Board Report: May 2018

30 April 2018
IMF raises outlook for global growth; Oil prices hit a three-year high; US-led coalition carries out air strikes on Syria; Saudis head to cinemas

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1. IMF raises outlook for global growth, but warns of risks

The Washington-based IMF has raised its outlook for global growth, but has warned that significant risks remain. In its latest World Economic Outlook Report, published on 14 April, the fund forecasts global growth of 3.9 per cent for both 2018 and 2019. It said the improving outlook was driven by advanced economies in the US, EU and Japan. It highlighted Eurozone growth and upcoming fiscal reforms in the US as contributing factors. But the fund also warned of risks to growth from rising trade tensions, state protectionism and ageing populations in developed countries.

2. Security fears, fiscal reforms dampen Middle East outlook

The IMF has revised down its outlook for economic growth in the Middle East in 2018 – lowering it by 0.2 percentage points to 3.2 per cent. In its latest World Economic Outlook report, the fund said GDP growth in 2018 would be more conservative than previously forecast due to ongoing security concerns, subdued medium-term outlook for oil prices, and the need for continued fiscal consolidation in many countries. Saudi Arabia and the UAE are now expected to grow by a modest 1.7 and 2 per cent rate, respectively, in 2018. Bahrain is forecast to grow by 3 per cent.

3. Oil prices hit the highest level since late 2014

Brent crude prices spiked 2.6 per cent to reach $73.93 a barrel on 18 April due to fears that US military action in Syria could prompt further regional, or even global, instability. The surge in oil prices comes after missile strikes on Syria by the US, the UK and France, and fears that conflict could escalate tensions with Russia and Iran, two of the world’s biggest oil producers and close allies of the Syrian government. Fears were also stoked by rocket attacks on Saudi Arabia on 12 April by Houthi rebels in Yemen.

Additional uncertainty stems from the approaching 12 May deadline set by US President Donald Trump for re-imposing nuclear sanctions on Iran. Away from politics, analysts expect oil prices to fall as a result of rising US gas exports and an unprecedented global rise in liquefied natural gas supply.

4. Saudis head to cinemas after nearly 40 years

The Hollywood blockbuster Black Panther made history on 18 April when it became the first film to be screened in a public cinema in Saudi Arabia since 1983. The film was shown to a mixed audience at a newly developed theatre in Riyadh’s King Abdullah Financial District owned by the Development & Investment Entertainment Company, a subsidiary of the country’s Public Investment Fund in collaboration with the US company AMC Entertainment.

Riyadh hopes to open approximately 350 cinemas with some 2,500 screens in the kingdom by 2030, generating anticipated revenues of about $1bn a year. AMC Entertainment recently announced that it plans to open 40 cinemas in 15 different cities around Saudi Arabia during the next five years. According to the World Bank, Saudis spend more than $20bn a year on trips abroad, usually to neighbouring UAE and Bahrain, where the entertainment industry has been expanding dramatically over the past few decades.

5. Election results confirm Al-Sisi will continue with reforms

After his landslide re-election on 28 March with 97 per cent of the vote, Egypt’s President Abdul Fattah al-Sisi’s focus has returned to the country’s economic challenges. Al-Sisi is pushing ahead with an aggressive economic restructuring programme that includes cuts to food and energy subsidies, building up national foreign currency reserves, reducing national debt and establishing the investment law. These efforts have largely been backed by the IMF, although the body has expressed concerns over the role of the army and called for a more inclusive approach to growth.

6. Opec oil production cap set to be extended

The oil production cap agreed between oil producers’ group Opec and non-Opec oil producers, set to last until 31 December, could be extended into 2019.

The group is scheduled to meet in June to decide on its next steps regarding the production cap that was introduced in January 2017 to tackle global oversupply. Opec says there continues to be a global glut in oil supplies, and it is working with non-Opec producers to bring stability to oil markets and to ensure greater energy security. The comments came in response to an attack on Twitter by US President Donald Trump, who accused Opec of keeping oil prices artificially high.

7. US-led coalition carries out a series of air strikes

The US, France and the UK on 14 April carried out a series of military attacks on weapons facilities in Syria. Justified as a response to an alleged chemical weapons attack by Syrian government forces on the rebel-held town of Douma, the coalition forces bombed locations in Damascus and Homs, including the Barzah Scientific Research Centre – a facility associated with the Syrian chemical weapons programme.

The attacks were condemned by the Syrian government and Russia, which called for an emergency UN Security Council meeting quoting a violation of international law. Russia’s President Putin said the strikes were an “act of aggression” that came after what Russia believes was a staged attack by the rebels.

8. Crown Prince strengthens Saudi’s international ties

Saudi Arabia’s Crown Prince Mohammed bin Salman has completed his recent tour of the US, UK, Egypt, France and Spain. Lasting several weeks, the tour aimed to present the progressive reforms featured in Saudi Arabia’s Vision 2030 strategy to international leaders. During the tour, the kingdom reconfirmed its strategic partnership ties by signing several significant memorandums of understanding in the fields of energy, culture, agriculture and tourism.

The largest deal made during the tour was a $2.2bn agreement for warships to be supplied from Spain, which raised questions if the wars in Yemen or Syria will be addressed in the near future.

9. US and EU to decide on Iran nuclear sanctions

US President Donald Trump has set 12 May as the deadline for new EU sanctions on Iran, otherwise the US could pull out of a deal signed in 2015. The agreement, known as the Joint Comprehensive Plan of Action, was described by Trump as “the worst deal ever negotiated” and the US now insists on making changes.

The EU faces a pushback from its member states, notably Italy, which in January signed a $6bn investment deal with Iran. France’s Total also expressed concerns over its $4.9bn commitment to the South Pars phase 11 gas field. While EU and US companies are left weighing the risks of doing business in Iran, Russian and Chinese firms are still negotiating and signing deals.

Saudi Aramco and Gazprom to form body for gas projects

On 18 April, Gazprom and Saudi Aramco announced they would form a joint body with the aim of examining future prospects for collaboration and cooperation within the fields of gas exploration, production, transportation and storage, as well as in projects for liquefying natural gas.

UAE developer increases foreign ownership limits

Abu Dhabi-based developer Aldar has increased its foreign ownership limit to 49 per cent from 40 per cent. The move aims to provide greater liquidity in the stock and further support the developer’s growth.

UK and Chinese companies to manage Iraq’s Majnoon oil field

A two-year contract has been awarded to the UK’s Petrofac and China-based Anton Oilfield Services to operate Iraq’s Majnoon oil field. The companies will run the oil field on behalf of state-owned Basra Oil Company, which is taking over operations there from the UK/Dutch Shell Group.

Middle East hoteliers advised to change and innovate

Speaking at the Arabian Hotel Investment Conference in Ras al-Khaimah, Emaar properties chairman Mohamed Alabbar noted that regional hoteliers must strive to adopt innovative technologies and stop focusing on luxury markets.

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