Canadian firms chasing Saudi business left in limbo

The diplomatic row with Canada is a concern for Canadian companies seeking work in the Kingdom such as GDLS, maker of the LAV 111 armored vehicle. (Supplied)
Updated 07 August 2018
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Canadian firms chasing Saudi business left in limbo

  • Trade had been increasing in recent years
  • Kingdom a major investor in Canada education

LONDON: Canadian companies chasing contracts in Saudi Arabia fear a high-level row between the two countries could dash their attempts to win work in the lucrative market, a former diplomat has said.

Saudi Arabia on Sunday froze all new business and investment transactions with Canada and expelled an ambassador as part of its retaliation to Canada’s calls for the country to release civil society activists detained in the Kingdom.

Saudi Arabia said this “interference” in its domestic affairs was a violation of sovereignty.

“The short-term impact is uncertainty for Canadian companies, especially those entering the Saudi market for the first time,” said Omar Allam, a former Canadian diplomat, who now heads up the Canada-based consultancy Allam Advisory Group, which advises on doing business in Saudi Arabia and the wider GCC.

“The significance of any given risk, of course, depends upon the context of the investment decision.”

While Saudi Arabia is not one of Canada’s main trade partners, trade and investment flows between the two countries have increased in recent years.

A total of 1.45 billion Canadian dollars-worth of goods were exported to Saudi Arabia last year, according to Canadian government statistics for merchandise trade. This compares to 916 million Canadian dollars-worth of exports in 2013. The Kingdom was Canada’s 22nd largest export market for merchandise trade last year.

Construction and engineering firms SNC-Lavalin and Fluor, as well as defence company General Dynamics Land Systems (GDLS), are just some of the more high-profile Canadian businesses with longstanding business relationships and interests in the Kingdom.

SNC-Lavalin has worked on numerous contracts — often for Saudi Aramco — developing the Kingdom’s refineries, petrochemical plants and other infrastructure projects. It won a SR160 million Saudi contract ($42 million) in May to expand Jabal Omar Development Company’s district cooling scheme in Makkah.

Meanwhile, Fluor has project-managed the development of the $8 billion Umm Wu’al phosphate project for Ma’aden Wa’ad Al-Shamal Phosphate Company which started production last year.

GDLS has previously secured contracts to provide tanks and associated equipment to the Kingdom.

Canadian companies active in the construction and engineering sectors are eager to win work in the Kingdom as Saudi Arabia pushes forward with its infrastructure spending plans.

There are at least two Canadian firms already preparing to exhibit at one of the largest construction trade exhibitions in the country, Saudi Build, to be held in Riyadh in October.

However, Canadian representation at the event is smaller than that from many other nations, including Germany, Portugal or China.

Sectors such as automotive manufacturing are seeing growth in the Saudi Arabian market, with Canadian exports to the Kingdom rising 27.2 percent last year, government figures showed. This contrasts to the overall decline in automotive exports from Canada in 2017.

A spokesperson from SNC-Lavalin told Arab News: “SNC-Lavalin has conducted business successfully in the Kingdom of Saudi Arabia (KSA) for over five decades, and currently see no immediate impact to our existing operations.

“We greatly value the relationships that have been built and our contributions to the KSA. We trust that this situation will be resolved at the earliest opportunity.”

General Dynamics Land Systems declined to comment on the situation when approached for comment. Fluor has not yet responded to Arab News’ request for comments.

Saudi Arabia has also invested heavily in Canada’s education system, Allam said.

According to the Saudi Canada Business Council, there are approximately 20,000 Saudi students currently studying in Canada.

Saudi Arabia’s Education Ministry is working on the preparation and implementation of an urgent plan to facilitate the transfer of Saudi student scholarships to other countries.

“In the past 10 years alone, Saudi Arabia has invested over $10 billion dollars into the Canadian education system. This provides an annual boost to the Canadian economy and generates new tax revenues,” Allam said, citing his own research.

Saudi Arabian Airlines announced on Monday that it was immediately suspending all reservations on its flights to Toronto and suspending all flights to and from Toronto from Aug. 13, according to the Saudi Press Agency.


Can green investment help relaunch Germany’s economy?

Updated 32 min 10 sec ago

Can green investment help relaunch Germany’s economy?

  • The German government has so far shown little willingness to change its stance

FRANKFURT, Germany: A recession looms for Germany and the European Central Bank is pleading for governments to spend more to revitalize economic growth. Yet despite having the luxury of borrowing money for less than nothing, the German government is keeping a tight rein on its finances.
A debate over Germany’s devotion to budget austerity is intensifying as the outlook for the economy dims and public pressure grows to address big issues such as global warming. On Friday, the government will unveil a raft of measures that could include billions in incentives and spending to make the economy more environmentally-friendly.
“The call for fiscal stimulus has never been louder,” said Carsten Brzeski, chief economist for the bank ING Germany. “And this week will show whether the eurozone country with the deepest pockets finally plans to empty them.”
The slowdown in growth across Europe, blamed largely on the US-China trade conflict and uncertainty about Brexit, is putting a sharp focus on Germany’s devotion to the so-called “Schwarze Null,” or “black zero,” which refers to the policy of balancing the budget — the zero — with at least a small surplus to keep it in the black.
The debate over government spending policy affects the entire 19-country eurozone, since more government outlays by Germany and other fiscally sound countries such as the Netherlands could help support growth by building new infrastructure, such as roads, rail lines or high-speed Internet, or by gathering less in taxes.
The German government has so far shown little willingness to change its stance. It has ignored repeated pleas from the head of the European Central Bank, Mario Draghi, who said last week it was “high time” for government spending to take over as the main tool of economic policy. The central bank announced interest rate cuts and bond purchases in an attempt to ward off a downturn.
The government argues it’s important to reduce debt while the economy is growing and not to burden future generations. German Finance Minister Olaf Scholz submitted a balanced draft budget of 360 billion euros ($400 billion) for 2020 last week and Chancellor Angela Merkel said in a speech before the German Taxpayers’ Federation that the government was sticking to its balanced budget, “not as a goal in itself, as we are often accused of doing, but because clear economic reasons and fairness aspects argue for that.”
Merkel noted that Germany’s total debt would fall below 60% of gross domestic product — the limit for countries that use the euro — for the first time since 2002. The German constitution itself sharply limits deficits to 0.35% of GDP except in a crisis, yet the government’s surpluses go well beyond that requirement.
While the German government may not be giving up on balanced budgets, there are signs it is at least easing up the zeal with which it amasses surpluses.
Last year’s surplus of 1.9% of GDP has fallen to 1.4% this year and is expected to hit 0.9% next year — meaning that the government is already providing some fiscal stimulus. Germany’s economy shrank 0.1% in the second quarter and underlying figures are pointing to another quarter of contraction, which would put the country in a technical recession.
It is striking that the government refuses any new borrowing at a time when it can do so at negative interest rates — meaning it would get paid back more than it borrows. German 10-year bonds currently yield minus 0.48%, and the government was able to sell a 30-year bond at a negative interest rate in August.
Marcel Fratscher, the head of the German Institute for Economic Research in Berlin, has called the balanced budget a “false fetish.” His institute has argued that Germany needs to invest in long-term modernization projects such as extending digital services in rural areas.
The president of the Federation of German Industries, Dieter Kempf, said in an interview with Der Spiegel that “it’s worth considering sensible use of the space,” allowed by the constitution to fund more investment.
The calls to spend are not coming only from those concerned about the economy, but also climate activists who say more needs to be done to shift the world economy from carbon-intensive industries and consumption. Public pressure has only grown after the country witnessed its hottest summer on record and the opposition Greens party made big gains in elections to the European Parliament and in domestic polls.
On Friday, the government is expected to unveil a package of incentives aimed at reducing carbon dioxide emissions from homes and autos so that Germany can meet its goals under the 2015 Paris climate accord. Possible measures include incentives to replace old heating systems or to purchase battery-powered autos. A report in Die Welt newspaper said the government was considering measures totaling some 40 billion euros ($44 billion) through 2023.
Brzeski said such a program “would not be enough to stop the slide of the economy toward recessionary territory, but it could be an important cornerstone in Germany’s recovery and its quest for a new economic model.”
Spending on that level would only be “a slow-motion stimulus” since it will take time to roll out, said Holger Schmieding, chief economist at Berenberg bank.
“It will add up over time and support domestic demand,” he said. “However, the German stimulus will not be a European, let alone a global, game changer.”