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.
Saudi Arabia's economic growth will slow considerably in 2016 and 2017 after six consecutive years of strong expansion. The corporate sector will face a much more challenging macroeconomic environment, amidst contractions in public spending, rising energy costs, and tightening liquidity.
Saudi Arabia's austerity budget for 2016 heralds a prolonged period of economic disruption and increased political headwinds. While the government's economic programme has...
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 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 cybercrime 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...
Saudi Arabia Labour Market
Saudi Arabia Labour Market
BMI View: Businesses face substantial and growing risks to finding suitable workers in Saudi Arabia. While companies have often relied on importing foreign labour to meet skills shortages and keep costs low, this is becoming more difficult as the government increases its intervention in the labour market to support employment of Saudi nationals. Sourcing workers from the local population carries numerous risks for investors, however, including limited vocational and educational skills, extremely low female labour force participation, and higher wages demanded by Saudi nationals. The benefits offered by the country's large, healthy and urbanised labour force and improving education system mean that Saudi Arabia scores 63.9 out of 100 in the BMI Labour Market Risk Index, ranking second out of 19 countries in the Middle East and North Africa (MENA) region. Nevertheless,...
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...
Saudi Arabia Trade & Investment
Saudi Arabia Trade & Investment
BMI View: As the Arab world's largest 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....
Saudi Arabia Industry Coverage (22)
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: Reduced government revenues amid lower oil prices will negatively impact Saudi military spending growth in the short term. However, facilitated by high oil production and a strong fiscal position, the kingdom's defence budget will see robust long-term expansion driven by Riyadh's rivalry with Tehran, risks of spillover from instability in neighbouring states and rising threats from Islamist militancy, sectarian violence and social unrest. Efforts to secure land borders, fight terrorism and assist allies in regional conflicts will drive procurement of ground...
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 : Despite slowing public investment, Saudi Arabia's infrastructure and construction sectors are expected to remain in positive territory. A strong project pipeline will drive healthy growth over the medium term, particularly in transport and energy infrastructure sectors. Large-scale development of social housing projects will also stimulate growth in residential construction, though this sector will likely remain the underperformer in light of the lack of investment incentives. Some downside risk stems from falling oil revenues which could lead to project delays and cancellations.
Latest Updates And Structural Trends
The residential and non-residential construction sector has received a boost with the recent announcement of a USD20bn project to build 100,000 homes in a new...
Saudi Arabia Insurance
BMI View : Within the non-life segment, growth in premiums through the forecast period will continue to be driven by developments in two sub-sectors. There should be higher volumes (if not prices) in the motor vehicle insurance sub-sector, thanks to the expansion in the number of vehicles on Saudi Arabia's vehicles. Higher volumes and inflation in healthcare costs should ensure that health insurance, which is already by far the most important sub-sector, continues to achieve double-digit annual growth rates. Meanwhile, the life insurance segment should remain at an embryonic level of development.
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 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
Saudi producers have improved margins since the previous quarter, but there is the ongoing threat from growth in Iranian exports and the slowdown in the Chinese market. However, the industry benefits from economies of scale and is moving increasingly towards mixed feedstocks, which should allow some flexibility in defending margins in a low oil price environment.
On the production side, the Sadara and Petro Rabigh complexes will have a major effect on the market in 2016. The former has the capacity to produce 3mn tpa of ethylene and polyethylene (PE) and will utilise naphtha and ethane as feedstock, meaning it will benefit from lower oil prices. Meanwhile, the second phase of Petro Rabigh is set to add 1.2mn tpa of ethylene capacity, with significant downstream polymer and aromatics facilities, including 600,000tpa PE, 400,000tpa benzene and 850,000tpa paraxylene (PX).
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 Saudi Arabian government's plan to diversify its power sector away from oil-fired generation will be restricted as continued low oil prices constrain fiscal spending. Thermal power generation will remain dominant over our 10-year forecast period, particularly through gas-fired projects. Fiscal pressures and stringent local content requirements will be an obstacle to the nascent renewable power sector and the government will struggle to meet its capacity targets.
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: The rationalisation of public spending - amid lower oil prices - combined with the pushback of solar power targets will hamper growth in Saudi Arabia's non-hydropower renewables sector. As the Saudi Arabian renewables sector is in its early stages, we forecast that it will struggle to gain entry to the thermal power dominated market.
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: Saudi Arabia's tourism sector continues to expand. The market will continue to be largely driven by the huge volumes of foreign visitors - mostly from neighbouring countries - embarking on annual religious pilgrimages to the kingdom. However, the country is keen to attract more leisure tourism visitors and the government has recently indicated that it sees tourism as playing a key role in its economic diversification plans, which bodes well for investment opportunities in the sector. That said, we do not expect these plans to be implemented at the pace set out by the government, while political risks could also undermine this agenda. Other barriers to growth include extensive visa restrictions and regional security concerns, which may deter potential visitors.
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...