BMI View: Reduced government revenues amid lower oil prices will negatively impact Saudi military spending growth in the short term. H owever, 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 a nd social unrest. Efforts to secure land borders, fight terrorism and assist allies in regional conflicts will drive procurement of ground and air equipment, while the need to protect the kingdom ' s territory and shipping routes from Iran will drive investment into strengthening naval, as well as air defence capabilities . Work to develop the local defence sector under Vision 2030 will take many years, and domestic defence companies' ability to meet requests for technologically advanced equipment will remain limited over our forecast period .
|e/f = BMI estimate/forecast. Source: BMI, US Dept. Of State WMEAT|
|Defence expenditure, USDmn||74,061||78,806||84,247||92,427||100,843||109,482|
|Defence expenditure, USD, % y-o-y||-8.2||6.4||6.9||9.7||9.1||8.6|
|Defence expenditure, % of GDP||10.8||10.8||10.8||10.8||10.8||10.7|
As part of its Vision 2030 plan, the Saudi government seeks to increase the share of defence spending on locally-produced equipment and services to 50% in the next 15 years.
Cuts in public spending and subsidies are being undertaken, and may raise the longer-term potential for social unrest.
Tensions between Saudi Arabia and Iran have intensified. Riyadh's execution of prominent Shi'a cleric Nimr al-Nimr - which in turn sparked an attack on the Saudi embassy in Tehran - led to a severance of diplomatic ties between the two countries in January 2016.
Following Riyadh's execution of al-Qaeda militants convicted of terrorist crimes in January 2016, the group's leader al-Zawahiri called for new attacks on Saudi Arabia. Meanwhile, several Islamic State attacks have occurred in Saudi Arabia in the last few months.
Riyadh has stated that it is considering an intervention against IS in Syria.
Riyadh suspended its USD3bn aid package to Lebanon in February 2016.
KACST, Taqnia and DigitalGlobe (US) announced in February 2016 a joint venture (JV) to develop a network of small satellites capable of collecting 80cm resolution imagery.
In May 2016, Taqnia and KACST entered a JV with Skyware Technologies (US) and Crescent to manufacture and market Saudi Arabia's first high throughput satellite terminal.
In January 2016, KACST revealed it is building a satellite - Saudi SAT 5B - to 'support remote sensing services in the kingdom' in cooperation with China (Arab News).
In March 2016, the Saudi government opened a new artillery projectiles factory in al-Kharj, in cooperation with South Africa's Rheinmetall Denel Munitions.
Alsalam and UK's BAE Systems announced in July 2015 the establishment of a repair, maintenance and overhaul (MRO) facility in Saudi Arabia.
In August 2015, Alsalam, Boeing (US) and Saudi Aerospace Engineering Industries (SAEI) agreed to set up a helicopter MRO centre in Saudi Arabia.
The US Department of Defense (DoD) announced in April 2016 that the Saudi air force is set to receive two Beechcraft King Air 350 ER aircraft equipped with ISR/SAR capability.
In March 2016, Italy's Finmeccanica announced it had received an order for delivery of six air traffic control (ATC) systems to the RSAF.
Taqnia signed a memorandum of delivery for 30-An-178 airlifters to the Saudi Air Force in December 2015.
Also in December, the US DoD announced that Saudi Arabia had awarded a contract to Sikorsky for the delivery of 10 MH-60R Seahawk helicopters for the Saudi navy.
In October 2015, the US and Saudi governments signed an agreement for the latter to purchase 320 PAC-3 missiles.
Also in October, the US DoD approved a request from Riyadh to purchase an additional nine Sikorsky UH-60M Black Hawk utility helicopters.
The UK defence ministry announced in January 2016 that Saudi Arabia had prepared its Panavia Tornado IDS strike aircraft with capability to carry the MBDA Brimstone air-to-surface missile.
In January 2016, media reported that Riyadh had rejected an offer from the US navy for the manufacture of four armed versions of its Lockheed Martin Littoral Combat Ship (LCS) citing issues with costs and targeted delivery date.
According to a statement by Spain's Navantia in February 2016, the company is 'set' to receive a USD3.3bn order from Riyadh for five of its Avante corvettes.
In February 2016, the EU parliament voted in favour of an EU-wide arms embargo on Saudi Arabia due to the 'disastrous humanitarian situation' created by the 'Saudi-led military intervention in Yemen'. The vote is not legally binding.
Defence Industry Risk Reward Index
Saudi Arabia's local defence industry remains underdeveloped, leaving the country's armed forces heavily reliant on imports of military equipment. Meanwhile, the Saudi government is one of the largest defence spenders globally, and we expect steady growth in the military budget between 2016 and 2025, creating substantial opportunities for foreign companies. The country boasts reasonably high levels of economic and investment openness, as well as relatively low levels of corruption on a regional comparison - in addition to a high number of defence collaboration agreements, which facilitate trade. As a result, Saudi Arabia's score in the BMI Defence Industry Risk Reward Index stands at 53 out of 100, placing the country joint third regionally, alongside Jordan and the UAE.
The Saudi Arabia Defence & Security Report features BMI Research's independent forecasts for national and international security, the defence industry, military expenditure, employment in arms production, and arms imports and exports, as well as examining industry trends and prospects, national and multinational arms producers and the regulatory environment.
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- Defence Expenditure: Defence expenditure (local currency and USDbn); defence expenditure (% of total budget); defence expenditure per capita (USD); defence budget (local currency and USDbn).
- Armed Forces (to 2012): Manpower available for military service, manpower fit for militaryservice, army personnel, navy personnel,air force personnel, total armed forces, (‘000) (% population).
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