Chart 5: More sustained private non-oil sector growth needed in Saudi Chart 6: Oil sector large; government controls 60% of real economy
25 mas Oil Sector
mmm Private Non-Oil Sector
20 mmm Government Non-Oil Sector 15 »Real GDP growth (Yyoy) 10 5 0 5 -10 -15 SS8S8SE8SSESS Oil Sector mPrivate Non-Oil Sector = Government Non-Oil Sector NNNNNNNN Source: Haver, BofA Merrill Lynch Global Research. Series uses contributions to growth from real GDP Source: Haver, BofA Merrill Lynch Global Research. Data as of 2015.
data with 1999 base year prior to 2010.
Human capital is critical and takes time to build
In our view, improvements to human capital, rather than business climate supply-side reforms, are the critical barriers to overcome. While building the appropriately qualified workforce takes time, Saudi Arabia has been making progress in this area. c25% of Saudi tertiary graduates complete humanities and arts programs, but this is down from 39.4% in 1999. Graduates from social sciences, business and law represented the largest share of graduates at 27.2% of total in 2014, up from 15.5% in 1999. Still, as we discuss in later sections, diversification prospects are mixed across sectors and will likely depend in part on providing the appropriate incentives to the private sector.
Chart 7: Distribution of Saudi tertiary graduates by field of study (%)
40
35 m1999 = 2014
30
25
20
15
10
5
0 wn <= > o o Oo wn wn 5 S $2 2 sf 8s = S 8 3 8 ae 2 —£5 o 3 s Pa i= = QD ws a BS = aS) [e) oO Oo no} on Oo = (ep) n lu na o ce ZS i>) ® =a ae Ss = = BG os Fe os wi Ss o ge & = § = x=
Source: UNESCO, BofA Merrill Lynch Global Research
Mobilizing domestic resources is key
The NTP makes clear that part of the NTP costs (40%) will need to be shouldered by the private sector. Out of a total estimated NTP cost of SAR447bn (USS119bn; 18.4% of GDP), the NTP implies that the private sector will need to contribute about SAR179bn over the coming five years (US$47.6bn; 7.4% of GDP). Implementation of growth- boosting initiatives will require a challenging crowding in of private sector investment. The NTP expects only a SAR40bn increase in the level of Foreign Direct Investment (FDI), meaning that the bulk of private sector investment could have to come from domestic sources. While the government investment is generally in retrenchment mode, the NTP may be suggesting that selective and strategic projects are likely to go ahead. Authorities have also suggested a number of projects could be structured as Public- Private Partnerships (PPP).
OS Merrill Lynch
GEMs Paper #26 | 30 June 2016 15
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