S&P expects Oman's GDP growth to reach 5%

Updated 23 June 2013
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S&P expects Oman's GDP growth to reach 5%

Standard & Poor's Ratings Services yesterday affirmed its "A/A-1" long- and short-term foreign and local currency sovereign credit ratings on the Sultanate of Oman. The outlook is stable. The transfer and convertibility (T&C) assessment remains "AA-".
The ratings are supported by Oman's strong net external and general government asset positions and prudent investment policies. They are constrained by our view of its heavy dependence on hydrocarbons and its challenging demographic profile; nearly 60 percent of the population is under 25 (mid-2011 official estimate).
It is also subject to geopolitical risk, similar to other sovereigns in the Gulf Cooperation Council (GCC). This is somewhat mitigated by the country's strong alliances with international powers, as well as its ability to maintain a neutral and independent stance in the region.
Policy setting and direction largely hinges on the sultan himself. "In our view, this places the effectiveness and predictability of policymaking at risk." Political institutions are at a nascent stage of development relative to nonregional peers rated in the "A" category. While the sultan has taken some measures to expand political participation, the system remains highly centralized, with limited accountability of institutions. Moreover, uncertainty over succession also poses political risks, in our view.
Oman's economy is performing well. "We expect real GDP growth to reach 5 percent this year, underpinned by an increase in oil production to an average of 0.94 million barrels per day (bpd) from 0.92 million bpd in 2012. We also believe growth in the nonoil economy will remain robust on high investment and public and private consumption. We estimate real per capita GDP at $ 21,600 in 2012."
Oman's annual average real GDP per capita growth of about 1 percent during 2006-2016 is low compared with peers. We attribute this low trend largely to Oman's fast population growth — 4.5 percent on average during 2005-2011. We note, however, that reported population figures might not be accurate. They have also fluctuated greatly in recent years, which could distort GDP per capita data. Oman attracts a large number of foreign workers who accounted for 86.5 percent of private sector employment (2011 official estimate); expatriates also accounted for 39 percent of the total population (mid-2011 estimate).
The government continued to build on its fiscal buffer last year. "Fiscal stimulus notwithstanding, the government posted a fiscal surplus that we estimate at 3.3 percent of GDP. Preliminary fiscal data indicate that government spending reached 43 percent of GDP last year, from 40 percent in 2011. We expect a larger surplus this year (4.2 percent of GDP) as the impact of one-off measures from 2011-2012 tapers off. We also base this estimate on Oman's 2013 oil export price remaining unchanged from last year at $ 110 per barrel." A risk to the government's fiscal performance is its reliance on volatile hydrocarbon revenue: 88 percent of total revenues in 2012. However, the government's large stock of liquid assets — at more than 25 percent of GDP — mitigates this risk.
"In our view, the government is becoming increasingly reliant on oil prices remaining high. Its initiative to expand public sector employment to generate jobs for Omanis, as well as its increased spending on benefits and social welfare and its large investment program, has increased this dependency. If oil prices were to drop, we believe that some of this spending would be difficult to curb. We note, however, that if government revenues fell short of spending needs over 2014-2015 it could draw down on previous surpluses. We view as likely the government continuing to issue bonds in domestic currency to help develop the domestic debt capital market. We expect the general government debt to expand by about 1 percent of GDP annually during 2013-2015."
The large oil windfall in recent years has helped further strengthen Oman's external position. "We estimate that the current account surplus reached 12.8 percent of GDP in 2012, and we believe this will continue this year at 11.3 percent. Oman is in a strong net creditor position; we estimate its narrow net external assets will average 89 percent of current account receipts (CARs) in 2013-2015." Similarly, the country's external liquidity position is ample with gross external financing needs at about 81 percent of CARs and usable reserves during 2013-2015.
Notwithstanding its external flexibility, monetary policy is limited in Oman by the peg of the Omani rial to the US dollar. Furthermore, the transmission of monetary policy is constrained by an underdeveloped local capital market.
The stable outlook balances Oman's strong fiscal and external position — which provides a more-than-ample buffer to withstand external shocks — against risks from structural and institutional weaknesses, which could derail policymaking; a difficult demographic profile that could challenge economic policy; and limited monetary policy flexibility.
"We could consider lowering the ratings if the pace of economic growth, diversification, and structural reform is not sufficient to increase per capita real GDP growth to a pace comparable to peers. Downward pressure on the ratings could also build from a protracted weakening in fiscal performance, for example as a result of continued increases in spending on the public-sector wage bill, which could lead to an increase in government debt and a fast drawdown of government assets.
"We could consider an upgrade if the underpinnings of economic growth strengthen, raising per capita income levels and addressing social challenges, including unemployment."


Saudi-backed SoftBank to ramp up tech investment

Updated 20 June 2018
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Saudi-backed SoftBank to ramp up tech investment

  • SoftBank CEO Masayoshi Son to step up company's "unicorn hunting" investment strategy
  • Saudi Arabia's PIF has contributed $45 billion to SoftBank's Vision Fund

LONDON: Japanese conglomerate SoftBank will double down on its ambitious tech investment strategy, in a move that could create opportunities for further collaboration with Saudi Arabia’s Public Investment Fund (PIF).
SoftBank — which owns Japan’s third-largest telecoms operator — has emerged in recent years as one of the world’s largest tech investors, acquiring stakes in companies including Chinese e-commerce giant Alibaba, and UK chipmaker ARM Holdings.
It last year launched the $100 billion Vision Fund, boosted by a $45 billion investment from PIF. It attracted $93 billion in funds last year, aided by contributions from Abu Dhabi’s Mubadala Investment Company, Apple, Foxconn and others, making it the world’s largest buyout fund.
The Vision Fund has invested in disruptive firms, especially those in the technology space, including Swiss pharmaceuticals startup Roivant, office space company WeWork, and enterprise messaging service Slack.
CEO Masayoshi Son signaled that such dealmaking will become even more of a focus for SoftBank.
“I have spent 97 percent of my time on managing the telecoms business and only 3 percent on investing,” he told investors at the group’s annual meeting on Wednesday, Reuters reported.
Reversing that balance will allow SoftBank to grow faster, he said.
Son’s comments fit with a transformation underway at SoftBank from a domestic telecoms firm to “unicorn hunter” — as Son termed it — focusing on late-stage startups around the world.
Last month, SoftBank invested $2.25 billion in GM Cruise, the carmaker’s autonomous vehicle unit, complementing its shareholdings in China’s Didi Chuxing, the world’s largest ride-sharing app, as well as rivals Uber, Grab and Ola.
The Vision Fund will initially invest $900 million in GM Cruise Holdings, investing the remaining $1.35 billion when GM’s Cruise AVs are ready for commercial deployment. The investment gives the Vision Fund a 19.6 percent stake in GM Cruise.
Saudi Arabia’s PIF has been key to SoftBank’s tech investment strategy with its contribution to the Vision Fund, with the Kingdom also benefiting directly from partnerships with SoftBank.
Son said in November that SoftBank planned to invest as much as $25 billion in the Kingdom in the next three to four years, and aimed to deploy up to $15 billion in Neom, a futuristic city to be built on the Red Sea coast.
PIF and the Vision Fund in March announced a partnership to build the world’s largest solar project in Saudi Arabia, with a capacity of up to 200 gigawatts, in line with the Kingdom’s solar ambitions as set out in Vision 2030.
The agreement will establish an electricity generation company in Saudi Arabia, and will commission two solar plants with a capacity of 3GW and 4.2GW by the end of next year. It envisages localizing a significant portion of the renewable energy value chain in the Saudi economy, including research and development and the manufacturing of solar panels.
SoftBank shareholders on Wednesday approved the appointment of three executive vice presidents — SoftBank unit Sprint Corp’s former chief executive, Marcelo Claure, and former bankers Katsunori Sago and Rajeev Misra.
Bolivian-born billionaire Claure was appointed SoftBank’s chief operating officer in May, tasked with driving cooperation between the group’s portfolio companies. Former Goldman Sachs executive Sago became chief strategy officer on Wednesday and will focus on group investment. Misra runs the Vision Fund.
Son yesterday bemoaned the so-called conglomerate discount weighing on SoftBank’s shares at its investor meeting.
He said when the market value of stakes the firm holds in companies such as Alibaba Group Holding and ARM Holdings are taken into account, SoftBank’s shares should be trading above 14,000 yen ($127), rather than about 8,000 yen currently.