Kingdom’s GDP seen at healthy 6% in 2012

Updated 11 September 2012
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Kingdom’s GDP seen at healthy 6% in 2012

JEDDAH: The global economic picture is expected to remain murky in H2, 2012, as major economies continue to tread water without some discernible uptrend. Employment growth will curtail as Europe grapples with austerity and American businesses maintain tight purse strings. In this context, the International Monetary Fund (IMF) expects Europe to contract -0.3 percent in 2012, followed by a modest +0.7 percent growth in 2013. Chinese growth is expected to significantly slowdown in 2012 to +8.0 percent from +9.2 percent in 2011. Saudi Arabia's GDP growth will be slower but still healthy at +6.0 percent in 2012, according to a report by Riyad Capital.
For 2013, although the IMF is expecting +4.1 percent GDP growth for Saudi Arabia, Bloomberg consensus forecast is +3.1 percent. Overall for the world economy 2013 should be better than 2012, however skepticism is growing fueled by the uncertain future for the euro and its unpredictable impact.
Oil prices
Given the weaker economic environment, oil price moved from a high of about $110 a barrel to a low of $78 a barrel in the first half of 2012. In the past three months, prices staged a recovery and found support in the $85 to $95 range despite an absence of durable change in the economic environment. Price changes are partially a result of inverse movements of the US dollar, which gained strength against major currencies in early summer and subsequently eased.
The International Energy Agency (IEA) expects non-OECD oil demand to surpass that of OECD in 2013, comprising some 45.7 mbd out of the total 90.5 mbd. This, Riyadh Capital said has significant implications for oil exporters such as Saudi Arabia indicating a more diversified market for their product. If Western economies stagnate, oil demand will be supported through developing economies. Even with the interdependence of economies, we envision limited prospects of sustained declines in oil prices. Any correction will be welcomed through higher consumption. As such, Oxford Economics forecasts Saudi oil production to continue at +2.1 percent CAGR through 2020 reaching 11.7 mbd from the current 9.9 mbd. However, IMF forecasts highlight a troubling trend of declining revenues for Saudi Arabia over the next five years. Revenues are projected to decline from $351 billion in 2012 to $296 billion by 2017.
The report said employment growth for young Saudis has come under the spotlight in the past two years as more state resources are allocated to education and training programs. The total population is expected to register +2.1 percent CAGR through the next five years reaching nearly 32 million, providing an expanding retail target market for banks.
Job creation
Success at finding jobs for the young should provide meaningful boost in demand for banking products such as car and personal loans. The government has managed an expansionary policy in the past three years thanks to its SR 2.4 trillion foreign reserves to spur job and infrastructure growth. However the pace of that expenditure may come under pressure on declining revenues which could potentially curtail the effectiveness of some of the programs.
Low rates
The prevailing low rate environment pressured sector revenues in 2011 which showed signs of improvement in 2012 as volume compensated for yields. Riyad Capital expects rates to remain benign through 2013 inline with facilitative policy adopted by the US. This could render Saudi banks heavily dependent on volume growth to boost revenues, which in our view will become increasingly difficult. Consequently, banks will need to raise their risk appetite in search of yields. Second, with European debt markets rattled, yields on investment grade securities have hit record lows further squeezing banks' investment income. Compounded by dwindling supply of Saudi government bonds, the banks will need to source alternative vehicles to park liquidity such as high grade corporate issues and sukuk.


Foreign investors hope India dials back policy shocks after Modi win

Updated 24 May 2019
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Foreign investors hope India dials back policy shocks after Modi win

  • Modi’s pro-business image and India’s youthful population have lured foreign investors
  • After Modi’s win, about a dozen officials of foreign companies in India and their advisers said they hoped he would ease his stance and dilute some of the policies

NEW DELHI: Foreign companies in India have welcomed Prime Minister Narendra Modi’s election victory for the political stability it brings, but now they need to see him soften a protectionist stance adopted in the past year.
Modi’s pro-business image and India’s youthful population have lured foreign investors, with US firms such as Amazon.com , Walmart and Mastercard committing billions of dollars in investments and ramping up hiring.
India is also the biggest market by users for firms such as Facebook Inc, and its subsidiary, WhatsApp.
But from around 2017, critics say, the Hindu nationalist leader took a harder, protectionist line on sectors such as e-commerce and technology, crafting some policies that appeared to aim at whipping up patriotic fervor ahead of elections.

Opinion

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“I hope he’s now back to wooing businesses,” said Prasanto Roy, a technology policy analyst based in New Delhi, who advises global tech firms.
“Global firms remain deeply concerned about the lack of policy stability or predictability, this has sent a worrying message to global investors.”
India stuck to its policies despite protests and aggressive lobbying by the United States government, US-India trade bodies and companies themselves.
Small hurdles
Modi was set to hold talks on Friday to form a new cabinet after election panel data showed his Bharatiya Janata Party had won 302 of the 542 seats at stake and was leading in one more, up from the 282 it won in 2014.
After Modi’s win, about a dozen officials of foreign companies in India and their advisers told Reuters they hoped he would ease his stance and dilute some of the policies.
Other investors hope the government will avoid sudden policy changes on investment and regulation that catch them off guard and prove very costly, urging instead industry-wide consultation that permits time to prepare.
Protectionism concerns “are small hurdles you have to go through,” however, said Prem Watsa, the chairman of Canadian diversified investment firm Fairfax Financial, which has investments of $5 billion in India.
“There will be more business-friendly policies and more private enterprise coming into India,” he told Reuters in an interview.
Tech, healthcare and beyond
Among the firms looking for more friendly steps are global payments companies that had benefited since 2016 from Modi’s push for electronic payments instead of cash.
Last year, however, firms such as Mastercard and Visa were asked to store more of their data in India, to allow “unfettered supervisory access,” a change that prompted WhatsApp to delay plans for a payments service.
Modi’s government has also drafted a law to clamp similar stringent data norms on the entire sector.
But abrupt changes to rules on foreign investment in e-commerce stoked alarm at firms such as Amazon, which saw India operations disrupted briefly in February, and Walmart, just months after it invested $16 billion in India’s Flipkart.
Policy changes also hurt foreign players in the $5-billion medical device industry, such as Abbott Laboratories, Boston Scientific and Johnson & Johnson, following 2017 price caps on products such as heart stents and knee implants.
Modi’s government said the move aimed to help poor patients and curb profiteering, but the US government and lobby groups said it harmed innovation, profits and investment plans.
“If foreign companies see their future in this country on a long-term basis...they will have to look at the interests of the people,” Ashwani MaHajjan, an official of a nationalist group that pushed for some of the measures, told Reuters.
That view was echoed this week by two policymakers who said government policies will focus on strengthening India’s own companies, while providing foreign players with adequate opportunities for growth.
Such comments worry foreign executives who fear Modi is not about to change his protectionist stance in a hurry, with one offical of a US tech firm saying, “I’d rather be more worried than be optimistic.”