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Contents Macro: charting the way forward 3 Towards better governance 3 Public Investment Fund to gain prominence 7 Historic energy sector liberalization 10 National Transformation Plan: many promises, few details 13 Lessons in diversification 31 Eurobond premium required for fiscal slippage risk 34 Commodities: NTP adds to medium-term oil market tightness 36 Equity Strategy: more clarity required, but investible themes emerging 39 Six key investible themes from the NTP are emerging 40 Saudi market valuation not testing 42 Taking positive steps to accelerate MSCI inclusion 45 A higher weighting in international indices 45 Telecom: supporting a move to higher connectivity 48 NTP helps increase penetration of higher margin offerings 48 Health: Not Tremendously Prescriptive 51 Vision 2030 a start but Needs Transparent Proposals 51 Healthcare implications of National Transformation Plan 51 Consumer: a necessary pain 58 Prefer staples over discretionary 58 Rationalization of subsidies for water and electricity 60 Saudi Arabia approves 100% foreign ownership rules 61 Real estate: NTP positive but not enough 64 Key strategic objectives and KPls to watch 64 Land tax - gradual revenue source 65 Metals & Mining: ambitious growth target 67 Government focus on mining to boost jobs and growth 67 Oil & gas/petchems: focus on downstream 69 Focus on downstream expansion is a priority 69 Refining capacity target: almost there 71 Ambitious natural gas expansion 72 Utility sector: sharing the capex burden and achieving cost reflective tariffs 73 Eight strategic objectives aimed at being self-funding 73 Defence: Vision 2030 supports defence spending 15 Saudi Arabia to build out military industrial base 75 Research Analysts 86 2 GEMs Paper #26 | 30 June 2016 OS merrill Lynch HOUSE_OVERSIGHT_016112