Saudi Arabia plans $19bn boost for private sector

Saudi Arabia plans to inject SR13.8 billion into new building technologies. (Reuters)
Updated 15 December 2017
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Saudi Arabia plans $19bn boost for private sector

DUBAI: Saudi Arabia is to inject SR72 billion ($19.2 billion) into the private sector of the economy in a bid to stimulate activity in the non-oil sector, which has been hit by the slowdown in government spending as a result of oil revenue weakness.
Housing and small business are major beneficiaries of the stimulus package. Among the measures announced in a decree by King Salman are a SR21.2 billion initiative on subsidized loans to provide housing, a SR13.8 billion injection into new building technologies, and a proposal valued at SR10 billion to support the funding of big infrastructure initiatives.
Other big items include a SR1.5 billion initiative to support companies in financial distress, and a SR7 billion plan to refund government fees to small and medium enterprises (SMEs).
A statement from the Center for International Communication (CIC) in Riyadh said the decree was based on recommendations from Crown Prince Mohammed bin Salman, who is also deputy prime minister and president of the powerful Council for Economic and Development Affairs.
The growth of the non-oil economy is a crucial part of the Vision 2030 strategy which seeks to reduce the Kingdom’s dependency on oil revenue and government spending. The private sector of the Saudi economy is still largely dependent on spending by government agencies for its economic activity. The government is planning some $200 billion worth of state sell-offs in one of the biggest privatization plans in history, in addition to the planned $100 billion initial public offering (IPO) of shares in Saudi Aramco.
“The private-sector stimulation packages aim to strengthen competitive capabilities of a number of segments of the national economy, develop its outcomes as well as improve the business and investment environment and facilitate their implementation,” the CIC added.
Other smaller items in the stimulus package include an export promotion program worth SR5 billion, and a broadband and optical fiber investment worth SR2.56 billion, and measures to invest in high-efficiency air-conditioning units.
Commerce and Investment Minister Majid Al-Qasabi explained in an interview with Bloomberg that the package was part of a SR200 billion, four-year program announced last year to spur the private sector to faster growth and higher rates of job creation.
“Next year is the year for stimulus. That’s how we will strengthen our bonds with local and international investors,” Al-Qasabi said.
Economists have been looking for an upturn in the non-oil sector for some time. Fahad Al-Turki, chief economist with investment bank Jadwa, said: “The government’s efforts to raise non-oil revenue through structured economic reform seems to be bearing fruit … We expect to see a significant ramp-up in government capital spending in the final quarter of 2017.”
The full 2018 budget will be announced in Riyadh next week, with economists expecting further guidance on the progress of the non-oil sector. There was however some skepticism among experts over whether the stimulus package would be enough to significantly affect growth rates, which have fallen to near zero for the overall economy this year, according to the IMF, and are forecast at just 1.1 percent next year.
Monica Malik, chief economist of Abu Dhabi Commercial Bank, told the Financial Times: “Finally seeing signs of the plan is clearly positive. However, the success of the stimulus framework is dependent on how well it integrates private-sector capabilities with the government’s development objectives. A framework that provides funding or support for the private-sector investment would likely not drive a pick-up in activity given the weak domestic backdrop.”
Other analysts have detected some signs of recovery in the non-oil and consumer sector. “Trade data shows that in the three months to September, non-oil imports declined at their slowest pace since late 2015. Data on ATM withdrawals and point-of-sale transactions suggest that the reversal of cuts to civil service bonuses is finally providing some support to consumer spending,” said Jason Tuvey, Middle East economist at London-based Capital Economics.
But he did not necessarily see a significant fiscal boost to the economy from next week’s budget. “Overall, we still expect fiscal policy to be tightened, but there has been a shift, away from spending cuts in the ‘austerity’ phase to revenue-raising measures next year,” he added.
In 2018, government revenue will be boosted by the introduction of value added tax, while expenditure will be reduced by the reduction or elimination of some subsidies.
 


Undersea gas fires Egypt’s regional energy dreams

Updated 18 November 2018
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Undersea gas fires Egypt’s regional energy dreams

CAIRO: Egypt is looking to use its vast, newly tapped undersea gas reserves to establish itself as a key energy exporter and revive its flagging economy.
Encouraged by the discovery of huge natural gas fields in the Mediterranean, Cairo has in recent months signed gas deals with neighboring Israel as well as Cyprus and Greece.
Former oil minister Osama Kamal said Egypt has a “plan to become a regional energy hub.”
In the past year, gas has started flowing from four major fields off Egypt’s Mediterranean coast, including the vast Zohr field, inaugurated with great ceremony by President Abdel Fattah El-Sisi.
Discovered in 2015 by Italian energy giant Eni, Zohr is the biggest gas field so far found in Egyptian waters.
The immediate upshot has been that since September, the Arab world’s most populous country has been able to halt imports of liquified natural gas, which last year cost it some $220 million (190 million euros) per month.
Coming after a financial crisis that pushed Cairo in 2016 to take a $12 billion loan from the International Monetary Fund, the gas has been a lifeline.
Egypt’s budget deficit, which hit 10.9 percent of GDP in the financial year 2016-17, has since fallen to 9.8 percent.
Gas production has now hit 184 million cubic meters a day.
Having met its own needs, Cairo is looking to kickstart exports and extend its regional influence.
It has signed deals to import gas from neighboring countries for liquefaction at installations on its Mediterranean coast, ready for re-export to Europe.
In September, Egypt signed a deal with Cyprus to build a pipeline to pump Cypriot gas hundreds of kilometers to Egypt for processing before being exported to Europe.
That came amid tensions between Egypt and Turkey — which has supported the Muslim Brotherhood, seen by Cairo as a terrorist organization, and has troops in breakaway northern Cyprus.
In February, Egypt, the only Arab state apart from Jordan to have a peace deal with Israel, inked an agreement to import gas from the Jewish state’s Tamar and Leviathan reservoirs.
A US-Israeli consortium leading the development of Israel’s offshore gas reserves in September announced it would buy part of a disused pipeline connecting the Israeli coastal city of Ashkelon with the northern Sinai peninsula.
That would bypass a land pipeline across the Sinai that was repeatedly targeted by jihadists in 2011 and 2012.
The $15-billion deal will see some 64 billion cubic meters of gas pumped in from the Israeli fields over 10 years.
Independent news website Mada Masr reported that Egypt’s General Intelligence Service is the majority shareholder in East Gas, which will earn the largest part of the profits from the import of Israeli gas and its resale to the Egyptian state.
Kamal said he sees “no problem” in that, adding that the agency has held a majority stake in the firm since 2003.
“That guarantees the protection of Egyptian interests,” he said.
Ezzat Abdel Aziz, former president of the Egyptian Atomic Energy Agency, said the projects were “of vital importance for Egypt” and would have direct returns for the Egyptian economy.
They “confirm the strategic importance of Egypt and allow it to take advantage of its location between producing countries in the east and consuming countries of the West,” he said.
The Egyptian state is also hoping to rake in billions of dollars in revenues from petro-chemicals.
Its regional energy ambitions are “not limited to the natural gas sector, but also involve major projects in the petroleum and petrochemical sectors,” said former oil minister Kamal.
Minister of Petroleum and Mineral Resources Tarek El Molla recently announced a deal to expand the Midor refinery in the Egyptian capital to boost its output by some 60 percent.
On top of that, the new Mostorod refinery in northern Cairo is set to produce 4.4 million tons of petroleum products a year after it comes online by next May, according to Ahmed Heikal, president of Egyptian investment firm Citadel Capital.
That alone will save the state $2 billion a year on petrochemical imports, which last year cost it some $5.2 billion.
Egypt is also investing in a processing plant on the Red Sea that could produce some four million tons of petro-products a year — as well as creating 3,000 jobs in a country where unemployment is rife.