Jadwa forecast-2012

The outlook for the Saudi economy in 2012

Presented to the Riyadh Group for British Business

January 14, 2012

G

1

Paul GambleHead of Research

Gl b l i tl kGlobal economic outlook

2007 2008 2009 2010 2011 2012World 5.4 2.8 -0.7 5.1 4.0 3.6World 5.4 2.8 0.7 5.1 4.0 3.6US 1.9 -0.3 -3.5 3.0 1.8 2.0Japan 2.4 -1.2 -6.3 4.0 -0.9 1.9EuroZone 3.0 0.4 -4.3 1.8 1.5 -0.2UK 2 7 -0 1 -4 9 1 4 1 0 0 2UK 2.7 0.1 4.9 1.4 1.0 0.2China 14.2 9.6 9.2 10.3 9.3 8.6Emerging Markets 8.9 6.0 2.8 7.3 6.3 5.9Middle East 6.7 4.6 2.6 4.4 4.0 3.4

Source: IMF, World Economic Outlook, Jadwa

2

Wh th E tt f S di A biWhy the Eurozone matters for Saudi Arabia

� A disorderly break-up of the Eurozone would cause a banking crisis similar, and possibly worse, than the collapse of Lehman.

� Greater caution by Eurozone banks will discourage them from investing o tside the regionoutside the region.

� The EU is the world’s largest economy; large auto sector and major consumer of plastics Destination of 8 5 percent of Kingdom’s total exportsconsumer of plastics. Destination of 8.5 percent of Kingdom s total exports.

� Direct exposure of companies listed on the stock market is small, but the impact on local sentiment is clearimpact on local sentiment is clear.

� A deep recession in the Eurozone will pull down oil demand and prices.

3

Oil iOil prices

140

150

110

120

130

140

80

90

100

er b

arre

l)

40

50

60

70

($ p

30

40

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Brent crude WTI

4

Brent crude WTI

S di A bi il d tiSaudi Arabia: oil production

10,500

9,500

10,000

r da

y)

9,000

d ba

rrel

s pe

r

8,000

8,500

(thou

sand

7,500

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11

5

M S M S M S M S

S di A bi G t b d tSaudi Arabia: Government budget

800

500

600

700

300

400

500

R b

illio

n)

0

100

200(S

-100

0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Budgeted spending Budgeted revenue Balance

6

Budgeted spending Budgeted revenue Balance

S di A bi B d t d t diSaudi Arabia: Budgeted government spending

175

125

150

75

100

R b

illio

n)

25

50 (SR

0 2002 2005 2007 2009 2011 2012

Education & Manpower Health & Social Af fairs Municipal Services

Transport & Comms Water Ag & Inf rastructure

7

Transport & Comms. Water, Ag & Inf rastructure

S di A bi B d t d t l diSaudi Arabia: Budgeted versus actual spending

900

600

700

800

400

500

billi

on)

100

200

300

(SR

0

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Actual spending Budgeted spending

8

Actual spending Budgeted spending

S di A bi B d t d t l il iSaudi Arabia: Budgeted versus actual oil price

120

80

100

rel)

60

80

e, $

per

bar

r

20

40

(oil

pric

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f

B d t d A t l

9

Budgeted Actual

S di A bi A t l t fiSaudi Arabia: Actual government finances

1,200

800

1,000

400

600

R bi

llion

)

0

200

(SR

-2002004 2005 2006 2007 2008 2009 2010 2011 2012

Revenue Expenditure Budget balance

10

Revenue Expenditure Budget balance

S di A bi SAMA t f i tSaudi Arabia: SAMA net foreign assets

550

450

500

400

450

$ bi

llion

)

300

350

($

250Jan

2008May Sep Jan

2009May Sep Jan

2010May Sep Jan

2011May Sep

11

2008 2009 2010 2011

S di A bi G t d btSaudi Arabia: Government debt

700

500

600

300

400

billi

on)

200

300

(SR

b

0

100

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

12

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Comparative government debt dataComparative government debt data(Debt to GDP ratio)

250

200

100

150

perc

ent)

50

100(p

0Saudi Arabia

China UK Germany France US Italy Greece Japan

13

S di A bi B k l di t th i t tSaudi Arabia: Bank lending to the private sector

404

20

30

2

3

0

10

0

1

(per

cent

)

(per

cent

)

-10

0

-1

0

-20-2Jan 2008

May Sep Jan 2009

May Sep Jan 2010

May Sep Jan 2011

May Sep

Month on month Year on year RHS

14

Month-on-month Year-on-year - RHS

S di A bi C i l b k d it ith SAMASaudi Arabia: Commercial bank deposits with SAMA

160000

100000

120000

140000

60000

80000

100000

SR

mill

ion)

20000

40000

(S

0Jan 2007

Jul Jan 2008

Jul Jan 2009

Jul Jan 2010

Jul Jan 2011

Jul

St t t d it Oth d it ith SAMA

15

Statutory deposits Other deposits with SAMA

S di A bi I di t f diSaudi Arabia: Indicators of consumer spending

10,50070,000

7 500

8,500

9,500

55,000

60,000

65,000

)n)

5,500

6,500

7,500

45,000

50,000

(SR

mill

ion)

(SR

mill

ion

3,500

4,500

,

30,000

35,000

40,000

2,50025,000Jan 2008

May Sep Jan 2009

May Sep Jan 2010

May Sep Jan 2011

May Sep

Cash ithdra als f rom ATMs Point of sale transactions RHS

16

Cash withdrawals f rom ATMs Point of sale transactions - RHS

S di A bi I t t tSaudi Arabia: Interest rates

6

4

5

3

rcen

t)

1

2(pe

0Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11

Repo rate Reverse repo rate Three-month SAIBOR

17

Repo rate Reverse repo rate Three-month SAIBOR

S di A bi R l GDP th b tSaudi Arabia: Real GDP growth by sector

10

4

6

8

0

2

perc

ent)

-6

-4

-2

(p

-8

-6

2004 2005 2006 2007 2008 2009 2010 2011 2012f

Real non oil growth Real oil growth Real GDP growth

18

Real non-oil growth Real oil growth Real GDP growth

Saudi Arabia: Real GDP growth by sectorSaudi Arabia: Real GDP growth by sector (percent)

2008 2009 2010 2011 2012Agriculture 0.7 -0.5 1.1 2.8 1.0gManufacturing 6.0 1.5 5.3 12.4 5.2Electricity, gas and water 6.7 6.8 7.9 4.2 6.3Construction 1.5 0.6 7.8 11.6 8.0Wholesale & retail trade 6.5 2.5 8.1 6.4 4.2Transport & communication 12.2 7.4 8.0 10.1 7.0Finance 2.4 2.6 1.6 2.7 3.3Non-oil private sector 4.6 2.7 5.3 8.3 5.8Oil 4.3 -8.8 2.2 4.3 -3.8G t i 2 4 5 0 5 3 6 2 6 7Government services 2.4 5.0 5.3 6.2 6.7Total 4.2 0.1 4.6 6.8 3.3

19

S di A bi I fl tiSaudi Arabia: Inflation

10

7

8

9

5

6

erce

nt)

2

3

4(p

0

1

2004 2005 2006 2007 2008 2009 2010 2011f 2012f

20

2004 2005 2006 2007 2008 2009 2010 2011f 2012f

S di A bi F d i i fl tiSaudi Arabia: Food price inflation

50

60

16

18

30

40

50

12

14

16

0

10

20

6

8

10

(per

cent

)

(per

cent

)

-30

-20

-10

0

2

4

-40-2Jan

2006Jul Jan

2007Jul Jan

2008Jul Jan

2009Jul Jan

2010Jul Jan

2011Jul

Saudi food price inf lation Global food price inf lation (FAO index; RHS)

21

Saudi food price inf lation Global food price inf lation (FAO index; RHS)

S di A bi R t l i fl tiSaudi Arabia: Rental inflation

20

14

16

18

8

10

12

per

cen

t)

4

6

8(p

0

2

Jan 2007

May Sep Jan 2008

May Sep Jan 2009

May Sep Jan 2010

May Sep Jan 2011

May Sep

22

2007 2008 2009 2010 2011

S di A bi I fl ti b kdSaudi Arabia: Inflation breakdown

14

8

10

12

4

6

8

erce

nt)

0

2

(pe

-2Jan

2009Apr Jul Oct Jan

2010Apr Jul Oct Jan

2011Apr Jul Oct

Education and entertainment Clothing and footwear Home furniture

23

Education and entertainment Clothing and footwear Home furniture

L b k tLabor market

� Regional tensions have made job creation a higher priority.

� Total Saudi unemployment was 463,000 in 2009 (unemployment rate 10.5 percent). Around 700,000 people have qualified for unemployment benefit.

� Labor force participation is very low among Saudis, at 36.4 percent; 60.8 percent for males and 12 percent for females. The average labor force participation rate across the world is 77 percent for women it is 41 percentparticipation rate across the world is 77 percent, for women it is 41 percent.

� There were 113,496 net new Saudi entrants to the labor force in 2009. Of these 40 percent were womenthese, 40 percent were women.

� Expatriates hold 6.2 million jobs in the private sector, 89 percent of the total. There are 13 times more expatriates in the private sector than unemployed p p p ySaudis.

24

L b k tLabor market

� Average monthly wages: Saudis, SR5,868, Expatriates, SR1,549; unemployment benefit SR2,000; minimum public sector salary SR3,000.

� Education and skills of many nationals has improved, with record numbers st d ing abroad b t still not aligned ith the pri ate sector req irementstudying abroad, but still not aligned with the private sector requirement.

� Changing the profile of the labor force will entail some costs for the private sectorsector.

� Strong enforcement essential for Nitaqat to be successful.

� The private sector will remain dominated by expatriates. The government can afford to increase the public sector workforce.

25

S di A bi D ti tiSaudi Arabia: Domestic energy consumption

4.0

3.0

3.5

vale

nt/d

ay)

2.0

2.5

of o

il eq

uiv

1.0

1.5

on b

arre

ls o

0.0

0.5

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

(mill

io

26

S di A bi D ti iSaudi Arabia: Domestic energy prices

Utility pricesGas ($/mbtu) 0.75Gas ($/mbtu) 0.75Gasoline ($/gallon) 0.48Electricity ($/kW) 0.013-0.07Water ($/m3) 0.03

Prices paid by domestic consumers for oil($ per barrel)Saudi Electricity 2.7-4.3Gasoline retailers 18Gasoline retailers 18Cement companies 4.2

27

Energy efficiencyEnergy efficiency (barrels of oil equivalent per day to generate $1,000 of GDP)

14

10

12

6

8

2

4

01988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Saudi Arabia China World

28

Saudi Arabia China World

Source: Ministry of Petroleum and Minerals

S di A bi Oil d tiSaudi Arabia: Oil production

12

8

10

ay)

6

8

rrel

s pe

r da

2

4

(mill

ion

bar

0

2

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

(

29

Saudi Arabia: Outlook for oil consumption and exportsSaudi Arabia: Outlook for oil consumption and exports(forecasts in shaded area)

8

5

6

7

er d

ay)

3

4

5

n ba

rrel

s pe

1

2

3

(mill

ion

0 2002 2006 2010 2014 2018 2022 2026 2030

Exports Domestic consumption

30

Exports Domestic consumption

Saudi Arabia: Projected breakeven oil priceSaudi Arabia: Projected breakeven oil price(Saudi export crude; forecasts in shaded area)

350

250

300

150

200

barr

el)

100

150

($ p

er b

0

50

2002 2006 2010 2014 2018 2022 2026 2030

31

2002 2006 2010 2014 2018 2022 2026 2030

C l iConclusion

� 2012 will be a difficult year for the global economy, with the Eurozone the main area of concern.

� High government spending will be the main source of economic growth in the Kingdom This spending is affordablethe Kingdom. This spending is affordable.

� Higher bank lending and low interest rates will support solid non-oil growth. Total growth will be affected by lower oil productionTotal growth will be affected by lower oil production.

� External pressures will allow inflation to moderate, though some domestically-driven price pressures will increasedomestically driven price pressures will increase.

� Short-term risks are external; the global economy and the regional political situation. Structural problems with the labor force and rapidly growing p p y g genergy consumption are long-term term concerns.

32

S di A bi K d t d f tSaudi Arabia: Key data and forecasts2004 2005 2006 2007 2008 2009 2010 2011E 2012F 2013F

Nominal GDP(SR billion) 938.8 1182.5 1335.6 1442.6 1786.1 1412.6 1690.5 2163.1 2065.3 2136.2($ billion) 250.3 315.3 356.2 384.7 476.3 376.7 450.8 576.8 550.7 569.6(% change) 16.7 26.0 12.9 8.0 23.8 -20.9 19.7 28.0 -4.5 3.4(% change) 16.7 26.0 12.9 8.0 23.8 20.9 19.7 28.0 4.5 3.4

Real GDP (% change)Oil 6.7 6.2 -0.8 -3.6 4.2 -7.8 2.4 4.3 -3.8 2.8Non-oil private sector 5.3 5.8 6.1 5.5 4.6 2.7 5.3 8.3 5.8 5.5Non-oil government 3.1 4.0 3.1 3.0 3.7 5.2 5.9 6.7 6.2 6.2Total 5.3 5.6 3.2 2.0 4.2 0.1 4.6 6.8 3.3 4.9

Oil indicators (average)Oil indicators (average)WTI ($/b) 41.5 56.6 66.0 72.3 99.7 62.0 79.5 94.8 86.0 84.0Saudi ($/b) 34.7 49.5 60.5 68.1 93.4 60.5 77.7 105.0 92.0 86.5Production (million b/d) 8.9 9.4 9.2 8.8 9.2 8.2 8.2 9.3 8.8 9.0

Budgetary indicators (SR billion)Government revenue 392 564 674 643 1101 510 742 1110 824 784Government expenditure 285 346 393 466 520 596 645 804 733 770Budget balance 107 218 280 177 581 -87 97 306 91 14(% GDP) 11.4 18.4 21.0 12.2 32.5 -6.1 5.7 14.1 4.4 0.7Domestic debt 614 475 366 267 237 225 167 136 115 100(% GDP) 65.4 40.2 27.4 18.5 13.3 15.9 9.9 6.3 5.6 4.7

Monetary indicators (average)Inflation (% change) 0.3 0.7 2.3 4.1 9.9 5.1 5.3 4.9 4.4 4.0SAMA base lending rate (%, end year) 2.50 4.75 5.20 5.50 2.50 2.00 2.00 2.00 2.00 2.00SAMA base lending rate (%, end year) 2.50 4.75 5.20 5.50 2.50 2.00 2.00 2.00 2.00 2.00

External trade indicators ($ billion)Oil export revenues 110.4 161.6 188.2 205.3 281.0 163.1 214.9 302.4 227.8 200.0Total export revenues 125.7 180.4 210.9 233.1 313.4 192.2 251.0 343.2 271.0 248.5Imports 41.1 53.8 63.0 81.5 100.6 86.4 96.7 98.7 110.5 123.8Trade balance 84.6 126.6 147.8 151.6 212.7 105.8 154.3 244.5 160.5 124.7Current account balance 51.9 90.0 98.9 93.3 132.3 21.0 67.0 159.5 80.6 41.5(% GDP) 20 7 28 5 27 8 24 3 27 8 5 6 14 9 27 6 14 6 7 3

33

(% GDP) 20.7 28.5 27.8 24.3 27.8 5.6 14.9 27.6 14.6 7.3Official foreign assets 127.9 195.5 273.4 359.8 502.0 474.2 520.3 634.8 695.3 728.3

Social and demographic indicatorsPopulation (million) 22.7 23.4 24.1 24.8 25.5 26.3 27.1 27.9 28.8 29.7Unemployment (male, 15+, %) 11.0 11.5 12.0 11.0 9.8 10.5 10.2 11.0 10.5 9.4GDP per capita ($) 11039 13503 14806 15523 18651 14311 16612 20651 19122 19190