Saudi Arabia Business Optimism Index – Q2 2010

Presented by Presented by Dun & Bradstreet South Asia Middle East Ltd. (D&B)Dun & Bradstreet South Asia Middle East Ltd. (D&B)National Commercial Bank (NCB)National Commercial Bank (NCB)

• The D&B Business Optimism Index is recognized world over

as an indicator which ascertains the pulse of the business

community

• Provides insight into the short-term outlook of the business

units on sales, profit growth, investment etc

• Provides analysis of major trends, outlook and issues

concerning the business units

Business Optimism Index

Survey

• Sample of business units representing Saudi Arabia’s economy was

selected

• 500 business owners and senior executives across different industry

sectors were surveyed

• Survey conducted during March 2010 for the 2nd quarter of 2010

• Respondents are asked questions about their expectations on relevant

business parameters

• Survey also captures respondent feedback on current business

conditions

Composite Business Index

• The Composite Business Index is calculated separately for the hydrocarbon and non hydrocarbon sector

• For the non hydrocarbon sector, the Composite Index captures the weighted aggregate behavior of five individual indices

• For the hydrocarbon sector, the Index takes into account the weighted aggregate behavior of three individual indices

40.3

37.4

40.1

43.2 44.0

48.1 48.2

52.053.2

54.2

51.753.1 53.2 53.6

56.757.7

30.0

35.0

40.0

45.0

50.0

55.0

60.0

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2008 2009 2010 2011

World Advanced Economies

Emerging and developing economies Middle East

World Economic Outlook

Real GDP Growth Global composite manufacturing & services PMI

Source: JP Morgan and markit economics

•Global economy expected to grow 4.2% in 2010, emerging economies to expand 6.0%•US economy registered 5.6% growth in Q4 2009, fastest since third quarter of 2003•Global composite PMI indicates continued expansion of manufacturing and services industry activity world over; April reading at 34-month high

Source: IMF

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

2006 2007 2008 2009

Fiscal balance as % of GDP Trade balance as % of GDP

Current account balance as % of GDP

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2006 2007 2008 2009

Growth in Real-GDP (%) Growth in Private Sector (%)

Growth in Govt Sector (%) Growth in Oil Sector (%)

Economy of Saudi Arabia

•Saudi Arabia’s growth for 2010 is projected at 3.7%; led by government spending and higher oil production

•The Saudi government has announced its biggest ever budget for year 2010, with planned expenditure of SAR 540 bn, up 13.7% from 2009

Source: Ministry of Planning Source: Ministry of Planning

Sector-wise GDP growth Fiscal & Trade balance

Composite Business Optimism Indices

•Non hydrocarbon sector outlook stabilizes at last quarter’s level

•Weak selling price outlook drags the hydrocarbon sector optimism lower

46

-21

30

41

21

-10

0

10

20

30

40

50

Q109 Q209 Q309 Q409 Q110 Q210

Hydrocarbon sector

30

8

3541

62 61

0

10

20

30

40

50

60

70

Q109 Q209 Q309 Q409 Q110 Q210

Non-hydrocarbon sector

Business Optimism Indices Trends : Non Hydrocarbon Sector

38

18

5552

76

69

0

10

20

30

40

50

60

70

80

Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10B

OI I

ndex

New Orders

38

12

4954

73 72

0

10

20

30

40

50

60

70

80

Q1 09 Q2 09 Q309 Q409 Q110 Q210

BO

I In

dex

Volume of Sales

0

-18

-119

33

42

-30

-20

-10

0

10

20

30

40

50

Q1 09 Q2 09 Q309 Q409 Q110 Q210

BO

I In

dex

Selling Prices

36

12

42

51

75 74

0

10

20

30

40

50

60

70

80

Q1 09 Q2 09 Q309 Q409 Q110 Q210

BO

I In

dex

Net Profits

40

17

30 29

54

47

0

10

20

30

40

50

60

Q1 09 Q2 09 Q309 Q409 Q110 Q210

BO

I In

dex

Number of Employees

12 10

2227

62

53

0

10

20

30

40

50

60

70

Q1 09 Q2 09 Q309 Q409 Q110 Q210

BO

I In

dex

Level of Stock

35.8

37.3

41.845.3

47.050.0

53.1

53.0

54.4

53.7

54.6

56.1

55.4 56.757.8

30.0

35.0

40.0

45.0

50.0

55.0

60.0

Feb

-09

Mar-

09

Apr-

09

May

-09

Jun

-09

Jul-

09

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec-0

9

Jan

-10

Feb

-10

Mar-

10

Apr-

10

BOI - Manufacturing Sector

61 63 59

16 13

68 67

43

13

74 7464

79

6068 69

41

75

5969

-26

19

6960

-40-30-20-10

0102030405060708090

Volume ofSales

New Orders Level ofSellingPrices

Net Profits Number ofEmployees

Level ofStock

Inde

x

Q3 2009 Q4 2009 Q1 2010 Q2 2010

Manufacturing Sector

•The global manufacturing sector continued to expand in April for the tenth consecutive month, indicating sustained recovery in the sector

•Saudi manufacturing sector optimism mostly stable as compared to the previous quarter

•Raw material costs continues to be a leading cause of concern for the sector

Global Manufacturing Purchasing Managers’ Index

Source: JP Morgan and markit economics

GDP 12.1%

Construction Sector

• Global construction sector currently driven by infrastructure spending as

commercial property undergoes correction

• Saudi’s construction sector optimism mixed as optimism for sales volume stays

intact (q-o-q) but that for new order sees a slight dip

• Selling prices expected to rise amid high commodity prices in the international

markets

BOI - Construction Sector

44 43

10

49

29

48 4436 36

23

77 79

60

43

79

65 6372

47 43

66

76

18

0102030405060708090

Volume ofSales

New Orders Level ofSellingPrices

Net Profits Number ofEmployees

Level ofStock

Ind

ex

Q3 2009 Q4 2009 Q1 2010 Q2 2010 6.9%

GDP

Trade & hospitality Sector

• Global trade sector showing early signs of demand revival

• Saudi’s trade & hospitality sector registers a drop in demand outlook

for Q2 as sales volume and new orders optimism declines substantially

8.3%

GDP

Transport & Communications Sector

• World trade volumes are expected to grow at 9.5% in 2010, after suffering

a sharp drop of 12.2% during 2009

• Saudi transport & communications sector optimism broadly stable at last

quarter’s level

BOI - Transport & communications sector

39 3943

59 59

35

74 75

49

7669

29

77

30

60

11

59

1722

74

0

10

20

30

40

50

60

70

80

90

Volume ofSales

New Orders Level ofSelling Prices

Net Profits Number ofEmployees

Ind

ex

Q3 2009 Q4 2009 Q1 2010 Q2 2010

6.6%

GDP

38.641.5

43.7

43.2

47.4

46.5

50.5

52.6

53.0

50.3

51.8

51.2

52.7

56.0 56.8

30.0

35.0

40.0

45.0

50.0

55.0

60.0

Feb

-09

Ma

r-0

9

Ap

r-0

9

Ma

y-0

9

Jun

-09

Jul-

09

Au

g-0

9

Se

p-0

9

Oct

-09

No

v-0

9

De

c-0

9

Jan

-10

Feb

-10

Ma

r-1

0

Ap

r-1

0

BOI - Finance, insurance & real estate sector

3745

33 33

45 46

15

44

34

6873

32

68

58

80 81

34

77

48

10

0

10

20

30

40

50

60

70

80

90

Volume ofSales

New Orders Level ofSelling Prices

Net Profits Number ofEmployees

Inde

x

Q3 2009 Q4 2009 Q1 2009 Q2 2010

Finance, Insurance, Real Estate & Business Services Sector

• The global service sector is exhibiting renewed strength. At 56.8 in April, the

reading is at a 33-month high

• Saudi service sector also showing similar trend with continuous improvement

in demand outlook and consequently profitability expectations

GDP

12.5%

Global Services Purchasing Managers’ Index

Source: JP Morgan and markit economics

38.641.5 41.4

45.850.2

55.8

69.664.6

71.467.2

72.776.3 74.0 76.0

73.077.2

82.3

30.0

40.0

50.0

60.0

70.0

80.0

90.0

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

-23

38

10

38

48

-3

45 48

27

18 18

30

-30

-20

-10

0

10

20

30

40

50

60

Level of Selling Prices Net Profits Number of Employees

Hydrocarbon sector

Q3 2009 Q4 2009 Q1 2010 Q2 2010

Business Optimism Indices Trends : Hydrocarbon Sector

• Oil prices have stayed consistently above USD 70 per barrel mark for the last seven consecutive months

• A majority, 72% of the respondents expect prices to remain unchanged in Q2

GDP26.9%

OPEC Monthly Price Basket

• Manufacturing sector continues to face pressure due to rising cost of raw materials

• 43% of the respondents in the non hydrocarbon sector are expecting borrowing conditions to improve in the second quarter

• Nearly half of the non-hydrocarbon firms plan to invest in business expansion

• Project delays cited as the key factor that might impact business units in the hydrocarbon sector

Other Key Highlights

Conclusion

• Business outlook in Saudi Arabia broadly stable for the non hydrocarbon sector

• The BOI for selling price parameter continues to rise for the fourth consecutive quarter

• Despite turbulence witnessed in the international financial markets during the last quarter, optimism level in finance & business services sector has improved

• Hydrocarbon sector optimism suffers due to weak selling price outlook

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