SAUDI ARABIAECONOMICS

December 2010

Dr. John SfakianakisChief EconomistTel: +966 1 289 1797Email: johns@alfransi.com.sa

Daliah MerzabanEconomic AnalystTel: +971 4 428 3608Email: dmerzaban@alfransi.com.sa

Turki A. Al HugailEconomic Research AnalystTel: +966 1 289 1163Email: talhugail@alfransi.com.sa

December 2, 2010

Inflation strain subsidesOutlook highlights lower inflation amid steady economic upturn

Inflation likely to fall in 2011 to 4.7% on lower annual rents as pressures ease

Slow turnaround in private credit leads to reduction in 2011 lending growth forecast to 8.5%

Preliminary private and government GDP growth rates look strong

Record hajj pilgrims increase domestic retail consumption

The Saudi economy is finishing off 2010 in better form than it started due to healthy oil prices, recuperating business and financial activity, improved trade and tourism, and inflationary pressures that are beginning to taper off from summer peaks. Oil prices have averaged a secure $78.76 a barrel in the first 11 months of 2010, almost 30% above prices during the same period last year. Along with growing global energy demand, robust oil prices are strengthening the kingdom’s fiscal position and outlook and enabling the state to continue engaging thoroughly in the economic recovery process.

Government sector GDP growth rates in the first half of the year exemplify the fundamental role played by state and quasi-state investors in the economy. Nominal GDP of the government sector expanded 13.5% in the first six months, more than double the private sector’s rate of growth at current prices. While state-led growth is likely to continue in 2011, we do see the starting signs of greater involvement by the private sector, although its reintegration into economic activity is likely to take place slowly over the next two to three years.

Against a backdrop of a relatively inactive, deleveraging private sector, the government’s fiscal expenditures will continue to expand, although we have reason to believe the pace of expansion may slow in the coming years. Authorities are becoming more cognizant of the fact that higher spending raises the risk for fiscal deficits in the medium term, especially as the oil price needed to balance the budget has leapt to $72 a barrel this year. We have raised our state revenue forecast to SR658.9 billion this year as a result of sustained higher oil prices. Following this revision, and a reduction in our expenditures forecast, it looks likely that Saudi Arabia will swing a surplus in 2010 amounting to 2.5% of GDP.

Accelerating price pressures due to a combination of global and local factors have characterised 2010. High soft commodity prices, continued real estate supply constraints and imperfect domestic competition came together to nudge Saudi inflation to 6.1% in August for the first time in 18 months. Inflation rates dipped back below 6% since then, and we anticipate the deceleration in inflation rates will continue in 2011 as a consequence mainly of high base effect adjustments for rents and stabilising food prices. Although rents are poised to continue climbing month on month, the rate of annual increase is set to decline, thus removing a great deal of the burden on the annual inflation rate. Our forecast of 5.3% inflation in 2010 remains intact, and we foresee inflation subsiding in 2011 to 4.7%, against a prior estimate of 5.1%.

2

SAUDI ARABIAECONOMICS

December 2010

The very guarded pick up in bank credit growth is poised to continue in the coming months, prompting us to reduce our 2011 forecast for growth in bank claims on the private sector to 8.5% from 12.2%. Momentum behind credit growth is likely to continue to lag until a substantial pipeline of project financing is integrated into bank balance sheets and the private sector moves toward expansion financed through a combination of equity and debt. These trends should start to unfold in the second half of 2011 and encourage a return to double-digit rates of credit growth in 2012 and 2013.

Reduced inflationary pressures and expectations for a stronger U.S. dollar in 2011 will relieve speculation that Saudi authorities will rethink a long-standing policy of pegging the riyal to the dollar. Credit Agricole CIB, our joint-venture foreign partner, expects the euro-dollar to end 2011 at 1.18, signalling a serious trend reversal. Euro weakness is likely to result from the spillover effect from debt-troubled nations elsewhere in the eurozone as well as a robust U.S. economic outlook.

A weaker dollar tends to raise the cost of imports into Saudi Arabia, particularly for food items, but it also increases the appeal of non-oil exports to global customers and makes tourism into the kingdom, primarily for religious purposes, more affordable for those whose currencies strengthen against the greenback. November’s hajj pilgrimage illustrated this strong demand, with preliminary estimates indicating a record number of pilgrim visits. This is bound to have a positive ripple effect on the wider services and hospitality sectors for this year and 2011.

Reduced inflation rates on the horizonAs we stated briefly in our November Monetary Watch, inflationary pressures in Saudi Arabia – now the highest in the Gulf – are poised to decline in 2011, leading us to reduce our inflation forecast for next year to 4.7% from 5.1%. We anticipate inflation will average 5.3% in 2010, higher than 2009's 5.1%.

The primary downward pressure should stem from falling rental inflation. The rent and utilities index, which comprises about a fifth of the index, is likely to record average inflation of 9.5% this year, although next year we see the rate falling to 6.7%. While we still expect moderate month-on-month gains in rental inflation, the annual rate of rental inflation is likely to decline during 2011 due to the higher base effects. In 2009, rental index inflation averaged 14.3%, down from about 18% in 2008.

We are also anticipating a slowdown in home furniture inflation, and in other expenses and services, which together comprise more than 20% of the index. The largest weighting in the Saudi cost of living basket is food and beverages, accounting for almost a third of the total. Food price trends are somewhat more difficult to predict because they depend on movements in global commodity prices, and may also be influenced by fluctuations in the U.S. dollar. When the dollar is weaker, this raises the cost of importing food into Saudi Arabia, heightening imported inflation. A stronger U.S. dollar in 2011 and some softening in food commodity prices should be anticipated, although food inflation rates will likely hover in a similar range as this year. Any decline in food price inflation will be slight given price stickiness.

Source: SAMA, Banque Saudi Fransi forecasts

0.0

18.0

Inflation rateOther goods and servicesRent & utilitiesFood and beverages

(YoY

infla

tion)

Inflationary pressures likely to ease

2008 2009 2010 2011f

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

3

SAUDI ARABIAECONOMICS

December 2010

In recent months, data of the Food and Agriculture Organisation show some food prices, particularly sugars and cereals, are on the rise again, although there is evidence that food prices are near peaks and are unlikely to face significant upward pressure in 2011. Saudi Arabia's food price index broadly tracks trends in the FAO food price index, albeit much more moderately. Sustained higher food prices globally are likely to be offset by the stronger dollar, and while we expect food inflation to rise in the first part of 2011, it should ease during the second half of next year. Food and beverage inflation in 2011 is likely to be slightly lower than the projected 6.2% average we foresee for this year, although the index has varied widely in recent years based on global circumstances. In 2008, food and beverage inflation averaged around 15% and fell to 2% in 2009.

Money supply growth in the kingdom, traditionally a contributor to inflation, is beginning to pick up due to greater lending and economic activity in general, although remains far from levels that we expect would lead to a build up in inflationary pressures. In September, M3 money supply growth was 5.1%, compared with between 10% and 27% in every month between 2005 and the end of 2009. By comparison, M3 money supply growth averaging 5% this year and 9.6% next year, according to our forecasts, would have a much less-pronounced impact on inflation rates.

Source: FAO

100

400

(FAO

inde

x)

Sugars and cereals lead continued rise in global food prices

125150175200225250275300325350375

2009 Mar May Jul Sep Mar May Jul SepNov 20102008 Mar May Jul Sep Nov

Cereals Sugar FAO food price index

Source: CDSI, FAO

95

165

(Inde

x le

vel)

Saudi food prices climb, but less aggressively than global prices

20082007 Apr Jul Oct 2009Apr Jul Oct 2010Apr Jul Apr JulOct

FAO food price index Saudi food and beverage index

100105110115120125130135140145150155160

4

SAUDI ARABIAECONOMICS

December 2010

Record hajj visitors augur well for servicesThis year’s hajj provided a robust signal about the return of domestic retail activity, with early data indicating that 1.8 million foreigners travelled to the holy city of Makkah in November to perform the annual pilgrimage – a record number. Pilgrim traffic from outside of Saudi Arabia declined in 2009 due to concerns about the H1N1 flu and the global recession. But as concerns dissipated, religious tourist traffic for hajj and umrah, a lesser pilgrimage that can be taken at any point of the year, has rebounded in 2010.

Since 2002, more than two million Muslims each year have performed hajj, an obligation on all able-bodied Muslims. In 2009, in addition to the 1.61 million pilgrims flying in to the kingdom, there were almost 700,000 domestic pilgrims. The government expects local and incoming tourists to the kingdom – almost half of whom travel for religious purposes – will spend SR81.9 billion on tourist trips this year. Tourist expenditures are expected to jump almost 60% by 2015 to SR129.5 billion in 2015 and to more than double by 2020, according to Tourism Information and Research Centre forecasts cited by SAMA.

Religious tourism provides an important contribution to the Saudi non-oil economy, including a positive ripple effect

on services, hospitality, transportation and aviation. For a country attempting to diversify its economy away from a heavy reliance on hydrocarbon exports, religious tourism offers a crucial contributor to expansion of the non-oil sector. Still, tourism GDP of SR50.2 billion in 2009 accounted for only 3.6% of total GDP and 6.9% of non-oil GDP.

0.8

1.9

2010

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

(Mill

ions

)

Source: CDSI, government sources

Non-Saudi pilgrims hit peak in 2010 Hajj

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

H1 nominal GDP bodes well for government, private sectorsNominal GDP showed solid performance in the first half of the year, according to quarterly data released by the Central Department of Statistics & Information. GDP at current prices grew 24% year on year in the first six months of 2010, according to the numbers, due primarily to a 42.5% jump in oil sector GDP, which comprised more than half of the total nominal figure for the period.

Oil prices in the first half of 2010 averaged $78.46 a barrel – up 52% from an average of $51.7 a barrel in the same period a year earlier. Still, with Saudi oil production in the first six months falling to 8.13 mbpd from 8.19 mbpd a year earlier, according to figures of the Joint Oil Data Initiative (JODI), the impact of high oil prices on real oil GDP will be negligible.

Nonetheless, the nominal GDP numbers also indicate a good comeback in non-oil private and government sector GDP, which are the main components driving real GDP growth

this year. Private sector GDP growth in the first half came in at 6.5% in current prices, while the government sector's current price GDP growth came in at 13.5%, according to the data.

The government did not release real GDP growth data for the same period, although analysis of the correlation between real and nominal GDP growth trends in recent years does indicate fairly strong real GDP expansion for both the private and government sectors in the first six months. In the five years to 2009, the average median correlation between real and nominal private sector growth was 70%, while for the government sector it was 57%. Applying these ratios to the first-half numbers yields real growth rates of, roughly, 4.5% in the first half for the private sector and 7.7% for the government sector.

Annual growth rates are likely to have slowed in the second half, mainly because of a higher base effect; the performance of the Saudi economy began picking up in the second half of 2009 and the first part of 2010. Since then,

5

SAUDI ARABIAECONOMICS

December 2010

momentum has stagnated. We maintain our forecasts for 4% real growth of the private sector for 2010 and 4.6% for the government sector, although government sector expansion may be higher due to the state's inclination to steer the recovery process by investing in strategic projects.

Gross fixed capital formation (GFCF) growth rates improve when investment improves, and thus it can be used as a measure of the potentiality of the economy. As a percentage of GDP (at current prices), we expect GFCF to reach 26.8% this year up slightly from 2009 levels, which is positive for business activity. It is clear that the government has outpaced the private sector in driving investments to spur economic growth. Private gross fixed capital formation fell in 2009 by 2.2%, while the government sector's capital formation rose 8.9%, according to SAMA data. As a percentage of GDP, non-oil private sector investments rose

to 11.9% in 2009 from 9.6% in 2008. We expect the ratio rose to 13.2% this year and should climb again to 13.6% in 2011. GFCF as a percentage of GDP is still lower than rates attained in other emerging markets, which have tended to surpass 30% during crucial growth phases. Authorities are, however, taking crucial measures to boost capital investments.

Expenditure surge raises breakeven oil priceWith state investments leading the way, the burden on public fiscal balances is clear. The government announced in November it would not phase out an inflation allowance that had raised salaries of state employees by 15% over the last three years. The allowance was meant to be re-moved after this year – but due to continued high infla-tion the finance ministry has decided to keep it intact,

Source: CDSI

100

800

Oil sector GDPPrivate sector GDPGovernment sector GDPGDP at current prices

643.30

798.50

126.72 143.78

225.93 240.52290.66

414.20

(SR,

bn)

Nominal GDP growth sees good H1 turnaround

H1 2009 H1 2010

200

300

400

500

600

700

Gross fixed capital formation looks up

10

28

0

500

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010f

(SR,

bn) (%

)

Source: SAMA, Banque Saudi Fransi forecasts

As % of GDPGross fixed capital formation

50

100

150

200

250

300

350

400

450

12

14

16

18

20

22

24

26

-10

90

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(YoY

% c

hang

e)

Source: SAMA

Growth in government investments outpacesprivate sector

0

10

20

30

40

50

60

70

80

Non-oil government Non-oil private

6

SAUDI ARABIAECONOMICS

December 2010

costing the government an estimated SR33 billion a year (inclusive of public sector employees and pensioners). We do not expect the allowance to create any significant in-flationary pressures. Overall for this year, we have revised down our state expenditures target to SR618 billion as we expect additional expenditures will be billed forward.

We anticipate the government will slow the pace of budget expansion in 2011 and unveil a budget later in December including announced expenditures of not more than SR590 billion, up from SR540 billion this year, a 9.3% increase. Budgeted expenditures in 2010 budget were 13.6% bigger than 2009, which itself was 15.9% bigger than the year-earlier budget. This slowdown in budget expansion is necessary and prudent following years of overspending budget targets by more than 20%.

But it is not only the growth of projected spending that we expect will slow – growth in actual spending is also likely to outpace forecasts by a smaller degree as the government moves to better rationalise spending and implements efforts to rein in excessive spending by government departments. In 2009, the Saudi government overspent its budget targets by 26%. Such exorbitant overspending is not sustainable over the long term.

In the meantime, however, budgets are easily financed with rich foreign asset reserves which, due to higher oil prices, the kingdom has been in a position to enlarge this year. In the first nine months of the year, Saudi Arabia’s central bank added SR61 billion to its net foreign asset holdings, taking them to SR1.58 trillion, the highest since February 2009. At that time, the central bank was drawing down foreign assets to pay for its growing budget during a period of low

Saudi breakeven oil price rises rapidly

200

1100 80

30

Source: SAMA, Banque Saudi Fransi forecasts

(SR,

bn)

(Oil price, USD/barrel)

Breakeven oil priceTotal government revenue Total government expenditure

2011f2010f20092008200720062005

300

400

500

600

700

800

900

1000

30

35

40

45

50

55

60

65

70

75

SAMA builds foreign assets as oil price keeps momentum

1000

1700 150

30

Source: SAMA. Thomson Reuters, Banque Saudi Fransi forecasts

(SR,

bn)

(Oil price, USD)

Oil priceSAMA net foreign assets

1050110011501200125013001350140014501500155016001650

405060708090100110120130140

2009 Mar May Jul Sep Nov Mar May Jul Sep Novf20102008 Mar May Jul Sep Nov

7

SAUDI ARABIAECONOMICS

December 2010

oil prices. Sustaining big budgets does not pose a major concern in the short term because it is part and parcel with the government’s current five-year development plan to stimulate the economy and create the right backdrop for the private sector to operate.

Still, mushrooming expenditures – which have tripled since 2002 – will raise the oil prices needed to balance Saudi budgets. In the early part of the decade, the kingdom had traditionally based its budget on very conservative oil price assumptions that made it easy to post respectable surpluses. But budget breakeven oil prices have risen rapidly along with state expenditures in the last few years and are now very similar to the actual oil price. According to our estimates, the budget breakeven price of oil for this year’s budget is around $72 a barrel – compared with $66 a barrel in 2009 and $52 a barrel in 2008. Next year, the

budget breakeven price could rise again to more than $75 a barrel – giving the kingdom very little room to manoeuvre should oil prices weaken from current levels.

At the current pace of government spending, the breakeven price of oil could rise to $98 a barrel by 2017. Current high state spending could be replaced by spending that creates additional multiplier benefits and a trickle down that has cross-sector reach.

Oil GDP growth lags on stagnant productionA revival in oil prices during 2010 has played a role in ameliorating the state’s fiscal position and reviving domestic demand, but it is unlikely to render much of a rise in real oil sector economic growth. While energy demand globally, and particularly from Asia, has climbed this year,

Source: CDSI

-30.0

40.0

(YoY

% c

hang

e)

Growth in imports remains muted in 2010, exports jump

-20.0

-10.0

0.0

10.0

20.0

30.0

YoY growth in imports YoY growth in non-oil exports

2009 Mar May Jul Sep Mar May Jul SepNov 20102008 Mar May Jul Sep Nov

Source: Joint Oil Data initiative

Saudi oil production edges lower

May2010

Sep2010

Mar2009

Jan2009

May2009

Jul2009

Sep2009

Nov2009

Jan2010

Mar2010

Jul2010

(mbp

d)

7.7

8.4

(mbp

d)

8.3

7.8

7.9

8.0

8.1

8.2

8

SAUDI ARABIAECONOMICS

December 2010

Saudi Arabia’s oil production levels are not following suit, leading us in October to reduce our real oil GDP growth forecast to 2.7%.

According to data of JODI, Saudi oil production in the first nine months of 2010 averaged 8.13 million barrels per day (mbpd), which is actually lower than the same period last year, when the kingdom produced 8.19 mpbd of crude, on average. This leaves little scope for growth in oil GDP in 2010. Our forecast for oil GDP growth of 2.7% this year stems from a view that the government integrates investments in oil infrastructure into its calculation of oil GDP at constant prices.

OPEC has cited a pick up in oil demand in the third and fourth quarters, particularly due to better-than-expected

oil demand in OECD countries which prompted the cartel to revise its world oil demand growth forecasts upward by 0.19 mbpd, or 1.6%, to 1.32 mbpd. Developing countries account for 83% of that total, including a 6.4% climb in demand from China, according to OPEC estimates in its monthly Oil Market Report. OPEC also upwardly revised 2011 projections for oil demand growth to 1.36% in 2011, driven mainly by 5.1% growth in China and 2.1% in developing countries of Asia, Latin America, the Middle East and Africa.

The kingdom is a key beneficiary of strong oil demand growth from Asian clients since about 54% of exports in 2009 were destined for Asia, up from 45% just nine years earlier. We anticipate Saudi oil sector GDP growth will accelerate to 3.7% in 2011.

Source: Saudi Ports Authority

Saudi port activity slips in August-September

Total cargo loadedTotal cargo discharged

2.0

8.0

(Wei

ght,

tonn

es, m

n)

2009 Mar May Jul Sep Mar May Jul SepNov 2010

2.53.03.54.04.55.05.56.06.57.07.5

Source: SAMA

Current account balance improves after weak 2009

-20

200

(SR,

bn)

0

20

40

60

80

100

120

140

160

180

Q12007

Q22007

Q32007

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q12010

74.5

Q22009

Q32009

Q42009

69.7 69.4 73.8

137.1 136.7

196.3

159.7

3.5 -11.1 -0.2

31.8

64.9

9

SAUDI ARABIAECONOMICS

December 2010

Port activity also exemplified a decline in activity in August and September, with cargo loaded and discharged easing from June-July levels. Cargo travelling through ports is, however, higher on the whole than a year ago; in September, cargo discharged at ports grew 9.2% year on year, while cargo leaving ports was up 8%.

With improved export earnings this year, the country's current account surplus has recovered following weakness during 2009, including current account deficits in the first and second quarters. The Saudi current account surplus rose to SR74.5 billion in the first quarter of this year, the highest since the onset of the financial crisis in the third quarter of 2008, SAMA data show. Given the strong Q1 performance and slower import activity, we are raising our current account surplus forecast for 2010 to SR154.15 billion ($41.1 billion), or 9.5% of GDP – almost double last year’s surplus.

Balance of payments data also show growth in workers' remittances did not lose steam in 2009, a good indication that there was not a notable drop in employment for expatriates. About 8.4 million expatriates officially live in Saudi Arabia, or almost a third of the total population. Another 500,000 to one million expatriates overstay their visas. In the first quarter, expatriates remitted SR26.7 billion home, up 12.8% from the fourth quarter.

Current account surplus poised to doubleGreater energy demand from Asia has been a key catalyst for better export flows during 2010 following declines in much of 2009. Non-oil exports, too, are on the rise, according to preliminary data of the Central Department of Statistics & Information. In the first nine months of 2010, CDSI data show non-oil exports climbed about 16% compared with the same period a year earlier. Final foreign trade data tend to vary, but the CDSI trends show a pick up that can be attributed to enhanced petrochemical and plastics sales. In September, the latest data available, non-oil exports grew 15.3% from the year earlier. We anticipate total exports, including oil and non-oil, will rise 16% this year to $223.4 billion (SR837.77 billion), and climb another 10.4% next year.

Growth in imports, on the other hand, has been more muted, with import flows into Saudi Arabia declining in value in August and September compared with the corresponding months in 2009. Preliminary CDSI data show a small decline of 1.8% in imports over the first nine months. In view of these weaker - than - expected data, we have reduced our total imports forecast for 2010 to $90.7 billion from an earlier $95.4 billion. This marks a near 5% rise in total imports during 2009, reflecting our expectation for a pick up in imports in the final months of 2010, and an additional 10% gain in 2011.

Source: SAMA

Workers remittances continually rise

5000

30000

(SR,

mn)

7500

10000

12500

15000

17500

20000

22500

25000

27500

Q12007

Q22007

Q32007

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q12010

Q22009

Q32009

Q42009

10

SAUDI ARABIAECONOMICS

December 2010

Credit growth challengeA key challenge in the coming two years will be in striking the right funding mix balance for strategic projects between government funding, bank credit and financing raised through debt markets. Over the past two years, the government has foot the bill for many strategic projects largely because doing so made financial sense due to rising costs of credit. As credit and debt markets stabilise, the government should seek where possible to ensure that a share of financing for strategic projects – particularly those in energy, transportation and utilities – is set aside for banks. Banks, still risk averse in the aftermath of the financial crisis and domestic non-performing loans, continue to prefer extending credit to large-scale projects with government backing. It will take time before small-and medium-sized enterprises are able to catalyse a good revival in bank credit growth, so engaging banks in large projects will set the stage for a wide-scale, diversified lending in the coming years.

In late October, state-run Saudi Aramco and France’s Total signed a $1.3 billion loan agreement with the Saudi Public Investment Fund for a joint oil refinery being built at Jubail to boost capacity by 400,000 barrels per day. The joint venture has so far secured about $9.8 billion in financing for the $12.8 billion refinery. PIF and export credit agencies have contributed more than half of the tab so far. While it is encouraging to see banks getting involved, the government

should strive to reduce its financing role to minority status in the coming year.

Third-quarter bank lending data show the bulk of growth in lending stems from loans to government and quasi-government bodies and utilities, which grew 17.9% and 14.3%, respectively, compared with the year earlier. Lending to companies categorised under “commerce” also rose 5.1% in Q3, according to data of SAMA. In other sectors, loan growth continues to lag; credit to transport and communications fell 2.5% year on year in the third quarter, manufacturing was down 1.1% and lending to services fell 27.4%.

The gradual pace of the credit recovery cycle is not a Saudi-specific phenomenon. Historical evidence from Latin America and South East Asia show credit booms are followed by a slowdown phase. Recent IMF work shows that a credit recovery may take three years following a financial crisis. Saudi Arabia, while it didn’t suffer a financial crisis per se, witnessed a sharp contraction in demand and supply of credit in 2009. The reversal of this trend should be gradual to permit bankers to allocate credit effectively and enable the private sector enough time to re-engage in both productive and equity market investments. Even private property owners are freezing positions, neither selling nor buying substantial tracks of land.

Government, utilities lead return to lending growth

Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q1 2010 Q2 2010 Q3 2010Q4 2009-30

100

(YoY

% c

hang

e)

-20-10

0102030405060708090

MiscellaneousManufacturing and processing Commerce Electricity, water, health Transport and CommsGovt & Quasi govt Building and construction ServicesSource: SAMA

11

SAUDI ARABIAECONOMICS

December 2010

Key Saudi Arabia Economic Indicators2002 2003 2004 2005 2006 2007 2008 2009e 2010f 2011f

MACRO-ECONOMIC INDICATORSNominal GDP (USD bn) 188.6 214.6 250.3 315.3 356.2 384.7 476.3 375.8 434.9 477.3Nominal GDP (SR bn) 707.1 804.6 938.8 1182.5 1335.6 1442.6 1786.1 1409.1 1631.0 1789.9YoY % change 3.0 13.8 16.7 26.0 12.9 8.0 23.8 -21.1 15.7 9.7Real GDP growth rate, % 0.1 7.7 5.3 5.6 3.2 2.0 4.2 0.6 3.8 4.2Non-oil private sector real GDP growth rate, % 4.1 3.9 5.3 5.8 6.1 5.5 4.6 3.5 4.0 4.6Government real GDP growth rate, % 2.9 3.1 3.1 4.0 3.1 3.0 3.7 4.4 4.6 3.8Oil sector real GDP growth rate, % -7.5 17.2 6.7 6.2 -0.8 -3.6 4.2 -6.7 2.7 3.7Inflation, YoY % change 0.2 0.6 0.3 0.7 2.2 4.1 9.9 5.1 5.3 4.7GDP per capita (USD) 8,774 9,744 11,111 13,640 15,041 15,868 19,200 14,809 16,049 17,231

BUDGETARY INDICATORSTotal government revenue (SR bn) 213.0 293.0 392.3 564.3 673.7 642.8 1101.0 509.8 658.9 684.5Total government expenditure (SR bn) 233.5 257.0 285.2 346.5 393.3 466.2 520.1 596.4 617.6 637.3Deficit/surplus (SR bn) -20.5 36.0 107.1 217.9 280.4 176.6 580.9 -86.6 41.3 47.2Budget balance, % of GDP -2.9 4.5 11.4 18.4 21.0 12.2 32.5 -6.1 2.5 2.6Domestic debt (SR bn) 558.0 660.0 610.6 459.6 364.6 266.8 235.0 225.1 214.0 204.0Domestic debt as % GDP 78.9 82.0 65.0 38.9 27.3 18.5 13.4 16.0 13.1 11.4

FOREIGN TRADE INDICATORSTotal export revenues (USD bn) 72.3 93.0 125.7 180.4 210.9 233.1 313.4 192.2 227.4 242.5Oil export revenues (USD bn) 63.6 82.0 110.4 161.6 188.2 205.3 281.0 163.1 197.8 209.5Total imports (USD bn) 29.6 38.3 43.5 53.8 63.0 81.5 100.6 86.4 90.7 99.8Current account balance (USD bn) 11.9 23.3 49.3 90.0 98.9 93.3 132.3 22.8 41.1 46.1Current account as % of GDP 6.3 10.8 19.7 28.5 27.8 24.3 27.8 6.1 9.5 9.7

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

BANKING INDICATORSBank claims on private sector, year-end % change 10.0 11.0 37.4 38.9 9.2 21.4 27.1 -0.04 8.0 8.5Total private credit, year-end % change 12.4 11.3 37.0 38.9 9.8 20.6 27.9 -0.6 7.3 8.9Total bank credit, year-end % change 12.3 17.2 34.5 36.2 9.8 19.7 25.2 -1.1 8.4 8.6Broad money M3, YoY % change 14.7 6.9 18.8 11.6 19.3 19.6 17.6 10.7 5.0 9.6SAMA net foreign assets (USD bn) 41.9 59.5 86.4 150.3 221.1 300.9 437.9 405.3 428.0 470.8Repurchase Rate (year-end) 2.00 1.75 2.50 4.75 5.20 5.50 2.50 2.00 2.00 2.25

SAVING & INVESTMENT INDICATORSGross fixed capital formation, % of GDP 18.1 18.4 16.7 16.5 17.5 20.5 19.5 24.7 26.8 26.9Non-oil government investments, % of GDP 2.6 2.9 3.2 4.6 4.4 5.8 6.2 8.5 10.3 10.5Non-oil private investments, % of GDP 13.8 12.9 11.6 10.0 9.7 10.1 9.6 11.9 13.2 13.6Gross domestic savings, % of GDP 37.1 41.8 45.9 51.3 50.1 48.5 52.8 37.1 39.7 40.1Government savings, % of GDP -0.9 6.0 14.0 23.6 26.2 20.5 40.7 6.6 12.1 16.5Private savings, % of GDP 38.0 35.8 31.9 27.7 23.9 28.0 12.1 30.5 27.6 23.5

DEMOGRAPHIC INDICATORSPopulation (in millions) 21.5 22.0 22.5 23.1 23.7 24.2 24.8 25.4 27.1 27.7Non-Saudi 5.8 6.0 6.1 6.3 6.4 6.6 6.7 6.8 8.4 8.6Unemployment rate (%) Saudi 9.7 10.4 11.0 11.5 12.0 11.0 9.8 10.5 10.5 10.6Non-Saudi 0.8 0.8 0.8 0.8 0.8 0.4 0.4 0.3 0.4 0.4

OIL INDICATORSArgus Sour Crude Index (ASCI) 59.4 66.4 93.8 60.4 76.0 79.0Average oil price (WTI) (USD/barrel) 26.2 31.0 41.5 56.7 66.3 72.4 99.8 62.1 79.0 82.0Average Saudi oil price (USD/barrel) 23.9 26.9 34.4 50.1 62.1 68.5 94.5 60.1 75.0 78.0Crude oil production (million bpd) 7.09 8.41 8.90 9.35 9.21 8.82 9.20 8.18 8.19 8.35

STOCK MARKET INDICATORS Oct, 2010 Nov, 2010

Tadawul Stock Index (TASI) (period-end) 2,518.1 4,437.6 8,206.6 16,712.6 7,933.3 11,038.7 4,803.0 6,121.8 6,353.9 6,318.5

Source: Saudi Arabian Monetary Agency, Central Department of Statistics and Information, other Saudi Arabian government authorities, Banque Saudi Fransi forecasts

12

SAUDI ARABIAECONOMICS

December 2010

Disclosure appendix

Analyst 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 holdings

and other considerations.

Additional disclosures1 - This report is dated as at 2 December 2010.

2 - All market data included in this report are dated as at close 1 December 2010, 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 with its Research business. A Chinese Wall is in place between the Investment Banking and Research businesses to ensure that any 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 completeness or accuracy. The opinions expressed are subject to change without notice and Banque Saudi Fransi expressly disclaims any and all liability for the information contained in this report.

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