KSA may be booming, but it pays to keep your wits about you
It’s very fashionable to be targeting Saudi as traditional GCC markets continue to languish in the post-recession Middle East, but working in KSA is not without its problems.
The country has a reputation for lacking the relative organisation and regulation of Dubai and the wider UAE, while working with local partners and developers poses very specific challenges.
Then, of course, there is getting paid – a problem compounded by the difficulty most have gaining entry into Saudi Arabia at all.
“Out of all the countries in the region, Saudi Arabia is the most difficult to get paid,” said Ross Herdman, who worked in the kingdom for five years before joining Bahrain-based manufacturer Al Shams Advanced Lighting.
“We had to chase our customers all the time, even as a local company. It’s a good place to be, in that there are lots of opportunities, but it is not easy to do business there.”
He says that the situation is different to that of the UAE in the last two years. “In the UAE it was a different situation. There was the financial crisis and people didn’t have the money. But in Saudi, even if they have the money, it doesn’t mean you’re going to get paid on time.”
And it’s not just suppliers that have had their problems. According to a representative from a high-profile architectural firm working in Saudi Arabia, who asked not to be named, firms should not to expect to get paid any earlier than within 90 to 180 days (compared with 30 to 60 days in the UK) and should probably budget on the assumption that they’ll be paid just 90% of their fee.
The last 10% is often held indefinitely as a guarantee.
“It simply takes longer,” he said. “It may take six months, and in extreme cases, people don’t get paid. But that’s rare. It’s more often the case that you won’t get the last 10%.”
The increase in such cases would suggest that the issue is becoming a growing concern in the region, as would details of project delays due to late payments reported in the Saudi Gazette late last month.
According to the report, there are 36 projects currently delayed in Jeddah, including important road works on Prince Majed street, King Abdul Aziz and King Fahd streets, due to “late payments and lack of budgeted financial allocations” among other things.
Reasons for these problems are fairly straightforward. Among them are cultural differences and a complex legal system, which prevents companies challenging delays in court, not to mention fear of losing contracts altogether.
“It’s a lot to do with the culture that people have been brought up in – they just don’t like to pay for things,” said Herdman. “So you can have the richest company where everything’s well, and you’ll still struggle to get paid on time. And you don’t have any guarantees from the customer.
It’ll say in writing 30 or 60 days payment, but to claim against them if they don’t pay is a long, religious procedure, and if they say they don’t have the money, you just don’t get paid.”
Cultural differences were also mentioned by the Saudi-based architect. “It’s a cultural difference definitely,” he said. “I think it’s largely true about them having the money. I don’t think they’re slow to pay because they don’t have the money, I think it’s just business practice.”
Building regulations too, are a challenge, explained Stephan Frantzen at P&T Architects. “Building regulations in Saudi Arabia are interpreted quite freely by the individuals representing the approving authorities,” he said.
“This results in so called ‘grey areas’, inviting developers to push for more and this typically protracts the submission process. The time-consuming process can cause new regulations to arrive, changing the design outset and a change of mind by the approving authorities.”
Meanwhile, Ben Corrigan from Dubai-based design firm Bluehaus Group noted that designers need to keep their eye on the ball to ensure that work is being carried out as they intended – particularly with regard to sourcing products and materials.
“We find that it is necessary to provide the contractor with higher level of support than usual to maintain the specification due to import complications – on occasion contractors can be of the mindset that finding a local alternative is acceptable,” he said.
“We understand the difficulties of importing so we work with them where possible but find we sometimes need to work to maintain a specification where a local alternative is not up to our expectation.”
At the same time, Corrigan is upbeat about the market in Saudi, and feels it will play a major role in the firm’s business in 2011 and beyond. “We believe the market understands the value of consultancy and although emerging in terms of the level of quality expected, we believe clients are willing to invest in design consultancy,” he says.
“Yes, there are challenges with gaining entry, and it’s not always straightforward but we have not faced too many problems.”