2015 Budget: Countercyclicality and firepower

Updated 25 December 2014

2015 Budget: Countercyclicality and firepower

The main message of one of the most important documents of the year, the budget, is that Saudi Arabia will continue to boost the economy.
All cylinders have been on fire for some years now.
The question in everyone’s mind is what will the fiscal policy look like after oil prices have plunged by more than 30 percent over the recent months?
The answer is simple: it will keep on spending on the areas that are strategic and essential for sustainable growth, education, health care, infrastructure and mega projects, as well as security and defense.
This brings total capital spending between 2010 and 2014 to SR1.42 trillion, in line with the SR1.44 trillion in the 9th Five-Year Development Plan (a 67 percent increase compared to the 2005-09 Development Plan).
Current expenditures, which have risen over the last years, will receive less of a boost in 2015 given that its size has grown to levels equal to the size of the country’s actual 2004 budget.
The expected deficit for 2015 is very manageable, at 5 percent of GDP, which is 5 percent of the country’s foreign reserves, and even if overspending is carried out, there will be plenty of firepower to support such a policy.
There are enough assets accumulated for Saudi Arabia to run a 5 percent deficit for the next 20 years.
Historically, Saudi Arabia has been managing comfortably deficits in the single digits with some exceptions such as the mid-1980s and the early 1990s.
Revenues are always conservatively calculated and it could be that in 2015 oil income which represented 89 percent of total government income would be higher.
Although oil prices have been exhibiting a lot of volatility, there is plenty of positive news in 2015 that would push oil prices higher.
Oil prices have been exaggerated on the downside and will begin to recover in 2015 and beyond, as Emerging Market economies make a strong comeback, the US and China continue to show solid growth prospects and Europe and Japan recover.
Saudi Arabia’s total reserves are close to the size of its total economy which allow for plenty of firepower deployment in more revenue challenging days.
The nonoil economy in 2014 grew at a spectacular 8.2 percent which is among the highest in emerging markets.
This translates into more jobs for Saudis and great expansion and deepening of the private real economy with low inflation.
For 2015, the economy is expected to grow 3 percent with inflation at 2.6 percent and nonoil growth at 6.7 percent.
Local equities should see a year of growth given the 2015 budget given that consumption and demand will prevail solidly.
At current valuations, there are plenty of companies that look attractive.
The opening up of the market should provide impetus for growth in the first half of 2015.
The 2015 budget is setting the economy on a solid footing that allows it to grow notwithstanding the temporary oil revenue challenges.

John Sfakianakis is GCC director at Ashmore Group.

Indonesia’s Go-Jek close to profits in all segments

Updated 18 August 2018

Indonesia’s Go-Jek close to profits in all segments

  • Go-Jek is Indonesia's first billio-dollar startup
  • Ride haling app evolves into online payment platform

JAKARTA: Go-Jek, Indonesia’s first billion-dollar startup, is “extremely close” to achieving profitability in all its segments, except transportation, its founder and CEO Nadiem Makarim told Reuters.

Launched in 2011 in Jakarta, Go-Jek — a play on the local word for motorbike taxis — has evolved from a ride-hailing service to a one-stop app allowing clients in Southeast Asia’s largest economy to make online payments and order everything from food, groceries to massages.

“We’re seeing enormous online to offline traction for all of our businesses and are close to being profitable, outside of transportation,” said the 34-year old CEO.
The startup is expected to be fully profitable “probably” within the next few years, Makarim added.

Already a market leader in Indonesia, where it processes more than 100 million transactions for its 20-25 million monthly users, Go-Jek is now looking to expand in Southeast Asia.

Ride hailing services in Southeast Asia are expected to surge to $20.1 billion in gross merchandise value by 2025 from $5.1 billion in 2017, according to a Google-Temasek report.

Go-Jek said in May it would invest $500 million to enter Vietnam, Singapore, Thailand and the Philippines, after Uber struck a deal to sell its Southeast Asian operations to Grab — the bigger player in the region.

Go-Jek is seeing strong funding interest from its backers as it targets an aggressive expansion, Makarim said.

“Since its Aug. 1 launch, the app has already grabbed 15 percent of market share in Ho Chi Minh,” Makarim said. The firm this week opened recruitment for motorcycle drivers in Thailand.

The startup expects anti-monopoly concerns swirling around the Grab-Uber deal, which Singapore said had substantially hurt competition, to help clear a path for its expansion.

“We’re bringing back choice. The Singapore government is particularly eager to bring back competition,” Makarim said, adding that the order of overseas rollouts had not been set.

Go-Jek’s offshore push comes at a time when Singapore-based Grab is stepping up funding to expand in Indonesia and transform itself into a consumer technology company, starting with a partnership with online grocer HappyFresh.

“Mimicking Go-Jek’s strategy is the highest form of flattery,” laughed Makarim.

Grab told Reuters in a statement, “The super app strategy has been around for a while now and no Southeast Asian player can claim to have pioneered it.” The company also said Grab has not lost market share in Ho Chi Minh since August, but declined to provide market share data.

Makarim believes Go-Jek’s understanding of food merchants will give it an edge over Grab, which counts investors such as Chinese ride-hailing firm Didi Chuxing and Japan’s SoftBank Group Corp. among its backers.

Makarim, who sees food delivery as Go-Jek’s core business, said he was not concerned about funding, without giving details.

Go-Jek was reported in June as being in talks to raise $1.5 billion in a new funding round and was valued at about $5 billion in a prior fundraising, sources have told Reuters. The firm had said in March it was considering a domestic IPO.

Makarim noted Go-Jek’s backers were sharing both capital and expertise. The company is collaborating with Alphabet Inc’s Google on platform mobility, Tencent on payments strategy, JD.com on logistics operations, and Meituan Dianping on merchant transactions and deliveries.

Go-Jek has set up a venture capital arm, Go-Ventures, to invest in startups in Southeast Asia “with strategic importance to our business,” the CEO said.