INTERVIEW: ‘There is going to be pain and maybe some austerity’ — Saudi Citi chief

INTERVIEW: ‘There is going to be pain and maybe some austerity’ — Saudi Citi chief
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Updated 10 May 2020

INTERVIEW: ‘There is going to be pain and maybe some austerity’ — Saudi Citi chief

INTERVIEW: ‘There is going to be pain and maybe some austerity’ — Saudi Citi chief
  • CEO Carmen Haddad believes the Kingdom’s economy is robust and well resourced 

The coronavirus crisis has changed everything in the economic world as governments struggle to adapt to the new reality of collapsing growth and the likelihood of a Great Depression-type period ahead.

But some economies are better placed to handle a major downturn than others, according to Carmen Haddad, head of the US banking giant Citi in Saudi Arabia.

“Let’s put things into perspective, Saudi Arabia remains a G20 economy, and a very robust economy, the largest in the Middle East,” she told Arab News.

Her optimism is tempered by a realistic assessment that the Kingdom, along with every other economy in the world, will have to adapt as countries emerge from the crisis.

“I think there’s going to be pain, and maybe some austerity measures will be needed if this period extends. The government has taken several measures, including a 5 percent cut on its 2020 expenditure. This will probably come from entertainment and tourism sectors as the policymakers need to reallocate spending to ensure the right sectors receive funding,” she said.

“Maybe this will give some reflection on some of the projects. They have the opportunity to revisit the projects they have, especially the mega-projects that require huge capital expenditure.”

Citi has been busy in the Kingdom for many years, since it first opened up there in the 1950s, and recently has been part of the banking team that had helped Riyadh raise money on international capital markets, as well as advising on project financing, trade and other forms of corporate activity. Haddad is well placed to analyze the current economic and financial situation in which the Kingdom finds itself.

As well as the global economic downturn as a result of pandemic-related lockdowns, Saudi policymakers also have to reckon with the effects of the collapse in oil prices — still the government’s biggest source of revenue.

Haddad is aware of the challenges. “Saudi is largely an oil-based economy and possesses about 12.5 percent of the world’s proven reserves. Even with the implementation of the economic and social reforms under Vision 2030 and the plan to diversify away from being an oil-based economy, the non-oil revenue accounts for one-third of total revenues.

“This one-third now was only 13 percent of gross domestic product (GDP) five years ago, so the vision has been in execution mode for a few years. But considering the developments in crude oil supply demand dynamics and COVID-19, this has naturally had an impact on revenues as we saw the first-quarter  budget figures from the Ministry of Finance. We saw decline of 22 percent year on year. Expenditures were higher by 4 percent and there was a 9 per deficit,” she added.

The Kingdom has a number of policy options available to deal with the challenges, she believes.

“Regarding the deficits, the ratio of debt to GDP figure was 24 percent at the end of 2019, so even if you get to 30 percent by year end you still have a relatively robust and strong economy. I think the self-imposed debt ceiling increase from 30 percent to 50 percent will help during these times, until oil prices stabilize.

“They’ve been doing things very proactively. The Ministry of Finance recently announced the total impact of the current environment will be $29 billion on the 2020 budget deficit, so that means the forecast deficit has been revised to $79 billion, and it will be funded by debt and reserves.

“If you look at the debt issuance in the market by Saudi Arabia this year, it has been very well measured. They issued in January and then again in April — Saudi already raised $20 billion in debt between Eurobond and domestic sukuk.

“In the April issuance, Saudi raised a $7 billion multi tranche bond and it was 7.5 times oversubscribed. It was the largest order book from and emerging market sovereign this year, and a remarkable transaction from demand and pricing perspective,” she said. Citi was part of the finance team that advised on that bond issue.

The Kingdom has big reserves it can tap into, Haddad said. “The finance minister said it’s going to be painful and difficult, but I think Saudi has the capacity to manage. I think you have enough headroom to raise more debt and fund the deficit from local and international markets, and also tap into reserves from the government current account.

“Let’s not forget the reserves. The Saudi Arabia Monetary Authority (SAMA) announced a drop in the reserves to $475 billion, that’s down by $25 billion, but you know it’s expected there is going to be some pressure on reserves.

“If you look at the package of support for the banking system of $13 billion, aimed at easing the private sector, SMEs, and lending conditions. Those are very important steps that have been taken as well, and already reflected in the drop in the reserves.


BIO

BORN: Hamburg, Germany

EDUCATION:

  • Schooling in Baghdad and London
  • University of Richmond, UK
  • American International University, London

CAREER:

  • JP Morgan Chase, asset manager
  • Lehman Brothers, sales
  • Merrill Lynch, trading and brokerage
  • Citi private bank, KSA
  • Chief country officer, Citi Qatar
  • CEO, Citi KSA

“Overall, there are other reserves in the system that we don’t often look at. The Ministry of Finance has $130 billion of reserves and other government agencies like the Public Pension Agency, the General Organization for Social Insurance and the Public Investment Fund, we estimate they have a combined figure of around $500 billion in assets under management, of which $100 billion are in foreign liquid assets. So total reserves available are above $600 billion,” she said.

And there is the likelihood that oil prices will revive toward the end of the year as global demand recovers. Citi is looking at an average of $36 per barrel this year and $56 for 2021.

“Assuming that, we should be OK. Again, the debt appetite is there, reserves are high and the deficit is being managed, so hopefully this is going to be OK.  We need to look beyond 2020.  The IMF expects a bounce back in GDP in to 2.9 percent for next year,” she said.

Saudi Arabia, like other governments trying to tackle the pandemic shock, will have to take some hard decisions, Haddad said. “They may delay some projects that are not critical, given COVID and future challenges on certain sectors, like tourism.

“There will be huge changes in the way that we operate, so there may be some thought around what is a priority and what is not. Some of the mega-projects around entertainment and travel, for example — maybe those might be deferred or scaled back,” she said.

The pandemic crisis does not necessarily involve a complete halt to corporate and financial activity. “A lot of focus has been on privatization, but now it becomes even more important to accelerate the privatization agenda. Project financing or project-led funding for the public sector is important, as well as tapping into the export agency is also something that could be considered, the Export Credit Agency program. And then some optimization around certain portfolios. Tapping liquidity is increasing, so I’m sure there are other ways they can consider funding. So the focus there will be going forward and diversifying the funding base,” she said.

There could even be a buying opportunity for the Kingdom as foreign assets are going at bargain prices. The Public Investment Fund has already been active, snapping up opportunities in global leisure and energy sectors.

“The PIF has a lot of assets under their belt. They could go to the market and start looking for cheaper discounted prices to expand and enter the market today, especially the international market given their focus on the main pillars of investment.

“They have some liquidity to be able to buy at a cheaper price. They’ve done that and they can continue to do that. There’s some valuation dislocation happening in equity markets and from that there are opportunities for people who hold cash and have the ability to do that,” she said.

From her base in Dubai’s international financial center, Haddad is planning what she calls “phase two” of the reaction to the crisis, when Citi is thinking about getting back to some kind of post-pandemic reality.

“Although governments have announced some easing of restrictions, we are taken our own pace to ensure the safety of our people and coordinating with all stakeholders from government, the health ministry and regulators, to ensure we return to the workplace in a phased and measured approach, and need to make sure we get this right.

“We have not set out an exact timeline or dates because much depends on external factors. We are focused on the data, not the date, in our planning to return to office, and it will be done in multiple phases,” she said.

But she believes there will be permanent shifts in business practice as a result of the crisis.

“We have to understand that there is going to be a new normal. I don’t think I’ll be traveling as much, for sure,” she said.


ArcelorMittal takes over TAQA’s JESCO

ArcelorMittal takes over TAQA’s JESCO
Updated 01 August 2021

ArcelorMittal takes over TAQA’s JESCO

ArcelorMittal takes over TAQA’s JESCO
  • With the deal, JESCO’s 100 percent ownership has been transferred to AMTPJ

RIYADH: Saudi Arabia’s Industrialization and Energy Service Co. (TAQA) on Sunday sold all its shares in Jubail Energy Services Co. (JESCO) to ArcelorMittal Tubular Products Jubail (AMTPJ).
With the deal, JESCO’s 100 percent ownership has been transferred to AMTPJ, TAQA said in an emailed statement, without disclosing the value of the deal.
Commenting on the sale of stocks, TAQA Chairman Ahmed Al-Zahrani said: “The divestiture of JESCO is in line with TAQA’s 2021 strategy to become a major player in Vision 2030 realization by maximizing the value of local investment and creating a more diverse and sustainable economy. The transaction will result in a much stronger industry in the steel sector serving not only the Kingdom but also the rest of the world.”
The company’s mandate is to lead the way in localizing industries in the Kingdom, supplying specialized equipment, and development of oil and gas resources in the Middle East and North Africa (MENA).
TAQA CEO Khalid Nouh said: “The divestiture of non-core businesses such as JESCO allows TAQA to expand its portfolio through acquisitions of additional services and technologies.” 


Bitcoin tops $41,000 as cryptocurrencies rally after weeks-long downtrend

Bitcoin tops $41,000 as cryptocurrencies rally after weeks-long downtrend
Updated 01 August 2021

Bitcoin tops $41,000 as cryptocurrencies rally after weeks-long downtrend

Bitcoin tops $41,000 as cryptocurrencies rally after weeks-long downtrend
  • Bitcoin is currently trading above $41,000 and up more than 15 percent over the past week

RIYADH: Bitcoin, the leading cryptocurrency in trading internationally, traded higher on Sunday, rising by 0.02 percent to $41,447.73 at 4:41 p.m Riyadh time.

Ether, the second most traded cryptocurrency, traded at $2,580.98.76, up 5.33 percent, according to data from Coindesk.

Here is a rundown of major crypto news:

Bitcoin is currently trading above $41,000 and up more than 15 percent over the past week. The uptrend continues after the massive sell-off in May and two months of consolidation above the $30K support level, according to CoinDesk.

Germany plans to allow some institutional funds to invest billions of dollars in crypto assets for the first time, Bloomberg has reported.

A law effective Monday will allow so-called Spezialfonds with fixed investment rules to put up to 20 percent of their holdings in Bitcoin and other crypto assets. The funds, which can only be accessed by institutional investors, currently manage about $2.1 trillion.

“Most funds will initially stay well below the 20%,” said Tim Kreutzmann, an expert on crypto assets at BVI, Germany’s fund industry body.

In Ukraine, President Volodymyr Zelensky has signed the Law on Payment Services adopted by the Verkhovna Rada on June 30, the President's administration announced this week.

The new legislation aims to “modernize and further develop” the payment services market, and encourage innovation in the financial sector, according to a press statement.

The National Bank of Ukraine has also given the power to issue its own digital currency.

In an interview with Bloomberg on Thursday, Henri Arslanian, crypto leader at accounting and financial services firm PricewaterhouseCoopers (PWC), explained that crypto firms have high valuations due to the entry of major investors.

He mentioned investment firms and family offices are backed by major venture capitalists, private equity funds, and even some pension funds, and noted smaller venture capital firms are not satisfied with the trend.

Over to the US, Lael Brainard, a member of the Federal Reserve Board of Governors, highlighted the urgent need to develop a digital dollar, speaking to the Aspen Institute’s Economic Strategies Group on Friday.

He cited several reasons for creating a digital version of the US dollar, while the central bank agreed that it will have both international and domestic applications.


Saudi Arabia’s real estate price index rises by 0.4% in Q2

Saudi Arabia’s real estate price index rises by 0.4% in Q2
Updated 01 August 2021

Saudi Arabia’s real estate price index rises by 0.4% in Q2

Saudi Arabia’s real estate price index rises by 0.4% in Q2
  • The report said a 1 percent hike in the prices of residential plots jacked up the prices of residential properties

RIYADH: The real estate price index in Saudi Arabia rose by 0.4 percent in the second quarter of 2021 compared to the same period of the previous year, official data showed on Sunday.
The statistics issued by the General Authority for Statistics showed a 0.8 percent increase in the residential real estate prices in the second quarter while prices of commercial and agriculture properties declined by 0.5 percent and 0.2 percent respectively.
The report said a 1 percent hike in the prices of residential plots jacked up the prices of residential properties.
Meanwhile, the Wafi program, which regulates off-plan property activity in the Kingdom, issued a report highlighting its performance during the first half of the year.
Wafi issued 55 licenses for off-plan sales projects providing 24,328 housing units during the first half of 2021.
Off-plan property sales represent a growing sector of the Saudi real estate market, but some consumers are still wary of developers’ abilities to deliver quality homes on time.
The sector has been steadily increasing its share of total residential sales and data from the Wafi program.
According to real estate consultancy company, Knight Frank, off-plan units represent around 9 percent of total existing housing stock, but a massive 60 percent of total future supply in Saudi Arabia.
Saudi Arabia’s real estate sector is a key and effective economic driver for the country’s gross domestic product (GDP) and is connected to at least 120 industries.
Mortgage lending in Saudi Arabia increased 27 percent this year through May, as interest rates decreased to between 1 percent and 4.9 percent, compared to about 6 percent early last year.
Residential real estate financing contracts offered to individuals by local banks reached 133,006 through May, with a value of SR69.5 billion ($18.5 billion), according to data from the Saudi Central Bank (SAMA).
Real estate financing grew by 50 percent compared with the same period in 2020 when SR46.6 billion was lent via 104,000 contracts.


Saudi net foreign assets jump in June, central bank data shows

Saudi net foreign assets jump in June, central bank data shows
Updated 01 August 2021

Saudi net foreign assets jump in June, central bank data shows

Saudi net foreign assets jump in June, central bank data shows
  • Data from the Saudi Central Bank (SAMA) showed the assets rising by 34 billion riyals ($9.1 billion)

DUBAI: Saudi Arabia’s net foreign assets rose over 2 percent in June, as the global oil industry gradually recovers from the impact of COVID-19.

Data from the Saudi Central Bank (SAMA) showed the assets rising by 34 billion riyals ($9.1 billion) to 1.65 trillion riyals in June from the month before.

Total assets increased by 16.18 billion riyals to 1.842 trillion riyals, the central bank said.


Saudi Arabia’s economy likely to grow in 2021 and 2022, says report

Saudi Arabia’s economy likely to grow in 2021 and 2022, says report
Updated 01 August 2021

Saudi Arabia’s economy likely to grow in 2021 and 2022, says report

Saudi Arabia’s economy likely to grow in 2021 and 2022, says report
  • Capital Economics' forecast a further evidence that the Saudi economic recovery has taken off in 2021

RIYADHH Saudi Arabia’s economy is poised to grow from 2.2 percent to 4.8 percent in 2021 and from 4.1 percent to 6.3 percent in 2022, said a Capital Economics report.

The new forecasts are further evidence that the Saudi economic recovery has taken off in 2021.

At the start of the year, the Kingdom’s Ministry of Finance said that it expected 3.2 percent growth this year — reversing the pandemic-driven downturn of 2020. The International Monetary Fund forecast just 2.1 percent growth two months ago.

The Saudi economy is expected to maintain growth in the second half of the year. The expansion is also backed by higher oil output amid an OPEC+ agreement.

The Kingdom’s finance, insurance, real estate, and business sectors are likely to expand by 9 percent annually and their relative share to overall economic activity will grow by 12.7 percent.

Meanwhile, the services sector is also likely to grow about 10 percent annually on average, implying that its relative gross domestic product (GDP) share will climb to almost 40 percent in 2030.