In recent years Saudi Arabia has pursued a program of economic diversification and reform. These reforms have enabled Saudi Arabia to rise substantially in the World Bank’s Ease of Doing Business Index. Saudi Arabia was ranked the 38th easiest place to do business in 2007, and rapidly climbed from there — reaching 23rd place in 2008, 16th in 2009, and 13th (!) place in 2010. That ranking makes Saudi Arabia the number one place do do business in the entire Arab World and the Middle East, and ahead of the two leading countries in the region generally deemed to be business-friendly, Bahrain and the UAE. According to Jamal Haidar, an Omani national and the co-author of the Doing Business Report in 2008:
“This year Saudi Arabia made bold business reforms making it one of the world’s leading reformers. Saudi Arabia is now the top ranked economy in the Middle East. We expect these reforms will continue to position Saudi Arabia as a business-friendly economy.”
Having done some work in Saudi, my colleagues and I regularly wonder how much did Saudi Arabia bribe Jamal Haidar or the World Bank? That’s a strong position to take without any evidence indicating bribery, but from any objective perspective, Saudi Arabia is a nightmare when it comes to doing business. Let’s consider just a few basic key issues, and compare the situation in Saudi Arabia to that of the UAE, home of Dubai and Abu Dhabi:
* The legal system is opaque, rooted in the scholarly interpretation of Sharia law, and the rules of law are of secondary importance to the whims of bureaucracy. By contrast, while the UAE is not England, but it has a more understandable and accessible legal system and dozens of “free zones” have their own legal systems that are further clarified. Furthermore, Sharia is not part of the non-family civil laws in the UAE.
* It is very difficult to obtain a visa to enter Saudi Arabia, even for a simple business trip by an American or European national. It is almost impossible for an unmarried woman to obtain a visa or to work in the country. By contrast, the UAE has nationals working there from across the globe, with a very fluid labour market, and it is rapidly become a global transit hub, granting 30 day visas to most persons on their initial arrival.
* ‘Saudization’ requirements mean that, by law, half of all employees must be Saudis, and they essentially cannot be fired. These requirements can change if you get the right person to chat over coffee with someone at the Ministry of Labour, showing once again the absurdity of the legal system. In the UAE, these local national employee (Emiratization) requirements are generally as low as 2-10% of a company’s workforce and are rarely enforced.
* Saudi Arabia’s work week is Saturday through Wednesday, with Thursday and Friday as the weekend and thus offset from the work week of the rest of the world. Also, the country shuts down during the daily prayer times, on Fridays, the holy month of Ramadan, and two weeks during the Eid festivities. Most other Middle Eastern countries have a work week of Sunday through Thursday, which is less disruptive for global businesses, and many countries have recently switched to that work week.
* Bribery remains a common way of winning government contracts and greasing the wheels. While this happens across the Middle East, Saudi Arabia is particularly notorious in this regard.
Peter Bakvis, author of a report that criticizes the World Bank guide from a labor standards perspective, notes that:
Countries can practice routine violations of [International Labour Organization’s (ILO) core labour standards (CLS)] and still win top marks in Doing Business’s labour indicators. Thus, Saudi Arabia is granted the best possible score of 0 for both “difficulty of hiring” and “difficulty of firing”, despite having outlawed trade unions and collective bargaining and not permitting women to work in several occupations.
The final word on Saudi Arabia is this — while it has made substantial reforms that have improved it drastically from where it was a decade ago, it remains an unsophisticated country mired in tribal mentalities, where nepotism is the rule and connections make or break businesses and deals. It has a very, very long way to go before it can be considered a business-friendly country.