The Military Sector in the Saudi Financial Market: Current Status and Future

The military sector comprises economic activities related to the production and development of defense and security equipment and services. In the Saudi context, the military sector is a major component of the industrial sector and includes the manufacturing of weapons, ammunition, combat vehicles, defense electronic systems, and maintenance and development services. There is no independent classification for this sector in the Saudi stock market (Tadawul); instead, related companies are distributed across broader industrial and technology sectors.

The Saudi government, under Vision 2030, seeks to increase the proportion of local manufacturing in the military sector, encourage national and foreign investments, and build strategic partnerships with leading global defense companies. This approach is supported by the establishment of large industrial entities such as the fully state-owned Saudi Arabian Military Industries (SAMI), alongside private companies operating in electronics, security systems, and military technical support services.

The Saudi military sector is among the most dynamic in the region, combining security, economic, and technological objectives, and is a key contributor to local content development, knowledge transfer, and job creation for citizens.

Saudi Arabia’s military spending has seen a significant increase in recent years. In the 2024 budget, the government allocated approximately SAR 350 billion (about USD 93 billion) for defense and national security, a clear rise from the previous year. Projections indicate that spending may exceed SAR 400 billion by 2025, driven by regional challenges, military modernization programs, and Vision 2030 objectives.

According to the Stockholm International Peace Research Institute (SIPRI), Saudi Arabia ranks third globally in military spending, with an average annual expenditure of around USD 80 billion, representing about 8% of GDP. These figures reflect the Kingdom’s commitment to enhancing its defense readiness, developing its industrial base, and expanding economic development opportunities linked to the military sector.

The scale of spending underscores the sector’s importance in the national economy and serves as a driver for localizing defense industries and encouraging local companies to develop their technological and production capabilities.

A key pillar of Vision 2030 in the military sector is the enhancement of local manufacturing and national content in defense industries. The proportion of military procurements manufactured locally reached about 30% in 2024, up from only 20% in 2020, with the government aiming to raise this figure to over 50% by 2030.

Local manufacturing covers a wide range of areas: maintenance and assembly of aircraft, production of various munitions, manufacturing of vehicles and tanks, development of electronic systems, and command and control systems. To achieve this, Saudi Arabia has entered partnerships with global companies such as Lockheed Martin, BAE Systems, and Thales to transfer technology and localize production lines.

The establishment of Saudi Arabian Military Industries (SAMI) was a major step in this direction, as the company manages defense investments and develops the Kingdom’s capabilities in manufacturing spare parts and advanced systems. Additionally, new factories are being built for drones, sensor systems, and command and control systems, alongside the development of training programs to build specialized national talent.

Historically, the Kingdom relied heavily on imports to meet its defense needs, but recent years have seen a decline in imports as local production has grown and exports of some defense products have begun. In 2024, the Kingdom recorded military exports to friendly markets (such as electronic systems and light missiles) valued at tens of millions of dollars.

Reports from Mordor Intelligence forecast a compound annual growth rate (CAGR) of over 7% for the Saudi defense sector between 2024 and 2031, driven by the expansion of local production and the opening of new export markets. Imports remain important for technology transfer and localization of production lines, while future exports represent a strategic goal for increasing government revenues and strengthening Saudi Arabia’s regional and global standing.

The government supports these directions through export promotion policies, partnership agreements, and the activation of technology transfer programs with international partners, achieving a balance between self-reliance and openness to global markets.

There are no specialized defense companies listed under a separate classification in the Saudi stock market, but some industrial and technology companies contribute indirectly to the military sector. Notable examples include:

1. Saudi Automated Systems Company (SASCO): Operates in security systems and electronic equipment, serving government entities in transport and defense. As of mid-2024, its share price was around SAR 12, with a market capitalization of approximately SAR 250 million, a price-to-earnings (P/E) ratio of about 8, and an annual dividend yield of 3–4%.
2. Advanced Industries Company (SAI): Contributes to engineering sectors and some light defense projects, with a share price of SAR 7–8, an approximate market capitalization of SAR 200 million, a P/E ratio of 10, and a dividend yield of 2–3%.

Most related companies rely on direct government contracts or strategic partnerships with global companies. Their financial data appears in annual reports for the industrial or technology sectors, not under a specific military classification. It is always advisable to review the annual reports of these companies to understand the scale of their defense activities and financial impact.

The Saudi military sector is characterized by several key competitive features:

- Local Content Enhancement: The government focuses on increasing local manufacturing through joint ventures with international companies and localization of engineering and technological know-how.
- International Competition: Major global defense companies, especially American (Lockheed Martin, Raytheon), European (BAE Systems, Thales), and even Chinese and Russian firms, target the Saudi market, with a preference for high-tech Western products.
- Regional Competition: Saudi Arabia competes with countries like the UAE, Turkey, and Israel in developing defense industries, but its budget and geographic scale give it a competitive edge.
- Industrial Integration: The defense sector drives technology transfer and application to civilian sectors such as energy and infrastructure.

Domestically, competition is led by large government-backed companies in partnership with the private sector, with a growing role for startups in cybersecurity and smart systems. Investment in research and development is a decisive factor in strengthening the sector’s competitiveness.

The Public Investment Fund (PIF) plays a pivotal role in developing the Saudi military sector by injecting significant investments into defense and technology projects. In 2024 and 2025, the fund invested in companies such as the German armored vehicles manufacturer GDELS and allocated around SAR 500 million to SkyTech, specializing in drones.

PIF works to strengthen partnerships with leading global companies, transfer technology, and launch national startups in fields such as artificial intelligence, command and control systems, and combat robotics. The fund also contributes to establishing research and development centers that support local innovation and enhance the readiness of the Saudi military sector for regional and global competition.

The fund’s efforts focus on accelerating defense industry localization, supporting national talent, and achieving Vision 2030 goals of building a diversified and integrated economy.

The Saudi military sector is experiencing a surge in technological innovation, with the launch of research and development projects in drones, artificial intelligence, electronic systems, and smart weapons. Government and private laboratories have been established to develop autonomous sensor systems, combat robotics, and encrypted military communications, in cooperation with universities such as King Saud University and King Abdulaziz University.

The government has also launched a national competition for innovation in defense technology, providing funding for startups and encouraging applied scientific research. Innovation also includes the development of modern air defense systems, electronic early warning systems, and digital solutions for cybersecurity.

These efforts aim to narrow the technological gap with advanced countries and enhance the Kingdom’s independence in producing and exporting advanced defense technologies.

The military sector is a cornerstone of Saudi economic diversification, supporting industrial growth, attracting foreign investment, and providing job opportunities for citizens. Investments in defense industries have contributed to technology transfer, national skills development, and the creation of an advanced business environment.

In the long term, the military sector helps reduce dependence on oil by increasing local content and defense exports. It also stimulates innovation in related civilian sectors such as electronics, engineering, and communications. However, the large-scale funding required poses a challenge for the state budget, especially amid oil price fluctuations. Therefore, the government is working to involve the private sector and develop sustainable financing models for major military projects.

Data shows that the military sector has become a key driver of national economic growth and the development of its productive and technological base.

Despite the strong momentum in the military sector, it faces several challenges and risks, including:

- Regional Tensions: Conflicts and instability in the Middle East affect the pace of military spending and strategic planning.
- Oil Dependence: Defense spending is still largely funded by oil revenues, exposing the sector to global energy price volatility.
- Technology Transfer: Transferring advanced technologies from international partners remains a challenge, as some sensitive technologies require complex security and political approvals.
- Talent Development: There is a need to build a specialized national skills base in engineering, technology, and military research.
- Transparency and Governance: Increasing transparency in military contracts and developing governance systems to ensure efficiency and compliance with international standards.

Relevant authorities are working to address these challenges through development programs, strategic partnerships, and updated related legislation.

The Saudi military sector has witnessed rapid developments in 2024 and 2025, most notably:

- Signing partnership agreements with global companies such as Boeing, Lockheed Martin, and BAE Systems to establish maintenance complexes and develop defense systems in the Kingdom.
- Increasing the local content ratio in armed forces contracts to over 35% in 2025, with expanded production of electronic warfare tools and control system components.
- Hosting the SDX International Defense Exhibition in Riyadh and signing military contracts worth SAR 2 billion for the supply of advanced defense systems.
- Public Investment Fund investments in startups such as SkyTech for drones.
- Launching a military manufacturing development program in partnership with the private sector and establishing technical military training academies.
- Upgrading military capabilities by acquiring modern air defense systems and developing early warning systems.

These developments reflect the Kingdom’s commitment to achieving defense self-sufficiency and transforming the military sector into a major economic and technological contributor.

Saudi Vision 2030 has set ambitious goals for the military sector, most notably raising the local content ratio in defense procurement to over 50% and transforming Saudi Arabia into a regional center for defense industries. The vision includes developing human capabilities, technology transfer, strengthening international partnerships, and increasing exports of weapons and defense equipment.

These objectives are embodied in government programs such as the establishment of SAMI, support for scientific research, and the development of an attractive business environment for investment in defense industries. The vision also focuses on developing national competencies, raising innovation levels, and achieving economic sustainability through the military sector.

Vision 2030 serves as a roadmap for building a strong, advanced, and globally competitive Saudi military sector.

Current indicators and government directions point to a promising future for the Saudi military sector. Continued growth in defense spending, increased local manufacturing, and expansion of defense product exports to regional and global markets are expected.

The sector’s future relies on technological innovation, development of international partnerships, and building an integrated ecosystem combining manufacturing, research, and training. Cybersecurity is also expected to emerge as a promising sub-sector within the national defense system.

With the achievement of Vision 2030 targets, Saudi Arabia will become a key player in the regional and global defense market, relying on its own capabilities, national talent, and an attractive environment for investment and sustainable development.