SETTING UP A SUPPLY CHAIN BUSINESS IN SAUDI ARABIA

This article has been researched and written by the Business Development Team at Creation Business Consultants. AI has not been used in generating this article.

With Saudi Arabia’s focus on economic diversification, the demand for efficient supply chain services is stronger than ever. The Kingdom is committed to improving its logistics infrastructure through projects like the Saudi Landbridge, which connects the Red Sea to the Arabian Gulf, and the expansion of its smart warehouses and rail systems.

Saudi Arabia’s economic initiatives position it as a prime destination for supply chain operations. The logistics market in Saudi Arabia is projected to reach USD 27.14 billion by 2025, growing at a compound annual growth rate (CAGR) of 5.76% to USD 35.90 billion by 2030.

WHY CHOOSE SAUDI ARABIA FOR YOUR SUPPLY CHAIN BUSINESS?

Strategic Location

Saudi Arabia’s geographic position places it at the crossroads of the Middle East, Africa, and Asia. This central location gives businesses easy access to key international markets. The Kingdom’s logistics market, valued at over USD 10 billion, has seen major investments in infrastructure, including major ports and airports that enhance trade connectivity.

Government Investment and Economic Diversification

Saudi Arabia’s Vision 2030 initiative has driven investments in infrastructure and logistics. The private sector is expected to contribute SAR 550 billion (about USD 147 billion) into the logistics sector, representing 65% of total investments. This investment covers large-scale projects, including railways, ports, and highways, which boost the region’s connectivity and offer opportunities for businesses entering the market.

WHERE TO SET UP YOUR SUPPLY CHAIN COMPANY IN SAUDI ARABIA

1. Special Economic Zones Saudi Arabia offers several free zones that provide distinct advantages, such as 100% foreign ownership and tax exemptions. Key locations include:
   • King Abdullah Economic City (KAEC): A major industrial hub focused on logistics.
   • Jeddah Economic City: Located near the Red Sea, ideal for businesses with a focus on international trade.
   • Riyadh’s KKIA Logistics Zone: A key location for air freight and businesses targeting global logistics solutions.
2. Mainland Setting up a supply chain company in Saudi Arabia as a mainland entity presents unique challenges, particularly for foreign-owned businesses looking to engage in trading activities. Companies must meet stringent requirements, including having a minimum of three global offices to demonstrate international credibility and a substantial capital investment of at least SAR 30 million (approximately USD 8 million). Key mainland locations:
   • Riyadh.
   • Jeddah.
   • Dammam.

However, Creation have helped many foreign companies navigate these regulatory challenges and successfully establish their operations in Saudi Arabia, ensuring compliance and a smooth market entry despite the obstacles. 

On the other hand, logistics or other service-related business activities fall under a service license, which allows 100% foreign ownership with minimal capital requirements. Thus, we ensure our clients obtain the right kind of license to operate compliantly and within the bounds of the law.

COMPLIANCE AND LEGAL CONSIDERATIONS

1. Adhering to Regulatory Frameworks

Establishing a supply chain company in Saudi Arabia involves navigating a robust legal framework and ensuring compliance with various regulatory bodies and industry standards. Below are key considerations:

• Customs and Import/Export Regulations: Businesses engaged in supply chain operations must adhere to Saudi Customs requirements. This includes registering with the Saudi Electronic Data Interchange (FASAH) for customs clearance and ensuring compliance with import/export documentation standards, such as commercial invoices, certificates of origin, and shipping manifests. For certain products, additional approvals may be required from agencies like the Saudi Food and Drug Authority (SFDA) or the Saudi Standards, Metrology, and Quality Organization (SASO).
• Governing Authorities: The supply chain and logistics industry in Saudi Arabia is overseen by several key authorities, including:
• Ministry of Commerce (MoC): Responsible for issuing the Commercial Registration (CR) and ensuring compliance with company law.
• Ministry of Investment of Saudi Arabia (MISA): Issues investment licenses for foreign companies entering the market.
• Transport General Authority (TGA): Regulates transportation and logistics services, including freight forwarding and warehousing.
• Zakat, Tax, and Customs Authority (ZATCA): Oversees customs duties, value-added tax (VAT), and other taxation obligations related to supply chain operations.
• Business Activity Approvals: Depending on the scope of activities, such as freight forwarding, warehousing, or third-party logistics (3PL), companies may need additional permits. For example, businesses handling hazardous materials or pharmaceuticals require specific licenses and approvals from the relevant authorities.

2. Supply Chain Company Setup Requirements and Qualifications:

Foreign-owned supply chain companies must meet the following qualifications to operate legally in Saudi Arabia:

• Capital Investment: A minimum capital investment is often required for specific licenses, particularly for trading activities, as mentioned earlier.
• Physical Office Space: A national address in Saudi Arabia is mandatory for mainland companies.
• Saudization Compliance: Companies must hire a specified percentage of Saudi nationals to comply with the Kingdom’s Saudization policies, which are enforced by the Ministry of Human Resources and Social Development (HRSD).
• Employment and Saudization: Saudization (Nitaqat) program requires companies to employ a certain percentage of Saudi nationals. This is an essential aspect of the recruitment process, and businesses must balance local and foreign talent to meet these requirements.

GOVERNMENT SUPPORT AND INCENTIVES

1. Public-Private Partnerships (PPP): The government encourages Public-Private Partnerships (PPPs), particularly in infrastructure projects like railways, ports, and digital trade platforms. These partnerships offer businesses avenues for growth and alignment with national development goals.
2. Funding and Grants: Saudi Arabia offers funding options and grants to startups in the logistics sector, particularly those introducing tech-driven solutions. These financial incentives help enhance the competitiveness of businesses operating in the Kingdom.

OPTIMIZING OPERATIONS IN SAUDI ARABIA

1. Leveraging Infrastructure & Technology: Saudi Arabia’s advanced logistics infrastructure, including ports, railways, and highways, provides unmatched efficiency for businesses. Integrating cutting-edge technologies, such as AI, IoT, and blockchain, further optimizes supply chain operations.
   • AI: Optimizing routes for faster and more cost-effective deliveries.
   • IoT: Real-time tracking of inventory and shipments.
   • Blockchain: Ensuring transparency and security in the supply chain.
2. Workforce Development: Saudi Arabia is committed to developing a skilled workforce through its education and training programs. The Saudization initiative incentivizes businesses to hire locally, ensuring a motivated and skilled workforce.

HOW CREATION BUSINESS CONSULTANTS CAN HELP

At Creation Business Consultants, we provide comprehensive support for businesses looking to enter Saudi Arabia’s logistics market. From navigating legal regulations to securing necessary permits and licenses, our team offers tailored solutions to ensure smooth market entry.

CONCLUSION

Saudi Arabia presents ample opportunities for businesses to establish and optimize their supply chain operations. With a growing market, strategic location, and government support, the Kingdom is positioning itself as a global logistics hub. By choosing the right location, ensuring compliance, and leveraging advanced technologies, businesses can secure long-term success in this thriving sector.

For expert guidance on setting up your supply chain business in Saudi Arabia, contact Creation Business Consultants today.