Saudi non-oil private sector business growth at highest since December 2017

The main driver for the PMI improvement in February was a stronger rise in new orders, Khatija Haque, the head of Mena research at Emirates NBD, said. (AFP)
Updated 05 March 2019
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Saudi non-oil private sector business growth at highest since December 2017

  • ‘The main driver for the improvement in February was a stronger rise in new orders, despite the second consecutive decline in new export orders’
  • Saudi Arabia’s headline PMI rose modestly to 56.6 in February from 56.2 in January

DUBAI: Saudi Arabia’s non-oil private sector business rose to its highest level in 14 months due to a domestically-driven rise in new orders, the latest Purchasing Managers’ Index report from Emirates NBD show.
“The main driver for the improvement in February was a stronger rise in new orders, despite the second consecutive decline in new export orders. This suggests that it is domestic demand driving order growth. The output index rose slightly last month as well,” Khatija Haque, the head of Mena research at Emirates NBD, said in the report released on Tuesday
Saudi Arabia’s headline PMI rose modestly to 56.6 in February from 56.2 in January, the highest reading since December 2017. A reading above 50 indicates that the non-oil economy is on expansionary mode, while a reading below 50 suggests a contraction.
“Businesses increased their stock of pre-production inventories at the fastest rate since September, likely reflecting both the rise in new orders as well as optimism for future order growth – more than half of firms surveyed expect their output to be higher in a year’s time,” the report said.
However, Haque said the February PMI reading was still below the series average of 57.6, which indicated that non-oil growth in the kingdom was still weaker than the long-run average.
This weakness could be relatable to the hesitance of private sector employers take in additional workers, with fewer than 1 percent of firms that were surveyed reporting an increase in hiring activities.
The employment index was the lowest in nearly five years in February, at 50.2.
“Some firms indicated that cost control efforts were behind the reluctance to hire, despite rising new orders. Indeed, there was very little evidence of wage growth in the private sector last month, with the staff costs component declining to 50.2,” the PMI report noted.
“Overall input costs eased for the second month in a row, providing some relief for firms’ margins as selling prices were broadly stable. Firms continued to report strong competitive pressures, eroding their pricing power,” it added.
Meanwhile, the UAE’s PMI fell to 53.4 in February from 56.3 in January, the lowest reading since October 2016, due to a slower growth in new orders last month as well as the steepest decline in private sector employment in the survey history.
The employment index fell to 47.5 in February, as nearly 9 percent of UAE businesses reported lower headcounts relative to January and just 1.5 percent who said staff count were raised.
“Some firms reported operating with the minimum level of staffing in a bid to keep costs down. Staff costs were broadly unchanged last month, again reflecting a relatively soft job market,” the UAE PMI report said.
For Egypt, the non-oil private sector fell to a 17-month low of 48.2 in February, from 48.5 the previous month.
“The index has remained stubbornly in sub-50.0, contractionary territory for six months now, and while we continue to expect an improvement in conditions over the course of 2019, Egyptian firms clearly remain under pressure,” the Emirates NBD PMI report said.
“Output also fell at the fastest rate since September 2017, with survey respondents attributing this to cash flow issues and poor weather conditions – Egypt has been troubled by sandstorms which have disrupted transport.”


Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

Updated 23 April 2019
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Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

  • The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios
  • SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year

RIYADH: Saudi Real Estate Refinance Co. (SRC), modelled on US mortgage finance firm Fannie Mae, aims to issue up to 4 billion riyals ($1.07 billion) of long-term sukuk this year, its chief executive said on Tuesday.

The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios from mortgage financing companies and banks to boost the Kingdom’s secondary mortgage market.

SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year, Fabrice Susini told Reuters in an interview.

“Our strategy is clearly to tap the market twice this year,” he said. “We are really looking at probably issuing something between ... 2 and 4 billion riyal that we may be issuing in two tranches.

He said SRC was looking at sukuk in the 10 to 15-year range, to help minimize refinancing risks. “Generally speaking we are trying to issue as long as possible,” Susini said.

He said the company was assessing whether it could also issue bonds in currencies other than the local riyal.

In March, SRC completed a 750 million riyal sukuk issue with multiple tenors, under a program that allows it to issue up to 11 billion riyals of local currency denominated Islamic bonds.

“The rule of the game for us is, like many projects across the Kingdom, attract liquidity from foreign investors,” Susini said.

He said SRC had spent 1.2 billion riyals from its balance sheet buying mortgages from local mortgage financing companies and provided liquidity to these firms.

It has also signed initial accords with several commercial banks to acquire housing mortgage portfolios.

Saudi Arabia’s housing ministry is targeting the mortgage market to reach a total value of 502 billion riyals by 2020 from around 300 billion riyals now.

The government wants to increase activity in the real estate market as it moves to revitalize the economy and is taking steps to reform the sector as part of its 2030 reform plan.

It has been working with developers and local banks to counter a shortage of affordable housing — one of the country’s biggest social and economic problems. Saudi Arabia wants 60 percent of its nationals to own homes by 2020, up from 47 percent in 2016.

The size of real estate financing relative to its gross domestic product is 5 percent in Saudi Arabia compared to 69 percent in the United States, 74 percent in the United Kingdom and 43 pct in Canada, the housing ministry has said.

“The goal of SRC in this market was to make sure that we will be able to refinance at least around 10 percent of the market in 2020, and 20 percent of the market by 2028,” Susini told Reuters.