Doing Business in Saudi Arabia

  • Tim Groser

As Salam Alaikum. On behalf of the New Zealand delegation gathered here today in Riyadh I would like to thank the Chamber of Commerce for hosting us here today. 

Trade is the lifeblood of the New Zealand economy. As a distant, somewhat isolated, island nation with a population of just over 4 million, it is obvious that for our businesses to grow they need to look offshore for new markets in which to achieve scale.

Gaining and protecting access to new and developing markets is a central pillar to the Governments economic strategy to increase the standard of living of New Zealanders, to create and protect jobs and to raise our GDP.

While New Zealand's focus has been seemingly dominated by the Asia-Pacific region of late, the Gulf region is rapidly emerging as a strong partner for export growth. This is made even more encouraging by the fact that the region that is emerging strongly from the global recession.

The World Bank and others tell us that the Gulf States have experienced two decades of economic transformation, with significant programmes still underway. Oil windfalls of 2003-08 have been invested shrewdly and are leading to increasingly diversified economies.  In last decade literacy rates increased to 80%, life expectancy to 76 years, average per capita incomes to US$22,000 in 2009. Overall, GDP growth averaged 5% per annum during the decade.

World Bank forecasts for the GCC region indicate that growth in 2010 is likely to be in the vicinity of 3.7% rising to 4.4% in 2011. Overall this paints a picture of real opportunity.

New Zealand's trade diversification

For many New Zealand companies and indeed consumers, the markets of the Middle East have, until recently, seemed somewhat off the radar, although perhaps not surprisingly given the history of New Zealand's trade footprint.

During the mid 1960s, New Zealand's exports to the Gulf States registered merely as a statistical blip on the charts - 0.01% of our exports found its way to the GCC states. This was at a time when around 70% of what we did produce being sent to Europe - a trade almost exclusively dominated by agricultural products.  

However with the United Kingdom's entry into the European Economic Community in 1973, the critical focus of our trade strategy became the development of new markets.

Our resulting orientation towards our close neighbours Australia and the wider Asia-Pacific region has meant that the Government has focused in recent years on negotiating bilateral and regional trade agreements to break down trade barriers and to drive the economic integration demanded by modern supply chains.

This has delivered significant opportunities for our exporters and established New Zealand's position as a foundation member in many of the regional integration initiatives that are evolving in the Asia-Pacific region.

Our strategy of engagement in the Asia-Pacific means that we now have high quality, comprehensive FTAs with the majority of our major trading partners in the region. Significantly, we are also now working in the direction of aligning the various FTA strands that exist bilaterally and bringing them together to form much broader coverage.

The recently concluded ASEAN-CER - or AANZFTA agreement - is an excellent example of this approach and brings together the economies of ASEAN, Australia and New Zealand to form a free market block of some 566 million people and accounting for US$1,400 billion in global trade.

In 2008 New Zealand became the first and only developed economy to conclude a comprehensive FTA with China, and with the recent conclusion of the Hong Kong agreement - the first ever for Hong Kong outside of their agreement with mainland China - our businesses have a unique first mover advantage in these two incredibly important and distinctly aligned  markets.

Likewise, from the origins of what was initially a four party agreement known as the "Pacific 4" of "P4" comprising New Zealand, Brunei, Singapore and Chile has come the Trans-Pacific Partnership negotiation - a truly Asia-Pacific regional agreement that with the inclusion of the United States, Vietnam, Peru and Australia has the makings of a genuine path to comprehensive Asia-Pacific trade liberalisation.

While it is still early days in this negotiation it is evolving into an exciting prospect for wide regional integration.

New Zealand and the Gulf States

New Zealand has been and will continue to be inextricably linked to the Asian economies, but not at the exclusion of regions with as much potential as the Middle East, and in particular the Gulf States.

It is not by accident for example, that the FTA we have been progressing with the GCC is the first we have negotiated outside of the Asia-Pacific. We see this negotiation process as a catalyst for expanding our economic engagement and profile throughout the GCC and the wider Middle East. 

Today, New Zealand's exports to the countries that make up the broader Middle East / Africa region represent approximately 8 percent of New Zealand's total exports and is an increasingly important contributor to New Zealand's economic prosperity. 

Our total trade with the GCC region specifically has grown by 40 percent since 2000 to be over NZ$3 billion in the year ending December 2009.  As a group, this makes the GCC our 6th largest bilateral trading partner.  During the same period (2000-2009) New Zealand exports to the GCC grew by 122%. 

It is wholly appropriate that this trade mission begins here in this Kingdom. In its own right, Saudi Arabia remains one of New Zealand's top 20 goods trade partners, and our most significant partner in the Middle East, reaching approximately three quarters of a billion dollars ($NZ) in 2009.

This has come a long way from when our two countries first established diplomatic relations in 1977 when New Zealand's exports to the Kingdom totalled a mere NZ$2.1 million.

This relationship has withstood both the good times and the bad including the oil shocks of the 1980s, the 1990s when the price of a barrel of oil fell to under US$20 and more recently the global financial meltdown. 

This developing trading relationship has been enhanced by cooperation at the Government level. New Zealand's visa waiver programme to the GCC introduced in July 1999 for example has succeeded in bringing our people closer together and fostering respect, tolerance and understanding as well as providing a vehicle for economic integration. 

This business mission to the GCC region that begins here in the Kingdom of Saudi Arabia is about ensuring that New Zealand is well-placed to take advantage of our expanding economic relationship with one of the world's most prosperous regions. The GCC has a combined population of 35 million people and with a nominal GDP of well over US$1 trillion in 2009. New Zealand clearly needs to be active to capitalise on this potential.

Growth Potential in Saudi Arabia

Looking at where our respective economies and Governments are today I see an un-paralleled era of opportunity. As a result of the significant transformation in this part of the world and the diversification of oil-based economies, this region is looking to the West to help facilitate this transformation. At precisely the same time, countries such as New Zealand are looking to the Middle East to diversify our own economies. The potential for collaboration has never been greater.

Historically, here in Saudi (but true for the region in general) dairy, meat and wood constitute around 90 percent of New Zealand's total exports. We hope that these continue and flourish.  But there is real opportunity to broaden the trade relationship by introducing and deepening the engagement of companies in sectors such as education and services, construction, ICT and value added food and beverage.

These are the areas where we believe there is, and where I think we are now, making some excellent progress.

Education linkages in particular are one area which calls for specific mention, having lifted the bilateral relationship to new levels.

With a rapidly growing and vibrant youthful population (66% under age of 25, 50% under age of 18) here in Saudi Arabia, New Zealand's internationally acclaimed educational and vocational sector is a perfect match. New Zealand companies in this space have faith in the future of the region and want to be an intelligent contributor to your success and the future success of the youth.

Since Saudi students attending New Zealand tertiary institutions under the King Abdullah Scholarship Programme (KASP) began in 2006,  numbers have risen from just a handful to more than 7,000 Saudi students studying in New Zealand today - of these over 4,700 are at tertiary institutions.

Conservatively, this is worth some NZ$300 million annually to the New Zealand economy.

New Zealand's education profile has grown considerably over the past decade, in part benefiting from Saudi Arabia's willingness to fund education and training initiatives. Over a quarter of the Saudi 2010 budget we understand is allocated to the education sector. New Zealand institutions are focused on this opportunity.

For example, in April 2009 a Cooperation Arrangement was signed between Polytechnics International New Zealand (PINZ) and Saudi Arabia's Technical and Vocational Training Corporation (TVTC), while plans are in train for the New Zealand Ministry of Education to work closely with Saudi Arabia's Ministry of Higher Education.

This education relationship has recently been further underpinned by the opening of the Saudi Consulate-General and Cultural Office in Auckland.  This is the first resident Arab diplomatic mission in New Zealand. 

The Saudi approach to the modernisation of its technology infrastructure, both in the public and private sector has also opened up opportunities for New Zealand firms. The expansion of the internet offers significant potential for e-commerce and e-learning development. New Zealand technology suppliers such as Metra, Tait Electronics, 4RF Communications, and Orion Health to secure business in that market.

With a focus on public and private investment in large construction projects is required for the future needs of the Kingdom's large young population. Here, New Zealand companies such as Hunza Productions (lighting), Structurflex (membrane structures), Methven (tapware), Framecad Solutions (steel frame solutions) and Pultron Composites (composite concrete reinforcing rods) are looking at ways to combine their expertise with development projects.

Quite simply, New Zealand firms need to be looking to economies such as Saudi Arabia, which has the largest and most populous economy among Gulf Cooperation Council.

Economists rightly see Saudi Arabia as the next big opportunity in the region, especially in the construction sector. Demand for education services in particular has shown tremendous growth.  Potential also exists for enhanced cooperation with Saudi Arabia in its efforts to improve security of food supply and sustainability in production - which, while I have not touched specifically on them are undoubtedly core areas of strength for New Zealand. 

Tomorrow for example, I will be travelling to Damman, to preside over the handover ceremony for the newly acquired Fonterra processing plant - a move from joint venture to full Fonterra ownership. 

In summary, New Zealand needs to be closely aligned with this region, economically, politically and culturally. We have much to offer and as is evident, much to gain. I am confident that the businesses we have with us today as part of the New Zealand delegation will help lead the way on this engagement.