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.

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 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 factsValueComment GDP469b USD – 2010Nominal, not PPP Real Growth7,1 % Est. Above inflation Est 2011 Petroleum Percentage of GDP 55 % Inflation5,3 % Est Population Growth1.5 % Nett Foreign Reserves 481b USD111 % of GDP

Trade flow - KSA Saudi Imports from Top 10 Countries (SAR millions) Saudi Exports from Top 10 Countries (SAR millions) Country Country USA Japan China USA Germany China Japan South Korea South Korea India France UAE Italy Singapore India Taiwan UK Bahrain UAE Thailand

7 7 Section 2 Oil and Gas Please see section 0 for the purpose, outline and disclaimer for this presentation.

Oil 8 ValueComment Oil Production Capacity 12,5M bbl/dDisputed Oil production8,4M bbl/d ,11M bbl/d in H Reserves267b bbl Percent of Gov. Rev.75 % Percent of Exports90 % Government break- even price 85 UDS/bblEst 2011

9 Saudi Aramco Controls all production : 4,25M bbl/d new capacity OilfieldCompletedGradeCapacity (M bbl/d) Qatif2004Arab light/medium0.8 Haradh2006Arab light0.9 khurais2009Arab light1.2 Shaybah2009Arab extra light0.75 Nuayyim2009Arab super light0.1 Khursaniyah2010Arab light0.5 Manifa2013/14Heavy0.9 Projects waiting to lift capacity to 15M bbl/d Will not be developed in the near future OilfieldGradeCapacity (M bbl/d) ZulufArab heavy0.9 SafaniyahArab heavy0.7 BerriArab extra light0.3 KhuraisArab light0.3 ShaybahArab extra light0.25

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 RefineryJV partner Expected completion New capacity (M bbl/d) Jizan JubailTotal YanbuConocoPhillipes Porth Arthur expansion (US) Shell Petrochemicals Biggest diversification projects in KSA

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 Norway 5th and Qatar is 11 th 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 New fields need 2-5 USD – ARAMCO 12

13 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 developments SAGIA - year 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 Power generation – section 5 natural gas exploration 14

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

17 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 est Up 7 % YOY and set to increase JV Saudi 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, 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

20 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 GCC 30 % of production consumed domestically 2010: 2,4 or 3,2 bpd (just oil or gas also) 21

How is this possible? Population growth1.5 % per year Oil consumption per 1000 USD GDP 387,2 bbl Electricity Price 0.08 NOK/kWh – Consumer 0.50 NOK/kWh – Industry Gas0.75 USD/mmbtu Petrol SAR/L Oil sold to industry as feedstock 2 – 5 USD/b – est Oil sold to utilities10 – 20 USD/b – est Dezalinating water7 % of oil and gas 22

23 Energy consumption break down Power gerneration42 % Feedstock23 % Transport21 %

24 CoalIs the biggest in the world, locally consumed. GasNot finding enough OilToday HydroDon’t have the topography Nuclear? Renewables? Alternatives for power production

25 Section 6 Construction and Transportation Infrastructure Please see section 0 for the purpose, outline and disclaimer for this presentation.

Housing and Transport Infrastructure Housing Dubai most famous Now KSA and Qatat. Transport Infrastructure Rail Road Ports Airports 26

Railroads Railroads in KSA Orange – functioning line Green North South line Dark Blue Saudi Land bridge Red Haramain line 27

Roads As of 2000 total: 152,044 km paved: 45,461 km unpaved: 106,583 km 28 King Fahd causeway (above)

Ports Red Sea Jeddah Islamic Port Port of Jizan King Fahad industrial Port at Yanbu 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

32 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 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

35 Section 8 Banking/Finance and Healthcare Please see section 0 for the purpose, outline and disclaimer for this presentation.

Banking and finance Relatively well developed banking and finance system Banking in the GCC Profitability Strong underlying economic growth. Finance – only for the big 36 Banking assets as percent of GDP Bahrain258 UAE142 Qatar94 Kuwait84 KSA68 Oman66 No banks in topp 1000 KSA15 UAE10 Kuwait8 Bahrain8 Qatar7 Oman6

World RankingBankCountryTier 1 Capital ($M) 121National Commercial Bank KSA Emirates NBDUAE Riyadh BankKSA Samba Financial Group KSA National Bank of Abu Dhabi UAE First Gulf bankUAE Al Rajhi BankKSA National Bank of kuwait Kuwait Kuwait Finance House Kuwait Qatare National Bank Qatar Abu Dhabi Commercial Bank UAE Banque Saudi Fransi KSA Arab National Bank KSA Arab Banking Corporation Bahrain Saudi British BankKSA Largest Banks in the GCC

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 Why Growing population Lifestyle diseases is big problem Diabetes 39

40 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 exports Current high -> budget surpluses Diversification Petrochemicals largest Mining and tourism financial services maybe Public expenditure 13 % growth per year in KSA Arab spring Population growth and energy challenge They have a window of opportunity Massive investments in infrastructure and industry years depending on oil price 41

42 Thank you!