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.
Global tourism GDP declined 49 percent in 2020 due to unprecedented lockdowns and travel restrictions. Saudi Arabia’s tourism economy declined 39 percent by comparison and accounted for 7 percent of national GDP. Saudi Arabia has the largest travel and tourism sector in the Middle East, valued at SAR182 billion ($49 billion) in 2020. The tourism sector accounted for 633,000 direct jobs and 792,000 indirect jobs in the Kingdom during 2020, according to WTTC estimates. The hospitality sector was particularly hard-hit in Makkah where the occupancy rate fell from 61 percent in 2019 to 25 percent in 2020. Revenue per available room (RevPAR) in Makkah declined 77 percent, lower than all other major Saudi cities. The official 2021 Saudi budget plans a 26 percent reduction of capital expenditures from SAR137 billion ($37 billion) in 2020 to SAR100 billion ($27 billion) in 2021, which will momentarily slow the current pace of tourism projects along with other non-oil sectors targeted by Vision 2030. Major business reforms affecting foreign ownership, procurement, and competition have been implemented since the launch of Vision 2030 in 2016 to boost private investor confidence in the business potential of sectors where the public sector has historically dominated. Consumer spending and travel has picked up since the Kingdom lifted nationwide lockdown measures in June 2020. Spending at hotels totaled SAR2 billion ($531 million) in Q1, around 3 percent below pre-pandemic levels while spending on recreation & culture stood 22 percent higher than pre-pandemic levels, accounting for SAR3.7 billion ($973 million). Other related segments, including transportation and restaurants, have fully recovered and currently exceed pre-pandemic levels. The Kingdom’s newly launched SAR15 billion ($4 billion) Tourism Development Fund (TDF) is also expected to play a leading role by providing equity and debt investment vehicles in collaboration with commercial and investment banks for the tourism sector. The Tourism Partners program represents a new public-private approach to develop the sector and is expected to enable the development of 113 tourism projects in Saudi Arabia this year. The PIF has also expanded its tourism portfolio with the launch of Cruise Saudi, an entity that will develop ports and terminals in several Saudi cities along with tourist destinations. According to MEED Projects, SAR22.9 billion ($6.1 billion) in leisure or hospitality projects are currently under execution. Saudi megaprojects including the Red Sea Project, NEOM, Amaala, and Diriyah Gate have tendered sizeable hospitality, site readiness, and project management contracts that have involved a variety of U.S. companies including Bechtel, Parsons, and Hill International. Domestic tourism was the primary driver of Saudi Arabia’s tourism GDP in 2020 due to international travel limitations. Domestic spending in travel and tourism totaled SAR44 billion ($12 billion) compared to SAR23 billion ($6 billion) in international spending. PIF-owned Soudah Development Company (SDC) announced SAR11 billion ($3 billion) in projects that offer an array of investment opportunities to local and international investors. The projects involve tourism infrastructure in Soudah and Rijal Alma’a Governorate in the Asir region. According to the government’s Qiwa labor services platform, the fastest growing segment is ‘micro and small enterprises’ in the tourism sector, which grew from 395 establishments to 457 establishments between January and April of this year. The Kafalah SME lending program also announced that it planned to target the tourism and entertainment sectors specifically in 2021, in addition to the communications and information technology sectors. While Saudi Arabia has lifted some international travel limits and most domestic business restrictions, these policies are subject to change based on the dynamic and unpredictable current public health crisis. In recent weeks, flights to and from the U.A.E, Ethiopia, and Vietnam have been suspended due to the spread of the Delta variant strain of COVID-19. Other GCC countries such as Oman have reinstituted some domestic lockdowns due to rising virus cases in the region. Renewed lockdown and travel measures in Saudi Arabia remain a distinct possibility. … If you are a member, please login to view full content. Login or Join Now
Privatization Strategy Saudi Arabia’s National Center for Privatization (NCP) recently released a four-year plan outlining major asset sales and public-private partnerships (PPP) totaling SAR207 billion ($55 billion) in a variety of sectors including water, power, health, and transportation. NCP’s plan includes 160 projects in 16 sectors identified for asset sales or PPP, of which 96 projects have been approved. NCP expects SAR29 billion ($8 billion) in deals with private investors in 2021 followed by SAR44 billion ($12 billion) in 2022 and SAR57 billion ($15 billion) in 2023. Participation of Saudi citizens in sports rose from 13 percent to 20 percent since the launch of Vision 2030’s Quality of Life program, which was created in 2018 to increase participation in cultural, environmental, and sporting activities. The government aims to raise this figure to 40 percent by 2030 through investment in sporting facilities, expansion of women and children’s sports education and training, and raising the national profile of Saudi Arabia as a sporting destination. Sector Strategy Since 2016, Saudi Arabia has actively bid to host major international sporting events and sought to attract international investment by developing venues for sports that are popular with Saudi audiences and take advantage of its dynamic topography. Regulatory Major business reforms affecting foreign ownership, procurement, and competition have been implemented since the launch of Vision 2030 in 2016 to boost private investor confidence in the business potential of sectors where the public sector has historically dominated. These regulatory changes have culminated in a major new Private Sector Participation Law (PSP law), which will enter into effect in July 2021. The PSP law will introduce several changes that seek to level the playing field for foreign investors, allow direct collection of public fees and revenues, and permit some exemptions to Saudization employment policies at the discretion of NCP and the Ministry of Human Resources & Social Development (MHRSD). Recent Privatization The government’s asset sale of its flour-milling sector to a consortium of local and international investors represents the most lucrative asset sale made during 2020. NCP confirmed the industry is now fully divested and that the government netted SAR5.8 billion ($1.5 billion) from the total sales. The water services sector, which encompasses desalination, wastewater treatment, and power generation, has also been a strong focus due to its dominance in the Saudi economy. Independent Water Plant (IWP) projects continue to be signed with the private sector and recently, Independent Sewage Treatment Plants (ISTP) are now being pursued for PPP by the National Water Company as well. The health sector also saw the first privatization of a government-owned healthcare entity following the majority stake acquisition of Saudia Medical Services Company by Dr. Soliman Abdel Kader Fakeeh Hospital Company. Healthcare privatization is expected to be a leading sector of the government’s four-year plan, which has been subject to less privatization opportunities relative to the water sector. Privatization Opportunities Government entities have approved 68 projects in ‘Water & Agriculture,’ several of which are currently accepting bids. The Ras Al Khair Independent Water Project, one of the key privatization goals of the government’s delivery plan, is currently in the RFP phase along with ISTPs in Madinah, Tabuk, and Buraidah. The Ministry of Environment, Water, and Agriculture (MEWA) also established a new water transmission company, the Water Transmission and Technologies Company (WTTCO), that will manage 8,400 kilometers of Saudi water pipeline infrastructure. The state-owned transmission company will seek SAR60 billion ($16 billion) in private investments including PPP before a planned IPO on the Tadawul. The health sector has 9 privatization projects that have received government approval and 23 projects that are under consideration. Healthcare in Saudi Arabia is a key target for long-term privatization including dialysis care, radiology services, and operation of primary care clinics. Government healthcare spending currently accounts for SAR175 billion ($47 billion), or 18 percent of the total budget. Several contracts relating to the operation of Saudi marine ports, dry ports, and bus transportation are expected to be awarded over the next four years. These projects include the operation of the Obhur Suspension Bridge in Jeddah and operation of the bus transportation systems in Jeddah and Madinah. Saudi Arabia plans to corporatize the Saudi Professional Club and other football clubs. The Kingdom sees the business framework of corporatization as a benefit to nurturing talent, attracting short-term private capital, and adopting best practices in club management. All 27 Saudi airports are intended to eventually be either privatized or corporatized, but progress has been limited to select services and terminals thus far. Saudi Arabia’s domestic and international airports will be corporatized, or restructured to operate like a private company, in advance in full privatization. Regulatory changes have been made to allow foreign firms to own at least 75 percent shares in some airports, according to the General Authority of Civil Aviation (GACA). … If you are a member, please login to view full content. Login or Join Now
Sector Background The global sports market is expected to grow from an estimated SAR2 trillion ($530 billion) in 2020 to SAR2.3 trillion ($600 billion) in 2021 amid a bounce back from the COVID pandemic. According to the 2020 PwC Sports Survey, sports market growth expectations in the Middle East registered an 8.7 percent increase over the next 3-5 years, outpacing all other regions. Key sports initiatives under Vision 2030 include Quality of Life, a SAR131 billion ($35 billion) program aimed at funding and coordinating economic development through cultural, entertainment, and sports offerings and the National Transformation Plan 2020 which budgeted SAR7.7 billion ($2.1 billion) to the Saudi sports sector. Participation of Saudi citizens in sports rose from 13 percent to 20 percent since the launch of the Quality of Life program. The government aims to raise this figure to 40 percent by 2030 through investment in sporting facilities, expansion of women and children’s sports education and training, and raising the national profile of Saudi Arabia as a sporting destination. Sector Strategy Since 2016, Saudi Arabia has actively bid to host major international sporting events and sought to attract international investment by developing venues for sports that are popular with Saudi audiences and take advantage of its dynamic topography. The government established a new Ministry of Sports in 2020 dedicated to the sports industry that encompasses the previous role of the General Sports Authority (GSA). Several organizations dedicated to talent development, including Mahd Academy, Leader Development Institute (LDI), and Saudi Sports for All (SFA), were introduced to drive youth participation in sports and establish partnerships with international universities and the private sector. “U.S companies are crucial to the success of the sports industry in Saudi. The knowledge and expertise of the U.S are what Saudi sports strive for. For example, the U.S. excels in terms of college sports, infrastructure and sports complexes, TV rights, PR and media, coaching methodology, and fan engagement. U.S companies can participate in offering their services for Saudi sports and exploring the Saudi market, in areas such as talent ID technology and methodology, sports infrastructure, and best coaching principles and licensing.” – Mr. Abdullah Hammad, President of Mahd Academy U.S.-Saudi partnerships in this field include an agreement between Harvard Business Publications and LDI to develop and implement courses and training programs to bridge knowledge gaps in the sports sector. A two-year marketing and promotional partnership between PepsiCo and SFA to support the expansion of athletics in the Kingdom was also signed. Key Developments in Saudi Sports Following the launch of Vision 2030, the Saudi Cabinet approved new regulatory arrangements for the Ministry of Sports (then General Sports Authority) which increased access to financing, the option for privatization of professional sports clubs, and new licensing and access for women’s sports facilities. Saudi Arabia currently has SAR11 billion ($3 billion) major sports projects planned or under construction. These include megaprojects like NEOM, Qiddiya, AMAALA, Al Ula, and the Riyadh City project as well as municipal projects that include a new motor park at King Abdullah Economic City (KAEC) and construction of new recreational and university fitness facilities. The Saudi online gaming market is valued between SAR3.1 billion ($837 million) and SAR4.1 billion ($1.1 billion). Saudi Arabia has embraced the economic potential of the e-sports market by hosting international gaming competitions, signing deals with international gaming companies, and making significant investments in video game developers including U.S. companies Activision Blizzard, Electronic Arts, and Take Two Interactive. Economic Impact The contribution of sports to Saudi Arabia’s GDP grew from SAR2.4 billion ($640 million) in 2016 to SAR6.5 billion ($1.7 billion) in 2019. That figure is expected to grow to SAR18 billion ($4.8 billion) by 2030, according to the Ministry of Sports. The Ministry of Sports estimates that female participation in sports has increased by nearly 150 percent in the past five years. According to a 2019 GAStat survey, 10 percent of males that did not practice sports cited lack of facilities as a reason compared to 25 percent of females, highlighting an addressable market opportunity for sports and fitness companies. While the Kingdom holds high ambitions for its competitiveness in professional sports under Vision 2030, recreational and tourism-related sports represent a broader array of activities and a sustainable market opportunity to build a new pillar of Saudi Arabia’s non-oil economy. … If you are a member, please login to view full content. Login or Join Now
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. … If you are a member, 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. If you are a member, 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. If you are a member, 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. If you are a member, 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. If you are a member, 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. If you are a member, 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. If you are a member, 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.