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, price liberalisation will remain limited and gradual, with Riyadh proceeding at a slower pace than the rest of the Gulf. Policy changes are likely to be first targeted at the industrial sector, with energy-intensive industries vulnerable to a decline in competitiveness and margins.
The Saudi-led military operation in Yemen has so far achieved few of its desired objectives. A move towards political dialogue between the warring factions is likely, but any agreement between Saudi Arabia and Yemen's Shi'a Houthi rebels will be difficult to reach and even more difficult to implement.
Continued heavy spending on the part of the government indicates its ongoing concerns about the need to shore up its key bases of support, given the persistent threat of public unrest. While we maintain that large-scale protests are unlikely to occur in Saudi Arabia, large youth unemployment coupled with a lack of political liberties mean that tensions will continue to linger.
Key Risks To Outlook
The government's intensification of workforce nationalisation efforts (under a programme known as 'Saudisation') poses a downside risk to the economic outlook. We expect...
The Saudi Arabia Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Saudi Arabia. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.
An influential new analysis of Saudi Arabia's economic, political and financial prospects through end-2019, just published by award-winning forecasters, BMI Research.
- Forecast the pace and stability of Saudi Arabia's economic and industry growth through end-2019.
- Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
- Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
- Contextualise Saudi Arabia's country risks against regional peers using BMI's country comparative Risk Index system.
- Evaluate external threats to doing business in Saudi Arabia, including currency volatility, the commodity price boom and protectionist policies.
BMI provides our fully independent 5-year forecasts for Saudi Arabia through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.
Economic Outlook Contents
The Saudi Arabia Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.
Key Areas Covered:
- Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
- BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.
- Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
- Balance of Payments - trade and investment, current and capital account.
- Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
- Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
- Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
- Foreign Direct Investment - approvals, inflows and climate.
- External Debt - debt profile (short and long-term plus public and private sector obligations).
- Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.
- Rely upon BMI's 100% independent forecast scenarios for Saudi Arabia and underlying assumptions - we take no advertising and are privately-owned.
- Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Saudi Arabia, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
- Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.
What are the political risks to doing business in Saudi Arabia over the next 5-years?
BMI's Saudi Arabia country Risk Index evaluates the short- and medium-term threats to political stability.
Political Outlook Contents
- SWOT Analysis for the Saudi Arabia Market - Political Strengths, Weaknesses, Opportunities and Threats facing Saudi Arabia.
- Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Saudi Arabia's risk are compared with regional and global averages.
- Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
- Long-Term Political Outlook BMI examines the structural risks to the stability of Saudi Arabia’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.
- Benchmark Saudi Arabia's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
- Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
- Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.
What are the current operational risks and difficulties associated with doing business in Saudi Arabia?
The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Saudi Arabia against its neighbours.
Operational Risk Contents
The chapter provides a summary of the main threats in the country, within:
- Labour Market Risk (Education; Availability of Labour; and Labour Costs)
- Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
- Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
- Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).
The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:
- Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
- Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
- Evaluate Saudi Arabia’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.
Key Sector Outlook*
Which industry sectors in Saudi Arabia will grow fastest, and where are the major investment opportunities in the market?
BMI identifies investment opportunities in Saudi Arabia's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.
Key Areas Covered:
- Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
- 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
- Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.
- Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
- Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.
*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.