1. GTR Trade Finance Week, Dubai, 15th – 17th February 2016
The spend on diversification has had an impact, with non-oil revenues growing by 29% in The decreasing oil price has resulted in the acceleration of many diversification project
Saudi Arabia posted a budget deficit of $98bn for 2015
Projects are now only being green-lit that are likely to have a significant impact on the Saudi Economy. Only headline projects in the hydrocarbon industry are being continued.
Mining, Oil refining,
The mining industry has been a key focus for Saudi Arabia with a market developed for aluminium
Saudi Arabia also has an estimated 6% of world uranium reserves
GTR Trade Finance Week, Dubai, 15th – 17th February 2016

2. MENA’s challenges in a global context
Low oil prices and slowing demand in Asia
Corporate debt
Lower EM revenues
MENA struggling
Are low oil prices here to stay – slight pick up in trade suggest maybe a modest pick up towards end 2016

3. Peaks and troughs in OPEC oil trade
Fall in oil prices in Q heralded the end of an era for stable oil prices and had an effect on Saudi trade versus other Emerging Market trade (note this is total trade NOT exports – China is an oil importer, not an oil exporter)
The spike in 2015 is a reaction: greater production increases trade, but not to the extent that it has recovered back to 2013 levels and the outlook is for slower growth
China and Russia (major oil traders) have slowed in terms of economic growth in 2015 and onwards
Value of oil trade: OPEC versus Brazil, China, Mexico, Russia, USA
Source: Equant Analytics Ltd

4. Saudi oil trade revenues volatile since crisis
1. This is because of the drop in oil prices – it is distinct from total trade and shows the severity of the problem.
Saudi Arabia’s oil export revenues,
Source: Equant Analytics

5. Saudi Arabia’s oil export revenues volatile
Saudi Arabia’s export revenues vs Russia and USA
Source: Equant Analytics

6. The strategy to over-produce can’t last for ever
UAE is less reliant on oil than Saudi
Percentage of trade accounted for by oil: UAE and Saudi Arabia compared, (%)
Source: Equant Analytics

7. Share of world trade UAE and Saudi Arabia
Both countries exhibit fairly constant share of world trade
But Saudi’s share, dropped significantly in 2014 when oil prices dropped
This illustrates the danger for Saudi
Share of world trade, UAE and Saudi Arabia Compared ( )
Source: Equant Analytics

8. The key is diversification
UAE’s spike confirmed
Non-oil share of UAE and Saudi Arabia trade ( )
Source: Equant Analytics

9. While Saudi Arabia reliant on hydro-carbons
Oil accounts for 85% of their export revenues. However, this compares with less than 50% of export revenues in the UAE (or less than 30% of the total revenue of their economy).
Although Saudi Arabia is very aware of the need to diversify, in 2015 there is evidence in the data of an increase in the percentage of Saudi’s exports and total trade which was accounted for by oil.
Again this has to be seen in terms of long and short term.
In the short term it is hurting Saudi Arabia. 85% of their economy is dependent on oil – lower prices are causing their economy to suffer. They have been forced to rely on financial reserves and borrowing.
McKinsey estimate that Saudi Arabia will need $4 trillion of public and private investment to 2030 to cushion them from the falling oil prices. Clearly that isn’t a sustainable solution.
It is not likely to get any easier soon; the expectation is that this will last for years - Financial Institutions in Riyadh have forecast oil price increases in the years after 2016 –an indication that they intend to stick with this strategy, but also meaning that the economic hardships are likely to continue for the next few years as well.
Is this sustainable? It really remains to be seen. But probably not.
It could be a forced opportunity for Saudi Arabia to diversify its trade profile. They are aware of the need to diversify – government officials have said as much. They have also underlined their intentions to comply with future environmental regulations.
Saudi-Arabia: major non-oil exports
Source: Equant Analytics

10. Trade with China and the US is re-balancing
Explict Trade with Russia and Iran is next to non-existant and is set to stay that way. Iran and Russia are both oil producing nations and are unlikely to trade (openly) with Saudi Arabia – Iranian diplomatic relations being strained and US pressure on all of its allies not to trade with Russia.
Saudi Arabia trade with selected partners, USDm,
Source: Equant Analytics

11. Signs of increasing trade with the “East”
Saudi Arabia’s trade: “Eastern” and “Western” blocs compared,
Source: Equant Analytics

12. How strong are infrastructure developments
Key sector growth prospects
The spend on diversification has had an impact, with non-oil revenues growing by 29% in The decreasing oil price has resulted in the acceleration of many diversification project
Saudi Arabia posted a budget deficit of $98bn for 2015
Projects are now only being green-lit that are likely to have a significant impact on the Saudi Economy. Only headline projects in the hydrocarbon industry are being continued.
Mining, Oil refining,
The mining industry has been a key focus for Saudi Arabia with a market developed for aluminium
Saudi Arabia also has an estimated 6% of world uranium reserves
Saudi Arabia’s imports of key infrastructure sector goods, 2015 and 2020
Source: Equant Analytics

13. Saudi Arabia’s service sector imports
Evidence of infrastructure
Saudi Arabia’s top three service sector imports, 2015 and 2020 compared
Source: Equant Analytics

14. Is there evidence of growth in renewables?
This is not merely an environmental argument but also an economic one.
Investment in renewable energy jumped 18% in 2014 and 17% in Combined with an >80% reduction in the cost of solar panels, Saudi Arabia is in a prime position to dominate the regional energy sector by investing now.
Saudi Arabia burns about ¼ of the oil it produces (2015)
Electricity usage is rising by an average of 7% / year.
Oil is highly inefficient compared to Gas, Coal, Nuclear and Renewables
Chatham House forecast that if Saudi Arabia keeps up with its current levels of consumption, it would be a net importer of oil by 2038.
There is also the added side-effect of helping to diversify the economy, to reduce government subsidies and to provide a wide range of jobs for the Saudi workforce.
Saudi Arabia has announced a $100bn investment in Solar energy. With the aim of it providing 54 gigawatts of energy by 2040.
They are shifting their attention to Natural Gas and renewables for increased efficiency
We will see development in the renewable energy sector.
It helps to invest in the High-Tech sector
Which will have knock-on effects on the telecoms, healthcare, education sectors
Saudi Arabia wind turbine and photovoltaic panel imports (2015 and 2020 compared)
Source: Equant Analytics

15. Concluding remarks
The global context suggests a tough time for oil producing nations in 2016
The data does not suggest that Saudi Arabia is diversifying substantially
Oil trade appears to be shifting East
Infrastructure-related services and imports not forecast to grow fast
Infrastructure imports to support alternative power growing modestly
Oil dependence is not sustainable position to restore growth