BMI's Executive Summary

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Although domestic terrorist activity has subsided somewhat and the government has been systematically bolstering its security services, Saudi Arabia remains unstable, with significant activity by anti-regime militants and the continuation of threats of violence against foreigners. This is worrying for the reigning House of Saud as it encapsulates anti-Western, Islamist and anti-government elements. Externally, doubts raised over the current stand-off between the West and Iran over Tehran's nuclear programme will continue to concern Saudi Arabia, although the international attention paid to the issue will be reassuring. Riyadh has been diplomatically active – supporting the new Annapolis Middle East peace initiative, seeking to mediate in Washington's stand-off with Tehran over the latter's nuclear programme and continuing to exert a moderating influence within OPEC. The House of Saud has proven its resilience against many threats in a volatile region, and should be able to weather current risks from Iraq and Iran in particular. However, in the longer term the closed nature of the regime remains a potential threat to stability. In Q407 there was no sign of any break in the log jam over domestic political reforms.

Considering the size and wealth of the country, Saudi Arabia's defence industry is small and underdeveloped. The most significant development to affect the country's defence industry has been the sharp deterioration of personal security for overseas workers. The ongoing targeting of overseas employees could damage the defence industry, discouraging skilled employees from staying in the country. However, multinationals maintain strong representation within the Kingdom. The instability within Saudi Arabia has fuelled a lucrative market in industrial and commercial security equipment. Saudi Arabia is currently estimated to have an outstanding multi-billion dollar border security requirement. However, the majority of equipment is sourced from outside the country, with the domestic militaryindustrial base still weak. Saudi Arabia has traditionally relied heavily on foreign sources of arms, and looks set to continue to do so in the medium term. The US has a large Foreign Military Sales (FMS) programme in Saudi Arabia, which affords the government the ability to purchase military items without bureaucratic delays. Recent surges in oil prices have allowed for new procurements, and the recent announcement of US preparations to provide Saudi Arabia with US$20bn of arms over the next decade should see that the Kingdom's defence imports remain high.

The Saudi Arabian monarchy is under no threat at a political level and sits on vast oil resources that will ensure economic viability for many years to come. At a security level, the Kingdom faces a significant threat from Islamist extremists but it is unlikely that the threat will become anything more than sporadic attacks. The regime has the support of the majority of the population and is backed by the US – two very important factors. Its defence industry is limited, but while it can rely on its oil wealth Saudi Arabia is able to procure its military requirements from the international market. However, this can no longer be expected to be the case once the oil dries up and the Kingdom cannot afford to provide for its people, nor acquire defence equipment. It would be well-advised to start now to make provisions for that time.

Contents

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Chapter 1 - SWOT Analysis

Saudi Arabia Political SWOT

Saudi Arabia Security SWOT

Saudi Arabia Defence Industry SWOT

Saudi Arabia Economic SWOT

Saudi Arabia Business Environment SWOT

Chapter 2 - Political Overview

Domestic Political Outlook

The House of Saud's Shi'a Dilemma

Risk Of Backlash From Diverse Domestic Groups

Security Threats Persist

Risks To Reform

External Political Outlook

Saudi Prospects In The Aftermath Of The US Invasion Of Iraq

The Spill-Over From Iraq

The Sectarian Dimension

And The Persian Rival

Saudi-US Relations And Lebanon

Border Tensions With Abu Dhabi

Looking East

Hungry Dragon

Saudi Diversifying Its Allies

Ties With Tokyo

Chapter 3 - Security Risk Analysis

BMI’s Security Ratings

Risk Ratings

Table: Yemen Regional Security Ratings

Table: State Terrorism Vulnerability Index

Regional Security: The Middle East And North Africa

Inter-State Conflicts

Internal Conflicts

Saudi Arabia Security Risk Rating

Saudi Arabia Conflict Risk

Saudi Arabia Terrorism Risk

Saudi Arabia Physical Safety Risk

Chapter 4 - Security Risk Profile

Internal Security Situation

Table: Insurgent Groups

Anti-Regime Militants

New Suspect List

Abqaiq

External Security Situation

Iran’s Nuclear Proliferation

Yemenis Infiltrators

Iraq

Chapter 5 - Military Structure & Defence Industry

Armed Forces

Table: Regional Armed Forces (including conscripted) 2006

Current Strength

Historical Strength

International Deployments

Weapons Of Mass Destruction

Market Structure

Arms Trade Overview

Imports

Exports

Industry Trends & Developments

Table: Key Players – Saudi Arabia Defence & Security Sector

Procurement Trends & Developments

Chapter 6 - Industry Forecast Scenario

Table: Saudi Arabia Defence Sector Size of Armed Forces

Table: Saudi Arabia Government Expenditure

Key Risks To BMI’s Forecast Scenario

Chapter 7 - Macroeconomic Forecast

Table: Economic Activity

Chapter 8 - Company Profiles

BAE Systems

Thales International

Vinnell Arabia

Al Salam Aircraft Company

Advanced Electronics Company (AEC)

Saudi Technical Engineering Systems Associated (STESA)

Chapter 9 - BMI Forecast Modelling

How We Generate Our Industry Forecasts

Defence Industry

Sources

Chapter 10 - Appendix A: Risk Ratings Methodology

Conflict Risk Methodology

Terrorism Risk Methodology

Physical Safety Risk Methodology

Overall Risk Rating

State Vulnerability Index Methodology

Competitive Landscape for MEA Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's Middle East & Africa Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: