firms, contracts
are seldom easily won in Saudi Arabia. Building relationships requires patience
and perseverance in a country that, while modernizing and growing its economy,
is profoundly progressive. Conventional standards apply and business is not
concluded quickly. However, the rewards for those willing to run the course are
likely to be immense and long lasting.
Recommendation:
Saudi Sagia and Aramco
don’t have global network gas stations like other integrated companies. Saudi
should take the benefits of production plant in other countries through joint
ventures strategies. The advantage of using
its own name on petroleum products is to create more brand
recognition by consumers. This would also facilitates earn better profit
margin.