IMF says Saudi Arabia can relax fiscal controls ‘from time to time’

Jihad Azour, the International Monetary Fund’s regional director, talks with reporters in Dubai on Tuesday. (AP)
Updated 02 May 2017
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IMF says Saudi Arabia can relax fiscal controls ‘from time to time’

The International Monetary Fund (IMF) believes that Saudi Arabia can afford to relax its tough fiscal stance “from time to time,” like in the decision last week to reinstate benefits to some government workers.
Jihad Azour, the new IMF director for the Middle East and Central Asia, told reporters in Dubai at the unveiling of the fund’s regional economic outlook for the Middle East that he believed the Saudi commitment to fiscal balance was still intact after the benefits move.
“From time to time, you can allow some fine-tuning in a program this big. The government has confirmed that a balanced budget is still the target for 2020. I think you can allow some slippage in a program of such magnitude,” Azour said.
Saudi Arabia launched a strategy to transform the economy of the Kingdom in its Vision 2030 plan, which aims to reduce its dependency on oil revenue and increase private-sector growth.
However, Azour warned that there was a danger of “reform fatigue” in the strategy. “One of the risks is that fatigue sets in. It is an ambitious program of reform and diversification, but the government needs to prioritize its targets and implement them,” he added.
The IMF also believes that economic growth will be weaker this year. It recently downgraded growth to 0.4 percent this year and 1.3 percent in 2018. A team of IMF analysts is currently in the Kingdom working on a new assessment, Azour said.
But the outlook for Saudi Arabia, and the wider Middle East and North Africa (MENA) region, is improving. “Things are looking up and external conditions have improved. The reforms that have been undertaken in the region are beginning to bear some fruit,” Azour said.
The improved economic outlook was because of higher growth in the rest of the world and rising commodity prices, though the IMF does not believe there is much upside in the crude oil price. It sees $55 per barrel as the average price this year and the next. The benchmark crude Brent traded at around $52 a barrel on Monday, while the Kingdom’s 2017 budget is calculated on a $50 projection.
For the region as a whole, the IMF said: “The global outlook is consistent with somewhat higher commodity prices and stronger global trade, which will support economic activity in the Middle East and Pakistan; stronger growth in China will also support anticipated investment in some countries.”
The fund said that growth in the non-oil economies of the region would continue, but, because of the low oil prices, “further sustained fiscal adjustment remains critical,” which would affect the overall economic growth. This is forecast to fall to 2.6 percent across the region and Pakistan this year, rising to 3.4 percent in 2018. Oil exporters are expected to show 1.9 percent growth this year and 2.9 percent next year.
On the forthcoming Saudi privatization plan, which could be worth up to $300 billion at the top end of estimates, Azour said: “Whatever can be done to improve private sector participation is good, so I think all these initiatives are welcome. They are ambitious plans for reform and diversification.”
He added that high levels of debt were an issue facing the region, especially for the oil exporters. In the UAE, the region’s second-biggest economy, the IMF estimates gross public debt (excluding government-related entities) at 19.3 percent of gross domestic product (GDP).
An IMF team is working on a new assessment of debt in Dubai, which is believed to be significantly higher than the UAE average and will report later this month. But Dubai’s growth is higher than most other parts of the region, at about 4 percent projected for 2017.


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 13 min 19 sec ago
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.