Low investment to weigh on Russian recovery prospects

Low investment to weigh on Russian recovery prospects
Updated 28 July 2015

Low investment to weigh on Russian recovery prospects

Low investment to weigh on Russian recovery prospects

MOSCOW: The sharp decline in Russia’s economy may have almost run its course, official data showed, slowed by a huge devaluation of the rouble and heavy government spending on anti-crisis measures.
Recovery prospects are cloudy, however, with many analysts warning of a sluggish rebound at best.
The economy has slumped as a result of Western sanctions linked to the Ukraine conflict and last year’s collapse in the price of oil. But the decline now appears to arrested.
While gross domestic product continued to decline in year-on-year terms in June — down 4.2 percent compared with 4.8 percent in May — seasonally-adjusted output fell just 0.1 percent month-on-month.
The figure tallies with other recent data, leading analysts to conclude the decline is close to a bottom — a silver lining to data which still show most macroeconomic indicators sharply down compared with a year earlier.
“It is kind of premature to speak about the recovery in sequential terms, which actually lies ahead,” said Alexander Isakov, economist at VTB Capital in Moscow.
“But in terms of year-on-year comparisons — the headline figure that everybody focuses on — we are bottoming out.”
Uncertainty about the pace of any recovery is reflected in official forecasts, which present sharply divergent views.
The Economy Ministry predicts the economy will grow by 2.3 percent next year after a 2.8 percent decline this year. In contrast, Russia’s central bank sees the economy growing by only 0.7 percent next year after declining 3.2 percent this year.
Economists polled by Reuters expect 0.5 percent growth next year after a 3.5 percent contraction this year.
Optimists emphasize the huge boost to competitiveness caused by the devaluation of the ruble, which has declined by 40 percent against the dollar over the last year.
While the initial impact of the ruble decline was to boost inflation, cutting into consumer spending, there is little sign of it becoming entrenched through higher wages. Nominal wage growth — 7 percent in June — has been running at less than half the headline inflation rate of 15.3 percent.
The resulting cut in labor costs means that these are now comparable to China’s, analysts at Renaissance Capital say, boding well for competitiveness.
Evidence that the devaluation has played a key role in arresting the economic decline is provided by data on industrial profitability and wages, which shows sectors producing tradable goods strongly outperforming, VTB Capital’s Isakov said.
“In terms of timing, and judging by the other indicators, we are closely following the path of the recovery of the previous crisis,” he said.
Previous Russian economic crises in 1998 and 2008 were both followed by quick recoveries, with devaluations of the rouble playing a key role each time.
But some analysts are skeptical about this policy’s effectiveness in the medium term.
“We see a risk that the policy of a weaker exchange rate will preserve the old structure of the economy,” Morgan Stanley says, referring to Russia’s over-reliance on commodity exports and its lack of high-tech industries.
The weaker rouble helps export-oriented commodity sectors, but may impede the growth of high-tech sectors that rely heavily on imports.
Other analysts emphasize the supportive role played by the government.

But there are also major questions about the ability of the state to keep supporting the economy by dipping into its dwindling fiscal reserves.
The Finance Ministry forecasts that its Reserve Fund, currently worth $77 billion, will be 90 percent spent by the end of next year.
Before last year’s oil price collapse, Russia based its long-term budget plans on an oil price of $100 per barrel — almost double the present price of just over $50 per barrel.
That implies painful cutbacks in government spending in the years ahead to rebalance the state’s precarious finances.
Natalia Orlova, economist at Alfa Bank, emphasised that the medium-term recovery prospects have also been severely limited by chronic underinvestment.
Capital investment by Russian companies, down 7.1 percent year-on-year in June, has now fallen for 19 consecutive months.
Meanwhile foreign direct investment has been hammered by the crisis in East-West relations. In the first quarter it was just $1.3 billion, down from $12.9 billion in the first quarter of 2014 and $40 billion in the same quarter of 2013.
That is a reminder that the sanctions and the related geopolitical tensions still weigh on the economy even though Russian companies have weathered the immediate financial squeeze caused by restricted access to international capital markets.
“Probably we will lose around 3 percent of GDP this year. Next year we will be catching up, covering this output gap, but there is nothing on top of this which we can generate given the limited resources,” Orlova said.


STC partners with Irish software firm to develop in-car applications

Saudi Telecom Co. (STC), the Kingdom’s largest mobile network operator, has entered into a partnership with Irish vehicle software firm Cubic Telecom to develop in-car software solutions for Saudi drivers. (Supplied)
Saudi Telecom Co. (STC), the Kingdom’s largest mobile network operator, has entered into a partnership with Irish vehicle software firm Cubic Telecom to develop in-car software solutions for Saudi drivers. (Supplied)
Updated 16 min 51 sec ago

STC partners with Irish software firm to develop in-car applications

Saudi Telecom Co. (STC), the Kingdom’s largest mobile network operator, has entered into a partnership with Irish vehicle software firm Cubic Telecom to develop in-car software solutions for Saudi drivers. (Supplied)
  • As a result of the link up, the software will then also allow STC to easily add a range of in-car services to Saudi vehicles

RIYADH: Saudi Telecom Co. (STC), the Kingdom’s largest mobile network operator, has entered into a partnership with Irish vehicle software firm Cubic Telecom to develop in-car software solutions for Saudi drivers.

As a result of the link up, the software will then also allow STC to easily add a range of in-car services to Saudi vehicles, including an emergency call system which automatically alerts healthcare services in the event of an accident.

Gerry McQuaid, chief commercial officer at Cubic, told Arab News: “Basically we partnered with STC as a premier car integrity partner in Saudi Arabia. We are enabling the customer to benefit from a range of safety, entertainment, and navigation features when they purchase the car.”

Similar to every market, Saudi Arabia had a strict range of regulations for how connectivity was managed, he said, adding that the software partnership would make it easier for features to be added by carmakers and third-party developers.

“I can’t give a precise date, but in a not-too-distant future you actually don’t need a driving license, the car will actually drive autonomously for the citizens. That is the big difference,” McQuaid said.

“Already software solutions can support this capability, but it does need important regulations to be introduced to start with semi-driving.

“You can request the car on your smart phone, and it will drive to you to get in and the car will drive to your destination. You can listen to music, do some work, and have a conversation while the car drives. This is not science fiction,” he added.

Soon cars will have a whole range of applications, such as an iPhone or other smart phone, with touchscreen interaction and voice regulations, and people will interact with the car from outside using smart phone apps, he said.

On safety regulations, McQuaid pointed out that solutions included an “emergency call” system which would automatically alert emergency services in the event of an accident, give details about the incident, and suggest if it required attention.

Barry Napier, CEO of Cubic Telecom, said: “We are delighted to be working with STC to help car manufacturers activate new opportunities in a very significant market.”

Dr. Sultan bin Saeed, STC’s vice president of business development, said: “Partnering with Cubic enables STC as a digital enabler to simplify the delivery and management of advanced in-car services and gives us a foundation for innovating and meeting the changing needs of customers as new services evolve.”

Cubic Telecom provides connected software solutions in more than 5 million vehicles and devices to at least 100 countries and has already partnered with some of the Gulf region’s largest mobile operators.


Saudi Arabia to ship gas to South Korea and take CO2 back

Saudi Arabia to ship gas to South Korea and take CO2 back
Updated 11 min 43 sec ago

Saudi Arabia to ship gas to South Korea and take CO2 back

Saudi Arabia to ship gas to South Korea and take CO2 back
  • Hyundai to take LPG cargoes
  • CO2 sent back to use in oil fields

RIYADH: Saudi Arabia plans to ship gas to South Korea where it will be used to make hydrogen, and the carbon dioxide produced in the process will be transported straight back to the Kingdom, Asharq reported, citing Bloomberg.

Hyundai Oil Bank Co. will take liquefied petroleum gas cargoes from Saudi Aramco and convert them into hydrogen, to use for chemical and power solutions, the Korean energy company’s parent Hyundai Heavy Industries Holdings Company said.

Aramco and Hyundai OilBank Co. agreed in the deal signed on Wednesday, that the carbon dioxide emitted in the hydrogen-making process will be transported back to Aramco, to use it in its oil production facilities, according to a Hyundai Heavy spokesman.

“It seems the project will bank on the idea that shipping LPG to Korea and carbon dioxide back to Saudi Arabia will be cheaper than shipping hydrogen to Korea,” said Martin Tengler, BloombergNEF’s lead hydrogen analyst.

Saudi Aramco has huge quantities of natural gas, which it has identified as a key area of expansion for domestic supply and export in the form of liquefied natural gas (LNG).

“We basically look at natural gas as an area for growth for the company,” Khalid Al-Dabbagh, Aramco’s chief financial officer, said in an investor call in the run-up to its successful IPO back in 2019.


King Salman Energy Park signs anchor tenants

King Salman Energy Park signs anchor tenants
Updated 6 min 41 sec ago

King Salman Energy Park signs anchor tenants

King Salman Energy Park signs anchor tenants
  • President and CEO of SPARK Saif Al-Qahtani: SPARK is proud to welcome TAQA and AMCO as they take the first step toward launching their operations
  • By 2035, the park is expected to contribute more than SR22 billion to the Kingdom’s gross domestic product

RIYADH: King Salman Energy Park (SPARK), the Dammam-based project backed by Saudi Aramco, added two new anchor tenants on Thursday, the Abu Dhabi National Energy Company (TAQA) and AMCO.

President and CEO of SPARK Saif Al-Qahtani said: “SPARK is proud to welcome TAQA and AMCO as they take the first step toward launching their operations. SPARK sits at the heart of the energy market, offering a world-class ecosystem that facilitates the growth of our tenants’ businesses and brings sustained value to our wider communities. SPARK is set to be a fully integrated city, bringing together major national and international companies and fuelling economic growth and job creation.”

TAQA will expand its local operations with the TAQA Industrial Park at SPARK, including a new facility for oilfield services, a specialist unit for engineering and manufacturing, and a wireline and perforation center of excellence.

The facilities will be constructed in two phases starting in the second quarter of 2021, with the design and developmental planning stages having already commenced.

TAQA CEO Khalid Nouh said: “With our plans for future acquisitions focused on cutting-edge technology and innovative solutions, we further cement our alignment with Vision 2030 and the government’s drive to diversify and localize services and manufacturing in the Kingdom.”

AMCO is investing over SR260 million ($69.33 million) in a new center at SPARK. Its plans include the development of facilities to enable the manufacturing and production of steel pipes, valves, pumps, turbines, and machine and rotary equipment.

AMCO’s facilities will be developed in three phases, allowing for the gradual build-up of manufacturing capabilities and onboarding of local talent.

By 2035, the park is expected to contribute more than SR22 billion to the Kingdom’s gross domestic product, provide up to 100,000 direct and indirect jobs and localize more than 350 new industrial and service facilities.


GRAPHIC: From Beirut to Damascus currencies take a battering

GRAPHIC: From Beirut to Damascus currencies take a battering
Updated 04 March 2021

GRAPHIC: From Beirut to Damascus currencies take a battering

GRAPHIC: From Beirut to Damascus currencies take a battering

Lebanon’s president this week ordered the central bank governor to open an investigation into currency speculation, after the Lebanese pound plunged to record lows on the black market.
But the battered Lebanese pound is not alone among regional currencies that have been decimated by the impact of the pandemic and other factors.
The Syrian pound also fell to a record low on the black market this week, dragged down by its close commercial and banking ties with Lebanon.
“Businessmen and traders are fretting over fears of a free-fall in coming days and watching if unrest grows in Lebanon and its impact on dealings since Lebanon is our lifeline to the outside world,” said one Damascus-based trader told Reuters, who requested anonymity.


Saudi energy minister urges caution and vigilance on OPEC+

Saudi energy minister urges caution and vigilance on OPEC+
Updated 12 min 38 sec ago

Saudi energy minister urges caution and vigilance on OPEC+

Saudi energy minister urges caution and vigilance on OPEC+
  • OPEC and allies meet today
  • Oil price rises ahead of meeting

DUBAI: The Kingdom’s Energy Minister Prince Abdul Aziz bin Salman again urged caution and vigilance among fellow ministers in the OPEC+ alliance of oil producers, as they met to consider the next crucial steps for global crude markets.

The virtual meeting, organized from OPEC’s Vienna headquarters, is to decide whether or not to raise production levels in the face of a strong recovery in the oil price over the past month. 

Brent crude, the global benchmark, jumped over $65 a barrel as the prince was speaking.

“I have said for a long time that recovery in global oil demand is closely linked to vaccine acceptance and the speed at which these vaccines are being rolled out around the world,” he said. “The uncertainty surrounding the pace of recovery has not receded. Against this background - and at the risk of sounding like a stuck record - I would once again urge caution and vigilance.”

Some OPEC+ members, notably Russia and Kazakhstan, want to increase production next month. Others want to keep the current level of cuts in place until the recovery in demand becomes more apparent.

Saudi Arabia is also considering whether or not to halt the additional and voluntary cut of a million barrels a day it announced in January, a move credited with sparking the recent strong price rise but which expires at the end of the month.

“The right course of action now is to keep our powder dry, and to have contingencies in reserve to insure against any unforeseen outcomes”, the prince said.

Analysts took his remarks to indicate that Saudi Arabia might consider rolling over at least some part of that cut for at least another month.

“We have elected for a careful and proactive approach that has proved successful. Before we take our next step forward, let us be certain that the glimmer we see ahead is not the headlight of an oncoming express train,” the energy minister said.

The level of compliance with OPEC+ agreed targets was 103 percent in February, according to OPEC officials. Some producers, notably Nigeria, have stuck to the agreement to compensate for past over-production.

“Compliance levels have remained at the historically high levels that have been a hallmark of our joint endeavor. The list of countries on the compensation schedule continues to shorten, and I truly commend Nigeria for completing its compensation,” the prince said.