Why Britain should trade more with Saudi Arabia

If a country’s balance of payments is a sign of its trading strength, the UK’s 2016 international trade statistics released this month will have set warning lights flashing.

The deficit of Britain’s balance of payments increased by nearly £10 billion, and is currently just short of £40 billion. A favorable trade balance matters because it can be seen as a country making a profit by selling more goods and services than those bought. More capital enters the economy. The result is often a higher standard of living, the creation of more jobs, reduced unemployment, higher wages, and a raise in expertise.

The UK’s balance of payments has been in deficit since 1998, driven in large part by trade with the EU countries. To return to a favourable trade balance will require exporting more and importing less, and in the post-Brexit era the fastest and simplest way of achieving this will be by increasing trade with countries that the UK enjoys a trade surplus with.

Saudi Arabia is one such country. The UK exported £4.546 billion worth of goods and services to Saudi in 2016, and over the past five years trade between the two countries grew by 8.1%. This makes Saudi the sixth fastest growing trade partner with whom the UK enjoys a favourable balance. Only Switzerland, China, South Korea, Turkey and Hong Kong (in that order) saw their trade with the UK grow at a faster rate over this period while running a trade deficit.

British exports to Saudi are dominated by machinery and mechanical appliances, followed by aircraft and parts. But exports cover a wide range of goods including electrical machinery and equipment, vehicles, pharmaceuticals, medical and surgical equipment, and food and drinks. Land Rover, Rolls Royce, Marks and Spencer’s, Debenhams, and a host of other British brands are loved by Saudis and found across the Kingdom.

Britain is also a leading seller of services and many of the City’s most famous banks, law firms, accountancies are active in the Kingdom. In recent months, HSBC investment bank has been selected to be an underwriter on the Aramco IPO, which is set to break all records and raise $500 billion or more.

Nor is British expertise is limited to the financial services. In 2015, nine British education consortia won nearly £1 billion worth of contracts to help develop the secondary school system. And number of construction, engineering and project management firms that include Serco, BuroHappold, Atkins, Amec Foster Wheeler, Carillion and Balfour Beatty have won major contracts to upgrade our infrastructure.

In the coming years we can expect to see new types of British firms enter the market to compete for exciting new opportunities, such as a $50 billion renewable energy programme. UK industry leaders Lightsource Energy, RES and Solar Century have already been mentioned.

On the other side of the balance of payments, Saudi exports to the UK are mostly oil and petrochemicals. As the world’s biggest exporter of oil with a fifth its reserves, Saudi plays a critical role in maintaining stability in the energy markets which protects British consumers from shocks.

Looking to the future, Britain can be confident that Saudi Arabia holds much promise for UK exports. The PWC “The World in 2050” report released this month predicts the Saudi economy to grow and become the twelfth biggest economy in the world, up two places from its GDP ranking today.

The UK should not rest of laurels. While trade with Saudi Arabia remains strong, it dropped by 0.03% in 2016. Competition for business in Saudi has become fiercer, with Asian companies working hard to outdo their European rivals. But Britain does have a competitive advantage in its long-standing relations with Saudi. The potential of a Free Trade Agreement, discussed last year by Deputy Crown Prince Mohammed bin Salman and Prime Minister Teresa May, has much promise but will take several years to negotiate.

In the meantime, Britain should build on its foundations by investing more diplomatic and business capital in its relation with Saudi Arabia.

Omar Bahlaiwa is Secretary General of the Committee of International Trade (CIT) for Saudi Arabia. Previously, he enjoyed a successful business career, working in senior positions for the the Saudi Industrial Development Fund,  Al-Moajil Company, Saudi Industrial Export Company, and Mattex Group.