Introduction to the economy of Saudi-Arabia and the other GCC countries Written and read by Erik William Welle-Strand, commercial intern at the Royal Norwegian.

Introduction to the economy of Saudi-Arabia

and the other GCC countries

Written and read by Erik William Welle-Strand, commercial intern at the Royal Norwegian

Embassy in Riyadh, Saudi Arabia

30.11.2011 1

Disclaimer: All statements made are the personal beliefs of the author and do not represent Norway, The

Embassy or its other employees.

OutlineSection 0 – Purpose and OutlineS 1 – Introduction to the Region

- 17m GCC cooperation and Saudi

Arabia Section 2 – Oil and Gas - 21mSection 3 – Economic

Diversification and Industrialization Part I - 16mRegulative Industrial and Economic Cities

Section 4 – Economic Diversification and Industrialization Part II -14mPetrochemicals and Mining

Section 5 – Domestic Energy Usage and Power Production - 25m

Section 6 – Construction and Transportation Infrastructure - 25m

S 7 –Education and Labour Market - 12m

S 8 – Banking/Finance and Healthcare - 20m

Section 9 – Summary and Challenges Going Forward - 10m

2

Section 1

Introduction to the region

Please see section 0 for the purpose, outline and disclaimer for this presentation.

3

The GCC

Map of GCC countries

4

Oil and Gas

Currency

Customs union

Defence

Transport

Tax

Power

Expatriates

The Kingdom of Saudi-Arabia (KSA)

5

Key facts Value Comment

GDP 469b USD – 2010

Nominal, not PPP

Real Growth 7,1 % - 2011 Est.

Above inflation Est 2011

Petroleum Percentage of GDP

55 %

Inflation 5,3 % - 2011 Est

Population Growth 1.5 %

Nett Foreign Reserves 481b USD 111 % of GDP

Trade flow - KSASaudi Imports from

Top 10 Countries(SAR millions)

Saudi Exports from Top 10 Countries

(SAR millions)

Country

2007

2009 Country 2007 2009

USA 45 852

50 999 Japan 134 007

108 956

China 32 664

40 601 USA 147 432

85 532

Germany

30 022

28 572 China 59 840 80 417

Japan 29 563

27 142 South Korea

73 972 68 263

South Korea

15 162

15 931 India 68 120 52 951

France 11 499

14 346 UAE 31 780 31 921

Italy 15 381

13 250 Singapore

37 360 31 421

India 11 529

13 095 Taiwan 32 605 28 534

UK 13 170

12 842 Bahrain 26 238 24 534

UAE 8 437

10 790 Thailand

15 480 13 8846

77

Section 2

Oil and Gas

Please see section 0 for the purpose, outline and disclaimer for this presentation.

Oil

8

Value CommentOil Production Capacity 12,5M bbl/d Disputed

Oil production 8,4M bbl/d - 2010

9,11M bbl/d in H1 2011

Reserves 267b bbl

Percent of Gov. Rev. 75 %

Percent of Exports 90 %

Government break-even price

85 UDS/bbl Est 2011

Kuwait

Mexico

FAE

Irak

Venezuela

Iran

Kina

USA

Saudi-Arabia

Russland

0

2,00

0

4,00

0

6,00

0

8,00

0

10,0

00

12,0

00

World 10 largest oil producers

1 000 bbl/d

9

Saudi Aramco

• Controls all production • 2004 -2010: 4,25M bbl/d new

capacityOilfield Completed

Grade Capacity(M bbl/d)

Qatif 2004 Arab light/medium

0.8

Haradh 2006 Arab light 0.9

khurais 2009 Arab light 1.2

Shaybah 2009 Arab extra light

0.75

Nuayyim 2009 Arab super light

0.1

Khursaniyah

2010 Arab light 0.5

Manifa 2013/14 Heavy 0.9

• Projects waiting to lift capacity to 15M bbl/d• Will not be developed in the

near future Oilfield Grade Capacity

(M bbl/d)

Zuluf Arab heavy 0.9

Safaniyah Arab heavy 0.7

Berri Arab extra light

0.3

Khurais Arab light 0.3

Shaybah Arab extra light

0.25

Major oil fields in KSA

10

• Ghawar is the worlds largest oil field• Production capacity approx 5m

bbl/d• 50 % of KSA output

• Safaniya is the worlds largest offshore field• Production capacity approx

1,2m bbl/d

11

Downstream focus• Refineries

Refinery JV partnerExpected completion

New capacity (M bbl/d)

Jizan - 2015 0.4

Jubail Total 2013 0.4

Yanbu ConocoPhillipes 2013 0.4

Porth Arthur expansion (US)

Shell 2011 0.325• Petrochemicals• Biggest diversification projects in KSA

Aramco estimated spending

OilpetrochemRefiningGasAlternatives

Gas

Pre/Post Master Gas System (MGS)

Production in 2010: 1.8 BOE/d (10 bcf/d) or 100b m3

per year 10th largest producers of natural gasNorway 5th and Qatar is 11th

Gas production on the riseKaran field 0.45 bcf/d now – 1.8

bcf/d in 2013Wasit Non-associated gas 2.5 bcf/d

2013Shaybah NGL Associated gas 2.5

bcf/d 2013

Unconventional gas

Sold cheaply domestically0,75 USD/mbtu in KSA0,77 USD/mbtu in Oman

New fields need 2-5 USD – ARAMCO

12

1313

Section 3

Economic Diversification and Industrialization Part I

Please see section 0 for the purpose, outline and disclaimer for this presentation.

Economic Diversification and Industrialization

Economic security and social stability

Jobs and economic diversification

Regulatory developmentsSAGIA - year 200010 x10 ProgramEase of Doing Business

Industrial growthCheap energy and feedstocks Petrochemicals is the biggestMining

AluminiumFertilizer

OtherTourismFinancial Services

HowTransport Infrastructure – sector 6 Industrial/Economic cities – this

sectionPower generation – section 5natural gas exploration

14

Industrial and Economic cities

Jubail and JanbuFirst industrial cities in the mid

70sStrong communication linksSuccessful industrial cities

Many projects have followedExample Ras Al-Khair (Also

called Ras Al-Zour, Ras Azzour or “Mineral City”)

15

The Economic cities6 planed, four under

development

Map of the Economic Cities planed in KSA

16

171717

Section 4

Economic Diversification and Industrialization Part II

Please see section 0 for the purpose, outline and disclaimer for this presentation.

Petrochemicals in KSA

100b SAR exports in 2011 estUp 7 % YOY and set to increase

JVSaudi Aramco Total Refining and

Petrochemical Company – Jubail - finished in 2013 – 14b USD

Sadara Chemical Co – Dow Chemical and Aramco – Yanbo – finished in 2016 – 20b USD

Saudi Basic Industries Company (SABIC)70 % Gov 30 % private, publicFour areas

ChemicalsPlasticsFertilizersMetalsGrowing globally - JV with Sinopec

Ethylene derivatives in Tianjin 18

MiningKSA is rich in MineralsSaudi Arabian Mining Company

(Maaden )Started in 97, went public in 07Five existing gold mines + five

advanced expMahd Ad DahabAl-SukhaybaratBulghahAl-HajarAl- Amar

Ras-al Zawr “Mineral city”Ma’aden Phosphate Company

JV Maaden (70 %) and SABIC (30 %)Al Jalamid->Ras Al Khair

Saudi Arabian Mining Company Bauxite and Alumina Company,Al Ba'itha -> Ras Al KhairAluminaAluminum JV Alco (25 %) Maaden (75

%)Iron

19

2020

Section 5

Domestic Energy Usage and Power Production

Please see section 0 for the purpose, outline and disclaimer for this presentation.

Energy Production and Consumption

Biggest challenge facing KSA and the GCC30 % of production consumed

domestically2010: 2,4 or 3,2 bpd (just oil or

gas also)

21

How is this possible?

Population growth 1.5 % per year

Oil consumption per 1000 USD GDP 387,2 bbl

Electricity Price

0.08 NOK/kWh – Consumer 0.50 NOK/kWh – Industry

Gas 0.75 USD/mmbtu

Petrol 0.4 - 0.6 SAR/L

Oil sold to industry as feedstock 2 – 5 USD/b – est

Oil sold to utilities 10 – 20 USD/b – est

Dezalinating water 7 % of oil and gas

22

23

Energy consumption break down

Power gerneration

42 %

Feedstock 23 %

Transport 21 %

24

Coal Is the biggest in the world, locally consumed.

Gas Not finding enough

Oil Today

Hydro Don’t have the topography

Nuclear ?

Renewables ?

Alternatives for power production

2525

Section 6

Construction and Transportation Infrastructure

Please see section 0 for the purpose, outline and disclaimer for this presentation.

Housing and Transport Infrastructure

HousingDubai most famousNow KSA and Qatat.

Transport InfrastructureRailRoadPortsAirports

26

Railroads

Railroads in KSAOrange – functioning lineGreen North South line Dark Blue Saudi Land bridgeRed Haramain line

27

Roads

As of 2000total: 152,044 kmpaved: 45,461 kmunpaved: 106,583 km

28

King Fahd causeway (above)

Ports Red Sea

Jeddah Islamic PortPort of JizanKing Fahad industrial Port at Yanbu

TheGulfKing Abdulaziz Port at DammamKing Fahad Port at JubailJubail Commercial PortRas al-Khair

29

Airports

Strong growth in GCC airlinesDomestic demand and

international successLarge expansion of airports

planedUAE home to the largest airlines

and Dubai airport is the largest in the region.

30

Mecca Construction

100b SAR on housing and infrastructure.

31

323232

Section 7

Education and Labour Market

Please see section 0 for the purpose, outline and disclaimer for this presentation.

Education

Spends 40b USD or 30 % of the budget on education.

Traditionally education has not been very good.Focus on religionWrong skill set for a modern

economyMoving in the correct direction

Many new universities -> now 24 in total

The state pays for higher educationIncluding foreign studies

Still problemsAround 70 % still study

humanitiesReligion still makes up a large

part of education and is mandatory for all university degrees.

33

Labour system in KSA and GCC

Expats – 90 % of private sector

Unemployment 11 % in KSA, official25 % ??

Saudification?Nitaqat – most ambitious yet

Three colour categoriesDifferent percentages for different

sectors.

All GCC countries have similar programs.

34

35353535

Section 8

Banking/Finance and Healthcare

Please see section 0 for the purpose, outline and disclaimer for this presentation.

Banking and financeRelatively well developed

banking and finance systemBanking in the GCC

ProfitabilityStrong underlying economic

growth.Finance – only for the big

36

Banking assets as percent of GDP

Bahrain 258

UAE 142

Qatar 94

Kuwait 84

KSA 68

Oman 66

No banks in topp 1000

KSA 15

UAE 10

Kuwait 8

Bahrain 8

Qatar 7

Oman 6

World Ranking

Bank Country Tier 1 Capital ($M)

121 National Commercial Bank

KSA 8313

128 Emirates NBD UAE 7539

136 Riyadh Bank KSA 7000

140 Samba Financial Group

KSA 6820

141 National Bank of Abu Dhabi

UAE 6678

143 First Gulf bank

UAE 6539

148 Al Rajhi Bank KSA 6279

169 National Bank of kuwait

Kuwait 5247

175 Kuwait Finance House

Kuwait 5038

185 Qatare National Bank

Qatar 4703

192 Abu Dhabi Commercial Bank

UAE 4415

193 Banque Saudi Fransi

KSA 4321

206 Arab National Bank

KSA 3880

211 Arab Banking Corporation

Bahrain 3828

224 Saudi British Bank

KSA 3450

37

Largest Banks in the GCC

Islamic finance

‘Riba’ is forbidden -> Usury -> interest

Islamic bank loansProfit and loss sharing

Joint venture (Musharakah)Profit sharing (Mudharabah)Safekeeping (wadiah)Cost plus (Murabahah)Leasing (ljar)

Islamic bonds (Sukuks)Total Aramco JV – $1b –

oversubscribed 3,5 Strong growth, but also

controversialIran, Saudi Arabia, MalaysiaLondon, HK, KL

38

Health Sector in KSA

A mix of private and governmentMOH oversees all (NHS)1950 health station, 220

Hospitals

Set for strong growth15 new hospitals and 750 health

station next 5 yearsThe public health budget

leapfrogged by 12 % in 2011.Why

Growing populationLifestyle diseases is big problem

Diabetes

39

404040404040

Section 9

Summary and Challenges Going Forward for KSA and the other GCC Countries

Please see section 0 for the purpose, outline and disclaimer for this presentation.

Large oil and gas exportsCurrent high -> budget

surplusesDiversification

Petrochemicals largest Mining and tourism financial services

maybePublic expenditure

13 % growth per year 2003-2010 in KSA

Arab spring

Population growth and energy challenge

They have a window of opportunityMassive investments in

infrastructure and industry.10-20 years depending on oil

price

41

42

Thank you!