The Saudi Arabian defense market is anticipated to register a CAGR of over 2% during the forecast period (2020-2025).
- The country is one of the primary military spenders in the world, and the primary importer of arms from the United States. The high defense spending of the country, due to its robust economy and high GDP, made the market lucrative for several local and foreign players.
- Rising political tensions in the Middle-East led the country to invest more in the defense sector. A high amount of wealth in the country makes it an attractive place for illegal activities. Due to such factors, the Saudi Arabian government has plans to modernize its military by 2030.
- However, in the past three years, the government reduced its defense spending to focus more on the education sector. Such a move in the future may hamper the growth of the market, to a certain extent.
Key Market Trends
Increasing Terrorist Activities and Geopolitical Conflicts in the Neighboring Countries are Driving the Growth of the Market
Countries in the Middle East, like Iran, Libya, Syria, and Iraq, are experiencing continuous terrorist activities. The country is one of the leading nations, and it collaborated with its allies to combat terrorism in the past years. With the increasing investments in the counter-terrorism activities are anticipated to propel the procurements of arms and ammunition in the coming future. Additionally, Saudi Arabia’s neighboring countries are facing many geopolitical conflicts. The country is actively participating in the conflicts of Yemen. Moreover, Saudi has conflicts with Iran and Qatar. Due to the aforementioned factors, the country had spent huge amounts on its defense. Although the defense spending reduced in the recent past, the country was still among the top defense spenders, globally. This can be attributed to the country's ambitions to emerge as a strong military power, as well as to be the region's defense powerhouse.
The Vehicles Segment is Expected to Register the Highest Growth during the Forecast Period
Saudi's aggressive procurement of armaments and military vehicles is expected to be a huge growth driver for the market. Saudi Arabia was the largest arms importer in the world during 2015-2019. There was a 130% increase in the volume of arms imports in 2015-2019, as compared to the imports during the period of 2010-2014. Saudi Arabia imported arms and ammunition from the US (73%), the UK (13%), France (4.3%), and China and Russia (less than 1%). In 2019, the country received 30 fighter aircraft, along with missiles and guided bombs from the US; armored vehicles from Canada and France; patrol boats from France; and trainer aircraft and missiles from the UK. In April 2020, the Saudi Arabian government and Canadian government renegotiated the terms of a USD 14 billion light armored vehicles contract. In the renegotiated contract, General Dynamics will supply light-armored vehicles worth USD 14 billion to Saudi Arabia in the coming years. Despite the decrease in military spending, the country is continuously modernizing its fleet of land, air, and sea platforms, which is anticipated to bolster the growth of the segment during forecast period.
The market in the country is dominated by foreign players, mainly those from the United States. Notable companies among them include Lockheed Martin Corporation, the Boeing Company, and Raytheon Technology Company, among others. However, the government is trying to develop its indigenous defense manufacturing capabilities. The Government of Saudi Arabia is focusing on implementing policies to ensure that its publicly held defense manufacturers account for more than 50% of its defense revenue share, by 2030. For instance, in April 2018, Saudi Arabian Military Industries (SAMI) signed an agreement with Navantia, a Spanish shipbuilding company, to create a joint venture in Saudi Arabia, mainly to localize 60% of naval industries. According to the Navantia, this venture will be a supplier and integrator of the combat systems for the future naval program contracts in Saudi Arabia. Later, in September 2019, SAMI Navantia Naval Industries signed a USD 987.34 million contract with Navantia to collaborate on Combat System Integration (CSI) on the Avante 2200 corvettes for the Royal Saudi Naval Forces. Such initiatives may reduce the market share of foreign companies in the country during the forecast period.
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