KSA investment�.The power of one

MIT Alumni yearly meeting - 31st March 2013

1

Contents

▪ SAGIA history, challenges and future aspirations

▪ The Kingdom, decades of development and investment, achievements, opportunities and challenges

▪ The power of one, unified investment roadmap

2

Contents

▪ SAGIA history, challenges and future aspirations

▪ The Kingdom, decades of development and investment,

achievements, opportunities and challenges

▪ The power of one, unified investment roadmap

3

KSA Timeline of key events (1/2)

SOURCE: Web, press, team analysis

Pre 1932 1932 1938 1960 1976-77 1980 1981

� Saudi Arabia was primarily known for its deserts and as the home of two of Islam's holiest sites - Makkahand Madinah

� The kingdom unified under king Abdul-Aziz AlSaud

� Oil is

discovered and production begins under the US-controlled Aramco (Arabian American Oil Company).

� Saudi Arabia is a founding member of Opec(Organisation of Petroleum Exporting Countries)

� Saudi Arabia purchase all Aramco

from the US

� Royal Commission for

Jubail and Yanbu (RCJY)

was formed to oversee infrastructure and services of Jubail, Yanbu and RasAl Zour industrial cities.

� Oil drastically

changed its lifestyle

and demographics. People were drawn away from the desert to modern urban areas.

� Saudi Arabia is a founder member of the GCC(Gulf Cooperation Council).

1975

� SABIC was founded. It marked the beginning of economy’s diversification by using oil extraction by-products to produce commodities for export –such as chemicals, polymers & fertilizers

4

Booming economy by all measure, but diversification below ambition

• Oil accounts for 83% of total export& 90% of income

• Saudization level in most sectors does not exceed 20%

• Local content in most sectors dose not exceed 20%

5

Energy Sector

6

Distribution of spend on large CapEx projects

1 Some pre-engineering, engineering, and procurement activities happen in parallel

NOT EXHAUSTIVE

Total

184

GCC

34

Foreign based in GCC

36

Foreign

114

Foreign GCC

SOURCE: Zawya

Oil and gas and petrochemical project mix among EPC contractors

USD bn, 2012 active projects, varying end dates

7

Isolated actions to develop the local industry, often leveraged by foreign capital to boost use of local workforce and improve local infrastructure

Clear view on supply gaps and programs initiated to address the gaps. E.g., minimum local content requirements to bid for exploration and acquisition of blocks

Clearly defined and implemented strategies based on supply gaps. High-level of professional qualification, import substitution and technology development initiatives

Supply industry at world-class level (competitive to export goods and services). Achieved high employment generation, maximized income and limited local content incentives

Local content maturity level

National industrial

development

Emerging local

content model

Basic local

content model

Isolated initiatives

for the local industry

Compared to other countries with similar natural reserves GCC countries

are lagging behind with regards to local content development

SOURCE: Accenture analysis, Press search

NorwayUK

Tanzania

Indonesia

South Africa

Colombia

Trinidad & Tobago

Nigeria

Malaysia

Angola

Mexico Brazil

KSA

China1

1 Follows different economic model focused on exporting low-end goods

8

Health Care Sector

9

A snapshot of the healthcare industry reveals that Saudi Arabia

is an “importer” of skills and products

WHO NHA, WHO GHO, Business Monitor International, MoH statistical year book 1432 :SOURCE

Percent Local

Expatriates

1From medical colleges

40

Public Private

Service provision 60

22 Financing 63 15

Government PI OPP

Local production Imports

Pharmaceuticals 20 80

Local production Imports

Medical devices 100 <10 90

Graduates198 2

Physicians/Nurses

27 73

Education and

training

HEALTHCARE

10

Construction Sector

11

Material and Construction accounts for largest percentage of

project lifecycle

Expert interview; team analysis: SOURCE

�

Percentage oftotal cost

1 Other includes Masonry, Metals, Wood & Plastics, Therm & Mosit Protec, Specialties, Conveying Systems, Integrated Automation, Communications, Electrical Safety & Security

CONSTRUCTION

Land costConsulting

services

Excavation

and earth

works

Material&

Construction

Electricity

and water

utility

Fit-outs/

Interior

construction

Other

15 %15-20%~ %~5%2 %2-4%~ %~50%1 %1-2%~ %~20%~3 %~3-5%

0%

9%4%

3%

Concreting Package

Other1

HVAC

46%

10%

27%

Finishes

Plumbing

Electrical

Door & Windows100%

12

Top 5 Largest Construction Material Import Categories

USD Bn

KSA is importing more than 5 Bn USD in construction material

2010 UN Commodity Trade Data : SOURCE

CONSTRUCTION

Structures and parts of

structures

Refined copper and

copper alloys

Taps, cocks, valves and

similar products

Total

0.8

1.2

0.9

0.9

5.3

Seamless tubes, pipes

and hollow profiles

Flat-rolled products of iron or non-alloy steel

1.6

13

Budget expenditures have grown at 11% per year since

2000

SOURCE: Ministry of Economy & Planning, Ministry of Finance, & SAMA

0

200

400

600

800

1,000

1,200

1,400

-100

0

100

200

300

400

500

600

700

+11% p.a.

05040302012000

SAR Bn

2012111009080706

Budget Balance – Right Axis

Expenditures-Left Axis

Revenues-Left Axis

KSA Budget Revenues & Expenditures

Expenditures of

~830 Bn SAR in

2012 vs ~230 Bn

SAR in 2002

14SOURCE: Ministry of Finance Press Release; Other Press Releases; Team Analysis

KSA budget’s focus on welfare, education, healthcare and enabling

infrastructure will create demand for services in these sectors

Sector

2013 Projected Government

Expenditures, USD Bn

10

15

17

27

54 25

12

7

8

4

XXPercentage of Total Budget Spend

37% of total

budget spend

on education

and healthcare

where ~60-70%

of spend is on

on-going service

delivery

Education &

Training

Health &

Social Affairs

Transport &

Telecom

Water,

Agriculture, &

Related Infra-

structure

Municipality

Services

Expected to grow by 5% p.a. in the next 5 years

15

Many entities have initiatives targeting sustained growth

مدينة وعد الشمال للصناعات التعدينية

16

That’s why we need to unify our vision& efforts to

▪ Diversify our economic base

▪ Attract technology and ensure knowledge transfer

▪ Create meaningful jobs

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Contents

▪ SAGIA history, challenges and future aspirations

▪ The Kingdom, decades of development and investment, achievements, opportunities and challenges

▪ The power of one, unified investment roadmap

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There is clearly a need for unified investment plan (UIP) to keep all the

forces aligned

Iserve as a sector blueprint for

decision makers

Ifocus government agencies and align

on few development priorities

Iavoid duplication and enable

synergies

Icreate actionable implementation

plan

SOURCE: Team analysis

19

More than 30 government agencies or programs are involved in the

different stages of the investment process

Provision of financing

3

Provision of enablers

4

CRITICAL LINKAGE BETWEEN INVESTMENT

OPPORTUNITY AND GROWTH

▪ NIS▪ NICDP▪ MODON▪ RCJY▪ CITC▪ King Abdullah

Financial District▪ KA-CARE▪ SCTA Tourism

Strategy▪ �

▪ SAGIA▪ Economic City

Developer▪ Chambers of

Commerce▪ NICDP▪ MODON▪ RCJY▪ �

▪ ECA▪ MODON▪ RCJY▪ HRDF▪ TVTC

▪ MOF▪ PIF▪ IIC (tbd)▪ SIDF

▪ Sanabel

▪ TCF

▪ �Overall investment strategy

Identification of opportunities and investor attraction

1 2

Ensure delivery

5

Enable & accelerate growth

6

▪ MOCI▪ EC▪ MODON▪ NIS▪ NICDP▪ RCJY▪ CITC▪ King Abdullah

Financial District▪ KA-CARE

▪ MOL/TVTC/ HRDF

▪ SAGIA ▪ ECA▪ Municipalities▪ MinPet

Need to ensure linkage between focus of enablers

and investment priorities

Need to ensure linkage between delivery and

accountability for impact

▪ Tanmiya▪ MinPet▪ SEC▪ KACST

What is the ‘Saudi Inc’ governance framework to manage the complexity of this process?

SOURCE: Team analysis

202

Objectives of the Unified Investment Roadmap

Scan existing sector and investment priorities using two approaches: competitive sectors + government spent

Develop a national investment roadmap based on prioritized (sub-) sectors, and identify 15-20 ‘platform investments’, i.e. investments to unlock sector potential and accelerate growth

Focus on describing 3-6 concrete programs for implementation (incl. infrastructure, enablers, incentives, and investment)

Align multiple stakeholders on jointly pursuing these 3-6 programs

Develop robust governance mechanism to follow up and pursue additional opportunities

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Targeted sectors& mechanism

We aim to liberalize promising sectors in the Kingdom such as health care, engineering and construction, manufacturing, transportation, communications, and spare parts through:

▪ Create mechanisms in government projects that enables the creation of leading national companies

▪ Exploit Government spending in activating the role of the private sector and raise the local content in state enterprises

▪ Mandate the allocation of a percentage of government contracts to small and medium local business

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In conclusion

The Kingdom have had several developmental achievements and witnessed many booms, but this one is the most

significant one and requires our collective efforts to translate this sustained boom into meaningful diversification and job

creation through targeted investment road map and strategies that aim to unlock key sectors and localize industries