HOUSE_OVERSIGHT_016126.jpg

Chart 8: Saudi government non-hydrocarbon and private sector investment growth are relatively correlated Chart 9: Crowding in domestic private sector investment when the government sector retrenches can be challenging 20 —— Government non-oil nominal GFCF (% of GDP) , 120 Private sector nominal GFCF (% of GDP) Oil prices (US$/bbl, rhs) 110 ——— Government non-oil GFCF (3yma, %yoy) = Private sector GFCF (3yma, %yoy) 100 15 80 10 60 40 5 20 0 0 rm ODA MD DOr +T RHR DMA DA SMA DAH wAr tT ROMHAN ~Y KER DOOD RAAaSdoeSe Be KT KEKER DADA AaOSBSASCSEH DOADBDAADAASH HDS — ar) DADADABDBAAHDBAAHADTSSSOS ee ew ee ee re Se aanaa”d a CD CD Source: Haver, BofA Merrill Lynch Global Research. GFCF refers to Gross Fixed Capital Formation. Source: Haver, BofA Merrill Lynch Global Research. GFCF refers to Gross Fixed Capital Formation. Ambitious non-oil export and tourism targets, but little details The NTP targets increasing non-oil exports by SAR145bn (US$38bn, 6.0% of GDP) to SAR330bn (USS$88bn, 11.4% of 2020f GDP) over the next five years. Although implementation details are lacking, we anticipate that part of the increase could be linked to the higher mining output targeted. These would nevertheless be dependent on the global economic cycle. Higher exports of refined oil products, if all of the additional capacity to be installed by 2020 is exported, could add cUS$7.3bn to exports at current price levels (but not qualify towards non-oil exports targets under the NTP as they are classified as hydrocarbon exports). Currently, 61% of Saudi non-oil exports represents chemicals and plastics, and maintains a correlation with oil prices, and re-exports account for another 17% of total non-oil exports and have little added-value. Chart 10: Chemicals, plastics, re-exports form bulk of non-oil exports Chart 11: Non-oil exports are diversified in terms of destination SARbn Smal other 200 food ME machinery 8 mas metals 150 | lm re-exports 80 ses plastics mmm chemicals 60 100 ——— Brent (US$/bbl, rhs) ———=non-oil exports (% of total, rhs) / 40 50 20 0 0 j+S;TaA aWaonrrvTraeonwoeonwTt CO DWDON Tt « BHD RBBPBARSSSSSEEE mAsia =GCC mMENA @EU m Other rr wr rw Tr TT THN N NNN NON Source: Haver, BofA Merrill Lynch Global Research. Source: Haver, BofA Merrill Lynch Global Research. Likewise, the focus on religious tourism is appropriate given its importance in Saudi Arabia but NTP targets appear ambitious to us with a targeted 20%yoy CAGR increase in Umrah pilgrims. Religious tourism accounted for c40% of total tourist expenditure in Saudi Arabia in 2015, bringing in proceeds of SAR33.4bn (US$8.9bn; 1.4% of GDP). Note that, for balance of payment purposes, total tourism revenues stood instead at SAR37.9bn (US$10.1bn; 1.6% of GDP). The NTP targets would thus imply religious tourism external revenues/expenditures to increase to US$10-US$20bn (1.3-2.6% of 2020f GDP). This would be helpful on the external front but not a game changer on its own, in our view. 16 GEMs Paper #26 | 30 June 2016 38 Merrill Lynch HOUSE_OVERSIGHT_016126