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.”


OPEC and its allies meet to discuss oil output cuts

Updated 06 June 2020

OPEC and its allies meet to discuss oil output cuts

  • The meeting, originally scheduled for next week, was brought forward to Saturday

VIENNA: OPEC and its allies were holding talks via video conference Saturday to assess their current deal to slash production as oil prices tentatively recover on easing coronavirus lockdowns.
The 13-member group and other oil producing nations such as Russia and Mexico are discussing an agreement reached in April to boost prices, which have plummeted over falling demand as countries around the world have imposed strict lockdowns to stop the spread of the new coronavirus.
The meeting, originally scheduled for next week, was brought forward to Saturday at the suggestion of Algerian Oil Minister Mohamed Arkab, who currently holds the rotating presidency of the Organization of Petroleum Exporting Countries.
Under the terms of the April agreement, OPEC and the so-called OPEC+ pledged to cut output by 9.7 million barrels per day (bpd) from May 1 until the end of June.
The reductions would then be gradually relaxed from July, with 7.7 million bpd taken off the market from July to December.
But at Saturday’s talks, crude producers were expected to discuss extending the 9.7 million bpd beyond June, even if agreement might prove difficult to reach.
The April deal was signed after days of wrangling between major players, whose revenues have been ravaged by the collapsing oil market this year.
“It seems very likely the May-June cuts will be extended by another month,” said Bjornar Tonhaugen, analyst at Rystad Energy.
Some market observers are expecting the cuts to be extended still further, possibly until the end of the summer or even until the end of the year.
Although more countries around the world are gradually moving out of lockdown, crude consumption has not returned to pre-confinement levels, which had already been comparatively low.
As in previous negotiations, discussions could prove particularly tense between Russia and Saudi Arabia, the deal’s two heavyweights who became involved in a short but bitter price war when previous talks broke down in March.
Mexico, which held up the April deal before it was eventually finalized, has also already ruled out any further drop in oil production with its president, Andres Manuel Lopez Obrador, saying on Friday his country “could not adjust our production further.”
Another major bone of contention could be the willingness of each country to abide by the agreed production quotas, suggested RBC analyst Al Stanton.
According to data intelligence company Kpler, OPEC+ reduced output by around 8.6 million bpd in May, a smaller cut than planned, with Iraq and Nigeria seen as the main culprits.
Nigeria’s Ministry of Petroleum Resources said in a tweet Saturday that it backed discussions to allow countries which failed to conform fully to the agreed cuts in May and June to make up for it in July, August and September
Despite the difficulties, the output cuts have helped support oil prices, which rose to around $40 per barrel at the start of June for both the US benchmark, West Texas Intermediate (WTI), and Europe’s Brent North Sea contracts.
Around April 20, both had slumped to historic lows, with Brent falling as low as $15 and WTI even entering negative territory.