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Saudi Arabia Country Risk Report Q2 2016

Saudi Arabia Country Risk Report Q2 2016

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 as 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,amid contractions in public spending, rising energy costs, andtightening 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.


Executive Summary
Core Views
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
A More Challenging Period
Saudi Arabia's economic growth will slow considerably in 2016 and 2017 after six consecutive years of strong expansion. The corporate
sector will face a much more challenging macroeconomic environment, amid contractions in public spending, rising energy costs, and
tightening liquidity.
GDP By Expenditure Outlook
TABLE: COMPONENTS OF GDP (% OF TOTAL)
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal And Debt Outlook
2016 Budget Shifts Onus To Domestic Politics
Saudi Arabia's austerity budget for 2016 heralds a prolonged period of economic disruption and increased political headwinds. While the
government's economic programme has the potential to significantly overhaul the Saudi economy, resistance from the elite and popular
discontent will present substantial roadblocks to reform.
TABLE: 2016 BUDGET: MAIN PROVISIONS
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2014)
Equities
Chapter 2: 10-Year Forecast
The Saudi Arabian Economy To 2025
Politics Main Risk To Long-Term Outlook
Assuming the survival of the current form of government into the medium term, we expect moderate growth over our forecast period,
driven by high investment and private consumption. Efforts towards the long-term goal of economic diversification will result in a broader
export base, but oil will remain a central part of the Saudi economy.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Slow Social Reform Process To Continue
The municipal polls conducted in Saudi Arabia in December 2015 are of mostly symbolic importance, given the councils' limited
authority. That said, the election of several women marks a positive evolution in the country's slow and highly managed process of
social reform, and we expect women to gain further ground in public life and the private arena over the coming years.
TABLE: POLITICAL OVERVIEW
Foreign Policy
Iran-Saudi Arabia Diplomatic Cut To Have Regional Ramifications
The severing of diplomatic ties between Iran and Saudi Arabia will have enormous implications for conflicts in Yemen and Syria, and
worsen the sectarian divide across the region. We do not expect a significant economic impact, as trade between the two countries is
non-existent and any risk premium in oil prices already appears to have faded.
Long-Term Political Outlook
Scenarios For The Coming Decade
The Saudi royal family depends on steady oil revenues to maintain its tight grip on the population. As a result, a sustained downturn in
global oil demand could lead to substantial unrest and, potentially, regime change over the long term.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: MENA – TRADE PROCEDURES AND GOVERNANCE RISK
TABLE: REQUIRED TRADE DOCUMENTS
TABLE: TRADE PROCEDURES AND COSTS
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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