WHAT DOES SAUDI ARABIA

BUY FROM THE

REST OF THE WORLD?
 WHAT DOES SAUDI ARABIA
BUY FROM THE
REST OF THE WORLD?

Introduction
This profile has a specific objective. It seeks to offer exporters and potential exporters to
Saudi Arabia an analysis of the current nature of imports into Saudi Arabia; its intention is to
brief companies as to what is happening to Saudi imports - what trends are visible, what key
changes are taking place. It attempts to answer a number of major questions, particularly :

● What changes are taking place in the value of Saudi imports?

● What is the composition of Saudi imports and how is this composition changing over
time?
● How volatile are different categories of imports?
● What is the nature of trade policy in relation to imports?
● Where does Saudi Arabia buy its imports, and how are trading relationships changing?
● Which countries supply what commodities to Saudi Arabia?
● How do imports fit into the economic development process occurring in Saudi Arabia?

Saudi Arabia remains a key market for most countries in the Western hemisphere.
Despite a relatively small population (approx. 17m) its imports, at around $28.05B in 1995,
are at a level comparable with Turkey, Brazil and Denmark; it is a particularly important
market for the USA, Japan, Germany and the UK, with exports from the UK of around £2.5B
in 1996 (see page 11).

Economic Development and Import Trends

Explaining the behaviour of imports into Saudi Arabia requires an understanding of the links
between the development process, government spending and their implications for imports.
Since the oil price rise in the early 1970s Saudi Arabia has pursued a development policy
which, amongst other things, aims to:

● Transform an essentially agricultural economy into a developed industrial economy, yet

keeping a prudent level of self sufficiency in agriculture.
● Build a strong physical and social infrastructure (roads, airports, hospitals, schools, et al).

What Does Saudi Arabia

2 Buy From The Rest Of The World?
● Create in the long term a highly skilled and productive domestic workforce through an
emphasis upon education, training and health provision, but in the short to medium term
allow the use of expatriate labour to overcome the skills shortage.
● Create less dependence upon the oil sector and oil revenues by generating more self
sufficiency and a broader export potential based upon the comparative advantage afforded
by cheap energy resources.
● Focus upon capital intensive products in order to overcome the relative labour shortage.

These policy objectives have been consistently followed over the past 20 years, with
government spending the mechanism for emphasising these development priorities. As a
consequence import trends have reflected these priorities; the 1970s saw a focus upon the
import of both capital and consumer goods, but because of the drive for infrastructure
development capital goods imports were particularly important. More recently, prompted by a
downturn in government spending, there has been a climate which has further encouraged the
import substitution required in the second phase of the development process.

It is important not to over emphasise the links between trends in government spending and
imports into Saudi Arabia; certainly the strength of the relationship between government
spending and imports is weakening as the private sector develops in Saudi Arabia and as
government spending becomes a much smaller proportion of total spending in the Kingdom.
However, Graph 1 and 2 both show the correlation that exists between government spending
and imports, with apparently an increase (or decrease) in import values lagging an increase
(or decrease) in government spending by 6-12 months. This does not imply that the public
sector undertakes most of the imports- indeed in 1982, when the value of imports to Saudi
Arabia peaked in value terms, the public sector was responsible for only 12 % of imports. But
government spending does create business for the private sector which, in turn, has had to
resort to imports.

GRAPH 1 TOTAL IMPORTS AND GOVERNMENT SPENDING (SR MILLIONS)

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 GRAPH 2 CAPITAL GOODS IMPORTS AND GOVERNMENT SPENDING
(SR MILLIONS)

In 1975, imports stood at SR14.8B, by 1982 they had reached a peak of SR139.3B, during
the mid 1980s import values fell as low as SR71B in 1986 only to recover to over SR120B
during 1992; by 1993 import values fell to SR105 billion and in 1994 fell even further to
SR87 billions; since then, however, import values have increased again - reaching SR105
billion in 1995 and even higher than this in 1996 (aggregate figures are not yet available); UK
visible exports to Saudi Arabia, for example, increased by 51% in 1996 - but it is not expected
that this kind of increase in Saudi imports will be the same for all export countries in 1996.

The downtrend, noted in 1993 and 1994 consecutively, following peak performance in
1992, reflects partly the success of the drive for import substitution and partly the slowdown
in investment in infrastructure projects.

Government spending fell back from SR204B in 1992 to SR160B in 1994, and this
clearly affected imports. However in 1996 government spending rose again to SR197 billion
and is targeted at SR181 billion for 1997.

The Composition and Volatility of Imports

Chart 1 shows the composition of imports by eleven groups. Clearly the most significant
imports are capital goods with electrical and mechanical equipment providing 22% and
transport equipment (cars and spare parts+other transportation) 14% of total import values.

What Does Saudi Arabia

4 Buy From The Rest Of The World?
 Imports of foodstuffs stood at 16% of import values, with textiles and clothes at 8%. The
structure of imports has changed very little since 1981 when foodstuffs contributed 11% of
import values, and transport, electrical and mechanical equipment around 40% taken together.

Chart 1
Summary of 1995 Imports

Table 1
Product-Wise Imports Into Saudi Arabia - 1995
(SR Millions)

DESCRIPTION 1994 1995 CHANGES

Foodstuffs 11,317 17,171 51.7%

Textiles & clothes 6,410 7.913 23.4%
Medicines 1,963 2,813 43.3%
Chemical Products 7,735 9,551 23.5%
Wood & wood products 1,616 1,592 -1.5%
Jewellery 2,954 4,237 43.4%
Base Metals and Metal Articles 8,108 10,857 33.9%
Electrical machines 18,145 23,020 26.9%
Cars & spare parts 8,606 6,249 -27.4%
Other transportation 9,452 8,923 -5.6%
Others 11,143 12,861 15.4%

Total 87,449 105,187 20.3%

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 Care must be exercised however in making this kind of comparison. As Graphs 3 and 4
show, there are major fluctuations in some types of imports from year to year; this is
particularly evident in relation to imports of capital goods. In contrast, there is relatively little
volatility in imports of most consumer goods, particularly animal and vegetable fats, footwear
and prepared foodstuffs amongst others.

GRAPH 3 SAUDI ARABIAN IMPORTS BY COMMODITY GROUPS

(SR MILLIONS)

GRAPH 4 SAUDI ARABIAN IMPORTS BY COMMODITY GROUPS

(SR MILLIONS)

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Trade Policy and Import Substitution
Import values in 1983 represented almost 50% of the value of Gross National
Expenditure, by 1995 this proportion had fallen below 25%. Consequently, imports have
become much less important to the Saudi economy; one reason for this has been a growing
self sufficiency-that is import substitutionh has taken place. The manufacturing sector in the
Kingdom now yields over 8% of GDP, there are over 2,400 licensed factories compared with
only 500 in 1975; the workforce in manufacturing has doubled in the 1980s. Exporters to
Saudi Arabia now need to consider competition from local producers and the ever increasing
number of joint ventures with foreign companies that have and are being established.
The level of import substitution varies from sector to sector. Due to the rapid growth of
certain sectors of domestic industries and other productive sectors, particularly agriculture,
some structural changes have been taking place in Saudi imports. The heavy emphasis upon
construction in the early stages of development and the high demand for construction related
products encouraged rapid import substitution in this sector. Cement production in the
Kingdom, for example, now fulfills almost all of domestic demand; in 1977 there was a 70%
dependence upon imports. But examples of this kind are increasingly being found in
consumer and household product markets- for example in the vegetable oils and in the
disinfectant markets. Import substitution does not necessarily mean the total closure of the
market to outsiders. It often facilitates new areas of demand such as raw materials,
intermediate goods and support services. For example, in spite of the marked decline of
demand in agricultural products due to import substitution, the rapid growth of dairy and
poultry farming has necessitated massive imports of barley into the Kingdom. Exporters to
Saudi Arabia therefore will have to consider such changing trends in the pattern of demand.

Trade policy has been supportive of import substitution taking place; whilst openly
committed to free trade and and free capital mobility, and indeed with an objective of WTO
membership, the Saudi government has given numerous incentives to local producers. Not
only are there a wide range of subsidies available (see sectoral studies Nos. 1 and 2, Saudi
British Bank) but infant industries are entitled to up to 20% tariff protection on competing
imports provided local producers can supply a high proportion of the local market with a
comparable product to the imports-in terms of the quality and price. Article 7 of the Law for
the Protection and Encouragement of the National Industries states that:

.......measures to protect the local industries shall include the following:

(1) prohibiting or restricting the volume of imports similar to the local products
(2) raising the customs duties on imports similar to the local products.

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 Nevertheless Article 4 indicates that imports of machinery, equipment, tools and spare
parts for new industrial projects or for expanding existing industrial units, or for packing
products, should be exempt from duties of any kind. It is therefore wise for intending
exporters to Saudi Arabia to check on the existing and pending output of their products in the
Kingdom. Information on industrial licenses and existing factories is available from the
Industrial Affairs Agency of the Ministry of Industry and Electricity.

Appendix 1 gives a list of products receiving a 20% tariff imposed upon them (as at
1995). Tariffs are assessed according to the actual price paid or agreed upon in the currency
of the exporting company. This price includes the cost of packing, insurance and freight. The
duty is paid in riyals and the appropriate currency exchange is that prevailing when the bill of
entry is accepted and the goods are declared at customs. (All imports have to be cleared by a
customs agent on entering Saudi Arabia, and duty must be paid before customs clearance is
given.)

Finally, exporters to Saudi Arabia must also remember that certain commodities are not
permitted in the Kingdom. These are pork and pork products, alcohol, any product on the
Arab Boycott list (e.g., products of firms under Jewish ownership or control) and any product
originating in Israel. Whilst most medicines and pharmaceutical products are exempt from
tariffs, permission to export to Saudi Arabia needs to be obtained from the Ministry of Health.
Similarly arms and ammunitions cannot enter the Kingdom without a licence from the
Ministry of Interior.

Sources of Imports
Among the countries exporting to Saudi Arabia, there have been few changes in the
rankings of the top ten leading suppliers between 1993 and 1995. In 1995, Switzerland and
Italy changed their position as the fifth and seventh supplier countries respectively and
Holland stood as the tenth largest exporter in place of Turkey. However as Table 2 shows, the
USA continues to be Saudi Arabia’s main trading partner, followed by Japan, UK and
Germany. Over 70% of imports are purchased from only ten countries. These ten countries
together accounted for SR72B of imports into Saudi Arabia, as compared to SR61B in 1994,
showing an increase of SR11B, or just about 18%. In comparison, imports from all other
countries taken together increased by SR6.8B (about 26 per cent).

What Does Saudi Arabia

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 Table 2
Country-Wise Imports Into Saudi Arabia - 1995
(SR Millions)

No. Country Value of Imports

1 U.S.A 22,633
2 Japan 9,312
3 England 8,904
4 Germany 8,273
5 Switzerland 5,198
6 France 5,019
7 Italy 4,620
8 South Korea 3,304
9 China Mainland 2,888
10 Holland 1,983

Total of Ten Countries 72,134

Other Countries 33,053
Grand Total 105,187

The regional dependence upon imports is unlikely to change drastically in any economy,
but Table 3 indicates that there are shifts taking place in import sources. North America now
supplies almost 23% of imports compared with only 18% in 1984, Western Europe’s
contribution has remained fairly stable at around 40%; Asia, perhaps surprisingly, now
supplies only 20% of imports compared to 30% in 1984.

In 1995, the Kingdom’s imports from other GCC countries continued to show an upward
trend. Imports from the other five GCC countries increased to SR2.8B in 1995, compared
with SR2.5B in 1994. The United Arab Emirates accounted for almost half of this trade.

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 Table 3
Saudi Imports By Region 1984 and 1995
(SR Millions)

Region 1984 1995

Value % Total Value % Total

GCC 1,539 1.2 2,822 2.7

Arab League 2,152 1.8 3,255 3.1
Islamic (Not Arab) 3,015 2.5 5,512 5.2
East Europe 1,077 0.9 1,519 1.5
Oceania & Australia 2,404 2.0 1,110 1.1
South America 1,722 1.5 2,447 2.3
Africa 281 0.2 566 0.5
North America 21,432 18.0 23,812 22.6
Asia 35,642 30.0 21,437 20.4
Western Europe 49,117 41.4 42,337 40.3
Other 356 0.3 298 0.3

TOTAL 118,737 100.0% 105,187 100.0%

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 Table 4
Key Trading Partners and
Associated Main Export Categories 1995
(SR. Millions)

RANK TRADING COUNTRY VALUE

1 U.S.A. (21.52%) 22,633

Other parts of military aeroplanes 1,569
Other parts for aeroplanes 998
Private cars, 4+year old, spark ignition, over 3000 CC 750

2 JAPAN (8.85%) 9,312

Private cars, spark ignition, current 1501-3000 CC 946
Jeeps, curent year, spark ignition over 3000 CC 379
Auxiliary plant for use with boilers 364

3 UNITED KINGDOM (8.46%) 8,904

Other parts of military aeroplanes 1,403
Gold ingots 809
Other parts for aeroplanes 529

4 GERMANY (7.87%) 8,273

Barley 556
Private cars, current, spark ignition over 3000 CC 359
Other parts for motor vehicles 279

5 SWITZERLAND (4.94%) 5,198

Gold ingots 2,318
Other parts for military aeroplanes 688
Medicines containing penicillins 223

6 FRANCE (4.77%) 5,019

Whole frozen chickens 518
Military Weapons 189
Refined sugar crystals 168

TOTAL OF TOP 6 COUNTRIES (56.41%) 59,339

Source : Import Statistics, 1995

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 Key Messages for Exporters and Potential Exporters to
Saudi Arabia

There are a number of key observations arising from the analysis here that are relevant for
exporters and potential exporters to Saudi Arabia.

● Saudi Arabia remains a crucial export market, particularly for certain countries like the
USA, Japan, Germany and the UK. However, its relative importance has declined in
recent years.
● There is still scope for a greater diversification of exports to Saudi Arabia coming from
particular countries. The UK is perhaps the best example of this with exports at present
concentrated in a narrow range of import categories.
● Exporters should be aware of the growing competition coming from local producers for
imports and also from other parts of the world. A continuous check upon what is
happening in terms of local production is very essential. Market shares are vulnerable
particularly when local producers can apply for tariff protection.
● Particular categories of exports to Saudi Arabia, notably capital goods, are more volatile
than others. This is not unusual, but exporters should plan accordingly.
● Exporters should pay attention to trends in government spending recognising its links with
import values.
● If exports to Saudi Arabia are declining , exporters should give more serious consideration
to forming joint ventures in the Kingdom (see Sectoral Studies Nos 1-3, The Saudi British
Bank).
● Exporters should take into account the changing nature of the economic development
process in Saudi Arabia and the changing demands it places upon imports. Domestic
private sector growth is now the focus of development and this, combined with the major
changes occurring in the age structure of the Saudi population, has, and will have,
significant implications for import demand.
● Saudi Arabia is and will continue to be a key market for multinational companies.
However, it is not a market which is exclusively for large companies. Medium sized
companies should also explore the possibility of diversifying exports (or joint ventures)
into Saudi Arabia.

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12 Buy From The Rest Of The World?
 APPENDIX 1

Products Protected by Customs Duties of 20% as at 1994/5

1. Tahina
2. Confectionery products without cocoa
3. Fruit pastes and creams
4. Halaw Teheniah
5. Sweets with nuts and similar fillings
6. Toffees
7. Chewing gum
8. Sugar products with cocoa
9. Chocolates
10. Other sugar products
11. Ice Cream without cocoa
12. Macaroni and spaghetti
13. Oxygen
14. Stylene gas
15. Foam boards/sheets or adhesive/foam tapes
16. Plastic household appliances and crockery
17. Resin and plastic bags/cases and cones
18. Rosary beads
19. Plastic and aluminum bottles, crown caps, table covers, ash trays and household
appliances
20. Frames for furniture and electrical wiring conduits
21. Wooden mirrors for photos and mirrors
22. Wooden boxes and cages
23. Signboard and wooden products for animal husbandry and agricultural purposes
24. Toilet paper
25. Paper and hard paper boxes and cans
26. Files with metal fittings
27. Paper tissues and table covers
28. Wooden barrels
29. Woollen textiles for making ibie and mashalih. (Arabian cloaks and over coats)
30. Tooth-picks and clothes hanging hods
31. Foam sheets, foils and tapes made of unhardened rubber.
32. Wooden rosary beads

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 33. Wooden shoes with leather, cork or ropes soles
34. Rough wool textiles
35. Bottles, flasks and flacons
36. Tins, cans, barrels and containers
37. Iron/steel wool fibres and products for cleaning households
38. Metal shelves
39. Tanks and reservoirs
40. Aluminium barrels and tins and cans
41. Office metal cupboards
42. Electric heaters
43. Wood, straw, plastic and metal furniture
44. Mashalih and ibie cloaks and overcoats made of wool or soft hair.

Source: A Guide to Industrial Investment, Saudi Consulting House, 8th Edition, 1992

VALUE OF IMPORTS BY COUNTRY

(SR MILLIONS)

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 VALUE OF IMPORTS BY COUNTRY
(SR MILLIONS)

VALUE OF SAUDI ARABIAN IMPORTS BY COUNTRY GROUPINGS

(SR MILLIONS)

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