Reflections on Doing Business in Saudi Arabia
Saudi Arabia has been in the news a lot recently, for both positive and negative reasons. Our CEO Ivor Alex visited Riyadh recently and would like to share his impressions.
Reflections on Doing Business in Saudi Arabia
There has been much talk about Saudi Arabia in the last few years and , more recently, the acquisition of a football team in the English Premier League and the hosting of a Grand Prix race for the first time, has provided further proof of the Kingdom’s desire to market itself as a dynamic economy opening up to the outside world. I visited the country myself in November and would like to share my impressions on the time I spent there and whether it can really compete with Dubai and other actors in the region as a place to do business.
In the past, Saudi Arabia was never on the top of my bucket list of places to visit. The first person to draw my attention to the Kingdom was a Jewish friend from Monaco who had moved to Dubai a few years ago and started to develop some high-level contacts in the region, mainly in the luxury retail sector. He was extremely bullish about Saudi Arabia in particular and encouraged me to look at developing the market for my own executive search and corporate development activities. When I expressed surprise at his opinion given well-publicised human rights issues and his own religion, he maintained that the country was moving very quickly in the right overall direction and that his own religion, which he never hides, was less of an obstacle in Saudi Arabia than in Europe.
Still not convinced, I carried on my business as usual with a focus on Europe, the US and Latin America until I was contacted by an investment company in Dubai looking to divest a recruitment activity which they had set up several years before. The company had the same focus on financial services as Norman Alex and we reached an agreement to take over their clientele including a few clients in the KSA. In fact, the first placement that originated from this agreement was the General Manager for one of the subsidiaries of a large Saudi conglomerate in Riyadh. The experience was extremely positive and made me think back to the conversations with my friend and I decided to look more closely at this mysterious market and plan a trip to make up my own mind.
At this stage, I’d like to point out that I’m very aware of the human rights concerns in Saudi Arabia and do not want to minimise them in any way, even if I believe that they were more serious in the past than today. However, the purpose of this article is to look at the economic and business potential of the country more than the political dimension, even if they are obviously intertwined to a great extent. I was therefore determined to visit the Kingdom with an open mind. Indeed, it was not the first time that I’d visited “challenging” countries. I lived in Moscow during the Cold War and expected to find myself in a John Le Carré novel. I wasn’t disappointed. I worked briefly in the Democratic Republic of Congo ten years ago and expected to find anarchy. I wasn’t disappointed. So, would my trip to Saudi Arabia confirm my initial prejudices or rather the positive views of my friend?
Going through immigration on my arrival at Riyadh wasn’t a happy experience. Very few people spoke English, even in the tourist lines, and I was missing an arrival document which I was told I wouldn’t need when I left Dubai. Having sorted out the missing document, I thought I was on a home run until I presented my vaccine documents. Having had Covid at the end of 2020, I had received only one dose of the Pfizer vaccine. Not being able to read my European bar code, the immigration official asked me for proof that I’d had Covid which I couldn’t provide. It took me an hour and a half and a long discussion with the person in charge to be allowed through. However, I would like to point out that all the officials I dealt with were extremely courteous which is not always the case when I visit certain other countries (Miami airport comes to mind!). Also, unbeknown to me, I probably did need a second dose of the vaccine to comply with their rules.
I spent five days in Riyadh which is certainly not enough to gain a profound understanding of a country but does provide some sort of insight into the overall dynamics. During my time there, I spoke with several clients and candidates, but also personnel at the hotel and many taxi drivers. Unfortunately, only about half of the latter speak English but they’re always the best source of information to understand what’s really happening in a country. All the talk is about Vision 2030, the project instigated by Prince Mohammed bin Salman (MBS) to diversify the revenue of the kingdom, open up the economy to foreign investors and tourists and, perhaps most importantly, create a more secular and liberal culture for the people. In a word, MBS wants to do in a decade what Dubai has done in twenty or thirty years.
Everyone I spoke to was very positive about MBS and the project with one minor exception. One of my Uber drivers (and it’s interesting to note that Uber thrives in Saudi Arabia whereas it’s outlawed in Monaco and Luxembourg) was a Koranic student who was overall positive about the changes but expressed a certain fear that Saudi culture would become diluted negatively by Western influences. He had, however, been to the cinema three times but wouldn’t go to a music concert. But what really struck me about his comments was the mild and almost apologetic way in which they were expressed. It should be noted, however, that many of the Uber drivers were poor and unemployed before the changes so their positive attitude is perhaps understandable.
I was also struck by the attitude of the people towards me. There are still not many Westerners in Riyadh and I was expecting a minority of people to look at me with either curiosity or a certain animosity. However, no one paid any attention to me either in the chic shopping malls and arcades or in the more popular areas in the old city (I also visited Deera Square where the public executions take place to get another perspective of the city). I was surprised at how many of the locals were dressed in traditional garb (but such surprise is surely a sign of cultural ignorance on my part) including the women of whom I estimate about 90% still had full-face covering. I would have liked to engage a conversation with the veiled women to discuss their dress code and whether they could consider changing it in the future but this would obviously have been very difficult. I’m also very aware that the people I spoke to were, by definition, those most open to communicating with me and that my impressions were obtained through this potentially narrow prism.
I was also surprised by the “vibe” of the city. I was expecting the restaurants and (non-alcoholic) bars to be full of men on their own with the women staying at home, but this was absolutely not the case. Most of the people were families or groups of friends, including some female parties where there was a mixture of unveiled and veiled women. Whilst I didn’t see many mixed groups apart from families, there was none of the aggressivity of certain other countries where the bars are filled with beer-swilling, cigarette-smoking single men. I actually felt more comfortable and safer in Riyadh than almost any other place I’ve been to but I’m also aware that this is partly due to the severe and, most would say inhumane, penal system as well as the fact that alcohol is forbidden, at least for the time being.
From a purely professional point of view, Vision 2030 obviously creates some very interesting business opportunities. However, there is very significant pressure to employ Saudis, a phenomenon referred to as “Saudization”, which imposes very strict quotas depending on the sector of activity and in some cases up to 40%. Whilst the objective of reducing unemployment is laudable, there are perverse side effects as is always the case with protectionist measures. Many senior positions are reserved officially or unofficially for Saudi nationals even when there are few qualified candidates. This results in companies having to recruit below standard executives or alternatively recruiting a Saudi and a non-Saudi for the same position with an obviously adverse impact on costs. Furthermore, when there is a qualified Saudi candidate, that person is more likely to be based in London, Geneva, Dubai or North America than in the KSA and the challenge is to encourage them to move back to the Kingdom. As the economy opens up, this will become easier and the process has already started, but very often the only way to bring back such talent is to offer significantly higher salaries which also increases costs.
A second problem with Saudization, especially at a more junior level but even for more senior positions, is that the local workforce is often both unqualified and “entitled”. Many employers complained to me that their local staff often turn up for work late or not at all. Whilst the popularity of cinemas is a positive cultural development, the fact that some film screenings start at 2am and are fully booked, does not bode well for starting work early in the morning. Huge investments need to be made in education and training but this will take time and the cultural transformation will probably take even longer. At the same time, many of the immigrant workers from India, Pakistan, the Philippines and elsewhere, people who do have a work ethic, are being pushed out. I believe that the government has to look very carefully at this policy to make sure they’re not “throwing the baby out with the bathwater”.
At a more macroeconomic level, the government is putting pressure on multinational companies to move their regional office to the KSA (usually from Dubai) if they want to work with local companies. Whilst this may be understandable to a certain extent, the demand is very challenging both for the reasons stated above and also because the quality of life in Saudi Arabia is still a very long way behind that of Dubai, the regional competitor, not to mention most Western financial and industrial centres. In reality, many of these companies set up an office in Saudi Arabia employing certain key executives but, in reality, they live elsewhere and commute to the Kingdom when they need to. This serves once more to push up costs and decrease competitivity.
In conclusion, the Vision 2030 project in Saudi Arabia is hugely ambitious and offers unprecedented business opportunities to companies that are adaptable enough to take advantage of them. The set- up costs are high, but not necessarily greater than many other countries, and there are potential pitfalls along the way, in particular on the employment side. The project may take longer than expected or not be as successful as planned, but everyone I spoke to confirmed that MBS’s position appears to be secure, even when the King passes away, and that his reforms are irreversible. There are obvious human rights and reputational issues associated with doing business in the KSA, but I feel that the general direction of the country is very positive, unlike certain other markets, and that the current de facto ruler is overall a strong business partner for the West if he can curb certain totalitarian instincts.
Are you a Saudi citizen, do you work in Saudi Arabia or are you looking to do business there? If so, please write to me with your impressions as I’d love to hear from you.
(Ivor Alex, CEO Norman Alex)