February 2021

The Saudi Economy in 2021

Looking out into 2021, while there is still a considerable degree of
uncertainty as a result of the prevalence of COVID-19 and its
potential impact on the non-oil economy, we nevertheless expect a
broad-based recovery. Our forecast assumes between 15-20
percent of the adult population being vaccinated against COVID-19
by mid-2021, and 70 percent by year end. As such, we see a quarter
-on-quarter improvement in the Saudi non-oil economy, with this
recovery being more vigorous in the second half of 2021.

More specifically, we see an expansion in the ‘Wholesale & Retail,

Restaurants & Hotels’ sector, especially as restrictions around social
distancing are gradually relaxed and there is a steady pick-up in
entertainment and domestic tourism activities. At the same time, we
also see the ‘Construction’ and ‘Transport, Storage &
Communication’ sectors contributing to growth. In construction, the
sector should continue benefitting from work on a number of Public
Investment Fund’s (PIF) mega-projects. In transport, the economic
benefits from the completion of SR87 billion worth of projects during
the year will help push sectorial GDP up. Included within this is the
much anticipated Riyadh metro, as well as the Riyadh Rapid Bus
Transit System.

Last year, the Kingdom’s strict adherence to OPEC and partners

(OPEC+) crude oil production targets most likely pushed the oil
sector’s share in total GDP to the lowest level on record. Looking
ahead, a unilateral reduction in oil output by the Kingdom during
most of Q1 and continued compliance with the OPEC+ agreement
will not help raise the sector’s contribution by a huge amount in
2021. That said, some growth is expected to come from the opening
For comments and queries please contact:
of the Jazan refinery. Additionally, the full year effects from the
Asad Khan Fadhili gas complex and an expansion of the Hawiyah gas
Head of Research processing plant will also contribute to oil sector growth.
rkhan@jadwa.com

Nouf N. Alsharif On the fiscal front, we estimate that higher yearly oil prices and the
Senior Economist continued payment of dividends by Aramco will raise government oil
nalsharif@jadwa.com revenue to SR491 billion. At the same time, we expect non-oil
revenue to be effectively flat on a year-on-year basis, at around
Head office:
SR360 billion, taking total government revenue to SR851 billion in
Phone +966 11 279-1111
Fax +966 11 279-1571 Figure 1: Real economic growth
P.O. Box 60677, Riyadh 11555 (year-on-year change)
Kingdom of Saudi Arabia
www.jadwa.com 10 Real GDP Real oil GDP
Jadwa Investment is licensed by the Capital 8 Real non-oil GDP
Market Authority to conduct Securities
Businesses, license number 6034-37.
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Released: February-23-2021, 17:00 UTC+3

February 2021

Provisional full year GDP data for 2021. With expenditure expected to decline by 7 percent year-on-
2020 showed that the economy year to SR990 billion, as per the recent budget statement, we see
contracted by -4.1 percent… the fiscal deficit narrowing to -SR139 billion or -4.8 percent of GDP.
Meanwhile, the government expects to issue additional new debt to
the equivalent of SR83 billion, pushing total public debt to SR937
billion (32.8 percent of GDP) at the end of 2021.

...with a sizable decline expected A strong level of growth in the non-oil sector will do enough to keep
in the oil sector (latest available imports at decent levels, albeit below pre-pandemic levels. At the
data to Q3 2020 showed a -6 same time, a year-on-year increase in both oil and non-oil export
percent decline year-on-year)… revenue should push the current account to a surplus of 2.5 percent
of GDP. All of this will help push foreign exchange (FX) reserves up,
although they will remain below USD500 billion, according to our
forecasts.
...while the non-oil sector dropped
by -2.9 percent in the year-to-Q3, Provisional full year GDP data for 2020 showed that the economy
compared to the same period last contracted by -4.1 percent, with a sizable decline expected in the oil
year. sector (latest available data to Q3 2020 showed a -6 percent decline
year-on-year), while the non-oil sector dropped by -2.9 percent in the
year-to-Q3, compared to the same period last year. Looking ahead,
we see overall GDP in 2021 rising by 2.1 percent year-on-year, with
Looking ahead, we see overall both the oil and non-oil sectors contributing to the rebound in growth.
GDP in 2021 rising by 2.1 percent More specifically, we expect oil sector GDP to see mild rises of 1.3
year-on-year… percent with the lion’s share of growth being driven by the non-oil
sector, which we forecast will rise by 2.7 percent year-on-year.

Overall, it is worth noting that the range of potential effects of COVID

...with both the oil and non-oil -19 on the Kingdom’s economy still remain uncertain at this moment.
sectors contributing to the rebound The main risk in the outlook comes from a more prolonged and
in growth. serious outbreak of a second wave of COVID-19, possibly through a
variant of the disease, or due to a slower rollout of the vaccine than
currently anticipated. In this context, the recovery in the Saudi
economy during the year will not be smooth, with the recent
suspension of recreational activities illustrating this point. As such, all
More specifically, we expect oil economic risks are wholly skewed to the downside.
sector GDP to see mild rises of 1.3
percent…

...with the lion’s share of growth

being driven by the non-oil sector,
which we forecast will rise by 2.7
percent year-on-year.

2
February 2021

The massive shock of the COVID-

19 pandemic… Global Economic Outlook
The massive shock of the COVID-19 pandemic and consequent
lockdown measures to contain the outbreak took (and is still taking) a
massive toll on the global economy. According to the International
...took (and is still taking) a massive Monetary Fund (IMF), the global economy is expected to have
toll on the global economy. contracted by -3.5 percent year-on-year in 2020. This would
represent the steepest annual drop in global output in at least 100
years, pushing back global output to 2017 levels. More positively
though, the IMF expects the global economy to rebound sharply in
According to the IMF, the global 2021, by 5.5 percent and then by 4.2 percent in 2022 year-on-year
economy is expected to have (Figure 2). Unsurprisingly, the current set of forecasts come with a
contracted by -3.5 percent year-on- number of caveats, with a new variant being the biggest risk to a
year in 2020… successful post-pandemic recovery. Put simply, the world is currently
locked in a race to roll-out a sufficient level of vaccinations before
there is a large scale breakout of a mutated version of the virus.
...which would represent the The number of daily global COVID-19 rose steadily most of last year
steepest annual drop in global whilst seemingly hitting a recent peak in mid-January at circa 850
output in at least 100 years. thousand cases, with current daily cases dropping to around 400
thousand. The decline has come about due to lower number of cases
in Western Europe, as the likes of the UK, France and Germany
instituted wide scale lockdowns and restrictions to curb a second
More positively though, the IMF wave in COVID-19. Concurrently, most countries around the world
expects the global economy to have begun to the roll-out a vaccination program, albeit with varying
rebound sharply in 2021… degrees of success. That said, a milestone was recently reached as
the number of vaccinations administered passed the total number of
confirmed cases. At the time of writing there were nine vaccines
authorized for full or emergency use, and a further 25 candidate
...by 5.5 percent and then by 4.2 vaccines in Phase I–III trials. Despite this, the road to global
percent in 2022 year-on-year. vaccination against COVID-19 will be a long one, with the UK based
charity, The Wellcome Trust, estimating that it will take up to 2024 for
all those that need a vaccine to get one.
It seems that businesses in general Although there were fears that the momentum in global recovery
have adapted to intermittent seen in H2 2020 would be lost as lockdowns and restrictive
lockdown restrictions and… measures in some of the largest economies (Europe and parts of the
US) were implemented in Q4, this has proved unfounded so far. It
seems that businesses in general have adapted to intermittent
lockdown restrictions and, despite a peak in global cases recently,
both the global manufacturing and service purchase managers
...despite a peak in global cases indices (PMIs) have held firm (Figure 3), whilst oil demand is
recently, both the global expected to decline only marginally in Q1 (see Oil Outlook section
manufacturing and services PMIs below). Looking ahead, a broad based global recovery will inevitably
have held firm. hinge on how the largest economies perform henceforth.

Table 1: Global GDP growth

(percent; IMF and consensus projections)
2019 2020E 2021F 2022F
IMF IMF Consensus IMF Consensus IMF Consensus
Global 2.8 -3.5 -3.7 5.5 5.0 4.2 4.0
US 2.2 -3.4 -3.5 5.1 4.3 2.5 3.3
UK 1.4 -10.0 -10.7 4.5 4.5 5.0 5.5
Canada 1.9 -5.5 -5.1 3.6 4.5 4.1 3.8
Euro zone 1.3 -7.2 -6.8 4.2 4.4 3.6 4.0
Japan 0.3 -5.1 -5.3 3.1 2.6 2.4 1.9
China 6.0 2.3 2.3 8.1 8.4 5.6 5.3
Russia 1.3 -3.6 -3.1 3.0 3.0 3.9 2.4
Brazil 1.4 -4.5 -4.6 3.6 3.5 2.6 2.5
India 4.2 -8.0 -8.5 11.5 9.8 6.8 6.3
Note: Consensus forecasts are those of FocusEconomics.

3
February 2021

Advanced economies growth will According to the IMF, advanced economies’ (AEs) growth will
rebound sharply, but less so than rebound sharply, but less so than their emerging market (EMs)
their emerging market counterparts counterparts (Table 1). Thus, in its most recent forecast within the
January 2021 edition of the World Economic Outlook (WEO), AEs
growth is expected to average 4.3 percent for 2021 (versus -4.9
percent in 2020). The IMF points out that a sizable level of fiscal
The IMF points out that a sizable support announced for 2021 in some countries (notably the US and
level of fiscal support announced Japan) will not only raise economic activity within their own
for 2021 in some countries… respective economies, but also have favorable spillovers to trading
partners. Meanwhile, growth in EMs is expected to rise by 6.3
percent, levels last seen almost a decade ago in the immediate years
after the global financial crisis. That said, within the broad EMs
...will not only raise economic category, growth is expected to be highly varied. For example,
activity within their own respective China’s economic recovery has been very strong, with the country
economies, but also have implementing strong containment measures against COVID-19,
favorable spillovers to trading followed up with strong levels of public investment and central bank
partners. liquidity support. In fact, China is the only major economy that is
expected to register positive economic growth in 2020 (at 2.3
percent). On the other hand, the IMF highlights that tourism-based
economies (such as Thailand, Philippines and Cambodia) are all
Meanwhile, growth in emerging expected to face difficulties in the year ahead as the world faces up
markets is expected to rise by 6.3 to a gradual normalization of cross-border travel. Lastly, the IMF
percent, at ten year highs. highlights that oil exporters could also struggle, although recent oil
market developments suggest this may not be the case.

The Oil Market in 2021

According to OPEC forecasts, oil OPEC data showed global oil demand dropped by a massive 10
demand will decline by 670 percent year-on-year, or 9.7 million barrels per day (mbpd), in 2020,
thousand barrels per day in Q1 as the outbreak of COVID-19 pushed global oil demand to levels last
2021 quarter-on-quarter… seen seven years ago. The majority of decline in demand was
concentrated in H1 2020, as COVID-19 initially broke out around the
world. Whilst a strong rebound was seen in the US and Asia in H2
2020, other regions, such as ‘Europe’, struggled to return to previous
...but then rise on a quarterly basis levels of demand as a second, more severe, wave took hold. Looking
during the rest of the year… ahead, how quickly different countries recover (or continue
recovering) from the economic downturn will inevitably dictate the
pace of rebound in oil demand. Indeed, strict lockdown measures are
still in place in some parts of the world, and these measures continue
...although it still end up 4 percent to impact energy demand. That said, as the distribution of COVID-19
lower than pre-COVID-19 levels by vaccines takes place progressively during the year, this should help
the end of 2021. lift oil demand. According to OPEC forecasts, oil demand will decline
by 670 thousand barrels per day (tbpd) in Q1 2021 quarter-on-
quarter, but then rise on a quarterly basis during the rest of the year,

Figure 2: Global GDP expected to bounce back in Figure 3: Global manufacturing and services PMIs
2021 have held firm

8 55
6 50
4 45
(index)

2 40
(percent)

0 35 Manufacturing
-2 Global economy 30
Emerging markets Services
-4 25
Advanced economies
-6 20
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Nov-19

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4
February 2021

For full year 2021, on a country/ although it still end up 4 percent lower than pre-COVID-19 levels by
regional level… the end of 2021 (at 96 mbpd versus 100 mbpd at the end of 2019,
Figure 4). For full year 2021, on a country/regional level, the four
largest oil consuming countries/regions (US, China, India and
Europe) are expected to account for just under two thirds (or 3.6
...the four largest oil consuming mbpd) of oil demand growth of 5.9 mbpd in full year 2021.
countries/regions (US, China, India
and Europe)… According to Energy Information Administration (EIA) data, on a full
year basis, US consumption averaged 18.1 mbpd in 2020, similar to
levels last seen back in 2012. Looking ahead, the EIA expects 2021
consumption to rise 8 percent on a year-on-year basis to 19.5 mbpd,
albeit 5 percent less than pre-COVID 2019 levels. Meanwhile,
...are expected to account for just Chinese oil demand declined 3 percent (or 440 tbpd) on a yearly
under two thirds (or 3.6 mbpd) of basis in full year 2020. Moving forward, Chinese oil demand is
oil demand growth of 5.9 mbpd in projected to improve in-line with continued economic recovery, with
full year 2021. OPEC expecting a rise of 1.1 mbpd (or 9 percent) year-on-year in
2021, primarily as a result of higher consumption in transportation
fuel. At the same time, China's Ministry of Commerce (MOFCOM)
recently announced a 20 percent year-on-year rise in import quotas
In the US, the EIA expects 2021 for domestic refiners, which should result in oil imports rising on an
consumption to rise 8 percent on a annual basis yet again in 2021. Europe saw the largest yearly
year-on-year basis to 19.5 mbpd… decline in oil demand (in percentage terms) amongst the various
OPEC geographical categories. More specifically, oil demand fell by
14 percent (or 1.95 mbpd) in full year 2020 compared to 2019,
pushing total demand in the region to multi-year lows. Looking
...albeit 5 percent less than pre- ahead, whilst OPEC does expect a decent level of recovery in 2021,
COVID 2019 levels. at 6 percent (or 700 tbpd) year-on-year, the organization also notes
that the near-term outlook during Q1 2021 is extremely uncertain.

OPEC and partners (OPEC+) exhibited strong levels of commitment

Chinese oil demand is projected to to the production agreement during 2020, albeit with varying degrees
improve in-line with continued of amongst participating countries. In fact, differentiated levels of
economic recovery… compliance between the two blocs (OPEC/non-OPEC) was a
reoccurring theme during most of last year. For example, from May
to December 2020, OPEC compliance averaged just above 100
percent, but weaker compliance was observed amongst non-OPEC
producers. This was most noticeable with Russia (the largest
...with OPEC expecting a rise of producer in the alliance), where compliance is expected to have
1.1 mbpd (or 9 percent) year-on- averaged around 95 percent last year, with overproduction hitting the
year in 2021, primarily as a result equivalent of around 100 tbpd in the period question.
of higher consumption in
transportation fuel. Looking ahead, OPEC+’s initial decision (late last year) to raise oil
output by 500 tbpd (rather than 1.9 mbpd) for the month of January,
together with a unilateral cut by Saudi Arabia to the tune of 1 mbpd
in both February and March, means the alliance’s output should

Figure 4: Global oil demand not expected to hit Figure 5: Daily global oil balance assuming
pre-COVID-19 levels by end of 2021 additional 1.4 mbpd OPEC+ oil from Q2 onwards

102 9
(million barrels per day)
(million barrels per day)

7
97
5
3
92
1
87 -1
-3
82
-5
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4
17 18 18 19 19 20 20 21F 21F
14 15 16 17 18 19 20 21F

5
February 2021

We expect OPEC+ to add the decline by 100 tbpd quarter-on-quarter in Q1 2021. Beyond that, we
remaining 1.4 mbpd at some point expect OPEC+ to add the remaining 1.4 mbpd (1.9 mbpd less
during Q2. January's rise of 500 tbpd) at some point during Q2. According to our
calculations, whilst an additional 1.4 mbpd of OPEC+ oil would result
in a gradual tightening in global daily oil balances, it would still result
According to our calculations, in an average deficit of 1.5 mbpd over the course of 2021 (Figure 5).
whilst an additional 1.4 mbpd of The persistence of a deficit would, in turn, help push down the
OPEC+ oil would result in a overhang in commercial oil inventories that developed last year,
gradual tightening in global daily oil which currently stands at around 96 million barrels above its five
balances… year average (Figure 6).

According to EIA data, US crude oil production during 2020 as a

whole declined by 8 percent compared to 2019, to an average of
...it would still result in an average 11.3 mbpd. Looking at 2021, EIA’s current forecast (based on WTI at
deficit of 1.5 mbpd over the course $49.7 pb) sees US oil output declining by a further 2 percent on a
of 2021. year-on-year basis (to an average of 11.1 mbpd) at the end of the
year.

Meanwhile, the new US Meanwhile, the new US administration is expected to promote

administration is expected to regulation aimed at reducing greenhouse gas emissions and
promote regulation aimed at addressing climate change. In fact, a temporary cessation of oil
reducing greenhouse gas drilling permits on federal lands and waters and the cancellation of a
emissions and addressing climate major oil pipeline were amongst the first changes enacted by the
change… Democrats. Looking ahead, it remains to be seen to what extent this
will impact the US oil sector, and, whilst there could be further major
oil policy changes (such as an oil export ban), we do not expect such
policies to be implemented in the near-term, but would likely
...but would likely materialize later materialize later this year or in 2022, if at all.
this year or in 2022
Overall in full year 2020, Brent oil averaged $42 per barrel (pb),
down 36 percent over 2019 levels, and just slightly lower than our
The recovery in oil prices during forecast of $43 pb. Looking ahead into the rest of 2021, current
the year will not be smooth, and OPEC forecasts suggest a progressive pick-up in oil demand during
the possibility of a ‘correction’ the year, and a deficit in daily oil balances, all of which should help
cannot be ruled out… lower record high commercial oil inventories and provide support to
prices. Of course, the main risk in the outlook comes from a more
prolonged and serious outbreak of COVID-19, possibly through a
variant of the disease, or due to a slower roll-out of the vaccine than
...bearing this in mind, we have left currently anticipated. In this context, the recovery in oil prices during
our full year 2021 Brent oil price the year will not be smooth, and the possibility of a ‘correction’
forecast of $55 pb unchanged for cannot be ruled out from current level of prices above $60 pb.
now. Bearing this in mind, we have left our full year 2021 Brent oil price
forecast of $55 pb unchanged for now (Figure 7).

Figure 6: Commercial oil stocks versus five year

Figure 7: Annual average Brent oil prices
moving average
320 119
270 109
(million barrels)

220 99
170 89
($ per barrel)

120 79
70 69
20 59
-30 49
-80 39
-130
2022F
2021F
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4
13 14 15 16 17 18 19 20

6
February 2021

Looking out into 2021, whilst there

is still a considerable degree of
Saudi Economic Growth
uncertainty as a result of the
prevalence of COVID-19… According to provisional full year data published by the General
Authority for Statistics (GaStat), the Saudi economy contracted by
-4.1 percent in 2020, compared to growth of 0.3 percent year-on-
year in 2019. As expected, GDP was negatively affected by both the
...we do nevertheless expect a oil and non-oil sectors. Saudi Arabia’s lower yearly oil output, as a
broad-based recovery. result of the OPEC+ agreement, meant oil sector GDP declined by -6
percent in the year to Q3 2020 year-on-year (as per latest available
data). Meanwhile, the non-oil sector declined by -2.9 percent in the
year to Q3 2020 year-on-year, with non-oil private sector growth also
The current time-line embedded in seeing a sizable decline of -3.9 percent. Whilst full year GDP data by
our forecast assumes between 15- economic sector is yet to be released, our non-oil composite index
20 percent of the adult population indicates that the recovery in the non-oil private sector during Q3
being vaccinated against COVID- was sustained into Q4 (Figure 8).
19 by mid-2021…
On a sectorial basis, ‘Non-Oil Manufacturing’, ‘Wholesale & Retail,
Restaurants & Hotels’, and ‘Transport, Storage & Communication’
are expected to have borne the brunt of COVID-19 lockdown and
...and 70 percent by year end. restrictions last year, with these three sectors declining by more than
-6 percent in the year to Q3 2020 year-on-year. Conversely,
‘Construction’ and ‘Finance, Insurance & Business Services’ fared
better than initially expected, most likely exhibiting positive yearly
As such, we see a sequential growth in full year 2020 (as indicated in our previous macroeconomic
quarter-on-quarter improvement in update).
the Saudi non-oil economy during
the year… Looking out into 2021, whilst there is still a considerable degree of
uncertainty as a result of the prevalence of COVID-19, and its
potential impact on the non-oil economy, we do nevertheless expect
a broad-based recovery. The current time-line embedded in our
forecast assumes between 15-20 percent of the adult population
...with this recovery being more being vaccinated against COVID-19 by mid-2021 and 70 percent by
vigorous in the second half of year end. As such, we see a sequential quarter-on-quarter
2021. improvement in the Saudi non-oil economy during the year, with this
recovery being more vigorous in the second half of 2021.
Table 2: Real GDP shares and growth rates*
2019 2018 2019 2020E 2021F
Total Non-oil
% Share of: % year-on-year
GDP GDP
Overall GDP 100 2.4 0.3 -4.1 2.1
of which:
Oil sector 41.8 3.1 -3.6 -6.0 1.3
Non-oil sector 58.2 100 2.2 3.3 -2.9 2.7
of which:
Non-oil govt. sector 30.0 2.9 2.2 -0.4 1.5
Non-oil private sector 70.0 1.9 3.8 -3.9 3.2
Non-oil GDP by activity 100
Agriculture 4.0 0.3 1.3 -3.1 1.0
Non-oil mining 0.7 2.4 4.8 0.8 1.7
Non-oil manufacturing 14.6 4.0 -0.9 -6.6 0.5
Electricity, gas and water 2.2 1.9 -4.0 -2.5 0.5
Construction 7.8 -3.5 4.6 -0.8 3.0
Wholesale & retail trade 16.2 1.0 6.3 -6.2 4.0
Transport & communication 10.8 2.1 5.6 -6.2 3.0
Real estate activities 9.4 2.6 3.4 -0.3 3.0
Finance, insurance, & bus. 7.1 3.9 8.0 1.4 3.0
Community & social services 3.7 5.2 6.9 -4.8 6.0
Producers of govt. services 23.9 3.0 1.5 0.7 1.0
* 2020 Overall GDP: actual & GDP by sector and activity is year-to-Q3 2020 average

7
February 2021

More specifically, we see an expansion in the ‘Wholesale & Retail,

Overall, we see GDP rising by 2.1 Restaurants & Hotels’ sectors as restrictions around social distancing
percent year-on-year, with both the are gradually relaxed and there is a steady pick-up in entertainment
oil and non-oil sectors contributing and domestic tourism activities. At the same time, we also see the
to the rebound in growth. ‘Construction’ and ‘Transport, Storage & Communication’ sectors
contributing to growth. The former should continue benefitting from
work on a number of PIF mega-projects whilst the latter will be lifted
by the completion of SR87 billion worth of projects during the year.
More specifically, we expect oil
sector GDP to see mild rises of 1.3 Overall, we see GDP rising by 2.1 percent year-on-year, with both
percent… the oil and non-oil sectors contributing to the rebound in growth.
More specifically, we expect oil sector GDP to see mild rises of 1.3
percent with the lion’s share of growth being driven by the non-oil
sector, which we forecast to rise by 2.7 percent year-on-year. That
...with the lion’s share of growth said, at this moment in time, the range of potential effects of COVID-
being driven by the non-oil sector, 19 on the Kingdom’s economy still remain uncertain. The main risk in
which we forecast to rise by 2.7 the outlook comes from a more prolonged and serious outbreak of a
percent year-on-year. second wave in COVID-19, possibly through a variant of the disease,
or due to a slower roll-out of the vaccine than currently anticipated. In
this context, the recovery in the Saudi economy will not be smooth,
with risks being wholly skewed to the downside.
That said, at this moment in time,
the range of potential effects of Oil sector:
COVID-19 on the Kingdom’s
economy still remain uncertain. Last year, the Kingdom’s strict adherence to OPEC+ crude oil
production targets most likely pushed the domestic oil sector’s
contribution to overall GDP to the lowest level on record. More
specifically, an expected yearly decline of -6 percent in yearly oil
A unilateral reduction in oil output sector GDP most likely pushed its contribution to overall GDP to 41
by the Kingdom during most of percent (in real terms) at the end of 2020, versus an average of 44
Q1… percent in the previous decade. Looking ahead, a unilateral reduction
in oil output by the Kingdom during most of Q1 and continued
compliance with the OPEC+ agreement will not help raise the
sector’s contribution by a huge amount in 2021. That said, some
...and continued compliance with growth is expected to come from higher gas output and the opening
the OPEC+ agreement will not of the Jazan refinery. With respect to the latter, we had previously
help raise the sector’s contribution expected the refinery to start operations in 2020, but because of
by a huge amount in 2021. COVID-19 related delays the full startup of the 400 thousand barrels
per day (tbpd) refinery will take place in H1 2021. Additionally, the full
year effects from the Fadhili gas complex and an expansion of the
Hawiyah gas processing plant will also contribute to growth, whilst
That said, some growth is also helping push total Saudi gas processing capacity 20 percent
expected to come from higher gas higher in the last few years (Figure 9, Box 1).
output and the opening of the
Jazan refinery.

Figure 8: Jadwa’s non-oil private sector Figure 9: Historical and planned gas processing
composite index capacity in Saudi Arabia
120 7 20
110 5
(billion cubic ft per day)

3 18
100
1
90 -1 16
80 -3
Non-oil composite index -5 14
70
-7
60 Non-oil private GDP growth
(yoy, RHS) -9 12
50 -11
Q4 Q4 Q4 Q4 Q4 Q4 10
2015 2016 2017 2018 2019 2020
2011 2013 2015 2017 2019 2021F

8
February 2021

Box 1: Saudi Crude Oil Production

Saudi crude oil production Saudi crude oil production averaged 9.2 mbpd in 2020, a sizable 6
averaged 9.2 mbpd in 2020… percent down from 2019, as OPEC+ moved to contain the impact of
COVID-19 on the oil market. Looking ahead, Saudi Arabia stated it
would voluntarily moderate output by an additional 1 mbpd during
both February and March to help see through an uncertain period for
...a sizable 6 percent down from oil demand during Q1 2021. Beyond that, we expect OPEC+ to add
2019, as OPEC+ moved to contain the remaining 1.4 mbpd (1.9 mbpd less January's rise of 500 tbpd) at
the impact of COVID-19 on the oil some point during Q2, which would result in Saudi crude oil output
market. rising to around 9.5 mbpd (please see our recent Oil Update for
more details).
Looking ahead, the combination of On the domestic front, whilst we expect higher refinery intake
OPEC+ developments and associated with the gradual start-up of the Jazan refinery, and a
domestic energy trends… general rebound in transportation fuel consumption to push domestic
energy consumption up from last year’s lows (Figure 10), we do not
expect this to add much upward pressure on Saudi crude oil
production. This is because the full year effects of unassociated
natural gas from the Fadhili gas complex, (which reached full
...means we expect Saudi crude oil capacity in May 2020) and the 1 billion cubic feet per day (b/cfd)
production to rise by 1 percent on expansion of the Hawiyah gas processing plant, should help
a year-on-year basis, to 9.3 mbpd substitute the use of some crude oil in electricity generation.
in 2021.
All in all, the combination of OPEC+ developments and domestic
energy trends means we expect Saudi crude oil production to rise by
1 percent on a year-on-year basis, to 9.3 mbpd in 2021 (Figure 11).

Wholesale & Retail, Restaurants & Hotels sector (16 percent of

Wholesale & Retail, Restaurants & non-oil GDP) was down by -6.2 percent in the year-to-Q3 2020, year
Hotels sector was down by -6.2 -on-year, with pandemic linked curfews and restrictions dragging
percent in the year-to-Q3 2020, growth in the sector to 36 year lows. Despite this record drop, the full
year-on-year… year data disguises the fact that Q1 (and mostly likely Q4) saw
decent levels of growth, but this was not enough to undo the
economic damage seen in Q2 (and Q3, to a lesser extent), when
severe restrictions on mobility were implemented to contain the
...with pandemic linked curfews spread of COVID-19. Overall, the combined value (at SR1.02 trillion)
and restrictions dragging growth in of POS and e-commerce transactions plus ATM cash withdrawals in
the sector to 36 year lows. full year 2020 only declined by 1.3 percent compared to 2019’s total.
What is even more impressive is that this modest yearly decline
came about despite lower POS transactions being observed
Despite this record drop, the full immediately after a hike in VAT in July of last year, in addition to
year data disguises the fact that severe lockdown measures during most of Q2 (Box 2).
Q1 saw decent levels of growth.

Figure 10: Domestic liquid energy consumption Figure 11: Saudi crude oil production
(direct communication)
Other Fuel oil Diesel 10.5
Kerosenes Gasoline LPG
(million barrels per day)

2.5 10
(million barrrels per day)

2 9.5
1.5
9
1
8.5
0.5
0 8
2021F
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

2005 2010 2015 2020

9
February 2021

Box 2: Consumer Spending

POS transactions were 21 percent higher year-on-year in 2020,
primarily as a result notable yearly rises in ‘food and beverages’ (up
Overall, consumer spending (at 67 percent), ‘telecoms’ (up 51 percent) and ‘construction
SR1.02 trillion) in full year 2020 materials’ (up 40 percent). It is worth noting that a general growth in
only declined by 1.3 percent POS transactions is likely to have been boosted by the
compared to 2019’s total. encouragement of using cashless payment during the pandemic, as
part of COVID-19 precautionary measures (which probably also
explains the near 400 percent yearly rise in e-commerce
transactions). As a result, ATM cash withdrawals (as proportion of
total consumer spending) declined to 61 percent in 2020, versus 71
percent in 2019.
In our view, three factors helped limit the downward trend in
consumer spending; i) the suspension of commercial flights and the
consequent outbound tourism expenditure being diverted locally
Despite this, a reversal/winding (covered in our macroeconomic update), ii) businesses and retailers
down of the three factors that lowering end prices and, in some instances, absorbing part of the
helped sustain growth last year… rise in VAT (covered in our Inflation update) iii) the roll-out of the
Saned scheme allowing for the retention of citizens in applicable
jobs in the private sector (covered in our Labor market update).

...will likely provide headwinds for Also during 2020, a number of tourism initiatives were rolled out
the sector going forward. within the Kingdom as COVID-19 cases dropped to lowly levels.
Although tourism infrastructure is currently limited and in many
cases under developed, local demand nevertheless remained high
over the summer months, which helped provide a timely boost to the
We expect outbound trips to ‘Wholesale & Retail, Restaurants & Hotels’, and ‘Transport, Storage
increase, albeit not immediately, & Communication’ sectors (see below). In addition, notable
resulting in lower domestic tourism international sporting events relating to golf, football and motorsports
spend. were held within the Kingdom last year. Looking ahead, the sector
should benefit from the continued roll-out of entertainment and
leisure events, especially during the second half of 2021. For
example, Saudi Arabia will become the 33rd nation to host a
Furthermore, we expect Formula 1 Grand Prix race, which is expected to take place in
businesses to be less inclined to Jeddah in November. Additionally, the Kingdom continues to be
continue covering the difference in linked to a number of international sporting fixtures, such as the
VAT going forward… heavyweight boxing title, having hosted a similar event back in late
2019.

Despite this, a reversal/winding down of the three factors that helped

... thereby raising the price of sustain growth last year will likely provide headwinds for the sector
certain goods for consumers. going forward. For instance, back in January 2021 the General
Authority of Civil Aviation (GACA) announced that the suspension of
international flights would be lifted completely from May 2021
Lastly, Saudi household onwards. Accordingly, we expect outbound trips to increase, albeit
disposable income (and spending) not immediately, but certainly during the summer months resulting in
is likely be pressured as… lower domestic tourism spend (which will not necessarily be
compensated by inbound tourism, see Transport and
Communication section below). Furthermore, we expect businesses
...the Saned scheme is wound to be less inclined to continue covering the difference in VAT going
down… forward, thereby raising the price of certain goods for consumers.
Saudi Arabia has one of the highest levels of VAT in the Gulf region,
whilst some of the more established regional shopping destinations
…unemployment remains higher (such as Dubai) offer VAT refunds, thus making short trips to
than pre-COVID levels in the near purchase high value items more enticing. Lastly, Saudi household
term… disposable income (and spending) is likely be pressured as the
Saned scheme is wound down, unemployment remains higher than
pre-COVID levels in the near term (as detailed in our Labor Update),
and the public sector inflation allowance remains discounted (as of
...and the public sector workers July last year).
inflation allowance remains
discounted.

10
February 2021

Non-oil manufacturing (14.6 percent of non-oil GDP) contracted in

Non-oil manufacturing contracted all three quarters of last year, on a year-on-year basis, averaging
in all three quarters of last year… -6.6 percent in the year-to-Q3 2020. We see the decline in activity as
being directly related to global economic developments, with a sharp
decline in global manufacturing and trade brought about by the
pandemic, mirrored in Saudi Arabia. In fact, latest available data
...with the decline in activity as shows that the value of non-oil exports were down -12 percent in the
being directly related to global year-to-November 2020, versus the same period in 2019 (Figure
economic developments. 12).

Looking ahead, global manufacturing indices have recently improved

(Figure 3) and, if sustained, demand for the Kingdom’s non-oil
Looking ahead, global exports should improve as well. In fact November’s data also
manufacturing indices have showed the largest yearly rise in exports in two years, manufacturing
recently improved… activity has improved since mid-2020 despite remaining in the
negative territory (Figure 13). Separately, the continued roll-out of
initiatives under the National Industrial Development and Logistic
Program (NIDLP) should help drive some level of support to the
...and, if sustained, demand for the sector, with the Saudi Industrial Development Fund (SIDF) being
Kingdom’s non-oil exports should one vehicle through which support can be provided (Box 3).
improve as well.
Box 3: Saudi Industrial Development Fund
The SIDF was launched back in 1974 with the aim of supporting and
Separately, the continued roll-out financing the manufacturing sector through interest-free loans and
of initiatives under the National financial consultancy. More recently, the SIDF’s role has evolved to
Industrial Development and incorporate the funding of initiatives that support the objectives of the
Logistic Program (NIDLP)… Vision 2030.

Whilst the SIDF continued with its primary function in 2020, with
loans approved by the fund totaling SR17 billion (up from SR13
...should help drive some level of billion in 2019), it also extended efforts to support the government in
support to the sector… alleviating the financial and economic impact of COVID-19. With the
outbreak of the pandemic last year, it became abundantly clear that
there would be a significant rise in the level of bankruptcies amongst
small and medium-sized enterprises (SMEs). Although one of the
...with the Saudi Industrial earliest measures to be rolled out by the authorities were directly
Development Fund (SIDF) being aimed at SMEs, the SIDF also stepped up efforts to blunt the effects
one vehicle through which support of the sharp decline in private sector. More specifically, around SR5
can be provided. billion worth of financial products (including restructuring and
deferment of loans) were rolled out by the fund last year.

Looking ahead, whilst the SIDF will continue providing targeted

pandemic relief to the private sector, it will also continue towards its
target of doubling the number of financed projects by 2025. In order

Figure 13: Monthly manufacturing index and non-

Figure 12: Annual non-oil exports*
oil exports
65 Yearly change in non-oil maunfacting index
60 Non-oil exports (RHS)
10 6
55
0 5.5
($ billion)

($ billion)

50
(index)

5
45 -10
40 4.5
-20
35 4
-30 3.5
30
25 -40 3
Apr-20
Feb-20

Oct-20
Dec-19

Aug-20

Dec-20
Jun-20
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

*2020: year-to-November total

11
February 2021

to achieve these goals, the SIDF has launched a strategy that aims
to improve the industrial ecosystem through four specific financial
Looking ahead, whilst the SIDF will programs. These include:
continue providing targeted
pandemic relief to the private 1 Afaq: to support industrial SMEs, with the collaboration of
sector… other entities such as Badir and Monshaat.
2 Tanafusiya: to support and motivate industrial enterprises
to move to Industry 4.0 and improve energy efficiency, which
helps in raising productivity and reducing costs.
... it will also continue towards its 3 Tawteen: to maximize local content, localize a number of
target of doubling the number of target sectors, and support supply chain with leading companies
financed projects by 2025. in the Kingdom, with a collaboration of Saudi Electricity
Company, IKTVA and Maaden.
4 Land and Loan: which allows investors to apply for finance
and allocate an industrial land spot at the same time through one
portal, helping them to save time and effort, aligning with other
entities such as MODON, King Salman Energy Park (SPARK)
and the Industrial Valley.

The Transport, Storage & Communication (10.8 percent of non-

The Transport, Storage & oil GDP) sector was down by -6.2 percent in the year-to-Q3 2020,
Communication sector was down year-on-year. A steep decline in Q2 was followed up with continued
by -6.2 percent in the year-to-Q3 negative growth in Q3 as a result of ongoing travel restrictions,
2020, year-on-year. suspension of tourist visas, ban on Umrah pilgrimages and a
drastically scaled back Hajj. Despite Umrah reopening during Q4 of
last year, restrictions on the number of pilgrims remain in place,
meaning a steep yearly decline in total number of pilgrims is
Despite Umrah reopening during expected in 1441H (with 7.5/2.5 million Umrah/Hajj pilgrims in
Q4 of last year, restrictions on the 1440H). Meanwhile, the telecoms subsector is likely to have
number of pilgrims remain in performed better, especially during lockdown which resulted in work-
place… from-home settings. Indicative of this is that most listed
telecommunications companies reported strong earnings growth
during the year. Indeed, it is worth noting that the average internet
speed within the Kingdom rose to 77.5 megabytes per second,
...meaning a steep yearly decline making Saudi Arabia first in terms of download speed within the
in total number of pilgrims is group of countries using the fifth generation (5G) network.
expected in 1441H.
For 2021, we see a number of projects coming on-line that will raise
growth in this sector. This includes the first phase of the Riyadh
metro, which is expected to be launched in Q2 2021, as well as the
Looking ahead, we expect first phase of Riyadh Bus Transit. Meanwhile, the telecoms
restrictions on the numbers of subsector may benefit from higher uptake of mobile phone/data
pilgrims for Umrah and Hajj to subscriptions as an increasing number of government services
remain in place for the coming become digital. Besides the recent launch of digital ID’s, there are
year. also a number of mobile applications that allow users to apply for
COVID-19 testing, enroll for the vaccine, and provide updates on
nearby infections (see Box 8). Meanwhile, we expect restrictions on
the number of pilgrims for Umrah and Hajj to remain in place for the
While we are confident of the coming year. While we are confident of the Kingdom’s ability to
Kingdom’s ability to provide all the provide all the precautionary measures for pilgrims, this is only one
precautionary measures for side of the equation. The other side of the equation is how quickly
pilgrims… other Muslim (or large Muslim populated) countries can inoculate
their respective citizens (Box 4).

Box 4: COVAX
...this is only one side of the
equation. Back in April 2020, the World Health Organization (WHO) and the
Global Vaccine Alliance came together to launch the COVID-19
Vaccines Global Access Facility (COVAX). One of COVAX’s aims is
The other side of the equation is to ensure that middle-and lower-income countries, who cannot fully
how quickly other Muslim (or large afford COVID-19 vaccines, get equal access to such vaccines as and
Muslim populated) countries can when they are made available. Accordingly, the COVAX program
inoculate their respective citizens. recently released a list of 137 countries that would receive 337

12
February 2021

million vaccine doses. Three of the largest recipients of the vaccine

For example, circa 50 percent of (India, Pakistan and Indonesia) are also the three largest countries
Umrah pilgrims in 1440H came from which Saudi Arabia received Umrah pilgrims in 1440H (Figure
from countries receiving highest 14). Looking ahead, countries involved in the COVAX program are
number of vaccines under the set to receive enough doses to immunize circa 3.3 percent of their
COVAX program. population by mid-2021, which is a significantly lower rate than some
higher income countries have targeted over the same period.

Real Estate Activities (9.4 percent of non-oil GDP) saw a marginal

Real Estate Activities saw a decline in GDP by -0.3 percent in the year-to-Q3 2020. In fact, this
marginal decline in GDP by -0.3 sector was one of the least impacted (along with ‘Finance’) by the
percent in the year-to-Q3 2020. lockdowns, with a fall of -1.1 percent year-on-year seen during Q2,
followed by a strong recovery in Q3. Part of the uplift was likely due
to the continuous provision of varied housing products to citizens
(which totaled 320 thousand in 2020 as a whole) under the Ministry
In fact, this sector was one of the of Housing’s (MoH) Sakani program. In tandem with this, numerous
least impacted (along with measures taken in the last few years to incentivize uptake of
‘Finance’) by the lockdowns. mortgages and promote home ownership under the Financial Sector
Development Program (FSDP) also contributed to growth. This was
reflected in a continuous rise in new residential mortgages provided
by banks and finance companies, which, according to latest
Part of the uplift was likely due to available data, increased by SR97 billion (up 31 percent) in Q3 2020,
the continuous provision of varied when compared to the end of 2019.
housing products to citizens under
the Ministry of Housing’s (MoH) For 2021, we see continued growth in this sector coming from the
Sakani program. MoH’s ’Sakani’ program. We also see further strong growth in
mortgage lending as various initiatives under the Housing Vision
Realization Plan (VRP) continue to be implemented (Box 5).
Additionally, a recent royal decree, whilst exempting all real estate
For 2021, we see continued growth transactions from VAT, introduced a real estate transaction tax of 5
in this sector coming from the percent. However, the royal decree also stated that government will
MoH’s ’Sakani’ program… bear the 5 percent transaction tax for first time buyers purchasing a
property up to the value of SR1 million (compared to the previous
VAT exempted threshold of SR850 thousand). We see both these
changes raising the level of home ownership amongst citizens, and
thus raising the sector’s output in the year ahead. Lastly, a more
general rebound in the non-oil economy, but particularly in sectors
such as ‘Wholesale & Retail, Restaurants & Hotels’ and ‘Finance,
...but also a more general rebound Insurance, and Business services’, should help shore up demand in
in the non-oil economy should help real estate activity, with an uptick in real estate indicators expected
shore up demand in real estate. to continue into 2021. The most recent GaStat’s real estate index
showed prices rose by 0.5 percent during 2020 as a whole, whilst
publicly listed Real Estate Investment Trusts (REITs) saw a rise of 2
percent in yearly performance (Figure 15).

Figure 14: 50% of Umrah pilgrims came from coun-

Figure 15: Listed REITs performance
tries receiving highest number of COVAX vaccines
120 4500
4400
100 4300
80 4200
4100
(million doses)

60 4000
3900
40 3800
20 3700
3600
0 3500
3400
B'desh
Nigeria
India

Pakistan

Indonesia

Dec-18

Dec-19

Dec-20
Jun-19

Jun-20

13
February 2021

Measures have been put into place Box 5: Improving Home Ownership Levels
to tackle the supply of affordable Despite the MoH having hit its National Transformational Program
housing… (NTP) target for home ownership ratio of 60 percent, efforts to
improve ownership continue. As identified under the Housing VRP,
this is will partly be achieved by improving access to (mortgage)
...particularly in regions/cities funding for beneficiaries under the ministry’s Eskan and Real Estate
where a significant demand-supply Development Fund (REDF) programs. To date, this has been done
gaps exists. by identifying consumer groups by income level. Thus, on the one
hand, whilst there has been a focus on the provision of guarantees
for those that are bankable or quasi-bankable, the provision of rent
subsidies or social housing has also being rolled out for non-
bankable and low-income groups.
This has included, amongst other
things, making more government Concurrently, and despite limitations imposed by COVID-19,
land available for housing measures have been put into place to tackle the supply of affordable
developments. housing, particularly in regions/cities where a significant demand-
supply gaps exists (Figure 16). This has included, amongst other
things, making more government land available for housing
developments and adopting more modern technology (such as 3D
printing) in the construction of affordable housing units.
Despite -4.7 percent year-on-year The Construction (7.8 percent of non-oil GDP) sector recorded a
decline in Q2, growth was mild decline of -0.8 percent in the year-to-Q3 2020. Despite -4.7
recorded in both Q1 and Q3 of last percent year-on-year decline in Q2, growth was recorded in both Q1
year in the Construction sector. and Q3 of last year (and we suspect in Q4 too). We see this
performance as a result of a continued roll-out in the Sakani program
and the PIF’s mega-projects. Additionally, notable large projects
around the Kingdom (such as phase three expansion of the Grand
We see the rebound in Mosque in Makkah), will have helped as well.
performance as a result of a
continued roll-out in the Sakani Looking ahead, growth in construction will be led by continued
program and the PIF’s mega- development of mega-projects, especially so with the PIF’s new
projects. strategy for 2021 to 2025, which aims to invest SR150 billion
annually in the local economy (Figure 17, Box 6). Also, besides the
continued roll-out of the Sakani program, we also expect the
construction sector to benefit from the ongoing projects in a number
of sectors, including, hospitals, touristic areas and airport expansions
Looking ahead, growth in around the Kingdom (as highlighted in the recent fiscal budget
construction will be led by statement).
continued development of mega-
projects…

Figure 16: Demand for housing by city/region for Figure 17: Cumulative domestic PIF investment
those enrolled as Eskan and REDF beneficiaries between 2017-25 expected to exceed SR1 trillion

350 1200
300 1000
250
(SR billion)

800
(thousand)

200
150 600
100 400
50
0 200
Riyadh
Asir
Jizan

Province

Mecca
Qassim

Medina

0
E.

2017

2018

2019

2020

2021F

2022F

2023F

2024F

2025F

14
February 2021

Box 6: Public Investment Fund Program 2021-2025

In January 2021, the PIF announced its renewed program for the
period 2021-2025 which detailed four main objectives:
...especially as the PIF aims to 1) to grow assets of the fund
invest SR150 billion annually in the 2) unlock new sectors
local economy between 2021-25. 3) build strategic partnerships, and
4) localize cutting-edge technology & knowledge.
Between 2015-2020, the PIF was able to raise its assets under
management (AUM) from $150 billion to nearly $400 billion. For
2025, the PIF aims to reach at least $1.07 trillion in AUM., and then
to $2 trillion by 2030.

Agriculture (4 percent of non-oil GDP) declined by 3.2 percent in

the year-to-Q3 2020, year-on-year. The sector was also badly hit by
lockdown measures during Q2, declining by -9.8 percent year-on-
Agriculture declined by 3.2 percent year, although it did rebound sharply to positive territory in Q3. That
in the year-to-Q3 2020, year-on- said, in the midst of the severe lockdown, the Kingdom saw strong
year. levels of self-sufficiency in many agriculture products, including eggs
at 116 percent self-sufficiency, fresh milk and its derivatives at 109
percent, and vegetables and poultry at 60 percent. We believe such
high levels of self-sufficiency (for a country which has limited
That said, in the midst of the naturally occurring ground water and is subject to extremes of
severe lockdown, the Kingdom temperature) likely reflects the ongoing implementation of Ministry of
saw strong levels of self-sufficiency Environment, Water and Agriculture’s (MEWA) Sustainable
in many agriculture products. Agriculture Rural Development Program (ARDP). The aim of the
program, which started back in 2018, is to support and develop
farmers and agricultural activities through a total investment of SR12
billion. Looking ahead, the MEWA is expected to continue working
on implementing the ARDP, with some of these projects spanning
into traditional areas such as the development of date farms, but
also into newer ones, such as aquaculture (Box 7).
Looking ahead, the MEWA is
expected to continue working on Box 7: Aquaculture
implementing the ARDP…
Currently, only a handful local companies operate in this segment but
there is a clear plan in place to expand. More specifically, there is an
emphasis of raising domestic production of local aquaculture as the
Kingdom is expected to see an annual rise of 8 percent in seafood
consumption up to 2030.
Consequently, the strategy revolves around increasing quality and
efficiency by following best practice farming models, and focusing on
….with some of these projects six seafood products that exhibit a clear comparative advantage for
spanning into more traditional local farming. Additionally, whilst there will be efforts to rebalance the
areas, but also into newer ones, quantity of exports (with around 72 percent of current aquaculture
such as aquaculture. production being exported), the focus will be on creating value by
exporting high value fast growing seafood products.

Finance, Insurance, and Business services (7.1 percent of non-

Finance, Insurance, and Business oil GDP) showed decent levels of growth of 1.4 percent in the year-
services showed decent levels of to-Q3 2020, year-on-year, with a multitude of areas contributing to
growth of 1.4 percent in the year-to growth. The financial services sub-sector saw a pick-up in lending to
-Q3 2020, year-on-year, with a the private sector, which increased by 14 percent in 2020. In
multitude of areas contributing to addition, growth in banking activity was also related to the rise in
growth… mortgages provided by banks and finance companies (see Monetary
and Financial Development section below). Growth was also pushed
up as the Tadawul All Share Index’s (TASI) continued to see a total
of SR21.2 billion (USD5.6 billion) in net foreign inflows during the
year (Figure 18). Additionally, the sector was also boosted by four
...The financial services sub-sector IPOs with companies in healthcare, real estate services and retail
saw a pick-up in lending to the sectors being floated on the main market. Meanwhile, the sector was
private sector, which increased by negatively affected by the decline in the number of privately insured
14 percent in 2020… persons. Data from Cooperative Council for Health Insurance (CCHI)
shows a 9 percent (or 973 thousand) yearly decline in the number of
beneficiaries during 2020, with 77 percent being expats (Figure 19).
15
February 2021

Looking forward, a pick-up in non-oil growth during the year will have
a positive impact on credit to the private sector. In particular,
...the sector was also boosted by continued growth in the construction sector should contribute to
four IPOs in the main market. lifting demand. Additionally, we also expect higher levels of credit to
continue being seen in sectors that remain under precautionary
measures related to COVID-19 (such as “Commerce”, “Transport”
and “Services”).
Beyond credit, we expect some leveling off in the decline rate of
Looking ahead, we expect some expat health insurance beneficiaries, although we do expect Saudi
leveling off in the decline rate of beneficiaries to rebound, in line with a recovery in the employment of
expat health insurance nationals (for more details please refer to our latest Labor Market
beneficiaries. update). With respect to the stock market, we expect IPO activity to
continue in the year ahead (one IPO is already progressing), with
Tadawul itself potentially going public. At the same time, the Capital
Market Authority’s (CMA) Strategic Plan for 2019-21 highlights a
number of areas which will continue to receive attention under its
commitments to the Financial Sector Development Program.

Community, Social & Personal Community, Social & Personal Services (3.7 percent of non-oil
Services is expected to see similar GDP) dropped by -4.8 percent in the year to Q3 2020. The causes of
higher rates of growth this year as the decline are likely to be the same reasons for the negative impact
the easing of restrictions of in the ‘Wholesale & Retail’ sector. Looking ahead, the sector is also
entertainment and leisure events expected to see similar higher rates of growth this year as the easing
continues. of restrictions of entertainment and leisure events continues,
especially in H2 2021.

Electricity, Gas, and Water (2.2 percent of non-oil GDP) saw a

year-on-year decline of -2.5 percent in the year-to-Q3 2020. In-line
with this, the Saudi Electricity Company (SEC) reported that sales of
Electricity, Gas, and Water saw a electricity were down by -1 percent in the year-to-Q3 2020 when
year-on-year decline of -2.5 percent compared to the same period last year. More specifically, whilst
in the year-to-Q3 2020. there was a rise in the largest consumer segment (residential), this
was weighed down by lower consumption amongst commercial and
government segments. More broadly speaking, and despite COVID-
19’s impact, electricity consumption in Saudi Arabia has been
declining since 2015. According to the King Abdullah Petroleum
Studies and Research Center (KAPSARC), this is due to four major
Looking ahead, we expect the factors; i) recent electricity price reform ii) improved energy efficiency
declining trend in electricity programs iii) a decrease in the non-Saudi population, and iv) a
consumption observed in the last decrease in real incomes. Looking ahead, we therefore expect the
few years to continue. trend in electricity consumption observed in the last few years to
continue.

Figure 18: TASI continued to see QFI net inflows Figure 19: Number of private health insurance
last year beneficiaries declined 9 percent in 2020
10 10,000 Expat Dependents Expat
QFI
8 inflow/outflow Saudi Dependents Saudi
12
9,000
6 10
(SR billion)

TASI index
4 (RHS) 8,000 8
(million)

2
7,000 6
0
4
-2
6,000 2
-4
-6 5,000 0
Dec-18

Dec-19

Dec-20
Jun-19

Jun-20
Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20

16
 February 2021

Non-Oil Mining and Quarrying (0.7 percent of non-oil GDP) grew

marginally by 0.8 percent in the period to Q3 2020, year-on-year. We
see this growth coming about as a result of efforts to encourage
Non-Oil Mining and Quarrying investment in the sector, with the finalization of a mining investment
grew marginally by 0.8 percent in system to incentivize private investors being one example.
the period to Q3 2020, year-on-
year. Looking ahead, the sector will benefit from the decision to waiver
expat levies in the industrial sector for five years (announced back in
September 2019), in addition to improved export activity.
Additionally, the sector is expected to be one of the major
beneficiaries from a number of initiatives outlined under the NIDLP,
including support from both the Saudi Export-Import (EXIM) Bank,
and lending from the SIDF. Overall, such initiatives will be growth
enhancing for the sector, and despite its relatively small contribution
to GDP, we expect sizable growth in this sector in the years to come.

Fiscal Policy
The government’s budget for the 2021 fiscal year released on 15th
December 2020 was in-line with the earlier released preliminary
budget. Overall, according to the statement, budgeted government
expenditure is expected to total SR990 billion in 2021, and with
Total expenditure is budgeted at revenue of SR849 billion during the year, the government is
SR990 billion in 2021… budgeting for a lower year-on-year deficit at SR141 billion in 2021(-
4.9 percent of GDP), compared to SR298 billion in 2020 (-12 percent
of GDP).

Expenditure:

...and down 7 percent from 2020 Total expenditure for 2021 was budgeted at SR990 billion, down 2.9
actual expenditure of SR1.07 percent from the 2020 budgeted expenditure of SR1.02 trillion and
trillion. down 7 percent from 2020 actual expenditure of SR1.07 trillion. Of
this, budgeted capital spending was earmarked to hit SR101 billion in
2021, compared to SR137 billion in 2020. According to the
statement, the sizable yearly decline of 26 percent is primarily a
result of i) higher investment on infrastructure during the past few
years and ii) expectation of wider participation from the private sector
Budgeted capital spending will in investment projects moving forward.
amount to SR101 billion in 2021,
compared to SR137 billion in 2020. Additionally, capital injections will be boosted by the PIF. As a part of
its continued efforts in strengthening and diversifying the economy,
the PIF is expected to inject around SR150 billion per year into the
local economy between 2021-25, resulting in just over SR1 trillion
worth of cumulative investments into local economy between 2017-
25.

Current spending is expected to Meanwhile, current spending (the more rigid part of expenditure) is
decline by 5 percent, year-on-year, expected to decline by 5 percent, year-on-year, to a budgeted total of
to a budgeted total of SR889 SR889 billion. At the same time, despite the compensation of
billion. employees (wage bill) being flat on a year-on-year basis, it is
expected to make up half of total expenditure (at SR491 billion),
compared to 46 percent in 2020.

Looking at the budget from a sectorial level, ‘education’ remains the

largest portion of budgeted expenditure, at 19 percent of the total.
Meanwhile, ‘healthcare and social development’ expenditure makes
Overall only ‘health & social up 18 percent of the total, at SR175 billion, the highest budgeted
development’, and ‘general items’ expenditure on record for this segment (Figure 20). Whilst ‘military’
are expected to show yearly rises. expenditure also makes up 18 percent of budgeted expenditure, it
sees a third consecutive year of decline. Overall only ‘health & social
development’ (Box 8), and ‘general items’ (which includes different
sub-items such as spending on government pensions, social

17
 February 2021

insurance and financing costs) are expected to show yearly rises

between actual 2020 and budgeted 2021 expenditure.

Box 8: Healthcare Expenditure

The budget statement highlighted that actual health expenditure
(which is aggregated into ‘health & social development’) was 13.5
This higher level of spend is percent higher than budgeted in 2020 as a result of an exceptional
reflective of the how the Ministry of allocation to confront the COVID-19 crisis. This higher level of spend
Health responded to the global is reflective of how the Ministry of Health (MoH) responded to the
outbreak of COVID-19. global outbreak of COVID-19, as it became apparent back in early
2020. Whilst the list of measures are extensive, the MoH’s work
included developing a country-specific guideline, in-line with the
World Health Organization's (WHO) recommendations, in dealing
Looking ahead, the ongoing battle with new viruses, which will have likely drawn upon the Kingdom’s
against COVID-19… own experience of dealing with another type of corona virus -Middle
East respiratory syndrome (MERS). Indeed, with respect to COVID-
19, the MoH, amongst other things, focused on surveillance and
testing (with 9.6 million samples being tested for COVID-19 during
2020), alongside the setting up of isolation and quarantine facilities,
...which includes a roll-out of a free and the designation of 80 thousand beds across 25 hospitals for
vaccination program for all citizens COVID-19 cases.
and expats…
The MoH plans were also supported by the role of digital health (e-
health) methodologies, such as developing a number of mobile
applications (Tawakkalna app and Tabaud app) to monitor and
respond to the virus, and developing dashboards that use artificial
...will ensure that this segment’s intelligence to connect data and trace cases. At the same time, a
expenditure is likely to be telehealth campaign was used to raise awareness and education
maintained at historically high among citizens and residents.
levels during 2021 as well.
Overall, the above the measures will have contributed to pushing
healthcare expenditure above budgeted levels during 2020. Looking
ahead, the ongoing battle against COVID-19, which includes a roll-
out of a free vaccination program for all citizens and expats, will
ensure that this segment’s expenditure is likely to be maintained at
historically high levels during 2021 as well.

Revenue:

Total government revenue for 2021 Total government revenue for 2021 was budgeted at SR849 billion
was budgeted at SR849 billion according to the statement. For the first time ever, the budget
according to the statement. statement did not outline government oil revenue, but instead
combined it with other forms of revenue which includes investment
income, sales of goods and services and collection of fines &

Figure 20: Budgeted ‘Health & Social Figure 21: Government revenue by type*
Development’ expenditure the highest on record
180 1400 Oil Revenue
160 1200 Non-Oil Revenue
140 1000
(SR billion)
(SR billion)

120 800
100
600
80
400
60
200
40
0
20
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021F

0
2009 2011 2013 2015 2017 2019 2021
*Jadwa estimates for 2021

18
 February 2021

penalties, thereby making the calculation for budget oil price more
complicated. This ‘other revenue’ segment is expected to rise by 3.2
percent year-on-year in 2021, to SR592 billion

For the first time ever, the budget Overall, we expect Brent oil prices to average $55 pb in full year
statement did not outline 2021, which will, according to our forecasts, push up oil revenue by
government oil revenue. 19 percent year-on-year. Our forecast assumes this segment will be
supported by the payment of dividends by Aramco to government at
broadly similar levels to the last few years (Box 9).

Box 9: Revenue by Type

Our model assumes Aramco to
continue paying dividends to We estimate that higher yearly oil prices and the continued payment
government at levels similar to this of dividends by Aramco will push government oil revenue to SR491
year… billion. As a result, we expect non-oil revenue to be effectively flat on
a year-on-year basis, at around SR360 billion in 2021 (Figure 21).

With SR257 billion (or 71 percent) of non-oil revenue coming from

tax revenue, we expect the remainder (SR101 billion) to come from
‘other’ revenue. In turn, around a third of ‘other’ revenue will be made
...and we expect to see a up from the continued privatization of state assets. The remainder is
reasonably higher yearly oil expected be derived from usual sources such as investment income
revenue at around SR491 billion. (from the Saudi Central Bank), sales of goods and services and
collection of fines & penalties.
The budget statement also outlined that SR257 billion in tax revenue
is expected in 2021 resulting in growth of 31 percent over 2020’s
total of SR196 billion. The rises are expected to come about largely
The government is budgeting for a as a result of the full year effects of higher VAT, which, in turn, will lift
lower year-on-year deficit at ‘taxes on goods and services’ segment 48 percent higher year-on-
SR141 billion in 2021 (-4.9 percent year (Figure 22).
of GDP).
According to the fiscal budget statement, with government revenue
of SR849 billion versus expenditure of SR990 billion, the fiscal deficit
is budgeted to total SR141 billion (-4.9 percent of GDP) at the end of
A lower fiscal deficit is expected to the year. A majority of the deficit will be financed through debt, as
translate into lower levels of debt. outlined by the Debt Management office’s (DMO) annual borrowing
plan. Under the plan, a total of SR83 billion in new debt is expected
to be issued this year (compared to SR176 billion in 2020, Figure
23), which will push up total debt to SR937 billion by end of 2021
According to the DMO, total debt (32.8 percent of GDP). As such, around 60 percent of the deficit will
requirement for next year will be be financed through debt, meaning SR56 billion is likely to be
SR83 billion. financed by SAMA deposits, substantially lower than the total of
SR122 billion in 2020.

Figure 22: Non-oil revenue by type* Figure 23: Annual debt issuance

Other taxes Annual debt issuance % of fiscal deficit (RHS)

Tax: trade
200 100
360 Taxes on goods & services
320 Institutional taxes 80
150
(SR billion)

Other
(SR billion)

280
(percent)

60
240 100
200 40
160 50
120 20
80
0 0
40
2014

2015

2016

2017

2018

2019

2020

2021F

0
2017 2018 2019 2020 2021F
*Jadwa estimates for 2021
Other taxes = ‘Other Taxes (including Zakat)’
Tax: trade = 'Taxes on trade and transactions (customs duties)’
Institutional taxes = 'Taxes on income, profits and capital gains’
Other = ‘Other revenues (including returns from SAMA and PIF)’

19
February 2021

Monetary and Financial Developments

Overall, total bank credit to the
private sector picked up Overall, total bank credit to the private sector picked up dramatically
dramatically during 2020, rising by during 2020, rising by 14 percent on a year-on-year basis (double
14 percent on a year-on-year the rate of annual growth seen in 2019). More specifically, “Mining”
basis. saw the largest yearly rise in credit in percentage terms (up 27
percent), although “Services” saw the largest rise in value terms, at
SR13.7 billion in new credit (or 6 percent of total new credit for the
year), which is unsurprising considering it was one of the more
deeply affected sectors by pandemic related lockdowns earlier this
year. Looking forward, higher levels of credit are expected to
Looking forward, higher levels of continue in the year ahead, especially so in sectors that remain
credit are expected to continue in under precautionary measures related to COVID-19 (such as
the year ahead, especially so in “Commerce”, “Transport” and “Services”).
sectors that remain under
precautionary measures related to Meanwhile, SAIBOR (the price of lending between banks for Riyals)
COVID-19. remains at five year lows having been on a downward trend since
the end of 2018 (Figure 24). Looking ahead, we expect to see some
rises in the cost of borrowing next year due to a number of expected
developments. On the one hand, measures such as the Saudi
Central Bank’s (SAMA) deferred payments program (which was
We also expect to see some rises extended till the end of Q1 2021 recently) and a SR50 billion zero-
in the cost of borrowing next year interest one-year deposit at banks, are set to expire during the year,
due to a number of expected which will likely weigh on the banking sector’s loan-to-deposit ratio
developments… and loan loss provisions. Additionally, we note that higher levels of
liquidity last year were supported by i) the lack of spending
opportunities for households (which contributed to higher
household’s savings and deposits, Figure 25) and ii) the DMO’s
strategy of using private placements with autonomous government
institutions for debt raising. Looking ahead, with respect to the latter,
we expect private placements with autonomous government
...with as two supportive measures institutions to continue in 2021 (with two-thirds of domestic debt
by Saudi Central Bank expiring raising coming from this source last year), which will put less funding
during the year. strain on commercial banks. That said, with respects to the former,
as the economy recovers during the course of the year, more
spending opportunities for households are likely to arise, especially
in relation to services, and, as such, we expect the build in private
deposits at banks to slow, or even reverse for some time during
2021, adding to moderately tighter liquidity conditions.

Inflationary trend to continue in 2021:

Overall in 2020, inflation averaged 3.4 percent, compared with our

forecast at 3 percent. Prices rose mainly as a result of a rise in VAT

Figure 25: Yearly rise in money supply, credit and

Figure 24: Key domestic monetary indicators
bank deposits
Repo Reverse Repo 18 Money supply, M3
3-month SAIBOR 15 Credit to private sector
3.0 12 Demand and saving deposits
2.5 9
(percent)

6
(percent)

2.0
3
1.5 0
1.0 -3
-6
0.5
Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20

0.0
Dec 14 Dec 16 Dec 18 Dec 20

20
February 2021

Overall in 2020, inflation averaged from 5 to 15 percent from July onwards. This was underlined by the
3.4 percent…. sharp contrast in inflation in the first half of 2020, which saw average
rate of 1 percent, versus an average of 5.8 percent in H2 2020. In
2021, we expect to see prices rising by 3.7 percent, supported by a
rebound in activity and higher demand in many sectors such as
‘Restaurants and Hotels’ and ‘Transport’. At the same time, we
….in 2021, we expect to see prices expect deflationary pressures to continue in the ‘Housing and
rising by 3.7 percent. Utilities’ segment as a result of ‘Rentals for Housing’ being affected
by higher rates of home ownership (as discussed in our latest
Inflation report).

The Outlook for 2022

The IMF (and indeed consensus forecasts) all point to continuation in
We expect higher oil prices (at economic recovery in 2022. A sizable global roll-out in vaccinations
$60pb in full year) and higher should minimize further COVID-19 disruptions, all of which will help
Saudi output rising to 10 mbpd sectors such as global travel, trade and services to continue their
next year. recovery from 2021. Indeed, the IMF expects global GDP to hit pre-
COVID-19 levels by next year. This should also help the global oil
market in 2022, which will have a double positive impact on Saudi
Arabia’s oil sector. More specifically, we not only expect higher oil
prices (at $60pb in full year) but also expect Saudi output rising to 10
mbpd next year versus 9.3 mbpd in 2021 (Box 10).

Box 10: Energy Investment

According to a recently published report by the International Energy
Forum (IEF), oil and gas capital expenditure declined by 34 percent
year-on-year last year. More strikingly, according to the IEF, global
upstream capital expenditure in 2020 was circa 50 percent lower
Historical underinvestment in oil than 2014 levels. Looking ahead, the IEF assumes a continued
exploration and production will limit decline in upstream expenditure, by 20 percent in 2021, with such
the ability of non-OPEC suppliers consistent declines raising the possibility of higher prices and greater
to respond to the recovery in oil market volatility. In fact, the IEF (citing both OPEC and International
demand. Energy Agency figures) states that around 27 million to 30 million
barrels of oil equivalent (mmboe) will be needed by 2022 to close the
gap between production declines and demand levels.

Taking this into account, we see historical underinvestment in oil

exploration and production limiting the ability of non-OPEC suppliers
to respond to the recovery in oil demand. In this context, our view is
that low cost producers with sizable levels of spare oil capacity, such
as Saudi Arabia, should be well placed to raise crude oil output from
2022 onwards.

On the non-oil side, momentum from post-Corona economic

recovery and the continued roll-out of initiatives under the Vision
On the non-oil side, momentum 2030 will help drive growth in 2022. More specifically, we see an
from post-Corona economic expansion in the ‘Wholesale & Retail, Restaurants & Hotels’,
recovery… especially as restrictions around social distancing are lifted and there
is an uninhibited roll-out of entertainment and domestic tourism
activities. At the same time, we also see the construction and
transport sectors contributing to growth from work on a number of
PIF’s mega-projects continue, including the phase one completion of
the Red Sea Project, but also from other large projects, such as the
...and the continued roll-out of development of Jizan Economic City led by Aramco. On the transport
initiatives under the Vision 2030 side, the economic benefits from the completion of SR87 billion
will help drive growth in 2022. worth of projects in the year before will continue to positively impact
sectorial GDP in 2022.

On the fiscal front, we expect total revenue to be around SR911

billion in 2022 with oil revenue making up SR527 billion, or 58

21
February 2021

We see the fiscal deficit narrowing percent of the total (we note this could be higher if Aramco continues
to -SR44 billion or -1.4 percent of paying dividends to government at broadly similar levels seen in the
GDP next year… last few years). With expenditure expected to decline 4 percent year-
on-year to SR990 billion, as per the recent fiscal budget, we see the
fiscal deficit narrowing to -SR44 billion or -1.4 percent of GDP next
year. Meanwhile, the government expects to issue additional debt to
the equivalent of SR76 billion, pushing total public debt to SR1013
billion, with debt-to-GDP at 32.7 percent at the end of 2022.

A strong level of growth in the non-oil sector will do enough to keep

imports at decent levels, albeit below pre-pandemic levels. At the
…and as the effects of a VAT hike same time, yearly increase in both oil and non-oil export revenue will
fade, we expect to see inflation mean that the current account will see a surplus equivalent to 6.8
moving back more in-line with percent of GDP in 2022. All of this will help push up FX reserves up
historic average of 1.5 percent in on a yearly basis, but still under $500 billion, according to our
2022. forecasts.

As the effects of a VAT hike fade, we expect to see inflation moving

back more in-line with historic average of 1.5 percent in 2022.

22
 February 2021

Key Data

2014 2015 2016 2017 2018 2019 2020E 2021F 2022F

Nominal GDP
(SR billion) 2,836 2,454 2,419 2,582 2,934 3,044 2,545 2,860 3,108
($ billion) 756 654 645 689 782 812 679 763 829
(% change) 1.3 -13.5 -1.4 6.8 13.6 3.7 -16.4 12.3 8.7

Real GDP (% change)

Oil** 2.1 5.3 3.6 -3.1 3.1 -3.6 -6.4 1.3 9.4
Non-oil private sector** 5.4 3.4 0.1 1.5 1.9 3.8 -3.3 3.2 3.0
Non-oil government** 3.7 2.7 0.6 0.7 2.9 2.2 0.0 1.5 1.0
Total 3.7 4.1 1.7 -0.7 2.4 0.3 -4.1 2.1 5.2

Oil indicators (average)

Brent ($/b) 99 52 43 54 71 66 42 55 60
Production (million b/d) 9.7 10.2 10.4 10.0 10.3 9.8 9.2 9.3 10.0

Budgetary indicators (SR billion)

Government revenue 1,044 616 519 692 906 926 770 851 911
Government expenditure* 1,140 1,001 936 930 1,079 1,059 1,068 990 955
Budget balance -96 -385 -417 -238 -173 -133 -298 -139 -44
(% GDP) -3.4 -15.7 -17.2 -9.2 -5.9 -4.4 -12 -4.8 -1.4
Gross public debt 44 142 317 443 560 678 854 937 1013
(% GDP) 1.6 5.8 13.1 17.1 19.1 22.3 33.5 32.8 32.7

Monetary indicators (average)

Inflation (% change) 2.2 1.2 2.1 -0.8 2.5 -2.1 3.0 3.7 1.5
SAMA base lending rate (%, end
2.0 2.0 2.0 2.0 3.0 2.3 0.75 0.75 1.25
year)

External trade indicators ($ billion)

Oil export revenues 285 153 137 171 232 201 127 165 202
Total export revenues 342 204 184 222 294 262 177 219 260
Imports 158 159 128 123 126 140 118 124 124
Trade balance 184 44 56 98 169 121 60 95 135
Current account balance 74 -57 -24 10 72 38 -17.9 19 56
(% GDP) 9.8 -8.7 -3.7 1.5 9.2 4.7 -2.6 2.5 6.8
Official reserve assets 732 616 536 496 497 500 453 455 473

Social and demographic

indicators
Population (million) 30.3 31.0 31.7 32.7 32.5 32.6 31.8 32.0 32.3
Saudi Unemployment (15+, %) 11.7 11.5 12.5 12.8 12.7 12.0 14.0 12.1 10.9
GDP per capita ($) 24,962 21,095 20,318 21,048 24,065 24,890 21,314 23,798 25,659

Sources: Jadwa Investment forecasts for 2021 and 2022. General Authority for Statistics for GDP and demographic indicators,
Saudi Central for monetary and external trade indicators, Ministry of Finance for budgetary indicators. Note: *2016 government
expenditure includes SR105 billion in due payment from previous years. **Jadwa estimates for 2020

23
February 2021

Disclaimer of Liability
Unless otherwise stated, all information contained in this document (the “Publication”)
shall not be reproduced, in whole or in part, without the specific written permission of
Jadwa Investment.

The data contained in this Research is sourced from Reuters, Bloomberg, GaStat,
SAMA, IMF, FocusEconomics, Tadawul, 2021 budget, CCHI, COVAX, MoHU, Vision
2030 VRPs, OPEC, EIA and national statistical sources unless otherwise stated.

Jadwa Investment makes its best effort to ensure that the content in the Publication is
accurate and up to date at all times. Jadwa Investment makes no warranty,
representation or undertaking whether expressed or implied, nor does it assume any
legal liability, whether direct or indirect, or responsibility for the accuracy,
completeness, or usefulness of any information that contain in the Publication. It is
not the intention of the Publication to be used or deemed as recommendation, option
or advice for any action (s) that may take place in future.

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