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All rights reserved. infraStructure “ProjectS Galore” KFH Research Ltd KDNPP15024/03/2013 (031903) 30 July 2013 ContentsContents 1.0 2013/2014 Macroeconomics Dynamics 3 2.0 Infrastructure/Construction Sector Dynamics 5 2.1 Robust construction/infrastructure spending in 2013 7 2.2 Social Infrastructure sector 8 2.3 Transport sector 8 2.3.1 Airports 9 2.3.2 Urban Road Networks 10 2.3.3 Expanding Rail 13 2.3.4 Sea Ports 14 3.0 Conclusion and Outlook 15 4.0 Appendix 1: Saudi Arabia – Development Strategies and Opportunities 16 5.0 Appendix 2: Top 100 On-going Projects by Highest Value in Saudi Arabia 19 Saudi Arabia Infrastructure “Projects Galore” Saudi Arabia Infrastructure “Projects Galore” 1.0 2013/14 Macroeconomics Dynamics After expanding by a faster-than-expected pace of 6.8% in 2012, which was line with its historical average of 6.9% per annum over the last ten years, we forecast the Saudi Arabian economy to grow by 5.0% in 2013 as non-oil economic activities are expected to remain robust with an expansion of 7.0% for 2013, sustained from 7.2% registered in 2012. Our 2013 forecast represents an upward revision from earlier estimates of 4.5%, supported by strong domestic demand growth and a host of planned industrial projects. Growth of the Kingdom’s non-oil sector is expected to offset the decline in the oil sector, which contributes about 20% to real GDP. Given the fall in oil output for the first four months of 2013 to 9.2mln bpd from an average of 9.7mln bpd last year, we project Saudi Arabia’s oil sector to contract by -2.5% in 2013 (2012: +5.5%). Overall, the Saudi economy will be underpinned by the government’s continuous push for diversification into other non-oil sectors such as manufacturing, construction, wholesale & retail trade, banking & financial services as well as transportation sectors. In addition, the two far-reaching fiscal spending packages announced by the King in early 2011, worth a combined 30% of GDP, will likely continue to provide a boost to consumption growth. For 2014, we expect economic growth to strengthen further to 5.3% (revised from 5.0%) driven by a rebound of 2.7% in the oil sector as production is projected to increase in line with rising oil demand. As the world’s largest oil exporter holding about a fifth of the world’s proven oil reserves, Saudi Arabia plays a systemic role in the world economy by helping to provide stability to the global oil market. Growth momentum for the largest economy in the GCC region will also be held up by the continued healthy growth of the non-oil sector of 6.0% in 2014. Strong oil production and high oil prices will continue to generate excesses in the economy as well as fiscal budgets, enabling the government to direct huge investments into value-add sectors that will provide sustainable growth over the longer-term. In addition, a stable interest rate environment, benign inflationary pressures and strong credit growth is likely to accommodate further economic growth and development. Saudi Arabia: Annual Real GDP Growth (2004 – 2014F) Source: CDSI, Bloomberg, KFHR One of the Best-Performing Economies among G-20 Historically, Saudi Arabia’s economic performance ranked amongst the best in the G-20, growing at a compounded annual growth rate (CAGR) of 6.6% per annum during the 5-year period of 2008-2012, surpassed only by economic powerhouses, China and India with CAGR growth rates of 9.3% per annum and 6.8% per annum respectively over the same period. The strong economic performance of Saudi Arabia was mainly driven by high oil prices in recent years which strongly contributed to government revenues, enabling the world’s largest oil exporter holding about a fifth of the world’s proven oil reserves to carry out massive fiscal spending to fuel private consumption and create jobs.