King Salman received Merkel in his palace in the western city of Jeddah, SPA state news agency said, adding that the two presided over a signing ceremony for six cooperation agreements: three government-to-government and the others involving the private sector.
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Merkel was expected to discuss with the Saudis the agenda for the G20 meeting in July, including the Paris climate accord and G20 decisions on energy, according to a German official.
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"There will be for sure a discussion over how Germany could support Saudi efforts to diversify its economy and reduce its dependency on fossil energy," the official said ahead of the visit.
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"Economic relations are solid but not shining. The volume of commercial exchange stood at eight billion euros ($8.72 billion) in 2016. German investments in Saudi were around 1.2 billion euros ($1.3 billion)," the official said.
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The world's largest oil exporter has embarked on an ambitious plan to diversify its oil-dependent economy after a sharp drop in crude prices hit revenues.
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Merkel is also expected to urge Saudi Arabia and its fellow Sunni-ruled Gulf monarchies to reduce tension with their Shiite-dominated neighbour Iran, the official added.
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Merkel also also meet Crown Prince Mohammed bin Nayef and Deputy Crown Prince Mohammed bin Salman, the powerful son of the king who is also defence minister.
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Merkel travels on Monday to the United Arab Emirates, where German investments stand at around 2.4 billion euros ($2.6 billion), the German official said.
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