Cautious optimism over rising oil prices

After two years of gloom, optimism has returned to the oil industry after Brent crude rose above $50 a barrel for the first time in 2016 at the end of May. Analysts, however, remain cautious on predicting a return to sustained $50-plus prices. Opec and the Paris-based International Energy Agency (IEA) have both forecast that the market will return to a supply-demand balance in the second half of 2016, after two years of low prices caused by global oversupply. Rather than any increase in demand, surplus capacity has been cut by supply disruptions in Nigeria and Canada. The change eases pressure on Middle Eastern governments, which have cut spending in response to lower prices. The US-based Energy Information Administration (EIA) on 6 June raised its outlook for Brent crude by $3 to $43 a barrel for 2016 and by $1 to $52 a barrel for 2017.

World Bank revises down regional growth

The World Bank on 7 June downgraded the growth forecasts it made in January for most of the Middle East as part of its June 2016 review of the global economy. The Washington-based institution said in its Global Economic Prospects report that growth in the region will be about 2.9 per cent in 2016, 1.1 percentage points lower than forecast in its January outlook. The bank’s forecast is based on an oil price average of $41 a barrel in 2016. Despite the negative adjustment, the economic performance of the region is expected to improve in the second half of the year due to an expected strong recovery in Iran following the lifting of nuclear-related sanctions in January. An envisaged upturn in average oil prices in 2017 is projected to support a recovery in regional growth to 3.5 per cent in 2017, said the report.

Iran closing in on launch of new oil contracts

Iran’s Minister of Petroleum Bijan Zanganeh said on 11 June that the first deal with a foreign company using the new Iranian Petroleum Contract (IPC) will be signed within three months, even though the ministry is still making revisions to the IPC. Tehran is looking for international partners to develop 52 oil and gas fields in contracts lasting 15-20 years. The terms of the IPC are a contentious issue within the country’s political establishment, with hardline conservative factions seeking to block any model that relinquishes too much control of oil reserves to overseas firms. However, the results of the parliamentary elections in February and April appear to have increased the mandate of President Hassan Rouhani’s government to push through the legislation.

Banks predict quiet summer

While GCC governments rethink their financing strategies in response to low oil prices, the flow of schemes seeking finance has been interupted by project delays and cancellations. In most markets, lenders are focusing on only one or two upcoming projects. With Ramadan falling in early summer, most of the upcoming transactions will not close before September. These include the international tranche for Kuwait’s Clean Fuels 2020 project and the Bahrain LNG gas terminal loan. With a tightening of regional liquidity and rising funding costs, financiers are being more selective about where to lend. Most syndicated loans are still seeing good interest, but local banks are increasingly rejecting them due to low pricing. Overall, banks are expecting a very slow summer.

Private sector moves to tap Saudi housing demand

Saudi Arabia’s construction industry is increasingly looking to the housing sector for opportunities as Riyadh seeks to narrow its affordable housing gap. Details from the kingdom’s National Transformation Programme (NTP) on 8 June revealed the Housing Ministry is planning to spend up to $15.8bn on housing over the next five years. In recent months, the kingdom has taken steps to tax unused land, and developers have responded by pressing ahead with schemes involving affordable housing, which has previously held little interest for them. Riyadh is hoping that packages of incentives for local developers, including public-private partnerships (PPPs), will enable it to build 1.5 million new homes over the next eight years.

Difficult timing for Kuwait restructuring proposal

Kuwait’s proposal to consolidate the Kuwait Authority for Partnership Projects (KAPP) and the Kuwait Direct Investment Promotion Authority (KDIPA) will reduce bureaucratic obstacles by concentrating foreign investment matters in one body. But the prospect of more uncertainty at KAPP could harm confidence among potential investors in its public-private partnership (PPP) programme, which is at a critical stage of tendering a new round of schemes.There are still doubts around the legal and financial framework for key projects and another change of plans risks sidelining Kuwait’s PPP programme for the foreseeable future.

Qatar expects budget deficits until 2018

Qatar’s Development Planning & Statistics Ministry has revised its forecast on the state’s expected fiscal deficit from 4.8 per cent to 7.8 per cent of GDP in 2016. It also downgraded its overall economic growth forecast for the year from 4.3 per cent to 3.9 per cent. The ministry said it expects fiscal deficits to persist until 2018. The deficit is expected to increase to 7.9 per cent of GDP in 2017 before easing to 4.2 per cent in 2018, according to a ministry report on 18 June. The growth forecasts assume an oil price average of $37.88 a barrel in 2016, $45.49 in 2017 and $48.91 in 2018. The report said the central bank might consider several options to address the liquidity issue among the country’s lenders, including cutting official interest rates, continued suspension of domestic treasury bond issuance and a resumption of treasury bill issues suspension.

Riyadh looks at raising $15bn from bond sale

Saudi Arabia is considering plans to raise as much as $15bn through sovereign bonds this year, its first foray into international debt markets. The kingdom is said to be encouraged by Qatar’s record bond sale in late May, and is weighing the option to secure at least $10bn in five-, 10- and 30-year bonds after the end of Ramadan in early July. The discussion with the banks are at an initial stage and a decision has yet to be made on the final size of the issue. Riyadh has invited proposals from lenders to help it arrange the deal. GCC governments have turned to international capital markets to raise funds in order to plug budget deficits after oil prices fell from a mid-2014 peak of more than $110 a barrel.

Backtracking in Egypt puts off developers

The Washington-based International Finance Corporation’s (IFC)’s withdrawal on 16 June from the first round of Cairo’s feed-in tariff photovoltaic (PV) solar schemes reflects the high perceived levels of investment risk in Egypt. Cairo’s surprise decision in May to remove international arbitration clauses from project documents is a deal-breaker for lenders and has knocked developers’ confidence. The government could reverse the decision on the first round of projects, or it could begin the second round with more attractive incentives. But if it fails to offer more bankable projects, Egypt risks killing investor appetite altogether.

Riyadh approves plans to allow foreign ownership

Saudi Arabia’s cabinet on 13 June approved new rules that will allow for full foreign ownership of retail and wholesale operations. The new rules are being put in place as the kingdom looks to attract more foreign investment amid low oil prices. The kingdom is also considering plans to tax foreign residents. The proposal is part of the National Transformation Programme (NTP), a detailed roadmap of the kingdom’s broader economic reform agenda, Vision 2030. It is “an initiative that will be discussed”, Saudi Finance Minister Ibrahim al-Assaf said. The proposal is unlikely to be pursued aggressively.

Board changes mark start of Gaca and Saudia separation

Saudi Arabia’s General Authority of Civil Aviation (Gaca) has given up its board representation with Saudi Arabian Airlines (Saudia), marking the start of a full separation between the kingdom’s aviation regulator and the state-backed national carrier. The Council of Ministers said the decision is in line with transforming Gaca into an independent legislative organisation. The decision “enhances the role of Gaca to stand on an equal footing between all carriers”, said the kingdom’s Transport Minister Suleiman al-Hamdan.

UAE outlines VAT guidelines for businesses

Businesses in the UAE that earn annual revenues of more than AED3.75m ($1.02m), will have to register to be taxed under the proposed value-added tax (VAT) system, the Ministry of Finance has said. Firms recording revenues of between AED1.87m and AED3.75m can choose to register during the first phase of the VAT roll-out. Registration will eventually become obligatory for all companies when the government rolls out the second phase. The UAE has committed to introducing the tax on 1 January 2018. Analysts, however, estimate that annual revenues from a VAT rate of 5 per cent could reach about AED9bn-AED10bn annually, based on estimates from point-of-sales (POS) terminals in the country for 2015.

Abu Dhabi banks consider merger

Abu Dhabi government-controlled National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) announced on 19 June that they were exploring a merger that will create the biggest bank by assets in the Middle East. The merger will create a lender with assets of about $170bn, more than Qatar National Bank (QNB), which currently is the largest bank in the Gulf region. The talks of a merger come at a time when the lenders are grappling with slowing economies, reduced government spending and deteriorating asset quality. Both NBAD and FGB posted a drop in first-quarter net income.

Middle East outpaces global air traffic growth

The Middle East posted a 12.7 per cent air passenger increase in April, and is the only region to see a double-digit percentage growth in demand, according to a report by the Canada-based International Air Transport Association (IATA). Capacity growth at 14.8 per cent, however, outstripped demand growth, causing load factor or capacity utilisation to contract by 1.4 percentage points to 75.6 per cent during the month. In comparison, global demand expanded by merely 4.6 per cent, the slowest since January 2015. International passenger demand rose slightly higher, at 4.8 per cent.

Saudi Arabia commits to nuclear power

New details from Saudi Arabia’s National Transformation Programme (NTP) have revealed Riyadh remains committed to developing nuclear power. The kingdom says it is planning to spend SR300m ($80m) on studies to identify locations for nuclear power plants and prepare the sites for construction. The government has yet to reveal any new targets for nuclear power, although it previously stated it was seeking to develop up to 16 reactors to provide upwards of 17,000MW of power by 2032. This target is expected to be revised down due to slow progress with the nuclear preparations in recent years.

Kuwait to decide metro procurement structure

Kuwait could opt for a hybrid procurement model for its planned metropolitan rapid transit (MRT) project, instead of utilising a pure public-private partnership (PPP) model. The Kuwait Authority for Partnership Projects (KAPP) has recently completed the review of the feasibility studies for both the MRT and the national railway schemes, with the prequalification of investors and developers expected to begin in the second quarter of 2016.The study was carried out by UK companies EY, Ashurst and Arup.

Jordan seeks help for $2bn refugee bill

Amman has warned that Jordan’s economy is buckling under the heavy burden of providing for the estimated 1.3 million Syrians that have fled to the country since the Syrian civil war began in 2011. “Fiscally we’re bleeding, [our] debt is growing and we can’t borrow more to continue providing for the refugees,” Jordan’s Minister of Planning and International Cooperation Imad Fakhoury told the Washington-based IMF at its spring meetings. The annual burden imposed by hosting the Syrian refugees is estimated at $2bn, and has contributed to the 25 per cent increase in the country’s national debt between 2011 and 2015. Syrian refugees now account for close to 14 per cent of Jordan’s total population of 9.5 million.

Mursi handed life sentence in final trial

Ousted Egypt president Mohamed Mursi was handed a life sentence by an Egyptian court on 18 June. The sentence signals the end of the espionage trial that also saw other defendants accused of passing documents to Qatar in 2013. The former president, who was ousted by Egypt’s armed forces in 2013, has already been given a life sentence and condemned to death in separate court cases last year, although no developments on the date of his hanging have been revealed by authorities.

Middle East contracts awarded: May 2016

The total value of contracts awarded in the Middle East and North Africa region declined in May to about $7bn from $9.15bn in April. The number of deals let remained constant at 44. Kuwait tops the list with the award to build a second terminal at Kuwait International airport, which is valued at $4.3bn. The second-largest award also came from Kuwait, involving the design and build of a new maternity hospital in the Shuwaikh area of Kuwait City. The deal is valued at an estimated $727m.