Brexit ‘good news for Saudi trade’

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Britain's Prime Minister David Cameron and his wife Samantha smile as they leave after voting in the EU referendum in London, on Thursday. (AP)
Updated 22 March 2017
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Brexit ‘good news for Saudi trade’

JEDDAH: Trade between Gulf states including Saudi Arabia and Britain is likely to improve in the aftermath of the Brexit vote, according to economists.

“The fall of sterling will definitely benefit Saudi Arabia in terms of imports,” commented National Commercial Bank’s (NCB) group Chief Economist Said Al-Shaikh.
His remarks came as global stock markets lost about $2 trillion in value on Friday after Britain voted to leave the European Union, while the pound sterling suffered a record one-day plunge to a 31-year low and money poured into safe-haven gold and government bonds.
The sterling pared losses against the US dollar Friday after plunging 10 percent to its weakest in 31 years following Britain’s vote to leave the European Union, but still remained more than 7 percent lower on widespread market uncertainty.
It was last down 7.37 percent against the dollar, at $1.3765, after touching its weakest since before the 1985 Plaza Accord of $1.3228.
“The fall of the sterling will make the dollar stronger than before. As the riyal is pegged to the dollar, it will make the UK’s imports cheaper to Saudi Arabia,” Al-Shaikh told Arab News.
James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, said there is unlikely to be much direct impact in terms of Saudi-UK relations.
“Saudi imports from the UK will be cheaper, but that’s about it. The bigger themes include oil prices which are likely to weaken with a stronger dollar and global equities market,” he told Arab News.
On Friday, Britain’s decision to quit the European Union led to sharp falls in property-related stocks on the expectation that the recent cooling of both residential and commercial markets — a major driving force of the economy for years — will deepen.

KPMG said it would expect companies' appetite to enter new property leases and increase their liabilities would diminish, particularly if Britain's departure from the EU weakens London's financial district.

Speaking to Arab News, Basil Al-Ghalayini, CEO of BMG Financial Group, said private investors of residential properties might find good bargains as a result of price corrections coupled with the decline in the pound sterling against GCC currencies.

John Sfakianakis, director of economic research at the Gulf Research Center, commented: “The initial impact is all about risk aversion. We’re getting big moves now but there will probably be little impact, if any, in the longer term.
“I don’t believe there will be a big long-term impact but in the short term, people are swallowing their gum” in surprise. People don’t want to be long anything at the moment. There’s a flight to safety and the dollar is rising.”
Friday’s blow to investor confidence and the uncertainty the Brexit vote has sparked could keep the US Federal Reserve from raising interest rates as planned this year, and even spark a new round of emergency policy easing from major central banks.
Gulf bourses have already been witnessing low activity because of Ramadan and the summer holidays.
Said Al-Shaikh told Arab News that Saudi stocks might be affected by the same sentiments across global markets because the Kingdom is also part of the global economy.
Al-Shaikh said Tadawul is also expected to fall on Sunday when it resumes trading after the weekend break. Sami A. Al-Nwaisir, chairman of Al-Sami Holding Group, commented: “The Saudi market has more time to absorb the news. So, even if there is negative reaction like other markets, the market reaction will not be deeply negative as time was in their favor.”
Asked about the Brexit’s impact on Saudi and Gulf economies, he added: “The GCC will be in a strong position because most of their assets in the UK are in real estate and especially in London, which is the center city for the ultra wealthy people around the globe.
“This will make London more attractive as far as areas like real estate and weaker pound are concerned, and we anticipate the new government will be friendlier toward doing their best to attract new investments.
“Aside from London, we can say it is a recession-proof city, whereby all the wealthiest people around the globe want to invest as it is a cosmopolitan city.
“Thus, we do anticipate the value of real estate will increase gradually as the demand will increase due to economic factors like weak currency and relaxed rules. The government eventually will enjoy prosperity and growth as we wish the best for the UK all the time.”
Sami A. Al-Nwaisir, added: “Also, we assume the new British government will be more friendly to foreign investors and less aggressive toward imposing taxes unlike the current administration of Prime Minister David Cameron. Besides, I think the university will be more relaxed in trying to acquire more students who were affected by the previous restriction of rules on foreigner visas and universities, and also the austerity measure that was adopted during the current government.”
Al-Ghalayini further commented on the Brexit impact: “Obviously, no one can predict about the impact of this verdict over the long term or even mid term. But, in the short term, we are witnessing the immediate negative impact either on the currency, shares or real estate markets.” 
He added: “As far as the real estate market is concerned, if these international banks and companies do relocate outside the UK as a result of this verdict, there will be an oversupply in the office space segment which will ultimately drive the price down. GCC investors in this segment will suffer as a result.” 
Al-Ghalayini said: “Furthermore, property developers from the GCC might find a noticeable increase in their cost of capital if they are relying on variable rates debt financing terms.”


Saudi Arabia joins nations in Katowice as talks adopt ‘Rulebook’ to curb climate change

The Katowice Climate Package is designed to put into operation the climate change regime contained in the Paris Agreement. (Shutterstock)
Updated 17 December 2018
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Saudi Arabia joins nations in Katowice as talks adopt ‘Rulebook’ to curb climate change

  • Saudi Arabia showed how seriously it is taking international efforts to mitigate the global rise in temperature

DUBAI: Between December 3 and 14, about 30,000 people from around the world converged on the Polish coal city of Katowice for the United Nations Climate Change Conference. COP24 (Conference of the Parties to the UN Framework Convention on Climate Change) took place close on the heels of a special report by a UN panel predicting the increasingly severe effects of a 1.5C rise in global temperatures over pre-industrial levels.

COP24 was the third such meeting since the adoption in 2015 of the Paris Agreement, which outlined a joint roadmap for developed and developing countries to reduce greenhouse gas emissions starting from 2020. Naturally, the role of fossil fuels, greenhouse gas emissions and financial commitments in the battle against climate change were high on the Katowice agenda.

Governments have adopted a robust set of guidelines for implementing the 2015 Paris Agreement. The implementation of the agreement will benefit people from all walks of life, especially the most vulnerable. 

The Katowice Climate Package is designed to put into operation the climate change regime contained in the Paris Agreement. Under the auspices of the United Nations Climate Change Secretariat, it will promote international cooperation and encourage greater ambition. The Katowice agreement aims to deliver the Paris goals of limiting global temperature rises to well below 2C. 

Saudi Arabia was among the major participants from the Middle East, demonstrating the seriousness with which it is taking its own energy transition and international efforts to mitigate the effects of climate change. The ambitious targets the kingdom has set for itself are being seen as a message to other countries that also face a complicated transition.

“This year’s COP24 event was crucial in many ways, including its focus on people’s displacement because of extreme weather events and the impact on human lives,” said Dr. Taoufik Ksiksi, associate professor in biology at the United Arab Emirates University. “More people are now displaced as a result of climate-related extreme events than by wars and conflicts.”

Dr. Ksiksi says the need to limit the rise in global temperatures to 1.5C-2C adds pressure on all the Paris Agreement signatories to act faster. “All countries that signed on, including Saudi Arabia and the UAE, are working hard to (reduce) greenhouse gas emissions, among other things,” he told Arab News. “For countries like Saudi Arabia, it is critically important to get ahead of many other countries.”

Pointing to growing concern in the Middle East over the possible impact of climatic change and its excessive reliance on fossil fuels, Dr. Ksiksi said: “Some sectors, such as transportation, energy use efficiency and land use change, are more likely to be at the forefront of mitigation and adaptation schemes.”

The concept of COP came from the 1992 Rio Summit where the UN Framework Convention on Climate Change was adopted, and aims to inspire countries to make good on their climate pledges. As for COP24, this is “an important year for testing the Paris model of gradually scaling up the ambition of targets through its five-year review cycle,” Emma Champion, EMEA policy analyst at BloombergNEF, told Arab News.

Champion sees the financing of energy transitions as a major issue in the battle against climate change. “Developed countries are behind on their commitment to sending $100 billion a year to developing countries to help them to achieve their individual targets, while developing countries are already facing budgetary pressure amid extreme weather events,” she said.

At the Katowice gathering there was a semantic disagreement over whether it should “welcome” or “note” the UN panel’s warning of dire consequences if global temperatures rise by more than 1.5C, with four oil-producing countries — the US, Saudi Arabia, Russia, and Kuwait — expressing their preference for the term “note.”

By all accounts, Saudi Arabia is playing its part in the effort to achieve the Paris accord’s goals and targets. According to Raed Al-Schneiber, from the Saudi Energy Efficiency Center, despite being one of the world’s biggest energy producers the Kingdom is committed to becoming a highly energy-efficient country in order to preserve its resources for future generations. In this spirit, experts from Saudi Arabia gave presentations in Katowice highlighting home-grown innovations and advances.

Saudi Aramco’s Dr. Tidjani Niass said: “The Kingdom’s national petroleum and natural gas company is making commendable progress on a wide range of carbon-dioxide utilization technologies, among other fields. The company’s work in environmental stewardship has resulted in the world’s lowest-carbon crude.” 

Organizations such as KSA Climate Change gave presentations on the sidelines of COP24 highlighting efforts to tackle water and wastewater challenges, sustainable development and creating value from carbon dioxide. The subjects were energy-efficiency applications in the Gulf, research and development for climate solutions, and the use of oil and gas technologies to address climate change challenges.

According to Dario Traum, a senior associate at BloombergNEF, as one of the countries whose economy will need to go through the most radical transformation as a result of climate-change mitigation efforts Saudi Arabia’s role in the negotiations is central. “Saudi Arabia is one of the countries that has an economy that is predominantly reliant on oil revenue,” he told Arab News.

“We have seen in recent years the kind of shocks to government revenue and savings a fall in oil prices can have. The Saudi government has started to respond to that with reform and through investment in new sectors at home and abroad, although this clearly needs to be scaled up in the coming years.”

One topic that was high on the COP24 agenda was clean energy technology, the applications of which are growing in a widening field of activities — power projects, transportation, waste management, energy efficiency and storage, and sustainable urban development, to name just five. If the trend continues, opportunities for unlocking investment in clean energy technologies will multiply, say experts.

“COP24 has further clarified the scale of the opportunity,” said Bader Al-Lamki, executive director for clean energy at Masdar, a UAE-headquartered company focused on the development, commercialization and deployment of renewable energy and sustainable urban development.

“The low-carbon economy is the new growth story of the 21st century. And through the initiative of countries such as the UAE and Saudi Arabia, which is wholeheartedly embracing the potential for renewables to meet its domestic power demand, it is a growth story in which emerging markets are actively participating.”

The overwhelming dependence of the Arab Gulf region on desalinated water means solar-based desalination technologies have a major role to play in helping countries meet their emissions-reduction targets.

In this context, Saudi Arabia’s King Abdullah University of Science and Technology (KAUST) has come up with a host of initiatives, one of them termed “green desalination.” 

The need to meet the Paris Agreement targets is hardly the only worry for the Arab Gulf states, given the significant drop in rainfall received by the region in the last 20 years. “This drop will have an impact on natural vegetation, which is very much dependent on rainfall during specific seasons,” said Dr. Mohsen Sherif, director of the National Water Center in the UAE.

“It will also affect the phenomenon of natural groundwater recharge. If you have less rainfall, there will be less water filtering down to the aquifer system, which will reduce the amount of available groundwater. So there is a need to assess accurately the impact of climate change on the Arab Gulf region’s underground water resources.”