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 Arabia’s automotive market is the largest in the Middle East and consists almost entirely of imported vehicles. Longstanding relationships with international OEMs such as Ford and General Motors (GM) through local agents and distributors have served as the conventional model for the Saudi auto market. In recent years, vehicle assembly plants and components manufacturing activity has risen through agreements between local firms and international automotive companies. The knowledge transfer from such agreements is part of the Kingdom’s strategy to stimulate economic diversification into key non-oil sectors. During 2021, sales and registrations of new vehicles in the Kingdom rose 23 percent YoY as demand rebounded strongly from 2020 lows. While Asian manufacturers have increasingly dominated the Saudi market, leading U.S. OEMs Ford and GM still hold an estimated 11 percent of the market share. Both manufacturers saw Saudi demand for U.S. vehicles exceed pre-COVID levels in 2021 while market leaders Toyota, Hyundai-KIA, and Nissan remained below pre-COVID levels. Demand for U.S. passenger sedans have lagged compared to the highly competitive SUV market where several Ford and GM models are among the top sellers. Lucid Motors’ announcement of a major manufacturing facility to be built in Saudi Arabia highlights the importance and emergence of the electric vehicle (EV) segment for the future of the auto industry. Saudi Arabia’s strategic focus on expanding petrochemical, metals, and plastics supply chains to produce auto components and the growth of the EV segment represent key market opportunities. Purchase Report – $250 Subscribe and Save – $62/month If you are a member or subscriber, please login to view full content.
The U.S.-Saudi trade relationship rebounded from the pandemic lows of 2020 and posted record high exchanges of non-oil and non-defense goods. Total trade volume totaled SAR92.5 billion ($24.7 billion), rising 22 percent from last year’s SAR75.8 billion ($20.2 billion). U.S. exports to Saudi Arabia totaled SAR41.8 billion ($11.1 billion), up 0.3 percent from last year. However, exports of key defense-related segments declined while electronics, industrial goods, motor vehicles, and pharmaceuticals expanded. Total Saudi exports reached SAR50.7 billion ($13.5 billion), rising sharply from last year’s SAR33.7 billion ($9 billion). Saudi non-oil exports to the U.S. totaled SAR9.1 billion ($2.4 billion), rising 71 percent from last year’s SAR5.3 billion ($1.4 billion). This marked the highest annual level of non-oil exports from Saudi Arabia to the U.S. on record. Oil exports to the U.S. meanwhile rose 46 percent from SAR28.5 billion ($7.6 billion) to SAR41.6 billion ($11.1 billion). The trade relationship between the two countries continues to evolve as Saudi non-oil exports grow beyond downstream petroleum industry products to metals and industrial manufactures while the U.S. remains the Kingdom’s second largest source of goods across a highly diversified export profile. FULL REPORT CONTAINS: U.S.-Saudi Trade Balance (Past Ten Years) Leading Saudi Non-Oil Exports Leading U.S. Exports to Saudi Arabia Fastest Growing Saudi Non-Oil Exports Top Ten U.S. States Exporting to Saudi Arabia Top Ten U.S. States Importing from Saudi Arabia Top U.S. Ports Trading with the Kingdom of Saudi Arabia Estimated U.S. Jobs Supported by State from Exports to Saudi Arabia U.S.-Saudi Trade Outlook Purchase Report – $250 Subscribe and Save – $62/month If you are a member or subscriber, please login to view full content.
Recent reforms in Saudi Arabia have led to a significant decline in water use by the agricultural sector, the construction of more energy-efficient reverse osmosis (RO), solar-supported water systems, and the reduction of longstanding water subsidies that kept the consumer cost of water between an estimated 5 and 10 percent of the actual production cost. In 2018, the Kingdom introduced a new National Water Strategy to further address these challenges and secure cost-effective and sustainable solutions for the Kingdom’s water demands over the next decade. The strategy includes reducing daily per capita consumption from 263 liters to 150 liters, a 43 percent decrease, by 2030. According to the Ministry of Environment, Water, and Agriculture (MEWA), total water demand in Saudi Arabia stood at 15.98 billion m3 at the end of 2020. A new public-private partnership law has opened up the water sector to greater participation by leading international companies while lessening the cost burden on the government. The law offers significant opportunities to U.S. companies with the expertise, experience, and technologies needed to address the Kingdom’s critical water challenges. Saudi Arabia’s Saline Water Conversion Corporation (SWCC), the largest desalination company in the world, aims to boost the private sector’s contribution to water desalination from two million m3/day currently to seven million m3/day by 2026. SWCC signed a memorandum of understanding (MoU) with the U.S. Department of Energy in 2020 for long-term cooperation in the field of desalination science and technology. The agreement underscores the potential for the U.S.-Saudi relationship to drive knowledge transfer, expertise, and investment into the Kingdom’s water sector, addressing the key national objective of sustainable and efficient water resource management. FULL REPORT CONTAINS: Market Determinants Water Demand Key Entities Market Size Regulatory Developments Water Project Activity Sector Challenges Sector Outlook Business Opportunities Purchase Report – $250 Subscribe and Save – $62/month If you are a member or subscriber, please login to view full content.
KEY FINDINGS INCLUDE: 2021 Performance: The deficit for 2021 is estimated to reach SAR85 ($23 billion), or 2.7 percent of GDP, compared to an expected SAR141 billion ($38 billion) deficit due to a rapid recovery in global oil markets. Total revenues increased to an estimated SAR930 billion ($248 billion) in 2021, marking a 19 percent jump compared to 2020 which saw SAR782 billion ($209 billion) in revenues. Other revenues, including oil income, grew to SAR636 billion ($170 billion) compared to SAR555 ($148 billion) in 2020, marking a 14.4 percent increase. Total government expenditures in 2021 are expected to reach SAR1,015 billion ($271 billion) compared to SAR1,076 billion ($287 billion) in 2020, a 5.6 percent decrease. 2022 Budget: The Kingdom is budgeted to have its first fiscal surplus since 2013 to reach SAR90billion ($24 billion), equivalent to 2.5 percent of GDP, compared to –2.7 percent of GDP in 2021. Budgeted revenues are projected to reach SAR1,045 billion ($279 billion), of which 73 percent or SAR763 billion ($203 billion) will derive from other revenues (oil revenues are included in other revenues but the government did not provide specific oil revenue estimates). Tax revenues are budgeted to reach SAR283 billion ($75 billion) in 2022, accounting for 27 percent of total revenues. It also marks a 5 percent decrease from 2021. Compared to 2021, tax revenues will decrease by 4 percent next year. The VAT will be the driving force of tax income. Total expenditures in 2022 are budgeted to reach SAR955 billion ($255 billion), marking a 6 percent reduction from 2021 estimates. The government has put forth a plan to maintain its flexibility in implementing reforms that support developing the management of public finances. Purchase Report – $250 Subscribe and Save – $62/month If you are a member or subscriber, please login to view full content.
Saudi Arabia’s foreign direct investment (FDI) inflows are set to hit the highest level in a decade this year amid strong recovery in the non-oil economy and significant privatization deals signed by Saudi Aramco. The U.S. was a leading source of inward FDI to Saudi Arabia during 2021 and counted as the second largest national source of foreign investment deals in Q3. Regulatory reforms affecting public-private partnerships, mining investment, and pharmaceuticals have opened new avenues of investment for international firms. Several U.S. firms have already announced plans to relocate their regional headquarters to Riyadh ahead of the Government requirement that international companies base their regional headquarters in Saudi Arabia by 2024 in order to qualify for government contracts. Over the past three years, U.S. FDI into the Kingdom averaged a net SAR855 million ($228 million) per year. We expect this pace to increase due to foreign investment liberalization and the array of new opportunities expected in the industrial, information technology, hospitality, energy, media, and pharmaceutical industries. The government is expected to sign the highest value of privatization deals in more than a decade in 2022 and further expand the sectors targeted by private investment over the next four years. FULL REPORT CONTAINS: Key Insights from Mr. Abdulrahman Bakir, Vice President – U.S. Office at Ministry of Investment Saudi Arabia FDI Inflows through Q2 2021 U.S. Direct Investment Position with Saudi Arabia New Foreign Investment Projects State Privatization Strategy Regulatory Developments Highlighted U.S. Investment Activity Purchase Report – $250 Subscribe and Save – $62/month If you are a member or subscriber, please login to view full content.
The Saudi leisure & entertainment sector is witnessing large-scale investments borne by the Kingdom’s diversification strategy aimed at raising domestic spending and attracting international visitors through enhanced in-country amenities and infrastructure. Launched in 2018, the Quality of Life (QoL) program encompasses a broad economic and cultural transformation plan that has led to the reopening of cinemas in Saudi Arabia, hosting of international sporting and music events, and the development of attractive leisure tourism destinations across the country. Despite pandemic-induced slowdowns in projects, Saudi Arabia still grew its leisure investments this year and awarded major construction contracts for Diriyah Gate, a heritage cultural site, and Qiddiya, the Kingdom’s flagship theme park project. It also announced the launch of Soudah Development which will uncover a unique tourism destination in the southern region. In Q3 2021, the Ministry of Investment awarded the highest number of new licenses in ‘arts, entertainment, and recreation’ since data was made publicly available in 2018. Prior to the pandemic, Saudi Arabia implemented landmark reforms such as an inaugural tourism visa and lifted some foreign ownership restrictions to unleash the economic potential of the sector. While consumer spending and business activity has taken a hit from the pandemic, new investments and ongoing projects are aimed at recapturing the economic momentum built up prior to the pandemic. FULL REPORT CONTAINS: Key Insights from Mr. Husameddin AlMadani, CEO of Soudah Development Sector Strategy Supply & Demand Gaps Regulatory & Financing Developments Consumer Spending Emerging Sectors Project Overview Business Opportunities Purchase Report – $250 Subscribe and Save – $62/month If you are a member or subscriber, please login to view full content.
Following a tumultuous year for oil markets and international travel, Saudi Arabia’s economy returned to a growth footing in Q2 2021. The Saudi economy grew 1.8 percent YoY in Q2 on annualized basis with the non-oil sector growing at 8.4 percent. A robust recovery in global oil demand helped boost government revenues well beyond expected levels in the first half of the year. The Kingdom’s flagship crude grade, Arab Light, started the year around $50 per barrel and closed the second quarter at $74 as global trade and travel resumed. Consequently, government revenues rose 39 percent YoY to reach SAR453 billion ($121 billion) while government expenditures inched down 0.9 percent YoY to SAR465 billion ($124 billion). Saudi Arabia’s fiscal deficit through H1 2021 is just 9 percent of the anticipated full-year total, indicating the government will likely exceed its target in cutting the fiscal deficit. Saudi Arabia’s GDP currently stands at SAR2.52 trillion ($672 billion), approximately 5 percent below pre-pandemic levels. The non-oil, private sector recovered faster than both the oil and government sectors and now stands above its pre-pandemic levels. FULL REPORT CONTAINS: Overview Oil Markets Saudi GDP through H1 2021 Saudi Arabia Purchasing Managers’ Index through August 2021 Government Budget through H1 2021 Saudi Capital Markets Macroeconomic Outlook Purchase Report – $250 Subscribe and Save – $62/month If you are a member or subscriber, please login to view full content.
Saudi Arabia’s healthcare sector accounts for SAR187.6 billion ($50 billion) in annual economic activity and has risen steadily from 3.7 percent of GDP in 2010 to 6.4 percent of GDP in 2018. The government has guided the healthcare sector’s development through programs such as the National Transformation Plan (NTP) and the Ministry of Health’s (MoH) Transformation Strategy to meet growing demand for health services, control the government’s cost burden, and expand accessibility and quality of national healthcare. Changing lifestyles and demographics, including a growing population, a greater proportion of elderly Saudis, and a rising occurrence of non-communicable and chronic diseases have placed greater demands on the Kingdom’s healthcare sector. FULL REPORT CONTAINS: Overview Market Determinants Population & Age Lifestyle Diseases COVID-19 & Consumer Spending Market Size GDP contribution Health expenditures Government Initiatives Privatization Localization Vision 2030 & Healthcare Strategy Challenges Opportunities Rehabilitative & Long-Term Services Construction Digitization Outlook Conclusion Purchase Report – $250 Subscribe and Save – $62/month If you are a member or subscriber, please login to view full content.
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. Purchase Report – $250 Subscribe and Save – $62/month If you are a member or subscriber, please login to view full content.
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). 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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.