Saudi Arabia: Crown Prince consolidates position

01 December 2017

Saudi Arabia’s political and economic trajectory will be determined by the ability of Crown Prince Mohammed bin Salman (MbS) to consolidate his position and implement ambitious economic reforms. MbS’s willingness to attract foreign investment will generate sizeable opportunities, although non-payment risks remain. His hawkish foreign policy stance will elevate the risk of conflict with Iran, whilst reforms risk undermining political stability.

Security Environment

MbS continues to consolidate his position, ensuring Saudi Arabia’s increasing assertiveness against Iranian influence. This will elevate interstate war risks, although the risk of violent conflict will remain low. On 4 November 2017, al-Houthi rebel forces in Yemen fired a ballistic missile towards Riyadh, which was intercepted by a Saudi missile defence system close to King Khalid International Airport. Footage indicates that missile fragments fell onto roads in the area, although no casualties were reported. Saudi Arabia interpreted the missile launch as a potential act of war by Iran. The incident underscores the potential for escalatory action between Iran and Saudi Arabia, particularly via proxy conflicts.

MbS is seeking to implement rapid economic and social reforms, which risk weakening the foundations of Saudi stability. The arrest of senior princes on corruption charges risks creating disunity within the family; whilst closer links to Israel and a crackdown on clerics may turn the Wahhabi religious establishment against MbS. If members of the royal family and clerics unify against him, the risk of a destabilising coup or religious backlash would increase, although this is not currently a core scenario.

Trading Environment

Oil production growth will drive a modest near term economic recovery in Saudi Arabia. Real GDP growth is forecasted at 1.3% in 2018, up from an estimated 0.5% contraction in 2017. The OPEC production cutting agreement is likely to remain in place until mid-2018. However, the latter half of 2018 is likely to see a renewed uptick in production, supporting production growth of 1.3% in 2018.

The oil sector constituted 44.4% of real GDP in 2016, and an improved production outlook should restore business and consumer confidence in the wider economy. Confidence will also be supported by the slowing pace of fiscal consolidation, as spending on long-term growth generators is prioritised. Whilst this will ensure that the fiscal deficit will remain elevated at 7.8% of GDP in 2018, Saudi Arabia’s sovereign profile will remain robust. Debt levels remain manageable, given the country’s significant financial reserves.

Investment Environment

On 4 and 5 November 2017, a number of current and former ministers were arrested in an anti-corruption crackdown. Individuals were accused of embezzlement or misuse of state funds. Arrests were authorised by King Salman, who also created an anti-corruption committee to be chaired by MbS. The anti-corruption drive can be seen as an attempt to silence MbS’s critics, paving the way for King Salman to initiate the transfer of power to his son. The move may also have implications for investors. State contracts associated with accused individuals may be reviewed, altered or cancelled in the medium term outlook.

Despite this, MbS’s reforms prioritise foreign investment, generating opportunities in the construction sector. In October 2017, MbS announced plans for NEOM, a new megacity focussed on technology and innovation, which will receive USD 500 billion in funding from various sources. However, investors should be aware of an elevated risk of payment delays associated with state contracts in the construction sector.

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. Moreover, a number of previous similar projects, such as King Abdullah Economic City (KAEC) have not achieved their target. In March 2016, KAEC had a population of 5,000, far below the anticipated population of 2 million. As a result the commercial viability of many projects is questionable.

December Risk Outlook 2017 risk table Saudi Arabia 

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

December Risk Outlook 2017 spider chart

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.

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


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