Saudi Arabia

Between a long-term vision

and short-term
oil-fueled growth

ALLIANZ-TRADE.AE

Euler Hermes does not issue direct policies in the Middle East. It operates in partnership with and provides reinsurance support to a number of selected locally licensed insurance companies,
which issue Trade Credit Insurance Policies designed and approved by Euler Hermes in its capacity as a Reinsurer. Allianz Trade is the trademark used to designate a range of services
provided by Euler Hermes
Strengths & weaknesses
Strengths Weaknesses

Long-standing oil producer with spare Dependence on international oil prices

capacity to increase output when and shipping routes, with limited
needed, substantial negotiating power economic diversification aside from
and significant financial buffers. energy-adjacent sectors.

Growth champion in 2022, virtually Need to maintain good relations with

unscathed by the international crises of neighbors and OPEC members amid a
recent years with no major growing divide in economic welfare
consequences on inflation and and usable resources.
exchange rate.
Data transparency, pluralism and
Seen as a financial partner and lender governance remain below the average
of last resort by a growing number of of high-income economies.
countries in the region with which it has
been able to normalize relations.

ALLIANZ-TRADE.AE

Euler Hermes does not issue direct policies in the Middle East. It operates in partnership with and provides reinsurance support to a number of selected locally licensed insurance companies,
which issue Trade Credit Insurance Policies designed and approved by Euler Hermes in its capacity as a Reinsurer. Allianz Trade is the trademark used to designate a range of services
provided by Euler Hermes
Economic overview

Strong oil prices, a leading role in the market and liquidity buffers
drive short-term growth

Saudi Arabia’s economy is a net Saudi Arabia is heavily reliant on grain

beneficiary from the overall surge in imports and has managed to find
global commodity prices in the wake of alternatives, given ample purchasing
the war in Ukraine. power.

With disruptions throughout energy- On the other hand, the current

related supply chains moderating and the environment has offered sizeable
easing of activities at Chinese ports, economic opportunities. Saudi Arabia
logistics volatility and costs have reduced, increased fuel shipments to crisis-hit
ultimately neutralizing inflation across net European countries as the continent
energy exporters. attempted to wean itself off Russian oil
and refined products like diesel. Similarly,
while Russia has surpassed Saudi Arabia
as China's main crude oil supplier, Japan
has purchased record volumes of oil and
blue ammonia from Riyadh.
ALLIANZ-TRADE.AE

Euler Hermes does not issue direct policies in the Middle East. It operates in partnership with and provides reinsurance support to a number of selected locally licensed insurance companies,
which issue Trade Credit Insurance Policies designed and approved by Euler Hermes in its capacity as a Reinsurer. Allianz Trade is the trademark used to designate a range of services
provided by Euler Hermes
 Figure 1. Real GDP growth across the region
Real GDP grew by +8.7% in 2022
and is likely to increase by another
+4% in 2024, about 1pp above
what we consider Saudi Arabia’s
long-term potential and more than
all other countries belonging to the
Gulf Cooperation Council (GCC).
The strong rise in global oil prices
provided substantial fiscal buffers,
tampered the current account
deficit of non-oil sectors and freed
additional liquidity at relatively low
rates for local companies, resulting
in low insolvency rates.

Sources: IMF, Allianz Research

Inflation in Saudi Arabia is likely to remain around 2%, thanks to large export revenues,
ample reserves that allow the local currency to maintain the currency peg with the US dollar
and a timely monetary tightening cycle initiated in March 2022 in parallel with that of the
US Federal Reserve.

ALLIANZ-TRADE.AE

Euler Hermes does not issue direct policies in the Middle East. It operates in partnership with and provides reinsurance support to a number of selected locally licensed insurance companies,
which issue Trade Credit Insurance Policies designed and approved by Euler Hermes in its capacity as a Reinsurer. Allianz Trade is the trademark used to designate a range of services
provided by Euler Hermes
An accelerating economy
about to take a leap forward
Saudi Arabia’s economic water stress is still high and The price effect may
structure is unbalanced. estimates on waste largely offset the volume
recycling rates remain very change and Saudi Arabia
The country possesses the low. is likely to run budget and
world’s second-largest current account surpluses
proven oil reserves (>15% In the short-term, oil prices this year.
of global resources), will continue to dominate
relatively low extraction the picture and enable Twin surpluses are usually
costs and, at current rates side investment to achieve accompanied by a build-
of production, its oil will long-term targets up in hard currency
last for over 70 years – the envisioned under the reserves and assets under
longest reserves/ Vision 2030 plan. the sovereign wealth fund
production ratio among as well as mega-projects
the three top producers Decisions taken in early like Neom, a region that
(US, Russia and Saudi April 2023 by the will contain numerous
Arabia). Organization of the cities, resorts and other
Petroleum Exporting developments such as The
Hydrocarbons account for Countries (OPEC) and Line, a 170-kilometer linear
around 30% of GDP and usually shared with third city that is expected to
70% of exports. parties like Russia, accommodate 9mn
Environmental Kazakhstan, Azerbaijan, people and skyscrapers,
sustainability should Mexico and Oman 500 meters high and 200
become a driver of long- (OPEC+) are contributing meters apart.
term growth and efficiency to maintain the price of
gains. Renewable power crude oil above USD80 per The buildings will be clad
generation is booming in barrel, which is a with mirrored facades and
the Kingdom, but nominal comfortable level to meet occupy an area that is
capacity remains lower fiscal and trade balances double the size of Qatar.
than that of UAE; for most OPEC+ countries.

ALLIANZ-TRADE.AE

Euler Hermes does not issue direct policies in the Middle East. It operates in partnership with and provides reinsurance support to a number of selected locally licensed insurance companies,
which issue Trade Credit Insurance Policies designed and approved by Euler Hermes in its capacity as a Reinsurer. Allianz Trade is the trademark used to designate a range of services
provided by Euler Hermes
 Figure 2. International reserves (USDbn)

Sources: IMF, National sources, Allianz Research

While sovereign wealth funds are expected to deploy the majority of government-directed
financing, fiscal rules should remain guided by prudent principles. The fiscal balance
returned to the positive side in 2022 and a 3% surplus is forecast in 2022-2023. While
public debt remains relatively low compared to that of peers (24.8% of GDP in 2022), its
trajectory caused some concerns after the sharp and prolonged reduction of oil prices in
2014-2016. The debt/GDP ratio will likely remain around 25% in 2023, thanks to the
rebound in oil revenues and despite the anticipated increase in interest rates.

Saudi Arabia’s annual current account balance also shifted to substantial deficits in 2015-
2016, after 15 years of very high surpluses, and posted another deficit in 2020 due to the
pandemic-related oil price slump. As expected, the current account surplus widened in
2022, reaching 16% of GDP, and is likely to remain in the double digits in 2023.

Foreign exchange reserves held at the central bank have reduced over the years from a
peak of USD746bn in August 2014 to USD450bn in mid-2020, and have been relatively
stable around that level since. Despite the decline, they are still sufficient to comfortably
cover short-term maturities.

ALLIANZ-TRADE.AE

Euler Hermes does not issue direct policies in the Middle East. It operates in partnership with and provides reinsurance support to a number of selected locally licensed insurance companies,
which issue Trade Credit Insurance Policies designed and approved by Euler Hermes in its capacity as a Reinsurer. Allianz Trade is the trademark used to designate a range of services
provided by Euler Hermes
Long-term strategy
remains susceptible
to sudden changes in approach
In early 2023, Saudi country more appealing to government and limited
Arabia made a few steps foreign investors. In March, exposure to global
towards normalizing three foreign law firms were financing practices have
relationships with peers granted the first licenses to conditioned the business
and playing a broader practice in Saudi Arabia to environment in the
role in the region, which encourage business country and could lead to
contributed to easing expansion, and incentivize new shocks abroad in the
trade and investment legal work written in the country's main sectors
conditions. country and local work on of investment in case of
high-profile agreements. capital flight.
In March, the Kingdom
reached a historic accord Mutual trade and investment Saudi investors have
with Iran negotiated by are part of the strategy of begun to play a larger
China. A restoration of ties diversifying economic and role in a number of
between Riyadh and Syria trade relations. This includes markets in recent years.
would be the most Saudi investment in a South These developments will
significant development so Korean refinery to create be mutually advantageous
far in Arab states' efforts to incremental demand for in terms of facilitating
normalize relations with hydrocarbons and feedstock commerce and trade,
Damascus. Relations produced in Saudi Arabia; improving corporate
between Saudi Arabia and the attraction of inbound governance, and
Turkey have also come to investment from Japan in normalizing diplomatic
a truce after years of Saudi giga-projects such as relations in the region.
hostility. In March, Saudi Neom, the future smart city Favorable economic
Arabia agreed with Ankara under development in the prospects are likely to
to deposit a USD5bn swap west of the country, or stabilize investment flows
line in the Turkish central hydrogen trains, modular towards Vision 2030
bank to mitigate the lira construction and plans to initiatives, the results of
exchange-rate volatility. become a hub for gaming, which will demonstrate
media, and sports starting how sustainable and
Competition with the with soccer. The country's diversified the Saudi
United Arab Emirates for sovereign investors have economy will be by the
business and investment bought stakes in leading end of the decade.
opportunities continues Japanese companies and a
with domestic reforms Chinese e-sports entity and Short-term growth and
aimed at improving will become increasingly long-term projects may
regulatory and operational present players on global go hand-in-hand, but the
conditions in an effort to stage. However, bilateral path toward sustainability
make each relations, ties to the and actual diversification
is still to be revealed.
ALLIANZ-TRADE.AE
Euler Hermes does not issue direct policies in the Middle East. It operates in partnership with and provides reinsurance support to a number of selected locally licensed insurance companies, which issue Trade Credit
Insurance Policies designed and approved by Euler Hermes in its capacity as a Reinsurer. Allianz Trade is the trademark used to designate a range of services provided by Euler Hermes
ALLIANZ-TRADE.AE

FORWARD-LOOKING STATEMENTS
The statements contained herein may include prospects, statements of future expectations and other forward-looking
statements that are based on management's current views and assumptions and involve known and unknown risks and
uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such forward -
looking statements.
Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation,
particularly in the Allianz Group's core business and core markets, (ii) performance of financial markets (particularly
market volatility, liquidity and credit events), (iii) frequency and severity of insured loss events, including from natural catastrophes,
and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi )
particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rat es
including the EUR/USD exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of
acquisitions, including related integration issues, and reorganization measures, and (xi) general competitive factors, in
each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more
pronounced, as a result of terrorist activities and their consequences.
NO DUTY TO UPDATE
The company assumes no obligation to update any information or forward-looking statement contained herein, save for
any information required to be disclosed by law.

Euler Hermes does not issue direct policies in the Middle East. It operates in partnership with and provides reinsurance support to a number of selected locally licensed insurance companies,
which issue Trade Credit Insurance Policies designed and approved by Euler Hermes in its capacity as a Reinsurer. Allianz Trade is the trademark used to designate a range of services
provided by Euler Hermes