The Impact of the Top 3 Strategic Imperatives on Saudi Arabia’s Defense Industry

Industry Convergence

Why: 

The establishment of a self-sufficient defense industry in the Kingdom of Saudi Arabia (KSA) is a fundamental component of the country’s national vision for 2030. This concept includes the independent production of weapons alongside positioning the Saudi defense industry as a global leader in defense exports.

Frost Perspective: 

The changing business environment in KSA is expected to transform the characteristics of contractual engagements and lead to the formulation of unique business models for the country’s defense industry, which is one of the highest defense budgets globally. The focus of Saudi entities, while contracting, is on localization demands and transfer of technologies (ToT) to KSA.

Geopolitical Chaos

Why: 

The Israeli military campaign in Gaza and the effects of the Russo-Ukrainian war on the Middle East are indicative of continued regional instability.

Iran’s military activities across the region have further intensified the threat of destabilization.

Frost Perspective:

 The rising regional tension is boosting defense budgets in the Middle East. Currently, KSA holds the fifth-largest defense budget in the world (after the United States, China, Russia, and the United Kingdom) and is therefore expected to continue to be a global and regional hub for the defense industries.

Competitive Intensity

Why: 

The KSA government’s Saudi Vision 2030 program includes the establishment of a modernized, prestigious, and self-sufficient defense industry as part of a broader national security strategy. 

In addition, as the KSA diversifies its arms exports, its reliance on the United States shrinks, increasing the bandwidth of local industries.

Frost Perspective: 

Saudi Vision 2030 includes the goal to establish its local defense original equipment manufacturers (OEMs) among the top 25 arms exporters globally. This objective excludes sales to the Saudi army, which are expected to accelerate further amid growing domestic defense budgets until 2030.

Scope of Analysis

• This study explores KSA's defense spending activities and identifies and analyzes key trends, market drivers and restraints, growth areas, and the competitive landscape.
• It briefly analyzes KSA’s defense budget until 2026 and provides an in-depth overview of the competitive landscape of the domestic market, including international defense vendors.
• It highlights the top technology areas and leading projects and products.
• The analysis covers budget allocation and spending and publicly recorded contracting activities. No classified information is included.
• Finally, the study overviews emerging growth opportunities in KSA's defense industry, based on recent geopolitical developments and the changing nature of the business environment.

Market Segmentation

KSA’s Defense Industry: Competitive Landscape

Air

Following its unprecedented operational expertise on the Yemeni battlefield, the Royal Saudi Air Force (RSAF) is entering a new era of aerial manned and unmanned platform modernization, interoperability improvement, and digitalization, narrowing the traditional operational gaps it has experienced for years. The RSAF will enhance cooperation with the Royal Saudi Air Defense Forces to advance its multi-layered missile defense (MD) architecture. Yet, RSAF is pushing to diversify its weapon systems in order to minimize exposure to U.S export restraints. This trend brings other players into the market.

Naval

KSA is prioritizing the modernization of the Royal Saudi Naval Forces (RSNF) fleet to expand its national power projection capabilities beyond its economic water borders while developing the ability to operate in blue water. The RSNF focuses on flagship military buildup programs, such as its multi-mission surface combatant fleet, multi-task frigates, and advanced C4ISR systems, to enhance operational effectiveness, lethality, and interoperability. Its 2 main strategic efforts are developing domestic shipbuilding capacity through joint ventures (JVs) and cultivating naval expertise with training technology transfers.

Land

The Royal Saudi Land Forces (RSLF) is focusing on modernizing its infantry corps with a growing reliance on domestic defense procurement capabilities in collaboration with Saudi Arabian Military Industries (SAMI), which develops a range of armored vehicles, tanks, military fighting vehicles, and C2 land systems, mostly in partnership with European vendors. In addition, the RSLF cooperates with other Gulf Cooperation Council (GCC) land forces. The RSLF can reorganize into rapidly deployable and highly mobile formations capable of swift response to threats and develop special forces skills for asymmetric warfare, counterterrorism, and border security operations.

C4ISR

KSA’s C4ISR sector is extremely centralized, consisting of only a few foreign participants, pushing the country to focus on developing C4ISR capabilities for domestic OEMs as part of the broader Saudi Vision 2030. In this regard, the Saudi Data and AI Authority will play a growing role in shaping the military C4ISR posture for 2030, as the country’s C4ISR sector will experience remarkable growth during the forecast period. Hence, KSA aims to develop a robust domestic C4ISR industrial base through strategic investments, partnerships, and procurement to achieve greater self-sufficiency in line with its defense modernization vision.

Growth Drivers 

National 2030 Vision As lessons from the Russo-Ukrainian War are constantly emerging and impacting global defense industries, Saudi Arabia is focused on adjusting long-term military buildup programs and pushing for modernization, advanced digitalization architectures, and multi-domain concepts of operations (ConOps) for the Royal Armed Forces. This defense posture is integrated into the Saudi 2030 Vision, which sets the need for an independent and strong defense industry to support the ambitious military build-up plans for the Saudi Army. 

US-Saudi Bilateral Defense Agreement amid Iranian Threat The Biden administration is pushing for a landmark defense agreement between the United States and the KSA as part of a broader vision of Israel-Saudi normalization to counter Iran’s regional destabilization and military ambitions. Such an agreement would position the KSA as the first Arab state to sign a defense strategic treaty with the United States, dramatically impacting the competitive landscape of the domestic defense industry. 

Growing Defense Budget During the forecast period, the KSA is expected to further increase its defense budget at an approximate CAGR of 4.5% per year. As the country with the fifth-highest global defense expenditure and amid growing threats from Yemen and Iran and the need for regional military projection, KSA is expected to further invest in an array of military domains while further modernizing its armed forces as part of the 2030 national vision. Currently, Saudi defense budgets are empowered by the rising oil prices caused by the Russo-Ukrainian war and the resultant demand for non-Russian oil. 

Growth Restraints 

Possible Budgetary Constraints KSA's national budget relies heavily on oil price fluctuations and oil revenues. This is leading to increasingly vulnerable and volatile budget allocations. For example, the 2022 defense budget was cut, compared to the 2021 FY defense budget, amid a dramatic decrease in oil income. As the global geopolitical scene becomes increasingly unstable, it can negatively impact the KSA defense budget. 

Diversification Efforts and Supply Chain Shortages KSA's increasing arms diversification efforts can further hamper contracts with Western vendors as they are subject to strict regulations, particularly due to the growing exposure of the KSA defense industry to China. In addition, supply chain shortages are expected to inhibit international OEMs’ existing commitments to supply weapon systems in a timely manner. This trend can have a direct impact on KSA's ambitions of a massive military buildup during the forecast period. 

Emerging Trend of JVs As plans to achieve Saudi Vision 2030 move forward, the country's Ministry of Defense (MoD) seeks to establish a strong, robust, and highly competitive domestic defense industry, with state-owned companies such as SAMI. The KSA is pushing for a range of JV initiatives with leading international defense OEMs, particularly from the United States and Europe. However, stringent regulatory requirements such as transfer of technology (ToT) demands, rules governing intellectual property rights, governance, and the need to define the export market and scope of work (SoW) of a JV could generate challenges for this trend. As the US defense establishment does not expect to compromise over compliance issues, further hurdles are expected to emerge, challenging the JV trend. 

Key Vendors in the KSA Defense Industry