Dr. John SfakianakisGroup General Manager, Chief EconomistAl KhobarMay 29, 2010

Where is the global economy going now?

V

ϱ

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%23.5% 19.6% 17.1%

Bahrain Qatar UAE Kuwait KSA Oman

Source: IMF

Real estate exposure is the smallest in the region – NPLs are very low at 3.3%

Minimal Exposure to Real Estate

7%16% 18% 20%

32% 33%39%

57%

68%

KSA Turkey Russia Qatar UAE Kuwait Czech US UK

Real Estate & Construction Loans / Total Loans

Government debt is still going down

Saudi public debt continues to fall

0200400600800

2002 2003 2004 2005 2006 2007 2008 2009ACTUAL

2010f

(SR

, bn)

020406080100

%

Outstanding public debt Debt to GDP

Source: Ministry of Finance, SAMA, Banque Saudi Forecasts

Private sector credit growths slowly picks up, YoY could be at 8%

-22610141822

710715720725730735740745750

2009 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 Feb Mar Apr

(YoY %

change)(S

R, b

n)

Private sector credit growth slowly picks up

Saudi private sector credit Annual growth rateSource: SAMA

Business confidence in Saudi Arabia is gradually on the rise

BSF Business Confidence Index

99.4

98.2

100

97.0

97.5

98.0

98.5

99.0

99.5

100.0

100.5

101.0

Sep-09 Q4 2009 Q1 2010

The economy is slowly rebounding in 2010

Robust growth of non-oil private sector?

0.01.02.03.04.05.06.07.08.09.0

2002 2003 2004 2005 2006 2007 2008 2009 2010

YoY

% c

hang

e

Real GDP Non-oil private sector real GDP

Source: SAMA, Banque Saudi Fransi forecasts

SAMA repleneshing foreign assets as oil prices gain momentum

30405060708090100110120130140150

500600700800900

10001100120013001400150016001700

2006 2007 2008 2009 2010

(Oil price, U

SD

/bbl)(S

R, b

n)

SAMA replenishing foreign assets as oil prices gain momentum

SAMA net foreign assets Oil price

Source: SAMA

Oil prices are providing good support

Oil prices remain in $70-80 range

30354045505560657075808590

2009 Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec 2010 Feb Mar

(US

D p

er b

arre

l)

Source: Reuters

Challenge No. 1 Inflation is down in ’010 but historically high

-5-3-113579

1113151719212325

2007 Mar May Jul Sep Nov2008 Mar May Jul Sep Nov2009 Mar May Jul Sep Nov2010

(YoY

% c

hang

e)

Inflation rate Rental inflation Food and beverage inflation

Rental inflation falls to lowest level in more than two years, food costs climb

Source: Central Department of Statistics

Saudi food prices track global trends after lag

9095100105110115120125

9095

100105110115120125130135140145150155160165

2007 2008 2009 2010

(SA

UD

I)

(FA

O)

Saudi food prices track global trends after lag

FAO food price index Saudi food and beverage index

Source: Food and Agriculture Organisation, CDSI

Challenge No. 2: Labour Market, expatriates, remittances etc.

Labour productivity is very low

Challenge No. 3: Energy (oil, electricity and water)

Saudi domestic oil demand rising rapidly

-10

-5

0

5

10

15

20

25

30

Saudi Arabia Asia North America Europe Middle East Latin America

Gro

wth

in o

il de

man

d be

twee

n 20

07-e

nd 2

010

Source: International Energy Agency

Water demand is rising fast: Around 33% of water is wasted via pipeline system

Trends in Saudi water resources

60

70

80

90

100

110

120

130

140

1992 1997 2002 2007 2008

(cub

ic m

etre

s pe

r ye

ar)

10

12

14

16

18

20

22

24

26

(Millions)

Renewable water resources per capita Population

Source: Food and Agriculture Organisation Aquastat

Our renewable water resources are among the lowest

Renewable water resources per capita 2008

0

250

500

750

1000

1250

1500

1750

2000

2250

2500

Alg

eria

Bahr

ain

Egy

pt

Iran

Iraq

Jord

an

Kuw

ait

Leba

non

Liby

a

Qat

ar

Saud

i Ara

bia

Tuni

sia

Uni

ted

Arab

Emira

tes

Yem

en

(cub

ic m

etre

s pe

r pe

rson

, per

yea

r)

Source: Food and Agriculture Organisation Aquastat

Electricity demand is rising fast (7-8% per year)

Electricity demand poised for massive surge

10

15

20

25

30

35

40

45

50

55

60

1998 2004 2005 2006 2007 2008 2022f

(GW

)

Source: Electricity & Cogeneration Regulatory Authority

State is spending more and more

State allocation for water-related spending rises quickly

05

101520253035404550

2004 2005 2006 2007 2008 2009 2010

(SR

, bn)

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

(%)

Water, electricity and infrastructure allocation Ratio to total state budget

Source: Ministry of Finance

More power but are we efficient users? But something has to give in here?

SEC expects surge in power production

30000

35000

40000

45000

50000

55000

60000

65000

70000

75000

80000

2009 2012 2015 2018 2020

(Ant

icip

ated

load

s, M

W)

Anticipated loads (MW)

Source: Saudi Electricity Company

Scenario 1: Oil at $102 through 2015 and $131 through 2020)

Aggressive spending

0

500

1000

1500

2000

2500

2005 2006 2007 2008 2009 2010f 2015f 2020f

(SR,

bn)

-200-150-100-50050100150200250300350400450500550600650

(SR, bn)

State revenue State expenditures Surplus/deficitSource: SAMA, Banque Saudi Fransi forecasts

Scenario 2: Oil at $70 through 2015 and $80 through 2020)

Aggressive spending

0

500

1000

1500

2000

2500

2005 2006 2007 2008 2009 2010f 2015f 2020f

(SR,

bn)

-1000-900-800-700-600-500-400-300-200-1000100200300400500600700

(SR, bn)

State revenue State expenditures Surplus/deficitSource: SAMA, Banque Saudi Fransi forecasts

Scenario 3: Oil at $150 through 2015, $200 through 2020)

Aggressive spending

0500

100015002000250030003500

2005 2006 2007 2008 2009 2010f 2015f 2020f

(SR,

bn)

-200020040060080010001200

(SR,

bn)

State revenue State expenditures Surplus/deficitSource: SAMA, Banque Saudi Fransi forecasts

Energy subsidies, high oil revenues, high spending, we can’t have them all

At $70 per barrel between 2010-2020 we are losing SR 3.3 trillion in crude oil revenue

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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

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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.

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