- Business Relationships
- Foreign direct investment
- FTAs and Treaties
- Development Cooperation
- Prospective fields of study (MOP)
Trade relations with the EU
Overall, the EU is Saudi Arabia’s second largest trading partner (13.7% of total turnover) after China, and Saudi Arabia is the EU’s 17th largest trading partner (1.1%). Exports from the EU have remained at an approximately similar value since 2016. Conversely, imports into the EU oscillate along with oil prices on world markets. For this reason, it is possible to observe a decrease between 2019 and 2020 (-41.6%) and a certain recovery in 2021 (+38%). This development practically faithfully copies the scenario from 2016-2018, when the last significant drop in oil prices took place. With stable development, imports to the EU can be expected to return to the pre-Covid level in 2022. Likewise, the trade balance remains in favor of the EU.
|Exports from the EU (million EUR)||28,583.30||26,653.80||26,414.50||24,873.90||25,002.90|
|Imports into the EU (million EUR)||19,726.40||28,007.70||26,347.20||15,090.40||20,831.30|
|Balance with the EU (million EUR)||-8,856.9||1,353.8||-67.3||-9,783.5||-4 171.6|
Source: European Commission
Trade relations with the Czech Republic
Exports from the Czech Republic to Saudi Arabia decreased by 21.7% year-on-year. Behind the decline, it is necessary to look for a change in the composition of exports, when previously the largest items, i.e. passenger cars and processing units, fell by almost half. However, it significantly strengthened the export of motor vehicles for special purposes, welding electrodes, or hatching eggs, for example. It should be noted that exports in the second half of 2021 erased a large part of the losses of the first half of the year and that in the first months of 2022, an annual increase in exports of 8.8% can be observed.
Saudi imports, on the other hand, increased by 21%. However, this is growth from a much lower base. The vast majority of imports from Saudi Arabia are polymers. It is thus possible to look for the diversification of source countries of polymers for further processing and production in the Czech Republic behind the increase, especially in connection with outages from other source countries during the pandemic (China).
|Exports from the Czech Republic (billion CZK)||13.5||10.5||10.7||9.7||7.6|
|Imports to the Czech Republic (billion CZK)||3.2||2.8||2.7||1.9||2.3|
|Balance with the Czech Republic (billion CZK)||-10.3||-7.6||-8||-7.8||-5.3|
Trade relations with countries outside the EU
Saudi Arabia’s largest trading partner is China, which accounts for 19.1% of the country’s total foreign trade. It is followed by India, Japan, United Arab Emirates, USA, South Korea, Egypt and Bahrain. Intensive trade relations thus take place especially with neighboring states, and further with the largest global trade players on the market. Mutual trade was particularly affected by the slowdown of the global economy in connection with the COVID-19 pandemic, but a recovery supported by the restart of the manufacturing industry and the recovery of global demand can be observed. Saudi Arabia mainly exports products linked to the oil and chemical industry, and imports products from the engineering, electrotechnical and food industries.
|Exports from countries outside the EU (million EUR)||159,999.1||223,575.3||195,960.1||122,910.5||187,898.3|
|Imports to countries outside the EU (million EUR)||95,277.7||89,081.3||104,388.9||96,635.4||111,863.2|
|Balance with non-EU countries (million EUR)||64,721.4||134,494.0||91,571.3||26,275.1||76,035.1|
Source: EIU, Eurostat
Foreign direct investment
Foreign direct investment reached USD 19.3 billion in 2021 (an increase of 157.2%). However, these figures are somewhat distorted as in the second quarter Saudi Aramco concluded an agreement with a consortium led by BlackRock Real Assets to lease oil infrastructure worth $1 billion. However, even if we did not count this massive investment, there was a year-on-year increase of 2 7% during the period under review (2021: billion USD, 2020: billion USD). A total of 4,439 investment licenses were granted in 2021 (2020: 1,266). Most projects come from the retail and e-commerce sector, followed by manufacturing, construction, hospitality and ICT.
In 2021, Saudi Arabia announced several initiatives to increase the attractiveness of the local investment environment, facilitate access to the market for foreign investors, and simplify their operations on it. In October 2021, the National Investment Strategy was unveiled, which aims to attract US$533 billion in investment by 2030. It focuses on the sectors of green energy, technology, healthcare, biotechnology, logistics and the start-up ecosystem. In recent years, the government has been focusing on the development of the mining sector outside the oil industry. Saudi Arabia has extensive untapped mineral wealth and, thanks to newly introduced legislation, allows foreign entities to apply for mining licenses as well. This presents an opportunity for supply throughout the mining chain, but also mineral processing.
Data on the volume of Czech investments in Saudi Arabia are not known. One of the concrete business cases is the construction of a production and assembly plant in the defense sector under the banner of the joint venture RayService ME. In the second direction, we can mention the participation of a Saudi company in the company OPTOKON Káble, which resulted in the construction of a modern company for the production of optical cables in the Czech Republic. OPTOKON also signed a strategic cooperation agreement with the Saudi company Binzomah Group in 2021. The company Galaxy Foods also runs its activities successfully in the Czech Republic, which manages all its European activities from here. In addition to importing food from the region, it also focuses on the distribution of halal-certified meat products.
FTAs and treaties
Treaties with the EU
In 1988, the European Communities concluded a Cooperation Agreement in the economic and trade area with the Gulf Cooperation Council (GCC), where Saudi Arabia is the most important member. Both sides have granted each other a most-favoured-nation clause and are committed to negotiating a free trade agreement. Negotiations are no longer ongoing, the main reason being the issue of export tariffs and subsidies on Saudi petrochemical products, which Saudi Arabia is pushing for potential domestic market protection. However, the possibility of introducing export tariffs not only contradicts the principles of the agreement and creates a possible precedent for other agreements, but could also harm European investments in the KSA. At the level of the EU-GCC dialogue, efforts are made from time to time to resume negotiations, but SA’s position has not changed, on the contrary, the FTAs that the EU concludes today are much broader in scope than before,
Contracts with the Czech Republic
- General Agreement between the Government of the Czech Republic and the Government of the Kingdom of Saudi Arabia. This first contractual document in the history of mutual relations entered into force on January 20, 2003.
- Agreement on Mutual Support and Protection of Investments – Effective March 13, 2011.
- Agreement on the avoidance of double taxation – effective 5/1/2013.
- Air Carriage Agreement. The signing took place in December 2016, but the agreement has not yet entered into force.
Due to its economic situation (G20 member state), Saudi Arabia is not a recipient of development aid. Saudi entities have access to funds from the European research and innovation fund Horizon 2020. The deepening of bilateral cooperation is financed through the Partnership Instrument (PI), which is intended to deepen bilateral cooperation with high-income and industrialized economies.
On the contrary, the country is a significant provider of development aid (2019: 2 billion USD, 2020: billion USD. Source: OECD). The institutional framework of development aid is mainly represented by the Saudi Fund for Development. Humanitarian aid is then organized by the King Salman Humanitarian & Relief Center, which provides the most aid in Yemen, the Palestinian territories, Syria and Somalia.
At the moment, it is not known that Czech companies would be involved in cooperation with these funds and organizations, however, the offer of suitable products, services or projects has the potential to succeed. However, it should be noted that there is a dominant preference for Saudi products.
Prospective fields of study (MOP)
Mining, mining and oil industry
Saudi Arabia has huge reserves of unused mineral resources with an estimated value of CZK 28.5 trillion. The mining of which was also opened to foreign investors last year. Significant growth is expected in this sector and demand for solutions for exploration, mining and downstream logistics.
Saudi Arabia is a country that is usually associated with oil production. However, the country also abounds in considerable reserves of other mineral resources, the extraction of which is to become the third pillar of the economy. In 2020, the government presented a new strategy for the mining industry sector, which enshrines the rules for granting mining licenses to foreign investors, and in particular removes a significant part of the administrative burden. A new law on mining was also adopted.
In connection with this expansion of activity in the sector, an increased demand for mining technologies and technological transfer can be expected, not only in the field of mining itself, but also in associated logistics. Among other things, the country has some of the largest deposits of phosphates and tantalum in the world, as well as significant reserves of bauxite, kaolin, silver, zinc, copper, uranium and magnesite. Saudi Arabia also holds the regional lead in gold mining.
For Czech companies that want to take advantage of opportunities in this sector, the already mentioned mining giant Ma’aden is an ideal starting point. Companies that already have connections in existing projects of large multinational units, of which Alcoa Mining or Barrick Gold are already present in Saudi Arabia, also have a chance.
Building domestic industrial capacity is one of the main priorities of the government’s Vision 2030 strategy and is encouraged by both government incentives and efforts to reduce dependence on imports. In connection with the support of the mining industry, the demand for processing extracted raw materials and building the entire value chain from ore to final metal products will also increase. The largest metallurgical project in the city of Yanbu will require investments of CZK 59 billion.
Support for the development of the domestic processing industry must go hand in hand with the support of the mining sector, in order to deliver as much added value as possible within the supply chain. In 2020, 515 new factories were opened and almost 900 industrial production licenses were granted.
Opportunities can thus be sought across the entire chain, from the processing of mined ores to the processing of the resulting metal products. According to the government investment agency SAGIA, there is room on the market for modern technologies of casting, forging, heat treatment, including additional equipment (turbines, pumps), metal cleaning equipment, production means for the production of precise casting molds (synergy with national ceramic production), but also facilities for testing and inspection services. The government is also very interested in Industry 4.0 technologies, i.e. solutions based on robotization and automation (3D printing, advanced CNC machines). An integral part are solutions for the logistic chain between mines, smelters and other subsequent processing.
Companies applying for the supply of these technologies can consider Ma’aden’s state-owned enterprises, Saudi Basic Industries Corporation (SABIC), but also Saudi Aramco, known more for oil extraction and processing, as initial contact points. Just in the last year, Saudi Aramco concluded cooperation agreements with Shell AMB Recycling on metal recycling and with Baosteel on the establishment of an integrated company for the production of steel plates.
In the long term, Saudi Arabia spends 6-8% of GDP on the defense sector and allocated USD 46 billion (approx. 6% of GDP) in the 2022 budget.. The country is also the second largest importer of military equipment in the world. The security situation requires an innovative approach to defense against new threats. The government strives to build domestic defense production, development and research, so manufacturers willing to cooperate in this way have the best chance. The goal is that by 2030, the armed forces will cover 50% of their needs from local sources. At the same time, the plan is for the government military enterprise SAMI to become one of the 25 largest arms enterprises in the world. Given the situation in the region, it is still possible to assume a steady growth in demand for this material.
In addition to the classic specialty, there is also a demand for solutions from the field of ICT, especially cyber security and associated services. In connection with the development of unconventional asymmetric threats, Saudi Arabia urgently requests systems for the detection and neutralization of drones of all types, as well as purchasing drone technology itself. There is also great interest in “smart” ammunition.
Recently, the Saudi armed forces have focused more on the maintenance of existing equipment than the purchase of new equipment. Thus, goods and services related to maintenance, overhauls and improvements have potential. There is also a demand for consumables such as tires.
Another area with great potential is training, in all branches of the armed forces. This does not mean combat training directly, but also technical personnel, maintenance, or combat medicine. There is also interest in fighter pilot training. There is also a demand for training and education for the workforce in companies specializing in production in this sector. In February 2022, the GAMI state office concluded academic cooperation memoranda with the British Cranfield University and the Italian company Leonardo.
The newest growth sector is the associated area of civilian weapons, both sporting and hunting. As part of the preservation of cultural heritage, the government is intensively involved in supporting the development of shooting sports. The first shooting ranges and shooting competitions are established. In the last three years, it was also possible for civilians to legally purchase firearms and ammunition at specialized fairs for the first time.
Entertainment and leisure
Saudi Arabia is going through a period of unprecedented social transformation, and the previously rigid regulation of public life is moving to a moderate model. The government announced investments in the amount of billion. CZK for entertainment, culture and sports. There are many opportunities in the field of event management, supply of entertainment content, but also cooperation in building the domestic film, music or fashion industry. The engine of this sector is the huge cultural and entertainment seasons that take place every year around the country and are connected with the performances of world artists, but also with novel attractions.
Developments in the last two years in particular have skewed demand towards home entertainment, i.e. video games and gaming devices, board games, home exercise equipment, etc. Before the outbreak of the COVID-19 pandemic, Saudi Arabia was experiencing an unprecedented increase in the number of cultural and entertainment events. Many sporting and cultural events are held across the country, including music and film festivals. For example, the famous Dakar rally takes place here, as well as Formula E and F1 races; The MDL Beast music festival was also held with performances by some of the most famous stars in the music industry. In the field of visual art, the Noor Riyadh festival of light art installations, similar to the Czech Signal festival, is significant.
The government also continues to build the domestic entertainment industry, especially film and music. Here is an opportunity to cooperate in training and transfer know-how, for example in the field of animation or special effects, music production, event management and others.
Due to the strong government support for sports, there are opportunities here not only for the supply of sports equipment, but also for training services or the employment of trainers themselves, the organization of thematic training sessions, or the presentation of not so well-known sports in the country. A growth area is, for example, the newly introduced shooting sport and related supplies for the equipment of shooting ranges.
Healthcare and pharmaceutical industry
The Saudi population should grow from today’s approx. 35 million to 45 million in 2050, the average life expectancy will also increase, and the population will be very dependent on quality healthcare due to aging and a lifestyle that brings civilization diseases. Such increased demand will require high government and private investment, which is a big opportunity. By 2030, the government will spend more than billion on healthcare. CZK.
The prevailing way of life has caused a high spread of civilization diseases, especially diabetes and obesity. Healthcare spending is expected to increase from USD 4billion today to USD 160 billion in 2050. For this reason, Saudi Arabia should invest over USD 66 billion in healthcare by 2030. The plan is also to increase the participation of the private sector in the health system from 40 to 65%.
In addition to building and expanding medical facilities, the government is very focused on the development of the domestic pharmaceutical industry, but also, for example, on the domestic production of implants. By 2023, Saudi Arabia has ambitions to become a regional pharmaceutical hub. In this regard, it will be an interesting option for companies to introduce production, whether pharmaceutical or medical devices, directly in the country, significant government incentives can be expected. Medical devices and materials are in demand, for example, the production of catheters, dialysis machines or joint replacements.
The embassy has also seen demand for specialized rehabilitation services, such as for war veterans. However, there are also a number of attempts to transfer Czech expertise in the field of physiotherapy directly to the country and thus save the costs of traveling to the Czech Republic, especially for clients who require long-term and regular care. In this regard, the training of physiotherapists would be an interesting opportunity.
Civil aviation industry
The Saudi government plans to significantly expand the local airport network and the capacity of existing airports. Total investments in civil aviation until 2030 are planned in the amount of billion. CZK, including the establishment of a new national carrier. There are significant opportunities here for suppliers of airport technology, but also companies willing to transfer technology, know-how and train airport and aviation personnel.
Civil Aviation contributes USD 34 billion to the GDP, i.e. almost 5%. In 2018 alone, 99 million passengers were transported. In 2019, tourist visas were introduced and the government’s tourism development plans foresee high flows of tourists to the country, especially after the completion of the government’s mega project of luxury resorts on the Red Sea (Red Sea Resort and Amaala).
Given the size of the country, domestic air transport in particular is a sector with great growth potential. Local airports in the cities of Abha, Al Ahsa, Al Qassim, Arar, Ha’il and Jizan should be expanded. At the same time, new airports are planned to be built in Al Qunfudhah, on the Farasan Islands, in Ta’if, Najran, and last but not least, in the north and south of the capital Riyadh. Further expansions are planned at Riyadh and Jeddah International Airports, including a significant increase in cargo capacity.
A new national air carrier will be established alongside plans to build and expand airports. The goal is for Saudi Airlines to fly to 250 destinations and reach a transport capacity of up to million tons.
Due to the gradual privatization of airports in the country, it can be assumed that new airports will also be created with the participation of the private sector, including possible PPP projects. Here it is possible to see opportunities for suppliers of solutions for air traffic control, but also equipment for cargo terminals or security solutions.
The government’s efforts to create new jobs for local citizens and the introduction of quotas for the employment of local citizens also create opportunities for specialized training, education and training, especially for airport staff, customs clearance specialists, or staff of logistics units at large airports. The country is also establishing the first ever specialized center for training dogs for detecting explosives and illegal narcotics.