Mitsubishi upbeat on KSA growth as reforms gather pace

The Mitsubishi financial group, which has its headquarters in Tokyo, expects Saudi privatization plans to accelerate this year. (AFP)
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Updated 13 January 2020

Mitsubishi upbeat on KSA growth as reforms gather pace

  • MUFG analyst believes the Kingdom will continue to be regional outperformer in 2020

DUBAI: Japanese financiers are taking a cautiously optimistic view of the Middle East, despite recent geopolitical stresses, and believe Saudi Arabia, in particular, is set for a year of financial and economic outperformance, with a revived privatization plan as the centerpiece.
Mitsubishi UFG Financial Group (MUFG), one of the country’s biggest investment institutions and a major player on the international financial scene, recently told investors: “Saudi Arabia was the regional outperformer in the Middle East and North Africa in 2019, and we believe this trend will follow in 2020.” 
According to Ehsan Khoman, head of MENA research and strategist for MUFG: “Investors have moved on from recent ‘black swan’ events and are taking increasing comfort with the lengths and vigour that the authorities are demonstrating in enhancing the operating environment, enticing foreign investment and implementing structural reforms in accordance with Vision 2030 targets.”
MUFG, which opened a Riyadh office just over a year ago and has close links with Morgan Stanley, one of the Kingdom’s top financial advisers, gave a vote of confidence to Saudi economic policymakers, on the eve of the visit to the Middle East by Japan’s prime minister Shinzo Abe.
“The Kingdom’s ample wealth buffers have offered policymakers options, allowing the authorities to retain an expansionary stance throughout 2019,” Khoman said.
“The 2020 budget strikes a more conservative tone, which is in line with the approach wherein the state slowly withdraws and allows the private sector to lead.
“The central cornerstone of the transformation strategy is to structurally change the operating model to make investment, not government spending, the engine of growth.
“The emphasis on diversifying state funding to ensure the private sector is not crowded out, in conjunction with robust corporate confidence readings (which continue to break records), are consistent with this objective.”
Last year the Kingdom was a record achiever in the World Bank’s annual “Ease of Doing Business” ratings, jumping a record 30 places as the pace of reform accelerated under the Vision 2030 strategy to diversify the economy away from oil dependency.
MUFG believes this will continue. “The momentum from the leadership centered on a KPI performance-based achievement approach is undoubtedly serious, and critical structural reforms are creating the necessary platforms for corporates to evaluate strategic risk-reward opportunities,” Khoman said.
Analysts expect that the historic initial public offering of Saudi Aramco last year will kick-start the privatization program under the Vision 2030 strategy.
The Kingdom’s ministry of economics has ear-marked around 162 businesses currently owned by the government for privatization either by IPO, sale to domestic and foreign trade buyers, and public-private partnership, but that program was delayed while the Aramco share sale was being organized. 
MUFG expects its will gather new momentum this year. “Privatization, particularly in an volatile oil price environment, is intended to enhance the operations of state-owned enterprises, as well as the efficiency and overall management of the business, and improve the quality of services,” Khoman said.
“Privatization initiatives are an integral part of regional government’s strategies for achieving economic development, structurally adjusting the economy away from not only the reliance on hydrocarbons, but also realigning it away from volatile oil and gas prices.
“As such, governments in the region have devised wide-ranging reform plans, with privatization central to such initiatives.”
In conclusion, Khoman said: “We at Mitsubishi believe that the Kingdom as well as the rest of the region will accelerate privatization plans this year, which is in line with the economic transformation strategy wherein the state slowly withdraws and allows the private sector to lead.”


Big oil feels the heat on climate as industry leader promises: ‘We will be different’

Updated 22 January 2020

Big oil feels the heat on climate as industry leader promises: ‘We will be different’

  • Trump singles out ‘prophets of doom’ for attack
  • Greenpeace told the Davos gathering that the world’s largest banks, funds and insurance companies had invested $1.4 trillion in fossil fuel companies since the Paris climate deal

LONDON: Teenage environmental activist Greta Thunberg slammed inaction over climate change as the global oil industry found itself under intense scrutiny on the opening day of the World Economic Forum in Davos.

The teenage campaigner went head to head with US President Donald Trump, who dismissed climate “prophets of doom” in his speech.
She in turn shrugged off the US president’s pledge to join the economic forum’s initiative to plant 1 trillion trees to help capture carbon dioxide.
“Planting trees is good, of course, but it’s nowhere near enough,” Thunberg said. “It cannot replace mitigation. We need to start listening to the science and treat this crisis with the importance it deserves,” the 17-year-old said.
The 50th meeting of the World Economic Forum was dominated by the global threat posed by climate change and the carbon economy.
The environmental focus of Davos 2020 caps a year when carbon emissions from fossil fuels hit a record high, and the devastating effects of bushfires in Australia and other climate disasters dominated the news.
Oil company executives from the Gulf and elsewhere are in the spotlight at this year’s Davos meeting as they come under increased pressure to demonstrate how they are reducing their carbon footprint.
“We are not only fighting for our industry’s life but fighting for people to understand the things that we are doing,” said Vicki Hollub, CEO of Occidental, the US-based oil giant with extensive oil operations in the Gulf. “As an industry when we could be different — we will be different.”

‘Planting trees is good, but nowhere near enough,’ activist Greta Thunberg told Davos. (Shutterstock)

She said the company was getting close to being able to sequester significant volumes of CO2 in the US Permian Basin, the heartland of the American shale oil industry which is increasingly in competition with the conventional oil producers of the Arabian Gulf.
“The Permian Basin has the capacity to store 150 gigatons of CO2. That would be 28 years of emissions in the US. That’s the prize for us and that’s the opportunity. People say if you’re sequestering in an oil reservoir then you are producing more oil, but the reality is that it takes more CO2 to inject into a reservoir than the barrel of oil that it makes come out,” Hollub said.
The challenge Occidental and other oil companies face is to make investors understand what is happening in this area of carbon sequesteration, she added.
The investment community at Davos is also looking hard at the oil industry in the face of mounting investor concerns.
Greenpeace told the Davos gathering that the world’s largest banks, funds and insurance companies had invested $1.4 trillion in fossil fuel companies since the Paris climate deal. It accused some of these groups of failing to live up to the World Economic Forum goal of “improving the state of the world.”