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Technology Industry Strategy

Draft Version

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2

Framework

Strategy definition

Problem statement

Master plan

1

2

3

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83% of the Traditional IT market supply is captured by foreign companies

Share owned by foreign vendors

Source: 1) IDC, Delta Partners analysis

KSA traditional IT market in 2016, by products1

(SAR bn, including Defense and HLS and excluding telecom) Share owned by local vendors

43.5

8.9

29.6 1.8 0.6 1.0 0.1 0.0 0.24.7 0.7 1.6 1.4 0.9 0.6 0.6 1.3 1.4

4.8 1.3 52.4

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IT c

on

sult

ing

Tota

l

SAR 1.6 bnSAR 31.4 bn

SAR 0.4 bnSAR 5.3 bn

SAR 5.0 bn

SAR 8.8 bn

Infrastructure

SoftwareManaged services and outsourcing

IT consultingHardware and Packaged software contribute SAR ~34bn or

65% of the Traditional IT market

Data Centre

Cloud

KSA's IT market is dominated by foreign vendors (influencing 83% of total market)

Excludes Telecom Network Outsourcing services

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An opportunity to increase Traditional IT localisation exists in the Telecom Managed Services field

KSA's Managed Services & Outsourcing market(SAR bn)

Note: 1) Other Telecom providers include Virgin Mobile, Friendi, Lebara, Atheeb and ISPs operating in KSASource: 2) IDC, 3) MCIT, Delta Partners analysis

• Managed Services & Outsourcing Services for Telecom companies make up a significant market, though the majority of the latter is provisioned by foreign IT companies

5

0.5 – 1.0

5

~11

IT Only Telecom Providers - Top 3

Telecom Providers - Others

Total MS&O market1

Potential area for localization

2

3

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KSA companies significantly underspend in Tech in comparison with global average

KSA average

World averageKSA vs the World: Share of ICT spending as % of revenues(%)

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

World avg: 1.8%4KSA avg: 1.1%1, 2

Agriculture, forestry & fishing

Construction

Oil & gas

Petrochemicals

Mining & quarrying

Manufacturing

Admin & support services

Other service activities

Wholesale & retail trade

Accommodation & food service

Arts, entertain. & recreation

Transport. & storage

Renewable energy

Prof., scientific & tech services

Utilities

Healthcare

Education

Public admin & compul. social security

Financial, real estate & insurance

Information & comm.

Note: 1) Weighted by GDP contribution of each sector. Source: 2) IDC, GASTAT KSA, 4) CEB, Delta Partners analysis

Consumer

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KSA Tech market growth is below the global average (5% vs 8%) and is unlikely to change without structural adjustments

Share of total P.P change

Emerg. Tech 29% 40% +11%

Traditional IT 71% 60% -11%

Global non-defense Tech market1,3

(SAR bn)

4Y CAGR('16-'20)

8.1%

17.7%

3.4%8,696 9,938

3,521

6,752 12,216

16,690

2016 2020

Traditional IT Emerging Tech 2

Share of total P.P change

Emerg. Tech 6% 12% +6%

Traditional IT 94% 88% -6%

• KSA Emerging Tech market is underdeveloped and is significantly behind global average in terms of share of overall market• Emerging Tech market will be the main driver of overall Tech market growth

Note: 1) Excludes defense IT spending; 2) Emerging market includes IoT, big data & analytics, robotics, AR/VR, AI, 3D printing, autonomous vehicles and distributed ledgers. Source: 3) IDC, Delta Partners analysis

KSA non-defense Tech market1,3

(SAR bn)

4Y CAGR('16-'20)

4.8%

26.1%

3.2%41 46

3644 53

2016 2020

Traditional IT Emerging Tech 2

Defence and HLS were excluded for a better comparison with

global trends

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Framework

Problem statement

Master plan

1

3

Strategy definition

2

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Strategy definition framework

Traditional IT Emerging Tech

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Traditional IT market growth should be complemented by healthy market restructuring

KSA Traditional IT market(SAR billion, includes Defense and HLS)

30

40

50

60

70

80

90

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Agency forecast Potential future growth

Ongoing country’s digitalisation will drive the overall IT market growth at 3%-5% and is expected to reach SAR 80bn by 2030

Stimulation of Traditional IT products adoption in verticals with significant current underspend will lead to even higher Traditional IT market increase in a short-term

Lift the market forecast Forecast adjusted to IT spend efficiency

To ensure healthiness of the Traditional IT market, two measures are planned to be implemented:1. Optimisation of spending in product categories having

comparable size and growth rate with global best practice2. Adoption acceleration in product categories which are

underpenetrated in comparison with global best practices and can be used to increase the efficiency of IT spending in a long-term

1

2

3

Two launched measures are expected to reduce the overall market growth to SAR 70bn

4

Source: Delta Partners analysis

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Five IT products for five key sectors were selected as the focusSelected IT products and verticals

Note: 1) Excludes media related economic activities; 2) Government, Financial services, Manufacturing, Private Education and Healthcare. Source: 3) IDC, Technavio, Gartner, Delta Partners analysis (modelled)

KSA 4 year GDP evolution – ICT1 sector3

(SAR bn, 2016-2020)

3 7

89

99

2016 Infocomm GDP Organic growth Stimulated growth 2020 GDP incl.stimulated growth

6.2

3.6

9.8

Value distribution

Top 5 verticals2 / 5 traditional ITs

Other verticals

Zoom-in: Potential growth3

(SAR bn)

Zoom-in on the

next slide

c.a. 63% of stimulated growth is driven by 5 technologies in 5 verticals

MS&O, IT consulting, Software, Clouds and Hosting/Co-location were selected as key IT products

Traditional IT GDP

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Lift demand – 80% of efforts should be allocated to areas with the highest adoption stimulation opportunity and 20% to areas with the opportunity of spend optimisation

Tech GTM effort distribution

• Educate industries on potential IT solutions and support in procurement and implementation

• Subsidise R&D and investments in Traditional IT

• Analyse the spending practice and find areas for optimisation• Aggregate the demand to generate higher value for the same or

reduced spending

Stimulate the adoption (80% of effort) Optimise spending (20% of effort)

Start the development of IT solutions from the industry with the highest impact and spill-over to other industries

IT consulting

Managed services & Outsourcing

Software

Cloud

Colocation / Hosting

Op

tim

ise

sp

end

ing

Key verticals

40%

22%

18%

10%

10%

100%Total2 (%)

Stim

ula

te t

he

ado

pti

on

9%

Manufacturing

4%

2%

2%

<1%

<1%

0.6

23%

Financial, insurance & real estate services

9%

5%

4%

3%

2%

1.4

46%

Public admin & social security1

18%

9%

7%

6%

7%

2.9

13%

Healthcare

6%

3%

3%

<1%

<1%

0.8Total2 (SAR Bn)

2.5

1.4

1.1

0.6

0.6

6.2

8%

Education

4%

2%

2%

<1%

<1%

0.5

Total2

(%)Total2

(SAR Bn)

Notes: 1) Public education is included to Public admin & social security as per KSA Statistic Authorities; Source: 2) IDC, Technavio, Gartner, Delta Partners analysis (modelled)

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Localise supply – KSA should seek to localise IT products with the highest economic impact, highest volume and critical for the country from a security point of view

Size of the profit pool in 20201 IT consulting

MS&O

Software

Cloud

Data centre

Infrastructure

IT securityTo be considered for localisation

Source: 1) IDC, 2) GASTAT KSA, 3) Delta Partners analysis

EBIT

DA

Mar

gin

s3(%

)

Average: 13%

LOW MID HIGH

IT consulting

System integration

App customization

Network consulting

IT security

Managed services and outsourcing

App development

Packaged software

SaaS

PaaS

IaaS

Hosting

Co-location

Hardware installation and support

Hardware

0%

5%

10%

15%

20%

25%

HIGH ECONOMIC IMPACT

MS&O and System integration are strategic services from a security point of view and should be localized for government services

HIGH VOLUME

Hardware is the biggest area and should be explored for localization (e.g. OEM & security equipment)

Fees per Sector employee2

Given the number of IT products selected for localization, implementation will be carried out in phases

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12 programs have been identified to drive the IT industry strategy

Traditional IT

LOCALISE TRADITIONAL IT

LIFT THE MARKET

Stimulate the local development of Traditional IT solutions

Support an acquisition of foreign IT companies and intellectual property

Support local start-ups in targeted industries and technologies

Encourage MNC’s to set-up excellence, competence & support centres in KSA

Boost the creation & adoption of Open Source Software (OSS)

Enhance global competitiveness of local IT industry

Address workforce shortages & skills capabilities gap

Stimulate the development of Cybersecurity industry

Programs

Accelerate the digitization of local SMEs

Aggregate demand to ensure efficient spend on foreign services

Revamp regulations to stimulate IT products adoption

Stimulate market awareness about the new market development

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Strategy definition framework

Traditional IT Emerging Tech

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Five industries will generate the highest potential economical impact driven by Emerging Tech

Prioritised in Vision 2030

Not prioritised in Vision 2030KSA verticals: Disruption vs GDP growth contribution(%, SAR bn)

Level of potential tech impact2

5Y

co

ntr

ibu

tio

n t

o G

DP

gro

wth

1

Low Medium High

Low

Hig

hM

ediu

m

Industries with the highest potential economy impact driven by Emerging Tech

Notes: Utilities combines industry groups D and E from UN classification; Wholesale and retail trade includes automotive repairSource: 1) General Authority of Statistics KSA, 2) United Nations, HBS, World Economic Forum, Delta Partners analysis

Oil & gas

Public admin & compul. social security

Manufacturing

Wholesale & retail tradeConstruction

Financial, real estate & insurance

Information & comm.Transport. & storage

Utilities

Petrochemicals

Agriculture, forestry & fishing

Accommodation & food service Admin & support services

Healthcare

Prof., scientific & tech servicesMining & quarrying

Other service activities Arts, entertain. & recreationRenewable energy

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Bottom-up analysis of new-Tech impact on each selected vertical was done to prioritise the technologies

Source: press clippings, World Economic forum, Oxford economics, companies' websites, 1) Delta Partners analysis (modelled)

Overall tech impact on GDP Share of overall impact by technology

Manufacturing1

Oil & gas1

Financial, insurance & real estate services1

Healthcare1

Public admin. & compulsory social security

1.9 – 3.7%

1.1 – 1.6%

0.9 – 1.4%

0.1 – 0.2%

27%15%

27% 17% 15%

IoT Robotics AI AR / VR Distributedledgers

Qualitative assessment was performed – AI was determined to be the most relevant technology for the public sector, followed by

IoT & Distributed ledgers

Overall technology ranking

AI

IoT

Distributed ledgers

Robotics

AR / VR

1

2

3

4

5

29% 23% 29%10% 10%

IoT Robotics AI AR / VR Distributedledgers

25%14%

25%14%

23%

IoT Robotics AI AR / VR Distributedledgers

31%9%

33%

2%

25%

IoT Robotics AI AR / VR Distributedledgers

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436

10 240

2,400

3,086

2016 GDP 10Y organic growth 'Emerging Tech'market

'Emerging Tech'sectorial growth

2025 GDP incl.'Emerging Tech'

growth

80% of 'Emerging Tech' enabled growth is driven by 5 technologies in 5 verticals

KSA 10 year GDP evolution (2016-2025)4

(SAR bn)

188

52

240

Value distribution

Top 5 verticals2 / 5 top 'Emerging Techs'

Other verticals

Zoom-in: 'Emerging Tech' enabled growth4

(SAR bn)

1

Zoom-in on the next slide

c.a. 80% of 'Emerging Tech' enabled growth is driven by 5 technologies in 5 verticals

Our bottom up exercise estimates that c1% of extra GDP growth is tied to 'Emerging Tech', which is comparable with Singapore GDP growth expectations in digital strategy

Note: 1) Assuming SAR 45bn 'Emerging Tech' market, 40% local share with average KSA ICT margin (~44%), 60K new jobs created with average KSA ICT salary (SAR 115K); 2) includes oil & gas, manufacturing, financial services, healthcare and public sector; 3) Calculated using average GDP growth forecasts from World Bank, IMF and UN – data available up to 2023 and assumed constant until 2025. Source: 4) General Authority of Statistics KSA, Harvard Business School, Gartner, World Economic Forum, press clippings, Delta Partners analysis (modelled)

3

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AI will have the greatest impact on GDP and chemical manufacturing will benefit the most from Emerging Technologies

Highest economic impact

Share of 80% of potential GDP increase of selected industries driven by Emerging Tech (by 2025)

Key verticals

Chemical manufacturing

Oil & gasFinancial, insur-ance & real estate services

Public admin & social security2

Total (%)

Healthcare

Emer

gin

g Te

ch

Total (SAR bn)

2.9%25.0% 21.2% 18.2% 10.5% 100.0%22.2%

547 40 34 20 188

General manufacturing

42

0.7%6.8% 6.1% 5.7% 2.3% 27.5% 526.0%

0.7%6.8% 6.1% 6.0% 3.9% 29.5% 555.9%

0.7%3.6% 2.1% 4.6% 2.0% 16.2% 313.2%

0.4%3.6% 4.8% 1.6% 0.7% 14.3% 273.2%

Total by share (%)

Total by value1 (SAR bn)

Internet of Things

Artificial Intelligence

Distributed ledgers

Robotics

Augmented/ Virtual reality

0.4%4.3% 2.1% 0.3% 1.6% 12.5% 233.8%

Manufacturing industry was split in two parts because of high chemical manufacturing

dominance (53% of total)

Highest economy impact

Note: 1 Ranges from primary goods (i.e. food, textiles, metals) to advanced products (i.e. batteries, handheld devices, automotive vehicles); 2 Includes education, and assumes same tech impact per unit growth as other 4 verticals. Summed numbers may slightly differ due to rounding, calculated using averages between max and min cases. Source: World Economic forum, Oxford economics, companies’ websites, Delta Partners analysis (modelled)

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An appealing “hook” will decisively attract ”centers of gravity” needed to initiate the Transformation of the whole industry in KSA

Access to huge funds and contracts

• All disruptive strategies stimulated the Emerging Tech market adoption by coordinating/concentrating sizeable government funds (around 1-2% of GDP during 10 years) on:

− Direct government contracts

− Public Private Partnerships

− R&D and Capex incentives

Develop world leading companies around key sectors

• Oil&Gas and Chemical manufacturing in KSA provide a strong opportunity for global players to become world leading companies in Tech solutions for these industries:

• No other country/region can claim leadership in this technology/vertical ‘intersection’

• KSA Oil&Gas and Chemical manuf. companies are the reference in the world

• Given its leadership in the region, KSA can become an export hub for developed solutions (regional and worldwide)

Key pillars Comments

Source: Delta Partners analysis

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Hook - Global tech players will be attracted by the opportunity to work with the global industry leaders, making them a global reference in selected tech solutions

• Access to global industry leaders and regional demand has a significant attraction for tech players• China was able to increase the number of R&D labs from 5.3K to 14.3K in two years by giving the access to manuf. hub

Top global O&G companies by revenue1

(USD bn)

Oil & gas industry Chemical manufacturing industry

Att

ract

iven

ess

of

ind

ust

ries Lo

cal

Re

gio

nal

455 448 429368

269

1 2 3 4 5

Top Chem mfg. companies by revenues1

(USD bn)

6449 44

34 29

1 2 3 4 5

• Tech players can have access the biggest O&G company in the world

• Other leading O&G players also have offices in KSA

• Tech players will have access to top 4 global chem. company in the world

• Other leading chemical mfg. players also have a local presence in KSA

GDP structure of neighbouring countries2

(% related to oil)

63% 56%34% 24%

37% 44%66% 76%

Kuwait Oman UAE Bahrain

• Significant % of GDP in neighbouring countries is oil-related, implying demand for oil-related tech

• Unique opportunity for KSA to establish itself as a regional hub for O&G tech innovation

Share of chemical in mfg. value add2

(% of mfg. value-add) • Sizable portion of manufacturing value add in this region is chemical related

• Significant regional tech export opportunities

Oil-related

59%

24% 17% 14%

41%

76% 83% 86%

Oman Kuwait UAE Bahrain

Chemical-related

Source: 1) Fortune, 2) IMF, Delta Partners analysis

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The US is a hub for Manufacturing, Healthcare, Finance & Government

Oil & gas

• KSA's O&G economics (biggest oil exporter (21% of total), largest reserves in the world (22% of total)) make it attractive for global tech leaders

• With some government initiatives, KSA has the potential to become the first O&G hub in the world

Manufacturing, Financial, Healthcare & Government services

• Hubs for manufacturing, finance, healthcare and government services already exist in numerous developed markets

• KSA will have difficulties in competing with the world's biggest economies (e.g. US, China) to secure a spot as a manufacturing, finance, healthcare or government services hub

No nation in the world can claim an undisputed position as hub for oil & gas Tech development

Oil & gas hubs

Manufacturing hubs

Financial hubs

Healthcare hubs

Govt services hubs

Singapore is a Gov’t services hub

The UK is a hub for Healthcare & Gov’t services

Germany is a hub for Manufacturing & Healthcare

Hook - KSA has the potential to become the world’s first hub for Oil&Gas

Source: Harvard Business Review, Forbes, Financial Times, The Guardian, Business Insider, OPEC, Saudi Aramco press release, Oxford Economics, Delta Partners analysis

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Hook - Chemical manufacturing is not a focus of tech strategies in leading manufacturing nations

Top 4 countries globally by manufacturing value-add

China US Japan Germany

Industries in manufacturing Share of manufacturing GDP (%)

Chemicals and chemical products1

Has a national strategy for

advanced mfg., but not for mfg.

Emerging Tech; overall mfg. sector

has been on a downward trend

Coke and refined petroleum products

Food products

Other non-metallic mineral products

Fabricated metal products

Basic metals

Electrical equipment (i.e. batteries, semiconductor)

Paper and related products

Furniture

Wearing apparel

Machinery and equipment (i.e. handheld devices)

Beverages

Textiles

Printing and reproduction of recorded media

Wood and related products

Automotive and related products

Pharmaceutical preparations and products

Other transport equipment

Other manufacturing (i.e. medical devices)

Computer, electronic and optical products

Leather and related products

Tobacco products

36%17%

11%

8%

5%

4%

3%

3%

2%

2%

2%

2%

2%

1%

1%

1%

0%

0%

0%

0%

0%0%

Most attractive area as 53% of manufacturing GDP comes from chemical manufacturing

KSA Emerging Tech potential in manufacturing2

Note: 1) Includes rubber and plastics. Source: 3) National strategy in Advanced Manufacturing US, 4) Japan Robotics strategy, 5) Industrie 4.0 & high-tech strategy, 6) MIC 2025, 2) GASTAT KSA, Delta Partners analysis

Non-competing, low share of manufacturing GDP (<10%)Non-competing, high share of manufacturing GDP (>10%)

Competing

3 3 56

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Emerging Technology

Sprint

Sustain Growth

Streams of work - 11 programs have been identified to drive the overall Tech strategy

Programs

Stimulate R&D and innovation activities

Increase the Local Presence of MNCs across the Whole Value Chain

Acquire Foreign Tech Companies and Intellectual Property

Support Local Entrepreneurs in Targeted Industries and Technologies

Stimulate the development of critical infrastructure

Ensure healthy regulatory environment

Address Workforce Shortages & Capabilities Gap

Stimulate the Local Development of Tech Solutions

Increase Cybersecurity Resilience

Enhance global competitiveness of the Local Tech Sector

Stimulate market awareness about the new market development

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4 streams, underlying 2 strategies, will form the key gears driving emerging Tech and traditional IT market development in KSA

Tier 1 Tier 2 Tier 3NON-EXHAUSTIVE

S2ST

RA

TEG

Y (

EMR

G.

TEC

H)

L2ST

RA

TEG

Y (

TRA

D. I

T)

Two streams have been created for S2 and L2 strategies

respectively…

…designed to drive traditional IT and emerging Tech market

development…

…, which will then support the development of the whole economy

Sprint

Localisesupply

Lift demand

Sustaingrowth

Emerging tech

markets

TraditionalIT market

Oil & Gas

Manufac-turing

Health-care

Financialservices

Govern-ment

Energy

Info-comm

Retail / WS1

Transport-ation

Education

Agri-culture

Construct-ion

Mining

Utilities

Art & Ent’ment

…

…

…

…

…

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Thank you!