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Saudi Arabia Country Risk Report Q4 2016

  • August 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

The replacement of Saudi Arabia's heir in April 2015, along withother major changes in the country's leadership, represent a furtherconsolidation of King Salman's authority. That said, the elevation ofthe king's son to second in line to the throne is proving a controversialchoice and could spark future instability.Saudi Arabia's economic growth will slow considerably in 2016 and2017 after six consecutive years of strong expansion. The corporatesector will face a much more challenging macroeconomic environment,amidst contractions in public spending, rising energy costsand tightening liquidity.Saudi Arabia's austerity budget for 2016 heralds a prolonged periodof economic disruption and increased political headwinds. While thegovernment's economic programme has the potential to significantlyoverhaul the Saudi economy, resistance from the elite and populardiscontent will present substantial roadblocks to reform.The Saudi-led military operation in Yemen has so far achieved few ofits desired objectives. A move towards political dialogue between thewarring factions is likely, but any agreement between Saudi Arabiaand Yemen's Shi'a Houthi rebels will be difficult to reach and evenmore difficult to implement.While we maintain that large-scale protests are unlikely to occurin Saudi Arabia, large youth unemployment coupled with a lack ofpolitical liberties mean that tensions will continue to linger.The municipal polls conducted in Saudi Arabia in December 2015 areof mostly symbolic importance, given the councils' limited authority.That said, the election of several women marks a positive evolutionin the country's slow and highly managed process of social reform,and we expect women to gain further ground in public life and theprivate arena over the coming years.

Table Of Contents

Saudi Arabia Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook ... 8
Barely Avoiding A Recession In 2016...8
Relatively elevated growth in the hydrocarbon sector will prevent the Saudi economy from entering a recession in 2016. Nonetheless,
the non-oil economy will continue to post negative growth rates over the coming quarters, as the Saudi government pushes ahead with
fiscal retrenchment on the back of low oil prices.
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS ...10
TABLE: GOVERNMENT CONSUMPTION FORECASTS...10
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: FIXED INVESTMENT FORECASTS..11
TABLE: NET EXPORTS FORECASTS11
Fiscal Policy And Public Debt Outlook.. 11
NTP A Positive For Sovereign Profile.11
The Saudi Arabian government will push ahead with fiscal retrenchment over the coming years, as part of the National Transformation
Plan. Despite the reduction in government spending, the budget deficit will narrow only gradually. To cover its funding requirements, the
government will issue domestic and foreign debt, as well as use some of its foreign reserves.
TABLE: NATIONAL TRANSFORMATION PLAN - OBJECTIVES..12
Structural Fiscal Position 13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.13
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...14
Investment Climate.. 15
Tadawul To Join MSCI; FDI Boom Dependent On Aramco...15
The ongoing reform of the Saudi Tadawul will ensure its accession to the MSCI Emerging Market Index and increase the bourse's
attractiveness for foreign investors. The scale of foreign capital inflows over the coming years - central to meeting many of Saudi Vision
2030's targets - will depend extensively on how successful Saudi Aramco's partial IPO is, with a listing likely to take place before the
end of 2018.
Monetary Policy ... 16
Little Economic Benefit From Smoother Tightening Cycle...16
Saudi Arabia will benefit only marginally from the US Federal Reserve delaying and downsizing its hiking cycle. SAMA will be able to
align its monetary policy on a smoother tightening cycle, but this will do little to get the Saudi economy out of the doldrums.
Chapter 2: 10-Year Forecast... 19
The Saudi Arabian Economy To 2025 19
Economic Diversification Delayed By Political Risk..19
Saudi Arabia has entered a protracted period of slower growth, with the Saudi economy having to adjust to the end of the oil price
boom. In this environment, the Saudi government will push ahead with long overdue reforms to diversify the economy away from its
overreliance on oil and the public sector. The results will be mitigated, with the non-oil private sector unable to drive real GDP growth
and create enough jobs for a young a rapidly growing Saudi population.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.19
TABLE: SAUDI ARABIA VISION 2030.21
Chapter 3: Political Outlook... 23
SWOT Analysis. 23
BMI Political Risk Index... 23
Domestic Politics 24
Bin Nayef's Influence To Rise As Terror Threat Increases...24
The triple terrorist attack carried out in Saudi Arabia in early July illustrates the threat that Islamist terrorism poses to the country. Saudi
Arabia will remain exposed over the coming quarters, allowing for Crown Prince Mohammed bin Nayef to increase his influence by
heading the counter-terrorism campaign.
TABLE: POLITICAL OVERVIEW.24
Long-Term Political Outlook... 25
Scenarios For The Coming Decade.25
The Saudi royal family depends on steady oil revenues to maintain its tight grip on the population. As a result, the sustained downturn in
global oil demand could lead to substantial unrest and, potentially, regime change over the long term.
Chapter 4: Operational Risk... 29
SWOT Analysis. 29
Operational Risk Index 29
Operational Risk... 30
TABLE: OPERATIONAL RISK.30
Market Size And Utilities.. 31
TABLE: MENA - MARKET SIZE AND UTILITIES RISK..31
Labour Costs 34
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE... 35
Chapter 5: BMI Global Macro Outlook... 39
Global Macro Outlook.. 39
Brexit To Hit Global Growth.39
TABLE: GLOBAL ASSUMPTIONS..39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...41
TABLE: SAUDI ARABIA - MACROECONOMIC DATA and FORECASTS.43

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