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.
Saudi Arabia Country Risk
The replacement of Saudi Arabia's heir in April 2015, along with other major changes in the country's leadership, represent a further consolidation of King Salman's authority. That said, the elevation of the king's son as second in line to the throne is proving a controversial choice, and could spark future instability.
Growth in Saudi Arabia will slow sharply over the next couple of years as the government embarks on fiscal consolidation and oil production flattens. This, combined with statistical effects linked to the rebasing of the national accounts, has led us to revise our forecasts downward. We now project real economic growth of just 1.9% in 2016 and 2.3% in 2017.
A confluence of factors makes progress on subsidy reform in Saudi Arabia much more likely than even a year ago. Nevertheless,...
Saudi Arabia Operational Risk Coverage (9)
Saudi Arabia Operational Risk
Saudi Arabia Operational Risk
BMI View : Saudi Arabia represents an attractive proposition for foreign investors on account of its status as the region's largest economy, with vast hydrocarbons reserves, a long pipeline of infrastructure projects, and a well-established strategy for industrial development and diversification. Trade is facilitated by its established logistics network and international connections, while investors stand to benefit from low crime rates and limited employment costs. However, incoming businesses face significant labour market risks due to a lack of ...
Saudi Arabia Crime & Security
Saudi Arabia Crime & Security
BMI View: While businesses face generally lower security threats in Saudi Arabia than most states in the Middle East and North Africa (MENA) region, risks are somewhat higher than in the country's fellow members of the Gulf Cooperation Council (GCC), reducing its competitiveness as an investment destination. Saudi Arabia is particularly exposed to terrorism and interstate security threats due to its geopolitical rivalry with Iran, its involvement in regional conflicts and the potential for radicalisation within the population. The risk of exposure to financial and cyber crime is also increased due to Riyadh's foreign policies. The existence of a pervasive security regime offers some advantages, however, with a low rate of most crimes and very limited presence of criminal gangs ensuring that foreign workers and businesses are largely safe. Taking these factors into account, Saudi Arabia receives a score of...
Saudi Arabia Labour Market
Saudi Arabia Labour Market
BMI View: Saudi Arabia offers a large labour pool of national and expatriate workers, with an increasing level of education within its workforce. The country also has a high quality healthcare system and offers low labour costs for employers recruiting local staff. However, factors such as extremely limited female labour force participation, poor quality education, and the 'Saudisation' of the workforce significantly increase operational risks for businesses. In particular, the latter policy has...
Saudi Arabia Logistics
Saudi Arabia Logistics
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...
Saudi Arabia Trade & Investment
Saudi Arabia Trade & Investment
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, such as restrictions on FDI in certain sectors (including hydrocarbons), unfavourable tax rates for non-residents, and an opaque and unpredictable legal system. Nevertheless, the country&#...
Saudi Arabia Industry Coverage (23)
Saudi Arabia Agribusiness
BMI View: Saudi Arabia will increasingly be dependent on grains imports, as the country has decided to phase out domestic grains 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 production capacity. 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 grains supply from the Black Sea region...
Saudi Arabia Autos
|f = BMI forecast. Source: National Sources/BMI|
2015 has proved another positive year for Saudi Arabian new car sales, which should be on track for at least 870,000 units sold by year end.
Looking forward, BMI remains optimistic on the medium-term outlook for the sector, targeting 18.5% growth, which should take annual new vehicle sales through the 1mn unit mark in 2019.
Local auto production is limited, with...
Saudi Arabia Commercial Banking
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Saudi Arabia Consumer Electronics
BMI View : The outlook for the Saudi consumer electronics market was downgraded again in Q116 as the downturn in oil markets extended right through 2015, negatively impacting the economic outlook. Weaker consumer confidence will exacerbate the drag on consumer electronics spending due to saturation in device categories such as tablets and LED/LCD TV sets. This underpins our forecast for subdued growth in the Saudi consumer electronics market over 2016-2019 at a compound annual growth rate of 1.0%. While the overall environment will be challenging we identify lucrative opportunities for vendors in the premium segment, namely high end smartphones and OLED TV sets, due to high incomes and a fashion-conscious domestic consumer base. The low...
Defence & Security
Saudi Arabia Defence & Security
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...
Food & Drink
Saudi Arabia Food & Drink
BMI View: Despite short-term economic headwinds, 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 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 (local currency)
Total food consumption growth (y-o-y) in 2015: +6.8%; compound annual growth rate (CAGR) 2014-2019: +7.3%
Saudi Arabia Freight Transport
BMI View: The outlook for the Saudi Arabian freight transport sector is somewhat mixed in the near term, as the impact of the oil price collapse in 2014 makes itself felt in the economy. Road haulage volumes, which cater primarily for the domestic market, will see the slowest growth rate. The air freight sector will be supported by transhipment volumes and low statistical base effects, while rail freight volumes will continue to enjoy strong growth on the back of concerted investment into the network.
Saudi Arabia's trade is overwhelmingly driven by its oil exports. With the global price of Brent crude having fallen dramatically through the close of 2014, the country's nominal trade value has dropped off. Nevertheless, in real terms we expect continued growth, and the rising wealth of the country's population, and steady - if slow - diversification of the economy will...
Saudi Arabia Information Technology
BMI View: The steep decline in the oil price in 2014 and 2015 has put Saudi Arabia's economy on a lower growth trajectory and as a result we have downgraded our IT market outlook in the Q116 update. We now forecast total spending will grow at a CAGR of 1.8% over 2015-2019 to reach SAR42.8bn in 2019. The hardware segment is forecast to underperform over the medium term as a combination of economic uncertainty and market maturity sees spending contract, though volume growth is expected to return in the final years of the forecast. The services market is the bright spot in our outlook, with cost efficiency and flexibility generating solutions expected to see the strongest demand from local enterprises looking for manoeuvrability in an uncertain economic environment. This is even true for the oil and gas segment, where low prices could actually prove a catalyst for a new...
Saudi Arabia Infrastructure
BMI View :Saudi Arabia'sinfrastructure and construction sectors willofferscale and growth opportunities over our 10-year forecast period to2024, although we note the impact on the private sector of lower oil prices.We expect government investment in affordable housing and infrastructure to remain robust, although note the government will begin moves to lessen the pressure being placed on the country's substantial fiscal buffers.
The drop in oil prices will drag on growth in the residential and non-residential sector, which has had a knock-on effect on our construction industry forecasts for 2016. We now see real growth in the construction sector of 6.5% y-o-y.
We expect a rationalisation of fiscal expenditure over the long-term, which will see growth in the construction sector...
Saudi Arabia Insurance
Saudi Arabia Medical Devices
BMI Industry View: The slowdown in the Saudi Arabian medical device market will concern local manufacturers and foreign firms. This deceleration in growth affects all product categories, particularly patient aids, dental products and orthopaedics & prosthetics. We nevertheless highlight that the market remains the most attractive in the region, and corporate investments are expected to increase, as a result of consistent government support for the provision of healthcare.
Headline Industry Forecasts
We anticipate that the Saudi Arabian medical device market will grow moderately at a 2014-2019 CAGR of 7.6%....
Saudi Arabia Metals
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....
Saudi Arabia Mining
BMI View: The mining sector of the Middle East and North Africa will see strong growth in over the coming years, especially given easing sanctions on Iran. With low base effects, governmental will to increase non-oil revenues and significant resources it appears the region is set for strong growth. We highlight Turkey and Northern Iraq as key areas for growth. That said, the region will remain peripheral in the global mining sector as it continues to underperform due to political instability in much of the region.
The key issue in the Middle East's mining sector presently is Iran's ongoing negotiations with Western powers. Our core scenario is for sanctions to be eased from Q116 which will have be a game changer for the country's beleaguered mining industry...
Oil & Gas
Saudi Arabia Oil & Gas
BMI View: Saudi Arabia will continue to raise its crude production in 2016, in order to meet rising demand from the domestic power and downstream sectors. Crude exports will remain relatively flat, although expanding refining capacity will help ease the kingdom's reliance on imported refined fuels. Fuels consumption continues to see strong growth and limited progress on subsidy reform will keep this dynamic broadly in play. Gas consumption will accelerate over the next several years, as a spate of major new processing facilities are brought online. However, it will remain below the level of unrestrained demand, weighed downed by the limits of domestic production and a lack of import alternatives.
Saudi Arabia Petrochemicals
BMI View: Sustained low oil prices are having a profound effect on the Saudi petrochemicals industry. The decline in ethane-naphtha spreads along with a rise in domestic gas prices, which have raised the cost of the country's dominant ethane feedstock, is squeezing Saudi petrochemicals margins. Sanctions relief for Iran will put further downward pressure on naphtha prices, undermining competitiveness at a time when Asian markets are seeing demand soften.
Saudi Arabia is pressing ahead with its drive towards greater feedstock flexibility, with the new mixed-feed Sadara complex ramping up production in 2016. While this should buffer it against the challenge posed by competition with shale-derived ethane-based production in the US, coal-to-olefins production in China and Asian producers are benefitting from the drop in naphtha prices. Saudi Arabia is also seeking to...
Pharmaceuticals & Healthcare
Saudi Arabia Pharmaceuticals & Healthcare
BMI View: A prolonged period of subdued oil prices may see Saudi Arabia cut back on high value drug spending. While public spending on healthcare will remain high as a result of the sensitive nature of the sector and its political importance, governments will enforce cost-containment measures, including price cuts on medicines and private sector engagement, to limit healthcare spending.
Headline Expenditure Projections
Pharmaceuticals: SAR28.4bn (USD7.6bn) in 2014 to SAR31.8bn (USD8.5bn) in 2015; +11.9% in both local currency and US dollar terms. Forecast unchanged from Q415.
Saudi Arabia Power
BMI View: The outlook for public spending on all but the most important power sector infrastructure has darkened this quarter as the Saudi government undertakes fiscal consolidation - with the government likely to cut capex as it faces up to lower oil revenues. Delays and cancellations to the most ambitious and costly projects across all areas of the power sector remain the biggest risk to our forecasts as the Kingdom rationalises spending.
Saudi Arabia Real Estate
BMI View : Saudi Arabia's non-oil economy and robust underlying growth will support investment into the commercial real estate market over the longer term. Growing numbers of foreign players are also expected to enter the market during this period, on the back of governmental incentives and reduced restrictions which will see strong demand for office and retail space. Although, rental stagnation is expected over the remainder of 2015, with potential marginal rises by 2016.
Oil is the key driver of the Saudi economy contributing just under half of the country's GDP, over 90% of exports and around three quarters of the Government's capital reserves. In an effort to reform economic reliance, the Government is seeking to diversify the economy, particular towards manufacturing and...
Saudi Arabia Renewables
BMI View: Despite Saudi Arabia's considerable solar potential, we believe that the government's rationalisation of public spending amid low oil prices, coupled with muted investor sentiment due to push-back on solar power targets, will remain obstacles to growth in the country's nascent renewables industry. As a result, we maintain our conservative growth forecasts for the sector relative to government targets.
Saudi Arabia Retail
BMI View: Growing economic prosperity, combined with robust GDP growth and lower unemployment, will help boost the amount of disposable income for Saudi households over our forecast period. Nevertheless, the unstable geopolitical backdrop will continue to exert pressure on the economy as well as the retail sector. Furthermore, the recent slump in oil prices will also continue to take its toll on the economy.
As one of the world's three largest oil producers, Saudi Arabia has become increasingly vulnerable to fluctuations in the oil sector. Due to the country's overproduction, the value of oil has notably fallen by over 60% since mid-2014 and this has evidently dented the country's budget. With the growing production around the world, it is unclear whether the benchmark will start...
Saudi Arabia Telecommunications
BMI View: Saudi Arabia's telecoms market is quite dynamic and customers are seeking fast data services in the wireless and wireline markets. Enterprise solutions are becoming a main pillar for the leading operators, with new data centres and business solutions popping up regularly. Still, overall competition is keeping ARPU down and the development of infrastructure in a country as vast as Saudi Arabia is quite expensive. While investing heavily into their fibre backbones, operators are therefore looking to improve the efficiency of their infrastructure and are aiming to outsource towers.
Latest Updates & Industry Developments
Mobile subscriptions reached 54.8mn according to our estimates and the penetration rate reached 183.1% at the end of September 2015, with the...
Saudi Arabia Tourism
BMI View:Following the tragic loss of life in the September 2015 stampede during a Hajj ritual outside of Mecca, the government, having come under significant international criticism for its handling of the event, has committed to major investments in transport, safety and accommodation infrastructure in order to support the rapid expected expansion in international arrivals each year for religious pilgrimage. Over the longer term the government is also keen to expand its tourism industry, with some USD11.6bn of investments in the tourism sector reportedly planned or underway which could eventually help Saudi Arabia support a more diverse tourism market.
Saudi Arabia Water
BMI View: We view Saudi Arabia's water sector as one of the most attractive in the region offering numerous opportunities to private sector participants. In particular, the continued growth in desalination projects and ongoing water reclamation developments offer significant potential.
Water demand in Saudi Arabia is rapidly growing despite the country's limited natural resources. This puts immense pressure on the government and water management companies to extract and distribute adequate volumes of water. The country's water consumption is twice the global average (even higher than countries with rechargeable aquifers and replenishable resources), according to recent studies. With just 2bn cubic metres (cu m) of proven groundwater reserves, Saudi Arabia has nowhere near enough water to serve its future needs, and steady inflows of investment are...