March 2010

'With banks and private sector businesses continuing to linger on the sidelines of Saudi Arabia’s infrastructure expansion project, the government appears ready and willing to continue employing its financial clout to keep vital infrastructure projects on track' says a recent report by Banque Saudi Fransi. The report further adds that Saudi Public Investment Fund (PIF) and other state entities are taking an active role to plug gaps in project financing as bank credit lags.

During 2010, the Saudi government is expected to shoulder most of the recovery effort as private investors are on their guard and bank credit remains scarce. In February, the Saudi Council of Ministers asked PIF to extend interest free loans to expedite the completion of the 450 kilometer Haramain high speed railway project. The estimated US$7 billion railway project will connect Jeddah with the holy cities of Makkah and Madinah.

More recently, PIF has also gone through a revision in its mandate which allows the fund to lend for 20 years up from 15 years tenor and the cap on project lending has been revised upwards to 40% from 30%. This would enable PIF to finance water and power projects in the Kingdom.

The substantial holdings of foreign assets by the Saudi government enable it to increase expenditure on public projects. The Saudi Arabian Monetary Agency (SAMA) has followed a policy of investing surplus oil revenues into a variety of low-risk assets. This has allowed SAMA to generate liquidity and deploy domestically to support high levels of infrastructure spend.

The outlook for 2010 is positive for Saudi with government infrastructure spending leading the way for economic recovery. The private sector continues to be profitable and credit is expected to return albeit at a slower pace.

Source: Report by Banque Saudi Fransi

Globally, 2009 was the worst year for fundraising since 2004. A recent US survey shows that as many as 40% of LPs interviewed made no new commitments in 2009. This would explain the $246bn raised by 482 funds, down 61% from $636bn raised in 2008. The survey also suggests a broader shift away from mega-buyout funds to smaller mid-market and regionally focused vehicles despite buyout funds accounting for the majority of funds raised ($102bn) in 2009.

The pace of deal-making in the Middle East will continue to be sluggish in the first half of the year but is expected to increase in 2010 exceeding the 15 deals of 2009 but unlikely to surpass 2008 (50 deals) or 2007 (64 deals) levels. The increase will be driven partly by private companies across the region, with limited access to debt, seeking to raise equity instead. In fact several family conglomerates are already known to be in discussions to raise equity.

The most sought after assets are likely to be in the oil and gas, food and drink, healthcare and education sectors. These sectors have a positive outlook because of favourable demographics and/ or planned government spending. The geographic focus will increasingly shift away from the UAE to other MENA countries such as Saudi Arabia and Egypt as well as Turkey.

With increased visibility in the real economy and stock market volatility down from its peak of around 80 percent in late 2008 to nearer 20% in late 2009, the IPO market should begin to show signs of life. However valuations will remain depressed and credit scarce so don’t expect to see many exits.

In fact, the central thrust by most private equity firms will continue to be focusing on their portfolio entities. This is not surprising given the significant mark-to-market losses suffered by many PE funds during this crisis. According to research by the Monitor Group, Sovereign Wealth Funds’ (SWFs) investments in listed entities lost 47% of their value by June 2009 and there is nothing to suggest that private equity firms fared any better.

The realignment of ‘risk vs. return’ will force private equity managers to be more realistic about their investments and long-term focused on value creation.

Saudi Arabia plans to launch stock market index funds accessible to foreigners by the end of March in a bid to open up the Arab world's biggest bourse, the market regulator's chief said in remarks published on Sunday.

"We want to study experiences of many countries, which have allowed foreign investment in an organised way," Abdulrahman al-Tuwaijri, head of the Capital Markets Authority (CMA), was quoted as saying in business daily al-Eqtisadiah.

Earlier this month Tuwaijri said in a newspaper interview that Saudi Arabia was considering exchange-traded funds (ETFs) without giving a timeframe.

In 2008 the word's top oil exporter and OPEC member allowed so-called swap agreements between non-resident foreign investors and local intermediaries, permitting indirect foreign ownership on the bourse.

Previously foreigners could only invest in the Saudi stock market only through selected funds.

But large international investors such as pension funds have held off investment on a large scale, pending further steps to allow entry into the market and awaiting full ownership.

Tuwaijri hinted on Sunday that direct foreign investments were not being considered at present, as risky "hot" money would flow in.

John Sfakianakis, chief economist at Banque Saudi Fransi, said it was clear that Saudi Arabia was further opening up the bourse for foreigners through different tools but full ownership could not be expected yet.

"Saudi Arabia is one of the premiere frontier markets," Sfakianakis said. (Reuters)

Source: Arabian Business

The Government of Oman has announced an expansionary budget of RO7.2bn. The total planned deficit is RO800mn or approximately 3% of GDP. The deficit will largely be financed from current reserves.

Since close to 50% of Omani GDP is hydrocarbon-based, the oil price assumption is a critical factor. This year’s budget has been balanced assuming an oil price of $50 per barrel, versus $45 per barrel in the previous budget. This is not a forecast, just a conservative scenario, as most analysts are predicting oil at $70 per barrel and above.

According to the ministry, real GDP is set to grow at a rate of 6.1% per year, up from 3.7% during 2009, while the central bank plans to limit inflation to 3.5%. Expenditure on education, healthcare and development form 30% of the budget. 

This is the last budget of the planning period 2006-2010, in which one of the government’s top priorities was to expand the non-oil sector as Omani oil reserves are running out. It would seem there has been some success as the contribution of the oil sector to GDP has reduced from 83% in 2006 to 68% in 2010.

Source: Report by E&Y Oman

'Although competitiveness can sound like a negative word, it is in fact about teamwork, loyalty and helping other people' said Tony Blair while delivering his Keynote speech on the second day of the Global Competitiveness Forum (GCF) 2010 in Riyadh. GCF 2010 welcomed over 2,200 participants from all over the world. CEO’s, political leaders, international thought leaders, and media, joined the hundreds of attendees to discuss global competitiveness and today’s global issues.

The mission of the forum is to formally raise awareness and enthusiasm around competitiveness challenges, and to critically evaluate competitiveness theory and practice as related to International Trade, Regional Development, FDI, Environment, Innovation, Human Resources Development, Sustainability, Globalization, and the Micro- and Macroeconomic consequences of becoming globally competitive. GCF was founded in 2006 by Saudi Arabia General Investment Authority (SAGIA).

The theme of the 4^th Annual GCF was around 'Sustainable Competitiveness' being unanimously accepted as the ideal way to symbolize 2010 as the start of a new decade of thinking.

For further information visit: Global Competitiveness Forum