Saudi Arabia: Change to royal succession ensures policy continuity

04 July 2017

The promotion of Deputy Crown Prince Mohammed bin Salman to the position of Crown Prince will ensure that Saudi Arabia continues to pursue its ‘Vision 2030’ economic reform agenda. Despite efforts to diversify away from oil, the economy faces headwinds in 2017 and government contractors are likely to experience payment delays. Bin Salman’s ascension will also encourage a hawkish foreign policy agenda, furthering the risk of proxy conflicts with Iran in the region.

Security Environment

On 21 June 2017, King Salman bin Abdel Aziz al-Saud promoted his son Deputy Crown Prince Mohammed bin Salman to the position of Crown Prince. Bin Salman has driven Saudi Arabia’s policy agenda in recent years, and his promotion will result in broad policy continuity. This includes a more assertive foreign policy, with a focus on confronting Iran and securing regional influence. Bin Salman was a driver of Saudi Arabia’s intervention in Yemen, and his ascension will increase the risk of intensified proxy conflicts in Bahrain, Lebanon, Syria, Iraq and Yemen. Saudi Arabia will also be encouraged to pursue a more hawkish policy agenda due to the United States’ recent anti-Iran rhetoric.

Continued intervention in Yemen could escalate risks to offshore infrastructure and shipping in Saudi waters. In April 2017, the Saudi interior ministry revealed that its forces had fired on a remote controlled craft carrying explosives close to the Jizan petrochemicals terminal.

The vessel was likely launched by Yemen-based Houthi rebels. There will also be an elevated risk of collateral property damage onshore caused by Houthi missiles. In October 2016, Yemeni rebels launched a missile, which was downed by Saudi forces 65km outside of Mecca.

Trading Environment

Bin Salman’s promotion will ensure continued progress on his economic reform agenda, Vision 2030. There will also be an elevated risk of collateral property damage onshore caused by Houthi missiles. This includes measures to partly privatise state firms, such as oil firm ARAMCO, liberalise financial markets and expand state investment in sectors such as pharmaceuticals.

Vision 2030 also includes a commitment to fiscal consolidation. Measures include a planned 100% tax on energy drinks and tobacco products to be introduced in H2 2017, a second round of subsidy cuts in H2 2017 and the introduction of value-added tax (VAT) in 2018. Despite progress on reforms, the overall economic outlook for Saudi Arabia will be challenging in 2017. Unemployment was elevated at 12.3% in Q4 2016, whilst compliance with OPEC oil output cuts will weigh on revenues. As a result, real GDP is forecasted to contract by 0.2% in 2017.

Fiscal consolidation measures may be reversed in 2017. When announcing bin Salman’s promotion the King also announced that allowances and bonuses for civil servants and military personnel, suspended in September 2016, would be retroactively reintroduced.

This underscores the government’s willingness to backtrack on cuts in order to maintain social stability. As a result, the budget deficit will remain elevated at 10.5% in 2017. However, sovereign credit risks will remain low, given robust foreign reserves, which stood at USD 514 billion in February 2017.

Investment Environment

Payment delays to private sector firms weighed on investor confidence in Saudi Arabia in 2016. Despite attempts to remedy the situation the issue will continue to undermine the business environment. In November 2016, the finance ministry paid USD 10.67 billion to settle payment arrears to domestic companies, although this represented just 25% of outstanding payments at the time. However, the country’s challenging fiscal environment will likely lead to further payment delays for private companies with government contracts in 2017.

In an attempt to narrow its budget deficit, the government is planning to review and ultimately cancel major infrastructure projects, heightening risks of contractual agreement repudiation in 2017. In January 2017 the government sought the services of UK firm PwC to identify potential savings of USD 13-20 billion from ministries including health and transport.

Reviews of projects by the Council for Economic and Development Affairs will also elevate the risk of delays in project approvals and awarding of contracts.

Saudi Arabia: Change to royal succession ensures policy continuity

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Qatar, Philippines, Brazil and Mozambique, all of which have been the subject of recent enquiries from JLT's client base.

Qatar: Embargo causes extensive business disruption

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

Download July Risk Outlook

For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email


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