The restoration of diplomatic relations between Thailand and Saudi Arabia for the first time in 30 years makes it likely that economic ties between the two countries will be strengthened. In 2021, bilateral trade between the two countries was valued at only USD 7.301 billion – primarily due to Thailand’s dependence on oil and chemical imports from Saudi Arabia, which amounted to USD 5.662 billion. On the other hand, revenue from Thailand’s exports to Saudi Arabia amounted to just USD 1.638 billion, or only 0.6 percent of Thailand’s total exports.
KResearch views that upgraded diplomatic ties will create new opportunities for both Thai businesses and their products in the upcoming period. In terms of competition, the fact that market rivals like Vietnam and Indonesia are catching up to Thailand merits close watch. Although Thai products may have performed better than their counterparts from other ASEAN countries in meeting consumer demands in Saudi Arabia, competing goods from Indonesia have seen an uptick in recent times, for instance passenger cars and products like processed seafood. Meanwhile, Vietnam’s exports to Saudi Arabia differ from those of Thailand since the majority of its products are comprised of smartphones, clothes and shoes. However, Thai rice exporters should keep an eye on Vietnamese rice, which may emerge as our arch rival.
Saudi Arabia is Thailand’s second-largest export market in the Middle East, behind only the United Arab Emirates (UAE). In this respect, the market still has a lot of growth potential. While Saudi Arabia is a fairly affluent market with an estimated GDP per capita of USD 20,000 p.a., which is only half the per capita income of the UAE, the population of Saudi Arabia is 30 million, or three times greater than the population of the UAE. KResearch perceives that the global economic recovery and rising energy prices should generate sizeable revenue for Saudi Arabia in 2022, boosting its population’s purchasing power. Given this, this year’s Thai exports stand to benefit, likely closer to pre-pandemic levels of USD 1.9 billion, growing 15 percent, YoY. In the forthcoming period, the positive signals stemming from Saudi Arabia’s re-established ties with Thailand should give rise to increased investment, business operations and tourism between the two countries, and subsequently make Thai products better known in Saudi Arabia’s markets. As a result, the value of Thai exports to Saudi Arabia could climb USD 1 billion over the next three years, reaching USD 2.6 billion and raising the status of Saudi Arabia as a trading partner for Thailand that rivals the UK market in size. Key drivers include halal food products (processed seafood, rice and seasonings), vehicles and auto parts, rubber products, wood products and electrical appliances.
To realize the fullest potential of Thai exports, government support is required. Since the Middle East remains relatively closed to external trade, and few FTAs have thus far been made with countries outside the region, the recent restoration of ties between the Thai and Saudi Arabian governments could offer the ideal context for FTA negotiations ahead of other ASEAN countries. Like Singapore, Thailand should carry out talks with the Gulf Cooperation Council (GCC) so as to give Thai products a competitive edge to tap into the Saudi Arabia market.
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