Our comprehensive assessment of Saudi Arabia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Saudi Arabia, as well as the latest industry developments that could impact Saudi Arabia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Saudi Arabia before your competitors.

Country Risk

Saudi Arabia Country Risk

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Core Views

  • Salman bin Abdulaziz has become Saudi Arabia's new ruler, following the death of King Abdullah in January 2015. While the rapid nominations of a new heir and deputy crown prince resolve the question of succession for now, the risk of divisions between members of the royal family remains prominent. We expect policy continuity, but see Yemen as a potential flare point.

  • A wide-ranging cabinet reshuffle by King Salman consolidates his authority at the expense of the sons of the previous ruler, Abdullah. Salman will pursue Abdullah's economic and fiscal policies for the time being - but social reforms will be limited.

  • In spite of the slump in oil prices, we have marginally raised our outlook for Saudi Arabia's economy on the back of the government's determination to keep fiscal policy on an expansionary...

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Saudi Arabia Operational Risk Coverage (9)

Saudi Arabia Operational Risk

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BMI View : Saudi Arabia is as an attractive proposition for foreign investors on account of its status as the region's largest economy, its minimal tax burden and strong information and communications technology performance. Overall, Saudi Arabia offers comparatively low risks to investors with regards to the good quality of its transport network and utilities costs, the comparatively limited bureaucracy surrounding trade flows (reducing the risk of delays and high costs), low crime rates and limited employment costs owing to the lack of an official minimum wage. However, incoming businesses face significant labour market risks due to a small domestic labour force with basic numeracy and literacy skills, a lack of female workers and rising government focus on the 'Saudisation' of the...

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Saudi Arabia Crime & Security

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BMI View: Despite the potent threat of terrorism, Saudi Arabia's low level of criminal risks, coupled with its competent police and counter-terrorism forces ensure that foreign workers and businesses are largely safe within the country. However, expatriates must strictly observe Saudi cultural norms and laws. The country remains vulnerable to terrorist threats and the potential for social unrest, while geopolitical risks are high due to the Kingdom's ongoing proxy struggle with Iran. Taking these factors into account, Saudi Arabia receives a score of 52.5 out of 100 for Crime and Security Risk, placing fifth in the Middle East and North Africa (MENA) region, below the majority of its GCC counterparts.

Businesses face the...

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Saudi Arabia Labour Market

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BMI View: Saudi Arabia offers a large labour pool of nationals and expatriates, with an increasing level of education within its workforce. The country also has a high quality healthcare system, low labour costs and a high degree of labour flexibility. However, low levels of female labour force participation, poor quality education, and the 'Saudisation' of the workforce increases operational risk for businesses. Overall, we have given Saudi Arabia a total Labour Market Risk score of 60.1 out of 100. This puts the Kingdom in third place in the Middle East and North Africa (MENA) region, between its Gulf Cooperation Council (GCC) peers Qatar and the UAE and less than 10 points below the regional leader, Israel.

Although Saudi Arabia has made use of a large pool of low-skilled foreign...

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Saudi Arabia Logistics

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BMI View: Saudi Arabia boasts a high-quality transport network that offers investors a number of advantages in terms of trade options, while planned infrastructural projects will ensure that the Kingdom's logistics network is increasingly integrated into regional and international trade routes. Despite a high degree of global connectivity, the country's trade performance remains limited by a moderately burdensome bureaucracy and restricted growth options for an already well developed trade economy. While businesses enjoy an abundance of energy and fuel at subsidised costs, water scarcity and moderate internet penetration rates hold back the country's potential in the realm of utilities. Taking these factors into account, BMI ...

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Saudi Arabia Trade & Investment

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BMI View: As the Arab world's biggest economy, Saudi Arabia offers a large and attractive market to foreign investors. Moreover, a foreign direct investment (FDI) promotion agency, strong economic diversification strategy, and attractive funding and incentive opportunities, further boost the country's appeal. That said, Saudi Arabia lags behind some of its smaller Gulf neighbours in various respects, including restrictions on FDI in certain sectors (including hydrocarbons), unfavourable tax rates for non-residents, and an opaque and unpredictable legal system. Nevertheless, the country's vast potential...

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Saudi Arabia Industry Coverage (23)

Agribusiness

Saudi Arabia Agribusiness

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BMI View: Saudi Arabia will increasingly be dependent on global grain supply, as the country has decided to phase out domestic grain production in a bid to preserve the country's water supply. The government has not abandoned its strategy of self-sufficiency in poultry and has been ramping up incentives to expand capacity production. This strategy has paid off, as the three major producers in the sector have all started heavy investment initiatives. We believe Saudi Arabia will find sufficient grain supply from the Black Sea region and the EU to supply its meat and food processing industry in the coming years. However, the country will remain highly vulnerable to volatile grain and feed prices. Recent spikes in feed prices have turned us...

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Autos

Saudi Arabia Autos

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Saudi Arabia saw continued strong growth in new vehicle sales over 2014, with new vehicle sales up by some 10%. For 2015, the Kingdom is looking to increase awareness of energy efficiency across the country, which may have implications for new vehicle sales. BMI believes that an initial consumer campaign to reduce fuel consumption will be limited, but new standards applied to vehicles from July 2015 will be more meaningful. By 2019, the country will have a total vehicle fleet of over 7.9mn units, increasing the need to address fuel consumption.

Covering the period from July 1 2015 to June 31 2020, new standards will be applied to all new and second-hand imported light duty vehicles entering the country. This will have a more meaningful impact on fuel consumption, as it will apply to all vehicles. We can measure the scale by looking at our forecasts, which show that the country will have a total vehicle fleet of 7.2mn...

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Commercial Banking

Saudi Arabia Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Saudi Arabia Consumer Electronics

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BMI View : Saturation in key device categories such as smartphones and tablets means growth will be subdued in the Saudi consumer electronics market over 2015-2019, with a forecast compound annual growth rate of 2.3%. Although overall growth prospects are limited, we expect the market to remain highly lucrative to vendors due to high incomes and a fashion conscious local consumer base. The mid- to high-end consumer electronics devices market will experience strong...

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Defence & Security

Saudi Arabia Defence & Security

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BMI View:  Within an extremely complex region, Saudi Arabia's security and defence situation faces a number of challenges both on the internal and external front. BMI thinks that Saudi Arabia's defence and security policy-making is been affected by internal political rivalry within the Kingdom. Our view is that it is unlikely to become involved in an interstate conflict, and that its traditional leverage in Yemen, where it has previously intervened has been weakened. We think that its decision to join the coalition against the Islamic State is illustrative of a continuing counter-terrorism policy in view of its fears of attacks inside the Kingdom.

On the interstate front, Saudi Arabia seems to be continuing attempts to improve its relations with Iran to iron out some of the regional...

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Food & Drink

Saudi Arabia Food & Drink

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BMI View: We maintain our bullish outlook for Saudi Arabia's food and drink market over our forecast period to 2019. Sales will continue to benefit from rising disposable incomes, favourable demographics, increasing urbanisation and ongoing formalisation of the mass grocery retail (MGR) sector. The country leads our Risk/Reward Index for the Middle East and North Africa region, showing the potential for the sector in comparison to its neighbours' food and drink industries.

Headline Industry Data

  • Total food consumption (local currency) growth year-on-year (y-o-y) in 2015: +7.6%; compound annual growth rate (CAGR) 2014-2019: +7.5%

  • ...

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Freight Transport

Saudi Arabia Freight Transport

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BMI View: The outlook for the Saudi Arabian freight transport sector in 2015 is positive, and we forecast robust growth across all freight modes. Rail freight in particular will perform well as the country ramps up its mineral exports, utilising newly developed freight lines like the North-South Railway. Despite the fall in the oil price through the end of 2014 we expect that the economy will continue to grow, driven in large part by private consumption. As a result, demand for containerised goods imports will be strong, boosting box throughput at container ports and intermodal volumes on the roads.

Headline Industry Data

  • Total Saudi Arabian trade set to grow by 3.3% in 2015 in real terms, with imports growing 5.5% and exports by 1.1%. Real trade growth will average 2.5% to 2019.

  • ...

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Information Technology

Saudi Arabia Information Technology

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BMI View: Saudi Arabia offers compelling growth opportunities for IT solution providers across multiple industry verticals owing to the kingdom's strong macro fundamentals and the government's economic diversification plan. We believe that global IT firms with considerable local presence will benefit the most from this opportunity. A number of major IT firms have already taken steps in recent years to ramp up their operations in the country, usually through partnerships with local system integrators. The macroeconomic and policy environment is driving IT market growth and investment in the private sector, however there is downside from a prolonged period of depressed oil prices and regional security tensions...

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Infrastructure

Saudi Arabia Infrastructure

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BMI View : Saudi Arabia's infrastructure and construction sectors offer both scale and growth opportunities over our 10 year forecast period to 2024. We see 2015 being a bumper year of real growth at 10.5% year-on-year, with average growth over the forecast period at 8.8%. We forecast strong growth across all sectors over the medium term; the residential and non-residential sectors especially will drive growth over the long-term - specifically the industrial construction sector.

Key Trends informing BMI's View:

  • The continued dramatic fall in oil prices is not an immediate threat to...

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Insurance

Saudi Arabia Insurance

Medical Devices

Saudi Arabia Medical Devices

Metals

Saudi Arabia Metals

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BMI View : Saudi Arabia's metals sector is poised for rapid growth in terms of consumption over the next few years as a booming construction industry stokes demand for steel and aluminium as well as well as key base metals such as iron ore. While domestic output will continue to grow at a steady pace, we expect the country's output gap to widen across the main metals sub-sectors, leaving the country ever more reliant on imports to meet demand.

During 2015, Saudi Arabian metals producers will struggle increasingly to meet the growing demands of the country's construction sector and wider economy. The country is in the middle of an infrastructure boom with the Saudi government funnelling increasing levels of investment into the housing sector in particular as it looks to reduce a significant shortfall in affordable housing....

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Mining

Saudi Arabia Mining

Oil & Gas

Saudi Arabia Oil & Gas

Petrochemicals

Saudi Arabia Petrochemicals

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The decline in the price of naphtha is posing a major challenge to the competitiveness of Saudi-based petrochemicals production, which is overwhelmingly based on ethane, according to BMI's latest Saudi Arabia Petrochemicals Report.

With naphtha comprising just 11% of feedstock with the majority from ethane, Saudi Arabia stands to suffer from the fall in naphtha price that has come as a result of falling crude oil prices. At the same time, product prices are falling on export markets, leading to a severe squeeze on margins. At stake is the long-term growth in Saudi petrochemicals capacity.

Q115 saw the growth in fertiliser production with the commencement of commercial operations at Saudi Arabian Fertiliser Company's (SAFCO) new 1.1mn tpa urea plant into operation in Q115. This brought the country's total urea capacity to 4.52mn tpa. Increased fertiliser production should...

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Pharmaceuticals & Healthcare

Saudi Arabia Pharmaceuticals & Healthcare

Power

Saudi Arabia Power

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BMI View: Lower oil prices will have limited impact on Saudi Arabia's short-term power sector investment plans thanks to looser fiscal policy and increased government spending - ensuring that the growth rates in the sector remain robust. Over the longer term, however, we believe costly nuclear and solar projects will remain susceptible to delays as a result of increased budgetary scrutiny in a sustained lower oil price environment.

We emphasise that, in relative terms, Saudi Arabia's power market will certainly remain an attractive destination for power sector investors as the kingdom attempts to keep pace with surging electricity demand, diversify its energy mix and boost energy efficiency. Investment in the power sector is a necessity - underpinned by attempts to ensure Saudi Arabia's growing population does not cannibalise the country's economic base. Saudi...

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Real Estate

Saudi Arabia Real Estate

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BMI View:  With governmental policies facilitating market access for international investors, the relatively high sector returns are increasingly attracting foreign investors. While the commercial real estate sector in the office and retail segments is characterised by oversupply, growing demand will help close this gap and help enable room for new projects.

The increasing opening of the Saudi Arabian market is likely to lead to growing investment flows into the country. While one of the largest markets in the region, it has remained largely undeveloped due to regulatory restrictions. Thus, the market provides ample business opportunities which...

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Retail

Saudi Arabia Retail

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BMI View: Low oil prices and the death of King Abdullah have not had a noticeable negative effect on the growth of the Saudi retail sector and the overall economy. Instead, the market is projected to grow at a fast pace over the next five years. The country's large and affluent population will reward both domestic and foreign retailers as the retail industry grows and diversifies.

Saudi Arabia remains one of the world's most stable monarchies despite international criticism for the rights of women and immigrant workers in the country. However, numerous initiatives by King Abdullah have attempted to improve the situation. The social landscape is changing in the state as perceptions about the women are transforming and the 'Saudisation' process continues. Gulf Cooperation...

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Shipping

Saudi Arabia Shipping

Telecommunications

Saudi Arabia Telecommunications

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BMI View: The biggest growth area in Saudi Arabia's telecoms market is high-value services for corporate and individual customers. This view is supported by operators' financial and operational results which show a strong uptake of next generation mobile and wireline data services as well as convergence services. Mobile revenues, meanwhile, are likely to come under further pressure following the entry of the first mobile virtual network operator (MVNO) to the country. This is likely to erode ARPU's of the established operators further.

Key Data

  • Mobile subscriptions will fluctuate, remaining between 49mn and 50mn for the duration of our 2015-2019 forecast period.

  • The fixed-line market will continue to decline, falling to 4.73mn by 2019.

  • Mobile...

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Tourism

Saudi Arabia Tourism

Water

Saudi Arabia Water

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BMI View: We have substantially expanded our forecasts for the Saudi Arabian water sector, and now cover losses, desalinated water production and non-mains consumption. These additions have resulted in the revision of our existing forecasts, and we now 1.5% growth annually in extraction between 2015 and 2018, a 1.3% growth in consumption, and decline in water losses reaching as much as 4% in 2018, as investment into infrastructure and improved regulatory overviews start to bear fruit.

The Saudi Arabian water sector remains one of the most active in the region and offers some of the greatest opportunities to private sector participants. In particular, the continued growth in desalination projects and ongoing water reclamation developments offer significant...

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