Escalation unlikely to hurt Saudi economy

Tadawul index ends nearly flat following move to freeze new trade with Canada

Saudi Arabia’s latest move to freeze all new trade and investments with Canada is unlikely to have a significant impact on the kingdom’s economy, analysts said.

Saudi Arabia yesterday recalled its ambassador to Canada, and declared the Canadian ambassador to Riyadh persona non grata, giving him 24 hours to leave the country.

But analysts don’t expect the move to have much of an impact on Saudi Arabia’s economy, given that trade between the two countries isn’t very large. Saudi Arabia ranked 23rd in 2016 on the list of Canada’s import partners, with Saudi imports by Canada valued at $935.5 million, according to figures from World Integrated Trade Solution.

Meaningful impact

An analyst who chose to remain anonymous said the move by Saudi Arabia was a political one that should not have a meaningful impact on the economy as bilateral trade is “quite limited.”

“I don’t think it’s going to have a big impact on either side,” the analyst said. Bilateral trade between Saudi Arabia and Canada stood at $3 billion in 2016, according to figures from a report by Canada’s Library of Parliament.

The move against Canada “seems intended to convey that Saudi Arabia’s government will not yield to external pressure on what it views as national security issues,” said Emily Hawthorne, Middle East and North Africa analyst at Texas-based advisory firm Stratfor Enterprises. “I think it will definitely stoke uncertainty for investors, until we can gauge how long this chill will last,” she said.

The Canadian dollar declined 0.3 per cent, the most in more than two weeks on a closing basis, to 1.3031 per US dollar. The Tadawul All Share Index fell 0.2 per cent at the close in Riyadh.

Charles-Henry Monchau, managing director and chief investment officer of Al Mal Capital in Dubai, said that Saudi companies have very little exposure to Canada, hence the muted reaction by the kingdom’s stock market.

Saudi investments in Canada include G3 Global Holdings Ltd., a joint venture between Bunge and Saudi Agricultural & Livestock Investment Co., which purchased the former Canadian Wheat Board in 2015. Saudi Arabia has invested about $6 billion in Canadian businesses since 2006.

Saudi companies have very little exposure to Canada, hence the muted reaction by the kingdom’s stock market.