RIYADH, 31 October 2007 — During the past 20 years, the Kingdom of Saudi Arabia and the United Kingdom have enjoyed an exceptionally strong trading relationship. Saudi Arabia is one of Britain’s largest trade and investment partners in the Middle East, with the UK among the largest foreign investors in the Kingdom. There are currently more than 150 Saudi-British joint ventures active in the Kingdom, whose total value is around SR56 billion ($15 billion). For over a decade now, the balance of trade has been in favor of the UK. Yet, since the early nineties, Saudi exports to Britain have been growing at a faster rate than imports. This has helped narrow the trade gap — from SR8.7 billion ($2.3 billion) in 1991, to just SR3.5 billion ($933 million) by 2005. The following year, based on preliminary data, the Kingdom’s exports to Britain surpassed SR7 billion ($1.8 billion) for the first time in the history of bilateral trade between the countries.
Moreover, the figure is expected to reach another record high of around SR7.8 billion ($2.1 billion) in 2007. Despite these figures, the overall increase in Saudi exports to many different parts of the world has seen the UK’s ranking fall, between 1991 and 2005, from the 9th to the 23rd largest recipient of the Kingdom’s products.
Rapid growth in Saudi exports to the UK has continued to reduce the historically large trade surplus which Britain enjoys in the Kingdom.
In 2007, nevertheless, we forecast that UK exports to the Kingdom will increase year-on-year by more than 5.5 percent to reach SR10.5 billion ($2.8 billion), on the back of SR9.9 billion ($2.6 billion) in 2006. The UK has been among the top five exporters to the Kingdom since the early nineties, currently ranking 5th behind the US, China, Germany and Japan.
From the Saudi perspective, imports from the UK have been declining as a share of total imports over the past decade, as Asian exporters have expanded their share of Saudi markets. The figures may be slightly misleading, however, we estimate that an additional 20 percent of UK-made goods reach the Kingdom by way of transshipment — mainly through the UAE, but also via ports in Oman and Bahrain.
In fact, the UAE is Saudi Arabia’s largest trading partner in the GCC, with imports from the Emirates totaling SR8.6 billion ($2.3 billion) in 2005.
Many people are surprised to learn that Saudi-British trade is no longer dominated by the oil industry. Back in 1984, oil made up three-quarters of the Kingdom’s exports to Britain; but in 2006, the non-oil sector accounted for 59 percent of exports. Indeed, one particular year (1998) saw non-oil businesses achieve almost 84 percent of all Saudi-to-UK trade.
Leading non-oil exports include power-generating machinery, transport equipment, plastics and non-metallic minerals. Saudi Arabia remains a net exporter of chemicals to Britain, despite the UK chemicals industry being among the largest in Western Europe.
We anticipate that, in the coming years, Saudi Arabia will compete effectively on price and quality for such chemicals as low-density polyethylene, methanol, mono-ethylene glycol, polypropylene and diethylene.
The chemicals sector has also witnessed direct Saudi investment in Britain. In 2006, SABIC acquired the former ICI plant at Wilton for SR2.6 billion ($700 million). The company intends to invest a further SR562 million ($150 million) on upgrades and is considering a capital investment in new plant of SR1.1 billion ($300 million).
Other key areas of Saudi investment in the UK include equities, bonds and real estate.
A certain amount of fluctuation has been evident in UK exports to the Kingdom during the past 15 years, which has been attributed to various factors. The most dramatic decline — which occurred in 2002, when UK exports plummeted to SR7.2 billion ($1.9 billion) from an all-time high of SR12.2 billion ($3.2 billion) in 1991 — was a result of decreased trade in military hardware.
Previously, under the 1985 Al-Yamamah deal, the UK had supplied a large quantity of defense equipment to the Saudi armed forces. Looking forward, however, Saudi Arabia’s recent decision to purchase 72 Eurofighter Typhoon jets is expected to have a significant impact on the value of UK exports to the Kingdom for many years to come.
Procurement of the aircraft alone is estimated at SR36 billion ($9.8 billion), while initial estimates on contracts for deployment, maintenance and personnel training suggest the total value of this deal could increase by a further SR69 billion ($18.5 billion), according to media-published figures.
Around 20,000 British citizens now live and work in the Kingdom. A further 25,000 people per year make the annual Haj pilgrimage, while as many as 100,000 visitors from Britain undertake the lesser pilgrimage of Umrah.
Saudis continue to visit Britain in increasing numbers — predominantly as tourists. As of October 2007, the annual total of UK visas issued to Saudi citizens reached 31,000 — a 55 percent increase since 2004. Over the same period, the number of Saudis who are studying in the UK increased by 50 percent to 3,000. This can only be a positive factor.
Bilateral trade — whether company-to-company or government- to-government — always depends on strong interpersonal relationships.
The current healthy state of Saudi-British business has emerged from a shared history of cultural understanding.
(Dr. John Sfakianakis is chief economist of SAAB. He is based in Riyadh.)
