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7 Feb 2022

Econ Digest

Resumption of normal diplomatic relations between Thailand and Saudi Arabia brings new opportunities for Thai products and businesses… Thailand’s exports to Saudi Arabia are expected to grow by 15% in 2022

คะแนนเฉลี่ย

        The restoration of normal diplomatic relations between Thailand and Saudi Arabia for the first time in 30 years makes it likely that their economic ties will be strengthened from now on. In 2021, bilateral trade between the two countries was valued at only USD7.301 billion, with Thailand’s high dependence on imports of oil and chemicals from Saudi Arabia at USD5.662 billion, while Thailand’s exports to Saudi Arabia were just USD1.638 billion, accounting for only 0.6% of Thailand’s total exports.
        KResearch views that improved diplomatic ties will create new opportunities for both Thai businesses and their products, while Thailand must keep an eye on competition from Indonesia and Vietnam. Although among the ASEAN countries Thai products are best able to meet Saudi Arabia’s demand, competing goods from Indonesia have started to compete with Thai products in recent times, such as passenger cars and processed seafood. Meanwhile, close attention should also be paid to Vietnamese rice, which may cause more competition for Thai rice. However, Thailand is currently still on an equal footing with its competitors, i.e. subject to an average import duty of 5.6% (MFN rate). In order to realize the maximum potential of Thai exports, government support is required. The restoration of normal diplomatic ties between Thailand and Saudi Arabia provide an opportunity for Thailand to preempt the FTA negotiations with Saudi Arabia ahead of other countries, which could be modelled on Singapore’s FTA with the Gulf Cooperation Council (GCC). This would help create a competitive edge in giving Thai products more access to the Saudi Arabia market.

        Saudi Arabia is Thailand’s second-largest export market in the Middle East. The Saudi Arabian market has a huge growth potential with an annual per capital income of USD 20,000 and a population of 30 million. KResearch believes that the global economic recovery and rising energy prices in 2022 will help generate sizeable revenue for Saudi Arabia and boost its population’s purchasing power. Given this, Thai exports to Saudi Arabia will grow by 15% to USD1.9 billion, close to pre-pandemic levels, and the restoration of normal diplomatic relations between Thailand and Saudi Arabia will make it easier to develop markets for Thai products in Saudi Arabia. As a result, Thai exports to Saudi Arabia are expected to increase by about USD1 billion over the next three years to USD2.6 billion in 2024. The key growth drivers will come from exports of halal food products, vehicles and auto parts, rubber products, wood products and electrical appliances.

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