January 2020 Board Report: Top stories at a glance

17 December 2019
Aramco shares start trading on the Tadawul; Saudi Arabia’s budget deficit projected to rise by nearly 43 per cent; Algeria pushes on with election despite protests; Political turmoil costs Lebanon more than $70m a day


Saudi energy giant makes shares trading debut on Tadawul

Saudi Aramco officially listed its shares on the Saudi Stock Exchange (Tadawul) on 11 December, with trading on the bourse starting at SR32 ($8.5) a share. The government of Saudi Arabia, Aramco’s sole shareholder, has sold 1.5 per cent of the company’s 200 billion shares, raising $25.6bn from the initial public offering (IPO). 

The issue was oversubscribed more than 4.5 times with aggregate subscriptions amounting to SR446bn ($118.9bn). For the institutional tranche, the final value of subscriptions totalled $105.86bn. This represented an oversubscription of 620 per cent.


Vienna meeting agrees to further production cuts in 2020

On 6 December, Opec and a group of its allies led by Russia agreed to extend their existing production cut agreement of 1.2 million barrels a day (b/d) in the first quarter of 2020 by an additional 500,000 b/d. 

The bloc’s de facto leader, Saudi Arabia, has volunteered to cut its oil production by an extra 400,000 b/d, above and beyond the 500,000 b/d agreed by the Opec+ alliance, in an effort to achieve higher crude prices in the first quarter of 2020. 

Altogether, Opec and its allies will curb output by up to 2.1 million b/d, which is 900,000 b/d more than the deal struck by the alliance in July.


Riyadh cuts spending as deficit rises in 2020 budget

Saudi Arabia’s budget deficit is projected to rise by nearly 43 per cent in 2020 as lower oil prices and cuts to oil output hit the kingdom’s core income streams.

Announcing Saudi Arabia’s 2020 budget on 9 December, the Ministry of Finance said the kingdom’s budget deficit was set to rise to about SR187bn in 2020. As a percentage of GDP, this will see Saudi Arabia’s budget deficit rise to 6.4 per cent of GDP in 2020, more than one third higher than the 4.7 per cent figure in 2019. 

The projected rise puts pressure on the kingdom’s finances and Riyadh has responded by cutting its spending plans for the year to SR1.02tn ($272bn), which is about 2.6 per cent down on the estimated actual spending in 2019.


Gulf bloc members call for greater economic unity

The GCC summit in Riyadh, which was chaired by Saudi Arabia’s King Salman bin Abdulaziz on 10 December, called for greater regional economic and defence integration.

The final statement by GCC general secretary Abdullatif al-Zayani called for legislation to be finalised for financial and monetary unity by 2025. The statement also said military and security cooperation needs to be boosted to maintain regional security. The communique condemned attacks against Saudi Arabia in the past year, including coordinated missile and drone strikes against major oil facilities, which have been blamed on Iran. 

There was speculation that the summit would see a thawing in tensions in the GCC diplomatic dispute that has run since June 2017. However, there was no clear sign of any development on that issue.


Dubai and Sharjah vulnerable to UAE’s non-oil sector slowdown

Lower growth in the UAE’s non-oil sector economy will weigh heavily on revenue growth in Dubai and Sharjah, Moody’s Investors Service has said in a recent report. 

By contrast, Abu Dhabi is more insulated from these pressures because its non-oil revenues are relatively small compared to hydrocarbons and investment income from the Abu Dhabi Investment Authority, which comprise the vast majority of government revenues.

Moody’s Investors Service expects the slow-down to be protracted because of the soft labour market, structural constraints facing the UAE’s tourism and shipping sectors, and wage deflation, which is likely to feed through to residential rents and retail trade. 

New taxes coordinated at federal level, such as VAT, have been successful, but no new federal-level revenue measures are planned, apart from a small expansion of excise tax at the end of 2019. 


Algeria presses ahead with election amid protests

Algeria held a presidential election on 12 December, despite demonstrations against the poll led by protesters demanding wide-scale political reform. The five candidates, all erstwhile associates of deposed president Abdelaziz Bouteflika, are competing to replace the long-time strongman who was forced out of office by the military on 2 April 2019 amid popular anti-government protests.

Those in the running for the top office say the election was needed to help resolve the legitimacy crisis that has beset the country since July, with interim President Abdelkader Bensalah long exceeding his 90-day mandate.


Political crisis costing Lebanon more than $70m a day

Lebanon is losing more than $70m a day as a result of the political and economic crisis, the country’s ministers have said.

There has also been an alarming decline in imports and the 2019 budget deficit will be greater than expected. Meanwhile, private sector businesses have gathered to demand action and revealed the devastating effects of the crisis on their businesses. Many have been forced to cut wages or retrench staff. 

The country has been in turmoil since 18 October 2019, when protests began against the ruling elite. On 29 October, Prime Minister Saad Hariri and his government resigned, but replacements are yet to be named, leaving the economy and banking system in chaos.


Outlook for GCC banks stable amid solid economic growth

The outlook for GCC banks remains stable, underpinned by solid economic growth and the banks’ strong capital buffers, and substantial liquidity, Moody’s Investors Service has said in a report. “Government spending programmes will push average non-hydrocarbon GDP growth to 2.6 per cent in 2020, providing favourable operating conditions for the region’s banks,” said Nitish Bhojnagarwala, vice-president and senior credit officer at Moody’s. 

“Declining interest rates will start to pressure banks’ net interest margins, but margins will remain strong compared with global peers,” he said.

Loan performance will weaken modestly, but remain solid.


Egypt’s economic reforms continue to drive growth

Egypt’s economy is expected to continue its growth trend, but at a slower pace compared to previous years, the National Bank of Kuwait said in a report in early December.

During the first quarter of fiscal year 2019/20, the North African nation posted growth at 5.6 per cent, enabled by economic reforms backed by the Washington-based IMF.

Real GDP growth will remain robust at nearly 5.5 per cent in fiscal year 2019/20 and average about 5 per cent for the coming few years, boosted by a hike in capital spending, more improvement in the tourism sector and rising natural gas output.


Saudi Arabia’s Finance Ministry has said the government expects to generate investments worth SR14bn ($3.7bn) in the second and third rounds of the National Renewable Energy Programme, which is being overseen by the Renewable Energy Project Development Office. 

Bahrain joined China’s Belt and Road initiative when the Ministry of Housing formally signed a BD260m ($690m) deal on 8 December with Beijing-based China Machinery Engineering Corporation for the construction of more than 3,000 housing units at East Sitra. The deal is the first major construction contract secured by a Chinese contractor in Bahrain and comes with financing.

Saudi Arabia’s Royal Commission for Jubail & Yanbu is in talks with at least five potential investors that have expressed interest in setting up facilities within the upcoming Amiral petrochemicals derivatives complex in Jubail in the kingdom’s Eastern Province. The complex will feature a $5bn-worth petrochemical-producing facility.

Saudi Arabia is understood to be in direct negotiations with multiple international firms as part of the kingdom’s ambitious clean energy programme. According to a source familiar with the scheme, the negotiations have been ongoing since the start of the year. 

Board Report Jan 2020

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