IV. SECTORAL DEVELOPMENTS

(1) Agriculture

63. The agricultural sector is a significant sector for the Kingdom of Saudi Arabia. The Government has introduced plans, programs and projects for increasing the area, production and productivity of agricultural products and ensuring the sustainable development of the sector. In 2009, the cultivable area in the Kingdom was about 48.9 million hectare accounting for 21.7% of the total area of Saudi Arabia. The total holding area (farms) in 2009 was about 4.3 million hectare of which less than one million hectare was under cultivation representing only 0.44% of the total area and 2.0% of the cultivable area.

64. The agricultural crop production includes cereal crops, vegetables, fruits, and IV. SECTORAL DEVELOPMENTS fodders. According to recent statistics by the Ministry of Agriculture, the area for all crops reached 835 thousand hectares in 2009. Vegetable production increased from 2.6 million tons in 2005 to 2.7 million tons in 2009, whereas fruit production increased from 1.5 million tons in 2005 to 1.6 million in 2009. Dates are an important crop in Saudi Arabia; production, which was about 970 thousand tons in 2005 increased to 990 thousand tons in 2009. Fodder production increased from 2.5 million tons in 2005 to 3 million tons in 2009.

65. Saudi Arabia has reached a high "self sufficiency" rate for some crops such as potatoes (161%), eggplants (102%), cucumbers (101%), watermelons (115%), table eggs (112%), fresh milk (105%) and dates (105%). The Kingdom has also achieved IV. SECTORAL DEVELOPMENTS good rates for other crops such as okra (99%), carrots (79%), tomatoes (72%), and grapes (83%). It has also achieved low rates for other animal products such as red meat (38%) and poultry meat and fish products (48%).

66. Local production of poultry meat from specialized projects increased to 494 thousand tons in 2009. Egg production increased from 145 thousand tons in 2005 to 191 thousand tons in 2009. Red meat increased slightly from 167 thousand tons in 2005 to 171 thousand tons in 2009.

67. In light of the scarcity of water resources in Saudi Arabia, the Government realizes the need to create new agricultural policies for restructuring the agricultural sector to emphasize IV. SECTORAL DEVELOPMENTS the rational utilization and conservation of natural resources to upgrade the economic efficiency of the sector, increase local production of vegetables in greenhouses and adopt modern cultivation and watering techniques. Accordingly the Government issued Resolution No. 335 of 19 November 2007, which among other things, aims to phase out local wheat production within 8 years and import all wheat from abroad by 2016.

68. King Abdulla's Initiative for Agricultural Investment Abroad emerged to achieve food security on national and international levels by building integrated partnerships with countries that have the potential to develop and manage agricultural investments to ensure sufficient quantities and stable prices for important crops IV. SECTORAL DEVELOPMENTS. King Abdullah’s Initiative is meant to provide mutual benefits to Saudi Arabia and the country which receives Saudi's investment.

(2) Fisheries and Aquaculture

69. Fisheries is a relatively small sector in the Kingdom of Saudi Arabia, However, fish production has been increasing in the last few years. Total fish and shrimp production increased from 65.2 thousand tons in 2001 to 95.5 thousand tons in 2009; approximately 22.3 thousand tons came from fish farms.

70. Saudi Arabia is developing the fisheries sector by exploring ways to increase fish catch and aquaculture production, and encourage more private investments in these sectors for job creation and IV. SECTORAL DEVELOPMENTS the development of rural coastal areas.

71. The Government has continued to develop and protect the environmental aspect of the fisheries sector through the optimal management of coastal areas to enrich the fish stock.

72. The Ministry of Agriculture is exerting considerable effort to fully developing aquaculture in suitable coastal and interior areas in order to augment food security and self-sufficiency, produce high-value seafood products for export, and achieve development goals.

73. The Ministry has been actively involved in helping fish farmers and aquaculture investors especially with respect to research and development, technology transfer, manpower training, and marketing support.

(3) Hydrocarbon And IV. SECTORAL DEVELOPMENTS Mining Sectors

74. Saudi Arabia's hydrocarbon sector has contributed to the economic development, growth and prosperity of Saudi Arabia. The Kingdom has applied diversification policies broadly throughout the hydrocarbon sector to develop downstream refining, processing and converting industries.

75. The contribution of the sector's activity to GDP (at current prices) amounted to 48.1% during 2009. The sector recorded a growth of 25% in 2010. In real prices, the sector grew by 2.1% in 2010. However, its contribution to the economy decreased to 23.1% of real GDP as measured by 1999 prices.

(i) Hydrocarbon Sector

(a) Oil

76. Saudi Arabian Oil Company (Saudi Aramco) is a state-owned company established by Royal Decree IV. SECTORAL DEVELOPMENTS in 1988. Saudi Aramco's oil operations encompass the Kingdom of Saudi Arabia, including territorial waters in the Arabian Gulf and the Red Sea, totalling more than 1.5 million square kilometres.

77. Most production comes from fields in the coastal plains of the Eastern Province in an area extending 300 kilometres. According to estimates by OPEC, in 2009 Saudi Arabia held 264.59 billion barrels of crude oil in proven reserves (approximately 25% of proven OPEC member reserves). In 2010, Saudi Arabia's production reached 2.98 billion barrels of crude oil. In 2010, Saudi Arabia completed a multi-year, multi-project program and raised its maximum sustainable crude oil production IV. SECTORAL DEVELOPMENTS capacity to 12.5 million barrels per day.



(b) Natural Gas

78. In the 1970s, plans to capture the energy value of gas were developed and the Master Gas System (MGS) was born. The MGS enables Saudi Aramco to use nearly all the gas produced with oil production (known as associated gas) and gas produced from deep natural gas reservoirs (known as non-associated gas).

79. The MGS adds the equivalent of more than a million barrels of oil a day to the world energy supply and provides fuel and feedstock for Saudi Arabia's rapidly growing industries. In 2010, the production capacity of the MGS IV. SECTORAL DEVELOPMENTS was 7.5 billion cubic feet per day. In the company’s overall gas operations, natural gas is processed for various production purposes.

80. The total (i.e. associated) reserves of natural gas in Saudi Arabia in 2010 were estimated to constitute 284 trillion cubic feet (tcf). In 2009, Saudi Aramco completed a multi-year, multi-project program that included significant increases to gas production and processing capacities.

81. Saudi Aramco entered into four joint ventures with a variety of international partners to explore for and produce non-associated gas for the domestic market. These joint ventures operate in various parts of the IV. SECTORAL DEVELOPMENTS Rub' al-Khali (Empty Quarter). The joint ventures are:

(i) EniRepSa Gas - With a consortium of Italian oil company ENI and Spanish- Argentinean oil company Repsol YPF to find and develop gas reservoirs in the Kingdom's Rub' al-Khali Basin.

(ii) Sino Saudi Gas – With Chinese oil and petrochemical company Sinopec to find and develop gas reservoirs.

(iii) South Rub' al-Khali Company - With Shell, which covers non-associated gas exploration activities, as well as the evaluation, development and production of natural gas, natural gas liquids and field condensates in two promising areas in the southern and eastern Rub' al-Khali IV. SECTORAL DEVELOPMENTS.

(iv) Luksar Energy – With Russian oil company Lukoil to find and develop gas reservoirs in the Kingdom's Rub' al-Khali Basin.

(c) Downstream

82. Saudi Arabia has followed a general policy of diversifying from hydrocarbons by adopting measures that have broad downstream application throughout the economy.

83. Independent of the Government's diversification initiatives, Saudi Aramco has pursued a commercially based corporate policy of diversifying its operations downstream by increasing production of refined products, such as gasoline, kerosene, and long residue (bunker). This output of refined products increased with the recent expansion of the Petro Rabigh complex.

84. Future IV. SECTORAL DEVELOPMENTS plans for downstream expansion include a refinery and chemical complex in Jubail, a refinery in Yanbu, and another refinery and terminal in Jazan. Recently, Saudi Aramco signed a memorandum of understanding with Sinopec to join as an investor in the "ongoing" development of the Red Sea Refining Company.

85. In addition, Saudi Aramco has agreed with Dow Chemicals to establish an integrated chemical complex joint venture in Jubail. The company is also looking to expand its transportation and delivery network with several projects to add new bulk plants and pipeline network.

(ii) Minerals Sector

86. Ma'aden was formed as a Saudi joint stock company IV. SECTORAL DEVELOPMENTS on 14/11/1417H (corresponding to 23/3/1997G) for the purpose of facilitating the development of Saudi Arabia's mineral resources. The company's objective is to become a world class diversified mining and minerals group, and to enhance overall value for its shareholders.

87. Ma'aden is a company that performs all of its actions with the utmost concern for human resources, health, safety, environmental and social issues. It is committed to protecting the health and safety of its employees and the environment and implements the legal regulations necessary to do so.

88. Ma'aden currently has four key business areas:

(i) Gold IV. SECTORAL DEVELOPMENTS and Base Metals;

(ii) The Phosphate Project - with joint venture partner SABIC;

(iii) The Aluminium Project - with joint venture partner Alcoa; and

(iv) Other Projects - including magnesite, kaolin, low grade bauxite, garnet, chlor vinyl.

89. In addition to its projects, Ma'aden conducts extensive exploration programs in Saudi Arabia. The following is a timeline of the evolution of Ma'aden:

1997 - Established

2006 - North-South Railway approved by Council of Ministers

2007 - Phosphate Joint Venture with SABIC

2008 - Partial privatization (50% State ownership)

2009 - Aluminium Joint Venture with ALCOA and ECA with SWCC

Today - Publicly traded company (Capital SR.9,25 Billion with aspiration for massive growth)

(4) Manufacturing

90. The contribution of manufacturing to GDP IV. SECTORAL DEVELOPMENTS in Saudi Arabia is about 12.7% and it is expected to increase to about 14% by 2014. The manufacturing sector's largest contributors are in the petrochemical and mining sectors. Saudi Arabia current industrial production also includes ceramics, plastics, chemicals, steel, aluminium, building materials, textiles and foodstuffs.

91. Over the next three years, the value added of the petrochemicals industry is expected to grow at an average annual rate of about 5.7%, compared with 9.7% in 2009, to reach a share in GDP of about 1.7% in 2014.

92. The value added of other manufacturing industries is expected to grow at an average annual rate of 7.6%, compared with 6.8% in IV. SECTORAL DEVELOPMENTS 2009. Hence, the Ninth Development Plan forecasts a contribution by these industries to GDP of about 9.2% in 2014. Investment and employment in these industries is expected to grow during the next three years at average annual rates of approximately 15.3% and 0.3% respectively, compared with 6.3% and 0.8% respectively in 2009.

(5) Services

93. The services sector is very important to Saudi Arabia's economy. It contributes 50.6% to real GDP and employs about three quarters of the workforce. Saudi Arabia encourages the services sector by providing market access and national treatment to foreign service suppliers. This is reflected by the number of services sub-sectors commitments undertaken by IV. SECTORAL DEVELOPMENTS Saudi Arabia during its accession; the Kingdom undertook commitments on 120 Services sub-sectors out of 160.

(i) Financial Services

(a) Banking Sector

94. Since the accession of Saudi Arabia to the WTO, the Saudi banking industry has expanded substantially. Twenty-one banks are now operating in the Kingdom compared to 13 banks in 2005. Out of these banks, there are 9 foreign bank branches and 6 joint-venture banks. There are also two licensed foreign bank branches which have yet to begin operating; they are State Bank of India and T.C. Ziraat Bankasi. This shows that the foreign presence in the Saudi banking sector IV. SECTORAL DEVELOPMENTS is significantly high since it represents about 74% of the total number of operating and approved licensed banks in Saudi Arabia.

95. The banking sector has enjoyed steady growth and stability in recent years as evidenced by a number of key banking indicators. At the end of May 2011, total bank assets grew by 6.0% compared to the end of 2010, reaching SR 1.5 trillion. The branch network grew by 1.6%, reaching 1617 branches. Moreover, bank deposits increased by 7.6% during the same period to reach SR 1.06 trillion. This supported credit to the private sector, which increased by 4.4% to SR 775.5 billion. Banks are well capitalized; their capital adequacy ratio is currently IV. SECTORAL DEVELOPMENTS at 17.1%, which is more than double the international standard of 8%. Stress tests conducted recently also demonstrate that Saudi banks are sound and well-equipped to withstand any shocks.

(b) Cooperative Insurance

96. The SaudiCooperative insurance sector has been witnessing a rapid growth after the accession of Saudi Arabia to the WTO, and this growth is expected to remain steady and solid in the coming years. In this respect, gross written premiums (GWP) achieved a compounded annual growth rate of 27% over a 5-year period reaching SR 16.4 billion in 2010. Insurance penetration (i.e. GWP divided by GDP) increased from 0.44% in 2005 to 1% in IV. SECTORAL DEVELOPMENTS 2010 and insurance density (i.e. GWP per capita) increased from SR 223 in 2005 to SR 604 in 2010.

97. The Saudi insurance market structure promotes competitiveness. Currently, there are 31 licensed insurance and reinsurance companies. Thirty of these were licensed after the accession of Saudi Arabia to the WTO and more than 91% of those companies have foreign participation. There are 4 other insurance companies in the final stages of the licensing process. In addition, there are 58 insurance brokers, 31 insurance agencies, 9 loss adjusters, 8 third party administrators (TPA's), 6 insurance consultants, and 2 actuarial services firms in Saudi Arabia.

(c) Payment System

98. Saudi Arabia has developed an IV. SECTORAL DEVELOPMENTS advanced payment system which is secure and efficient. The Saudi Arabian Monetary Agency (SAMA) has built an electronic payment infrastructure that is integrated, secure, cost efficient and expandable. The National Bill Presentment and Payment System (SADAD) facilitates and streamlines bill payment transactions for end consumers through all the banking channels in Saudi Arabia. SADAD has become one of the world's most reputable systems and gained the title of the United Nations Public Service Winner for 2008.

(d) Regulatory and Supervisory Developments

99. SAMA made it mandatory at the start of 2008 for banks to implement the Basel II framework to properly account for all IV. SECTORAL DEVELOPMENTS forms of risk, and promote risk management and transparency for increased market discipline. In addition, plans are well underway for the implementation of Basel III.

100. SAMA has also adopted several other regulatory frameworks for banks to ensure financial stability. Furthermore, many new regulatory and supervisory initiatives are underway in the light of international financial regulatory reforms being finalized by the Basel Committee in Banking Supervision (BCBS) and the Financial Stability Board (FSB).

101. In the cooperative insurance sector, SAMA has issued a number of sub-regulations to build a comprehensive regulatory framework and to address key market issues IV. SECTORAL DEVELOPMENTS (e.g. risk management, market code of conduct, anti-money laundering and terrorism financing, insurance fraud, and reinsurance). Other sub-regulations are currently being developed (e.g. outsourcing, intermediaries, online activities, actuarial services).

102. In other areas of the financial sector, there are currently five laws under development: (i) the Financial Leasing Law; (ii) the Finance Companies Control Law; (iii) the Real Estate Financing Law; (iv) the Real Estate Mortgage Law; and (v) the Enforcement Law. The implementation of these laws is expected to boost credit expansion as well as create more market opportunities for cooperative insurance providers.

(e) Capital Market

103. The Saudi Capital IV. SECTORAL DEVELOPMENTS Market Authority (CMA) has adopted various Implementing Regulations to implement the provisions of the Capital Market Law (CML). A notice-and-comment period preceded the adoption of these regulations during which the CMA sought comments and feedback on the proposed regulations.

104. Since 2005, the following Implementing Regulations were among the regulations that have been issued or amended: (i) Anti-Money Laundering and Counter-Terrorist Financing Rules; (ii) Corporate Governance Regulations; (iii) Merger and Acquisition Regulations; (iv) Investment Funds Regulations; (v) Real Estate Investment Funds Regulations; and (vi) Resolution of Securities Disputes Proceedings Regulations. In addition, the CMA has issued IV. SECTORAL DEVELOPMENTS a Glossary of Defined Terms Used in the Regulations and Rules of the Capital Market Authority.

105. As part of CMA's effort to allow foreign investment in the Saudi capital market, it permits all resident foreigners to directly trade in the Saudi stock exchange, while providing non-resident foreigners with indirect access to the market through investment funds, exchange-traded funds (ETFs) and swap agreements.

106. In 2010, the CMA was admitted to the International Organization of Securities Commissions (IOSCO) as an ordinary member and subsequently became a full signatory to the IOSCO Multilateral MOU.

(ii) Telecom

107. Competition in the mobile telecommunications IV. SECTORAL DEVELOPMENTS market started in 2005, with the issuance of a 2nd mobile license to Mobily (Etihad Etisalat) and 2 fixed data services licenses to Bayanat and the Integrated Telecommunications Company, and has resulted in major improvements in terms of service offerings, quality of service, customer care, reduced prices, and subscriber growth.

108. The licensing process for the issuance of a third mobile license and Fixed Services licenses started in 2006. For the mobile license nine applicants were technically qualified for opening of their financial bids. Zain Saudi Arabia (MTC, Kuwait) had the highest bid and was issued the third mobile license in 2008. In IV. SECTORAL DEVELOPMENTS addition three fixed services applicants were technically qualified and selected, and a license issued to Etihad Atheeb Telecom (Batelco - Bahrain) in 2009.

109. Fixed telephone lines stood at 4.13 million at the end of 2010, of which around 3 million, or 72% were residential lines. This represents a household teledensity of around 67%, or 67 residential lines for every 100 households. The population teledensity is around 15 % or 15 telephone lines for every 100 inhabitants.

110. Broadband subscriptions have grown 68-fold over the last 5 years, from 64,000 in 2005 to over 4.4 million at the end of 2010. The broadband penetration rate stood at around 16 % of population at the end of 2010, or 16 broadband connections for every 100 inhabitants.

111. Broadband IV. SECTORAL DEVELOPMENTS household penetration is a more relevant indicator as a single broadband connection in a house can provide high speed data access to all members of a household. At the end of 2010, household broadband penetration stood at around 42%.

112. Despite the high growth rates over the last few years, there is still potential for more growth in broadband services. The broadband market is significantly underserved in many suburban and rural areas. With the opening of the fixed telecommunications market to competition, the intense competition in mobile broadband offerings, and the increased consumer demand for fast internet connections, the broadband market IV. SECTORAL DEVELOPMENTS is expected to continue to grow at a fast pace, as mobile and fixed service providers continue to roll out their broadband networks with competitors fulfilling the growing demand.

113. The number of internet users grew from around 1 million in 2001 to 11.4 million at the end of 2010, more than a ten-fold increase in 9 years. Internet penetration increased to 41% of the population by the end of 2010 or 41 Internet users for every 100 inhabitants. This internet penetration rate is lower than that of developed countries (64%), but is well above the world average (26%).

114. The Communication and Information Technology Commission (CITC) has launched a study IV. SECTORAL DEVELOPMENTS to assess the feasibility of issuing unified licenses as well as expanding resale in major ICT markets. Unified licensing, if implemented would allow a transition from the current technology neutral and service specific regime to a both technology and service neutral regime. This study is expected to be completed in 2012.

(iii) Transportation

115. During the last five years, the transport sector in Saudi Arabia has witnessed noticeable development as land transportation and roads linking cities have increased almost 12% to reach a total length of 58,036 km to improve mobility, trade, and tourism.

116. Moreover, the study of public transportation strategies and policies IV. SECTORAL DEVELOPMENTS has established a national vision for Saudi Arabia to establish safe and effective inter-city and intra-city public transportation services by the year 2025. From the legislative perspective, implementing regulations for land transportation have been updated to ensure fair competition among investors.

117. Several bilateral agreements with other countries to regulate the transportation of passengers and goods on roads, have been signed or have entered into force. Multimodal transport agreements have also been signed to regulate freight transportation among Arab states.

118. With respect to rail transport, studies and construction projects related to railways in Saudi Arabia include the following:

(i) (The IV. SECTORAL DEVELOPMENTS north-south line project, which is 2400 kilometres long and under construction, connects the north-west border of Saudi Arabia (Saudi/Jordan border) with Riyadh to transport minerals from several places to a new port being built on the Arabian Gulf;

(ii) The land bridge project, which is 950 kilometres long is awaiting fund allocation and will connects Jeddah Islamic Port on the Red Sea with the existing railway that links Riyadh with King Abdul Aziz port on Dammam. This project will serve the Riyadh dry port and Al-Jubail Port;

(iii) The Haramain high speed rail project, which is IV. SECTORAL DEVELOPMENTS 450 kilometres long and under construction, will connect Madinah with Makkah through Jeddah and Rabigh on the Red Sea;

(iv) To accommodate the extreme crowds during Haj, Saudi Arabia established the Al Mashaaer Al Muqadassah Train Project also known as Makkah Metro, which connects the Holy Sites in Makkah (Arafat - Muzdalifah - Mina) with each other and will be connected to the Haramain rail network at a later stage. It is expected to operate at full capacity this year and can transport up to 72,000 pilgrims in an hour;

(v) Taif - Khamis Mushayt -Abha Line, Jeddah - Jizan Line and Yanbu Jeddah IV. SECTORAL DEVELOPMENTS Line are all under consideration to connect the southern area with other areas in Saudi Arabia. Moreover, the feasibility study for the GCC railway had been adopted, and currently each country is working on the design of its share in the network.

119. The maritime trade law, which regulates the maritime transport sector in Saudi Arabia, is under development. The participation of the private sector has increased, especially with respect to the provision of port services in Saudi Arabia.

(iv) Health and Social Services

120. The Government of the Kingdom of Saudi Arabia encourages investment in large health institutions to promote the transfer IV. SECTORAL DEVELOPMENTS of technology, which leads to strengthening the quality of health services, creating an economic impact and increasing employment opportunities for the citizens of the Kingdom.


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