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TECHNOLOGY OPPORTUNITIES FOR BRITISH BUSINESS IN THE KINGDOM OF SAUDI ARABIA. A STUD Y OF THE IN FORMATION ECONOMY COMMISSION ED BY TRAD E PARTNERS UK .

BUSINESS O P P O RT U N I T I E S F O R I . T. C O M PA N I E S I N T H E K I N G D O M O F S AU D I ARABIA. A S T U DY O F T H E KINGDOM’S DEVELOPING INFORMATION E C O N O M Y.

ZEN TELLIG EN CE 2002

– PAG E 1


TECHNOLOGY OPPORTUNITIES FOR BRITISH BUSINESS IN THE KINGDOM OF SAUDI ARABIA. A STUD Y OF THE IN FORMATION ECONOMY COMMISSION ED BY TRAD E PARTNERS UK .

Introduction ...............................................................................6 Executive Summary ..................................................................8 The Saudi eRabian Opportunity ...........................................11 Opportunity Areas .................................................................16 Opportunities in eGovernment ......................................................16 Opportunities in the Financial Sector............................................17 Business to Business .....................................................................18 Business to Consumer...................................................................19 Saudi Arabia – Public Communications Infrastructure & Services : 21 Saudi Telecom (STC) .................................................................23

Internet subscribers and growth, business and consumer 25 Costs of Internet Access................................................................27 Useful Demographics ..................................................................28 The Role of KACST ...............................................................29 Public Key Infrastructure ..............................................................29 the Internet Economy in Saudi Arabia: ...............................30 Useful Statistics........................................................................30 SAMA & Internet Banking ....................................................31 Business Drivers & Barriers...................................................34 Regulatory Environment impacting on ecommerce..........34 Saudi Arabia’s eCommerce Strategy.....................................36 eGovernment ...........................................................................38 The Watani Education initiative................................................40 ZEN TELLIG EN CE 2002

– PAG E 2


TECHNOLOGY OPPORTUNITIES FOR BRITISH BUSINESS IN THE KINGDOM OF SAUDI ARABIA. A STUD Y OF THE IN FORMATION ECONOMY COMMISSION ED BY TRAD E PARTNERS UK .

Government policies & initiatives ........................................41 SABIC .......................................................................................41 Aramco......................................................................................42 Developments & Trends:.......................................................44 Mobile Commerce (Mcommerce) ...................................................44 The Veiled Initiative....................................................................44 Market Analysis:.......................................................................46 Business to Business .....................................................................46 Business to Consumer...................................................................47 Conventional Market Opportunities in the IT Sector....................49 Education ....................................................................................49 The Author...............................................................................50 Arab News Stories...................................................................51 Go digital or perish, says Amr Khashoggi.....................................51 Simon Moores Writes in Arab News...........................................52 Saudi ArabiaN Macroeconomy .............................................55 The Private Sector and Privatization ...........................................55 Bidding for Government Contracts ....................................57 Saudi Arabia – An Introduction ..........................................60 New Foreign Investment Law...............................................60 Negotiations for Saudi Entry to the World Trade Organisation Geography, History, Society and political system ..............62 Geography and Climate..........................................................62 Geography....................................................................................62 Climate........................................................................................62 A History of Saudi Arabia......................................................62 ZEN TELLIG EN CE 2002

– PAG E 3

61


TECHNOLOGY OPPORTUNITIES FOR BRITISH BUSINESS IN THE KINGDOM OF SAUDI ARABIA. A STUD Y OF THE IN FORMATION ECONOMY COMMISSION ED BY TRAD E PARTNERS UK .

The Founding of the Kingdom ......................................................62 The Booming Years......................................................................63 King Fahd’s Reign .......................................................................63 Saudi Arabian Society .............................................................63 Population ...................................................................................63 Changes in Society? ......................................................................64 Adapting the Welfare State..........................................................65 Political Structure and Juridical System ...............................65 The Saudi Monarchy....................................................................65 The Council of Ministers ..............................................................65 The Introduction of the Basic Law in 1992..................................66 The Majlis Al-Shura..................................................................66 The Provincial System ..................................................................66 The Judicial System......................................................................67 New Political Developments .................................................67 The Royal Family Council ...........................................................67 The Supreme Economic Council ...................................................67 The Supreme Petroleum and Mineral Affairs Council ..................68 General Investment Commission...................................................69 Foreign Relations.....................................................................69 Saudi Foreign Policy Objectives ...........................................69 General Objectives........................................................................69 Greater Arab Awareness .............................................................70 US-Saudi Relations..................................................................71 Friendship and Cooperation Links...............................................71 Saudi Relations with Iran .......................................................72 ZEN TELLIG EN CE 2002

– PAG E 4


TECHNOLOGY OPPORTUNITIES FOR BRITISH BUSINESS IN THE KINGDOM OF SAUDI ARABIA. A STUD Y OF THE IN FORMATION ECONOMY COMMISSION ED BY TRAD E PARTNERS UK .

Saudi Arabia – CIA Fact-book..............................................72 Resources on the Internet......................................................81

ZEN TELLIG EN CE 2002

– PAG E 5


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

I N T RO D U C T I O N

This report is the result of a six-day visit 1 to the Kingdom of Saudi Arabia. Its purpose was to determine where the best opportunities might lie for British companies within the Kingdom’s rapidly expanding technology sector. Interviews were conducted with senior members of the Kingdom’s government, telecommunications, academic and financial authorities, as well as senior executives from prominent companies both local and international conducting business in Saudi Arabia. These companies included Aramco, The Saudi British Bank, Logica, British Telecom al Saudia, Ernst & Young, DeteCon al Saudia and many more. Saudi Arabia is a country showing dramatic technological progress. Larger than its neighbours and because of its size, less visible in the technology space, a more gradual process of growth is taking place on the road, which leads towards a knowledge economy. Understandably, before real progress can be made the regulatory and telecommunications foundations need to be present, together with a commitment to transparency and a vision of eGovernment. Other influences or catalysts also come into play. These can include the acceptance of Internet banking, and increasing adoption of Smartcards and the growing participation of women, as a consumer force, encouraged in their use of the Internet by its anonymity. Each country is different and the catalysts vary. In the Kingdom of Saudi Arabia, eCommerce has its own challenges. There are no postcodes, only Post Office boxes; so registered delivery of eCommerce purchases presents a problem. Companies such as Saudi Telecom (STC) will inform subscribers of their mobile telephone bill by different electronic means to ensure that it arrives. Twenty per cent are contacted this way and up to 60% will be in the near future. 2 In a country with strict religious traditions and equally strict segregation of the sexes, shopping is a collective social experience; one, which makes the convenience of shopping over the web rather less attractive than it, might be in the UK. As a consequence, the many catalysts that will drive eCommerce in Saudi Arabia will invariably be different, from those we recognize in the UK. This very difference in the Kingdom’s market and its early stage of development presents real opportunities for IT companies able to assist in the creation of the infrastructure and the services, that once connected, will allows Saudi Arabia to take its great leap forward towards becoming ‘Saudi eRabia’ in the mind of its citizens and the eyes of the outside world. This report will identify the areas of most opportunity and best fit for UK IT companies who prepared to explore the Kingdom’s business potential.

1 The author would like to acknowledge all those involved with the study for their assistance in researching the information contained in this report. In particular, Mr Robert Hudson of Trade Partners UK, Mr Richard Archdeacon of eb2, Ian Walker of MEC and the Ambassador and staff of The British Embassy in Riyadh and the British Trade Office in Al Khobar 2

Source STC ZE NT ELLIGEN CE 2002

– P AG E 6


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

This study does not claim to offer a comprehensive analysis of the Kingdom’s IT sector. Instead it represents an opportunity study for the benefit of British IT companies, together with an overview of Saudi Arabia’s business, telecommunications and regulatory climate. For most readers, I would recommend turning immediately to the ‘Market Analysis’ and the summary sections dealing with the technology opportunities before digesting the background information on the Kingdom’s progress and macro economy. Saudi Arabia, because of its strict Islamic traditions is very different to many other developing markets in the greater Arab world. With a population of approximately twenty two million, it does however, represent the most populous nation with the highest volume of trade in the GCC 3region and offers a rewarding source of business for companies prepared to invest in the time and the partnerships required to successfully develop a commercial presence in the Kingdom.

3

Gulf Cooperation Council ZE NT ELLIGEN CE 2002

– P AG E 7


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

. E X E C U T I V E S U M M A RY

The Kingdom of Saudi Arabia (“KSA”) is committed to developing an information-based economy as is evidenced by the number of initiatives being undertaken currently. There is a realisation that Saudi Arabia will need to change to meet the requirements of its WTO application. Among the initiatives are: „

FIL (Foreign Investment Laws) – changes in the rules governing the business operation of overseas companies.

„

SAMA – the development of an overall IT/Authentication strategy for the KSA

„

WATANI – an $800m project to train and equip all schools in IT.

There is substantial progress to be made in Saudi Arabia before these ambitious goals can be achieved. As a result there are opportunities for British IT companies to leverage the knowledge and experience acquired developing projects in the more advanced UK environment. The Kingdom’s underlying telecoms infrastructure is still dominated by a single organisation – Saudi Telecommunications Corporation (“STC”). A lack of competition has resulted in relatively high Internet charges for both personal and corporate users. These are gradually being reduced. A highly regulated environment, a command economy and the absence of eCommerce legislation, inhibits to rapid progress. This will change as the market is liberalized, as part of the Kingdom’s efforts to gain WTO membership and the impact of educational and overall public sector reform makes a positive impact. With approximately 31 ISPs and 900,000 users, the Internet has yet to achieve critical mass among the population but driven by Aramco, SABIC and the Kingdom’s banks, businesses are increasingly using the medium and there is potential for exchanges in the b2b space. U.S. companies and strategic interests dominate the market. However UK organisations are well represented. It should be noted that much of the IT service sector is supplied from countries such as India. The principal opportunities for UK companies revolve around eBusiness and the infrastructure that surrounds its development. However the most immediate opportunities appear to surround the provision of: „

Internet Security (consultancy/policy management/applications)

„

Business process re-engineering (BPR)

„

Back office integration (BOI)

„

EGovernment (Public Sector) applications and experience

„

Content management and development - Arabisation ZE NT ELLIGEN CE 2002

– P AG E 8


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

„

Education and training

In order to succeed UK companies will require: „

„

„

„

„

A local office or the obvious intention to open one. This is respected as a sign of commitment. Having an office in the Emirates and particularly Dubai’s Internet City is not considered a sign of commitment. There is skepticism in the market, a consequence of dealing with overseas organisations that disappear once a contract is over. Trust and personal relationships are a fundamental part of the business process in the Kingdom. An appreciation of the business regulations, courtesies and rhythm of the Kingdom. Local partners providing local knowledge and local expertise. For example suppliers must expect to supply documentation in both English and Arabic. A total service that will address the complete spectrum of any client requirement. The ability to include education and training which is seen as a high priority due to the “Saudisation” programme of gradually replacing foreign workers with Saudi citizens. It is this Saudisation process that is an active driver in the education and skills development sector.

The target audience for UK companies attending the GITEX Exhibition in April 2002, should therefore include: „

„

„

„

Potential consumers of services and products such as ISP’s, banks, government bodies. Distributors or representatives who will act as third party resellers especially for those wishing to resell branded products. Partners who will act as the Saudi face for the service or product delivery. Support service organisations - such as accountants and lawyers - who can act on behalf of organizations in the establishment of their representative offices.

The GITEX exhibition represents a solid opportunity for a small number of interested UK companies, assisted by Trade Partners UK, to meet potential partners and customers in the Kingdom and quickly determine what the opportunity costs of doing business in Saudi Arabia might be. At this time, the Saudi government is keen to encourage technology transfer and is well inclined towards British companies; stressing the strong infrastructure development skills that the UK is recognized for This report has identified a number of opportunity spaces that cover the entire spectrum of what is understood as eBusiness. The Kingdom of Saudi Arabia has ample potential for companies that can identify niches within the evolving eBusiness framework, both in infrastructure and delivery and can clearly define its value proposition to a Saudi Arabian public and private sector audience which has ambitious plans for the country’s development as a strong, technology literate economy, in the runup to World Trade Organisation membership in 2006. ZE NT ELLIGEN CE 2002

– P AG E 9


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

ZE N TELLIGEN CE 2002

– P AG E 10


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

T H E S AU D I e R A B I A N O P P O RT U N I T Y

Opportunities for UK companies appear to be as broad as the Kingdom’s fast-growing technology market but the real need appears to lie in the area of infrastructure development; “Middleware, security and web-stuff”. Over the decade, the Kingdom has been on a technology-shopping spree. It has installed the infrastructure backbone that it requires to facilitate the ‘e-agenda’ but has discovered, as other have, that the gap between ambition and execution is filled by reliable middleware and good advice, both of which appear to be required before the agenda can move forward, supported by new legislation and a will to pursue eGovernment and the Kingdom’s aspiration of using its size, influence and wealth to become the region’s dominant information ‘hub’ economy within a decade.

Not unusually, given recent events, the single ‘hottest topic’ appears to surround information security, policy, applications and architecture, which also include storage technologies. This can involve many different areas, as in securing the network from virus attack or hardening the server environment in the case of ISPs. As an example Basingstoke-based ISP Cloud Nine recently closed its operation after being hit by a crippling security attack. The denial of service attack was so bad the ISP will have to rebuild its network and in this case, firewall tightening is a priority. In the Kingdom, many companies and institutions would benefit from UK experience surrounding server security in the eCommerce space. The limited research carried out in the Kingdom suggested that the level of security was adequate in most cases but not ‘state of the art’ and in some cases, potentially vulnerable to sustained attack (e.g. Web servers running older versions of Microsoft’s Internet Information Server and Windows NT).

ZE N TELLIGEN CE 2002

– P AG E 11


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

In the current climate, securing Web servers is almost a matter of national interest, as many geographically challenged hackers are unable to discriminate between Saudi Arabia and Afghanistan. Simply applying the results of Price Waterhouse Coopers research (see below) to an evolving Saudi Arabian market suggests that there is strong potential in the market. Symantec has an office in Riyadh and both Trend Micro and Network Associates are operating from the Emirates. Many leading security software and hardware companies have a distribution presence in the Kingdom, for components, such as firewall technology but the emphasis from local interviews is on the need for a comprehensive presence, involving product, service, training and support. It should be emphasized that the Kingdom is unwilling to deal with Israeli companies, which given the latter’s strength in the market through companies such as Checkpoint Technologies, is a limiting factor.

Different Market Opportunities by IT Sector 4 Infrastructure

Devices

Applications / Content

R&D

R&D

R&D

Production

Production

Analysis/Consulting

Sales/Marketing

Sales/Marketing

Design

Installation

Wholesale/ Retail Implementation

Maintenance

Accessories

Operation

Training

Content

Knowledge Management

Security

-

·Content

development - Arabisation

Business Process Automation -

·Procurement

Back Office Integration

Electronic Date Storage (EDS)

-

and Cataloging

A recent report from the Yankee Group and worthy of mention, given the Kingdom’s stage of infrastructure development, concludes that security will become an essential aspect of deployment strategies as users expand disaster recovery planning or roll out storage networks that mix multiple network protocols (STC). As mixed IP-Fibre Channel storage networks or IP storage networks become deployed security will be even more important..5 „

„

On average, every new Web site will be accessed within 28 seconds and attacked within 5 hours 6 60% of hackers said the opportunity for accessing systems is increasing as a consequence of Internet growth

4

Source Ericsson Consulting GmbH

5

See www.yankeegroup.com

6

Price Waterhouse Coopers ZE N TELLIGEN CE 2002

– P AG E 12


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

„

„

„

75% organisations reported financial losses due to security breaches ranging from financial fraud to theft of proprietary information to laptop theft 60% of networks are penetrated over 30 times a year In the UK alone, attacks on government domains have risen by 378 per cent, from nine attacks in 2000 to 43 last year 7

At the most fundamental level, in government departments and outside the top 30% 8of very large companies, who have relationships with IBM, Ernst & Young, Accenture, Logica and others, there is an opportunity space within the middle tier of developing Saudi companies who need support in ‘rewiring’ the business process to anticipate the emerging vision of Web services, championed by the likes of IBM, Microsoft and Oracle.

The region is not unsophisticated and there are many examples of advanced technology solutions already in place. Until the infrastructure matures sufficiently to make eCommerce and eBusiness a tangible reality and the critical mass is achieved for Internet access and eBanking, much of the work required involves business process re-engineering and developing the policies and procedures that will permit a medium-sized corporate Intranet to open a portal to the Internet. Such an exercise involves content, security, business process automation and the other elements listed in the ‘Business to Business’ section of this report. A principal challenge lies in the development of unified service offerings. The technology investment of the last fifteen years has produced silos of data, islands of information which are clearly not well integrated. This is an obstacle to progress and business needs to explore the service-oriented architectures, which commonly fall under the heading of web services. Gartner predicts that Web services tools and infrastructure software will grow globally from less than $2 billion in 2001 to $35 billion in 2006. Much like network security, applications integration is a ‘Hot technology’ and entirely appropriate to the Saudi market. That said, while the tools, such as Silverstream and BEA are widely available, the

7

8

VNU Newswire Source - Ernst & Young ZE N TELLIGEN CE 2002

– P AG E 13


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

advanced integration skills that these require are in short supply and are likely to act as brake on efforts to integrate and connect business in the Kingdom. Open Source computing in the shape of Linux has yet to make a visible impact, even though IBM has a strong presence in the Kingdom.9 In several different conversations across the finance and security sectors, Linux was raised in conversation. With governments across the world examining the relative cost and development benefits of Open Source computing, it has undoubtedly a place in the emerging Saudi market. As regards the security aspects of the Open Source environment, a number of those interviewed were aware of its extensive use outside the Kingdom but commented that the skills and the applications were not present in Saudi Arabia and suggested that approaches from companies with vertical solutions built around secure architectures, would be welcomed. In the UK many businesses suffered as a consequence of investing in web-based technology that was oversold and frequently under performed. IT vendors made great promises for eBusiness software, which offered little in the way of return on investment. Saudi companies have had similar experiences and while the technology has now matured to a level of acceptable performance, Saudi businessmen interviewed have stated that they need to see a clear business proposition rather than a glossy marketing brochure.

9 IBM wants to catch the wave of server consolidation for print, file, and Web serving by providing Linux-only configurations for its zSeries mainframes and iSeries midrange servers that carry a lower price tag than plain vanilla zSeries or iSeries machines. IBM says that 11% of the mainframe processing power that was shipped in the fourth quarter of 2001 were dedicated to supporting Linux workloads.

ZE N TELLIGEN CE 2002

– P AG E 14


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

Storage

UK companies with an interest in the region should ask themselves whether they have a product, a solution or a service that can fill a niche or particular need in an emerging Internet economy. The author, Oscar Wilde, once wrote that “True refinement seeks simplicity” and the same expression should be applied when seeking to capture the attention of a potential business partner in the Kingdom. Several Saudi businessmen have commented that more than enough investment capital is available for good ideas and to support new businesses in the Kingdom but most, if not all would stress the levels of commitment required on the part of an overseas partner. The Kingdom’s business process moves slowly but the rewards can be high once a company has proved its credentials and credibility in the technology space.

ZE N TELLIGEN CE 2002

– P AG E 15


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

OPPORTUNITY AREAS

10

OPPORTUNITIES IN EGOVERNMENT

Opportunity

Applications

Consultancy

Education

Infrastructure

3

3

3

3

Business Process Re-engineering

2

3

Business Process Integration

2

3

-

3

eProcurement

1

3

-

2

Customer Relationship Management

2

3

3

3

Enterprise Resource Planning

1

1

1

1

Authentication

2

3

-

3

Training

2

-

3

-

Content Development

3

3

-

2

ASP Web Hosting

1

1

-

1

Smart cards

1

1

-

-

Open Source Computing

1

1

2

2

Security

10

3

Areas are scored 1- 3 where:

1.

Needed but opportunity undefined or unknown

2.

Potential market exists or interest shown

3.

Possible UK opportunity (Strength or best practise area) ZE N TELLIGEN CE 2002

– P AG E 16

3


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

OPPORTUNITIES IN THE FINANCIAL SECTOR

Opportunity

Applications

Consultancy

Education

Infrastructure

Security

3

3

3

3

Business Process Re-engineering

1

2

3

3

Business Process Integration

1

3

-

3

eProcurement

-

-

-

-

Customer Relationship Management

2

3

3

3

Enterprise Resource Planning

1

1

1

1

Authentication

2

3

-

3

Training

1

-

3

-

Content Development

2

2

-

2

ASP Web Hosting

1

1

-

1

Smart cards

1

1

-

-

Open Source Computing

2

2

1

1

ZE N TELLIGEN CE 2002

– P AG E 17


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

BUSINESS TO BUSINESS

Opportunity

Applications

Consultancy

Education

Infrastructure

Security

3

3

3

3

2

3

2

Business Process Re-engineering

2

Business Process Integration

2

3

-

3

eProcurement

2

3

-

2

Customer Relationship Management

2

2

3

3

Enterprise Resource Planning

2

3

1

1

Authentication

2

3

-

3

Training

-

-

-

-

Content Development

2

3

-

2

ASP Web Hosting

1

3

-

3

Smart cards

1

1

-

-

Open Source Computing

2

1

1

1

ZE N TELLIGEN CE 2002

– P AG E 18


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

BUSINESS TO CONSUMER

Opportunity

Applications

Consultancy

Education

Infrastructure

Security

3

3

3

3

3

3

3

Business Process Re-engineering

2

Business Process Integration

2

3

-

3

eProcurement

1

3

-

2

Customer Relationship Management

2

3

3

3

Enterprise Resource Planning

1

1

1

1

Authentication

2

2

-

2

Training

2

-

3

-

Content Development

3

3

-

2

ASP Web Hosting

-

3

-

3

Smart cards

1

1

-

-

Open Source Computing

1

1

1

-

Other areas or sectors of opportunity that came in for special mention during the course of the interviews included: „

EGovernment (all areas of implementation & strategy)

„

Open source computing (education & applications)

„

Financial services (e.g. portals, processes & security)

„

Mobile telephony (applications & technologies)

„

The Health and education sector (applications for healthcare & hospital management)

ZE N TELLIGEN CE 2002

– P AG E 19


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

ZE N TELLIGEN CE 2002

– P AG E 20


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

S AU D I A R A B I A – P U B L I C C OM M U N I C A T I O N S I N F R A S T RU C T U R E & S E RV I C E S

11

:

Telefacts 12 14.3 fixed telephone lines /100 population 3.1 mobiles /100 population 5 PCs /100 population Population teledensity 28% 13 Region 14

Internet Penetration

(per

Personal Computers (per Mobile Phones

000)

00)

000)

UAE

166.9

6.8

7.9

Quatar

76.4

13.6

14.3

Lebanon

70.3

4.6

19.4

Bahrain

61.8

14

20.1

Saudi Arabia

14.4 15

5.7

20.1

Jordan

13.5

1.4

1.8

Tunisia

11.63

1.5

0.6

Arab Avg

7.5

1.4

1.8

GCC Avg

32.3

6.8

7.9

World Avg

54.7

7.7

10.3

(per

Factors such as privatization, the level of competition, and the presence of an independent regulatory body all play an important role in the sector’s advancement. While steps have been taken to improve and advance the Kingdom’s communications infrastructure, starting with corportization of the Saudi Telecommunications Company, it is essential that more competition be introduced in the market in order to reduce prices and speed-up the deployment of new technologies.

11

The NCB Economist

12

Statistics may vary widely between different sources (e.g. ITU 2001 – NCB)

13

DeteCon Al Saudia

14

Source: ITU 2001

15

Less than figures available from KACST ZE N TELLIGEN CE 2002

– P AG E 21


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

One way to measure the degree of sophistication and advancement in this sector is to use a teledensity measure or the number of telephone lines per 100 inhabitants. While teledensity reaches over 65% in much of Western Europe, the ratio in Saudi Arabia amounted to either 28% 16 or 17 % 17 in 2001, compared to 45% in Bahrain and a world average of 26%. This low rate of teledensity together with higher costs of local telephone calls represents an obstacle to e-commerce growth. While it costs an average of £15 per month 18 for an unlimited Internet access in the UK and other GCC countries are providing free access, the cost for a similar service in Saudi Arabia averages about £25 per month in addition to 80 pence per hour in local telephone charges.

16

Detecon Al Saudia – Note variance

17

NCB Economist

18

See section costs of Internet access ZE N TELLIGEN CE 2002

– P AG E 22


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SAUDI TELECOM (STC)

Saudi Telecom is the Kingdom’s exclusive ‘Telco’, controlling both fixed-line and cell phone access. Parallels exist with the progress of British Telecom twenty years ago, before and after de-regulation and an appreciation of BT’s history may make STC’s progress a little easier to understand. Saudi Telecom is a nationalized industry, which since 1998 has been going through the painful process of ‘corporatisation’, which among other factors will be a feature of Saudi Arabia’s application for World Trade Organisation (WTO) membership in 2006.

Mobile Subscriber Base (STC) 2005 26.40%

2004

26.90%

2003

21.1%

2002 2001

12% 6.8%

2000 1999 1

2

3

4

5

Subscribers (Millions)

STC, a company valued at between $15 and $20 billion, claims to have one of the “Most advanced networks, not only in the region but probably in the world”. AT&T, Ericsson and Lucent Technologies laid the backbone of the Kingdom’s telecommunications infrastructure at a cost of $7 billion. All the Kingdom’s principal cities are well connected and DeteCon Al Saudia 19 is one of several technical development partners. Saudi Telecom, although it does not offer a satellite service for the Internet, VSAT 20, it does own 23% of ArabSat. France's Alcatel, Sweden's Ericsson, Germany's Siemens, the U.S.' Tellabs, and Paradyne were among bidders for a $50 million dedicated area network contract to upgrade 486 sites. Meanwhile Alcatel, Ericsson, Siemens, Canada's Nortel, and Cisco Systems and Lucent Technologies, both of the U.S., were the bidders for the $20 million Saudi Arabia's Internet phase three contract. STC also plans on

19

A Deutsche Telecom partner

20

Very Small Aperture Terminal ZE N TELLIGEN CE 2002

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a 600,000-line expansion of the fixed line telephone network in the kingdom at a cost of $1.2 billion. 21

STC, which has a current capacity for 2.2 million mobile phone connections 22, has recently awarded Ericsson and Nokia a SR 2.45 billion contract to expand the Kingdom’s mobile phone system by adding 2.8 million lines to the network within two years. STC is also expected to announce new reductions in mobile communications and telephone charges before opening the market to international companies. Until recently cell phone connections have been hampered by high connection charges yet Saudi Arabia has all the ingredients for a wireless society, with a young population and high urban concentration. According to STC’s figures, it has a target deployment of 100,000 Smartcard phones and many businesses view mobile telephony as an opportunity, which rivals the Internet. Marconi has been awarded a $28.5 million contract to advise STC on the redesign and expansion of Kingdom’s GSM network. The next major development in the GSM sector will be the launch of a second operating license to run in competition with STC.

Fixed Line Subscriber Base (STC) 22%

2004 20.40%

2003 18.5%

2002 16.6% 2001 14.60% 2000 1999 3

3.5

4

4.4

4.9

Subscribers (Millions)

With its 8% to 10% annual Internet penetration rate or 2.2 million subscribers expected by 2004, STC has to move quickly in several directions. There is a danger that the restrictive and centrally controlled nature of the fixed network for Internet access, will encourage an explosion in VSAT

21

Source MEC Ltd

22

Arab News 3-02-02 ZE N TELLIGEN CE 2002

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(Very Small Aperture Terminal) connections, forcing the pace of progress in a direction which is outside the direct control of the medium approved by the Kingdom’s government. 23 The Kingdom’s Internet capacity is reportedly served by four SDN1 (155mb) connections that are reportedly used to 40% capacity. The King Abdul Aziz City for Science and Technology (KACST), controls all Internet access and releases bandwidth to Saudi Telecom, which then re-sells to ISPs. It should be said that the Kingdom’s Internet connection through KACST can experience interruption and that there can be regional failures of the network as well. Determining responsibility for network problems is another matter and by all reports, responsibility for this falls between STC and KACST. To avoid such problems, many businesses, such as the gas companies, will have an ostensibly illegal VSAT microwave connection serving as a back up. I N T E R N E T S U B S C R I B E R S A N D G ROW T H , B U SI N E S S A N D C O N S U M E R

„

„

„

„

„

One source of access for a number of Saudis is through illegal overseas ISPs in neighboring countries and microwave connections There are presently 31 Internet Service Providers (ISPs) 24with an estimated 460,000 subscribers and approximately 900,000 users (KACST) 25 Of 31 ISPs, 26 appear to be fully operational with 5 larger ISPs controlling 65% of the market There are between 1.2 and 1.8 million PCs in the country and it is estimated that 33% of Saudi firms have Internet access Internet subscriber growth is estimated to be 10% per annum (KACST)

Measuring the number of top-level domain names per ten thousand inhabitants, there are only two in Saudi Arabia, 26 compared to 141 in the UAE and 180 ‘top level’ domain names per 10,000 people worldwide. As a result, the number of users per Internet host in the Kingdom is the highest in the GCC region at 2,130 compared to 58 people per host in the UAE. This figure represents an inhibitor to the growth of eCommerce in the Kingdom in contrast with other GCC states. The largest ISP is reportedly Atheer and NESMA (a GE partner) has 50% of ADSL market. Batelco Jeraisy claims 60,000 subscribers and Saudi Online 40,000. Others like Noor Internet focus on

23

STC, in its strategy document, plans to introduce five licences for VSAT

In June 2002 Nasej, Allnet and Almiah Internet will merge to create the Kingdom’s single largest ISP with a 20% market share

24

25

This figure is the official KACST number and is at variance with the ITU research estimate

26

Saudi eCommerce Review ZE N TELLIGEN CE 2002

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business users. Between them, the five largest ISPs, which include Saudi Telecom’s, own SaudiNet (4th place) control 65% of the subscriber market. The country’s Internet Service Providers, are all linked into a central node in the capital which is supervised by the King Abdul Aziz City for Science and Technology. For users, this node controls access to the Internet. While there is no censorship as such, technicians operate filter programmes brought in from abroad. The Saudi people want to make sure when they log onto the Net that they will not be confronted by, for example, porn sites which would be offensive for family or religious reasons. Equally unacceptable would be websites related to violence, terrorism or weapons. The authorities believe that they are winning the war against pornography on the Internet by monitoring all the Saudi Internet traffic and blocking major pornographic sites. Nevertheless anyone who can afford an international phone bill is able to dial up a connection to an Internet server outside the Kingdom, which will tend to outmanoeuvre the national Internet regulations. One source of access for Saudi’s is through illegal VSAT microwave connections. There is however a tendency to ‘tolerate VSAT, particularly when it is the only Internet connectivity option for many outside the principal population centres. Of Saudi Telecom’s (STC) exchanges, 80% now support DSL but for the customer, connectivity speed can be a lottery determined by a number of different factors; the quality of the connection, whether the ISPs ratio of users to host Servers or modems is too high and the bottleneck effect of passing all Internet traffic through The King Abdul Aziz City for Science & Technology (KACST) for monitoring purposes. Accurate statistics are hard to come by in the Kingdom and figures that can be found in the public domain are often treated as confidential by the authorities. Contributing to the confusion over accurate Internet subscriber statistics is the system of pre-paid access cards, similar to cellular phone cards. With low credit card penetration in the Kingdom (less than 40%) the pre-paid system of buying Internet access – much like buying Internet time at an Easy Internet cyber café - provides the only practical means of paying for mass consumer access. KACST estimates that there are now 460,000 Internet accounts (2.1% of the population – Arab News 7-9-01). As families and business share access, the true figure is guesstimated at 900,000 users and does not take into account the invisible VSAT users connecting with Servers outside the Kingdom. For example, Aramco on the East coast has a direct connection to Houston. The Kingdom, through a series of initiatives, expects to grow its Internet subscriber base to 21% of the population by 2004 against an overall regional increase of 80% in the next two years 27. Currently the number stands at 3.5 million users among the larger 280 million Arab world population. The overall low level of connectivity in the Arab world can be blamed on an outdated telecommunications infrastructure and excessive regulation of the industry. The average number of mobile subscribers in the Arab world is less than 2% compared with an average 10% globally.

27

Arab World ZE N TELLIGEN CE 2002

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COSTS OF INTERNET ACCESS

The costs of Internet access in the Kingdom are becoming cheaper but they still remain relatively expensive compared to the UK or USA. 28In addition to the cost of dialing into the local ISP, there are local call charges and as mentioned previously, Dial-up cards are the most popular access medium - 100 SR monthly (£20) for 60 hours of Internet access plus the cost of local call charges. An interesting concept raised by one of the ISPs interviewed, was that in a society with a low penetration of credit cards/debit cards, the prepaid Internet cards represent a form of currency, which might conceivably be used against eCommerce services in the future, should the regulations allow for it. Saudi Telecom has a programme of laying fibre directly into the Kingdom’s largest companies and it is estimated that 35% of businesses in the Kingdom have such a connection capability or are already connected. However, ‘The last mile’ problem appears to be as true of Saudi Arabia as it is of the UK where ADSL is involved, as many companies outside the population centres find themselves outside of the 4km reach of the local exchange. Grasping a clear picture of the true cost of ADSL and leased-line connection was difficult as there was some variance in the figures. Where a 64kb ADSL connection might cost 220 SR (£50) a month, a leased line might cost 1000 SR monthly (£200). These appear to be cost figures from Saudi Telecom and the customer would of course pay more. One observation received while compiling the information was that the monthly cost of running a 64kb leased line was approximately SR 7,500 (1,500) compared to $50.00 in the USA. Internet Penetration Rates (1000 Population) 166.9

UAE Quatar Lebanon Bahrain Saudi Arabia Jordan Tunisia World Avg GCC Avg Arab World Avg

76.4 70.3 61.8 14.4 13.5 11.63

54.7 32.3

7.5 0

50

100

150

200

Source ITU 2001

Regardless of such figures however, the ISPs interviewed agreed that the high cost of access was obstructing efforts on their part to build services. Secondly, real concern was expressed over VSAT ‘creep’. Satellite connections are illegal but relatively cheap and no prosecution has ever been made for their use.

28

NCB Report ZE N TELLIGEN CE 2002

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The National Guard’s Health Affairs information system department is one organisation that has sat out the early days of the Kingdom’s Internet market, preferring instead to connect its two 500 bed hospitals and over 60 operational clinics within the Kingdom with satellite links. The healthcare organization’s link has been used to transmit bandwidth intensive voice, video and data information between different clinical departments, enabling long distance health consulting. 29 The government may be looking the other way where VSAT is concerned for two reasons. Firstly, the reliability of the STC network through KACST is such that many companies are forced to install VSAT as a back up. Secondly, STC are inclined to look the other way if VSAT is installed in areas where STC has no local point of presence (POP) and may agree to an ISP installing VSAT, as long as it is agreed that it will be discontinued once the STC POP is available. VSAT is seen as a facilitator in driving critical mass but ISPs have expressed their concern that unlicensed competitors offering VSAT undermines their own efforts and investment in building the network. This in turn is increasing the demand for greater transparency where the development of the network is concerned. USEFUL DEMOGRAPHICS 30

45% population occupy the central region 15% of the population occupies the Western region 8% of the population occupies the Eastern region 79% of the Internet user population use the Internet from home 15% use the Internet from work •

29

30

6% use the Internet elsewhere

Source MEC Ltd KPMG ZE N TELLIGEN CE 2002

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T H E ROL E O F K A C S T

Internet access in the Kingdom is controlled,. licensed and monitored by the Internet Unit at the King Abdul Aziz City for Science and Technology (KACST), acting effectively as one enormous firewall for the Kingdom, blocking anything viewed as unsuitable. As all message traffic and content is passed through and is monitored by KACST, it represents a single point of congestion and single point of failure for the Kingdom’s network. Access speeds can be variable, loss of the network can occur and the connection speed, via the ISP is sometimes unreliable. Companies using VPNs (Virtual Private Networks) require special authority from KACST. A report in Fortune Magazine suggests that ‘plans are being mooted to have individual ISPs in the Kingdom to provide firewalls under KACST guidance, making the system more efficient and avoiding what was known as the Bermuda triangle of accountability, whereby STC, the ISPs and KACST were all able to shift the blame for Internet problems onto each other’. Encrypted traffic is blocked by KACST and this represents a problem for foreign companies who circumvent the problems of reliability, speed and interception by using illegal VSAT, as do some Saudi companies. As far as the author is aware, there has been no single example of a VSAT user being prosecuted in the Kingdom. According to a report in Arab News, KACST is in the process of awarding a contract to monitor the Internet traffic of up to 500,000 Internet users in the Kingdom PUBLIC KEY INFRASTRUCTURE

Sitting astride the Internet connection to the outside world, KACST will become the Kingdom’s national certificate authority (root) for Public Key Infrastructure (PKI) other sectors, finance (SAMA) etc will have their own certificates, cross-certified by KACST, as will the banks and STC etc for cross-certificate purposes with other sectors. These subordinate certificate authorities will be selected on a commercial basis. Identrus which has over forty financial institutions subscribed is working with the seven largest banks. Entrust is working with Aramco. Companies involved with PKI tendering have been Baltimore, iPlanet, Verisign and Entrust In the light of the $800 million WATANI (National) project, which aims to wire schools to the Internet, with Microsoft as the supplier, KACST have made it clear, that they are not committed to Microsoft as a technology supplier and have produced an outlines agreement for other Government departments and agencies to enter into contract with Microsoft.

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T H E I N T E R N E T E C O N O M Y I N S AU D I A R A B I A :

USEFUL STATISTICS

The share of Arab eCommerce is estimated to have amounted to $3billion in 2001 and is expected to reach $5billion by 2002. The US accounts for 46% of a global market estimated at $354 billion. 31 The estimated size of the IT product market in Saudi Arabia was $3.8 billion in 2000 with computer sales representing $500 million. 35% of these were assembled locally. The kingdom represents the Arab world’s largest market for IT products with over 33% of PC sales in 2001. This is hampered by low penetration of the Internet and advanced telecommunications (broadband). It is estimated that $1.9 billion of eCommerce has taken place within the Gulf area with Saudi Arabia generating approximately $1 billion of eCommerce activity. 32 29 separate laws are to be reviewed to support eCommerce Sales of IT Hardware, Software & Support $6,000

US$ Millions

$5,000 $4,000 $3,000 Egypt, Saudi Arabia & UAE

$2,000 $1,000 $0

2000 2001 2002 2003 2004 2005 Source Pyram id Research

31

Saudi Commerce & Economic Review.

32 Dr Said Al Shaikh – Chief Economist – National Commercial Bank of Jeddah ZE N TELLIGEN CE 2002

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SAMA & INTERNET BANKING

Saudi Arabia remains very much a cash society. According to a Director of the Saudi Arabian Monetary Authority, In 2001 SR 137 billion was withdrawn from ATM machines, compared with a total number of Seven million credit/debit card transactions equal to SR 114 million. The future of financial services in the Kingdom is the responsibility of SAMA, 33the Saudi Arabian Monetary Authority. The Kingdom’s eCommerce working group involves SAMA and the banks. SAMA has a banking technology department, which works with the Kingdom’s banks with the aim of driving progress towards eCommerce services. Saudia Arabia represents a ‘Single Switch Society’, this means that any ATM or point of sale recognizes every bank’s customers, rather like the LINK network in the UK. In an interview with one influential source, the opinion was expressed that the existing network, managed by STC, was not yet “sufficient to support trust’. This view is possibly the consequence of the network and two exchanges having been lost for eight hours on one occasion and SAMA has its own network for ATMs and interbank transfers. SAMA is overseeing five projects (the eWorking Group): „

„

The PKI infrastructure Provision of a common root certificate for the financial sector to be cross-certified by KACST

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Building a facility to host all certificates

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ePayment and b2b infrastructure development

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A new payment system to support business to consumer (b2c) transactions

Of the Kingdom’s nine banks, the largest is the National Commercial Bank (NCB). Al Rajhi is the largest consumer (Islamic) bank with 500,000 customers and 10,000 Internet customers. Only five banks in the region offer Visa credit/debit cards and Credit card penetration among the population is less than 40%. SAMA discourages merchant transactions over the Internet and it is worth noting that while only five banks in the region offer credit cards, many Saudis carry foreign credit cards. The credit card companies, such as Visa, appear to offer a reduced or limited indemnity for eCommerce purchases made from the Kingdom. The details are sketchy but we were told that some banks will issue ‘Credit’ cards against a five thousand Riyal deposit and others, such as The Saudi French Bank will offer a credit/debit card with a low credit ceiling of around $1500. Currently, 80% of e-commerce transactions are paid for with credit cards and as a consequence, credit card penetration is one measure of an aspiring information economy. In Saudi Arabia, credit card ownership remains relatively low but accounts for 48% of total credit card transactions in the GCC, ahead of Kuwait with 27%.

33

www.sama.gov.sa/ ZE N TELLIGEN CE 2002

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Less than 5% of the population use on-line banking and banks are planning 18 months ahead. With a penetration goal of 25%. The Banks currently offering Internet banking services are: „

Arab National Bank

„

National Commercial Bank

„

Saudi British Bank

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Saudi American Bank

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Riyadh Bank

Al Rajhi bank is currently testing it’s own on-line service prior to a rollout of the service later this year. The Saudi American Bank (SAMBA) is reportedly leading in the number of customers using the service, with 15,000 registrations since its launch. Other banks have much lower figures, reportedly numbering in the low hundreds or thousands. Despite the high sign-up rate, anecdotal reports are that the SAMBA still has relatively low usage with between 800 and 1000 hits per day. Reportedly SABB, the Saudi Arab Bank, is receiving 200 hits per day with less than 10% of the registered user base of SAMBA. Critical mass for Internet banking is perceived to be 20 -25% of the population but banks are witnessing 4 – 5 times annual growth in the number of customers using Internet banking and expect progress to be rapid once confidence in the infrastructure and the service are in place. With mobile phones increasingly popular and ‘de-rigueur’ among young Saudis, who represent over 60% of the population, SMS/WAP mobile phone services are seen as attractive alternative to Internet banking and banks, such as Al Rajhi, view this as an important medium to support consumer banking. Like anywhere else in the world, security and trust are the elements that drive Internet commerce and in particular, on-line banking. In the UK, a number of scares surrounding Barclays, Halifax, EGG and others, initially made people reluctant, the author included, to use on-line banking services. Since then the UK banking community has used the harder lessons to tighten its on-line security and customers are now far more confident that these services are secure. The banks are looking forward to receiving a GCC report on eFinance, which is nearly complete and McKinsey have already made an eCommerce study of the Arab world. Accenture are providing financial services to the majority of banks in the Kingdom, all of which are, in some way, exploring the opportunities that may accompany e banking, e-brokerage, e-procurement and the arrival of b2b exchanges. •

If there is a single area identified by the banks as an opportunity, then it rests with the supply chain, linking the different e-solutions and exchanges that will inevitably appear over the next five years. Where US companies are perceived as having an edge in the area of facilitation tools, UK companies are viewed at having skills on the supply chain side that would be welcome in the Kingdom.

In the Kingdom, these are early days for Internet banking and overall, the author, who lectures on Internet security, believes that much has to be done in the Saudi financial sector to bring institutions up to a similar security level as those in the UK. This represents a highly ZE N TELLIGEN CE 2002

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specialized market for services but represents an opportunity for British companies with appropriate security-focused solutions and services.

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BUSINESS DRIVERS & BARRIERS

REGULATORY ENVIRONMENT IMPACTING ON ECOMMERCE

The Kingdom of Saudi Arabia is no different to any other modern society in having to face three distinct challenges in the race to become an Information Society. These are of course, the technology challenge, the social engineering challenge and the regulatory challenge. “Laying the foundation for an Information Society is a first step on the road to becoming an Information Economy” 34and verification remains a principal objective of government. Such verification is one of the pillars of an advanced society. Electronic commerce relies on a sophisticated infrastructure partnership involving the communications and financial sectors In Europe; we have the benefit of increasingly well-defined e-commerce legislation to support the transactional demands of new technology, with particular reference to the requirements of authentication, involving digital signatures and a Public Key Infrastructure. Twenty-nine separate laws need to be reviewed in order to support eCommerce in the Kingdom. The Saudi Ministry of Commerce is tackling the challenges of e-commerce legislation but the full details have not yet been published. However, new regulations will be based on guidelines set forth by the United Nations Commission on International Trade Law (UNCITRAL)’. The Ministry of Finance and SAMA (The Saudia Arabian Monetary Authority) are responsible for the development of a regulatory framework to support eCommerce and eGovernment and have retained attorneys Akin – Gump & Strauss to advise on primary legislation, currently in its third draft. According to the Deputy Minister of Commerce for Technical Affairs, Dr. Fawaz Alamy, “These regulations are being produced from scratch. We are relying on the provisions of the UN Committee on International Law, UNICITRAL for drafting these regulations, which will be in conformity with (Islamic) Shariah law”. The main feature of the regulations according to Dr. Alamy will be electronic signatures. Other provisions relate to the security of financial transactions, confidentiality of operations and systems security. A technical committee set-up to formulate these regulations consists of five members, including Dr Alamy as Chairman. The other members are the Deputy Minister of Finance & National Economy, the Vice Chairman of KACST; the Deputy Governor of SAMA and the Vice President of STC. The translation of the framework document is given below. This will address the issues surrounding:

34

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Authentication

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Right of access/security

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Litigation

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Validation of data

Simon Moores- London School of Economics June of 2000: ZE N TELLIGEN CE 2002

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The ‘The Saudi Business Review’ comments: ‘That in the Middle-east in general, corporate laws are not sophisticated and transparent enough for international investors who require specific sets of rules and regulations. In addition, weak capital markets in the region may prove difficult for companies to raise funds and issue Initial Public Offerings (IPOs). Given these issues, clear sets of rules and regulations are needed to regulate e-commerce activity and encourage more on-line trade’. New foreign investment legislation now allows 100% foreign equity in Saudi companies, reduced corporation taxes and the opportunity to carry any trading losses forward. These changes should make the Kingdom a more attractive environment for foreign companies than it was in the past but should be regarded as a sensible first step in the right direction where the removal of barriers against foreign investment are concerned.

The eCommerce Advisory Team „

Chairman – Fahad Al Mubarak „

„

Seventeen Members

Four principal sub-committees „

Telecoms & infrastructure

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E-payments

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E-legislation

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PKI

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E-Government – e-awareness

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SAUDI ARABIA’S ECOMMERCE STRATEGY

A FRAMEWORK DOCUMENT 35

The Saudi Arabian Monetary Authority has presented a general framework for a work plan, set with the aim of completing the requirements for spreading out e-commerce technologies in the Kingdom. The royal approval to the general framework of the work plan was granted on 5th August 2001. The specialised authorities were directed to expedite the implementation of tasks that fall within their specialization, and to provide the Ministry of Trade with detailed programmes of their work in order to achieve the tasks assigned to them. The general framework of the plan includes the following aspects: „

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„

35

Establishing the infrastructure for the public keys (PKI) to provide the secure environment that will guarantee safety and confidentiality of business, checking dealers’ identity, as well as the integration and safety of the messages exchanged between them. Determining the mechanism for issuing the digital certificates, the requirements for the notification authorities, to certify documents’ accuracy and technical specifications for electronic signatures. Developing systems of payments necessary to carry out all banking transactions needed to complete the electronic deals quickly and safely through electronic means. Develop the infrastructure of communications to be ready to support the technologies of the e-commerce and provide competent and trustworthy services for data transfer with the needed speed and capacity in all regions of the Kingdom. Establish the legal and legislative regulation necessary to authorise electronic business transactions and concluded contracts, and to grantee honouring their obligations, preserving dealers’ rights as well as authorising the electronic signature as a method of proof replacing hand signature. Determining the requirements for data safety and protection to the privacy of personal data. Provision of Government’s services electronically, which is known as “egovernment” Establishing an e-system for government purchases, through which government’s bids are offered and related procedures can be completed. Creating a marketing site on the Internet for national factories and companies to enable them to market their products and sell it through the Internet inside and outside the kingdom.

Source SAMA ZE N TELLIGEN CE 2002

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Support in spreading out of concepts and applications of the e-commerce and encourage investment in its technologies. Provision of supporting services necessary for the support of spreading out ecommerce’s applications, such as: improving packages’ delivery services, postal consignments, and defining the addresses of governmental, commercial and residential sites. Spreading out awareness with reference to the importance of e-commerce and highlighting its’ advantages and positive aspects. Reinforcing confidence in the competency and security of e-businesses. Training and rehabilitation of national human resources to meet the expected demand on competent qualifications, with the increased utilization of e-commerce technologies in the Kingdom. Conducting studies and researches related to methods of benefiting from ecommerce technologies in the Kingdom. The technical permanent committee of the e-commerce will follow up the implementation of the tasks mentioned in the work plan, as a mechanism has been prepared to follow up the work progress and determine the situation on implementation. The committee will review in its monthly meeting the reports prepared in this respect.

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E G OV E R N M E N T

The first thing that should be said about the Kingdom’s plan to develop eGovernment is that the UK experience presents the model of best practice that it would like to follow, where possible. Richard Barrington made a visit to the Kingdom in 2001 from the Office of the e-Envoy and the Minister has expressed his interest in the possibility of an on-going process of information exchange and advice on eGovernment legislation and the development of projects in the Kingdom. The Kingdom’s own projects are at an early stage of development. Microsoft, Dell Computer and Oracle, are bidding for or are involved in projects, reportedly on the basis of their experience with the UK government.. One of these involves the Ministry of the Interior and the second involves the creation of a ‘Government Gateway’, similar in concept to that developed to support UK-Online in the UK. A committee, set up by royal decree at the beginning of 2001 has developed a framework plan (see Framework Document SAMA), which includes provisions for eGovernment services. Within its major objectives are plans to: „

„

To implement the IT integrated structure within government organisations to make them capable of delivering eGovernment. To create an electronic system for the government purchase and procurement programme (e-procurement) to be implemented by the Ministry of Finance & National Economy.

The principal drivers of the eGovernment programme are the Ministry of Interior and the Ministry of Commerce and the catalysts that are required to take the Kingdom forward in a five-year plan are seen to be: „

A regulatory framework

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Transparency

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An on-line banking community

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A well defined eGovernment plan

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A telecommunications network capable of supporting trust

The Kingdom’s back office systems reportedly require a great deal of work before they can be integrated into a wider and more modern eGovernment environment, one which is essentially citizen-facing by nature. EGovernment Projects are at an early stage. One of the first appears to be a National Information Centre project from the Ministry of the Interior. Twelve companies bid for the project and these include Dell Computer and Oracle Corporation. ZE N TELLIGEN CE 2002

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Security remains one of the government’s priorities and this is well illustrated by the SR500 million monitoring project commissioned by KACST. With millions of guest workers and pilgrims entering and leaving the country each year, Saudi society remains one where identification is highly prioritized and it lends itself well to smart card technology to replace paper work permits and identification documents. It is however a society where the individual has to present himself to the authorities before any official document can be issued and consequently, smart cards and digital signatures are capable of revolutionizing official processes. An interesting project supported by the government is the Hajj portal, www.tawaf.com.sa. This acts as b2b portal and information point for pilgrims and travel agents to arrange travel and accommodation for the annual Hajj pilgrimage to Mecca. With millions of pilgrims descending on the Holy City each year. There is enormous strain on the infrastructure to accommodate the pilgrims and move them to and from their ports of entry. Tawaf.Com is seen as an advanced solution to the challenge of matching the travel agents with hostel space among other features. The reality of eGovernment in Saudi Arabia is that there remains a large gap still between ambition and execution. If one considers that the Kingdom is perhaps only 10% along the road to becoming an information society, then one can understand why. Conscious of the progress that is being made in Dubai, the Kingdom’s government is making the right noises and the telecommunications infrastructure is expanding and evolving to meet the needs of an on-line, transactional environment. However, while the eCommerce legislation remains in draft form progress will remain slow. The Kingdom’s government still subscribes to a strategic planning model, where a single sum of money is allocated to project areas such as information technology and education. As a consequence, the pyramidal and very hierarchical structure of decision-making, commonly found in the Arab world, concentrates more on the size of the investment that might be necessary in order to move from point A to point B rather than focusing on the operational, rather than generic model required to support the separate component projects that must be funded to put in place the necessary foundations for an Information Society. Most people interviewed during the visit to the Kingdom, including advisors to and members of the Saudi Parliament, agreed that the different agencies and ministries needed “to get their ducks in a row” through a number of different legal and technology initiatives before any form of recognizable eGovernment service could become a reality. In particular, the public/private sector partnership concept and e-Envoy model of responsibility in the UK were much admired as a directly accountable instrument of change, as opposed to the committee driven process of reform in the Kingdom. While the consultation process continues, considerable sums are being invested in the infrastructure and programmes that the Kingdom’s government recognizes as having priority status. As previously mentioned, security and education projects are receiving over a billion Riyals between them and there will have to be significant investment in datacentres, storage technologies, business process integration and many more of the technologies and services required to wire government. In this respect, many UK companies have direct experience of supporting the UK government’s own projects, both through the Office of the E-envoy and at local government level. The ground-floor nature of the Kingdom’s current infrastructure creates an opportunity for companies experienced in eGovernment projects, Microsoft, Dell, Oracle and many others with specific skills, to introduce themselves at the beginning of what will become a project of sizeable proportions and considerable investment.

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THE WATANI EDUCATION INITIATIVE

In the last budget SR 53 billion (£10 billion) spent on education and the WATANI (National) schools project, with Microsoft as a partner, will make $800 million of software available to the public sector and the provision of Personal Computers or a subsidy on hardware, appears to be part of arrangement with the company. Every school child will receive a Personal Computer as a consequence of this project.

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G OV E R N M E N T P OL I C I E S & I N I T I A T I V E S

SABIC

Established in 1976 with its headquarters in Riyadh, The Saudi Basic Industries Corporation (SABIC) was created to drive Saudi Arabia’s industry beyond oil production, using the company’s abundant reserves of hydrocarbons as fuels and feedstock’s. Saudi Arabian Basic Industries Corporation is a 70% government owned petrochemicals conglomerate and accounts for 5% of Saudi GDP. The company consists of some twenty subsidiaries. It employs over fourteen thousand people and supplies chemicals, polymers, fertilizers, industrial gases and metals to customers in over one hundred countries. As a consequence of the Internet connectivity and reliability issues discussed earlier, SABIC attempted to use Saudi Telecom but has had to follow VSAT Microwave Internet access route. SABIC is part of Saudi Exchange Consortium, (b2b) which includes the leading banks, Sixteen Petroleum Companies SABIC, SAMA, SAMBA and the Faisaliah Group, will, in one year, commence a programme of development involving: „

Training

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eLearning

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Internet

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Intranet

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ARAMCO

Established in the 1930’s, Saudi Aramco has been an instrumental factor in the Kingdom’s development as a modern nation state. Its oil exports provide approximately three quarters of the government’s annual income and commonly account for about 90% of the total value of Saudi exports. With some one million products in it supplier catalogue, Aramco has entered into extensive agreements with its partners and suppliers to transfer its procurement from an EDI process into an exchange. These first eCommerce agreements were started in 1999 with Boeing and local partners (it has 900 agreements and a target of 1200 to transfer to an eCommerce process) and the company implemented an ambitious SAP project on 29th December 2001 as the first step towards a comprehensive portal access initiative involving MYSAP. Aramco views its centralized procurement process to be one giant exchange and the SAP project is focused on inventory reduction and at this time, partner involvement in the b2b process is encouraged rather than being mandatory. Aramco views the b2b process as increasing productivity, where the intermediary adds value, as in the case of data warehousing. Currently Aramco has only a dozen true eCommerce processes operative. Three of these with US partners/suppliers and six to eight with local partners. The company commented that it found European manufacturers not sufficiently advanced to enter in to an eCommerce driven procurement relationship process with the company. Commenting on the technologies available in the Kingdom, Aramco indicated that it is waiting for the (b2B) exchange mechanism to mature and that the availability of satellite and wireless technologies (2.5/3G) was essential. In view of the Kingdom’s official policy on these last two (3G and VSAT) and the Governor of The Saudi Communications Commission having commented that there was no proven case for third-generation wireless, Aramco’s opinion as a driving technology force is interesting. Asked to comment on the business drivers and technologies that demand consideration when doing business, both with the company and within the Kingdom, Aramco strongly recommends the use of Saudi Agents prioritized as part of procurement process. It also suggests that more concentration is required on the Kingdom’s physical framework. Its advice to other companies is: “Be aware of technology don’t be excited by it”; a strong costs/benefits analysis is demanded for all new implementations. In the current circumstances the company believes that it is “Impossible for ISPs to make money and that many are forced to oversubscribe”, repeating what others have reported on the problems of network (POP) congestion. Where the development of eCommerce is concerned, Aramco believes that there is opportunity in developing added-value solutions for ISPs in the Kingdom and developing these services to add value to the customers. Many business processes in the Kingdom are trapped in the seventies and business process automation (BPA) and the development of local (b2b) exchanges that can link back to Aramco offer interesting potential. This view is predicated on Aramco, the Kingdom’s largest business, driving its own partners quickly towards a b2b process, which in turn makes a reverse ZE N TELLIGEN CE 2002

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process (local exchanges) among Saudi businesses a logical consequence of the Aramco plan if the climate and infrastructure for eCommerce is in place. ASPs (Applications Service Providers) have not been particularly successful elsewhere in the world but it was mooted that the ASP and managed service model, might have a place in the Kingdom, as an evolution of the ISP model towards a managed service, capable of operating the b2b exchanges that Aramco has in mind, what Aramco described as: “Differentiation, a full service from a business driver perspective”.

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DEVELOPMENTS & TRENDS:

MOBILE COMMERCE (MCOMMERCE)

Mobile commerce (mCommerce) appears to present one of the Kingdoms best business opportunities in the future 36. Rapid expansion in the mobile space, linked with an explosion in the use of text messaging (SMS) services for everything from telephone bill reminders to downloading of ring tones, makes the Kingdom an interesting prospect for any company involved in the technologies and services that surround mobile telephony. Progressive thinkers interviewed during the course of this study, suggested that the Kingdom was ideally place to develop 2 ½ and 3G mobile services but the Saudi Communications Ministry is far more cautious, given that the GSM infrastructure is still relatively new and that a great deal of work still has to be done before it can be considered scalable and reliable under the growing weight of traffic. So while companies like DeteCon al Saudia wait for telecommunications deregulation and have indicated that they would be interested in a 2 ½ G license, the efforts are being directed towards SMS and WAP-based services that could prove attractive to the Saudi consumer. It is worth considering, that in a society where postcodes are absent, the mobile telephone becomes a powerful source of identity and imaginative local businessmen are exploring new ways of adding value to the existing service, widespread use of SMS billing being one example. DeteCon al Saudia suggests that there is an opportunity for specialized integration companies in the mobile telephony space, to support the expansion of the network, the content and the products and applications that will drive the market over the next five years. One example offered was virtual GSM services similar to the UK’s One 2 One model. It was suggested that operational and back office products should have a mobile component to them as well as an Internet capability and the demand for integration skills in this area will be high within one to two years. THE VEILED INITIATIVE

With the defeat of the Taliban, Saudi Arabia has, once again, assumed the role of the world’s strictest Islamic state but according to a report from The Wall Street Journal Europe (January 3rd 2002), the regime is showing a little more tolerance of the role of women in business. With only 5% employment, women are now seen as the fastest growing consumer group and Saudi women are, for the first time, being issued their own identity cards, giving them a legal identity and status independent of their husbands or fathers. In Asir province, the Sunday Times 37 reports fundamentalist resistance to the national photo ID scheme for women – Women require the permission of a male relative to travel abroad - and just over half of The Kingdom’s four hundred thousand university students (54%) are women; compared with only seventy female students in 1965. 36

In the UK Vodafone receives 12% of its revenue from data applications (text SMS et al)

37

Sunday Times 27th January 2002 ZE N TELLIGEN CE 2002

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In the past seven years, according to the Wall Street Journal, the number of female students in technical colleges has risen to 63,500. In Riyadh, the number of women members of the Chamber of Commerce has grown to 2,400 and in Jeddah, women own approximately one quarter of local businesses. While restrictions remain in place, that make progress difficult, the female population of The Kingdom has had to find discreet and creative way of working around bureaucratic barriers that obstruct rudimentary emancipation. This will most commonly involve the use of a “Big Brother”; a visible male third-party who acts as an intermediary between the Saudi bureaucracy and the woman’s ‘officially invisible’ business. The Internet and web-based e-commerce has become a facilitating medium for those women wishing to establish a commercial presence in a difficult and frequently hostile environment. The small business presence required of any ebusiness operation and the opportunity of positioning the server technology at any geographical location with reliable and fast Internet access, may well present an opportunity for Saudi women to expand their commercial activities in a discreet but potentially highly effective manner. Although Saudi women are forbidden either to drive cars or to deal directly with men, an estimated 250,000 of them have overcome these obstacles to form a growing part of the economy. The BBC reports “Over 6,000 commercial licences have been issued to women, many of whom run their own women-only businesses. And in these days of depressed oil prices, the government needs their money”. This opportunity is not lost on the more orthodox members of the Kingdom’s Islamic establishment who view the Internet as the latest in a series of technologically driven Pandora’s boxes that threaten the Kingdom’s status quo. In April 2000, Saudi authorities shut down an Internet cafe for women after a complaint was made that in the cafe, the Internet was used for "immoral reasons", according to the English-language Arab News. A policeman reported that the Internet was used for purposes, which are offensive to both the Islamic religion and Arab or Saudi traditions. Women can still use Internet cafes but in Riyadh especially, segregation between the sexes is enforced. Efforts are frequently made by Saudi authorities, through KACST to block all pornographic websites and other websites, which they deem offensive. According to a Reuters report, Saad Fagih, a member of the exiled opposition, The Movement for Islamic Reform in Arabia, stated that many Websites have been blocked including, "all the hot political sites, such as Amnesty International."

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M A R K E T A NA LY SI S :

BUSINESS TO BUSINESS

If business to consumer (b2c) “Has no business case” in the Kingdoms market, then business to business (b2B), which includes eGovernment, offers an area expanding potential for British companies offering “Leading edge and not bleeding edge” skills in software development and consultancy. Saudi Arabia represents 60% of the GCC market and driven by the Aramco example 38, portals and b2b exchanges like www.shebaak.com and www.Tawaf.co.sa are starting to spring-up. In Dubai, www.Tejari.com, (shipping and clearance) a leading example of a b2b exchange for the port of Dubai, reportedly receives 80% of its business from Saudi companies leading a senior official to remark that the same facility should exist in the Kingdom. Saudi Arabia represents a niche opportunity for British companies that embraces every element of the business process. During the course of the visit to the Kingdom, the same expressions were repeated by members of the government, UK companies already in the Kingdom and local business leaders: “The Kingdom needs partners that can assist with”: „

Business process automation (BPA)

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Business process re-engineering (BPR)

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Back office integration (BOI)

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Enterprise resource planning (ERP)

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Customer Relationship Management (CRM

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Infrastructure development (ERP to ASP)

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Data & Network Storage Technologies

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Supply chain management

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Procurement and cataloging

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EGovernment applications and experience

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Content development - Arabisation

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Portal/Shop-front development (eCommerce)

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All aspects of Internet security and authentication

Aramco, the largest business in the Kingdom have moved their systems to SAP and has awarded a contract to STME for the development of a network storage infrastructure that will allow Aramco’s Exploration & Petroleum Engineering Centre to protect, manage and analyse exploration and field development activities

38

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„

Knowledge management

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Skills development and training

Saudis believe that “size matters” where the Kingdom is concerned. These may be early days for the country as regards the development of eCommerce but with a population in excess of twenty million people, it believes it can become the dominant eCommerce force in the region and that much of what has been achieved elsewhere in the GCC is largely cosmetic, given the relative sizes of the populations involved. In this respect, the Kingdom considers itself to be a sleeping giant, which only just awakened to the opportunities of the information age and which requires between two and five years to gain the momentum that will transform its public services and business to business sector. To successfully carry out business in the Kingdom, a local presence or partnership of some kind is not mandated but strongly encouraged. Service is one of the hottest issues and a business operating out of the Emirates will not be as well received as one operating locally with a visible commitment to the Saudi market. While the Kingdom does not quite represent a blank sheet of paper in the eCommerce and b2b space, it is at least two to three years behind some of its smaller neighbors in creating the conditions and the environment needed to support the b2b space. The Saudi Exchange Consortium and Aramco initiatives to join-up the supply chain should act as the principal catalyst in driving the agenda forward. However, there is a chronic skills shortage in the Kingdom and with it, a window of opportunity for companies with a clear business proposition in the b2b space. From the interviews, an impression was received that the Saudi market was far more concerned with the “How” aspect of eCommerce and increasingly resistant to the idea of yet more companies appearing with an expensive portfolio of products, selling these on their benefits and then exiting; leaving their customers without the necessary support and education required to turn products into working solutions. Companies with products and services to offer in the b2b space need to be able to identify a niche service; product or opportunity in any of the categories listed above, such as a catalogue or inventory management application and market this energetically and with a simple business benefits message. This is an immature market with b2b exchanges in their infancy. It appears to be a market looking for good advice and direction and for partners capable of rewiring the business process and offering good middleware skills and services. Ultimately, Saudi Arabia will follow the Web services mantra but it’s not an expression that was heard during the course of the research and as such appears to confirm the view that a fundamental middleware challenge needs to be overcome first. One point volunteered by a well-respected observer of the Kingdom’s technology market relates to contractual clarity. He relates that recently, one very large IT company spent a whole day with its local partners going through its contract on a line by line basis to ensure that the terms and conditions of business were absolutely clear. He added, that it was absolutely crucial, when entering into any business arrangement in the Kingdom, to be entirely clear on both sides as to which services are covered by the contract and which are not. This is particularly relevant to issues surrounding product support, which may be expected but not included. BUSINESS TO CONSUMER

With relatively low penetration of both credit cards and the Internet among ordinary people, the Business to consumer market (b2C) is far less developed in the Kingdom than elsewhere in the GCC ZE N TELLIGEN CE 2002

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region. As noted earlier in this report, the telecommunications infrastructure and regulatory environment is not yet sufficiently in place to encourage the trust required for transactional eCommerce. Most Saudi businesses of any size appear to be big business. There are approximately 450 corporations and as Osama Najaar, the CEO of ISP Nesma commented, “There are very few businesses in the Kingdom to pull through eCommerce other than the likes of Aramco”. ISP’s and other businesses interviewed, commented that they were unwilling or unable to progress their own plans in the b2c space until the regulatory issues and changes to the law had been addressed. That said, there are examples of b2c activities starting to appear but these are more ‘brochureware’ store fronts than serious attempts to deliver eCommerce. For most Saudis, living as they do in a cash society, shopping is a fundamental social activity and b2c niches would have to be well researched and justified before they could attract investment (“Not ready as an investment vehicle” – Malaz Group). None the less, the Saudi Government does wish to find ways of encouraging businesses to go on-line and while this report was being written, the author received an email from the Secretary General of the Kingdom’s eCommerce Task Force, requesting the contact details of a UK company with an interesting ASP-driven (b2c) shop front solution that had been mentioned in conversation during the visit. Other areas mentioned by the businesses interviewed during the writing of this report were a need for the skills and products that could address: „

Clever websites

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Enabling technologies

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CRM technology

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Local ‘Arabic’ content

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“Web stuff”

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Smart card technology

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Hotel reservation and car hire

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Security solutions

All the evidence received suggests that b2c exists for the ‘right’ products and services that local ISPs need to add value. The Kingdom is presently where the UK was two years ago, in that there is attrition among the ISP community, very few are profitable and there is a race to develop the kind of services that will encourage local business to host their web presence on one ISP, rather than another. To date, it appears that several of the ISPs have shared a bad experience with one North American company, which appears to be selling its very expensive shop front development system in much the same manner as a pyramid selling franchise. As a consequence, UK businesses that believe that they have unique strengths in the b2c space need to make a very clear costs/benefits proposal and business case for their product or service, with on-going support as an integral part of any agreement. Much of the time it appears that ISPs are looking for assistance or solutions that can provide the essential (M) for middleware in eCommerce and UK companies are perceived to possess many of the skills required for the wiring-up of scalable and secure eCommerce projects. ZE N TELLIGEN CE 2002

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CONVENTIONAL MARKET OPPORTUNITIES IN THE IT SECTOR EDUCATION

Aside from the impressive size of the national education budget and the WATANI project mentioned earlier, there is room for extensive development of the educational relationship between the UK and Saudi Arabia as a result of the September 11th tragedy. All the Saudis interviewed suggested that the UK would now become the focus for University and further education of Saudi students and suggested that opportunities existed to further develop distance learning relationships with bodies such as The Open University and the UK’s many business schools. In addition, the skills shortage in the Kingdom is likely to further encourage visits and seminars by UK training companies as the Kingdom’s government presses ahead with the ‘Saudisation’ of the workforce. While companies such as Microsoft are particularly active in the training and courseware space, it was mentioned several times that the demand for specialized training and education around IT was potentially higher than the Kingdom’s ability to deliver. There appears to be an opportunity, worthy of further research, for UK companies in the training space to advertise fully packaged training courses for Saudi students and attract these to the UK, rather than the USA, where they have gone in the past. Simultaneously, there may be an equal opportunity to establish a training franchise in the Kingdom, with suitable partners and appropriate content for the local market. Finally, given the size of the Kingdom’s education budget and associated technology spend around the WATANI project, UK companies with skills, technologies and services to offer an evolving primary and secondary school system, may wish to explore the market for potential opportunities.

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T H E AU T H O R

Simon Moores is well known for his role as technology pundit on both the BBC and Sky News and as Chairman of The Research Group. He writes for both The Observer Newspaper and Computer Weekly magazine and also chairs a number well-respected IT User Groups and Forums, which include The Microsoft Forums - The eGovernment Forum, and The ASP/xSP Community. An advisor to the UK government's Office of the e-Envoy since its inception, Dr Moores assists The Foreign & Commonwealth Office, Trade Partners UK and The British Council and represents the Office of The e-Envoy at international government -focused events and conferences. www.zentelligence.com smoores@zentelligence.com www.drmoores.com

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A R A B N E W S S TO R I E S

GO DIGITAL OR PERISH, SAYS AMR KHASHOGGI

By K.S. Ramkumar, Arab News Staff Produce or perish was Churchill’s post-war cry which was translated into action by many nations. Today in the Internet age, the cry of every developing world economy seems to be "Go digital or perish." "Yes, our economy has to go digital. We just can’t afford to be left behind when every other economy has become digital or is in the process of becoming so. The longer we take, the more difficult it will be for us to take the necessary steps." The warning comes from Amr M. Khashoggi, a reputable Saudi businessman who exudes confidence when he talks and whose actions speak volumes for the pragmatic approach that the 21st century demands. "In fact, there are many companies in Saudi Arabia which are already linked electronically to the overseas companies they represent. So they are already downloading information, catalogs, product information, software solutions, etc. Isn’t it faster and more efficient now?" asks Khashoggi, chairman and chief executive officer of Amkest Group, a holding company involved in various business fields, and vice chairman of Modern Computers & Communication Co. Ltd. "Really, we cannot afford to remain behind the rest of the world when many countries have already adopted a digital economy," says Khashoggi. "Instead of the time-consuming, laborious and costly method of receiving information, we can just download all that we need from websites and print them for our use. This benefits the local economy as well. So the sooner we understand the implications and advantages of linking ourselves to the digital economy, the better we can prepare ourselves, especially when we (the Kingdom) plan to join the World Trade Organization. "But our going digital is not all that simple. We also have to recognize that there are challenges. We’re an Arabic speaking country and our dealings are in Arabic. The sooner we’re able to localize some of the programs, the sooner we can have them mass-used by the general public." Khashoggi, who is chief adviser to the Saudi Committee for the Development of International Trade of the Council of Saudi Chambers of Commerce & Industry and chief coordinator of the Outreach Program, graduated from the Yale School of Management with an MBA in 1979. He also serves as a board member of the Jeddah Marketing Board. He is a member of the Committee of International Relations at the JCCI and co-founder of the Saudi chapter of the Young Presidents’ Organization, a global group with more than 9,000 members. "We all know that the digital economy is one connected by an electronic network. It is efficient, fast and transcends borders. But it must be understood that there are certain aspects of the economy that cannot be digitized — for instance, delivering goods. One of the major challenges for Amazon.com in competing with regular bookstores was in actual delivery of books. Talking about books, we find there’s an increased movement toward digitally-produced books that people can download or read online." ZE N TELLIGEN CE 2002

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Khashoggi agreed with the Jordanian planning minister who said that education was one of the major challenges facing the Arab world. He noted: "Jordan has a population of five million: 50 percent of them are under 18 and there are 20 universities. Here in the Kingdom we have only nine universities for 20 million people, 60 percent of them under 20. So we do need more universities. But the point the Jordanian minister stressed was not the number of universities but the kind of curriculum in those universities. He encouraged the business community to get involved in the creation of universities and participate in curriculum development. I’m a firm believer that the government should play the role of a facilitator and a coordinator with all resources at its command. It should allow the private sector to play a greater role in economic development. Hasn’t our government provided everything for us, from health care to education to infrastructure, whether roads, hospitals or airports? The business community must get involved in sharing part of that responsibility," Khashoggi says. "However," he adds, "it must be recognized that the business community is not going to partake in every activity if the activity doesn’t make commercial sense. So a formula needs to be worked out and that is where I think technology can play a major role because it is technology that will enable the business community to provide services efficiently and cost-effectively." As far as e-Health is concerned, the Kingdom is advanced. The Kingdom took the initiative in the creation of the International e-Health Association whose first conference last year was attended by more than 1,000 professionals. Twice the number of people are expected to participate in the next conference scheduled for London from Sept. 18-20," Khashoggi said. Asked where the Kingdom stands in the matter of e-Government, Khashoggi said: "I think we have a long way to go, but we’re moving there. We have to be able to renew licenses electronically, approve industrial license applications and maybe renew iqamas. But right now, I think, the first step for us as far as e-Government is concerned is providing information online. Then we can start developing websites and making them more interactive and more dynamic." He emphasizes that the Kingdom is a very important country, important for all players in the global economy. The Middle East, with its more than 300 million population is a large market. "The economies in the region can be linked by technology and so trade can be boosted. The more we Arabs trade with each other, the stronger our economies will be and technology will certainly play an important role." SIMON MOORES WRITES IN ARAB NEWS

Simon Moores Writes in Arab News 39 The Kingdom of Saudi Arabia is joining the information age. A mult-billion investment has been made in developing a modern telecommunications infrastructure capable of supporting eCommerce and the demands of a growing information conscious society. While the Kingdom may lie behind several of its smaller neighbours in terms of rapid Internet-related achievement, a relative view of its population size must be maintained, as a measure of its progress towards the objective of universal access to telephony and the Internet.

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April 2nd 2002 ZE N TELLIGEN CE 2002

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This emerging "Saudi e-Rabia", now represents the Arab world’s largest market for IT products with over 33% of its PC sales last year. In the previous year, 2000 the estimated size of the Kingdom’s IT product market was $3.8 billion with computer sales representing $500 million. Of all the hardware purchased, 35% was assembled locally. The potential growth of eCommerce is however constrained by the absence of the appropriate regulatory environment, relatively low penetration of the Internet and the presence of reliability and trust issues impacting the integrity of the telecommunications network. In tackling the demands of a connected, 21st century economy, twenty-nine separate laws need to be revised or reviewed in order to support the mechanics of eCommerce in the Kingdom. The Saudi Ministry of Commerce is vigorously tackling the challenges of e-commerce legislation and details will be published, based on guidelines set forth by the United Nations Commission on International Trade Law (UNCITRAL). Having made the larger capital investment in infrastructure and technology, many of the Kingdom’s government departments and businesses now require expert advice and assistance in dealing with the advanced middleware processes that are the foundation for successful eBusiness. While many of the largest businesses and government ministries in the Kingdom may be working directly with the likes of IBM Global Services and leading management consultancies, such as Accenture and Ernst & Young, at a more fundamental level, business processes in the Kingdom, still operate on a hierarchical rather than a flat management model, a hurdle which must be overcome if Saudi Arabia is to progress along the road to becoming a Knowledge Economy. The lessons of corporate ‘reengineering’ made popular in the West at the beginning of the last decade have yet to be introduced to many companies in the Middle-east. One great challenge for Saudi business and government, must lie in the development of unified service offerings. The technology investment of the last fifteen years has produced silos of data, islands of information and a mix of responsibilities, systems, standards and technologies which are clearly not well integrated into the broader business process. This is an obstacle to progress and business needs to explore the new service oriented architectures, which commonly fall under the heading of Web Services, as potential middleware solutions for the future. Gartner predicts that the market for Web services tools and infrastructure software will grow globally from less than $2 billion in 2001 to $35 billion in 2006 and this will, over time, represent a fundamental piece of the puzzle that the Kingdom will have to solve before it can move forward confidently with its eBusiness agenda.. Countries within the GCC very much need end-to-end solutions and advanced integration skills which encompass, technology, integration, application, education and support. Applications integration is a ‘Hot technology’ and entirely appropriate to the Saudi market. That said, while the middleware tools from companies such as Silverstream and BEA Systems, are widely available, the advanced integration skills that these require are in short supply and are likely to act as brake on efforts to integrate and connect business in the Kingdom. Very few companies can successfully offer and deliver a comprehensive package within a Gulf setting. As a consequence, the company that sells Firewall technology may not be able to offer a service that takes the Firewall and other security elements and integrates this into a new or existing network and several partners may be required on a single project, overcomplicating it.

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It may be true to say that the Kingdom’s greatest challenge lies not with the technology but with the processes which combine to make any technology effective and deliverable. A great many Saudi’s I have spoken to have a vision of where progress will take the Kingdom but have expressed concerns over its readiness for eCommerce. At the same time, security remains a principal concern in the very open world of the Internet. While suspicion of the Internet is high, awareness of the many different security problems facing an eBusiness appears relatively low. If I was asked for three words of advice to support the Kingdom’s eBusiness and eGovernment agenda, it would be flexibility and middleware. Flexibility, because what is true of an attractive technology today, may not be true or even fit for purpose in eighteen months. Middleware, because without it and the business processes that support it, the eBusiness agenda will be built on a foundation loose sand rather than firm concrete. And finally vision, as reflected by the entrepreneurialism and ideas of the many younger Saudi business people of both sexes, who are building new opportunities around the Internet and mobile telephony in what still remains a restricted commercial environment by Western standards. Technologies & Services that Saudi Arabia Needs Today.

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Appendices & Resources: SAUDI ARABIAN MACROECONOMY

THE PRIVATE SECTOR AND PRIVATIZATION 40 Large state corporations, generally monopolies, dominate the Saudi economy. These firms include the oil firm Saudi ARAMCO, the Saudi Basic Industries Corporation (SABIC), the Saudi Telecommunications Company (STC), the Saudi Electricity Company (SEC), and the Saline Water Conversion Corporation (SWCC). Prior to the oil boom in the 1970s, parts or all of many of these firms, including ARAMCO, were in private hands. In recent decades, the private sector has accounted for only one third of the Saudi GDP. Crown Prince Abdullah has remarked, that the Saudi state can no longer assume the burden for economic development and welfare in the country. As a result of rising public debt, declining capital expenditures by the state, and generally stagnant real growth rates, the private sector must be allowed the freedom and opportunity to take a more active role in economic development and prosperity. One of the best tools to restructure the economy would be broad and deep policy of privatization, which would both encourage and complement greater foreign direct investment. Privatization would allow for the retirement of a considerable portion of existing public debt, and the inflow of private equity capital to meet rising demand for services would prevent the accumulation of new public debt. In addition, privatization would encourage the return of a considerable portion of private Saudi capital now invested overseas. Breaking up state monopolies would also create more competition and efficiency, leading to the introduction of new management and technology, reduce pressures for state subsidies, and result in strengthened marketing. To date, the Saudi concept of privatization has been largely limited to allowing private firms to take on certain service functions, such as management of seaports and airports, and to the provision of some postal collection, health, and education services, which complement the work of still-dominant state agencies. One dynamic area of growth is private health clinics and hospitals. The pending requirement that firms purchase private health insurance for foreign workers, which may be expanded to cover many Saudi workers in the future, could accelerate this trend. Sales of existing state assets would boost privatization dramatically. There has not been a single sale of existing assets, with a transfer of management control, in any state corporation. In the first test case, the SAG (Saudi Arabian Government) has stated its intent to sell a significant minority stake in STC to a foreign strategic partner, and management control may be transferred. Such a sale should lead to higher overall return and value for the corporation and rapid improvements in service. The telecom and information technology sectors are growing rapidly, and are potentially attractive areas for UK companies. The pace of possible privatization sales is slower elsewhere. There is no consideration of a partial sale, on either a horizontal or vertical basis, for ARAMCO, the crown jewel of state assets. Private ownership of the holding company of SABIC has not progressed beyond 30 percent for many years despite a mandate in the firm’s constitution that it becomes private; some Saudi ministers have stated that the time is not right for greater sales of state shares. 40

US Embassy & National Commercial Bank ZE N TELLIGEN CE 2002

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The recent consolidation of regional electricity firms, which will take considerable time to become effective, has likely delayed the possible sale of existing state assets of SEC for several years. Many domestic and foreign investors would like to invest in new independent power plants (IPPs). For IPPs to become competing sources of electricity to SEC, however, a legal framework must be created to allow power-purchasing agreements to be instituted by an authority not under the control of SEC. In addition, the SAG must establish an independent regulatory body to ensure that investors receive a reasonable return over the long term. The extremely low rate pricing structure for SWCC does not make it an early candidate for privatization, but some licences have been issued for relatively small independent water producers to supply industrial users. Other privatization possibilities include Saudi Arabian Airlines, hotels, municipal services, and grain mills and silos, as well as large minority stakes in banks.

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BIDDING FOR GOVERNMENT CONTRACTS

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The Saudi government must receive at least three bids for all contracts larger than one million riyals (ÂŁ200,000). For construction projects, at least five contractors must be asked to submit bids. A committee of three or more people from the Ministry of Finance & National Economy, or from the government agency responsible for the project, must review the bids. The contract will be awarded according to a vote decided by a majority. These bids are open to the public. Companies with the lowest bids and also meeting all specifications will be awarded the contract. In most cases, the Saudis estimate the price and if all bids are significantly larger, then the project will be negotiated. This also applies if the lowest bidder does not meet the conditions of the project. Tender regulations allow price increases for variations in transportation charges, insurance rates or the price of raw materials. If all bids significantly exceed the estimate, the government agency may cancel all such bids. The government insists that bids come reasonably close to practical estimates. Since January 1979, all contracts over 100 million riyals have required the personal approval of the King. Foreign companies who wish to bid on projects supervised or undertaken by government ministries must be known to the ministry or agency. A list is compiled of these foreign companies and bidders will be selected from this list when projects are available. In order for a company to be properly registered in the Kingdom, a questionnaire must be completed in both Arabic and English. There must also be included the company's latest annual report along with two references and two copies of a list of completed projects. These documents must be submitted to: Director Contractor's Classification Committee Non-Saudi Contractors' Division Riyadh, Saudi Arabia Telephone: 404-3889 / 404-3990 In awarding contracts, the Saudi government is required by law to give preference to Saudi companies or to joint ventures, which are, more than 50% Saudi-owned. Jubail Industrial City contracts for architecture and engineering, for example, are awarded only to 100% Saudi-owned companies. When a qualified Saudi company is not available, foreigners may then be awarded the contract. The foreign company, however, must have a local address. Saudi Arabia's 'offset programme' is one approach for generating industrial investment. This policy requires contractors to reinvest a portion of the value of their major contracts within the Kingdom. The government may require foreign-owned consortiums involved in defence contracts to reinvest up to 35% of the value of the contract into high-technology service industries. Foreign contractors must also subcontract 30% of the value of a government contract to local subcontractors.

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Bidding for Government Contracts Foreign companies working for the Saudi Arabian government are required to have Saudi representation or joint-venture partners in the Kingdom. The local representative will receive notices regarding forthcoming projects and should insure that the foreign company is on the list of bidders. He is further expected to advise the foreign company on the best ways of presenting proposals to Saudi clients. All foreign companies working in Saudi Arabia must register with the Ministry of Commerce. Non-Saudis are not permitted to act as commercial agents in Saudi Arabia. The commercial agent cannot perform his duties until he has been registered with the Ministry of Commerce. His function is vital since he is held responsible for the company and its personnel in the Kingdom. Details of these requirements can be obtained from: Department of Commercial Registration Agencies Section Ministry of Commerce PO Box 1774 Riyadh 11162 Telephone: +966 1 401-2220 / 401-4708 Fax: +966 1 403-8421 A foreign contractor and his Saudi agent fall under a regulation issued in 1978. The regulation stipulates: If a foreign contractor does not have a Saudi partner, then he should have a Saudi service agent. The Saudi agent must be living in the Kingdom and must be registered as an agent for the foreign company in the Commercial Register of the Ministry of Commerce. An Agency Agreement governs and defines the obligations and relations between the Saudi agent and the foreign contractor. The foreign contractor pays fees to the agent in return for his services. These fees should not exceed 5% of the cost of the total contract. A foreign contractor involved in different kinds of work may employ more than one Saudi agent. An exception to local agents is only in the sales and services contracts with the Ministry of Defence and Aviation. The use of an agent here is forbidden. For government bidding, a company may be represented by only one agent. Regulations forbid an agent from representing both the consulting engineer and the implementing contractor in a single contract. No more than one service agent is allowed for each Saudi project in which a company is interested. A foreign company may, however, have more than one Saudi agent performing services as opposed to commercial functions. ZE N TELLIGEN CE 2002

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A Saudi agent is not permitted to represent more than ten foreign companies.

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SAUDI ARABIA – AN INTRODUCTION

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With 22.7 million inhabitants and more than one-quarter of the world's proven oil reserves, the Kingdom of Saudi Arabia is the world's largest oil producer and one of the 20 largest economies in the world. The well being of Saudi Arabia’s entire economy is vulnerable to oil price fluctuations. Oil revenues (from crude oil, natural gas liquids and refined products) make up around 90% of total Saudi export earnings, 75% of government revenue and 40% of the GDP. This chapter focuses on two key issues for Saudi Arabian development: The new Foreign Investment Law (FIL), which is one of the most important Saudi economic reforms to open up the economy. The negotiations for Saudi Arabia’s coming entry into the World Trade Organization (WTO), which illustrates the new orientation of the Saudi economy. NEW FOREIGN INVESTMENT LAW

In its 1995-2000 development plan, the Saudi government had already accepted the need to reduce state involvement and increase private sector - including foreign - participation in the economy. But, before 1999, the government moved very slowly in this direction (and towards cuts in government subsidies, an increase in taxes, or financial sector reform). However, in the first six months of 2000, the government launched a massive revision of the system of business regulation. It has, for instance, set up the legal framework for selling public assets to private investors. Saudi Arabia’s wish to open its doors to foreign investors has been illustrated by the newly established code for foreign investments. The new Foreign Investments Law (FIL), which was approved by the Supreme Economic Council (in charge of economic policy issues), was ratified by the cabinet-level council of ministers, approved by King Fahd in April 2000 and came into effect in May 2000. The FIL imply four major changes, which ensures equal treatment of foreign partners with local concerns: First, the FIL allows international investors to have full ownership of projects and related property. Before the law, foreigners could only hold minority shares on companies established in Saudi Arabia (limitation to 49% shares in ventures) and they have long argued that needed better guarantees and full ownership rights. Restrictions on capital movements will also disappear. Second, the FIL reduces corporate taxes for foreigners: The Saudi State will “bear 15% of taxes imposed on company profits exceeding 100,000 riyals ($26,000) a year”. In June 2000, the taxation levels are to be defined: the maximum taxation rate (profits of more than SR1mi) would be cut from 45% to 30%, the same rate as for Saudi companies; profits between SR500, 000 and SR1mi would be taxed by 25% and profits between SR100, 000 and SR500, 000 by 20%. These tax levels are below those of Kuwait, Oman and Bahrain, three GCC countries. Moreover, tax holidays have been abolished. 42

From a report by Middle East Consultants (MEC)- www.meconsult.co.uk ZE N TELLIGEN CE 2002

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Third, the FIL states that foreign investors do not need any longer a Saudi sponsor. Fourth, a General Investment Commission (GIC) to oversee foreign investment has been established. The immediate effect of the FIL was a boom in the property sector because of potential foreign investment into the market. In the middle term, the new FIL offers sweeping incentives to attract long-term investments into the country and to stem the outflow of capital now amounting to a total of $600bn. Moreover, the FIL will spark large foreign inflows in particular into the oil and gas sector. Freeing up the economy will also undoubtedly boost Saudi Arabian’s efforts to join the World Trade Organization (WTO). However, much of the detail of the new code is still lacking in June 2000. Crucial implementation regulations have yet to be drawn up and the absence of detailed proposals on reform of the tax regime, in particular, is seen as a still pending issue. NEGOTIATIONS FOR SAUDI ENTRY TO THE WORLD TRADE ORGANISATION

The Saudi Arabian bid for membership of the World Trade Organization (WTO) was launched in 1993. Membership will afford Saudi Arabia greater opportunities for growth in global trade, will secure better terms for its export-oriented industries, especially petrochemicals, and will also promote foreign investments and joint ventures. The “raison d’être” of the WTO is liberalization of trade, but the opening of the Saudi economy to foreign investment raises a number of sensitive social and cultural issues. In November 1998, the Saudi Minister of Commerce led the Saudi Arabian delegation to the fifth round of bilateral meetings in Europe, Canada and the USA. Since then, several WTO members have expressed support for Saudi Arabia’s efforts to join the organization. But Saudi Arabia must secure agreement from the 135 member states before joining. To comply with WTO requirements, Saudi Arabia instituted several changes in its economic policy: including a reduction of subsidies, modification of the current commercial laws and regulations and an acceleration of privatization. A factor weighing on talks is whether the kingdom will be admitted to the WTO as a developing or as a developed country. If it is admitted as a developed country, the demands made on its trading regime will be more onerous. Saudi strategy is therefore to enter as a developing country, which would give it more time to comply with WTO entry standards. But the USA has expressed its wish to see Saudi Arabia enter as a developed country. Another important issue will be the WTO expectation that the GCC, which registered itself as a regional trade area in 1984 harmonizes its trading rules. In April 2000, the Saudi bid for membership took a step forward with accords with Australia and Japan on market access for goods and commercial services. More recently, new submissions had been made on intellectual property, industrial trademarks, biodiversity and other issues. Expectations that the accession process could be concluded at the end of 2000 are likely to prove optimistic. There has, in fact, not been much progress in three important sets of bilateral talks - with the EU, the USA and New Zealand.

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G E O G R A P H Y, H I S TO RY, S O C I E T Y A N D P O L I T I C A L S Y S T E M

GEOGRAPHY AND CLIMATE

GEOGRAPHY

Saudi Arabia occupies four-fifths of the Arabian Peninsula and is bordered on three sides by sea – on the east by the Arabian Gulf and the Gulf of Amman (560 km or 350 ml coastline), on the south by the Indian Ocean and on the west by the Red Sea and the Gulf of Aqaba (1,760 km or 1,100 ml coastline). The country covers an area of about 2,331,000 km² (about 830,000 ml²) including the neutral zones, about one-fourth the size of the United States. The Kingdom is bordered by Jordan, Iraq and Kuwait to the north, by Bahrain, Qatar and the United Arab Emirates to the east and by the Republic of Yemen and the Sultanate of Oman to the south. Between Saudi Arabia and Iraq, there is a 7000 km² (2700 ml²) neutral zone, equally divided in two parts accordingly to a 1975 agreement. Between Saudi Arabia and Kuwait, there is also a divided zone covering 5770 km² (2230 ml²), which contains about 5bi barrels of proven oil reserves and in which oil revenues are split between the two countries. Most of the total area of Saudi Arabia is covered by desert. A narrow coastal plain of marshes and lava fields extends along the Kingdom’s western coast. A range of mountains runs parallel to this coastal plain along the Red Sea and extends from the north, gradually increasing in elevation to the south with its highest peak at around 3,000 m (10,000 ft) in Asir. The Najd plateau stretches out to the northeast with altitudes between 1,200 and 1,800 m (3,960 and 5,940 ft). This elevation drops abruptly to 600 m (1,980 ft) in the eastern desert, then slopes gradually down to sea level at the Arabian Gulf. To the southeast of the plateau lies the famous Empty Quarter (”Rub-al-Khali“), the largest continuous sand desert of the world. In the east, along the Arabian Gulf, is a low-lying region known as Al-Hasa. The mountains in the western part of the Kingdom are very rich in minerals, containing large deposits of limestone, gypsum, and sand. The eastern region is home to the richest oil fields in the world. CLIMATE

Saudi Arabia experiences wide climatic extremes and is one of the driest countries in the world. Climate varies greatly according to the region and marked seasons do not exist. The Kingdom’s Red Sea coast has a sub-equatorial climate with hot and humid summers and mild and lightly rainy winters. In the central region summer temperatures can average 45°C (113°F) with dry and cool winters. The eastern region has high humidity with temperatures rising to 43°C (110°F) during the warmest season and light rainfall during the winter season. A HISTORY OF SAUDI ARABIA

THE FOUNDING OF THE KINGDOM

After the departure of the Turks, the modern Kingdom of Saudi Arabia was founded in September 1933 on the lands controlled by the Arab tribal chief Abdul Aziz Al-Saud. King Abdul Aziz became the first King of Saudi Arabia. Shortly thereafter, oil was discovered in the country, and commercial ZE N TELLIGEN CE 2002

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production began in 1938. Since then, oil revenues have played a central role in the country’s development as a modern industrial state. Following King Abdul Aziz’ death in 1953, who ruled for 11 years and initiated an ambitious program of economic and social reform, his eldest son Saud succeeded him. THE BOOMING YEARS

In 1964 King Saud abdicated in favour of his younger brother, the Crown Prince Faisal. Faisal had acquired significant experience in diplomacy and government prior to his rise to the throne. During King Faisal’s reign, the economy was stabilized and wealth gained from oil was used to fund a massive national development programme guided by the first 5-year Development Plan. The economy grew rapidly under the plan with real national income increasing at a rate of almost 45% a year. King Khalid assumed the leadership of Saudi Arabia after King Faisal’s assassination in 1975 with Fahd as Crown Prince. He continued most of King Faisal’s policies. During the so-called booming years, the Kingdom’s infrastructure expanded rapidly with roads, industries, universities, and even new cities springing up almost overnight. At the end of Khalid’s reign, the country’s economic base had become increasingly diversified. The Kingdom was wealthy and possessed $100bi in the bank in 1981. The Saudi Welfare State was designed and a generous social contract was struck between the Saudi dynasty and its citizens, which was based on a deeply economic involvement of the state and required the government to provide jobs and services to its citizens. KING FAHD’S REIGN

In 1982, King Fahd, who had in practice ruled before he reigned, succeeded King Khalid and Fahd’s half-brother Abdallah was named Crown Prince. King Fahd promoted efforts to expand the country’s increasingly modern infrastructure, to diversify the Kingdom’s sources of income across a growing and profitable industrial base, to achieve self-sufficiency in many primary manufactured and agricultural commodities and to develop education. But with continuous low oil prices, oil revenues went down. Since 1983, Saudi Arabia has been in deficit and since the end of the 1990’s its financial success has been put into question. Growing financial problems have been complicated by political uncertainty. Economically, Saudi Arabian recent history has been marked by uncertainty about the sustainability of the national debt. At the Gulf Cooperation Council Summit in December 1998, the Saudi Crown Prince Abdallah stated: “the age of abundance is over [...] We must all get used to a new lifestyle that does not rely entirely on the State”. SAUDI ARABIAN SOCIETY

POPULATION

According to the Saudi Minister of Planning, the country had 19.9mi inhabitants in February 2000 and a growth rate of 3.39% - with a birth rate of 37.4 bith/1,000. The Saudi population is therefore one of the world’s fastest-growing populations. The age structure underlines the importance of the young population: 43% of the population is under 14. The total fertility rate amounts to 6.34 children born by women and the life expectancy at birth is relatively high at 70.5 years. ZE N TELLIGEN CE 2002

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The demographic factor is of strategic importance for the government: with the current growth rate of its population, the Kingdom should find 200,000 jobs43 a year to maintain its level of employment. As the Saudi state continues to play a central role in the Saudi economy, reticence in cutting subsidies for the State sector and in opening up the economy has been evident in Saudi policy. In 1999, non-nationals represented 25% of the total population, that is 5.3mi, and also 35% of the labour force (aged between 15 and 64), that is 4.7mi. The non-Saudi workforce has been attracted by the Saudi economic prosperity since the 1970’s. It is significant that the Saudi private sector still prefers to hire foreign labourers who accept lower wages than Saudis. This has been taken into account by the government that has launched programmes in order to reduce immigration and to improve the proportion of Saudis in the civilian workforce. This reformist policy called “saudisation” has led to stopping the issue of work visas for certain jobs, increased training for Saudi nationals, and the setting of minimum requirements for the hiring of Saudi nationals by private companies. CHANGES IN SOCIETY?

100% of the Saudi Population is Muslim. On the one hand, Saudi society is closed, undemocratic and strongly influenced by Islam. The Mutawi’in - the religious police - take responsibility for ensuring the respect of Islamic customs and law. On the other hand, Saudi society is very young and well educated - with a literacy rate by 80% (over 15 year old), which results from the efforts of the Saudi State in education. The liberalisation of the economy raises issues dealing with the opening up of Saudi society. The first issue is the status of women. The way in which increased freedom of movement following the economic liberalisation will affect women, both Saudi and foreign, is an extremely sensitive issue. The segregation of sexes is one of the more established Saudi customs. Before November 1999, women had no independent identification cards! Whereas the Crown Prince Abdullah seems to have a very moderate view on women, clerics are very reluctant to sanction change and more tolerance towards women. Fundamentalist scholars and lawyers call for the total ban of women in the work place. Economic liberalisation raises another issue: What impact will it have on the political opposition? The Saudi monarchy allows neither democratic suffrage nor political parties. Extremist Wahhabi sects compose the religious opposition. The two bombings of US personnel first in Riyadh and then in Dhahran in 1996 illustrated the force of this movement. But the Saudi opposition has been considerably reduced by the regime. One of the most powerful opposition groups is nowadays the Movement for Islamic Reform in Arabia. However, some discontented Saudis and westernised businessmen who plead for more liberalisation, do not see the Wahhabi sects as an attractive alternative and therefore support the monarchy and a continuation of the royal system of government that is very popular.

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ADAPTING THE WELFARE STATE

The demographic factor is linked with the problem of adopting a welfare state designed in the 1970s to the new economic reality. How can the Saudi government define a new social contract? Saudi Arabia’s State is all mighty and has developed in the past a very generous Welfare State infrastructure. For instance, the government employs a very high proportion of all Saudis in the workforce. Since the 1980s however, the GDP/head has continually fallen from $10,000 in 1981 to $6,585 per capita in 1999 because of the growth in the population. Since 1998, the Saudi challenge has been to restructure its economy and Welfare State in ways that will encourage the Saudi private sector and lessen the fiscal burden on the state. However Saudi ability to reform and to adapt to new challenges is highly problematic. The actual change towards privatisation and liberalisation in some economic sectors are radical and their success depends on the support of both the royal family and the population. POLITICAL STRUCTURE AND JURIDICAL SYSTEM

THE SAUDI MONARCHY

Since its creation, Saudi Arabia has been a traditional monarchy, conservative and strictly Islamic in orientation. King Fahd who holds the title of “Custodian of the Two Holy Mosques” and serves as Prime Minister now heads the Kingdom. The King's powers are limited by the fact that he must rule in accordance with the Sharia44 and other Saudi traditions. He also must retain a consensus of the Saudi royal family and of powerful religious leaders. The King is chosen by leading members of the royal family among themselves with the subsequent approval of the ulema. Political power lies entirely in the hands of the wealthy and all-mighty royal family, which extends to 30,000 members. Crown Prince Abdallah serves as the first deputy Prime Minister and Commander of the National Guard. He is seen to be the promoter of economic reforms and liberalisation. Prince Sultan Abdul Aziz, King’s Fahd youngest son is the second deputy Prime Minister, Minister of Defence and Aviation and Inspector General. He has emerged as a pivotal player, assuming the mantel of unofficial prime minister. THE COUNCIL OF MINISTERS

Saudi Kings gradually have developed a central government and created central political organs. The Council of Ministers or Cabinet was institutionalised in 1953, and since September 1993, it is appointed for 4-year terms by the King, to whom it is responsible. It is assigned to advise on the formulation of general policy and to direct the activities of the growing bureaucracy. The Council of Ministers serves as an instrument of royal authority and meets every Monday. Legislation is ratified by royal decree and promulgated by the Council of Ministers. The cabinet that has been appointed in 1995 and lightly changed in 1999 consists of a Prime Minister, the first and second deputy prime ministers (and Minister of Defence), 21 ministers, 9 ministers of State, and a small number of advisers and heads of major autonomous organisations. Its

The Sharia is based on the provisions of the Holy Quran, the Sunnah (the teachings and deeds of the Prophet Muhammad), the consensus of the Ulema (religious leaders of the Islamic community), and legal analogy of the defining quranic principles.

44

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formation can be analysed as a new alliance between a more cosmopolitan Hijazi elite and the royal family because of the light shift away from the Nejdi coalition of tribal and religious leaders. A new Ministry of Civil Service was introduced to the cabinet, signalling the government’s eagerness to nationalise the job market THE INTRODUCTION OF THE BASIC LAW IN 1992

In March 1992, King Fahd issued several decrees outlining the basic statutes of government and codifying for the first time procedures concerning the royal succession. This revision of the Kingdom’s political and administrative system is known as the Basic Law for the System of Government. The Basic Law re-affirms that the Holy Quran is the constitution of the country and that the sons and grandsons of King Abd Al Aziz Al Saud rule the monarchy. It outlined the government’s goals and responsibilities and redefined the relationship between the King and his citizens. It also codified for the first time succession to the throne and provided for the establishment of the Consultative Council, ”Majlis Al-Shura“. THE MAJLIS AL-SHURA

In September 1993, King Fahd issued reform decrees, appointing the 60 first members of the national Consultative Council and spelling out procedures for the new council's operations. The first Consultative Council was appointed in July 1997 for a four-year term. It is composed of 90 technocrats belonging to Saudi social, political, and religious life with a great proportion of religious and tribal members. The King has directly nominated the chairman. The Consultative Council acts on a regular basis as the national legislative branch and as an advisory forum for the King and for the Council of Ministers on matters pertaining to government programs and policies and issues of public interest. The role of the Council has been gradually expanding as it has gained experience, but it remains a purely advisory body. THE PROVINCIAL SYSTEM

In September 1993, King Fahd promulgated new by-laws for the Provincial System to aid in the administration of the country’s provinces and to facilitate their development. The Kingdom is divided into 13 provinces called “governorates” (mintaqat) that administer local affairs and are headed by governors or Emirs who are princes or close relatives appointed by the King. The Kingdom is divided into 13 provinces governed by the royal family. The governor is assisted by a vice governor and by a provincial council, which is composed by the heads of the province’s government departments and by a ten-member council of prominent individuals in the community (tribal leaders and heads of merchant families) also appointed to fouryear, renewable terms. The 13 provinces (”mintaqat“) are: 'Asir, Al Bahah, Al Hudud Ash Shamaliyah, Al Jawf, Al Madinah, Al Qasim, Ar Riyad, Ash Sharqiyah, Hail, Jizan, Makkah, Najran and Tabuk.

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THE JUDICIAL SYSTEM

The Kingdom’s legal system is based on the Islamic Law, the Sharia that is considered to be the constitution of the Kingdom. The King has also issued several additional secular codes. On the recommendation of the Supreme Court of Justice, currently headed by Sheikh Abd al-Aziz bin Abdallah Bin Baz, judges of religious courts, who are appointed by the King, administer justice. The courts of justice in order of importance are: The Supreme Court of Justice (composed of 12 senior jurists), The Court of Cassation, the Public Courts, the Summary Courts and the Specialised Courts. Law theoretically protects the independence of the Judiciary. The King acts as the highest court of appeal and has the power to pardon. Access to high officials (usually at a Majlis, or public audience) and the right to petition them directly are well-established traditions. NEW POLITICAL DEVELOPMENTS

Two main political developments have to be highlighted. The first one is the issue of the succession of King Fahd; the second one is the setting up of new permanent political bodies centralising policymaking procedures that help implement radical changes in Saudi politics and economics. THE ROYAL FAMILY COUNCIL

King Fahad is seen as willing to open up the Saudi state, which has brought him some enemies. Yet the Saudi monarchy’s unwritten tradition of succession is that all the brothers of the present generation have a claim. Thus, after Abdullah, people expect Sultan bin Abdel Aziz to be the next monarch and after him there are about two dozen more brothers of Fahd’s generation. If the rules of are applied, one septuagenarian after another will rule the monarchy. At the beginning of June 2000, the Royal Family Council, in response to a royal decree, held its first meeting. Prince Abdallah is the chairman of the council, while Prince Sultan Bin Abd-Abd-al-Aziz is the deputy chairman of the council THE SUPREME ECONOMIC COUNCIL

In August 1999 the Supreme Economic Council (SEC) was established by a royal decree. The SEC assignments are to elaborate decision-making for economic policy excepting oil and mineral issues. The SEC takes over the responsibilities of the Council of Ministers in terms of economic issues and is helped by a Consultative Commission formed by ten non-governmental experts. Structured by 11 ministers its role is to manage the economic reform in the kingdom and to secure the goals for Saudi welfare, namely: •

Providing jobs and assuring optimum utilization of manpower;

Controlling public debt to be within secure and reasonable limits;

Distributing national income fairly and offering opportunities for investment and for labour;

Diversifying the economic base and extending the sources of public revenue; ZE N TELLIGEN CE 2002

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Developing channels and frameworks for safe investment and increasing investment of domestic capital and savings in the nation's economy;

Increasing the income of the state and linking it with the movement and growth of the national economy;

Expanding the private sector's contribution to the national economy and to the government's program for privatisation; and

Enhancing the ability of the national economy to cope efficiently with global economic changes.

The SEC will also study: •

The general framework of the development plans and other reports pertaining to their implementation;

Financial policies and the bases for preparing budget drafts and priorities for expenditure;

Commercial policies at domestic and international levels, and the bases regulating the labour and capital markets, to protect the interests of consumers and create the proper atmosphere for competition and investment;

Industrial and agricultural policies, and other similar basic economics-related reports coming to and from the cabinet;

Economic and commercial agreements and laws on protection of the environment;

Relevant economic studies prepared for it by consultative committees.

THE SUPREME PETROLEUM AND MINERAL AFFAIRS COUNCIL

The formation of the Supreme Petroleum and Mineral Affairs Council (SPMC) in February 2000 heralds a centralisation of Saudi energy policy decision-making. With King Fahd as Chairman, Crown Prince Abdullah as deputy chairman the Foreign Affairs Minister Prince Saud al-Faisal at its head the SPMC operates on a four-year time scale. The council will: •

Have the final word on all affairs of petroleum, gas and hydrocarbon materials

Fix the size of production and decide the pricing plans of different fuel sources

Formulate the general policy of Saudi Aramco, including approving the company’s 5-year plan, deciding its capital and appointing the chairman

Take decisions on all investment matters relating to post-production phases. Saudi Aramco retains exclusive control of exploration, drilling and production

Decide on investment matters in the Neutral Zone concessions

Study and endorse general mining policies

The creation of the SPMC can be seen as a step in the evolving politics of transferring power away from King Fahd to the other major princes. Prince Abdullah and Prince Bandar bin Sultan have the authority to allow upstream investment by foreign companies. It can be analysed as a way for the ZE N TELLIGEN CE 2002

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royal family to transfer, through the sponsorship of large foreign oil companies, the production of petroleum in part away from Saudi Aramco and from the civil service in general. GENERAL INVESTMENT COMMISSION

The newly created General Investment Commission (GIC) has been set up in the framework of the Foreign Investment Law. It is in charge of investment, including foreign investments. Based in Riyadh, the GIC is precisely assigned to: •

Forge the Saudi policies in the field of promoting and augmenting domestic and foreign investment and forwarding this proposition to the SEC.

Make executive plans and regulations appropriate to create a good investment climate and send them to the SEC.

Follow up and evaluate the performance of the local and foreign investment.

Conduct studies on investment opportunities and ways to promote them.

The GIC is a commission of experts and technocrats appointed for a 3-year term. Its most important assignment is to decide on investment applications within 30 days of receiving documents and give raisons for any rejections. The investor can appeal a revision. In June 2000, Prince Abdullah, announced that loans from the Saudi Investment Development Fund (SIDF) could also be made available to wholly foreign businesses, whereas before, the rules required at least 25% local participation for eligibility. In June 2000, the GIC planned to open its first one-stop-shop in Jeddah to support foreign and local investors according to the new investment law. Similar shops will open later in major cities. The onestop shops oversee investment procedures and help reduce bureaucracy with foreigners. The GIC is also about to issue a list of sectors that would for now remain closed to foreign investors and this would include banking, finance, trade and distribution. FOREIGN RELATIONS

SAUDI FOREIGN POLICY OBJECTIVES

GENERAL OBJECTIVES

Saudi foreign policy objectives aim at maintaining its security and its paramount position on the Arabian Peninsula, at defending Arab and Islamic interests and at maintaining co-operative relations with other oil-producing and major oil-consuming countries. Saudi Arabia signed the UN Charter in 1945. The country plays a prominent and constructive role in the International Monetary Fund, the World Bank as well as in Arab and Islamic financial and development assistance institutions such as the Organisation of the Islamic Conference and its subsidiary organisation, the Islamic Development Bank (founded in 1969). Saudi Arabia is also a member of the Gulf Cooperation Council (GCC). Formerly one of the largest aid donors in the ZE N TELLIGEN CE 2002

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world, Saudi Arabia still gives some aid to a number of Arab, African, and Asian countries. For instance, Saudi Arabia gave support to Chechen refugees during the war in Chechnya as well as to the Kosovo population in 2000. Strategic membership of the 13-member OPEC oil producer group, and in the technically and economically oriented Arab producer group - the Organisation of Arab Petroleum Exporting Countries - facilitates the co-ordination of Saudi oil policies with other oil-exporting governments. Saudi Arabia has a special interest in preserving a stable and long-term relationship with major Western economies – particularly the USA, European Countries and Japan. The Saudi Government frequently helps mediate regional crises and supports the Israeli-Palestinian peace negotiations. But, as a charter member of the Arab League, Saudi Arabia supports the Arab position that Israel must withdraw from the territories that it has occupied since June 1967, including East Jerusalem. Saudi Arabia supports a peaceful resolution of the Arab-Israeli conflict but rejected the Camp David accords, claiming that they would be unable to achieve a comprehensive political solution that would ensure Palestinian rights and adequately address the status of Jerusalem. Although Saudi Arabia broke diplomatic relations with and suspended aid to Egypt in the wake of Camp David, the two countries renewed formal ties in 1987. GREATER ARAB AWARENESS

Saudi Arabia is a very influenced member of the Gulf Cooperation Council (GCC) and played a key role in the Gulf War in 1990-91 in supporting the US intervention in Kuwait. However, there also were diplomatic and financial costs. On the diplomatic side, relations between Saudi Arabia and Tunisia, Algeria, and Libya deteriorated. Those countries had remained silent following Iraq's invasion of Kuwait but called for an end to violence once the deployment of coalition troops began. Since then, the relations between these countries and Saudi Arabia have returned to their pre-war status. Nevertheless, Saudi Arabia's relations with those countries that expressed support for Saddam Hussein’s invasion of Kuwait - Yemen, Jordan and Sudan - were severely strained during and immediately after the war. For instance, several hundred thousand Yemenis were expelled from Saudi Arabia after the Government of Yemen announced its position, thus exacerbating an existing border dispute. Saudi-Yemeni relations, especially in the wake of the 1994 Yemen civil war, remain fragile and of significant concern to the Saudi Government. The Palestine Liberation Organisation’s support for Iraq cost it financial aid as well as good relations with Saudi Arabia and other Gulf states. Recently, though, Saudi Arabia's relations with Jordan and the Palestinian Authority have improved with the Saudi Government providing assistance for the Palestinian Authority. Moreover, Abdullah’s visit to Egypt, Syria and Lebanon, where he offered financial aid and soft loans in March 2000, highlights Saudi greater Arab awareness. The visit of the Sudanese President in February 2000 to Saudi Arabia warmed ties between them. Bilateral relations with Yemen have improved too since the beginning of 2000 with meetings of the joint committee in charge of resolving the long-standing border dispute between the two countries and final settlement of the frontier in June 2000.

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US-SAUDI RELATIONS

FRIENDSHIP AND COOPERATION LINKS

Saudi Arabia's unique role in the Arab and Islamic worlds, its possession of the world's largest reserves of oil and its geo-strategic location make its friendship of interest to the USA. Diplomatic relations were established in 1933. The US embassy is situated in Riyadh with consulates in Jeddah and in Dhahran. The USA has always been a traditional ally to Riyadh. The Saudi Arabian Government has always relied on the US Government for technical expertise and assistance in developing its human and mineral resources. The two countries established a Joint Commission on Economic Co-operation in June 1974. Under the commission auspices, co-operation between the two countries has grown in technical training and education, agriculture, science and technology, transportation, government administration, industrialisation, and solar energy research. In addition to economic ties, a long-standing security relationship continues to be important in USSaudi relations. A US military training mission established at Dhahran in 1953 provides training and support in the use of weapons and other security-related services to the Saudi armed forces. The United States has sold Saudi Arabia military aircraft (F-15s, AWACS, and UH-60 Black hawks), air defence weaponry (Patriot and Hawk missiles) and armoured vehicles (M1A2 Abrams tanks and M-2 Bradley infantry fighting vehicles). The US Army Corps of Engineers has had a long-term role in military and civilian construction activities in the Kingdom. During and after the Gulf war, the Government of Saudi Arabia provided water, food, shelter, and fuel for coalition forces in the region and also gave monetary payments to some coalition partners. Saudi Arabia's combined costs in payments, foregone revenues, and donated supplies were $55bi (excluding post-war arms purchase) with more than $15bi paid to the USA.

Oil issues The USA and Saudi Arabia share also a common concern about oil issues. The continued availability of reliable sources of oil, particularly from Saudi Arabia, remains important to the prosperity of the United States as well as to Europe and Japan. Saudi Arabia is the leading source of imported oil for the United States, providing more that 20% of total US crude imports and 10% of US consumption. The US is Saudi Arabia's largest trading partner, and Saudi Arabia is the largest US export market in the Middle East. The USA has therefore been surprised by the Saudi wish to maintain high oil prices and the level of the price of crude has become a very sensitive issue for the US public opinion since the last months. In February 2000, US Secretary of Energy Bill Richardson went to Saudi Arabia for discussions about the world oil market and new investment opportunities in the Saudi energy sector. The Saudi Petroleum and Mineral Resources Minister underlined publicly Saudi commitment to ”oil supply security and the importance it attaches to the US market“. But the visit was not successful and the USA could not convince Saudi Arabia to boost oil export volume in order to bring the price down. After this failure, US President Bill Clinton raised also the option of dipping into his country’s strategic reserves to curb prices.

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Strategic and Political Issues Close consultations between the USA and Saudi Arabia have been developed on strategic and political issues such as the Middle East peace process or the Gulf War. After the war, the US has signed security agreements with Gulf countries and maintains a military presence, justified by the need for control over Iraq. The US would like to maintain a permanent military presence until 2010 in order to guarantee the security of the oil-producing countries as well as US access to cheap oil resources. But oil-producing Gulf Countries, and particularly Saudi Arabia do not intend to see their oil policy shaped by unilateral US interests and are reluctant to accept a permanent US military presence – nor projects like the “Co-operative Defence Initiative”, which aims at protecting the area from neighbouring ballistic threats. The US has in fact little choice but to accommodate the priorities of the Gulf countries. While the US is said to accept the fact that it will have to downsize its presence in the Gulf, Washington wants to maintain a permanent presence nevertheless. The recent improvement in Saudi-Iranian relations gave Iran a new security and stability role to play in the region. The US is currently tempted to toy with the idea of an alliance between the GCC, the US and Iran against Iraq to enforce tougher measures against Iraq, whereas some Gulf countries have announced the upgrading of their diplomatic activity with Iraq. The Gulf issue will be therefore an important issue for the next US presidential election. SAUDI RELATIONS WITH IRAN

Relations between Saudi Arabia and Iran were very difficult after the Iranian revolution. Open hostility between the two states were clear when Saudi Arabia gave subsidies - a total estimated at $26bi - to finance Iraq’s war against Iran in the 1980’s. The subsidies were driven by Saudi fears that Iran was seeking to export its Islamic revolution. Political ties between the two countries have improved recently. The two states share common interests in managing oil prices and can together contribute to reach a better agreement about oil policy within OPEC. They also increasingly compete to attract foreign investment. Since the oil price crisis in 1998, meetings have been held between the two states to review world oil market conditions and to sustain the process of cooperation and co-ordination with the objective of market stability. In 1999, the Iranian-Saudi rapprochement was critical in convincing Iran to accept deep production cuts that restored credibility to OPEC and led to the price rise of crude. Diplomatic rapprochement between Saudi Arabia and Iran had been tested too at the beginning of 2000. In March 2000, oil prices rose by more than 8%, largely because Iran, Algeria and Libya did not want to see an early rise in OPEC output, a policy that was favoured by Saudi Arabia. Following a meeting, Iran and Saudi Arabia agreed that the rising oil price levels and their continued volatility were not in their long-term interests. The two sides now seek to improve co-operation among regional oil producers. The victory of the reformists in the Iranian parliamentary elections has accelerated the détente. Saudi Arabia’s King Fahd recently invited Ali Khamenei, Iran's supreme leader, to visit the kingdom, whereas bilateral security agreements have been signed in the spring of 2000 and the Iranian Minister of Defence has visited Riyadh for the first time since the Iranian revolution. SAUDI ARABIA – CIA FACT-BOOK ZE N TELLIGEN CE 2002

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Saudi Arabia Background:

Saudi Arabia

Introduction

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In 1902 Abdul al-Aziz Ibn SAUD captured Riyadh and set out on a 30-year campaign to unify the Arabian peninsula. In the 1930s, the discovery of oil transformed the country. Following Iraq's invasion of Kuwait in 1990, Saudi Arabia accepted the Kuwaiti royal family and 400,000 refugees while allowing Western and Arab troops to deploy on its soil for the liberation of Kuwait the following year. A burgeoning population, aquifer depletion, and an economy largely dependent on petroleum output and prices are all major governmental concerns. Geography

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Location:

Middle East, bordering the Persian Gulf and the Red Sea, north of Yemen

Geographic coordinates:

25 00 N, 45 00 E

Map references:

Middle East

Area:

total:

1,960,582

sq

km

land:

1,960,582

sq

km

water: 0 sq km Area - comparative: slightly more than one-fifth the size of the US Land boundaries:

total:

4,415

km

border countries: Iraq 814 km, Jordan 728 km, Kuwait 222 km, Oman 676 km, Qatar 60 km, UAE 457 km, Yemen 1,458 km Coastline:

2,640 km

Maritime claims:

contiguous zone: 18 NM continental shelf: not specified territorial sea: 12 NM

Climate:

harsh, dry desert with great extremes of temperature

Terrain:

mostly uninhabited, sandy desert

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Elevation extremes: lowest

point:

Persian

Gulf

0

m

highest point: Jabal Sawda' 3,133 m Natural resources:

petroleum, natural gas, iron ore, gold, copper

Land use:

arable

land:

2%

permanent

crops:

0%

permanent

pastures:

56%

forests

and

woodland:

1%

other: 41% (1993 est.) Irrigated land:

4,350 sq km (1993 est.)

Natural hazards:

frequent sand and dust storms

Environment current issues:

- desertification; depletion of underground water resources; the lack of perennial rivers or permanent water bodies has prompted the development of extensive seawater desalination facilities; coastal pollution from oil spills

Environment international agreements:

- party to: Climate Change, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Ozone Layer Protection signed, but not ratified: none of the selected agreements

Geography - note:

extensive coastlines on Persian Gulf and Red Sea provide great leverage on shipping (especially crude oil) through Persian Gulf and Suez Canal

Saudi Arabia

People

Population:

22,757,092

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note: includes 5,360,526 non-nationals (July 2001 est.) Age structure:

0-14 15-64

years: years:

42.52%

(male

4,932,465;

female

4,743,908)

54.8%

(male

7,290,840;

female

5,179,393)

65 years and over: 2.68% (male 334,981; female 275,505) (2001 est.) Population growth 3.27% (2001 est.) rate: ZE N TELLIGEN CE 2002

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Birth rate:

37.34 births/1,000 population (2001 est.)

Death rate:

5.94 deaths/1,000 population (2001 est.)

Net migration rate: 1.32 migrant(s)/1,000 population (2001 est.) Sex ratio:

at

birth:

under

15

15-64 65

1.05 years:

1.04

years: years

male(s)/female male(s)/female

1.41

and

over:

male(s)/female 1.22

male(s)/female

68.09

years

total population: 1.23 male(s)/female (2001 est.) Infant rate:

mortality 51.25 deaths/1,000 live births (2001 est.)

Life expectancy at total birth: male:

population: 66.4

years

female: 69.85 years (2001 est.) Total fertility rate: HIV/AIDS deaths: Nationality:

6.25 children born/woman (2001 est.) - NA

noun:

Saudi(s)

adjective: Saudi or Saudi Arabian Ethnic groups:

Arab 90%, Afro-Asian 10%

Religions:

Muslim 100%

Languages:

Arabic

Literacy:

definition: total

age

15

and

over

population:

male:

can

read

and

write 62.8% 71.5%

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female: 50.2% (1995 est.) Saudi Arabia Country name:

Government conventional

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long

conventional local

long

form: short

form:

Al

Kingdom form:

Mamlakah

of

Saudi Saudi

al

Arabiyah

Arabia Arabia

as

Suudiyah

local short form: Al Arabiyah as Suudiyah Government type:

monarchy

Capital:

Riyadh

Administrative divisions:

13 provinces (mintaqat, singular - mintaqah); Al Bahah, Al Hudud ash Shamaliyah, Al Jawf, Al Madinah, Al Qasim, Ar Riyad, Ash Sharqiyah (Eastern Province), 'Asir, Ha'il, Jizan, Makkah, Najran, Tabuk

Independence:

23 September 1932 (Unification of the Kingdom)

National holiday:

Unification of the Kingdom, 23 September (1932)

Constitution:

governed according to Shari'a (Islamic law); the Basic Law that articulates the government's rights and responsibilities was introduced in 1993

Legal system:

based on Islamic law, several secular codes have been introduced; commercial disputes handled by special committees; has not accepted compulsory ICJ jurisdiction

Suffrage:

none

Executive branch:

chief of state: King and Prime Minister FAHD bin Abd al-Aziz Al Saud (since 13 June 1982); Crown Prince and First Deputy Prime Minister ABDALLAH bin Abd al-Aziz Al Saud (half-brother to the monarch, heir to the throne since 13 June 1982, regent from 1 January to 22 February 1996); note - the monarch is both the chief of state and head of government head of government: King and Prime Minister FAHD bin Abd al-Aziz Al Saud (since 13 June 1982); Crown Prince and First Deputy Prime Minister ABDALLAH bin Abd al-Aziz Al Saud (half-brother to the monarch, heir to the throne since 13 June 1982, regent from 1 January to 22 February 1996); note the monarch is both the chief of state and head of government

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cabinet: Council of Ministers is appointed by the monarch and includes many royal family members elections: none; the monarch is hereditary Legislative branch: a consultative council (90 members and a chairman appointed by the monarch for four-year terms) Judicial branch:

Supreme Council of Justice

Political parties and none allowed leaders: Political pressure none groups and leaders: International organization participation:

ABEDA, AfDB, AFESD, AL, AMF, BIS, CCC, ESCWA, FAO, G-19, G-77, GCC, IAEA, IBRD, ICAO, ICC, ICRM, IDA, IDB, IFAD, IFC, IFRCS, ILO, IMF, IMO, Inmarsat, Intelsat, Interpol, IOC, ISO, ITU, NAM, OAPEC, OAS (observer), OIC, OPCW, OPEC, UN, UNCTAD, UNESCO, UNIDO, UPU, WFTU, WHO, WIPO, WMO, WTrO (observer)

Flag description:

green with large white Arabic script (that may be translated as There is no God but God; Muhammad is the Messenger of God) above a white horizontal saber (the tip points to the hoist side); green is the traditional color of Islam

Saudi Arabia Economy overview:

Economy

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- This is an oil-based economy with strong government controls over major economic activities. Saudi Arabia has the largest reserves of petroleum in the world (26% of the proved reserves), ranks as the largest exporter of petroleum, and plays a leading role in OPEC. The petroleum sector accounts for roughly 75% of budget revenues, 40% of GDP, and 90% of export earnings. About 35% of GDP comes from the private sector. Roughly 5 million foreign workers play an important role in the Saudi economy, for example, in the oil and service sectors. Saudi Arabia was a key player in the successful efforts of OPEC and other oil producing countries to raise the price of oil in 1999-2000 to its highest level since the Gulf war by reducing production. Riyadh expects to have a moderate budget deficit in 2001, in part because of increased spending for education and other social programs. The government in 1999 announced plans to begin privatizing the electricity companies, which follows the ongoing privatization of the telecommunications company. The government is expected to continue calling for private sector growth to lessen the kingdom's dependence on oil and increase employment opportunities for the swelling Saudi population. Shortages of water and rapid population growth will constrain government efforts to increase self-sufficiency in agricultural products.

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TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

GDP:

purchasing power parity - $232 billion (2000 est.)

GDP - real growth 4% (2000 est.) rate: GDP - per capita: GDP composition sector:

purchasing power parity - $10,500 (2000 est.)

- agriculture: by industry:

6% 47%

services: 47% (1998 est.) Population below NA% poverty line: Household income lowest or consumption by highest 10%: NA% percentage share:

10%:

NA%

Inflation rate 0.5% (2000) (consumer prices): Labor force:

7

million

note: 35% of the population in the 15-64 age group is non-national (July 1998 est.) Labor force - by agriculture 12%, industry 25%, services 63% (1999 est.) occupation: Unemployment rate:

NA%

Budget:

revenues:

$66

billion

expenditures: $66 billion, including capital expenditures of $NA (2000 est.) Industries:

crude oil production, petroleum refining, basic petrochemicals, cement, construction, fertilizer, plastics

1% (1997 est.) Industrial production growth rate:

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TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

Electricity production:

- 120 billion kWh (1999)

- fossil by hydro:

Electricity production source:

fuel:

100% 0%

nuclear:

0%

other: 0% (1999) Electricity consumption:

- 111.6 billion kWh (1999)

Electricity exports:

- 0 kWh (1999)

Electricity imports:

- 0 kWh (1999)

Agriculture products:

- wheat, barley, tomatoes, melons, dates, citrus; mutton, chickens, eggs, milk

Exports:

$81.2 billion (f.o.b., 2000)

Exports commodities:

- petroleum and petroleum products 90%

Exports - partners: Japan 18%, US 18%, France 4%, South Korea, Singapore, India (1999) Imports:

$30.1 billion (f.o.b., 2000)

Imports commodities:

- machinery and equipment, foodstuffs, chemicals, motor vehicles, textiles

Imports - partners: US 25%, Japan 10%, Germany 7%, Italy 5%, France, UK (1999) Debt - external: Economic donor: Currency:

aid

$26.3 billion (2000 est.) - pledged $100 million in 1993 to fund reconstruction of Lebanon; since 1993, Saudi Arabia has committed $208 million for assistance to the Palestinians Saudi riyal (SAR)

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Currency code:

SAR

Exchange rates:

Saudi riyals per US dollar - 3.7450 (fixed rate since June 1986)

Fiscal year:

calendar year

Saudi Arabia

Communications

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Telephones - main 3.1 million (1998) lines in use: Telephones mobile cellular:

- 1

million

note: in 1998, the government contracted for the installation of 575,000 additional Group Speciale Mobile (GSM) cellular telephone lines over 15 months to raise the total number of subscribers to more than one million; Riyadh planned to further expand the GSM system in 1999 by adding an additional one million lines (1998)

Telephone system: general

assessment:

modern

system

domestic: extensive microwave radio relay, coaxial cable, and fiber-optic cable systems international: microwave radio relay to Bahrain, Jordan, Kuwait, Qatar, UAE, Yemen, and Sudan; coaxial cable to Kuwait and Jordan; submarine cable to Djibouti, Egypt and Bahrain; satellite earth stations - 5 Intelsat (3 Atlantic Ocean and 2 Indian Ocean), 1 Arabsat, and 1 Inmarsat (Indian Ocean region) Radio broadcast AM 43, FM 31, shortwave 2 (1998) stations: Radios:

6.25 million (1997)

Television broadcast stations:

117 (1997)

Televisions:

5.1 million (1997)

Internet code:

country .sa

Internet Service 42 (2001) Providers (ISPs):

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Internet users: Saudi Arabia Railways:

400,000 (2001) Transportation

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total:

1,390

km

standard gauge: 1,390 km 1.435-m gauge (448 km double track) (1992) Highways:

total:

146,524

km

paved:

44,104

km

unpaved: 102,420 km (1997 est.) Waterways:

none

Pipelines:

crude oil 6,400 km; petroleum products 150 km; natural gas 2,200 km (includes natural gas liquids 1,600 km)

Ports and harbors:

Ad Dammam, Al Jubayl, Duba, Jiddah, Jizan, Rabigh, Ra's al Khafji, Mishab, Ras Tanura, Yanbu' al Bahr, Madinat Yanbu' al Sinaiyah

Merchant marine:

total: 71 ships (1,000 GRT or over) totaling 1,154,619 GRT/1,533,732 DWT ships by type: cargo 11, chemical tanker 8, container 5, liquefied gas 1, livestock carrier 3, passenger 1, petroleum tanker 18, refrigerated cargo 3, roll on/roll off 13, short-sea passenger 8 (2000 est.)

Airports:

206 (2000 est.)

Airports - with total: paved runways: over

70 3,047

m:

31

2,438

to

3,047

m:

11

1,524

to

2,437

m:

23

1,523

m:

3

914

to

under 914 m: 2 (2000 est.) Airports - with total: unpaved runways: 2,438

136 to

3,047

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m:

5


TECHNO LOGY O PPO RT UNIT IES FO R B RIT IS H BUSIN ES S IN THE KINGD OM OF SAUD I A RABI A. A STUD Y O F T HE IN FO RMAT ION ECONO M Y CO MMISS I ON ED B Y TRAD E P ART NERS UK .

1,524

to

914

to

2,437 1,523

m:

77

m:

39

under 914 m: 15 (2000 est.) Heliports:

5 (2000 est.)

Saudi Arabia

Military

Military branches:

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Land Force (Army), Navy, Air Force, Air Defense Force, National Guard, Ministry of Interior Forces (paramilitary)

Military manpower 17 years of age - military age: Military manpower males age 15-49: 5,894,691 (2001 est.) - availability: Military manpower males age 15-49: 3,291,185 (2001 est.) - fit for military service: Military manpower males: 233,402 (2001 est.) - reaching military age annually: Military expenditures dollar figure:

-

$18.3 billion (FY00)

Military 13% (FY00) expenditures percent of GDP: Saudi Arabia Disputes international:

Illicit drugs:

Transnational Issues

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- a final border resolution was agreed to with Qatar in March of 2001; location and status of boundary with UAE is not final, de facto boundary reflects a 1974 agreement; a June 2000 treaty delimited the boundary with Yemen, but final demarcation requires adjustments based on tribal considerations death penalty for traffickers; increasing consumption of heroin and cocaine

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RESOURCES ON THE INTERNET

Trade Partners UK „

www.tradepartners.gov.uk/saudi_arabia/profile/index/introduction.shtml

Library of Congress http://lcweb2.loc.gov/frd/cs/satoc.html

Saudi Arabia.Net „

www.saudiarabia.net/

Saudi Arabian Monetary Agency „

www.sama.gov.sa/

Arab Net www.arab.net/saudi/saudi_contents.html

The Business Guide to Saudi Arabia „

www.atsaudi.com/

Middle East Consultants (MEC) „

http://www.meconsult.co.uk/saudiarabia.htm

Other

Resources

The Gulf 2000 The Gulf Middle East The Arab Internet Cambridge University Library Yahoo country Centre for Middle Eastern Studies, University of Exeter Centre for Arab Gulf Studies

Project Directory Directory Directory directory data Harvard

Media Ain Khaleej Gulf

al-Yaqeen Times Magazine

Business ZE N TELLIGEN CE 2002

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The Al-Quds al-Arabi

Middle

East

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Economic

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Digest


DTI Business Opportunities in The Kingdom of Saudi Arabia