Download Slide 1

Dr. John Sfakianakis
Group General Manager, Chief Economist
Al Khobar
May 29, 2010
Where is the global economy going now?
V
If you think Greece is the only one having a
debt problem in Europe, think again
Macroeconomically Saudi Arabia is very
healthy and solid
2009 Estimated Gross External Debt (%of GDP)
180.5%
67.7%
38.0%
Bahrain
Source: IMF
Qatar
UAE
23.5%
19.6%
17.1%
Kuwait
KSA
Oman
Real estate exposure is the smallest in the
region – NPLs are very low at 3.3%
Minimal Exposure to Real Estate
68%
57%
39%
16%
18%
20%
Turkey
Russia
Qatar
32%
33%
UAE
Kuwait
7%
KSA
Czech
Real Estate & Construction Loans / Total Loans
US
UK
Government debt is still going down
800
600
400
200
0
100
80
60
40
20
0
2002 2003 2004 2005 2006 2007 2008 2009 2010f
ACTUAL
Outstanding public debt
Debt to GDP
Source: Ministry of Finance, SAMA, Banque Saudi Forecasts
%
(SR, bn)
Saudi public debt continues to fall
Private sector credit growths slowly picks
up, YoY could be at 8%
750
745
740
735
730
725
720
715
710
22
18
14
10
6
2
-2
2009 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 Feb Mar Apr
Saudi private sector credit
Source: SAMA
Annual growth rate
(YoY % change)
(SR, bn)
Private sector credit growth slowly picks up
Business confidence in Saudi Arabia is
gradually on the rise
BSF Business Confidence Index
101.0
100.5
100
100.0
99.5
99.4
99.0
98.5
98.0
98.2
97.5
97.0
Sep-09
Q4 2009
Q1 2010
The economy is slowly rebounding in 2010
YoY % change
Robust growth of non-oil private sector?
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2002
2003
2004
2005
2006
2007
2008
Real GDP
Non-oil private sector real GDP
Source: SAMA, Banque Saudi Fransi forecasts
2009
2010
SAMA repleneshing foreign assets as oil
prices gain momentum
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
500
150
140
130
120
110
100
90
80
70
60
50
40
30
2006
2007
2008
SAMA net foreign assets
Source: SAMA
2009
Oil price
2010
(Oil price, USD/bbl)
(SR, bn)
SAMA replenishing foreign assets as oil prices gain momentum
Oil prices are providing good support
(USD per barrel)
Oil prices remain in $70-80 range
90
85
80
75
70
65
60
55
50
45
40
35
30
2009 Feb Mar
Source: Reuters
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov Dec
2010 Feb
Mar
Challenge No. 1 Inflation is down in ’010
but historically high
(YoY % change)
Rental inflation falls to lowest level in
more than two years, food costs climb
25
23
21
19
17
15
13
11
9
7
5
3
1
-1
-3 2007 Mar May Jul Sep Nov2008 Mar May Jul Sep Nov2009 Mar May Jul Sep Nov 2010
-5
Inflation rate
Rental inflation
Food and beverage inflation
Source: Central Department of Statistics
Saudi food prices track global trends after
lag
165
160
155
150
145
140
135
130
125
120
115
110
105
100
95
90
125
120
115
110
105
100
95
90
2007
2008
FAO food price index
2009
2010
Saudi food and beverage index
Source: Food and Agriculture Organisation, CDSI
(SAUDI)
(FAO)
Saudi food prices track global trends after lag
Challenge No. 2: Labour Market,
expatriates, remittances etc.
Remittances track jump in non-Saudi private workforce in '09
6500
100
6000
95
90
5000
85
4500
4000
80
3500
75
3000
70
2500
65
2000
60
1500
55
1000
500
50
2006
2007
2008
2009
Source: Ministry of Labour
Non-Saudi
Saudi
Workers remittances
(Remittances, SR, bn)
(Employees, 000s)
5500
US$ Thousands Per Employee
Labour productivity is very low
$2,000
$1,900
$1,800
$1,700
$1,600
$1,500
$1,400
$1,300
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
$1,992
GDP Labour Productivity 2008
$1,358
$1,237
$128
Mining,
Quarrying &
Energy
$96
$88
$113 $98
$50
$35
Manufacturing
$144 $167 $132 $126
$55
$60
$58
$102
$33
$39
Financial & Transportation Government
Real Estate
&
Services
Services
Communication
Norway
Canada
UAE
$61
$98
$48
$28
$9
$125
$81
$21
$54
$6
Trade,
Construction,
Restaurants &
Electricity,
Hotels
Water & Gas
$73
$69
$16
$20
Agriculture,
Forestry &
Fisheries
$50
Total
KSA
Source: Abu Dhabi Statistical Yearbook; Abu Dhabi Census; UAE Ministry of Economy; SAMA; Statistics Canada; Statistics Norway; Banque Saudi Fransi
$36
Challenge No. 3: Energy (oil, electricity and
water)
30
Saudi domestic oil demand rising rapidly
Growth in oil demand between
2007-end 2010
25
20
15
10
5
0
-5
-10
Saudi Arabia
Asia
Source: International Energy Agency
North America
Europe
Middle East
Latin America
Water demand is rising fast: Around 33%
of water is wasted via pipeline system
140
26
130
24
120
22
110
20
100
18
90
16
80
14
70
12
60
10
1992
1997
2002
Renewable water resources per capita
Source: Food and Agriculture Organisation Aquastat
2007
Population
2008
(Millions)
(cubic metres per year)
Trends in Saudi water resources
Our renewable water resources are among
the lowest
Renewable water resources per capita 2008
2250
2000
1750
1500
1250
1000
750
500
250
Yemen
United Arab
Emirates
Tunisia
Qatar
Libya
Saudi Arabia
Source: Food and Agriculture Organisation Aquastat
Lebanon
Kuwait
Jordan
Iraq
Iran
Egypt
Bahrain
0
Algeria
(cubic metres per person, per year)
2500
Electricity demand is rising fast (7-8% per
year)
Electricity demand poised for massive surge
60
55
50
(GW)
45
40
35
30
25
20
15
10
1998
2004
2005
Source: Electricity & Cogeneration Regulatory Authority
2006
2007
2008
2022f
State is spending more and more
50
45
40
35
30
9.0
25
20
15
10
5
0
7.0
8.5
8.0
7.5
6.5
6.0
5.5
5.0
2004
2005
2006
2007
Water, electricity and infrastructure allocation
Source: Ministry of Finance
2008
2009
2010
Ratio to total state budget
(%)
(SR, bn)
State allocation for water-related spending rises quickly
More power but are we efficient users? But
something has to give in here?
SEC expects surge in power production
80000
(Anticipated loads, MW)
75000
70000
65000
60000
55000
50000
45000
40000
35000
30000
2009
2012
2015
Anticipated loads (MW)
Source: Saudi Electricity Company
2018
2020
Scenario 1: Oil at $102 through 2015 and
$131 through 2020)
Aggressive spending
2500
(SR, bn)
2000
1500
1000
500
0
2005
2006
2007
2008
2009
Source: SAMA, Banque Saudi Fransi forecasts
State revenue
2010f
2015f
State expenditures
(SR, bn)
650
600
550
500
450
400
350
300
250
200
150
100
50
0
-50
-100
-150
-200
2020f
Surplus/deficit
Scenario 2: Oil at $70 through 2015 and
$80 through 2020)
Aggressive spending
2500
(SR, bn)
2000
1500
1000
500
0
2005
2006
2007
2008
2009
Source: SAMA, Banque Saudi Fransi forecasts
State revenue
2010f
2015f
State expenditures
2020f
Surplus/deficit
(SR, bn)
700
600
500
400
300
200
100
0
-100
-200
-300
-400
-500
-600
-700
-800
-900
-1000
Scenario 3: Oil at $150 through 2015, $200
through 2020)
3500
1200
3000
1000
2500
800
2000
600
1500
400
1000
200
500
(SR, bn)
(SR, bn)
Aggressive spending
0
0
-200
2005
2006
2007
2008
2009
2010f
2015f
2020f
Source: SAMA, Banque Saudi Fransi forecasts
State revenue
State expenditures
Surplus/deficit
Energy subsidies, high oil revenues, high
spending, we can’t have them all
Domestic oil consumption strain poised to rise
2100
(Mn barrels)
1600
1100
600
100
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
*Assumes domestic consumption rises 10% in 2009, 6% per year from 2011-2014, 4% per year from
2015-2020
*Assumes constant oil price of $85 a barrel from 2011-2020
-400
Source: SAMA, Banque Saudi Fransi forecasts
Natural gas
Other refined products
LPG
At $70 per barrel between 2010-2020 we are
losing SR 3.3 trillion in crude oil revenue
Risk of opportunity cost heightens on domestic demand growth
6.0
700
5.5
600
SR6.1 trillion
5.0
500
4.0
400
3.5
300
3.0
2.5
(SR, bn)
(Mn bbl/day)
4.5
200
2.0
100
1.5
1.0
0
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
*Assumes domestic consumption rises 10% in 2009, 6% per year from 20112014, 4% per year from 2015-2020
*Assumes constant oil price of $85 a barrel from 2011-2020
Source: SAMA, Banque Saudi Fransi forecasts
Daily consumption
Lost potential oil export revenue
Disclaimer
This presentation contains indicative terms only. All materials contained
here are for discussion purposes only. Finalized terms are subject to
further discussion, revision and negotiation. BSF makes no
representation and has given you no advise concerning the appropriate
accounting treatment or possible tax consequences of this potential
transaction(s). The information in this document does not constitute a
solicitation for the purchase of sale of any security or commodity and was
obtained from sources believed to be reliable but which has not been
independently verified, and its accuracy or completeness cannot be
guaranteed. Any opinions expressed herein are given in good faith but are
subject to change without notice. No liability whatsoever is accepted for
any direct or consequential loss arising from the use of this document.
This document is for private circulation to institutional or professional
clients only. All terms are subject to completion and amendment.
Disclosure appendix
The following analyst(s), who is (are) primarily responsible for this report, certifies(y) that the opinion(s) on
the subject security(ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect
their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to
the specific recommendation(s) or views contained in this research report: Dr. John Sfakianakis
This report is designed for, and should only be utilised by, institutional investors. Furthermore, BSF
believes an investor’s decision to make an investment should depend on individual circumstances such as
the investor’s existing holdings and other considerations.
Analysts are paid in part by reference to the profitability of BSF which includes investment banking revenues.
For disclosures in respect of any company, please see the most recently published report on that company
available at www.bsf.com.sa
Additional disclosures
This report is dated as at 29 May 2010.
All market data included in this report are dated as at close 24 May 2010, unless otherwise indicated in the report.
BSF has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. A Chinese Wall is in place between the Investment Banking and Research businesses to ensure that
any confidential and/or price sensitive information is handled in an appropriate manner.
Thank you