Saudi Arabia Defence and Security Industry Update Quarter 2 2012

  • January 2014
  • -
  • Business Monitor International
  • -
  • 95 pages

The legacy of the Arab Spring continued to weigh heavily on the Saudi Arabian government in early
2012, as tensions remained high in the country’s eastern Shi’a areas especially. Meanwhile, the regional
crisis surrounding Iran’s nuclear programme had both external and internal implications for Saudi Arabia:
externally, war between Iran and the US and Israel could badly destabilise a region already in a state of
flux after the political upheavals of 2011; and internally, there was the potential for Iran to foment
rebellion in Saudi Arabia’s Shi’a-dominated east.

As well as implementing gradual political reforms in response to 2011’s sporadic protests, Riyadh
appears determined to try and spend its way out of trouble. The fiscal stimulus begun in 2011 looks set to
continue in 2012, as the government ploughs money into education and infrastructure in particular. BMI
sees only a minimal risk to Riyadh’s ability to afford these populist spending policies, thanks to high oil
prices and, should they fall, the country’s large foreign exchange reserves. Similarly, the analysis of BMI
is that these measures, backed up by the threat of the security state, will keep Saudi Arabia politically
stable in the short term; however, the long-term outlook is much less certain.

The government continues to invest heavily in the military and in the country’s security services.
Externally, besides Iran, Saudi Arabia has witnessed considerable, and in some cases ongoing, unrest in
neighbouring Bahrain, Egypt, Iraq and Yemen. This regional instability led the Armed Forces Chief of
Staff, General Hussein al-Qubail, to announce in a speech delivered in November 2011 that the country’s
armed forces, though already well equipped by regional standards, were about to ‘rebuild and modernise’
in order to attain ‘the highest degree of combat readiness’.

In what could prove to be just the first phase of this modernisation plan, a huge US arms package was
announced in December 2011 under the terms of which Saudi Arabia is to take over 84 Boeing F-15SA
Eagle fighter aircraft for US Dollar 29.4bn, and also to have its existing F-15 fleet re-engined. The procurement
had previously been flagged up as part of a US Dollar 60bn package first outlined in 2010 but not enacted until
now. Other capabilities expected to be added in the coming months are new Boeing AH-64 Apache attack
helicopters, light helicopter gunships and JDAM smart munitions.

In early 2012 BAE Systems was also reported to be in discussions with Saudi Arabia about improving its
agreement to supply the country with 72 Typhoon fighter aircraft. The Saudi Arabians had originally
stipulated that they would assemble the final 48 aircraft locally, but it now seems as if BAE will supply
all 72 planes off the shelf. Late 2011 also saw additional investment in Lockheed Martin’s Patriot
missile defence system, and in light armoured vehicles (LAVs) built by General Dynamics Land

However, in January 2012 the government’s focus was firmly on the east of the country, where clashes
between Shi’a demonstrators and the security forces in the Qatif region resulted in several deaths, which
only inspired still larger protests. The January unrest followed similar protests that erupted sporadically
throughout 2011; they, too, were met with a stern response from the security services. In BMI’s
assessment, the government’s security apparatus is capable of keeping a lid on these protests in the near
term; however, the long-term future of the regime is very much threatened by the sectarian and political
disaffection that exists within the country.

Table Of Contents

Executive Summary . 5
Industry SWOT Analysis . 7
Saudi Arabia Security SWOT . 7
Saudi Arabia Defence Industry Environment and Risk Analysis . 8
Saudi Arabia Political Environment and Risk Analysis 8
Saudi Arabia Economic Environment and Risk Analysis 9
Saudi Arabia Business Environment SWOT . 9
World Political Outlook . 10
Landmark Political Events Looming In 2012 . 10
World Flashpoints: Eurozone, Syria, Iran, Afghanistan, Korean Peninsula . 10
Data : Election Timetable, 2012 15
United States 19
Russia 19
China . 21
Wild Cards To Watch . 22
Middle East Security Overview . 25
The Middle East In A World Context 25
Challenges And Threats To Stability And Security. 25
Regional Power Dynamics . 36
Nuclear Proliferation . 38
External Powers. 39
Scenarios For The Middle East 40
Security Risk Analysis . 42
BMI’s Security Ratings 42
Data : Middle East And Africa Defence And Security Ratings 42
Data : Middle East And North Africa State Vulnerability To Terrorism Index 43
Political Overview . 44
Domestic Politics . 44
Foreign Policy . 48
Long-Term Political Outlook . 50
Security Overview 55
Internal Security Situation . 55
Data : Insurgent Groups 55
External Security Situation 56
Latest Developments 59
Armed Forces And Government Spending . 60
Armed Forces 60
International Deployments . 60
Weapons Of Mass Destruction . 61
Market Structure . 62
Arms Trade Overview 62
Industry Trends And Developments . 63

Market Projection Scenario . 66
Armed Forces 66
Data : Saudi Arabia’s Armed Forces, from 2000 to 2008 (’000 personnel, unless otherwise stated) 66
Data : Saudi Arabia’s Available Manpower For Military Services, from 2008 to 2016 (aged 16-49, unless otherwise stated). 66
Defence Expenditure 67
Data : Saudi Arabia’s Government Defence Expenditure, from 2008 to 2016 . 67
Data : Saudi Arabia’s Expenditure Scenario - Changing % Of Gross Domestic Product, from 2008 to 2016 (US$mn) . 68
Defence Trade 68
Data : Saudi Arabia’s Arms And Ammunition Exports, from 2009 to 2016 (US$mn) 68
Data : Saudi Arabia’s Defence Imports, from 2008 to 2016 (US$mn) . 69
Data : Saudi Arabia’s Defence Trade Balance, from 2008 to 2016 (US$mn) 69

Key Risks To BMI’s Projection Scenario 70

Macroeconomic Data 70
Company Profiles . 76
BAE Systems 76
Thales International . 77
Country Snapshot: Saudi Arabia Demographic Data . 78

Section I : Population . 78
Data : Demographic Indicators, 2005-2030 78
Data : Rural/Urban Breakdown, 2005-2030 . 79

Section II : Education And Healthcare 79
Data : Education, from 2003 to 2005 79
Data : Vital Statistics, 2005-2030 79

Section III : Labour Industry And Spending Power 80
Data : Employment Indicators, 1999-2006 80
Data : Consumer Expenditure, from 2000 to 2012 (US$) 80
BMI Methodology . 81
How We Generate Our Market Projections 81
Defence Market 81
Sources 82

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