Saudi Arabia

Diversification from the oil sector will take time


MEDIUM RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

The country risk assessments are your North Star metrics to make the right decision for your business and understand the risks in international trade. We have always the best solution for your needs

GDP USD683.827bn (World ranking 19, World Bank 2017)
Population 32.94mn (World ranking 41, World Bank 2017)
Form of State Absolute Monarchy
Head of government Salman bin Abdulaziz Al Saud
Next elections None
  • Natural resource base (oil and gas)
  • Strategic importance as an oil exporter and with spare capacity to increase output when needed
  • Solid banking system, with large financial asset base and strong FX reserves
  • In time of high oil prices strong fiscal and current account surpluses. These provide a financial buffer when deficits are recorded in times of severely depressed oil prices
  • Long-standing and stable exchange rate system
  • Strong international assessments of the business environment
  • Dependence on international oil prices along with a narrow economy focused on the hydrocarbon sector
  • High unemployment and under-employment have the potential to fuel increased militancy, particularly among the minority Shia population
  • Data transparency is below average for a high income economy
  • Regional uncertainties, with land borders with Iraq and Yemen and with Iran as a close neighbor. The latter is seen by some as a competitor for regional power

2016 was a difficult year

Real GDP growth dropped to +1.4% in 2016 from 4.1% in 2015, triggered by markedly lower oil prices (benchmark Brent was USD45/bbl on average, down from USD53/bbl in 2015) and a reduction in oil production which was due to lower external demand as well as the November 2016 OPEC agreement to cut output (in which Saudi Arabia pledged a cutback to 10.06mn bpd). Moreover, as oil revenues fell, the government implemented some fiscal consolidation measures. Nonetheless, the fiscal deficit remained a hefty -15.5% of GDP and public debt surged to 14% of GDP in 2016 (from just 5% in 2015) although this is still very low compared to most regional and global peers. Meanwhile, deflationary risks have emerged as well as inflation entered negative territory in January 2017 (-0.4% y/y) though new cuts in subsidies should relieve the downward pressures going forward.

2017 will be another low growth year, but uptrend in oil prices and successful bond sale should mitigate the harm

Looking ahead, an improved environment is expected to result in stabilization of GDP growth around +1.5% in 2017. Oil prices have recovered to an average USD56/bbl in January-February 2017. A debut sovereign bond issuance of USD17.5bn in 2016 (which could initiate a gradual start of corporate bond issuance in 2017) will allow a +8% increase in government spending which should improve both business confidence and investment, boosting construction, trade and the transport sector. However, the fiscal deficit will remain large, forecast at -9% of GDP in 2017, and public debt should further rise to 19% of GDP.

Meanwhile, the current account deficit is forecast to narrow to -3.6% of GDP in 2017 from -7% in 2016.

The structural change of the economy is a key challenge in the longer term

Saudi authorities are taking actions to address the economy’s heavy dependence on the hydrocarbon sector which accounted for 44% of GDP in 2016. The Vision 2030 roadmap and the National Transformation Plan 2020 (NTP) are supposed to herald a turning point for Saudi Arabia, setting up a large framework to smoothen the economic diversification process, relying on a wide range of initiatives to develop weak sectors such as defense industries, retail, renewable energy and the private sector. These long-term projects will face challenges such as the transfer of public sector jobs to the private sector, which could increase social tensions.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
China 7%
16% China
Japan 6%
12% United States
India 5%
6% Germany
United States 5%
5% United Kingdom
South Korea 5%
4% India

Trade structure by product

(% of total)

Exports Rank Imports
Crude Oil 72%
8% N.E.S. Products
Refined Petroleum Products 11%
8% Cars And Cycles
Plastic Articles 5%
5% Engines
Basic Organic Chemicals 3%
4% Telecommunications Equipment
Natural Gas 2%
4% Aeronautics

As with all GCC states, late payment is common in Saudi Arabia. In practice, the law does not regulate late payment, while late payment interest is prohibited and collection costs cannot be recovered from the debtor unless a specific agreement has been concluded by the parties. As a result, debtors will often try to negotiate discounts in exchange for prompt payment.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

Local legal action is very slow, costly and uncertain overall, since the courts are not bound by a system of precedent and have considerable discretion in applying Shariah principles to specific circumstances. In addition, several weeks or months may separate each hearing and the courts hardly abide by time management requirements.

Insolvency laws in the Middle East are not as sophisticated as in other regions and the nonexistent company rescue culture in Saudi Arabia illustrates this point.

Download the entire collection complexity PDF:

Collection complexity Saudi Arabia

pdf | 714.3 KB


Contact Euler Hermes

Economic Research Team

Manfred Stamer

Senior Economist for Eastern Europe and Middle East


Each step at your side

View our solution