Because a great deal of business in Saudi Arabia involves government contracting, a foreign company should be aware of the basic rules and practices for this area. Before a business establishes its presence, it should develop a basic understanding of the laws governing its operations. Finally, a business should know how to resolve legal disputes if and when they arise.

Most businesses require some form of license from the Saudi Arabian Government, and some require the investment or employment of Saudi citizens. The optimal form will depend on a variety of factors, including the type of business, the duration of the involvement, and the nature of the transactions.

Branch Office

A branch office involves a more direct presence than a commercial agent. As with the commercial agent regulation, the branch office regulations are currently under review. Under current regulations, the branch office is largely restricted to an administrative role and may not engage in trading activities. Nevertheless, a branch office can be very useful as a liaison presence for a U.S. company. Relatively easy to establish, branch offices offer the benefits of a physical presence without the more formal requirements of a joint venture company. For a U.S. company to open an independent branch office without a Saudi partner, the parent company must accept full responsibility for all work undertaken by the branch office within the Kingdom.

Joint Venture

In 2000, Saudi Arabia completely revised its regulations for foreign investment. The new Foreign Investment Act created the Saudi Arabian General Investment Authority (SAGIA), which is responsible for reviewing and approving investment applications. Under the law, the amount invested should not be less than SR2 million ($533,000) on agricultural projects, SR5 million ($1 million) on industrial projects, and SR2 million ($533,000) on other projects. The government is currently working on further outlining the new investment regulations. See Appendix 2 for the text of the Foreign Investment Act.

Direct Exports

The simplest form of doing business in Saudi Arabia is direct export into the country. A company generally may sell its goods directly to Saudi Arabian customers, assuming the goods meet the applicable health and safety standards. Hiring a local agent is not a requirement of doing business. However, most companies have a local presence to sell their goods effectively.

Commercial Agent

A commercial agent may be more familiar with the local market and may be able to facilitate certain transactions. A company should choose its agent carefully; terminating or changing agents can be a difficult process.

The term "commercial agent" describes a variety of roles and responsibilities. Some commercial agents sell goods; others sell services. Some commercial agents buy goods directly from the manufacturer and resell them; others sell goods for the manufacturer and receive a commission. All are covered by commercial agency law in Saudi Arabia, which is currently under review.

A foreign company first selects the commercial agent, which may be an individual or a company. The commercial agent also must have the appropriate license. The U.S. company should then enter into an agency agreement with the Saudi agent.

The Saudi Ministry of Commerce must approve the agreement. The Ministry provides a model agency agreement (see below), but most western companies find it necessary to amend and augment the model agreement. A company can negotiate its own agreement, but the Ministry is more likely to approve one that resembles the model agreement.

Any termination or change of a commercial agent must be fair to the old agent. Under some circumstances, the failure to renew an agent may be considered a form of termination. Wrongfully terminating an agent may expose a company to liability and may make it more difficult to obtain government approval of a replacement agency agreement. As a result, the termination section of any agency agreement must be carefully spelled out and should generally provide for fair treatment of all parties upon termination.

The land which is occupied by present day Kuwait was formerly part of the Arab empire of Medieval Kenda that dominated the region from 3-5th century A.D. Kuwait later became part of the Carmathian Empire from the 9-11th centuries. Following that, the region was divided into a number of tribal emirates. The presence of the Al-Sabah family, which has been ruling Kuwait since the 18th century, dates back to the 17th century. In January 1899, Kuwait became a British protectorate, and in June 1961, declared independence.

Like its neighbors in the Gulf region, Kuwait is oil rich and the oil sector dominates the economy. Petroleum comprises around 90-95% of export revenues, makes up more than 80% of budget revenue and over 40% of nominal GDP. Kuwait's largest oilfield, Burgan, is located southwest of Kuwait City. The manufacturing sector is dominated by oil related industries such as oil refining and petrochemicals. The main refineries and industrial centres are in Ahmadi and Shuaiba.

The Kuwaiti economy grew by an impressive 4.2% in 2003, driven by higher oil revenues and increased government expenditure. One sector to look out for in the Kuwaiti economy is the construction industry, with an increase in housing and residential projects, as well as extension of the road network and water treatment facilities. Oil related infrastructure has also been dynamic, expanding as major projects to upgrade existing plants and equipment are being pursued. The country is also looking towards developing its potentially large gas resources, to increase the production and consumption of natural gas and related industries.

The government is keen to encourage greater private sector participation and foreign investment in the economy, and this was made possible via the foreign investment law of 2001, which gained implementation status in 2003. The new law facilitates up to 100% foreign ownership in certain sectors and eases the requirements for foreign labour.

Kuwait has good infrastructure and existing infrastructure is also constantly being improved. Its two commercial ports - Shuwaikh and Shuaiba - are both slated for upgrading. It has an excellent road network stretching over 4967km. Passenger traffic at Kuwait International Airport has been rising steadily and the construction of a new terminal is underway.

Capital
Kuwait

King
Amir Jabir al-Ahmad al-Jabir Al Sabah

Government System
Nominal constitutional monarchy

Geography
Middle East, bordering the Persian Gulf, between Iraq and Saudi Arabia

Population
2.9 million (2005 est.)

Official Language
Arabic

Major Religions
Muslim 85% (Sunni 70%, Shi'a 30%), Christian, Hindu, Parsi, and Others 15%

Ethnic Profile
Kuwaiti 45%, other Arab 35%, South Asian 9%, Iranian 4%, Others 7%

GDP
US$71.4 billion (2005 est.)

GDP Per Capita
US$22,100 (2005 est.)

GDP Growth Rate
4.8% (2005 est.)

Currency
Kuwaiti Dinar (KD)

Exchange Rate
1 US Dollar = 0.292 Kuwaiti Dinar

Climate
Dry desert; intensely hot summers; short, cool winters

General Business Hours
Govt Offices: Mon-Wed 7am-2pm

Banks: Sun-Thurs 7.30am-2.30pm

Businesses: Sat-Wed 8am-7pm

Time Zone
GMT + 3 hours

Inflation Rate
3.6% (2005 est.)

Unemployment Rate
2.2% (2004 est.)

Major Industries
Petroleum, petrochemicals, desalination, food processing, construction materials

Major Exports
Oil and refined products, fertilizers

Major Imports
Food, construction materials, vehicles and parts, clothing

Major Trading Partners
Japan, South Korea, United States, Germany, Singapore, Saudi Arabia, United Kingdom

Major Investors
United States, Saudi Arabia, United Kingdom