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	Saudi Arabia		Info-Prod Country Guide
CHARACTERISTICS   INDICATORS   THE ECONOMY   INVESTMENT ISSUES   PROJECTS   PROSPECTS

Current and Projected Projects General Saudi Arabia has enlisted Bechtel Group and Parsons Corporation to study, develop and seek financing for a water, sewage and power utility that would serve the industrial cities of Jubail and Yanbu, home to eighty industrial companies. The costs of expansion and refurbishment of existing facilities is expected to be between US$ 1.3 and 1.86 billion, making traditional financing methods inadequate. To raise the funding, the utility company will take the shape of a joint-venture that includes foreign investors. Germany's Dywidag was awarded a cement plant and a flour mill project in mid-1995, although it did not win any large orders in 1996. The company is bidding for the Al-Faisaliyah building complex in Riyadh, estimated to cost hundreds of million of dollars. It will also be on the look-out for any projects developed by SABIC over the next few years. Another German company, KHD, incurred huge unforeseen losses that almost brought down the company from projects carried out in Saudi Arabia by its industrial plant division, Kloeckner Humboldt Wedag. Losses of DM 600 million had been building up since 1993 and were only revealed to the board in June, 1997. Germany's Uhde is presently constructing a plant for the Saudi Petrochemical Company Sadaf. Buy Operate Transfer Of the various options open for involving the private sector, BOOT scheme appears to be more suitable for further expansion of the power industry in the Kingdom. The private sector involvement in BOOT projects can be envisaged in terms of equity participation and lending by commercial banks. Advances made by the large customers like SABIC, ARAMCO and big private sector industrialists would have an added advantage in financing BOOT projects. The Kingdom's first excursion into variations of BOT infrastructure finance was signaled in early February, 1996 when SCECO-West commissioned a US/Canadian consortium to prepare a feasibility study on the legal aspects of this type of finance. The consortium comprises project developers Group INC Strategy & Development of Canada, US lawyers White & Case and US oil and gas consultants EMT & Associates. It appears that the results of the study were positive and certain modifications were proposed which will allow private investors to operate in the power sector and to tackle the thorny issue of tariff structures. SCECO-West has recently invited contractors to bid for the SR 7.5 billion (US$ 2 billion) contract to build a power station at Shuaiba with capacity of 1,500 MW. The Shuaiba power station has been planned since 1993 but was delayed due to lack of funds. The tender conditions require contractors to submit specific financing options including a BOT method. For the longer term, the government is studying the prospects of restructuring the SCECOs, with the poof merging them into a single company to have a national grid serving the whole country. Franchising Franchising has become a popular and growing approach for local firms to establish additional consumer-oriented business in Saudi Arabia. The franchise market is rapidly expanding in several business sectors. Opportunities exist in fast-food, laundry and dry cleaning services, office temporary services, automotive pand servicing, mail and package service, printing and convenience stores. Half of the Saudi population is under the age of fifteen and many have traveled to the United States and Europe and have acquired a taste for Western food. American fast food franchises alone account for nearly 20 percent of the fast food franchise market. Total sales stood at US$ 238 million in 1994, increasing to US$ 257 million in 1995 and are expected to have reached US$ 266 million in 1996. Sales by local outlets also expanded to US$ 42 million in 1996, an average 8 percent growth annually. Success in the Saudi market is often attributed to finding the appropriate franchiser and location. Usually, fast food franchises are situated near shopping centers or areas of high traffic flow. Non-food franchises account for 55 percent to 65 percent of the franchise market. The large expatriate work force in Saudi Arabia patronizes franchises as a way of obtaining the same quality and level of services received at home. Franchising has expanded in the Saudi market at a phenomenal rate, more than 10 percent annually, outpacing other industry sectors. Franchisers should realize, however, that the culture and religious background of the Saudi people may make it necessary to modify some franchise concepts before they can be successfully introduced and operated in Saudi Arabia. These mores include the separation of the sexes and a general prohibition on photos or advertising that would be considered only mildly suggestive in the West. Advertising Saudi Arabia is the largest advertising market in the region, accounting for 40 percent of all advertising expenditures in the GCC alone. The Saudis, with their relatively high per-capita income and market-oriented economy, have become the prime target of producers of consumer goods and thus, the prime targets of the best international advertising firms. Print media assumes the bulk of advertising expenditures in the Kingdom, with newspapers accounting for 61 percent of the pie, magazines 23 percent and television just 16 percent. Television was not legalized until 1963 and faced stiff opposition from conservative Islamic forces who termed the medium a "device of the devil." Expenditures in terrestrial broadcasting in Saudi Arabia decreased by US$ 10 million or 20 percent. In the first five months of 1996 alone, advertising expenditures in the Kingdom jumped from US$ 114 million to US$ 123 million over the same period in 1995. Previous Chapter Contents Menu Next Chapter

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