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BSF - Saudi Arabia Economics - Jun11 - EN

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  • 1. SAUDI ARABIA ECONOMICS June 2011 June 14, 2011Dr. John SfakianakisChief Economist Quota countingTel: +966 1 289 1797Email: johns@alfransi.com.sa New Saudi employment rules to shake up private sectorDaliah MerzabanEconomic AnalystTel: +971 4 428 3608 Saudi Arabia unveils new employment strategy to increaseEmail: dmerzaban@alfransi.com.sa ratio of nationals in the private sector from current one outTurki A. Al Hugail of every 10Economic Research AnalystTel: +966 1 289 1163Email: talhugail@alfransi.com.sa As youth unemployment tops most states in region, firms failing to meet quotas face residence visa cap, limits on foreign recruitment Plan could force some small firms out of business, but in long fun lead to improved wages, efficiency, skills and nationalisation Potential downturn in remittances from world’s second- biggest source would have implications for receiving countries There is a striking paradox in Saudi Arabia’s labour market. Expatriates working in the kingdom send home more remittances than those living in any country in the world apart from the United States. Yet youth unemployment among Saudi citizens is higher than every country in the Middle East and North Africa (MENA) except Iraq. Confronting a dilemma of youth joblessness that persists despite reasonable rates of economic growth, Saudi Arabia is unveiling a major overhaul of the long-ineffective plan to nationalise a private sector workforce dominated by foreigners to the tune of nine out of every 10 employees. The private sector has been creating jobs, but they do not go to Saudis. This month, the government will inform companies which of four categories – ‘excellent’, ‘green’, ‘yellow’ or ‘red’ – they fall under based on whether they employ enough Saudi nationals to comply with established quotas. Following a grace period, the new Saudisation scheme, known as Nitaqat (or ranges in Arabic), would level severe penalties on violators and offer incentives and rewards to those firms meeting quotas. The government’s ambitious goal: to succeed in creating 1.12 million new jobs for Saudi nationals by 2014, or 92% of all new jobs created, as set out in the current development plan. The previous Saudisation quota system required all sectors to have a blanket nationalisation rate of 30%–although only a third of that was achieved. The new system is more dynamic, applying 205 categories of quotas that vary based on the line of work and size of the company. In many cases, companies achieving more than 30% nationalisation would be classified as “excellent”.
  • 2. SAUDI ARABIA ECONOMICS June 2011 2014 plan dictates 92% of new jobs should go to Saudis 1200 1122.5 1000 (New jobs created, 000s) 800 600 400 200 100.8 0 Saudis Expatriaties Source: Ninth Development PlanThe state will impose a six-year cap on residency visas for potential to introduce much-needed adjustments toexpatriate workers if their employers fail to meet quotas. wages and efficiency in the private sector, so long as itCompanies falling in the ‘red’ category would be barred is supplemented with high-quality training programmesfrom renewing the work visas of their expatriate staff at Saudi schools and within companies. We expect theentirely, while ‘green’ companies will be entitled to, for the programme will succeed at improving Saudi participationfirst time, recruit foreign workers freely from the other two in the private sector.categories and transfer their sponsorship visas without theircurrent employer’s consent. The private sector must evolve into Saudi Arabia’s main engine for job creation in order to relieve the burden from theThe initial shock of Nitaqat, if enforced with vigour, could state, which has frenetically created jobs for citizens to quelllead numerous smaller businesses to shut down, shakealready feeble foreign investor confidence in the economy, unemployment. This has led to unsustainable growth in itsand further stall the private sector’s recovery. Private sector wage bill and taken a grave toll on public sector productivity.growth rates have lagged in recent years well below the 6% Beyond the kingdom, effective implementation of Nitaqatminimum we believe is necessary to stimulate enough job could lead to a downturn in remittances to countries thatcreation for a population that is nearing 28 million. come to rely on them heavily for foreign currency, and could prompt them to reconsider employment strategies.In the medium- to long-term, however, Nitaqat has the Saudi Arabia worlds second-biggest remittance-sending country 2009 China 4.4 France 5.2 Oman 5.3 Lebanon 5.7 Malaysia 6.8 Netherlands 8.1 Kuwait 9.9 Luxembourg 10.6 Spain 12.6 Italy 13 Germany 15.9 Russia 18.6 Switzerland 19.6 Saudi Arabia 26 United States 48.3 0 5 10 15 20 25 30 35 40 45 50 Source: World Bank (USD, bn) 2
  • 3. SAUDI ARABIA ECONOMICS June 2011 Non-Saudi ratio of population crosses 30% 20.0 32.0 18.0 31.0 16.0 30.0 (Population, millions) 14.0 12.0 29.0 (%) 10.0 8.0 28.0 6.0 27.0 4.0 26.0 2.0 0.0 25.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e Source: SAMA Non-Saudi Saudi Non-Saudi share of totalDesperate times, desperate measures This substantial rise in the expatriate population likely triggered alarm bells among the kingdom’s policymakers,Remedying the disparity between recruitment of expatriate who had been charged with improving the employmentworkers and nationals in the private sector is one of the situation for citizens. Many new jobs were created duringbiggest challenges facing Saudi Arabia’s labour market. the boom years–but more often than not they went toWhen authorities conducted a census last year, they foreigners rather than to Saudi nationals.discovered that the non-Saudi population had grown morequickly than earlier estimated. Since the 1990s, the ratioof expatriates to the total population remained relatively According to official data, in 2009 alone almost 674,000stable, fluctuating at slightly above or below 27%. new jobs were created in the private sector, and another 42,189 in the public sector. Yet that year, unemploymentBut in the past five years this shifted noticeably as among Saudi nationals rose to 10.5% from 9.8% in 2008.recruitment of expatriates intensified during an economic The jump in unemployment, which we believe was more-boom that tracked a rise in oil prices between 2003 and or-less sustained in 2010, resulted from a particularly sharp2008. Since 2004, the ratio of non-Saudis to the total increase in the incidence of joblessness among youth. Inpopulation rose sharply, reaching 31% of the 27.6 million 2009, some 27.4% of Saudis under the age of 30 werepeople living in the country by the end of 2010, according without work, including 39.3% of those aged 20-24.to revised population data. Now, very close to one in everythree Saudi residents is a foreigner. Due to the announcement this year that unemployment Saudi unemployment high despite employee additions 14 700 12 500 (Unemployment, %) 10 (Jobs created, 000s) 300 8 100 6 -100 4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f -300 2 -500 0 Source: Ministry of Labour, SAMA, CDSI Private sector employee additions Government sector employee additions Saudi unemployment rate 3
  • 4. SAUDI ARABIA ECONOMICS June 2011 Saudi youth unemployment challenge growing 50.0 45.0 40.0 35.0 30.0 25.0 (%) 20.0 15.0 10.0 5.0 0.0 15-19 20-24 25-29 30-34 35-39 Overall unemployment Source: CDSI 2000 2009benefits will be paid for the first time, the official Yet up to now the private sector has perpetuated theunemployment rate could increase this year as more kingdom’s employment quandary rather than alleviatedindividuals register their employment status. unemployment among nationals. As many young Saudis struggled to find work, 982,420 work visas for foreignersSaudi Arabia’s youth unemployment dilemma is acute even were issued to the private sector in 2009, more than doubleby regional standards. International Labor Organization the number granted in 2005, Ministry of Labour data show.data show Saudi Arabia is second only to Iraq for the Data for 2010 has yet to be released, although the labourhighest youth unemployment in the region, and has higher minister said in May that two million visas were granted tojoblessness rates than Tunisia, Jordan, Egypt and Lebanon. foreign workers in the past two years. Some 6.21 million of a total 6.89 million private sectorTime for a private sector shake-up employees in 2009 – or nine out of every 10 – were non-In its current five-year development plan, the government Saudis, up almost 30% from 2006.wants the number of Saudis employed by the private sectorto grow 5.3% per year. Of an estimated 1.22 million new The trends are not surprising when pay expectations and skilljobs it estimates will be created between 2010 and 2014, level are considered. Private sector companies have greatersome 1.12 million of them, or 92%, should go to Saudi incentives to employ foreign labour, particularly from Southnationals, according to the plan’s stated objectives. and Southeast Asia, because foreigners tend to demand Region faces youth joblessness dilemma 45 43.5 40 35 29.9 29.4 30 28.1 24.8 25 21.5 22.1 (%) 20 17.6 18.3 15 12.1 10 5 1.2 0 Algeria Egypt Iraq Jordan Lebanon Morocco Qatar Saudi Arabia Syira Tunisia UAE Source: International Labor Organization Youth unemployment Total unemployment 4
  • 5. SAUDI ARABIA ECONOMICS June 2011 the majority are ‘green’. Red companies often have fewer Saudis occupy less than 10% of private sector jobs than 10% Saudi nationals working for them, in many cases 900 14.0 less than 5%. In the longer term, new companies will likely 800 13.0 be founded on higher national labour content and could 700 600 12.0 focus on productivity from the onset to save costs, but dependence on low skills will not change overnight. (Jobs, 000s) (% of total) 500 11.0 400 300 10.0 Wrong side of the line 200 9.0 100 Companies falling in the ‘red’ category—those that “resist 0 8.0 the Saudisation process”—will be unable to get new 2004 2005 2006 2007 2008 2009 2010 2011f Source: Ministry of Labour licences, renew their licences, renew their employees’ Saudis in private sector Ratio of Saudis to total visas or hire new foreign labour. By the end of November, companies falling in this category will have all work permitlower wages than Saudis and are highly skilled. As a result, renewal services suspended. Firms with a ‘yellow’ labelthere are few incentives to improve training programmes. will be able to renew work permits on the condition that employees have not spent more than six years in SaudiPrivate sector firms have not been motivated to change the Arabia until February 23, 2012, but their rights to new visasstatus quo because they save money due to the economy’s and transfers ends by September 10.low-wage equilibrium and the government had not beenaggressive in enforcing previous Saudisation policies. The By contrast, businesses that have complied with quotas willnew Nitaqat scheme could drastically alter this equation by benefit from incentives. Those falling in the “excellent” andforcing companies to hire nationals, invest more in training “green” categories will be able to recruit workers from theand increase wages if they want to stay in business. other categories without having to obtain their employer’s consent – which had been a drawback of the currentCompanies falling in the ‘red’ and ‘yellow’ categories, system. Talented expatriates who have been working in theand hence do not employ enough Saudi nationals, will country for years are key beneficiaries of the new system,be unable to renew visas of their expatriate staff or issue by encouraging companies to compete in order to retain topnew visas unless they reach compliance in the number talent. The Ministry of Labour also said it intended to lift aof Saudi employees they hire. Nitaqat assigns different ban on 70 professions now restricted to Saudis. Further,nationalisation rates according to the size and activity of ‘green’ companies will benefit from a streamlined visacompanies – so smaller companies have smaller overallquota requirements than larger ones do. As an example, a Private sector not growing fast enough forsmall company in the wholesale and retail sector wanting to job creation 7.0attain ‘green’ status should have 10%-26% nationalisation, Growth rate needed for job creation 6.0whereas a medium-sized firm needs 17%-33% and large (Private sector growth, %)firm should have 24%-34%, according to Ministry of Labour 5.0documents. 4.0 3.0Given the skewed balance of employment in the private 2.0sector toward non-nationals, as many as 30% of private 1.0sector companies, mainly smaller in size, will struggle and 0.0possibly be forced to shut down as a result of the policy if 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012fit is widely enforced. The Ministry of Labour said one out Source: CDSI, Banque Saudi Fransi forecastsof every five companies falls in the ‘red’ category, while 5
  • 6. SAUDI ARABIA ECONOMICS June 2011approval process that would grant their employees visas on job creation. Still, a less open immigration policy andwithin 10 days as the ministry moves toward decentralising sub-optimal growth may be a necessary precondition ofvisa issuance. improving the job situation for Saudis.If the private sector responds dynamically, there could be Pay adjustmentssome much needed and welcome mergers and acquisitionsthat take place in order to enable smaller firms to be better Yet the benefits of the programme may outweigh theable to cope with higher wages and training costs. But short-term costs. Compelling the private sector to movesmall- and medium-sized enterprises have tended to be away from its reliance on cheap expatriate labour and paydisfavoured for government contracts and they may also higher wages is the right step longer term. Saudis will havehave a harder time enforcing quotas due to their small size greater incentive to invest in improving their skills to getand inability to afford the extra costs associated with hiring better-paying jobs in the private sector, which would in turnnationals. The policy could, hence, hamper the development enhance their buying power, and boost aggregate demand.of the SME sector if nationalisation requirements providedifficult to implement. Quotas do not address the lack of Currently, private sector companies do not offer as high ofincentives in private sector work for national jobseekers. pay and benefits as the public sector, so Saudi nationals tend to incline toward government jobs. Some 866,774With Nitaqat, the cost of doing business in Saudi Arabia Saudi nationals worked in government sectors in 2009,is likely to rise, although demand among Saudis may also according to SAMA data, 92% of the total workforce.rise if more are employed, thus providing greater overall Shorter working hours, comfortable pension schemesmomentum in the economy. Confusion over the programme and higher over all pay have made the public sector therisks shaking already weak investor confidence, potentially employer of choice. But it is the private sector that needs toleading to a decline in foreign direct investment (FDI) carry the economy and cater to the needs of the job market.as companies wait to see how the programme will beimplemented. The average private sector wage in 2009 was SR3,137 for Saudi nationals – considerably below wages for manyThis would hurt the private sector’s recovery and dampen public sector jobs. The state raised the minimum wagethe country’s effort to support its most-important engine for for a public sector job to SR3,000 this year –and the payjob creation. A robust private sector growing at 6% or more scales reach multiples of that based on the position andeach year is needed to create jobs for the Saudi population. tenure. Private sector jobs need to, over time, pay theWe expect the private sector to grow 3.7% this year, up same or more than the public sector in order to enticefrom 2.7% in 2010, too low to have a meaningful impact Saudis with higher skills and improve productivity. Private sector wages must rise to keep up with public sector 9,000 8,000 7,000 (Salary, SR/month) 6,000 5,000 4,000 3,000 2,000 1,000 0 Managers Specialists in Technicians in Clerical work Sales Services Farming and Industrial processes, Engineering Overall & business scientific, technical scientifc, technical agriculture chemical & support managers & humanities fields & humanities fields food industries Source: Ministry of Labour, Ministry of Civil Services, Banque Saudi Fransi estimate Average non-Saudi salary Average Saudi salary Typical public sector wage 6
  • 7. SAUDI ARABIA ECONOMICS June 2011 Saudis not active in engineering, industry and sales sectors 90 82.5 79.3 (Saudi ratio to total employment, %) 80 75.8 70 60 54.1 53.1 50 40 30.6 28.2 30 19.0 20 14.2 10 0 Occupations Occupations Agriculture, Service Sales Clerical Technicians in Specialists Directors and supporting basic of industrial, chemical, fishing professional, in professional, managers engineering operations and food technical and technical and humanitarian fields humanitarian fields Source: CDSI, Banque Saudi Fransi calculationsSetting and enforcing minimum wages for private sector Yet what are needed are specialists in technical, engineering,employment and limiting the working day officially to eight science, computer science and medical programmes. Thehours could help boost the numbers of Saudis working in Ministry of Higher Education is working toward rectifyingprivate sector roles, in addition to offering them pension this skills gap, but it will take many years before the skills makeup of the population changes to suit the needs of theplans similar to those offered for the public sector. economy and reduce the need for foreign talent.Only part of the solution There is a danger, too, that Saudi nationals will be hiredMoving away from a blanket quota for nationalisation toward just to boost official employee counts, but will not be activea dynamic system whereby quotas are more reasonable participants in the companies they are working in. Hiringand most companies comply with them is a smart move by Saudis who are not productive just to have them on thethe Saudi government. Still, forcing the private sector to be payroll will simply exacerbate productivity challenges andmore proactive in employing Saudi nationals is only part of do little to rectify longer-term job market imbalances.the solution. The education system has been unable in therecent past to produce enough qualified graduates who are The long-term goal should be to create an educationable to fill crucial jobs in the kingdom. Humanities and arts system and jobs market that is able to rely on a highlyremain the single-largest majors chosen by Saudi students, skilled indigenous labour pool. But this will demand drasticaccounting for 41% of total university graduates in 2009. shifts in cultural perceptions of work and entitlement. Saudis expected absorb most new jobs created in 2014 plan 299 249 240.6 (New jobs, 000s) 199 172 161.6 149 141.2 135.5 130 99 73.1 60.3 49 24.3 13.1 22.9 11.2 16 4.5 2.4 6 8.3 0.2 -1 Managers Specialists in Technicians in Clerical Sales Services Agriculture Industrial, Auxiliary science, technical, science, technical, chemical, food engineering humanities humanities industries Source: Ninth Development Plan Saudis Expatriates 7
  • 8. SAUDI ARABIA ECONOMICS June 2011One of the troubles with nationalisation policies in theGulf region has been that citizens will often take jobs, Private sector productivity trends lowerand private sector firms will invest in training them only 69.0to have them hop to new positions for higher pay at the (Productivity per employee, SR, 000s) 67.0earliest opportunity. This mentality needs to change as it 65.0 63.0has curtailed efforts to offer on-the-job training. 61.0 59.0 57.0The quota system should take into consideration the 55.0difficulty in recruiting citizens for certain positions. At 53.0 51.0present, Saudis account for more than three-quarters of 49.0all management jobs, and form the majority of employees 47.0 45.0holding clerical posts as well as technicians in humanitarian 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011ffields. Source: Ministry of Labour, CDSI, SAMA, Banque Saudi Fransi calculationsThey are, meanwhile, very inactive in many fields – auxiliary Interior to offer 60,000 new jobs to beef up security forces,engineering, industrial, chemical and food industries, and and create almost 2,000 other jobs in market supervisionsales positions. Saudis account for only 14.2% of auxiliary and regulation.engineering jobs, and 19% of positions in industrial andchemical industries, CDSI data show. According to the The state’s hiring strategy offers a short-term fix to the2014 plan, even in these areas the vast majority of new joblessness dilemma but it could complicate the successjobs should go to Saudis including, for instance, 85% of of Nitaqat because it may hinder the private sector’s abilitynew jobs in auxiliary engineering. to recruit Saudi staff in the medium term. It also promotes inefficiency as productivity per employee will wane further.Such expectations will likely prove to be unrealistic as it Government sector productivity has suffered due to bigwill take time before investments in changing the quality employee additions without a simultaneous gain in theof instruction at primary and secondary education are felt output of government services.in the job market. It would be better to ease into suchrequirements gradually, giving the education system and Since 2004, productivity has fallen quickly in the publiccommunity’s work ethos time to adjust. Otherwise, many sector, primarily as the state struggles to offer citizens jobscompanies could face higher human resources costs and in a market that favours expatriates. Higher productivity islower productivity as more-qualified foreign employees are essential because it contributes to better economic growthforced to shoulder the workload. This could deter many rates and acts as a sustainable engine for job creation.firms from expanding in the kingdom. Government sector productivity wanes as newProductivity problem employees hired 176A key barrier facing the Nitaqat programme’s success will (Productivity per employee, SR, 000) 174be the government’s policy of creating tens of thousands of 172new public sector jobs this year. Saudis prefer public sector 170employment and, as such, private sector firms could face 168difficulty competing for qualified employees who would 166prefer civil service jobs. 164 162This month, the king ordered 66,000 jobs created in the 160public sector for graduate teachers and health diploma 2010e 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009holders, including 39,000 jobs in the education sector for Source: CDSI, Ministry of Civil Services, SAMA, Banque Saudi Fransi calculationswomen. The king had earlier this year asked the Ministry of 8
  • 9. SAUDI ARABIA ECONOMICS June 2011The private sector’s productivity has also declined in recentyears, although not as sharply as the public sector’s. A good Workers remittances almost SR100 bn in 2010deal of this was because a downturn in output by banks and 100 96.3 98.2other private sector firms did not lead to any mass layoffs 90 78.5of staff following the onset of the global financial crisis. As 80the private sector grows, productivity should also pick up. 70 (SR, bn) 57.3 59.0 60 51.4 50This is why the introduction of policies that alienate pri- 40vate sector firms or deter new ones from establishing in the 30kingdom could backfire. If private sector businesses find 20employment quotas for Saudis too daunting they may not 2005 2006 2007 2008 2009 2010eset up at all, which would slow down the private sector’s re- Source: SAMAcovery further and dampen efforts to improve productivity. Hitting remittances Revisions show higher 2010 imports, oil exports Another implication of implementing Nitaqat would be the affect on outward remittance flows from the kingdom. Saudi Arabia’s central bank released revised data In 2010, expatriate workers in the kingdom sent home on the balance of payments last year showing a SR98.2 billion ($26.2 billion) in remittances, almost double good rise in imports and higher oil export revenues the value of remittances in 2005, initial estimates released than earlier reported. Revised data showed imports by SAMA show. The World Bank has ranked Saudi Arabia rose 11.9% in 2010 to $96.7 billion, up from a in second place among the world’s biggest remittance- prior estimate of $86.9 billion. The estimate for oil sending countries, only behind the United States, which is exports, meanwhile, was raised to SR807.2 billion home to a population that is roughly 11 times larger than ($215.3 billion) from SR762.1 billion ($203.2 billion). Saudi Arabia’s. In the first half of 2011, trade flows have improved as an oil price rally and greater demand necessitated Remittances from expatriate workers offer a significant source of hard currency income for oil importing states in a rise in Saudi oil output. Non-oil exports have also the Middle East and Asia, such as Pakistan, India and Egypt. picked up this year, rising to their highest in more Pakistan is particularly reliant on such flows, with Saudi than three years in March. Arabia accounting for 25% of its total remittances in 2010. Pakistani workers in the kingdom sent home $1.92 billion last year, an amount that has almost doubled in just four Imports, oil exports exhibited strong growth 900.0 in 2010 Pakistan remittances from Saudi Arabia hit almost 807.18 800.0 762.1 2500 $2 billion in 2010 26.0 700.0 25.0 2000 1917.66 24.0 600.0 23.0 500.0 1559.56 (SR, bn) 22.0 1500 (USD, mn) 400.0 362.46 1251.32 21.0 326.1 (%) 300.0 1023.56 20.0 1000 200.0 750.44 19.0 124.3 134.11 18.0 100.0 500 17.0 0.0 16.0 Oil exports Non-oil exports Imports 0 15.0 Source: SAMA 2006 2007 2008 2009 2010 2010 previous 2010 revised Source: State Bank of Pakistan Saudi Arabia Ratio to total 9
  • 10. SAUDI ARABIA ECONOMICS June 2011 Pakistans top 5 remittance source countries Ratio of Egypt remittances from Saudi Arabia declining 1000 1000 19.0 2500 976.1 959.4 2038.57 17.0 1917.66 900 2000 859.4 1771.19 15.0 1500 800 775.8 13.0 (USD, mn) (USD, mn) 725.5 (%) 700 11.0 1000 876.38 9.0 445.09 600 500 7.0 0 500 5.0 UAE Saudi Arabia United States United Kingdom Kuwait 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 Source: Central Bank of Egypt Saudi Arabia Ratio to totalyears. Saudi Arabia is Pakistan’s second-most important While the effort to create jobs for Saudis would likelysource of remittances behind the UAE, and ahead of the reduce reliance foreign workers in the long term, this wouldUnited States. not necessarily lead to a rapid decline in the number of expatriates working in the country. With oil prices aroundFilipino workers in the kingdom sent home almost $1.5 $100 a barrel, the central bank’s foreign assets at recordbillion in remittances last year – more than 50% of the total levels, and fiscal and current account balances likely tofrom Middle East countries, while remittances from the remain in surplus, the Saudi economy has the potentialkingdom also account for almost a third of Bangladesh’s witness a good resurgence in private sector activity in thetotal. coming years under the right conditions. As such, a properly functioning private sector encouragingEgypt, which counts remittances as among its top sources of small and medium-sized enterprises would create jobhard currency along with tourism and Suez Canal receipts, opportunities for nationals while continuing to open thegot $1 billion in remittances from Saudi Arabia in the last door for foreign talent. This is why authorities must treadfiscal year, although Egypt has become much less reliant on carefully with the Nitaqat programme to ensure it doesSaudi Arabia as a source of remittances. In the 2009-2010 not wipe out small firms exhibiting potential for long-termfiscal year, 10.3% of Egypt’s remittances came from the growth. It should be balanced with adequate incentives,kingdom, down from almost 17% five years earlier. Egypt more streamlined rules for doing business and obtainingmore heavily relies on remittances from Kuwait (20.4%), visas, and emphasis on quality training and instructionsthe United States (29%) and the UAE (17.7%). both in schools and in the workplace. Gulf the source of most of Egypts remittances Switzerland Other Saudi Arabia United Kingdom 2.7% 8.8% 12.5% 6.2% Kuwait 20.4% United States 29.0% Oman Bahrain Qatar United Arab Emirates 0.4% Source: Central Bank of Egypt 0.5% 1.8% 17.7%10
  • 11. SAUDI ARABIA ECONOMICS June 2011 Key Saudi Arabia Economic Indicators 2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011f 2012f MACRO-ECONOMIC INDICATORS Nominal GDP (USD bn) 188.6 214.6 250.3 315.3 356.2 384.7 476.3 372.7 434.7 525.1 569.8 Nominal 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 2,136.7 YoY % change 3.0 13.8 16.7 26.0 12.9 8.0 23.8 -21.8 16.6 20.8 8.5 Real GDP growth rate, % 0.1 7.7 5.3 5.6 3.2 2.0 4.2 0.2 3.8 5.5 3.5 Non-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 5.0 Government real GDP growth rate, % 2.9 3.1 3.1 4.0 3.1 3.0 3.7 5.2 5.9 5.6 5.2 Oil 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 -0.7 Inflation, YoY % change 0.2 0.6 0.3 0.7 2.2 4.1 9.9 5.1 5.3 5.6 5.9 GDP 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 1,101.0 509.8 735.0 904.1 849.1 Total government expenditure (SR bn) 233.5 257.0 285.2 346.5 393.3 466.2 520.1 596.4 626.5 842.4 788.8 Deficit/surplus (SR bn) -20.5 36.0 107.1 217.9 280.4 176.6 580.9 -86.6 108.5 61.7 60.3 Budget balance, % of GDP -2.9 4.5 11.4 18.4 21.0 12.2 32.5 -6.2 6.7 3.1 2.8 Domestic debt (SR bn) 558.0 660.0 610.6 459.6 364.6 266.8 235.0 225.1 167.0 145.0 137.0 Domestic 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 93.0 125.7 180.4 210.9 233.1 313.4 192.2 251.0 290.2 276.5 Oil export revenues (USD bn) 63.6 82.0 110.4 161.6 188.2 205.3 281.0 163.1 215.2 252.3 237.2 Total imports (USD bn) 29.6 38.3 43.5 53.8 63.0 81.5 100.6 86.4 96.7 101.8 116.0 Current account balance (USD bn) 11.9 23.3 49.3 90.0 98.9 93.3 132.3 22.8 66.9 81.3 55.7 Current account as % of GDP 6.3 10.8 19.7 28.5 27.8 24.3 27.8 6.1 15.4 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 11.1 Total 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 10.2 Total 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 9.5 Broad money M3, YoY % change 14.7 6.9 18.8 11.6 19.3 19.6 17.6 10.7 5.0 9.7 10.4 SAMA net foreign assets (USD bn) 41.9 59.5 86.4 150.3 221.1 300.9 437.9 405.3 440.41 465.0 499.1 Repurchase 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 26.5 Non-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 8.6 Non-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 10.7 Gross domestic savings, % of GDP 37.1 41.8 45.9 51.3 50.1 48.5 52.8 37.1 41.8 42.3 40.9 Government savings, % of GDP -0.9 6.0 14.0 23.6 26.2 20.5 40.7 6.6 12.1 16.5 17.8 Private 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 23.3 24.1 24.9 25.8 26.7 27.6 28.2 28.8 Non-Saudi 5.8 6.0 6.1 6.5 6.9 7.2 7.7 8.1 8.7 8.6 8.9 Unemployment rate (%) Saudi 9.7 10.4 11.0 11.5 12.0 11.0 9.8 10.5 10.5 10.7 10.9 Non-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 84.0 Average 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 87.0 Average 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 85.0 Crude 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 Apr. 2011 May. 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 6,710.56 6,735.98 Source: Saudi Arabian Monetary Agency, other Saudi Arabian government authorities, Banque Saudi Fransi forecasts11
  • 12. SAUDI ARABIA ECONOMICS June 2011Disclosure appendixAnalyst 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 holdingsand other considerations.Additional disclosures1 - This report is dated as at 14 June 2011.2 - All market data included in this report are dated as at close 13 June 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 withits Research business. A Chinese Wall is in place between the Investment Banking and Research businesses to ensure thatany 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 completenessor accuracy. The opinions expressed are subject to change without notice and Banque Saudi Fransi expressly disclaims anyand 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 topurchase or subscribe to any investment. The specific investment objectives, personal situation and particular needs of anyperson have not been taken into consideration. Accordingly, you should not rely on the report as investment advice. NeitherBanque Saudi Fransi nor any of its affiliates, their directors, officers and employees will be liable or have any responsibility ofany kind for any loss or damage that may be incurred as a result of the information contained in this report. 12 Designed by Corporate Communications Dept. / Banque Saudi Fransi