Business Monitor International. Saudi Arabia Defence & Security Report Q4 2009

53 Pages·0.636 MB·English

Published by BUSINESS MONITOR INTERNATIONAL LTD
Saudi Arabia
Defence & Security
4 9
Report Q 200
ISSN: 1749-1606
Including 5-year industry forecasts
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Saudi Arabia Defence &
Security Report Q4 2009

Including 5-year industry forecasts by BMI

Part of BMI's Industry Survey & Forecasts Series
Published by: Business Monitor International
Publication date: September 2009
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Saudi Arabia Defence & Security Report Q4 2009

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Saudi Arabia Defence & Security Report Q4 2009

CONTENTS
Executive Summary.........................................................................................................................................5
SWOT Analysis.................................................................................................................................................7
Saudi Arabia Security SWOT................................................................................................................................................................................7
Saudi Arabia Defence Industry SWOT..................................................................................................................................................................7
Saudi Arabia Political SWOT................................................................................................................................................................................8
Saudi Arabia Economic SWOT.............................................................................................................................................................................8
Saudi Arabia Business Environment SWOT..........................................................................................................................................................9
Political Overview...........................................................................................................................................10
Security Risk Analysis...................................................................................................................................13
BMI’s Security Ratings........................................................................................................................................................................................13
Table: Middle East And Africa Defence And Security Ratings...........................................................................................................................13
Table: Middle East And North Africa State Terrorism Vulnerability Index.........................................................................................................14
City Terrorism Rating..........................................................................................................................................................................................14
Table: BMI’s Middle East And North Africa City Terrorism Index....................................................................................................................16
Middle East And North Africa Security Overview.......................................................................................17
Domestic Security Overview.........................................................................................................................21
Internal Security Situation...................................................................................................................................................................................21
Table: Insurgent Groups......................................................................................................................................................................................21
Latest Developments............................................................................................................................................................................................22
External Security Situation..................................................................................................................................................................................24
Latest Developments............................................................................................................................................................................................26
Armed Forces And Government Spending.................................................................................................27
Armed Forces......................................................................................................................................................................................................27
Table: Regional Armed Forces, 2007 (including conscripted).............................................................................................................................27
Current Strength...................................................................................................................................................................................................27
Historical Strength...............................................................................................................................................................................................28
International Deployments...................................................................................................................................................................................28
Weapons Of Mass Destruction.............................................................................................................................................................................29
Market Structure.............................................................................................................................................30
Arms Trade Overview.........................................................................................................................................................................................30
Industry Trends And Developments....................................................................................................................................................................31
Procurement Trends And Developments.............................................................................................................................................................33
Procurement Background.....................................................................................................................................................................................33
Industry Forecast Scenario...........................................................................................................................35
Table: Saudi Arabia’s Armed Forces, 2005-2012 (‘000).....................................................................................................................................35
Table: Saudi Arabia’s Government Defence Expenditure, 2006-2013.................................................................................................................36
Key Risks To BMI’s Forecast Scenario...............................................................................................................................................................37
Macroeconomic Activity.....................................................................................................................................................................................37
Table: Saudi Arabia – Economic Activity, 2006-2013.........................................................................................................................................40
Company Profiles...........................................................................................................................................41

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BAE Systems.......................................................................................................................................................................................................41
Thales International.............................................................................................................................................................................................42
Country Snapshot: Saudi Arabia Demographic Data.................................................................................44
Section 1: Population...........................................................................................................................................................................................44
Table: Demographic Indicators, 2005-2030.........................................................................................................................................................44
Table: Rural/Urban Breakdown, 2005-2030........................................................................................................................................................45
Section 2: Education And Healthcare..................................................................................................................................................................45
Table: Education, 2003-2005...............................................................................................................................................................................45
Table: Vital Statistics, 2005-2030........................................................................................................................................................................45
Section 3: Labour Market And Spending Power..................................................................................................................................................46
Table: Employment Indicators, 1999-2006..........................................................................................................................................................46
Table: Consumer Expenditure, 2000-2012 (US$)................................................................................................................................................46
BMI Methodology...........................................................................................................................................47
How We Generate Our Industry Forecasts...........................................................................................................................................................47
Defence Industry..................................................................................................................................................................................................47
City Terrorism Rating..........................................................................................................................................................................................48
Table: Methodology.............................................................................................................................................................................................50
Sources................................................................................................................................................................................................................51

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Executive Summary
On the domestic politics front, Saudi Arabia faces a number of challenges over the coming year or so,
with the economic downturn likely to increase dissatisfaction and inter-communal tensions. The violent
clashes between protesting Shi'a Muslims and the security forces earlier in the year highlighted the
resentment that continues to brood below the surface of Saudi society. For Saudis to protest in this
manner, given the reputation of the security services and jails, suggests that dissatisfaction is running
deep, in spite of King Abdullah's attempts to reach out to the nation’s different communities. In another
significant development, Prince Nayef looks likely to be appointed crown prince, signalling a potentially
more conservative and hawkish direction over the coming years. This may be positive for stability in light
of the unrest.
On the foreign policy front, it is noteworthy that Saudi Arabia, following the lead of the US, has
reinstated its ambassador to Syria. Despite renewing sanctions against Syria, on June 24, the US
announced it would send an ambassador to Damascus for the first time in four years. Saudi Arabia
followed Washington’s lead on July 6, reappointing an ambassador to Syria for the first time since 2008.
With respect to macroeconomic considerations, we still see positive growth in Saudi Arabia on the back
of very strong finances, good domestic demand dynamics, early indications of a pick-up in sentiment, and
the government's bold monetary and fiscal policy stimuli. We see Saudi Arabia managing to grow by
0.5% in 2009, with the rate bouncing back to 2.7% in 2010 and then continuing to recover gradually after
that (albeit not returning to plus 4% rates of growth within our ten-year time horizon). Qatar is the only
other state in the GCC for which we foresee positive growth in 2009.
Considering the size and prosperity of the country, Saudi Arabia’s defence industry is underdeveloped.
The country relies heavily on arms imports despite previous efforts to create a degree of self-sufficiency
in its defence production. The country’s geo-strategic position and pro-Western outlook have allowed it
to receive high-technology weapons systems from the major supplier countries, including the US, the UK
and France.
The most significant development to affect the country’s defence industry has been the sharp
deterioration of personal security for overseas workers. The attacks in Khobar and the impossibility of
guaranteeing security (a raid on ExxonMobil’s Yanbu complex was undertaken by employees with
security passes) have led to a greater fear among expatriates and pressure to leave the country.
In the last quarter, we introduced an innovative ratings system entitled the City Terrorism Rating (CTR).
The CTR provides an at-a-glance assessment of the risk of a terrorist attack in a given city by weighing a
number of significant measures. At present, we assess the CTR for Riyadh at 80.0 – the seventh highest of

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the 23 rated cities in the Middle East and Northern Africa region. The CTR is based on BMI’s detailed
Terrorism Rating (TR) for the country taken as a whole, and an assessment of the prevalence and threat of
terrorism for the city in question. This latter assessment takes into account the frequency of past attacks,
whether the city is a target for terrorist activity, and the likely extent of possible terrorist attacks.
With an al-Qaeda threat already looming over the country, the question of the spill-over of violence from
Iraq is a real source of anxiety for the authorities. Al-Qaeda has a stated goal of toppling the House of
Saud, which it deems an infidel regime.

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SWOT Analysis
Saudi Arabia Security SWOT
Strengths (cid:131) Strong security alliances with the US and other Western nations
(cid:131) Extensive landmass makes invasion difficult. Flat geography improves surveillance
(cid:131) Oil wealth allows for high military expenditure and hence advanced weapons systems

Weaknesses (cid:131) Extensive borders make effective policing very difficult
(cid:131) Regional instability, particularly Arab-Israeli conflict, a constant factor for past 50 years
(cid:131) High number of militants dissatisfied with the political system, while disagreements
among the ruling family lead to a slow pace of reform

Opportunities (cid:131) International attention may decrease the likelihood of Iranian nuclear advances
(cid:131) Decreased threat from Iraq following the removal of Saddam Hussein and the
presence of US troops in that country
(cid:131) Although unlikely, a peace agreement between Israel and the Palestinian Authority
could alleviate a significant impetus for militant activity in the Kingdom

Threats (cid:131) Upsurge in insurgent violence poses a viable threat to the presence of Western
companies and employees
(cid:131) Stability of the ruling house of Saud may be under question in the long term
(cid:131) Dissolution of the Saddam Hussein regime in Iraq has sowed region-wide discontent
and flooded the country with small arms

Saudi Arabia Defence Industry SWOT
Strengths (cid:131) Defence industry fuelled by massive oil wealth
(cid:131) High international involvement has enabled country to acquire high-tech products
(cid:131) Large offset programmes should theoretically improve domestic capabilities

Weaknesses (cid:131) Lack of private sector involvement led to dearth of local production and R&D facilities
(cid:131) Over-reliance on multinational firms with little real direction of offset programmes has
crippled the domestic defence industry
(cid:131) Reliance on oil wealth leads to fluctuations in military expenditure

Opportunities (cid:131) Recent high oil prices should have led to an influx of investment in the defence
industry, although there is a risk that much of the money will stay in the hands of the
multinationals, and offset programmes will prove inadequate
(cid:131) Increasing number of military personnel owing to domestic insecurity should fuel
demand for defence articles
(cid:131) Lack of security for Western personnel and employees is stimulating a burgeoning
market in personal and perimeter security products

Threats (cid:131) Targeting of non-Saudi Arabian employees may disrupt the defence industry and lead
to an exodus of skilled employees
(cid:131) Lack of investment owing to government intransigence remains a possibility

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Saudi Arabia Political SWOT
Strengths (cid:131) The Kingdom's ample oil reserves underpin the al Sauds' regime
(cid:131) Because the country is the world's largest oil exporter, international powers have
traditionally seen its internal stability as being in their own interests

Weaknesses (cid:131) The Kingdom is home to several violent Islamist groups and a number of affluent
Saudis have been linked with financing them
(cid:131) The crackdown on extremists has been used as an excuse for the ruling family to
silence dissenters, as has been witnessed elsewhere in the region. This could well
breed greater dissent

Opportunities (cid:131) Municipal elections held in 2005 were the first nationwide polls in the country's history,
setting a precedent for further democratisation, although women are excluded and
elected members make up only half the seats on the municipal councils
(cid:131) The media is reportedly opening up to a wider range of political views, though
constraints remain
(cid:131) The king appears interested in dialogue with leaders of the minority Shi'a community

Threats (cid:131) The al Sauds' key political alliance with the US has been a double-edged sword
domestically. It also faces risks from US lawmakers and pressure groups suspicious of
the government's commitment to clamping down on anti-Western militants, or who
object to the country's democratic deficit
(cid:131) There is an ongoing struggle between modernisers (led by King Abdullah) and the
conservatives (led by Prince Nayef) within the royal family

Saudi Arabia Economic SWOT
Strengths (cid:131) As the main OPEC swing producer, the Kingdom is in a strong position within the
cartel
(cid:131) The recent oil price boom has boosted growth in the non-oil sector and infrastructure
is now much improved
(cid:131) A large and growing local population means solid domestic demand for goods,
services and infrastructure in spite of the global macroeconomic crisis

Weaknesses (cid:131) Dependence on oil means growth, exports and government revenue remain highly
vulnerable to shifts in world oil prices
(cid:131) The private sector is dependent on expatriate labour, reflecting a shortage of
marketable skills among nationals and a high unemployment rate among Saudi
citizens

Opportunities (cid:131) A competitive business environment will make Saudi Arabia appealing to investors
once risk appetite returns to global markets
(cid:131) Slower growth, lower liquidity and a stronger dollar will bring inflation down
domestically, cushioning the impact of the consumer slowdown

Threats (cid:131) Any attacks on oil facilities could potentially lead to a disruption of output, which would
be extremely detrimental to the overall economy given the reliance on this sector
(cid:131) Perceptions of high security risk deter some investors and add to the costs of
insurance

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Saudi Arabia Business Environment SWOT
Strengths (cid:131) The Kingdom is well located for firms looking to establish a base in the region
(cid:131) The government's membership of the Gulf Co-operation Council (GCC) means it
benefits from duty-free access to markets in Bahrain, Oman, Kuwait, Qatar and the
UAE

Weaknesses (cid:131) The education system is not attuned to the needs of the private sector, with only
limited technical training
(cid:131) Privatisation has been slow and, given the government's aim of increasing
employment, ongoing political obstacles are likely

Opportunities (cid:131) The government is investing in training as part of its 'Saudisation' process (i.e. to
increase the proportion of nationals in the workforce relative to foreigners)
(cid:131) Joining the WTO, and pursuing an FTA with the US, means liberalisation will continue

Threats (cid:131) The Saudisation process has been slow. Many Saudis perceive a stigma attached to
semi-skilled jobs and tend to have higher wage expectations than expatriates
(cid:131) Perceptions of high political risk have added to the costs of insurance and of private
security guards

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