OPPORTUNITIES IN THE CONSTRUCTION INDUSTRY KINGDOM OF SAUDI ARABIA

1. OPPORTUNITIES IN THE CONSTRUCTION INDUSTRYKINGDOM OF SAUDI ARABIA

2. Business Environment - GCC • The GCC, a trade bloc involving the six Arab states of the Arabic Gulf, has some of the fastest growing economies in the world, mostly due to a boom in oil and natural gas revenues coupled with a building and investment boom backed by decades of saved petroleum revenues • The GCC has a desire to establish the region as a financial and tourism centre and to provide job opportunities to the growing young population by establishing new industries • If a Canadian company is established in Saudi Arabia, they will benefit from the government’s membership with the Gulf Co-operation Council (GCC); which will allow them to take advantage of the duty-free arrangements in Bahrain, Oman, Kuwait, Qatar and the UAE • GCC corporate and financial champions are becoming international players as they have an objective to drive expansion beyond the GCC region

3. Business Environment - GCC • For 2008-2010, construction projects announced or underway for the GCC totals $942 billion, the majority of which is: UAE: $441 billion & KSA: $214 billion. • Growth exceeds capacity such that pronounced bottlenecks are already apparent in many areas of the economy. Power, water, real estate, logistics are under immense pressure across the region. • Growth could be constrained by limited labour force and short supply of key inputs such as steel, glass, and cement. • Given demand, there is a strong presence of foreign contractors, EPCers, architects and suppliers. This sometimes results in low bids in order to acquire market share. • More than 130 Canadian companies are established in the region of which approximately 30% or more are related to construction activities.

4. Business Environment - GCC • Inflation is escalating: • Real wage gains are being eroded • Non-oil goods and services exports may lose market share • Ability to attract labour will be undermined, slowing domestic demand • A real estate asset price bubble may be emerging • … but keep in mind: • Pace of price growth is not that high • Living standards are still rising • Competitiveness not yet compromised • Balance are still very strong

5. Investment Grades Ease of Doing BusinessWorld Bank Rankings1 ** S&P rates borrowers on a scale from AAA to D. Intermediate ratings are offered at each level between AA and CCC (i.e., BBB+, BBB and BBB-). *** Aa1, Aa2, Aa3 : According to Moody’s rating, Aa are judged to be of high quality and are subject to very low credit risk. *KSA’s 10 X 10 Program: goal is to place Saudi Arabia among the top ten competitive investment destinations by the year 2010 1. www.doingbusiness.org/economyrankings/?direction=Asc&sort=1

6. Announced Projects 2008-2010 GCC Projects all Sectors ($ Millions) GCC Projects by Country ($ Millions) Industry Power MEED Projects August 1/08

7. Announced Projects 2008-2010 in KSA KSA Projects all Sectors ($ Millions) MEED Project August 6/2007

8. GDP: 564 billion (2007) Annual growth rate: 4.1% (2007) Population: 28.1 millionPer capita GDP: $ 37,300 (2007) Inflation: 4.1% (2007) CANADA – SAUDI ARABIA TRADE (2007) Canadian Exports to Saudi Arabia $ 648 million Canadian Imports from Saudi Arabia $ 1.8 billion As a part of the GCC, KSA has approved duty exemptions covering the import of more than 400 items. The Council has also implemented a customs union which has harmonized customs tariff at 5% of an items value. Why Saudi Arabia? • Other important information: • KSA plans to spend a trillion dollars on infrastructure and other project investment over the next 15 years. • The industry growth forecast over 2007-2011 averages 5.46%, with government-led activity in infrastructure driving demand. Business Environment • Largest economy in the Middle East and North Africa (MENA) region holding 25% of the total Arab GDP. • Construction industry is the largest in the MENA region and the largest non-oil economic industry in KSA, both in residential and industrial building. • Government is attempting to promote growth in the private sector by privatizing industries such as power and telecom. • The Saudi Arabian General Investment Authority (SAGIA) is undertaking a multi-billion (US) dollar development strategy centred around the building of greenfield economic cities around the country. • The economic cities are designed to attract foreign and domestic investment into the downstream energy, transport, industry and knowledge-based sectors. • Objective is to create jobs to retain Saudi youth; expected population growth from 28 to 36 M by 2025.

9. The Economic Cities – Saudi Arabia

10. King Abdullah Economic City • Project comprises: • Sea Port • Capacity of 10 million twenty-foot equivalent Unit (TEU) of containers per year. • Industrial district • Will cover 63 million m². Will consist of industrial and light industries, research and development, business office, services, hospitality, education and community services. • Waterside resort • The number of hotel rooms and suites are proposed to be 25,000 hotel rooms in more than 120 hotels. • Financial island • The Central Business District will offer 3.8 million m² of office space, hotels and mixed-use commercial space. • Residential district • Will include 260,000 apartments and 56,000 villas. This area include residential, commercial and recreational areas. • Education and health zone • Location: 100km north of Jeddah • Size: 168 km² • Cost: 100 billion SAR (US$ 26.6 Billion) • Sponsor: EMAAR • Jobs: 500,000 • Status: Phase 1 completed – Industrial Zone • Phase 2 is next • Completion: estimated between 2025-2030

11. King Abdullah Economic City List of Companies Awarded Contracts in Phase 1 • Aseer – Trading, Tourism and Manufacturing and Contracting Sectors • Al-Fozan Co. – Manufacturing of construction material • Al-Muhaidib – Wholesaling of Building Material • Dallah Al-Baraka – Cleaning and Maintenance – Construction • Khayyat Group – Construction of a cement project • Bin Laden Group – Construction conglomerate awarded the construction of the residential towers • Orascom – Construction, cement plant • AlBabtain – Power and Telecommunications • Saudi Oger – Construction, Printing, Telecommunication, Real Estate Development, Utilities, IT Services

12. Three Tips for Trading with KSA While complex markets with a different culture from Canada, entrepreneurs can be prepared to do business there. Experts in the region boil their advice down to three “Cs”: Commitment, Capacity and Contacts. • Commitment: The first step to success is a triple dose of relationship building by investing a long term market development. Arab hospitality is legendary; they place a high value on loyalty and respect. • Capacity: The scale of everything in the region is large. Canadian companies need to rethink their strategy in the context as purchase orders are large compared to what Canadians are generally exposed to in North America • Contacts: You must have a partner or agent to navigate this country. Many people in KSA want to be an agent and many want to sign a long-term contract. The challenge is to find someone who really understands your business and your expectations.

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