Beyond petroleum: the impact of the

chemical industry on the gulf economyScott Livermore and Hamilton Galloway

• Macroeconomic outlook

• Chemicals outlook

• Scale of the chemical sector

Agenda

Macroeconomic

outlook

Is a global recession overdue?

US economy has been expanding for over a decade… …but has growth run out of steam?

US policy weighs on growth

Impact of US-China tariffs modest so far…but increasingThe “Trump boost” has faded

+0.7ppt

+0.5ppt

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2016 2017 2018 2019 2020

Impact of BBA, 2018

Impact of TCJA, 2017

Source: Oxford Economics

US: Contribution of fiscal stimulus to growthReal GDP growth, %

BBA, 2018 = Bipartisan Budget Act of 2018TCJA, 2017 = Tax Cuts and Jobs Act of 2017

Rest of world slowing too

Germany hit hard by automotive weakness…and BrexitChina’s slowdown has played a key role

Fed policy U-turn, accompanied by loosening elsewhere

The Fed to step in

Global fiscal policy can also support growth

Fiscal policy

boosts

growth

Fiscal policy

subtracts

from growth

Global recession to be avoided

Continue employment growth to support services… …but stagnation in prospect, rather than recession

-6

-4

-2

0

2

4

6

8

10

12

2000 2003 2006 2009 2012 2015 2018 2021

Global: real GDP forecast%, y/y

Source : Oxford Economics/Haver Analytics

Forecast

Emerging Markets

Global

Advanced Economies

The risks of a global trade war

Protectionism dominates our clients’ risk perceptions Escalation would hit world economy hard

Oil market weighing on GCC

OPEC+ product agreements a drag on growth Lower oil prices putting pressure on GCC budgets

0

10

20

30

40

50

60

70

80

90

100

110

Bahrain Kuwait Oman Qatar SaudiArabia

UnitedArab

Emirates

2019 2020 Brent crude (2020)

GCC: Fiscal breakeven oil prices

Source: IMF/Oxford Economics

US$ pb

Increased efforts to diversify

Structural reforms underway Growth to improve modestly in GCC

0

10

20

30

40

50

60

70

80

90

100

110

UnitedArab

Emirates

Bahrain SaudiArabia

Oman Qatar Kuwait

2020 2019

GCC: Ease of doing business ranking

Source: World Bank Doing Business

Ranking out of 190

Chemicals

outlook

Global chemicals output growth is forecast to slow to 1.6% in

2019 before picking up slightly to 2% in 2020, but risks are

skewed to the downside. Drivers/constraints include:

• Shale gas boom–This will largely contribute to lifting US

chemicals.

• Rising middle class–This will provide a boost to some

chemical segments such as soaps & detergents.

• Trade war threats–Important for highly export-orientated

sectors like chemicals, particularly basic chemicals.

• Global trade continues to weaken–We expect chemicals

growth to be dampened as trade growth posts anemic

growth.

Worsening global trade dents

chemicals growth

Industry outlook—world

Diversification efforts in the GCC region focus on sectors like

tourism and oil-related sectors, such as chemicals. Rising

competitive pressures will provide impetus for diversification

in the Middle East, with the GCC chemical industry

expected to move further down the supply chain and

away from its focus on basic chemicals. This is, for

example, emphasized in the Saudi Arabia’s 2030 Vision

goals; budget spending will be complemented by private

sector stimulus, with funds allocated to residential housing

loans, economic projects, SME support, infrastructure

development and investment and export financing.

Diversification efforts will contribute

to chemicals growth in the region

Industry outlook—GCC region

2018 2019 2020 2021 2022 2023

Bahrain 13.5 2.3 1.2 1.5 1.5 1.7

Kuwait 1.4 0.9 0.6 1.1 2.2 2.1

Oman 5.6 0.1 2.5 2.0 0.9 0.5

Qatar 6.2 2.3 2.3 2.1 2.2 2.4

Saudi Arabia 3.5 2.2 2.6 2.0 2.6 2.6

United Arab Emirates 3.2 1.8 2.3 1.4 1.6 1.3

Chemicals, Value-added output, % change y/y

Scale of the

chemical sector

The sector’s economic footprint is presented and

quantified with two key metrics:

• GDP, or more specifically, the chemical

sector’s gross value added (GVA) contribution

to GDP. This can be understood as either: 1)

the value of output (goods or services) less

the value of all inputs used in the production

process; or 2) the sum of compensation of

employees plus gross operating surplus

(profits).

• Employment, the number of people

employed, measured on a headcount basis.

We trace the impact of the

sector through 3 channels

Channels of economic impact

Following the collapse of oil prices in 2014, GCC states

committed to ambitious plans to transform their economies

through diversification, private sector development, and

public sector reform.

The manufacturing and chemical sectors are integral in

these diversification efforts. In 2018, we estimate the GCC

chemical industry contributed 2.8% to regional GDP (or

$46.4 billion), with individual country’s contributions ranging

from 1.5% (UAE) to 5.1% (Oman) of GDP.

The chemical sector is integral

in GCC diversification efforts

Direct economic impact (I)

5.1%

4.1%

3.2%

2.8%

2.5%

2.4%

2.4%

2.2%

2.1%

2.0%

2.0%

1.5%

Oman

Qatar

Saudi Arabia

South Korea

Bahrain

Belgium

Malaysia

Philippines

Slovenia

Japan

Kuwait

UAE

0% 1% 2% 3% 4% 5% 6%

Source: National Statistical Authorities, GPCA Analysis, Oxford Economics, Haver Analytics

% of GDP

The chemical industry directly employed

157,000 people throughout the Gulf region

in 2018––equivalent to about one tenth of

the entire population of Bahrain.

This included over 100,000 workers in

Saudi Arabia (66% of the total), nearly

28,000 in the UAE (18%), and just under

10,000 in Qatar (6%). It is estimated that

0.6% of all employment in the Gulf region

is directly created by the chemical

industry.

The chemical sector is integral

in GCC diversification efforts

Direct economic impact (II)

0.9

2.8

4.0

7.8

25.0

5.9

Source: National statistical authorities, GPCA analysis

$ billion

1,500

7,000

8,200 9,600

103,200

27,500

Bahrain

Kuwait

Oman

Qatar

Saudi Arabia

UAE

Jobs

We also find the GCC chemical industry supported a total of 620,000 jobs both directly and through its

“multiplier channels” in 2018.

We estimate the total contribution to regional GDP was $81.6 billion

Total economic impact (I)

On average, we calculate that every $1 of gross value

added created directly by the chemical industry supported

an additional $0.76 contribution elsewhere in the regional

economy in 2018.

Furthermore, due to the industry’s high levels of

productivity, the sector’s employment multiplier is even

greater. For every employee in the industry itself, we find

that three jobs are supported elsewhere in the regional

economy.

The industry’s total economic impact

in the GCC region was substantial

Total economic impact (II)

46.4

28.3

6.9

81.6

157.0

315.8

145.0

617.8

0

100

200

300

400

500

600

700

0

10

20

30

40

50

60

70

80

90

Gross Value Added (LHS axis) Employment (RHS axis)

$ billion thousand jobs

Source: Oxford Economics Direct Indirect Induced

When all three channels of impact are accounted for,

manufacturing generates the largest proportion of the

industry’s total annual GDP contribution ($49.9 billion),

with mining and quarrying (including oil and gas

extraction) and wholesale and retail trade generating

$13.9 billion and $6.6 billion, respectively.

The remainder is spread across the rest of the

economy, with financial services and transportation

playing important roles.

Every industry benefits from the

existence of the chemical sector

Total economic impact (III)

Thank youwww.gpca.org.ae