In 2022 Saudi Arabia devoted 7.4% of GDP to defence expenditure, positioning the Kingdom as the second-highest-spending nation on defence as a share of its GDP after Ukraine, which has been embroiled in a large-scale conflict with Russia following the invasion of the former’s territory by its neighbour in February 2022. Amid escalating global tensions stemming from the fighting, worldwide military spending reached an all-time high of $2.24trn in 2022, reflecting a 3.7% increase, according to the Stockholm International Peace Research Institute (SIPRI).
The Middle East spent $184bn on defence in 2022, with each country allocating an average of 3.9% of GDP on defence, surpassing the global rate of 2.2%. This was largely a result of Saudi Arabia – the fifth-largest global defence spender in value terms that year, at $75bn, after the US, China, India and Russia, and ahead of the UK, Germany and France, according to SIPRI.
Recognising the defence sector’s sustained importance in the annual budget, Saudi Arabia committed to reinforce national security and enhance its defence capabilities through its diversification and reform agenda. The country is encouraging the development of a thriving domestic defence manufacturing industry, ultimately reducing its reliance on foreign suppliers of military equipment and enhancing the economy by consuming local resources. This strategic vision underscores investment in advanced defence technology, the localisation of military procurement, the upskilling of the national workforce, and the development of high-tech security and aerospace subsectors. These initiatives are aligned with the overarching objectives of Vision 2030, the government’s long-term blueprint for socio-economic development (see Economy chapter).
Structure & Oversight
The main sector stakeholders in the Kingdom are divided into four groups: the military, manufacturers, materials suppliers and research and development (R&D) centres. The General Authority for Military Industries (GAMI) oversees all external defence and military operations, with five service branches under its purview: the Royal Saudi Land Forces, the Royal Saudi Air Forces, the Royal Saudi Naval Forces, the Royal Saudi Air Defence Forces and the Royal Saudi Strategic Missile Force.
Around 257,000 troops serve across the Kingdom’s military branches. For internal security, the Saudi Arabian National Guard (SANG) operates under the administrative control of the Ministry of National Guard. With more than 125,000 active soldiers, SANG is responsible for safeguarding the Kingdom’s land, borders and critical infrastructure. A separate unit under the Saudi military forces, the Saudi Royal Guard Command, is tasked with protecting the royal family. In 2017 the Presidency of State Security was established to deliver counterterrorism and domestic intelligence services, while the General Intelligence Presidency, the country’s primary intelligence agency, plays a significant role in national security, counterintelligence and foreign intelligence operations. The Ministry of Interior is responsible for national security, naturalisation, immigration and Customs.
The local defence manufacturing ecosystem in the Kingdom is working towards a target to localise more than 50% of expenditure on defence by 2030. The industry operates under the oversight of two key entities established in 2017: GAMI and General Authority for Defence Development (GADD). GAMI regulates and licenses the defence industry; the procurement of military equipment, munitions and apparel; and localisation and offset requirements. This positions GAMI as a key market entry point for foreign defence, security and aerospace firms looking to capitalise on investment opportunities within the Kingdom. Meanwhile, GADD oversees research & development (R&D) related to technology and defence systems.
To complement these functions, SAMI – a wholly owned subsidiary of the Kingdom’s largest sovereign wealth fund, the Public Investment Fund – operates as a government-owned defence company, with a focus on developing, producing and planning to export defence equipment and technologies, and reducing reliance on defence and security imports. With aims to be ranked among the world’s 25-largest defence firms by 2030 and generate $5bn in annual sales by 2025, SAMI has a key role to play in achieving the government’s ambitions of localising military manufacturing, developing smart defence- and security-related technologies, and accelerating broader industrial growth through strategic joint ventures and acquisitions.
In parallel with increased production, Saudi Arabia has made substantial efforts to bolster its R&D and training capabilities. To steer the direction of R&D in technological defence systems and foster an innovative and sustainable defence industry, the General Authority for Defence Development was established in September 2021. The authority formulates essential policies and strategies aimed at nurturing advancements in defence technologies and promoting self-reliance.
Similarly, private sector institutions such as ARX Aerospace and Defence, originally formed in 2014 as a joint venture between Shamal Investments and Aviation Australia, have expanded their specialised training programmes in aerospace and defence disciplines. These programmes address existing gaps in high-value areas such as aviation maintenance, unmanned aerial vehicle operations and cybersecurity.
On the aerospace front, the 2018 establishment of the Saudi Space Commission – which was subsequently transformed into the Saudi Space Agency in 2023 – has served as a catalyst for space-related research, driving innovation and exploration in this evolving field (see regional analysis). The General Authority of Civil Aviation (GACA), for its part, regulates air transport services and implements civil air regulations.
In 2022 GACA launched the National Aviation Sector Strategy, which seeks to enhance Saudi Arabia’s air connectivity, with plans to serve 250 global destinations, transport 330m passengers worldwide and double air cargo capacity to 4.5m tonnes by 2030 (see Transport chapter). Addressing the growing importance of cybersecurity in an increasingly digital era, Saudi Arabia established the National Cybersecurity Authority (NCA) in 2017. The NCA plays a pivotal role in reducing the risks facing IT assets, safeguarding the Kingdom’s digital economy, and providing a secure platform for sustainable growth plans within the cyber domain.
Strategy Development
GAMI has been a key driver of this endeavour, having launched the Industrial Participation Programme (IPP) in 2019. A revamped version of the Kingdom’s Economic Offset Programme, the IPP is designed to foster the growth of local military industries through strategic partnerships with international original equipment manufacturers (OEMs). This collaboration creates opportunities for OEMs to add value to the local economy by engaging with domestic companies to expand capabilities through technology transfer and talent development. Additionally, by increasing reliance on Saudi resources across the supply chain and enhancing cost competitiveness through the utilisation of local Saudi resources, the IPP further strengthens the Kingdom’s position as an attractive destination for defence industry investment.
In line with such efforts, in February 2021 the government unveiled plans to invest more than $20bn in the military sector leading up to 2030. Half of the investment is earmarked for general defence manufacturing and the remainder is dedicated to R&D, with the aim of increasing R&D spending from 0.2% of total defence expenditure to around 4% by 2030.
In March 2023 GAMI introduced a military industrial programme to support investors by establishing a national digital platform that brings together stakeholders related to the defence sector. By facilitating investor access to opportunities and promoting integration among the relevant authorities, the programme aims to foster collaboration and growth in the sector.
Since its inception GAMI has prioritised enhancing and developing the military procurement system. By closely collaborating with end users, GAMI aims to optimise the negotiating benefits linked to unified purchasing power. This approach is designed to generate savings, create opportunities for further localisation and enhance sector-related skills, as well as bring the capabilities of local manufacturers, suppliers and laboratories in line with international standards.
Talent
To develop the skilled workforce necessary to implement the localisation strategy, GAMI’s Military Industries Human Capital Strategy, was launched in February 2022. It is at the forefront of the organisation’s efforts to establish specialised educational and training programmes to harmonise human capital output with the needs of the local manufacturing industry.
Relying on public-private partnerships, GAMI’s strategy revolves around three core programmes: education and training, with a focus on developing modern technological skills and bridging local knowledge gaps; raising awareness across the higher education and vocational training segments to inform decisions about career paths; and policy, by creating a desirable working environment through framework design, performance management, and supervision and monitoring programmes. The programme aims to create 172 job fields and 13 specialised professions across 60 initiatives that bridge gaps in defence-related industries.
Public Expenditure
After a three-year period of annual defence budget reductions, the Kingdom witnessed a significant reversal of this trend in 2022. The initial slowdown, attributed to a decrease in energy prices and the Covid-19 pandemic, resulted in a budget allocation of $53.9bn in 2021, equivalent to 6.6% of GDP, a notable difference from the $70.4bn, or 10.2% of GDP, spent in 2017. Despite this, from 2018 to 2022 Saudi Arabia ranked as the world’s second-largest defence importer in terms of volume, receiving 9.6% of all imports, second to India, at 11%, according to SIPRI. Improving economic conditions and heightened global security concerns have prompted the Kingdom to increase its annual defence spending substantially. Defence expenditure reached $75bn in 2022, a 16% increase on 2021 and significantly higher than the $50.3bn initially budgeted for the fiscal year.
Saudi Arabia announced plans to boost defence spending by a further 5.8% in 2023, rising from SR245bn ($65.3bn) to SR259bn ($69bn). At 8% of GDP, this would make defence the single largest item of the budget, which is collectively expected to decrease by 1.6%. The upward trend in defence expenditure, largely driven by the mandate to develop the Kingdom’s military capabilities and infrastructure, is expected to continue, reaching $86.4bn in 2028, according to UK-based analytics firm GlobalData. The three segments of the industry that stand to benefit most from this spending are the military fixed-wing market; missiles and missile defence systems; and naval vessels and surface combatants. They are projected to see cumulative values of $15.8bn, $7.4bn and $4.2bn, respectively, between 2023 and 2028, according to GlobalData.
Rising expenditure is expected to boost local capacity and knowledge transfer facilitated by companies such as UK-based BAE Systems, which plays a key role in the UK-Saudi defence partnership. The firm signed a contract in 2007 to produce 72 Eurofighter Typhoon jets for Saudi Arabia and then inked a preliminary deal in 2018 to deliver a further 48 aircraft valued at $16bn. Although a timeline for the delivery of the second batch of jets has yet to be announced, UK-Saudi ties in the sector were bolstered in December 2022 with the signing of a bilateral defence cooperation plan.
Doing Business
Saudi Arabia has taken significant steps to strengthen its local defence industry, with SR5.1bn ($1.4bn) allocated for incentives during 2021 and 2022. Of this total, SR3.3bn ($879.8m) was directed towards R&D, while SR1.8bn ($479.9m) was distributed to companies in the Kingdom’s defence sector.
SAMI has been instrumental in fostering joint ventures with foreign investors eager to take part in the Saudi defence sector. Collaborations such as these usually involve local partners concentrating on business development and securing government contracts, while foreign investors handle manufacturing and sales fulfilment to meet the terms of these contracts. By 2022 SAMI had signed 13 global joint ventures with top defence, security and aerospace firms, including Boeing, Lockheed Martin, Northrop Grumman and General Dynamics from the US, and Airbus and FIGEAC AÉRO from France. Among recent notable examples of partnerships, in 2021 SAMI launched a joint venture with FIGEAC AÉRO and the Dussur to build a manufacturing facility for aerostructure components in the Kingdom. In 2022 SAMI’s subsidiary, SAMI Composites, signed an agreement with Lockheed Martin to establish a composites manufacturing centre of excellence in Riyadh to boost local aerospace manufacturing capabilities. That same year, SAMI announced a preliminary agreement with Boeing for a joint venture to provide maintenance, repair, and overhaul and sustainment services for military rotary platforms operating within the Kingdom. In March 2023 SAMI entered into a memorandum of understanding (MoU) with International Maritime Industries, which operates an advanced shipyard in Ras Al Khair on the eastern coast. The MoU aims to explore collaborations that will help localise the construction of naval vessels, as well as develop sensors, combat-management systems, weapon systems and mission software for Saudi naval forces. The partnership is set to boost the Kingdom’s naval capabilities while promoting the growth of the local defence industry.
To showcase growing local capabilities and improve international investor relations, the Kingdom has hosted defence trade shows and conventions. In March 2022 the Kingdom’s inaugural World Defence Show took place in Riyadh, attracting 82 military delegations, 600 defence and security exhibitors from 42 countries, and 65,000 visitors from 85 countries. The event resulted in the announcement of 12 MoUs worth a combined $7.9bn, strengthening multiple areas of the defence value and supply chains. Notably, US-based RTX announced that it will manufacture components for its Patriot air and missile defence systems in the Kingdom. Meanwhile, SAMI disclosed in March 2022 that it had established financing agreements worth $1.86bn with local banks to help fund the defence deals.
Saudi Arabia’s attractiveness for investment has been enhanced by major business climate reforms in recent years, including the introduction of online licensing and 100% foreign ownership of foreign investments as of 2021 (see Trade & Investment chapter). Additionally, the Kingdom’s competitive and secure local resources and energy not only attract local end-users but also hold potential for export markets. In a similar vein, GAMI launched the Military Industry Marketplace in 2021 as a platform to link licensed investors with localisation opportunities. Streamlined licensing procedures and increased investor awareness have resulted in a surge of applications for licences from GAMI, with the number of licensed companies increasing by 78% in 2022 to 192.
In addition to these reforms, there are several incentives, either directly provided by GAMI or by governmental entities, that investors can leverage. For example, GAMI’s implementation of 0% value-added tax on locally manufactured defence goods has helped spur further localisation efforts, contributing to the issuance of 342 new establishment permits and military industrial licences in 2022, with a total investment of $11.5bn projected by GAMI between 2022 and 2027. To further incentivise foreign investment, by 2024 any foreign company seeking to conduct business with the government will need a regional headquarters in the Kingdom.
International Relations
International engagement plays a crucial role in Saudi Arabia’s pursuit of high-value investment and specialised expertise to realise Vision 2030. Collaboration with international defence companies and major military powers has laid the foundation for a robust domestic defence industry, resulting in job creation for nationals, economic growth and the localisation of defence production to serve both the local and international markets.
The US is a leading defence supplier to Saudi Arabia, and the Kingdom similarly ranks as the largest foreign military sales customer of the US. Since the signing of a $110bn defence equipment and services deal in 2017, active government-to-government sales between the two countries have reached $126.6bn. In 2022 the US accounted for approximately 78% of Saudi imports of arms and weapons, followed at some distance by France (6.4%) and Spain (4.9%). That same year Lockheed Martin announced a $1bn investment in the Saudi defence industry, which includes manufacturing, R&D and maintenance, and repair and overhaul activities through partnerships with local companies, with a focus on workforce upskilling initiatives.
While the US remains the Kingdom’s largest defence partner, Saudi Arabia has actively expanded its international reach in the sector. In particular, cooperation with China has grown, with the Kingdom reportedly expressing interest in procuring Chinese FC-31 stealth fighter jets and other equipment, although no sales had been officially announced as of August 2023.
Outlook
Saudi Arabia’s security, aerospace and defence sector has undergone sweeping transformation in recent decades. The Kingdom has not only reinforced its commitment to enhancing its defence capabilities and diversifying its economy through localisation, but also positioned itself as a major international player in the sector. This transition has garnered substantial attention and investment from international companies, which has served to stimulate technology transfer and develop local capabilities.
As the Kingdom continues to make progress towards achieving its national priorities and enhancing its military prowess, it will rely on the groundwork already laid for a robust defence sector. The success of efforts to nurture a skilled human capital base will be key to achieving self-sufficiency and technological advancement. In line with initiatives to prioritise localisation, the defence industry is poised to play an increasingly important role within economic development, driving job creation, growth and innovation in the process.
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