The Weekly Market Brief reviews the past week’s highlights from the Saudi, U.S., and global markets. Topics discussed in the Saudi markets include the Tadawul’s performance, Saudi Arabian Monetary Authority (SAMA) monetary and fiscal policy announcements, major investment developments, and major drivers of Saudi markets such as oil and non-oil sector growth, debt issuances, planned privatizations and fluctuations in global oil prices among others. U.S. markets cover market updates to fixed income, equities, labor and commerce, and major reports related to the U.S. economy, key trading partners or global events.
Monthly Economic Briefs
The Monthly Economic Brief is a short, discussion-based report that provides context on current trends or major policy changes taking place in the Kingdom through an economic lens.
Saudi Defense Spending Saudi Arabia ranks as the world’s fifth largest sovereign spender on military & defense, according to the Stockholm International Peace Research Institute (SIPRI). The government announced a SAR175 billion ($47 billion) allocation for the military sector in 2021, a 10 percent decrease from the SAR195 billion ($52 billion) in estimated military spending for 2020. Actual estimated spending exceeded the budgeted level by 7 percent. Defense spending has fluctuated below its 2015 level due partially to lower oil prices since 2015 and a transition towards greater involvement by the Public Investment Fund (PIF) and the private sector in defense-related projects. Defense spending in 2020 and 2021 is expected to remain below 2019 levels, reflecting a broad-based reduction in overall expenditures as the Kingdom aims to cut its budget deficit in 2021 by 53 percent. Projects that are earmarked under the 2021 military budget include completing 80 percent of the operating plan within the Ministry of Defense’s 10-year plan, the second and final stages of the King Salman Base and King Faisal Air Academy relocation projects, and defense capacity-building across 8 military entities. GAMI and SAMI SAMI, which is 100 percent owned by the PIF, has acquired both Aircraft Accessories & Components C Ltd. (AAC) and Advanced Electronics Company (AEC). AAC is part of the Ministry of Defense’s economic offset program and has longstanding ties with U.S. defense companies while AEC, also originally an economic offset company, is one of the Kingdom’s most established local defense manufacturing companies. SAMI has also established joint venture agreements with several international companies, including U.S. companies L3Harris Technologies and Lockheed Martin as well as Spain’s state-owned shipbuilder Navantia, France’s Thales Group, and Belgium’s CMI Defens SAMI is positioned to be the national domestic military manufacturing company through further acquisitions, local investments, and international partnerships. GAMI’s Industrial Participation program involves agreements with contractors to include local industries in the supply chain and ideally build new capabilities that will contribute to self-sufficiency in targeted sector The program creates opportunities for both direct and indirect participation of qualifying local industries in supply contracts. New Technologies Targeted military technologies by GAMI include EO/IR, directed energy, radar, RF radio, cybersecurity, electromagnetic weaponry, and AI/machine learning. In the EO/IR field, advanced IR targeting, multispectral, and hyperspectral imaging technology are technologies of high interest. GAMI signed a SAR750 million ($195 million) agreement with local firm INTRA Defense Technologies to procure six unmanned aircraft systems with advanced EO/IR capabilities. The SAMI L3Harris Technologies, LLC joint venture also pertains to the deployment and development of advanced EO/IR capabiliti Other advanced digital technologies including blockchain encryption, and machine learning applications across data gathering, threat identification, and communications. Localization Early signs of progress in Saudi Arabia’s defense manufacturing capacity include the deployment of the first domestically produced fast jet aircraft, the BAE Systems Hawk, in late 201 In 2020, a joint venture between Oshkosh Defense and Al Tadrea Manufacturing Company to manufacture armed vehicles in-Kingdom was announced. Saudi Advanced Technologies Company (Wahaj) was licensed by BAE Systems to manufacture consumable and complex structural components as part of the supply chain for the Eurofighter Typhoon combat aircraft. … Please login to view full content. Login or Join Now
The U.S. and Saudi Arabia exchanged SAR75.6 billion ($20.2 billion) in goods during 2020. The U.S. remained the second largest source of goods imported by Saudi Arabia while Saudi Arabia remained the 24th largest export market for the U.S. The top U.S. state trading with the Kingdom was once again Texas, which accounted for 18 percent of U.S. exports to Saudi Arabia. Maryland and New York were among the top ten exporting states to Saudi Arabia and also saw a pickup in the value of exports despite the strains on global trade flows during 2020. Alaska and North Dakota were two other U.S. states with smaller economies that saw a strong pickup in exports to Saudi Arabia as U.S.-made industrial and agricultural machinery, aircraft, and agricultural goods saw increased demand from Saudi Arabia. Please login to view full content. Login or Join Now
Home ownership in Saudi Arabia, one of the key initiatives of Vision 2030, saw record growth during 2020 amid the COVID-19 pandemic. Driven by the growth of a large young domestic population and rising incomes, residential real estate was the bright spot in the real estate sector as pandemic restrictions stalled commercial real estate developments and resulted in the suspension or cancellation of projects. Please login to view full content. Login or Join Now
2020 Performance: The budgeted deficit for 2020 is estimated to reach SAR298 ($79.5 billion) or 12 percent of GDP compared to SAR133 billion ($35.5 billion) or 4.5 percent of GDP in 2019. Total revenues declined to an estimated SAR770 billion ($205 billion), marking a 17 percent drop compared to 2019, which saw SAR927 billion ($247 billion) in total revenues. The government enacted a number of initiatives to combat the reduction in revenues by increasing the VAT rate from 5 percent to 15 percent in July while keeping the VAT rate at 5 percent for real estate transactions to stimulate demand. Total government expenditures in 2020 are expected to reach SAR1,068 billion ($285 billion) compared to 2019, which reached SAR1,059 billion ($282 billion) representing a marginal 0.8 percent increase. 2021 Budget: The budget deficit in 2021 is expected to be reduced to reach SAR141 billion ($38 billion), equivalent to 4.9 percent of GDP, declining by 7.1 percent of GDP compared to the estimated deficit for 2020. The decline in the deficit is attributed to a 10 percent increase in total revenues in 2021 as the government forecasts SAR849 billion ($226 billion) in revenues versus SAR770 billion ($205 billion) for 2020. Total expenditures are expected to decrease by 7 percent in 2021 compared to 2020. Total expenditures are expected to fall from SAR1,068 billion ($285 billion) in 2020 to SAR990 billion ($264 billion) in 2021. Please login to view full content. Login or Join Now
Saudi Arabia is quickly becoming a leader in the growth of the global sukuk market as the government has pivoted to deficit spending to fund its expenditures and flagship Vision 2030 programs. Sukuk issuances have accelerated in recent years across the Middle East and Asia and have been further fueled by the economic shocks of 2020. Demand for excess liquidity, compounded by the unanticipated shocks of the global pandemic and persistently low oil prices, led Saudi Arabia to surpass its previous sukuk issuances high of SAR119.3 billion ($31.8 billion) set in 2017 with SAR122.6 billion ($32.7 billion) of sukuk issued through Q3 2020. Across sovereign and corporate issuances, Saudi Arabia now represents 25 percent of the outstanding sukuk value globally. Please login to view full content. Login or Join Now
Saudi Arabia’s strategic geographic location at the intersection of Europe, Asia, and Africa positions itself to become a leading global logistics hub by promoting the ease of movement of people and goods across the Kingdom. Enhancing the financial sustainability of logistics development in part through attracting the private sector is a key objective of the National Industrial Development and Logistics Program (NIDLP). NIDLP aims to create 1.6 million jobs and attract investments worth SAR1.6 trillion ($427 billion) over the next decade. Of that total, SAR135 billion ($36 billion) is earmarked for a mix of government and private spending across a range of logistics development projects. Please login to view full content. Login or Join Now
The Ministry of Finance recently released both its official second quarter 2020 GDP report and preliminary budget statement for the 2021 fiscal year. Saudi Arabia’s Q2 GDP totaled SAR564 billion ($151 billion) as lockdowns and travel restrictions hampered both manufacturing and service activity. The government expects full-year 2020 GDP to fall 3.8 percent before rebounding 3.2 percent in 2021, consistent with World Bank estimates. While the budgets for 2021 and 2022 have remained in line with prior expectations, including a continued commitment to prominent Vision 2030 reform programs, the 2020 fiscal deficit is expected to reach SAR298 billion ($79.5 billion) compared to a budgeted SAR187 billion ($49.9 billion) due to lower revenues and increased spending. The global pandemic led to widespread economic restrictions and a sharp fall in oil demand that bottomed during the second quarter. Saudi Arabia lifted most business lockdowns in late June and has been gradually easing international travel restrictions. Please login to view full content. Login or Join Now
Among the ten delivery programs established in 2017 to realize Vision 2030, the Financial Sector Development Program (FSDP) has seen substantial progress despite the economic downturn stemming from the COVID-19 pandemic. FSDP has three main objectives: 1) enable financial institutions to support private sector growth through lending and strategic investment, 2) ensure the formation of an advanced capital market, and 3) promote financial planning. Progress on these fronts has been achieved through regulatory reforms in the financial services sector, as well as investments in growth areas like financial technology. This brief examines the progress of Saudi Arabia’s financial sector under Vision 2030 by assessing some of FSDP’s key 2020 goals under its first two objectives, including the increase of digital transactions and technology, and the facilitation of mortgage and small business lending, growth of foreign portfolio investment, and market capitalization of the Tadawul. As the Saudi economy recovers from a decline in oil revenues and a pandemic-induced recession, the financial sector will play a key role in supporting non-oil private sector growth. Please login to view full content. Login or Join Now
The COVID-19 global pandemic has forced governments to grapple with significant social and economic changes in a short period of time. Saudi Arabia confirmed its first case on March 2 and subsequently instituted widespread curfews and lockdown measures as global coronavirus cases grew exponentially in the second quarter of 2020. Daily new cases started to decline in mid-May but increased rapidly through the month of June. However, the number of cases has been steadily declining since July. The Kingdom has reported more than 300,000 coronavirus cases with a 91 percent recovery rate. The impact of COVID-19 and the OPEC+ oil production impasse led to a significant drop in oil demand in the first half of the year (H1). Saudi Arabia registered a 35 percent drop in oil revenues and a 37 percent decline in non-oil revenues on an annual basis as nearly every sector was impacted by the pandemic. The Kingdom posted a Q2 deficit of SAR109.2 billion ($29.1 billion), leading the mid-year budget deficit to SAR143 billion ($38.2 billion) which exceeds the total deficit from last year. Expenditures fell 8 percent in the first two quarters of the year after the government announced it would cut 10 percent from budgeted 2020 spending. Please login to view full content. Login or Join Now
The Saudi power sector is in the midst of significant developments aimed at generating and growing its capacity to supply electricity to residential consumers and commercial customers. Facing strong demand for electricity, a desire to diversify its domestic energy mix, the need to improve energy efficiencies, the decline in the cost of alternative energy sources, and the abundance of solar radiation across the country are measures that will allow the Kingdom to become a global leader in renewable energy. The Kingdom has developed robust initiatives under the Ministry of Energy that include the creation of the National Renewable Energy Program (NREP) in line with Vision 2030 and the formation of the Renewable Energy Project Development Office (REPDO), which is responsible for the delivering the goals of NREP. Furthermore, and as part of the Kingdom’s development plan, the private sector’s participation in the sector is instrumental to the proliferation of the renewable energy sector. To date, a number of independent power producers (IPP) have developed solar and wind projects and the growth of the private sector as a catalyst plays a prominent role in shaping the sector’s future. Please login to view full content. Login or Join Now
Industry Sector Reports (ISR)
In-depth sector reports provide an overview of Saudi Arabian sectors with particular emphasis on market determinant, demand outlook, regulatory frameworks, financing, and sector challenges.
Quarterly USSBC Contract Awards Index Reports
Released on a quarterly basis, the USSBC Construction Contract Awards Report uses a proprietary index to track Saudi Arabia’s construction pipeline. The report provides deeper analysis of major projects and a regional and sectoral breakdown. The headline index is a forward-looking indicator measuring the health of the Saudi construction market.