SAUDI ARABIAECONOMICS

May 2011

Dr. John SfakianakisChief EconomistTel: +966 1 289 1797Email: johns@alfransi.com.sa

Daliah MerzabanEconomic AnalystTel: +971 4 428 3608Email: dmerzaban@alfransi.com.sa

Turki A. Al HugailEconomic Research AnalystTel: +966 1 289 1163Email: talhugail@alfransi.com.sa

May 17, 2011

Holding backState spending focus restrains private sector, diversification

Government share of gross fixed capital formation more than doubled in past decade as state takes lead in steering economic growth

Substantial government investments in real estate greatly reduce private sector’s share of construction projects

Stagnant growth in real incomes of Saudis over past two decades reveals urgency of improving private sector pro-ductivity, bettering redistribution

Private consumption expenditure surges in absolute terms but ratio to GDP trends lower as citizens lose real purchas-ing power

The Saudi government’s substantial state spending programme unveiled this year to support its citizens has left a question mark over the matter of whether the country will be successful in promoting diversification away from its predominant reliance on oil by spurring greater private sector activity. After exceeding 5% between 2004 and 2007, private sector GDP growth slowed to below 4% for the past three years, a rate that fails to encourage an adequate level of job creation for the kingdom’s youth.

This year, too, private sector real GDP growth is set to accelerate only slightly to 4.2% while government sector GDP growth holds above 5% for the third straight year, tipping the balance in favour of continued state-dominated development. Growth rates of at least 6% are necessary in our view for the private sector to be in a position to engage adequately in building a more-diversified economy. Growth must exceed 6.5% per year to generate enough jobs.

The emphasis on state funding has in many respects hampered the government’s endeavour to stimulate the private sector. The trend toward relying on government cash to push forward crucial infrastructure projects has to some extent stifled the rebound in bank credit and restrained private sector investment.

Fiscally speaking, Saudi Arabia is able to afford for this scenario to continue in the medium term given the rebound in oil prices by almost a third in the past year. With oil prices around $100 a barrel and crude oil output gaining, the kingdom’s public revenues are poised to grow 23% this year to SR904 billion, providing it plenty of flexibility to finance new initiatives for Saudi citizens, take the lead in building homes, and raise public sector wages.

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SAUDI ARABIAECONOMICS

May 2011

Yet with public expenditures this year likely to be triple what they were in 2004, it will become critical in the coming years to transfer a good deal of the financing and expansion burden to the private sector, including both domestic and global players. Since 1990, the private sector’s contribution to non-oil real GDP has barely moved. It accounted for 66.7% of non-oil GDP in 2010, just 2.3 percentage points more than its contribution 20 years earlier.

While the private sector’s share of the non-oil sector forms the majority, investments of the private sector, as measured by its gross fixed capital formation, have in recent years decelerated as government funding swung substantially higher. In addition to the lack of private

sector momentum, growth of real incomes of Saudi citizens has lagged many of the country’s global peers due to comparatively fast population growth and lower-than-optimal private sector GDP growth.

These challenges highlight the need to ensure government policies avoid having a crowding out effect on the private sector or discouraging enlargement of the small-and medium-sized enterprises sector.

State becomes dominant investorInvolving the private sector in the development plan has been a key government priority for years as part of efforts to strengthen the non-oil economy to reduce reliance on oil exports and create jobs. The most-recent cycle of high oil prices that began in 2003 and ended with the onset of the global financial crisis witnessed a period of private sector and government expansion.

Yet the private sector’s investment appetite has grown considerably less quickly than the government’s appetite in the past decade. This is understandable given that a surge in oil prices improved the public fiscal position and gave the state a great deal more leverage to be able to invest in building the domestic economy. After years of posting fiscal deficits, the government found itself possessing surplus capital with which to pay off debts, invest in infrastructure and build its foreign assets.

Government sector supporting recent GDP growth

Government sector GDP growth Private sector GDP growthGDP growth

(Rea

l GDP

, % c

hang

e)

(Government , private, YoY %

change)

Source: SAMA, CDSI

8.5

-0.5 0.0

6.5

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

0.51.01.52.02.53.03.54.04.55.05.56.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Private sector GDP contribution barely changing

30

70

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

(%)

Source: SAMA, CDSI

35

40

45

50

55

60

65

Private sector GDP contribution Private sector non-oil GDP contribution

3

SAUDI ARABIAECONOMICS

May 2011

As a result of this shift, the government took on a very important role in domestic investments. The state went from accounting for 14% of total gross fixed capital formation (GFCF) in 2001 to 35% in 2009. The private sector, meanwhile, saw its share of GFCF fall to 49% from 75%. GFCF measures the value of fixed asset acquisitions undertaken by businesses, governments and households minus disposals of fixed assets. It provides some indication about how much new value added in the economy is invested as opposed to consumed.

While comprehensible, the private sector’s reduced overall role in investments in the Saudi economy does point to some structural drawbacks in the state’s approach to expansion. The government’s strategy has been one that attempts to generate momentum by pouring

its own funds into key projects, on the assumption that the private sector will reciprocate with a similar level of capital. That has not, however, happened as extensively as policymakers might have hoped hope. Government GFCF surged eight-fold between 2000 and 2010. Private GFCF, by contrast, expanded less than 94% over that period. Between 2006 and 2010, private GFCF grew 38.5% versus the government’s 140.4%.

A number of mega-projects in the country have suffered from a lack of investor appetite. When the King Abdullah Economic City mega project was unveiled in 2005, it was considered to be the single-largest private sector investment. One of five economic cities planned to speed up job creation, the city, located along the Red Sea north of Jeddah, includes plans for an industrial zone, a sea

Gross fixed capital formation breakdown, 2001

Source: CDSI

Oil sector11%

Government14%

Private sector75%

Gross fixed capital formation breakdown, 2009

Source: CDSI

Oil sector16%

Government35%

Private sector49%

Government capital formation surges 8-fold since 2000

Gross fixed capital formation as % of GDPGovernment Private

(SR,

bn)

(% of GD

P)

220

-20 15

27

Source: SAMA, CDSI, Banque Saudi Fransi forecasts

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f 2012f

20

60

100

140

180

17

19

21

23

25

4

SAUDI ARABIAECONOMICS

May 2011

As recently as 2003, private sector GFCF in non-residential building had exceeded the government share. This shifted with the turn in oil prices and as of 2009, government GFCF in non-residential construction was up more than eightfold from 2001 levels at SR85.54 billion – versus the private sector’s SR26.54 billion, up a lower 41.3% from 2001.

In our view, the private sector has under-performed despite the period being marked by tremendous optimism in the economy, creating a wealth of investment opportunities. The trend shows the private sector’s role is not expanding sufficiently. Rather, the state has acted as the economy’s primary engine, stepping in to fill funding gaps as it seeks to address a problem of inadequate housing supply.

Even in the machinery and equipment investment space, the private sector’s growth in the last decade has lagged that of the oil sector, CDSI data on capital formation show. Private sector GDP growth fell in the four years to 2009, from 6.1% in 2006 to 2.7% in 2009 on the heels of the financial crisis. Over the same period, the government sector’s GDP has grown from around 3% to above 5%.

Government shoulders economic burdenThese data illustrate that large government-driven investment over the 2000 oil boom years failed to ignite a good deal of private sector momentum. This trend is

port and residential community. The dearth of private sector interest has stalled this project’s development compared with its initially stated goals.

State-run Public Investment Fund (PIF) and Saudi Industrial Development Fund (SIDF) have filled a lot of funding gaps for strategic projects since the onset of the financial crisis. But there are limits to how much the government would be able to contribute to such ventures in the medium term.

Private sector yields dominance in real estate to stateOver the past decade, the government encroached on the private sector’s share of investments in some key sectors, including construction, data show. In 2001, some 96% of GFCF in residential construction and 63% of GFCF in non-residential building encompassed investments by the private sector. In the following eight years, the scenario shifted considerably: the private sector share of residential construction fell to 74% and its share of non-residential building dropped to 23.7%.

This shift toward state-dominated investing in the real estate market became pronounced between 2007 and 2009, when government GFCF in the residential building space soared 11-fold to SR12.63 billion, compared with a meagre 8% expansion in private sector GFCF over that stretch to SR36.31 billion.

State dominant investor in construction

Source: CDSI

Private sector gross fixed capital formation

39%

Government grossfixed capital formation

61%

Government investment in residential buildingjumps in 2008-2009

Source: CDSI

Government gross fixed capital formation Private sector gross fixed capital formation

(Gov

ernm

ent,

SR, m

n) (Private, SR, mn)

13000

-1000

39000

250002001 2002 2003 2004 2005 2006 2007 2008 2009

27000

29000

31000

33000

35000

37000

1000

3000

5000

7000

9000

11000

5

SAUDI ARABIAECONOMICS

May 2011

likely to continue following the king’s announcement earlier this year that the government would commit SR250 billion toward the construction of 500,000 new units for citizens in the coming years.

The private sector is not expected to offer enough thrust on its own to fill gaps in real estate supply, in addition to financing numerous major expansion projects. Much of the private sector involvement that does take place happens because private firms are awarded government contracts, not because they are committing their own funds. Private sector growth rates therefore do not reflect a genuine increase in private capital being committed to local ventures. The government became the principle financier behind strategic projects in many core sectors beginning in 2009, and it looks likely to bolster this strategy rather than undercut it.

The private sector has gone through a phase of de-leveraging since the onset of the global financial crisis, but this only in part explains the lack of private sector investments. The private sector will need to discover new engines for growth going forward. The sector has become overly dependent on the state for its growth, which has advantages, but over-dependence can also lead to lower productivity.

As the months pass, the private sector is slowly picking up more of the slack nonetheless. Bank credit to the private sector has slowly gained momentum in recent

months, reaching 6.5% year on year growth in March – compared with rates of less than half that just four months earlier. Banks are very liquid, and many have indicated that, aside from tougher credit extension rules, it is private sector businesses which are not interested in getting financing; companies would rather hold off on expansion until they are better able to assess the economy’s future course. In the past two years, without state funds many crucial expansion projects would have been held up or cancelled.

While it has not been the state’s intention to crowd out the private sector, the tables will need to shift soon for the private sector to be viewed as a serious economic player in its own right. One drawback we have repeatedly cited with the government’s stimulatory spending plan is

State reliance on oil revenues grows

Ratio of oil revenuesTotal revenues Revenues from oil

(SR,

bn)

(Oil as %

of total)

1200

0 75

91

Source: SAMA, CDSI

200

400

600

800

1000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

77

79

81

83

85

87

89

Saudi fiscal, trade oil reliance extensive

Source: Official government data from respective countries

%GDP

%Exports%Budget

0

0.25

0.5

0.75

1Norway

Egypt

UAE

Bahrain

Iran

Oman

Qatar

Iraq

Algeria

Saudi Arabia

Kuwait

Libya

6

SAUDI ARABIAECONOMICS

May 2011

that it has not adequately passed down benefits to small- and medium-sized enterprises (SMEs). Bigger private sector players tend to receive the bulk of state contracts.

As the government works through these challenges, reliance on oil for fiscal and trade accounts remains the standard. In 2010, oil revenues accounted for 87.8% of total public revenues, up from 78% in 2002 ahead of the oil price rally. Saudi exports have become moderately less reliant on oil, although not exceptionally so – oil exports still account from 85% or more of a year’s exports. This has fallen from 91% in 2000 and hence signals some improvement in diversifying exports, mostly toward petrochemicals and chemical products.

Real income of Saudis stagnates as population soarsFailing to build the private sector more quickly is also taking its toll on improvement of real incomes among Saudi citizens and residents. Looking at nominal GDP figures, which fluctuate widely based on oil prices, per-capita GDP figures have shown a distinct improvement in the last decade. Each Saudi resident earned $16,039 in 2010, a surge of 74% since 2000.

Yet these data can be viewed as unrepresentative; per capita income measured at constant prices, to account for inflation, tell a very different story. According to this measure, real per-capita income growth has been stagnant since the mid-1980s. Adjusted for inflation,

Saudi exports become moderately less reliant on oil

Ratio of oil exportsTotal exports Exports from oil

(SR,

bn)

(Oil exports as %

of total)

1400

0 83

92

Source: SAMA, CDSI

200

400

600

800

1000

1200

84

85

86

87

88

89

90

91

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Saudi real per-capita income stagnant

0

25000

(USD

)

Source: SAMA, Banque Saudi Fransi forecasts Per capita share in GDP (current prices) Per capita share in GDP (constant prices)

5000

10000

15000

20000

1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011f

7

SAUDI ARABIAECONOMICS

May 2011

each Saudi resident was earning $8,550 in 2010, virtually on par with the level in 1991 and below a 1980 peak of $14,773.

The reasons behind this sluggish trend in real income have been rapid population growth occurring without a correspondingly large expansion in the economy, particularly the non-oil economy. Compared with countries such as Nigeria, Malaysia, South Africa or Turkey, Saudi Arabia’s population has grown tremendously quickly. Re-based data of the United Nations Population Division show the Saudi population expanded 182.4% between 1980 and 2010. Nigeria, which came closest among the eight countries we measured, posted population growth of 112.4% over the same period, while Turkey’s population grew 64%, just above the global average 56%.

This apparent discrepancy in Saudi population growth rates translated into much lower growth in GDP per capita vis-à-vis global peers as well. Compared with Korea, Nigeria, Singapore, South Africa and Turkey, the kingdom has the lowest GDP per capita, based on purchasing-power-parity (PPP), which takes into consideration both nominal GDP growth rates and domestic price growth. Between 2000 and 2010, IMF data show per-capita income growth PPP accelerated 44% in Saudi Arabia, compared with 99% in Korea, 90% in Singapore, 66% in South Africa, 77% in Turkey and 124% in Nigeria.

Regionally, too, the kingdom’s GDP per capita PPP is low, according to IMF data, having grown 39.7% from 1980 levels. This is versus higher growth of just over 42% in Kuwait and the UAE, almost 200% in Bahrain, and more

1000

3000

(Pop

ulat

ion,

198

0=10

00)

Saudi population growth far outpaces many countries

Source: United Nations Population Division

1980 1985 1990 1995 2000 2005 2010

BrazilSouth Africa Turkey

MalaysiaUnited States

NigeriaWorld

Saudi Arabia

1200

1400

1600

1800

2000

2200

2400

2600

2800

France

Population growth outstrips GDP expansion

Per capita share in GDP (constant prices) Population (millions)

(Pop

ulat

ion,

mill

ions

)

(Real per-capita income, USD

)

30

0 0

16000

Source: SAMA, CDSI, Banque Saudi Fransi forecasts

2011f200820052002199919961993199019871984198119781975

5

10

15

20

25

2000

4000

6000

8000

10000

12000

14000

8

SAUDI ARABIAECONOMICS

May 2011

than 300% in each of Egypt, Morocco, Oman and Tunisia.

Relatively low real-income data underpin the importance of raising the wage equilibrium in the coming years, a challenge we have discussed previously. Saudi Arabia’s labour market needs to shift from one relying on cheap labour to one exhibiting high wage equilibrium to encourage Saudi participation and ease unemployment. This would in turn improve real incomes of citizens and reduce the burden on the state purse.

The government moved a step in this direction by raising the minimum wage this year for civil service employees to SR3,000 per month from SR2,185. However, private sector employers must be compelled to do the same for the proper incentives to be in place to improve real wages in the sector that employs more than 80% of the

workforce. The private sector predominately comprises expatriates, which would shift only once wages become more compelling for citizens.

Private consumption to GDP trends lower State-driven development has succeeded in getting the Saudi economy back on track after the financial crisis and subsequent drop in oil prices slowed economic growth to just 0.2% in 2009. The state created an environment conductive to boosting consumption by the government and private citizens.

Between 2004 and 2009, Saudi final private consumption expenditure surged 88%, exceeding growth in Malaysia, Turkey, Korea and the MENA region average, World Bank data show. Private consumption expenditure includes

0

1300

(GDP

per

cap

ita (P

PP),

1980

=10

0)

Growth in Saudi GDP per capita lags global peers

Source: International Monetary Fund,World Economic Outlook Database, April 2011

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 20102008

KoreaNigeria

Saudi ArabiaSingapore

South AfricaTurkey

100200300400500600700800900

100011001200

0

600

(GDP

per

cap

ita (P

PP),

1980

=10

0)

Growth in Saudi GDP per capita low by regional comparison

Source: International Monetary Fund,World Economic Outlook Database, April 2011

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

BahrainMorocco

TunisiaEgypt

OmanUnited Arab Emirates

Kuwait

100

200

300

400

500

Saudi Arabia

9

SAUDI ARABIAECONOMICS

May 2011

goods and services used for individual and community needs. Growth in consumption over this period marked a very big rise over figures recorded in 1998-2003; during those six years, Saudi private consumption rose only 7.4%, lower than most of the countries measured.

While consumption has climbed among individuals, the overall private consumption ratio against GDP has been trending downward for the past 15 years–from 46.9% in 1995 to 34.1% in 2010, CDSI data show. Clearly, then, while overall consumption is growing along with the expanding population, individual families have less buying power than they did in the 1990s.

In such an environment, it is logical for the government to enhance its role in social welfare. One measure that provides insight into the government’s role in social

welfare is government final consumption expenditure, which reflects the state’s spending on goods and services for the population’s direct needs.

Between 2004 and 2009, Saudi government consumption grew 4.7%, compared with declines of 10.7% in Egypt and an Arab world drop of 14.6%. The Saudi government thus became comparatively more supportive of its citizens, possible due to its strong fiscal position. By comparison, government consumption had dropped 3.1% over all from 1999-2009, highlighting a shift in the pattern in the latter part of the past decade. It is likely government consumption grew more rapidly in 2010, and should continue to do so due to the state’s focus on bank-rolling citizen benefit schemes.

Final government consumption almost tripled between

0

180

(Con

sum

ptio

n gr

owth

, %)

Private consumption growth between 2004-2009

Source: World Bank

Arab World MENA Brazil Saudi Arabia Malaysia Turkey Korea Egypt

20

40

60

80

100

120

140

160154.0%

15.8%

57.3%75.4%

88.1%

143.8%

82.6%98.6%

Private consumption to GDP trends downward

15

50

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

(%)

Source: SAMA, CDSI Private consumption to GDP

20

25

30

35

40

45

-20

25

(Con

sum

ptio

n gr

owth

, %)

Growth in government consumption between2004-2009

Source: World Bank

-15

-10

-5

0

5

10

15

20

-10.7%

20.3%23.1%

12.2%

4.7%

13.4%

-7.4%

-14.6%

ArabWorld

MENA Brazil SaudiArabia

Malaysia Turkey Korea Egypt

10

SAUDI ARABIAECONOMICS

May 2011

1995 and 2010, according to CDSI data. Over that period, nominal non-oil GDP more than doubled, not in a small part thanks to the state playing a bigger role in the economy.

Progress on a state promise in its latest development plan to nurture and organise the SME sector is critical if the tables are to turn in the coming years in favour of the private sector becoming the economic engine. As of 2008, Saudi Arabia had 823,500 private sector enterprises, some 94.2% of which were classified as SMEs, according to the government’s 2010-2014 development plan. SME’s provided 62.5% of all job opportunities under the last five-year plan, the government said, highlighting the need to place more emphasis on this sector.

The development plan seeks private sector GDP growth

of about 6.6% per year on average through 2014, boosting the sector’s overall share of GDP. Yet more than a year into the plan, it is the government sector whose share of GDP is advancing. By flexing its financial muscle more and more, the state’s share of non-oil GDP has risen since 2008; we estimate the government sector will account for 33.6% of non-oil GDP in 2011 compared with 32.3% in 2008.

Against this backdrop, the government’s announcement in the first quarter of SR485 billion in new spending initiatives for citizens will provide only a short-term fix to a longer-term challenge of achieving genuine diversification for an economy that continues to be steered by the state rather than the private sector.

Government spending supports non-oil sector growth

Non-oil nominal GDPNon-oil real GDP Final consumption expenditure government sector

(Exp

endi

ture

, SR,

bn) (GD

P, SR, bn)

400

0 300

850

Source: SAMA, CDSI

50

100

150

200

250

300

350

350

400

450

500

550

600

650

700

750

800

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f 2012f

Government share of non-oil GDP on the rise

Source: SAMA, CDSI, Banque Saudi Fransi forecasts Government sector Private sector

(% o

f tot

al n

on-o

il GD

P) (% of total non-oil GD

P)

69

61

37

62

63

64

65

66

67

68

31

32

33

34

35

36

30

11

SAUDI ARABIAECONOMICS

May 2011

Key Saudi Arabia Economic Indicators

2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011f 2012f

MACRO-ECONOMIC INDICATORS

Nominal GDP (USD bn) 188.6 214.6 250.3 315.3 356.2 384.7 476.3 372.7 434.7 525.1 569.8Nominal GDP (SR bn) 707.1 804.6 938.8 1,182.5 1,335.6 1,442.6 1,786.1 1,397.5 1,630.0 1,969.3 2,136.7YoY % change 3.0 13.8 16.7 26.0 12.9 8.0 23.8 -21.8 16.6 20.8 8.5Real GDP growth rate, % 0.1 7.7 5.3 5.6 3.2 2.0 4.2 0.2 3.8 5.5 3.5Non-oil private sector real GDP growth rate, % 4.1 3.9 5.3 5.8 6.1 5.5 4.6 2.7 3.7 4.2 5.0Government real GDP growth rate, % 2.9 3.1 3.1 4.0 3.1 3.0 3.7 5.2 5.9 5.6 5.2Oil sector real GDP growth rate, % -7.5 17.2 6.7 6.2 -0.8 -3.6 4.2 -7.6 2.1 7.9 -0.7Inflation, YoY % change 0.2 0.6 0.3 0.7 2.2 4.1 9.9 5.1 5.3 5.6 5.9GDP per capita (USD) 8,774 9,744 11,111 13,640 15,041 15,868 19,200 14,687 16,039 18,958 20,063

BUDGETARY INDICATORS

Total government revenue (SR bn) 213.0 293.0 392.3 564.3 673.7 642.8 1,101.0 509.8 735.0 904.1 849.1Total government expenditure (SR bn) 233.5 257.0 285.2 346.5 393.3 466.2 520.1 596.4 626.5 842.4 788.8Deficit/surplus (SR bn) -20.5 36.0 107.1 217.9 280.4 176.6 580.9 -86.6 108.5 61.7 60.3Budget balance, % of GDP -2.9 4.5 11.4 18.4 21.0 12.2 32.5 -6.2 6.7 3.1 2.8Domestic debt (SR bn) 558.0 660.0 610.6 459.6 364.6 266.8 235.0 225.1 167.0 145.0 137.0Domestic debt as % GDP 78.9 82.0 65.0 38.9 27.3 18.5 13.4 16.1 10.2 7.4 6.4

FOREIGN TRADE INDICATORS

Total export revenues (USD bn) 72.3 93.0 125.7 180.4 210.9 233.1 313.4 192.2 236.3 290.2 276.5Oil export revenues (USD bn) 63.6 82.0 110.4 161.6 188.2 205.3 281.0 163.1 203.2 252.3 237.2Total imports (USD bn) 29.6 38.3 43.5 53.8 63.0 81.5 100.6 86.4 87.0 101.8 116.0Current account balance (USD bn) 11.9 23.3 49.3 90.0 98.9 93.3 132.3 22.8 69.6 81.3 55.7Current account as % of GDP 6.3 10.8 19.7 28.5 27.8 24.3 27.8 6.1 16.0 15.5 9.8

EXCHANGE RATE (=USD1)

Saudi riyal 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75

BANKING INDICATORS

Bank claims on private sector, year-end % change 10.0 11.0 37.4 38.9 9.2 21.4 27.1 -0.04 6.6 9.1 11.1Total private credit, year-end % change 12.4 11.3 37.0 38.9 9.8 20.6 27.9 -0.6 7.3 8.8 10.2Total bank credit, year-end % change 12.3 17.2 34.5 36.2 9.8 19.7 25.2 -1.1 8.4 8.6 9.5Broad money M3, YoY % change 14.7 6.9 18.8 11.6 19.3 19.6 17.6 10.7 5.0 9.7 10.4SAMA net foreign assets (USD bn) 41.9 59.5 86.4 150.3 221.1 300.9 437.9 405.3 440.41 465.0 499.1Repurchase Rate (year-end) 2.00 1.75 2.50 4.75 5.20 5.50 2.50 2.00 2.00 2.00 2.50

SAVING & INVESTMENT INDICATORS

Gross fixed capital formation, % of GDP 18.1 18.4 16.7 16.5 17.5 20.5 19.5 24.7 23.9 24.8 26.5Non-oil government investments, % of GDP 2.6 2.9 3.2 4.6 4.4 5.8 6.2 8.6 8.7 8.9 8.6Non-oil private investments, % of GDP 13.8 12.9 11.6 10.0 9.7 10.1 9.6 12.0 11.0 10.9 10.7Gross domestic savings, % of GDP 37.1 41.8 45.9 51.3 50.1 48.5 52.8 37.1 41.8 42.3 40.9Government savings, % of GDP -0.9 6.0 14.0 23.6 26.2 20.5 40.7 6.6 12.1 16.5 17.8Private savings, % of GDP 38.0 35.8 31.9 27.7 23.9 28.0 12.1 30.5 27.6 23.5 24.3

DEMOGRAPHIC INDICATORS

Population (in millions) 21.5 22.0 22.5 23.1 23.7 24.2 24.8 25.4 27.1 27.7 28.4Non-Saudi 5.8 6.0 6.1 6.3 23.7 6.6 6.7 6.8 8.4 8.6 8.9Unemployment rate (%) Saudi 9.7 10.4 11.0 11.5 12.0 11.0 9.8 10.5 10.5 10.7 10.9Non-Saudi 0.8 0.8 0.8 0.8 0.8 0.4 0.4 0.3 0.4 0.4 0.3

OIL INDICATORS

Argus Sour Crude Index (ASCI) 59.4 66.4 93.8 60.4 76.0 91.0 84.0Average oil price (WTI) (USD/barrel) 26.3 31.3 41.3 56.6 66.1 72.3 100.2 62.1 79.5 92.0 87.0Average Saudi oil price (USD/barrel) 23.4 26.8 34.5 49.5 60.5 68.1 93.4 61.4 77.0 91.0 85.0Crude oil production (million bpd) 7.09 8.41 8.90 9.35 9.21 8.82 9.20 8.18 8.16 8.90 8.75

STOCK MARKET INDICATORS Mar. 2011 Apr. 2011

Tadawul Stock Index (TASI) (period-end) 2,518.08 4,437.58 8,206.58 16,712.64 7,933.29 11,038.66 4,802.99 6,121.76 6,620.75 6,562.85 6,710.56

Source: Saudi Arabian Monetary Agency, other Saudi Arabian government authorities, Banque Saudi Fransi forecasts

12

SAUDI ARABIAECONOMICS

May 2011

Disclosure appendix

Analyst certificationThe analyst(s), who is primarily responsible for this report, certifies that the opinion(s) on the subject security(ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal views and that no part of their compensation, was, is or will be directly related to the specific recommendations or views contained in this research report.

This report is designed for, and should only be utilised by, institutional investors. Furthermore, Banque Saudi Fransi believes an investor

,s decision to make an investment should depend on individual circumstances such as the investor

,s

existing holdings and other considerations.

Additional disclosures1 - This report is dated as at 17 May 2011.

2 - All market data included in this report are dated as at close 16 May 2011, unless otherwise indicated in this report.

3 - Banque Saudi Fransi has procedures 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.

DisclaimerThis report is prepared for information only. Where the information contained in this report is obtained from outside sources, Banque Saudi Fransi believes that information to be reliable. However, Banque Saudi Fransi does not guarantee its completeness or accuracy. The opinions expressed are subject to change without notice and Banque Saudi Fransi expressly disclaims any and all liability for the information contained in this report.

The report only contains general information. It should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe to any investment. The specific investment objectives, personal situation and particular needs of any person have not been taken into consideration. Accordingly, you should not rely on the report as investment advice. Neither Banque Saudi Fransi nor any of its affiliates, their directors, officers and employees will be liable or have any responsibility of any kind for any loss or damage that may be incurred as a result of the information contained in this report.

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