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Ambitious diversification agenda is not without risks
Diversification initiatives will require material participation from the private sector.
Vested interests and the large bureaucracy could act as a dampener on timely reform
implementation going forward. The large size of the NTP program may mean some of
its outcomes are internally inconsistent, in our view. Cultural and entertainment changes
could be opposed by conservative or clerical factions. Slippage could occur due to
execution risk or reform fatigue, particularly due to the socio-economic impact of fiscal
consolidation. Any material changes to subsidies or wages could be difficult to
implement in the absence of a social safety net. While fiscal consolidation measures are
unprecedented in scope, they appear too ambitious or difficult to reach and may leave a
financing gap. As such, the measures may still fall short if oil prices do not stabilize,
which suggests a need for a less aggressive energy policy going forward, in our view.

Government leaders continue to show focus on delivery
The US visit of Deputy Crown Prince Mohammed bin Salman and finalization of various
Memoranda of Understanding (MoUs) with prominent US corporates helps provide a
highly visible anchor for foreign investment and instil business confidence in regards to
government focus. It also helps boost the profile of the Deputy Crown Prince both
domestically and internationally. This is in line with our view that the government is
likely to target rapid implementation of several ‘low-hanging’ reforms to spearhead the
program and boost confidence. Energy sector liberalization could also serve as another
highly visible anchor to the reform program, in our view.

Table 5: Announced US corporates plans during the US visit of the Saudi Deputy Crown Prince
Company Sector Outcome
Six Flags Entertainment Company has been allowed to operate in Saudi Arabia
Pfizer Pharmaceuticals Company has been awarded a direct investment license
3M Manufacturing Company has been awarded a direct investment license
Dow Chemical Chemicals Company has been awarded a direct investment license
Microsoft IT Memorandum of Understanding signed
Cisco IT Memorandum of Understanding signed
Apple IT Discussions on entry to Saudi market possibly under way
Source: Press reports, Saudi Press Agency, BofA Merrill Lynch Global Research

Diversification drive is a step in the right direction
The comprehensive medium-term diversification drive introduced by the NTP follows
the typical macro template, in our view. We discuss in a later section diversification
lessons from Malaysia and Norway and conclude that the NTP contains elements from
these successful case studies. In particular, it a) identifies key sectors with relatively
high growth potential (mining, petrochemicals, manufacturing, retail and wholesale
trade, religious and other forms of tourism, healthcare, real estate and finance); b), it
starts to articulate supportive public sector industrial strategies, including through
localization policies; and, c) it seeks to foster higher-value added in the economy
through enhancements to processes, products and organizations.

14 GEMs Paper #26 | 30 June 2016
Merrill Lynch
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