Geopolitical Risk

Saudi Arabia Country Report

Country Report Dec 2023

Country Risk Report – December 2023

GDP (2021)

$4.23 trillion
$33,815.30 per capita – 1% growth

State Department Travel Advisory Level

Level 1 – Exercise Normal Precautions

Corruption Index Score (2022)

73/180

Anti-Money Laundering/Terrorist Financing

FATF Member

Property Rights Index

13/125

Freedom House Ranking

Free

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Saudi Arabia

Country Risk Report – February 2024

GDP (2022)

$1.11 Trillion

State Department Travel Advisory Level

Saudi Arabia- Level 3: Reconsider Travel

Corruption Index Score (2022)

54/180

Anti-Money Laundering/Terrorist Financing

Middle East and North Africa Financial Action Task Force (MENAFATF)

Property Rights Index

43/125

Freedom House Ranking

Not Free

 



Infortal Worldwide Geopolitical Risk Summary  

Saudi Arabia is a key player in the geopolitical atmosphere of the Middle East, making it one of the most critical countries in the world. 

Given the region's outsized role in the world energy market, the power dynamic between Iran, Saudi Arabia, and the West in the Middle East is vital to the world economy. Saudi Arabia, in particular, is the largest producer and exporter in OPEC and boasts a thriving economy - though not an economy void of economic challenges. As the global geopolitical landscape and demand for oil shift, Saudi Arabia will be at the front of those countries most affected by this change due to its heavy reliance on oil exports. 

Understanding this, they have fostered a new economic outlook detailed in “Vision 2030,” a sweeping economic plan consisting of drastic reforms to stabilize the economy through diversification and the empowerment of the private sector. This shift has and will open potentially lucrative business and investment opportunities for foreign firms.

 

Political Update 

Saudi Arabia is ruled as an absolute monarchy by the Al-Saud royal family. Political participation is limited to a few government institutions, with critical roles filled by members of the royal family or appointees of the king. While the government consists of a council of ministers and a consultative assembly, all positions are appointed by the king and, therefore, have limited independent powers. Policymaking is overseen and signed off by the king. Saudi law is based on Islamic Law, or Sharia Law, and is generally viewed as highly conservative with strict gender norms. The country is divided into 13 provinces, each overseen by a governor appointed by the King. Local councils have limited power but have some authority over municipal services. 

Public discontent regarding strict societal norms and the economy has recently led to some economic and social reforms. While it is unlikely that the social and political structure of the country will change due to these pressures, Saudi Arabia has initiated economic reforms that will allow the economy to diversify through liberalization of trade with foreign governments and lessening restrictions on the private sector. One of the main aims of this proposed shift is to create jobs for Saudis, particularly young Saudis with remarkably high unemployment rates.

 

Economic Update 

The economy is primarily driven by oil revenues, which account for more than 50% of GDP, 75% of export earnings, and 60% of government revenue. Saudi Arabia has the largest proven oil reserves in the world and is the largest oil exporter in OPEC. While oil revenues have brought fantastic wealth to the country, economic volatility accompanies this resource-based economy. Oil-driven economies are particularly prone to external shocks driven by wars or international events such as the COVID-19 pandemic. While oil exports remain a priority, Saudi Arabia has emphasized economic diversification through its “Vision 2030” plan.

Components of Vision 2030:

The three aims of Vision 2030 are to create a vibrant society, a thriving economy, and an ambitious nation. The goal of building a vibrant society has focused on the health and well-being of the country through the fostering of cultural participation, exercise, education, and investment in public goods such as world heritage sites. The announcement of constructing a ‘green city’ aims to meet these goals and foster economic inclusion and development. 

The aim for a thriving economy includes plans to leverage Saudi Arabia’s strategic location in the Middle East to appeal to international businesses and investors. It also aims to increase job opportunities for Saudis through reforming the energy market and public sectors to increase competition and foster growth. Attracting foreign investment is a high priority and is achieved by creating special economic zones. 

Plans to create a vibrant society are centered on providing more accountability and transparency in the government to increase trust and prosperity in the country. Key to this aim is the productive use of state-owned enterprises to enhance profits and the subsequent responsible utilization of state revenue to promote prosperity and trust. 

 

Key Investment Sectors 

Vision 2030 seeks to expand investment into the following areas:

Oil and Gas: While Saudi Arabia is already one of the world’s largest exporters of oil and natural gas, continued investment in this industry is critical to maintaining efficacy and dominance amongst its competitors. Plans to diversify the economy still rely heavily on government revenues from the oil and gas industry. 

Infrastructure: They have embarked on some of the world's most significant infrastructure development projects, including the construction of a smart city powered by 100% renewable energy sources. Other development projects include an international tourist destination along the Red Sea to bolster Saudi Arabia’s tourist industry. Investments from international donors such as China have legitimized their lofty development goals. 

Tourism: The Red Sea project and the development of World Heritage Sites are part of their plans to significantly increase tourism’s portion of the national GDP. 

Real Estate: Increased emphasis on creating sustainable cities has increased the role of the real estate development and construction industries. 

Technology: Vision 2030 has emphasized the development of the tech industry. Understanding that a robust tech industry is vital to their economic ambitions and the employment of their primary youth and young adult population, they have attracted significant investment into this industry through reforms and the creation of tech hubs. 

Manufacturing: Vision 2030 has emphasized growing Saudi Arabia’s manufacturing capabilities to provide more domestic jobs and foster economic diversity. The country’s capital, Riyadh, is the largest manufacturing center in the Middle East and is the hub for its manufacturing transformation, which is expected to increase in the coming years. 

Defense Industry: Saudi Arabia is one of the largest defense spenders in the world. Although defense spending has fallen in recent years, this remains a significant part of their economy. Traditionally, they have relied on importing arms and defense technologies from the United States. Vision 2030 aims to bolster their ability to manufacture some of those products at home. 

Logistics: Like other Gulf States, Saudi Arabia is strategically situated at the junction of three continents with direct access to some of the busiest international shipping corridors in the world. Investing in logistics support and related services is a potentially lucrative venture for Saudi Arabia and will be a target industry for them in the coming years. 

 

Recommendations for Companies and Investors  

While hopes are high for the future of international business and investment in Saudi Arabia, companies and investors should adequately assess the risks doing business here will pose. 

Adequate due diligence and ongoing risk assessments of geopolitical activity, the regulatory environment, and doing business in the local context is key to success. 

Saudi Arabia’s Vision 2030 has allowed unprecedented access to Saudi Arabian markets. This means that navigating business regulations and adhering to rules and social and cultural customs and norms will be challenging for foreign firms. 

Partnering with local firms and sponsors will help navigate the complex bureaucracy and the societal norms that are very important to Saudis. This may require rebranding or adapting business practices compatible with the local context. In addition to connecting with local partners, hiring Saudis will also help navigate business operations in the regional context. Depending on the industry, government regulations may also require you to hire a certain number of Saudis to achieve its employment goals. 

Businesses may also succeed in tailoring their goals and operations to Vision 2030, facilitating trust and further aligning your business to the local context. For example, localizing supply chains will engage other industries and create jobs locally. Engaging Saudi firms and the government for involvement in major projects may also benefit your firms’ integration into the market. 

US businesses considering doing business in Saudi Arabia need to consider the country's risk profile and carefully assess any new business partners by conducting in-depth due diligence investigations.  

 

Want To Know More?

For a deeper review of political, economic, due diligence and security risks for Saudi Arabia, please contact us.

 

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