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BMI View: Reduced government revenues amid lower oil prices will negatively impact Saudi military spending growth in the short term. However, facilitated by high oil production and a strong fiscal position, the kingdom's defence budget will see robust long-term expansion driven by Riyadh's rivalry with Tehran, risks of spillover from instability in neighbouring states and rising threats from Islamist militancy, sectarian violence and social unrest. Efforts to secure land borders, fight terrorism and assist allies in regional conflicts will drive procurement of ground and air equipment, while the need to protect the kingdom's territory and shipping routes from Iran will drive investment into strengthening naval, as well as air defence capabilities. Work to develop the local defence sector under Vision 2030 will take many years, and domestic defence companies' ability to meet requests for technologically advanced equipment will remain limited over our forecast period.

Recent Developments
-As part of its Vision 2030 plan, the Saudi government seeks to increase the share of defence spending on locally-produced equipment and services to 50% in the next 15 years.
-Cuts in public spending and subsidies are being undertaken, and may raise the longer-term potential for social unrest.
-Tensions between Saudi Arabia and Iran have intensified. Riyadh's execution of prominent Shi'a cleric Nimr al-Nimr - which in turn sparked an attack on the Saudi embassy in Tehran - led to a severance of diplomatic ties between the two countries in January 2016.
-Following Riyadh's execution of al-Qaeda militants convicted of terrorist crimes in January 2016, the group's leader al-Zawahiri called for new attacks on Saudi Arabia. Meanwhile, several Islamic State attacks have occurred in Saudi Arabia in the last few months.
-Riyadh has stated that it is considering an intervention against IS in Syria.
-Riyadh suspended its USD3bn aid package to Lebanon in February 2016.

BMI Industry View ... 5
Table: Defence Expenditure Headline Forecasts (Saudi Arabia 2015-2020) 5
SWOT Analysis 8
Defence Industry SWOT 8
Industry Forecast .. 10
Defence Expenditure . 10
Table: Defence Expenditure (Saudi Arabia 2014-2019) 11
Table: Defence Expenditure (Saudi Arabia 2020-2025) 11
Defence Trade 13
Industry Risk Reward Index ... 17
Defence Industry Risk Reward Index ........ 17
Table: Middle East and Africa - Defence Industry Risk Reward Index 17
Rewards ........ 18
Risks .... 18
Market Overview ... 20
Defence Market Overview .... 20
Domestic Defence Sector .... 20
Domestic Defence Market ... 24
Armed Forces Overview ....... 28
Armed Forces . 28
Table: Armed Forces Personnel (Saudi Arabia 2008-2013) . 29
Security Overview .. 32
Domestic Threats ..... 32
Regional Threats ...... 36
International Threats 40
Company Profile .... 42
BAE Systems .... 42
Thales International ... 44
Methodology . 45
Industry Forecast Methodology .... 45
Risk/Reward Index Methodology ... 46
Sector-Specific Methodology ........ 48
Table: Defence Risk/Reward Index Indicators 48
Weighting ...... 49
Table: Weighting of Defence Risk Reward Index . . . 49
Saudi Arabia Infrastructure Report
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Saudi Arabia Insurance Report
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The Saudi government is targeting national petrochemicals output of 115mn tonnes in 2016, which represents a 46% increase since 2013. There are 26 petrochemicals projects under construction at a cost of USD15bn while another 42 are planned over the next five years at an estimated cost of USD46bn. However, there is the ongoing threat fro

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