Covid or not, the Arabic world between resilience and economic warfare

World Bank Foresees 20% drop in the remittances to MENA region in 2020 

 Remittances to the Middle East and North Africa region are projected to fall by 19.6% to US$ 47 billion in 2020, following the 2.6% growth seen in 2019, said the World Bank in a recent report. The anticipated decline is attributable to the global slowdown as well as the impact of lower oil prices in GCC countries. Remittances from the Euro Area would also be impacted by the area’s pre-COVID-19 economic slowdown and the depreciation of the euro against the US dollar. In 2021, remittances to the region are expected by the World Bank to recover, albeit at a slow pace of around 1.6% due to projected moderate growth in the Euro Area and weak GCC outflows.

The cost of sending US$ 200 to the MENA region was 7%, largely unchanged from the previous year. Costs vary greatly across corridors. The cost of sending money from high-income OECD countries to Lebanon continues to be in the double digits. Sending money from GCC countries to Egypt and Jordan costs between 3% to 5% in some corridors. The Saudi Arabia to Syria corridor has experienced a dramatic fall in costs as the civil war in Syria has receded, said the World Bank.

Global remittances are projected by the World Bank to decline sharply by about 20% in 2020 due to the economic crisis induced by the COVID-19 pandemic and shutdown. The projected fall, which would be the sharpest decline in recent history, is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country. Remittances to low and middle-income countries (LMICs) are projected to fall by 19.7% to US$ 445 billion, representing a loss of a crucial financing lifeline for many vulnerable households, as per the report.

Studies show that remittances alleviate poverty in lower- and middle-income countries, improve nutritional outcomes, are associated with higher spending on education, and reduce child labor in disadvantaged households. A fall in remittances affect families’ ability to spend on these areas as more of their finances will be directed to solve food shortages and immediate livelihoods needs, said the World Bank.

Remittance flows are expected to fall across all World Bank Group regions, most notably in Europe and Central Asia (-27.5%), followed by Sub-Saharan Africa (-23.1%), South Asia (-22.1%), the Middle East and North Africa (-19.6%), Latin America and the Caribbean (-19.3%), and East Asia and the Pacific (-13%).

The large decline in remittances flows in 2020 comes after remittances to LMICs reached a record US$ 554 billion in 2019. Even with the decline, remittance flows are expected to become even more important as a source of external financing for LMICs as the fall in foreign direct investment is expected to be larger (more than 35%), added the World Bank. In 2019, remittance flows to LMICs became larger than FDI, an important milestone for monitoring resource flows to developing countries.

In 2021, the World Bank estimates that remittances to LMICs will recover and rise by 5.6% to US$ 470 billion. The outlook for remittance remains as uncertain as the impact of COVID-19 on the outlook for global growth and on the measures to restrain the spread of the disease. In the past, remittances have been counter-cyclical, where workers send more money home in times of crisis and hardship back home. This time, however, the pandemic has affected all countries, creating additional uncertainties.

The global average cost of sending US$ 200 remains high at 6.8% in the first quarter of 2020, only slightly below the previous year. Sub-Saharan Africa continued to have the highest average cost, at about 9%, yet intra-regional migrants in Sub-Saharan Africa comprise over two-thirds of all international migration from the region, as per the report.

Standar & Poor’s (S&P) revises to « negative » from « stable » its outlook on Sharjah

Standard & Poor’s (S&P) revised to “negative” from “stable” its outlook on Sharjah, a member of the United Arab Emirates. At the same time, the rating agency affirmed the long-term and short-term foreign and local currency sovereign credit ratings at “BBB/A-2”.

The “negative” outlook reflects heightened economic, fiscal and external risks, related to the COVID-19 pandemic and recent oil price crash. The rating agency believes that the economic contraction in 2020 and risks to recovery in 2021 could weigh on Sharjah’s fiscal position, and that it is exposed to external pressures affecting the UAE.

Standard & Poor’s forecasts a 3% contraction of the real economy in 2020, resulting from government- mandated lockdowns in the emirate and the region in an effort to slow the spread of COVID-19. In addition, lower oil prices will weigh on economic activity in Sharjah. Positively, the government has announced a number of stimulus measures aimed at residents and businesses, including reductions and freezes of fees and fines.

Despite the exceptionally strong net external asset position of the UAE, S&P believes that the collapse of oil prices and weaker regional trade from the COVID-19 pandemic will pressure the current account position, with an expected deficit of 2.2% of GDP in 2020. Should lower oil prices and the expected lower volumes from the recently agreed OPEC+ deal persist along with weaker regional demand, UAE-wide export receipts will remain low, keeping external financing needs under pressure.

Standard & Poor’s expects the government’s stimulus measures to decrease revenue and increase expenditure. In addition to these measures, weaker economic activity in the emirate will also contribute to a deficit increase from already elevated levels. For 2020, S&P expects a deficit of 7.2% of GDP, up from 6.2% in 2019. Revenue collection remains low compared with all other rated sovereigns, averaging about 12% of GDP, leaving Sharjah with little revenue flexibility. The elevated deficit in 2019 and expected deficit in 2020 have accelerated growth in Sharjah’s debt and interest burdens, raising the risk that debt- servicing costs will increase beyond our current expectations.

Uncertainty over the duration and full effects of COVID-19 in Sharjah raises the risk of materializing contingent liabilities from the emirate’s large state-owned enterprise (SOE) sector, which would negatively affect the government’s fiscal position.

Despite the rating agency’s expectation of an economic contraction in 2020, Sharjah’s economy remains relatively diversified compared with other sovereigns in the region, which should support a recovery in growth over the forecast period.

MENA Countries should invest US$ 148 Billion annually through 2050 to mitigate climate change as per IRENA

 

The Middle East and North Africa (MENA) region will have to invest US$ 148 billion per annum through 2050 to decarbonize the energy system in line with the Paris Agreement, according to the IRENA’s Global Renewables Outlook 2020 report.

The report said the region would need to invest every year up to 2050 nearly US$ 18 billion in renewables, US$ 96 billion in energy efficiency, US$ 5 billion in electrification of heat and transport, US$ 23 billion in power grids and flexibility and US$ 6 billion in areas like electrolyzers for hydrogen production, biofuel supply, and carbon capture and storage combined with improved materials for industry, to achieve the energy transformation needed to mitigate climate change.

A climate-safe future calls for the scale-up, and redirection, of investment to clean energy technologies. Fossil-fuel investments need to be shifted to renewables and energy efficiency instead, while subsidies to fossil fuels must be phased out, the report said.

Overall, globally, the total investment in the energy system in the renewable energy-driven Transforming Energy Scenario would need to reach US0 $110 trillion by 2050, or around 2% of average annual GDP over the period. Of that total, over 80% needs to be invested in renewables, energy efficiency, end-use electrification and power grids and flexibility, as per IRENA.

In annual terms, US$ 3.2 trillion needs to be invested in the global energy system every year to 2050, which compares to recent historical investment (2014-2018) in the energy system of around US$ 1.8 trillion per year and US$ 2.9 trillion per year in the current (up to April 2019) Planned Energy Scenario, the report said.

The report underlined that every dollar spent on energy transition would bring a payback of between US$ 3 and US$ 8 in reduced environmental and health externalities. It said the energy transition will result in more jobs gained than lost with jobs in renewables quadrupling to 42 million globally by 2050.

The MENA region, the report said, would create 1.51 million jobs in the renewable sector compared to 78 million lost in the fossil fuel sector.


DUBAI Residential property demonstrate resilient start to 2020

Dubai’s real estate market displayed several encouraging signs over Q1, including an annual rise in sales volume and a slowdown in the pace of value declines across the Emirate. This positive sentiment, however, is likely to be tempered in the near-term by the COVID-19 crisis, according to the latest Observer: Dubai Residential Report Q1 2020 from Chestertons.

A total of 4,458 new units were launched in Q1 across all freehold areas, a near 30% decrease when compared to Q1 2019 when 6,328 units were launched. This slowdown is further compounded when compared to the Q1 2018 data, with over 12,000 units launched in Dubai, the report noted.

Dubai’s residential sector demonstrated a resilient start to 2020, with a year-on-year increase in sales volume reflecting more positive buyer sentiment. While residential values continued to fall over the first quarter, the rate of decline lowered on both an annual and quarterly basis. The drop in new launches was also a welcome move forward for a sector where oversupply has long driven down values, as per the same source.

It is likely that COVID-19’s impact will be reflected in second-quarter figures, with disruption to the transactional process itself, coupled with an overall economic contraction, likely to cause near-term challenges, according to Chestertons.

SAUDI GROUP to build two petrochemical units for US$ 1.8 billion

 Saudi-based Advanced Petrochemical Company said it signed an agreement with leading South Korean group SK Gas for the construction and operation of two major petrochemical facilities – a propane dehydrogenation (PDH) and a polypropylene unit – in the Kingdom at an investment of US$ 1.8 billion.

The Saudi group said, as per the deal, its subsidiary Advanced Global Investment Company (AGIC) will set up a new joint venture, Advanced Polyolefins Company, along with the Korean firm for the smooth operation of these two plants being set up at Jubail Industrial City.

The PDH plant will boast a total capacity of 843,000 tons per annum of propylene, while the PDH facility will manufacture around 800,000 tons per annum of polypropylene.

According to AGIC, the entire project will be financed 25% by equity from shareholders and remaining 75% will be financed by JV Co through borrowing from lenders. Under this agreement, AGIC will own 85% equity stake in JV Co which will be financed by Advanced while the remaining 15% will be owned by SKGP.

AGIC already has signed a license agreement with Lummus Technology, US for the supply of Catofin Technology for the 843 Kilo tons per annum (KTA) PDH plant besides two other licence pacts with Basell Poliolefine Italia for the supply of Spheripol Technology and Spherizone Technology for two PP plants with capacity of 400 KTA each.

The Saudi group has already signed up project management consultants for the project, it added.

Investcorp  buys German Cybersecurity Firm Avira 

German cybersecurity firm Avira said it agreed to be acquired by US$ 31 billion alternative investment manager Investcorp. The deal to buy Avira, which was founded in 1986, is worth US$ 180 million. It is subject to anti-trust approval.

Arabtec Unit wins US$ 57 Million Abu Dhabi construction projects 

Arabtec Holding, a contractor for social and economic infrastructure, said its wholly-owned subsidiary, Target Engineering, secured two key contracts worth AED 210 million (US$ 57 million) in the UAE.

The first one, an AED 84 million contract, was awarded by ADNOC Offshore to carry out the engineering, procurement, construction and commissioning (EPCC) works for the replacement of existing Slug Catchers, static equipment used in the upstream oil production facilities to minimize the slug from oil and gas pipelines, at the Satah Plant on Zirku Island, Abu Dhabi.

This award is in line with the ADNOC group’s strategic priority to diversify its backlog into different sectors, including the industrial sector.

Target Engineering said it is set to start work on the project immediately and will complete it by the first quarter of 2022. The other contract won by the Arabtec unit is an AED 126 million (excluding main consultant’s fees) deal for the construction of a mixed-use development, Sunset Square, in the UAE capital.

Target’s scope of work includes the construction of a 19-storey commercial tower with a total built-up area of 27,000 square meters. Work will start soon on the project and is due for completion within 30 months, it added.

VA TECH WABAG Wins plant O&M contract

VA Tech Wabag, one of the leading water and waste water treatment companies, said it secured a five- year contract to operate and maintain the Al Madina Al Shamaliya (AMAS) (Madinat Salman) sewage treatment plant in Bahrain.

The BHD 4.5 million (US$ 11.8 million) deal was awarded by Ministry of Works, Municipalities Affairs and Urban Planning (MoW) in Bahrain towards operation, maintenance and management of the Madinat Salman sewage treatment plant (STP) and a long sea outfall for a period of five years. With this new order, the company’s O&M order book has strengthened, which would help in the improvement of cash flows and better revenue growth.

VA Tech Wabag is an India-based company, engaged in the business of water treatment field. The company’s principal activities include design, supply, installation, construction and operational management of drinking water, wastewater treatment and industrial water treatment as well as desalination plants.

UAE-Based UNIQUE GROUP INK partnership deal with british TUGDOCK

Integrated subsea and offshore solutions provider, Unique Group, entered into a new partnership deal with floating dry dock innovators, Tugdock, by providing their Seaflex brand buoyancy bags for the Tugdock systems and also by representing the product internationally through the company’s wide network.

Designers and manufacturers of a brand-new, patented modular floating dry dock concept, Tugdock’s system comes in sizes ranging from 12m x 12m to 100m x 100m with a total lift capacity up to 15,000 tons, and is able to lift vessels and other floating structures clear of the water at a fraction of the cost of standard dry docks, as per a top company official.

Al Fahim Group and Group PSA to launch Opel in Dubai and Northen Emirates 

 UAE’s Al Fahim Group collaborated with Groupe PSA to acquire the exclusive distribution of Opel vehicles in Dubai and the Northern Emirates. The deal reiterated the company’s commitment to enhance innovation and technology and boost the economy through job creation in the UAE.

Opel’s brand values will form the core of customer service for Al Fahim to focus on regional expansion and growth and target a gradually increasing market share. The company also aims to open two more showrooms and two new service showrooms in the next five years, as per a top company official.

Kuwait National Petroleum completes big biofuels project 

Kuwait National Petroleum Corp (KNPC) announced the completion of its biofuels project after the successful launch of the last two production units coming on-stream. The two new coal and naphtha hydro treating units will produce 37,000 and 8,400 barrels per day (bpd) of oil equivalent respectively, as per a top KNPC official.

The two refineries are undergoing upgrades and expansion as part of the Clean Fuels Project (CFP) with a focus on producing higher-value products such as diesel and kerosene for export, as per the company’s CEO.

Upon completion, Al Ahmadi refinery, which consists of 31 units, will have a production capacity of 364,000 bpd.

The cost of the biofuels project reached KWD 4.6 billion (US$ 14.7 billion), as per a company official.

Fixed income markets:

Activity in MENA bond market skewed to the upside, tracking US treasuries move

Activity in MENA fixed income markets remained mostly skewed to the upside this week, tracking US Treasuries move after US oil futures contract plummeted below zero for the first time in history and recent University of Michigan data showed a deterioration in the US consumer confidence in April 2020.

In the Saudi credit space, sovereigns maturing in 2025 and 2030 registered price gains of 0.38 pt and 0.50 pt respectively this week. Prices of Aramco’24 improved by 1.21 pt. STC’29 closed up by 0.89. SABIC’28 posted price rises of 0.38 pt. SECO’24 was up by 0.36 pt. Regarding plans for new issues, the Saudi Finance Minister said that the Kingdom may borrow an extra US$ 26 billion this year and would draw down a maximum of US$ 32 billion from its reserves to finance a government deficit caused by lower oil prices and the coronavirus crisis. Also, Arab Petroleum Investments Corporation hired Citi, Goldman Sachs and Standard Chartered to arrange investor meetings ahead of a potential US dollar bond issue that could be launched in the second quarter of the year 2020, subject to market conditions.

In the Kuwaiti credit space, sovereigns maturing in 2027 were up by 0.57 pt week-on-week. Prices of KIPCO’27 declined by 3.14 pts. Standard and Poor’s lowered its global scale ratings on KIPCO to “BB+/B” and its regional scale rating to “gcA”, with a “negative” outlook. S&P said that it has lowered KIPCO’s rating because the latter has seen its Loan-To-Value ratio (LTV) deteriorate sharply and the rating agency sees as uncertain that it would be able to sell a partial stake in Dubai-based OSN. The “negative” outlook reflects S&P’s view of significant pressures on the company’s LTV and portfolio credit quality, as well as uncertainty about its liquidation of assets and the capital injection.

In the Abu Dhabi credit space, sovereigns maturing in 2024 and 2029 posted weekly price expansions of 0.50 pt and 1.25 pt respectively. Mubadala’24 traded up by 1.22 pt. Prices of ADNOC’29 increased by 1.56 pt. Etisalat’24 was up by 0.18 pt. Taqa’26 saw price improvements of 1.13 pt. As to papers issued by financial institutions, Al Hilal Bank’23 closed up by 1.03 pt. Prices of First Gulf Bank’24 rose by 0.84 pt. ADCB’23 posted price expansions of 1.41 pt.

In the Dubai credit space, sovereigns maturing in 2029 were up by 2.74 pts this week. Prices of DP World’30 increased by 0.58 pt. Emirates Airline’28 closed up by 2.55 pts. Amongst financials, prices of Emirates NBD Perpetual (offering a coupon of 6.125%) increased by 1.34 pt. DIB Perpetual (offering a coupon of 6.75%) traded up by 1.93 pt.

All in all, regional bond markets saw mostly upward price movements this week, as investors flocked to safe-haven assets on growing fears over the impact of the coronavirus pandemic on global economic activity and oil market.

 

Ahmed GRAOUCH

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