A GLOBAL / COUNTRY STUDY AND REPORT ON OVERVIEW OF BUSINESS & TRADE AT INTERNATIONAL LEVEL Submitted to

ANAND INSTITUTE OF MANAGEMENT, ANAND IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ASMINISTRATION

In

Gujarat Technological University

UNDER THE GUIDANCE OF Miss. Nishi Sangwan (Lecturer) Submitted by
Nimesh Prajapati (107020592036) Sandip Patel (107020592042) Jalpesh Lad (107020592046) Rahul Jagtap (107020592047) Rupesh Vasava (107020592056) Jaynand Patalia (107020592058)

Batch: 2010-12 MBA SEMESTER III

ANAND INSTITUTE OF MANAGEMENT, ANAND
MBA PROGRAMME

Affiliated to Gujarat Technological University Ahmedabad December, 2011-2012

Declaration
We, Group no. 8, hereby declare that the report for Global/ Country Study Report entitled Overview of business & trade at international level in (Saudi Arabia) is a result of our own work and our indebtedness to other work publications, references, if any, have been duly acknowledged. .
Place: Date:Name Of Students:-

OVERVIEW OF BUSINESS & TRADE AT INTERNATIONAL LEVEL

Saudi Arabia has maintained a trade surplus since 1967 (when its trade statistics were first compiled in their current form). As the kingdom generates a majority of its revenue from petroleum exports, this surplus tends to rise and fall with the price and production of oil. After the oil embargo of 1973, when oil prices were high, the kingdom's trade surplus rose, increasing steadily until 1978. This trend continued after the Iranian revolution of 1979 when oil prices rose to new levels. Between 1978 and 1981 Saudi Arabia's trade surplus doubled, reaching a peak of US$82.5 billion.

The surplus declined steadily throughout the 1980s as export volume diminished and oil prices fell. By 1985, the balance of trade had fallen to just US$7 billion. In 1990, Iraq invaded Kuwait, prompting the United Nations to place an embargo on Iraqi oil. The cut in supply sent prices back up, and as Saudi Arabia heightened production to meet world demand (from 5.1 million b/d in 1989 to 8.2 million b/d in 1991), export revenues increased and the trade surplus rose once again. In 1996, export revenues exceeded import expenditures by US$35.3 billion.

In 1998, the world economy slowed. At the same time, oil production by both OPEC and non-OPEC members increased. The higher production levels coupled with lowered demand caused the price of oil to fall by almost US$7/barrel, from US$19.12/barrel in 1997 to US$12.76/barrel in 1998. In Saudi Arabia, oil receipts fell and the trade surplus dropped to US$11.2 billion. In 1999, oil producers worldwide lowered production, and the corresponding rise in prices helped boost Saudi Arabia's export revenues, pushing the trade surplus to US$25 billion. This upward trend continued throughout 2000 when the surplus rose to US$52.4 billion.

Saudi Arabia imported US$28 billion worth of goods in 1999. A majority of that expenditure went toward the purchase of machinery, electrical equipment,

chemicals, foodstuffs, and transportation equipment (cars, trucks, buses). Agricultural imports accounted for 17 percent of the total in 1999, up 11 percent since 1992, reflecting cuts in farm subsidies and the consequent decline in domestic food production. Electrical equipment and machinery accounted for 24 percent of the kingdom's total imports in 1999.

Saudi Arabia's exports totaled US$48 billion in 1999. Over 90 percent of those earnings were derived from the export of oil.

A majority of Saudi Arabia's trade is conducted with the United States. U.S. goods in 1998 accounted for 21 percent of Saudi imports, over twice as much as the king-dom's next leading suppliers, the United Kingdom and Japan, whose imports to Saudi Arabia amounted to 9 percent each. Germany, France, and Italy were other major suppliers of goods.

Japan emerged as the leading buyer of Saudi goods in 1998, purchasing 17 percent of the kingdom's exports. The United States was close behind with 15 percent of Saudi exports. Saudi Arabia provides the United States with approximately 20 percent of its imported crude oil. The kingdom also is a major exporter to South Korea, Singapore, India, and France.

Saudi Arabia and its fellow members of the Gulf Cooperation Council (GCC) Kuwait, Qatar, the United Arab Emirates, Bahrain, and Omanhave, over the past decade, been trying to promote higher levels of trade between themselves by removing barriers to the free exchange of goods, services, and capital between member states. One of these barriers, the lack of a common external tariff, has continued to complicate moves toward greater economic integration.

Saudi Arabia generally applies a 12 percent tax on imported goods, unless those goods compete with locally produced items, wherein the tax is issued at 20 percent. Taxing certain imported items at higher rates raises the price at which the items are then sold. This helps keep local manufacturers competitive. This is the highest import tax in the Middle East and is a point of contention between Saudi Arabia and other GCC members. In order to gain entry into the WTO, Saudi Arabia will be forced to lower tariffs to a maximum of 7.5 percent, bringing import taxes in line with other WTO member states. Imported medical goods, basic foodstuffs, and other items considered essential are exempt from the tax.

Some items, either for religious reasons or purposes of state security, are banned in Saudi Arabia. The import of non-medical drugs and alcohol is forbidden, as is any religious material which might be deemed offensive to the principles of Islam. Furthermore, the import of weapons and electronic equipment is tightly controlled.

Crude oil, refined products and natural gas liquids accounted for the bulk of Saudi exports. Nevertheless, the percentage of crude oil and petroleum product exports fell slightly during the 1980s as a result of the growth in petrochemical and other chemical exports. These products have come mainly from Sabic's companies. After declining to their lowest levels in the 1970s and 1980s, following the oil price crash of 1986, exports had steadily recovered by 1992, both as a result of improved oil prices and Saudi Arabia's international market share of world oil supplies. Moreover, as Sabic created a new petrochemical capacity, nonoil exports rose as well. The direction of exports has been influenced by Saudi Arabia's oil customers. During the early 1980s, Asia and Western Europe were the major purchasers of Saudi oil. By the end of the decade, Europe had ceded its share to Asia and North America

Saudi import levels have closely followed overseas oil earnings and government expenditures. SAMA, which published data on imports, did not include military imports in merchandise import figures. Some military imports were included in the current account under government service imports . Falling from a peak in the mid-1980s of US$40 billion to US$50 billion per annum, imports maintained levels of around US$20 billion during the late 1980s before starting to climb again in 1990 to 1992. Machinery, appliances, and electrical equipment constituted the largest import category, although in line with lower domestic investment these items fell in terms of total share. In 1984 this category accounted for 24 percent of imports but by 1990 it had declined to 16 percent. Foodstuffs have been the second largest category: in 1984 these items made up 16 percent and fell only slightly to 14 percent in 1990. The decline in food imports resulted mainly from domestic import substitution of vegetable products. During the 1980s, chemical products, jewelry and metals, and other transport items exhibited the largest growth in imports. Chemical products, the third largest import category in 1990, constituted around 12 percent of imports. The principal source of imports was Western Europe, which maintained its share at 44 percent for much of the 1980s. The United States supplied 17 percent of the kingdom's imports, whereas Japan's share was 15 percent, having decreased from around 20 percent in the mid-1980s. Saudi Arabia brought only 3 to 4 percent of imported goods from the rest of the Middle East.

FOREIGN TRADE OVERVIEW The foreign trade share in Saudi Arabia is nearly 90% of the GDP. The country recorded a highly significant trade surplus in 2008. Despite the falling oil prices, the country should show a positive balance in the forthcoming years.

Saudi Arabia's main export partners are the United States, China and Japan, followed by Germany and U.A.E., as well as the Southeast Asian countries. The country exports mainly crude oil (the black gold represents 90% of its exports), plastics, organic products and chemicals.

Its main import partners are the United States, Japan, China and Korea, followed by other Asian countries (India, Taiwan, Singapore). Saudi Arabia mainly imports vehicles, machinery, electrical equipment, iron, steel and food products. In order to promote international trade, attract foreign investment and diversify the non-oil sectors, the government has announced plans to establish four "economic cities" in different regions of the country.

India-Saudi Arabia Business Relations

Introduction India and Saudi Arabia are old business partners: their trade relations go back tens of centuries. Today, the bilateral business ties are being steadily expanded and further strengthened by continuous interaction and cooperation, including regular exchange of business delegations. Besides being a major trade partner, India sees the Kingdom as an important economic partner for investments, joint ventures, transfer of technology projects and joint projects in third countries. Trade Saudi Arabia is the 4th largest trading partner for India: The value of the two-way trade between the two countries in 2010-11 exceeded US$ 25 billion. Saudi Arabia is the 11th largest market in the world for Indian exports and is destination of more than 2.08% of Indias global exports. On the other hand, Saudi Arabia is the source of 5.51% of Indias global imports. For Saudi Arabia, India is the 5th largest market for its exports, accounting for 7.63% of its global exports. In terms of imports by Saudi Arabia, India ranks 7th and is source of around 3.77% of Saudi Arabias total imports (Source: Saudi Arabian Monetary Agency: SAMA statistics till 2010).

Trade figures for the last five years are as follows: Indo-Saudi Trade (in million US $)

Year ( April March) 2005-2006 2006-2007* 2007-2008* 2008-2009* 2009-2010* 2010-2011

Imports from Saudi Arabia 1632.34 13383.90 19,470.30 19,972.74 17,097.57 20,385.28

Exports to Increase in Total trade Saudi Arabia Indian exports 1809.77 2588.18 3,711.16 5,110.38 3,907.00 5,227.19 3442.11 15972.08 23181.46 2508312 21004.57 25612.47 28.17% 43.02% 43.39% 37.70% -23.55% 33.79

Main Indian exports Main exports include cathodes and sections of cathodes of refined copper, benzene, floating docks, basmati/non-basmati rice, pipeline for oil and gas, meat, compressors used in refrigerating equipment, tea, manmade yarn, fabrics, madeups, cotton yarn, primary and semi-finished iron and steel, chemicals, plastic & linoleum products, machinery and instruments, edible fruits and nuts, meat products etc.
Indias major imports Indias major imports from Saudi Arabia are petroleum and petrochemical products. Saudi Arabia is the largest supplier of crude oil to India. It provides around a quarter of Indias crude imports.

India Manpower 2.0 million Indians are at present working in Saudi Arabia, over 70% are in the bluecollar category. These people have made immense contribution to Saudi economy, and they play an important role in strengthening the Indo-Saudi bilateral relations.

India Investment and Joint Ventures: The bilateral investment between the two countries is growing steadily. Since mid-2000, a number of Indian firms have taken advantage of the new Saudi laws and established joint venture projects or wholly-owned subsidiaries in the Kingdom. According to Saudi Arabian General Investment Authority (SAGIA), as of 31.12.2009 it has issued 357 licenses to Indian companies for joint ventures/100% owned entities, which are expected to bring total investment of US $ 1619.66 million in Saudi Arabia. These licenses are for projects in diverse sectors such as management and consultancy services, construction projects, telecommunications, information technology, pharmaceuticals, etc. Moreover, several Indian companies have established collaborations with Saudi companies and are working in the Kingdom in the areas of designing, consultancy, financial services and software development. Saudi investment in India On the other hand, Saudi Arabia is the 45th biggest investor in India with investments from April 2000 to August 2011 amounting to US $ 33.12 million. There are a number of Indo-Saudi joint ventures or Saudi owned companies in India, in diverse fields such as paper manufacture, chemicals, computer software, granite processing, industrial products and machinery, cement, metallurgical industries, etc.. Indian Business delegations to Saudi Arabia

During last couple of years, a large number of Indian trade and industry delegations have visited Saudi Arabia to explore the opportunities for long-term partnerships and cooperation, including joint ventures. These delegations received warm and enthusiastic response from the Saudi business community. Indian and Saudi companies regularly take part in trade fairs in each others country. The important recent bilateral visits from India include the historical official visit of Honble Prime Minister Dr. Manmohan Singh, from 27 Feb-March 1, 2010. List of last one year visits follows:

A 28-member delegation comprising leaders of top Indian companies, led by Sh Saroj K Poddar, CMD Zuari Industries, accompanied the Honble Prime Minister Dr Manmohan Singh on his historic official visit to Saudi Arabia from 27 Feb-March 1, 2010. The delegation held business meetings with the Riyadh Chamber of Commerce & Industry, with SAGIA and attended the PMs address at the Council of Saudi Chambers. The delegation also met the Saudi Commerce Minister and Deputy Commerce Minister. The business delegation also called on the Honble Prime Minister of India and conveyed the experiences with the Saudi side.

A 4 member team consisting of Dr. V. Rajagopalan, Additional Secretary and Financial Adviser, Department of Fertilizers (Leader of the delegation), Shri Sham Lal Goyal, Joint Secretary (P&P), Department of Fertilizers, Shri R.G.Rajan, Chairman & Managing Director, RCF and Shri K. B. Verma, Executive Director, National Fertilizers Ltd. visited Riyadh from 21-25 November, 2010 to discuss cooperation in the ammonia-urea and phosphatic sector with Maaden.

An eight member delegation from the Chemicals and Allied Products Export Promotion Council of India (CAPEXIL) visited Riyadh from 28-30 January, 2011 to hold Buyer-Seller Meet (BSM) with the Saudi businessmen. The BSM was held on 29th January, 2011.

A 16-member business delegation from Synthetic & Rayon Textiles Export Promotion Council (SRTEPC) visited Saudi Arabia and held a BSM/

Exhibition in Riyadh Chamber of Commerce & Industry from September 13th to 14th, 2011. The BSM/ exhibition in Riyadh drew several businessmen including importers and suppliers of textile items. The SRTEPC also held a similar BSM/ Exhibition in Jeddah from September 17th to 18th, 2011.

Saudi Business delegations to India In recent times, the number of Saudi businessmen and delegations visiting India has grown substantially, indicating growing interest in emerging business opportunities in India. List of last one year visits follows:

Saudi Minister of Commerce and Industry Mr. Abdullah Zainal Alireza visited New Delhi from 25-26 November, 2010 and met Union Commerce and Industry Minister Shri Anand Sharma. They agreed to increase investments in each others country through joint ventures to enhance economic cooperation. They also agreed to regular exchange of business delegations to sensitise the business persons in both the countries. The Saudi Commerce Minister also met Prime Minister Dr. Manmohan Singh.

A six member Saudi technical team from Saudi Arabia under Saudi Drug & Food Authority visited India during May- June, 2011 for inspection of meat processing plants in India for approval of the exports of meat and meat products to Saudi Arabia.

A 11-member business delegation from Saudi Arabia led by a prominent Saudi businessman, Dr. Tawfiq Al-Swailem visited India in September, 2011 and had a business seminar in Mumbai on September 26th, where they met up with members of the CII/ FICCI/ Indo-Arab Chamber of Commerce.

India-GCC Industrial Conference India and GCC organized a two day India-GCC Industrial Conference on 17-18 February, 2004 at Mumbai. A large number of Ministers, senior officials, industrialists and business leaders from India and the GCC states attended this first ever GCC-India Conference. The Conference provided a new momentum to the strong relations between the GCC States and India, particularly in the field of economic and commercial exchanges. Overview Indo-Saudi relations have received fresh impetus in recent years following two very important State-level visits. The Delhi Declaration signed during the visit of His Majesty King Abdullah bin Abdul Aziz al-Saud to India in January 2006 followed by the Riyadh Declaration signed in the course of the Indian Prime Ministers visit to Saudi Arabia in February-March, 2010 have both given a fillip to an increased level of interaction between the two countries on areas ranging from oil and gas; science & technology; to energy, banking & investment. Saudi Arabia and India have established a number of institutional mechanisms for bilateral economic cooperation. These include the Saudi-India Joint Business Council; the Indo-Saudi Joint Commission Meetings; the Joint Working Groups on Hydrocarbons etc. India and Saudi Arabia are also actively engaged with each other in forum like India-GCC Industrial Conference and the India-GCC Free Trade Agreement Talks. Progress on these and finalization of tariff lines are expected to provide further thrust to bilateral trade between India and Saudi Arabia. Earlier, the two countries had signed the Bilateral Investment Protection and Promotion Agreement (BIPPA) and Double Taxation Avoidance Agreement (DTAA) during the historic visit of King Abdullah bin Abdul Aziz Al-Saud to India in January, 2006.

Indias bilateral trade with Saudi Arabia has been steadily rising. Today Saudi Arabia is the 4th largest trading partner for India. India imports almost 23% of its crude oil from Saudi Arabia. Both countries are committed to elevate the current buyer-seller relationship into strategic energy cooperation. There are many Indian companies operating in/from Saudi Arabia. According to The Saudi Arabian General Investment Authority (SAGIA) Indian companies /entities have invested a sum of US$ million 1,619.66 in Saudi Arabia from January 2000 to December, 2009. Saudi companies are also increasingly looking at India as an attractive investment destination. There is currently good synergy between Indian and Saudi companies; there is considerable interest amongst businessmen and companies to conduct business and commerce with each other; the framework and the atmosphere is already there and there is every reason to hope and expect the economic relationship between our two countries to rise to new and impressive heights. Huge opportunities await Indian businessmen and companies in sectors like construction industry, petro-chemicals and health & pharmaceuticals in Saudi Arabia while similarly attractive opportunities beckon Saudi businessmen and companies in sectors like infrastructure and real estate in India.