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.

Country Risk

Saudi Arabia Country Risk

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Core Views

  • 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.

  • Saudi Arabia's economic performance will remain largely insulated from the recent decline in international oil prices. We do not expect the government's expansionary fiscal policy to change significantly over the coming quarters, and public spending will continue to support both private consumption and fixed investment.

  • We forecast real GDP growth of 3.6% in 2015, a slight moderation from an estimated 4.3% in 2014 due to the normalisation of domestic oil...

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Saudi Arabia Operational Risk Coverage (9)

Saudi Arabia Operational Risk

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BMI View : Saudi Arabia is as an attractive proposition for foreign investors on account of its status as the region's largest economy, its minimal tax burden and strong information and communications technology performance. Overall, Saudi Arabia offers comparatively low risks to investors with regards to the good quality of its transport network and utilities costs, the comparatively limited bureaucracy surrounding trade flows (reducing the risk of delays and high costs), low crime rates and limited employment costs owing to the lack of an official minimum wage. However, incoming businesses face significant labour market risks due to a small domestic labour force with basic numeracy and literacy skills, a lack of female workers and rising government focus on the 'Saudisation' of the workforce, which...

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Saudi Arabia Crime & Security

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BMI View: Despite the potent threat of terrorism, Saudi Arabia's low level of criminal risks, coupled with its competent police and counter-terrorism forces ensure that foreign workers and businesses are largely safe within the country. However, expatriate must strictly observe Saudi cultural norms and laws. The country remains vulnerable to terrorist threats and the potential for social unrest, while geopolitical risks are high due to the Kingdom's ongoing proxy struggle with Iran. Taking these factors into account, Saudi Arabia receives a score of 52.5 out of 100 for Crime and Security Risk, placing fifth in the Middle East and North Africa (MENA) region, below the majority of its GCC counterparts. 

Businesses face the...

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Saudi Arabia Labour Market

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Saudi Arabia offers a large labour pool of nationals and expatriates, with an increasing level of education within its work force over recent years. The country also has a high quality healthcare system, low labour costs and a high degree of labour flexibility. However, low levels of female labour force participation, poor quality education, and the 'Saudisation' of the labour force increases operational risk for businesses. Overall, we have given Saudi Arabia a total Labour Market Risk score of 60.1 out of 100. This puts the Kingdom in third place in the Middle East and North Africa (MENA) region, between its Gulf Cooperation Council (GCC) peers Qatar and the UAE and less than 10 points below the regional leader, Israel.

Although Saudi Arabia has made use of a large pool of low-skilled foreign labour (who currently account for 27% of the population) over the past decades, the government has stepped up efforts to cut the number of expatriates...

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Saudi Arabia Logistics

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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 limited 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 awards Saudi Arabia...

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Saudi Arabia Trade & Investment

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BMI View: As the Arab world's biggest economy, Saudi Arabia offers a large market to foreign investors. Moreover, a low tax regime and relatively strong intellectual property rights help to bolster the investment environment. That said, the country lags the front runner in the Middle East and North Africa (MENA) region - the UAE - for several reasons, including various disincentives to foreign direct investment and an opaque and unpredictable legal system. We have given Saudi Arabia a score of 54.4 out of 100 in our Trade and Investment Risk Index. This places it in eighth place in the region out of 18 countries ...

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Saudi Arabia Industry Coverage (23)

Agribusiness

Saudi Arabia Agribusiness

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BMI View: Saudi Arabia will increasingly be dependent on global grain supply, as the country has decided to phase out domestic grain 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 capacity production. 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 grain supply from the Black Sea region and the EU to supply its meat and food processing industry in the coming years. However, the country will remain highly vulnerable to volatile grain and feed prices. Recent spikes in feed prices have...

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Autos

Saudi Arabia Autos

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Saudi Arabia has seen continued strong growth in new vehicle sales over 2014 year-to-date. 8M14 sales figures stand at 544,810 units. Given this positive backdrop, BMI has slightly revised upwards its 2014 sales forecast, from 5.4% to 5.9% annual growth.

Despite the recent sharp decline in international oil prices, we believe that the country's macroeconomic backdrop remains broadly favourable, with BMI's Country Risk team forecasting real GDP growth of 3.6% in 2015 on the back of an increasingly positive outlook for construction activity. Indeed, we see Saudi Arabia's economic performance remaining strong heading into 2015, on the back of high levels of private consumption (which will support demand for passenger vehicles) and fixed investment (which should boost demand for commercial vehicles).

Turning to private consumption - a key indicator of likely demand for new...

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Commercial Banking

Saudi Arabia Commercial Banking

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...
Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Saudi Arabia Consumer Electronics

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BMI View : Saturation in key device categories such as smartphones and tablets means growth will be subdued in the Saudi consumer electronics market over 2015-2018, with a forecast compound annual growth rate of 1%. Although overall growth prospects are limited, we expect the market to remain highly lucrative to vendors. The mid- to high-end consumer electronics devices market will experience strong value growth during our forecast period to 2018 on the back of rising income, especially for public-sector workers. However, growth in the low...

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Defence & Security

Saudi Arabia Defence & Security

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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...

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Food & Drink

Saudi Arabia Food & Drink

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BMI View:  We maintain our bullish outlook for Saudi Arabia's food and drink market over our forecast period to 2018. Sales will continue to benefit from rising disposable incomes, favourable demographics, increasing urbanisation and ongoing formalisation of the mass grocery retail (MGR) sector.

Headline Industry Data

  • Total food consumption (local currency) growth (y-o-y) in 2014: +8.0%; compound annual growth rate (CAGR) 2013-2018: +7.6%

  • Per capita food consumption (local currency) growth (y-o-y) in 2014: +6.0% ; CAGR 2013-2018: +5.8%

  • Total soft drinks value (local currency) sales growth (y-o-y) in 2014: +7.5%; CAGR 2013-2018 +7.6%

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Freight Transport

Saudi Arabia Freight Transport

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BMI View: We have a positive view of Saudi Arabian freight transport in 2015, forecasting growth across all freight modes, including those ports that have struggled with contractions in throughput in the previous two years. The construction of new facilities, while potentially affecting some existing ports, will strengthen the sector as a whole. The outlook for growth in air and rail freight volumes is also broadly upbeat.

Air freight will continue performing well with the help of national carrier Saudia, and the country's rail freight sector is expanding at an impressive rate.

...

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Information Technology

Saudi Arabia Information Technology

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BMI View: Saudi Arabia offers compelling growth opportunities for IT solution providers across multiple industry verticals owing to the kingdom's strong macro fundamentals and the government's economic diversification plan, which is driving growth and investment in the private sector. We believe that global IT firms with considerable local presence will benefit the most from this opportunity. A number of major IT firms have already taken steps in recent years to ramp up their operations in the country, usually through partnerships with local system integrators.

Headline Expenditure Projections

Computer Hardware Sales: SAR10.3bn in 2014 to SAR10.3bn in 2015, +0.2% in local currency terms. Desktop and...

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Infrastructure

Saudi Arabia Infrastructure

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BMI View : Saudi Arabia's infrastructure and construction sectors offer both scale and growth opportunities over our 10 year forecast period to 2024. We see 2015 being a bumper year of real growth at 10.5% year-on-year, with average growth over the forecast period at 8.8%. We forecast strong growth across all sectors over the medium term; the residential and non-residential sectors especially will drive growth over the long-term - specifically the industrial construction sector.

Key Trends informing BMI's View:

  • The continued dramatic fall in oil prices is not an immediate threat...

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Insurance

Saudi Arabia Insurance

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BMI View: Over 2015 Saudi Arabia's insurance sector will continue to record solid single-digit growth, largely due to steady demand for compulsory, basic lines. Low penetration levels and market fragmentation will remain the greatest barriers to insurers achieving above-average growth in premiums. Despite the opportunity for a period of consolidation over the long-term, we believe that the market will remain relatively unchanged, at least over 2015

BMI takes the view that despite the market achieving solid growth over the forecast period, significant barriers will remain for many insurers. Continued market fragmentation will suppress growth. The main issue is that demand is largely focused on basic compulsory lines. Therefore, insurers can only compete on the basis of price in these lines rather...

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Medical Devices

Saudi Arabia Medical Devices

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BMI Industry View: The late-November 2014 decision by OPEC to maintain its oil production ceiling, and thereby allowing lower crude prices for the coming months, raises downside risks to the Saudi Arabian medical device expenditure forecast. While the country is relatively well-placed to withstand lower government revenue, mainly due to its considerable foreign currency reserves and assets, questions will be increasingly raised over budget allocations, including state-funded healthcare projects.

Headline Industry Forecasts

  • Saudi Arabia's medical device market has experienced volatile but overwhelmingly positive growth over the past five years. The country was slightly affected by the downturn in the global economy in 2009. This resulted in lower oil prices and subsequently growth in...

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Metals

Saudi Arabia Metals

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BMI View : Saudi Arabian metals consumption growth is set for rapid growth over the coming years as the country embarks on a construction boom. We forecast strong growth in steel production, however, it is unable to keep pace with domestic demand and thus the country will be more reliant on imports in future. We do not expect any slowdown in construction activity even with the decline in oil prices.

Saudi Arabia will become increasingly reliant on steel and iron ore imports over the coming years as domestic production is unable to keep pace with the country's infrastructure boom. Production will still see rapid growth rates as SABIC expands production at one of its largest refineries. Steel consumption growth rates will be some...

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Mining

Saudi Arabia Mining

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BMI View:  We expect to see strong growth in the mining sector of the Middle East and North Africa over the coming years. 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 negotiations to continue and for limited sanctions relief to be rolled over until 2015. This will benefit the mining sector as it is one of the beneficiaries of an easing of sanctions. On the upside, if negotiations are successful (which we currently give a...

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Oil & Gas

Saudi Arabia Oil & Gas

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BMI View: In an attempt to maintain crude oil export shares in Asia and with increasing use of domestic crude for its refineries, we expect Saudi output to remain stable over the coming months should oil prices remain above the USD90/bbl level. This will see average production of about 9.73mn b/d for 2014, a small increase from 2013 production of 9.68mn b/d, but lower than the record production year of 2012. We do however expect to see a small decline in crude exports with the start of the Yasref refinery.

Headline Forecasts (Saudi Arabia 2012-2018)
2012e 2013e ...

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Petrochemicals

Saudi Arabia Petrochemicals

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The decline in the price of naphtha is posing a major challenge to the competitiveness of Saudi-based petrochemicals production, which is overwhelmingly based on ethane, according to BMI's latest Saudi Arabia Petrochemicals Report.

With naphtha comprising just 11% of feedstock with the majority from ethane, Saudi Arabia stands to suffer from the fall in naphtha price that has come as a result of falling crude oil prices. At the same time, product prices are falling on export markets, leading to a severe squeeze on margins. At stake is the long-term growth in Saudi petrochemicals capacity.

Q115 saw the growth in fertiliser production with the commencement of commercial operations at Saudi Arabian Fertiliser Company's (SAFCO) new 1.1mn tpa urea plant into operation in Q115. This brought the country's total urea capacity to 4.52mn tpa. Increased fertiliser production should...

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Pharmaceuticals & Healthcare

Saudi Arabia Pharmaceuticals & Healthcare

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BMI View:  We expect heavy investment into Saudi Arabia's healthcare sector to continue, particularly as the government sees the sector as key to the diversification of the economy. The medical tourism industry in particular provides opportunities for both pharmaceutical and medical device companies. We expect multinational companies will continue to dominate the local market despite stringent regulatory laws.

Headline Expenditure Projections

  • Pharmaceuticals: SAR24.65bn (USD6.58bn) in 2013 to SAR28.15bn (USD7.52bn) in 2014; +14.2% in both local currency and US dollar terms. Forecast upgraded from Q414 due to the availability of new pharmaceutical trade data.

  • ...

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Power

Saudi Arabia Power

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BMI View: We maintain our positive outlook for Saudi Arabia's power sector and we expect it to register significant growth over our 10-year forecast period to 2023. Our constructive view of the market is underpinned by the vast power generation expansion plans devised by the government, the country's...

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Real Estate

Saudi Arabia Real Estate

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BMI View:  With governmental policies facilitating market access for international investors, the relatively high sector returns are increasingly attracting foreign investors. While the commercial real estate sector in the office and retail segments is characterised by oversupply, growing demand will help close this gap and help enable room for new projects.

The increasing opening of the Saudi Arabian market is likely to lead to growing investment flows into the country. While one of the largest markets in the region, it has remained largely undeveloped due to regulatory restrictions. Thus, the market provides ample business...

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Retail

Saudi Arabia Retail

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BMI View:  As a market with substantial untapped potential and a vibrant economy, Saudi Arabia is extremely attractive to foreign retailers. Further opportunities are likely to arise in 2015 with the announcement that the kingdom plans to open up its stock market to international investors, giving them access to its USD530bn bourse. In November 2014, the retail portion of the SAR22.5bn (USD6bn) initial share sale by Saudi Arabia's National Commercial Bank was 23 times subscribed. The retail portion comprised 15% of the bank's stock.

Retail groups in Saudi Arabia have generally targeted the three largest urban commercial areas - Jeddah, Riyadh and Dammam/Khobar/Dhahran ('the triplet cities') - but they are now moving into other areas. UAE-based conglomerate Landmark Group's fashion brand Citymax/Max opened its 100th outlet at Al Roudah Plaza,...

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Shipping

Saudi Arabia Shipping

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In 2015 we forecast a modest recovery at a number of Saudi ports that underwent declines in box and total tonnage throughput in recent years. Looking ahead, a number of key port infrastructure projects are in the pipeline and local shipping firms The National Shipping Company of Saudi Arabia (Bahri) and Vela Shipping are in the process of completing their merger. Such developments will support growth in the coming years.

Headline Industry Data

  • 2015 port of Jeddah Islamic Port tonnage throughput forecast to return to growth at 5.2%. Growth will average 5.2 % to 2019.

  • 2015 port of Jeddah Islamic Port container throughput forecast to return to growth at 7.8%. Growth will average 7.6% to 2019.

  • 2015 total trade forecast to see real growth of 2.8%. Growth will average 2.4%...

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Telecommunications

Saudi Arabia Telecommunications

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BMI View: The biggest growth area in Saudi Arabia's telecoms market is high-value services for corporate and individual customers. This view is supported by operators' financial and operational results which show a strong uptake of next generation mobile and wireline data services as well as convergence services. Mobile revenues, meanwhile, are likely to come under further pressure following the entry of the first mobile virtual network operator (MVNO) to the country. This is likely to erode ARPU's of the established operators further.

Key Data

  • Mobile subscriptions increased by 3.2% q-o-q, but...

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Tourism

Saudi Arabia Tourism

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BMI View: BMI expects religious visits to remain among the main drivers for the tourism industry over the medium term. Saudi Arabia is home to Mecca and Medina, two of Islam's holiest cities, and every year millions of Muslims come to Mecca for the hajj, the largest annual pilgrimage in the world.

A total of 1.38mn foreign pilgrims performed the hajj in 2013, down by 21% year-on-year (y-o-y) due to health fears, but this is still a substantial customer base. The authorities' move to create a tourist visa for religious visitors and extend their stays could therefore provide a strong boost to tourism receipts over the medium term. In this context, in November 2013 Saudi Arabia announced a relaxation of visa restrictions for overseas visitors, allowing foreign nationals travelling to the country for pilgrimage to stay for a longer period of 30...

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Water

Saudi Arabia Water

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BMI View: We have substantially expanded our forecasts for the Saudi Arabian water sector, and now cover losses, desalinated water production and non-mains consumption. These additions have resulted in the revision of our existing forecasts, and we now 1.5% growth annually in extraction between 2015 and 2018, a 1.3% growth in consumption, and decline in water losses reaching as much as 4% in 2018, as investment into infrastructure and improved regulatory overviews start to bear fruit.

The Saudi Arabian water sector remains one of the most active in the region and offers some of the greatest opportunities to private sector participants. In particular, the continued growth in desalination projects and ongoing water reclamation developments offer...

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