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Saudi Arabia Business Forecast Report Q4 2014

  • August 2014
  • -
  • Business Monitor International
  • -
  • 45 pages

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. Non-hydrocarbon growth in Saudi Arabia will remain buoyant over 2014 and 2015, spurred by sustained domestic demand and the
government's ongoing infrastructure spending. We forecast overall real GDP growth of 4.3% in 2014, moderating to 3.6% in 2015 as oil production normalises.

Although balance of payments stability in Saudi Arabia is unlikely to come under any pressure in the foreseeable future, we expect the current account surplus to shrink substantially in the years ahead, falling from 22.5% of GDP in 2012 to 6.8% of GDP by 2017. Developments in Egypt, Syria and Iran have disrupted relations between Saudi Arabia and its traditional ally, the United States. Although we expect the alliance to remain firm over the coming years, we note that Riyadh's foreign policy risks have increased, with the prospect of a US-Iran détente presenting a particular quandary to Saudi policymakers.

Newly announced plans to open up Saudi Arabia's stock market (the TASI) to foreign investors by the middle of 2015 will add upside momentum to regional equities and FDI inflows into the Kingdom over the coming quarters. We continue to see a narrow and gradual opening as the most probable scenario, along the lines of the Qualified
Foreign Investors' programme used in China.

Table Of Contents

Saudi Arabia Business Forecast Report Q4 2014
Executive Summary 5
Core Views...5
Key Risks To Outlook5
Chapter 1: Political Outlook.. 7
SWOT Analysis 7
BMI Political Risk Ratings.. 7
Domestic Politics. 8
Jordan And Saudi Arabia Threatened By IS Success...8
Both Jordan and Saudi Arabia face increased security threats following the rapid deterioration of Iraq's political situation. Although we
do not expect a direct military conflict be tween radical jihadist group IS and Iraq's neighbours, the ongoing regional turmoil raises the
likelihood of border instability and domestic terrorist attacks.
TABLE: POLITICAL OVERVIEW8
Long-Term Political Outlook. 10
Scenarios For The Coming Decade.10
The Saudi royal family depends on steady oil revenues to maintain its tight grip on the population. As a result, a sustained downturn in
global oil demand could lead to substantial unrest and, potentially, regime change over the long term.
Chapter 2: Economic Outlook.. 15
SWOT Analysis... 15
BMI Economic Risk Ratings.. 15
Economic Activity .. 16
Still Growing At A Brisk Pace16
We maintain our favourable outlook towards the Saudi Arabian economy, and forecast real GDP growth of 4.3% and 3.6% in 2014 and
2015 respectively. While we expect headline growth to slow slightly throughout the coming quarters as oil production normalises, strong
private consumption and fixed investment will underpin the continued expansion of the non-oil economy.
TABLE: Economic Activity16
TABLE: BMI AND BLOOMBERG CONSENSUS* FORECASTS FOR BRENT, USD/BBL. 17
Investment Climate I.... 19
Planned TASI Opening Will Buoy GCC Equities19
Newly announced plans to open up Saudi Arabia's stock market (the TASI) to foreign investors by the middle of 2015 will add upside
momentum to GCC equities over the coming quarters. We continue to see a narrow and gradual opening as the most probable
scenario, along the lines of the Qualified Foreign Investors' programme used in China.
TABLE: SAUDI ARABIA AND UAE - REAL GDP GROWTH, %19
Investment Climate II .. 21
Decline In FDI Inflows To Reverse...21
We expect foreign direct investment (FDI) flows to Saudi Arabia to see a sharp recovery from 2015 onward, after a multi-year period
of decline. While regional political instability and a more stringent stance from the Saudi government towards foreign companies have
adversely impacted FDI of late, plans to open up the stock market and improve the business environment will buoy investor sentiment.
Chapter 3: 10-Year Forecast 23
The Saudi Arabian Economy To 2023. 23
Politics Main Risk To Long-Term Outlook23
Assuming the survival of the current form of government into the medium term, we see ongoing strong growth and asset accumulation
via real expansion in investment and exports, amid relatively high oil prices.
TABLE: Long-Term Macroeconomic Forecasts...23
Chapter 4: Business Environment 25
SWOT Analysis... 25
BMI Business Environment Risk Ratings 25
Business Environment Outlook. 26
Institutions 26
TABLE: BMI Business And Operation Risk Ratings ...26
table: BMI Legal Framework Rating ...27
Infrastructure. 28
Market Orientation... 29
Tab le: Lab our Force Qua lit y .29
TABLE: MENA - Annual FDI Inflows ...30
Operational Risk. 31
table: Trade And Investment Ratings ....31
TABLE: Top Export Destinations.32
Chapter 5: Key Sectors... 33
Pharmaceuticals and Healthcare... 33
TABLE: Pharmaceutical Sales, Historical Data And Forecasts34
TABLe: Healthcare Expenditure Trends, Historical Data And Forecasts 35
TABLE: Government Healthcare Expenditure Trends, Historical Data And Forecasts .. 35
table: Private Healthcare Expenditure Trends, Historical Data And Forecasts .. 35
TABLE: Telecoms Sector - Mobile - Historical Data and Forecasts. 38
TABLE: Telecoms Sector - Wireline - Historical Data and Forecasts.. 39
Other Key Sectors... 41
table: Autos Sector Key Indicators..41
table: Food and Drink Sector Key Indicators....41
table: Defence and Security Sector Key Indicators41
table: Oil and Gas Sector Key Indicators..42
table: Infrastructure Sector Key Indicators..42
table: Freight Key Indicators42
Chapter 6: BMI Global Assumptions. 43
Global Outlook.... 43
US Revision Drags Down Forecast.43
Table: Global Assumptions43
Table: Developed States, Real GDP GrowtH, %..44
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 44
Table: Emerging Markets, Real GDP Growth, %.45

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