Transcript Welcome an introduction to the economy of Saudi

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
Disclaimer: All statements made are the personal beliefs of the author and
do not represent Norway, The Embassy or its other employees.
30.11.2011
1
Outline
 Section 0 – Purpose and Outline
 S 1 – Introduction to the Region - 17m
 GCC cooperation and Saudi Arabia
 Section 2 – Oil and Gas - 21m
 Section 3 – Economic Diversification and
Industrialization Part I - 16m
 Regulative
 Industrial and Economic Cities
 Section 4 – Economic Diversification and
Industrialization Part II -14m
 Petrochemicals and Mining
 Section 5 – Domestic Energy Usage and



2

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
Section 1
Introduction to the region
 Please see section 0 for the purpose, outline
and disclaimer for this presentation.
3
The GCC
Oil and Gas
Currency
Customs union
Defence
Transport
Tax
Power
Expatriates
Map of GCC countries
4
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 - KSA
Saudi Imports from Top 10
Countries
(SAR millions)
6
Country
2007
USA
2009
Saudi Exports fromTop 10
Countries
(SAR millions)
Country
2007
2009
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
Thailand
15 480
13 884
10 790
Section 2
Oil and Gas
 Please see section 0 for the purpose, outline
and disclaimer for this presentation.
7
Oil
Value
Comment
Oil 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 breakeven price
85 UDS/bbl
World 10 largest oil producers
Russland
Saudi-Arabia
USA
Kina
Iran
Venezuela
Irak
FAE
Mexico
8
Kuwait
0
2,000
4,000 6,000 8,000 10,000 12,000
1 000 bbl/d
Est 2011
Saudi Aramco
•Controls all production
•2004 -2010: 4,25M bbl/d new capacity
Oilfield
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
9
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
•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
Major oil fields in KSA
10
Downstream focus
•Refineries
Refinery
JV partner
Expected
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
Oil
petrochem
Refining
Gas
Alternatives
11
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 gas
th
 Norway 5th and Qatar is 11
 Gas production on the rise
 Karan field 0.45 bcf/d now – 1.8 bcf/d in 2013
 Wasit Non-associated gas 2.5 bcf/d 2013
 Shaybah NGL Associated gas 2.5 bcf/d 2013
 Unconventional gas
 Sold cheaply domestically
 0,75 USD/mbtu in KSA
 0,77 USD/mbtu in Oman
12
 New fields need 2-5 USD – ARAMCO
Section 3
Economic Diversification
and Industrialization Part I
 Please see section 0 for the purpose, outline
and disclaimer for this presentation.
13
Economic Diversification and
Industrialization
 Economic security and social stability
 Jobs and economic diversification
 Regulatory developments
 SAGIA - year 2000
 10 x10 Program
 Ease of Doing Business
 Industrial growth
 Cheap energy and feedstocks
 Petrochemicals is the biggest
 Mining


Aluminium
Fertilizer
 Other
 Tourism
 Financial Services
 How
 Transport Infrastructure – sector 6
 Industrial/Economic cities – this section
14
 Power generation – section 5
 natural gas exploration
Industrial and Economic cities
 Jubail and Janbu
 First industrial cities in the mid 70s
 Strong communication links
 Successful industrial cities
 Many projects have followed
 Example Ras Al-Khair (Also called Ras Al-Zour, Ras
Azzour or “Mineral City”)
15
 The Economic cities
 6 planed, four under development
Map of the Economic Cities planed in KSA
16
Section 4
Economic Diversification
and Industrialization Part II
 Please see section 0 for the purpose, outline
and disclaimer for this presentation.
17
Petrochemicals in KSA
 100b SAR exports in 2011 est
 Up 7 %YOY and set to increase
 JV
 Saudi AramcoTotal 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, public
 Four areas
 Chemicals
 Plastics
 Fertilizers
 Metals
 Growing globally - JV with Sinopec Ethylene
derivatives in Tianjin
18
Mining
 KSA is rich in Minerals
 Saudi Arabian Mining Company (Maaden )
 Started in 97, went public in 07
 Five existing gold mines + five advanced exp
 Mahd Ad Dahab
 Al-Sukhaybarat
 Bulghah
 Al-Hajar
 Al- 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 Khair
 Alumina
 Aluminum JV Alco (25 %) Maaden (75 %)
 Iron
19
Section 5
Domestic Energy Usage
and Power Production
 Please see section 0 for the purpose, outline
and disclaimer for this presentation.
20
Energy Production and
Consumption
 Biggest challenge facing KSA and the GCC
 30 % of production consumed domestically
 2010: 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
22
2 – 5 USD/b – est
Oil sold to utilities
10 – 20 USD/b – est
Dezalinating water
7 % of oil and gas
Energy consumption break down
23
Power gerneration
42 %
Feedstock
23 %
Transport
21 %
Alternatives for power
production
24
Coal
Is the biggest in the
world, locally
consumed.
Gas
Not finding enough
Oil
Today
Hydro
Don’t have the topography
Nuclear
?
Renewables
?
Section 6
Construction and
Transportation Infrastructure
 Please see section 0 for the purpose, outline
and disclaimer for this presentation.
25
Housing and Transport
Infrastructure
 Housing
 Dubai most famous
 Now KSA and Qatat.
 Transport Infrastructure
 Rail
 Road
 Ports
 Airports
26
Railroads




27
Railroads in KSA
Orange – functioning line
Green North South line
Dark Blue Saudi Land bridge
Red Haramain line
Roads
 As of 2000
 total: 152,044 km
 paved: 45,461 km
 unpaved: 106,583 km
King Fahd causeway (above)
28
Ports
 Red Sea
 Jeddah Islamic Port
 Port of Jizan
 King Fahad industrial Port atYanbu
 TheGulf
 King Abdulaziz Port at Dammam
 King Fahad Port at Jubail
 Jubail Commercial Port
 Ras al-Khair
29
Airports
 Strong growth in GCC airlines
 Domestic demand and international success
 Large expansion of airports planed
 UAE home to the largest airlines and Dubai
airport is the largest in the region.
30
Mecca Construction
 100b SAR on housing and infrastructure.
31
Section 7
Education and Labour
Market
 Please see section 0 for the purpose, outline
and disclaimer for this presentation.
32
Education
 Spends 40b USD or 30 % of the budget on
education.
 Traditionally education has not been very good.
 Focus on religion
 Wrong skill set for a modern economy
 Moving in the correct direction
 Many new universities -> now 24 in total
 The state pays for higher education
 Including foreign studies
 Still problems
 Around 70 % still study humanities
 Religion 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, official
 25 % ??
 Saudification?
 Nitaqat – most ambitious yet
 Three colour categories
 Different percentages for different sectors.
 All GCC countries have similar programs.
34
Section 8
Banking/Finance and
Healthcare
 Please see section 0 for the purpose, outline
and disclaimer for this presentation.
35
Banking and finance
 Relatively well developed banking and
finance system
 Banking in the GCC
Banking assets as
percent of GDP
No banks in topp
1000
KSA
15
Bahrain
258
UAE
10
UAE
142
Kuwait
8
Qatar
94
Kuwait
84
Bahrain
8
KSA
68
Qatar
7
Oman
66
Oman
6
 Profitability
 Strong underlying economic growth.
 Finance – only for the big
36
Largest Banks in the GCC
37
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
Islamic finance
 ‘Riba’ is forbidden -> Usury -> interest
 Islamic bank loans
 Profit 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 controversial
 Iran, Saudi Arabia, Malaysia
 London, HK, KL
38
Health Sector in KSA
 A mix of private and government
 MOH oversees all (NHS)
 1950 health station, 220 Hospitals
 Set for strong growth
 15 new hospitals and 750 health station next 5
years
 The public health budget leapfrogged by 12 % in
2011.
 Why
 Growing population
 Lifestyle diseases is big problem
 Diabetes
39
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.
40
 Large oil and gas exports
 Current high -> budget surpluses
 Diversification
 Petrochemicals largest
 Mining and tourism financial services maybe
 Public expenditure
 13 % growth per year 2003-2010 in KSA
 Arab spring
 Population growth and energy challenge
 They have a window of opportunity
 Massive investments in infrastructure and
industry.
 10-20 years depending on oil price
41
Thank you!
42