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.


Dubai hub private jet traffic quadruples as Gulf high fliers return to travel

Dubai hub private jet traffic quadruples as Gulf high fliers return to travel
Updated 08 May 2021

Dubai hub private jet traffic quadruples as Gulf high fliers return to travel

Dubai hub private jet traffic quadruples as Gulf high fliers return to travel
  • After years in the doldrums, the private jet sector is rebounding strongly as Gulf operators report rising bookings and plane makers unveil new aircraft

DUBAI: Private jet traffic at one Dubai airport more than quadrupled in the first quarter as the sector rebounds strongly amid reduced commercial airline capacity.
The Mohammed bin Rashid Aerospace Hub in Dubai South recorded a 336 percent increase in private jet traffic in the first three months of this year, totaling 4,904 charters, it said on Saturday.
"We look forward to sustaining the momentum of aircraft movements as Dubai gears up to welcoming the world to Expo 2020 in October," said Tahnoon Saif, CEO of Mohammed Bin Rashid Aerospace Hub.

After years in the doldrums, the private jet sector is rebounding strongly as Gulf operators report rising bookings and plane makers unveil new aircraft such as Dassault's $75 million 10X that has been dubbed "the flying penthouse."

The Falcon 10X will be the company’s most powerful model when it goes into service in late 2025, with a range of 13,890 kilometers, and compete with high-end models offered by Canada's Bombardier and General Dynamics unit Gulfstream. It will come equipped with Rolls-Royce Pearl engines designed to run entirely on sustainable aviation fuel.

Regional carriers including Qatar Airways are also promoting their private jet charter units as scheduled air travel remains under pressure because of pandemic-related flying restrictions.

Charter jet movements at the Dubai hub’s VIP Terminal come from its four operators Jetex Executive Aviation, Jet Aviation, DC Aviation, and ExecuJet Middle East.
US-based firm General Dynamics said last week it recorded a surge in demand for private jets, in part due to increasing hopes of economic recovery following mass COVID-19 vaccination drives.
The company’s business jet deliveries increased to 28 units from 23 a year earlier, as travel restrictions gradually ease.
India has also become a lucrative market for private jet charter companies as wealthy expatriates seek to escape the deadly spike in COVID-19 infections in the country.
New Delhi-based JetSetGo has seen rising demand among the country's rich.
The company’s bookings jumped 900 percent in recent weeks, CNBC reported


Egypt’s economy to rebound from 2022, S&P Ratings says

Egypt’s economy to rebound from 2022, S&P Ratings says
Updated 08 May 2021

Egypt’s economy to rebound from 2022, S&P Ratings says

Egypt’s economy to rebound from 2022, S&P Ratings says
  • Real GDP growth will average 5.3 percent between 2022 and 2024

DUBAI: Egypt’s gross domestic product (GDP) growth will begin to rebound from 2022 onward on its foreign reserve buffers and debt market access, ratings agency S&P Global said, as it affirmed the country’s credit rating at “B/B” with a stable outlook.
Real GDP growth will average 5.3 percent between 2022 and 2024, S&P forecasts, due to higher public and private investment.
That compares to an expected 2.5 percent growth in 2021, where the impact of the pandemic was felt in full force, affecting major sectors such as tourism, manufacturing, and construction.
Still, S&P’s rating of the North African country is constrained by its wide fiscal deficit, large public debt and low-income levels.
But ongoing fiscal and economic reforms present strong medium-term growth prospects for Egypt, the new report said, and recovering growth and lower domestic interest rates will put the debt ratio back on a downward path.
“We expect Egypt’s foreign exchange reserves and access to domestic and external debt markets will allow it to cover higher external financing needs and upcoming maturities,” the report added.
Remittance inflow into the country will remain at high levels, and higher oil prices this year will have a balanced impact on its hydrocarbon exports and imports.
Egypt’s main sources of foreign exchange will remain under pressure, the report warned, as tourism and Suel Canal receipts still struggle amid the pandemic.


US job growth far below expectations

US job growth far below expectations
The unemployment rate rose to 6.1% in April from 6% in March. (Reuters)
Updated 08 May 2021

US job growth far below expectations

US job growth far below expectations
  • Nonfarm payrolls increased by only 266,000 jobs last month after rising by 770,000 in March, says Labor Department

WASHINGTON: US employers hired far fewer workers than expected in April, likely frustrated by labor shortages, leaving them scrambling to met booming demand as the economy reopens amid rapidly improving public health and massive financial help from the government.

Nonfarm payrolls increased by only 266,000 jobs last month after rising by 770,000 in March, the Labor Department said in its closely watched employment report on Friday.
Economists polled by Reuters had forecast payrolls advancing by 978,000 jobs.
The jobs report, the first since the White House’s $1.9 trillion COVID-19 pandemic rescue package was approved in March, will probably do little to change expectations that the economy entered the second quarter with strong momentum and was on track for its best performance this year in almost four decades.
Twelve months ago, the economy purged a record 20.679 million jobs as it reeled from mandatory closures of nonessential businesses to slow the first wave of COVID-19 infections. New claims for unemployment benefits have dropped below 500,000 for the first-time since the pandemic started.
Americans over the age of 16 are now eligible to receive the COVID-19 vaccine, leading states like New York, New Jersey and Connecticut to lift most of their coronavirus capacity restrictions on businesses.
But the resulting burst in demand, which contributed to the economy’s 6.4 percent annualized growth pace in the first quarter, the second-fastest since the third quarter of 2003, has triggered shortages of labor and raw materials.

SPEEDREAD

● The jobs report will probably do little to change expectations that the economy entered the second quarter with strong momentum and was on track for its best performance this year in almost four decades.

● Twelve months ago, the economy purged a record 20.679 million jobs as it reeled from mandatory closures of nonessential businesses to slow the first wave of COVID-19 infections.

● From manufacturing to restaurants, employers are scrambling for workers. A range of factors, including parents still at home caring for children, coronavirus-related retirements and generous unemployment checks, are blamed for the labor shortages.

From manufacturing to restaurants, employers are scrambling for workers. A range of factors, including parents still at home caring for children, coronavirus-related retirements and generous unemployment checks, are blamed for the labor shortages. The moderate pace of hiring could last at least until September when the enhanced unemployment benefits run out.
The labor market remains supported by very accommodative fiscal and monetary policy. President Joe Biden plans to spend another $4 trillion on education and childcare, middle- and low-income families, infrastructure and jobs. The Federal Reserve has signaled it intends to leave its benchmark interest rate near zero and continue to pump money into the economy through bond purchases for a while.
The unemployment rate rose to 6.1 percent in April from 6.0 percent in March. The jobless rate has been understated by people misclassifying themselves as being “employed but absent from work.” Millions of Americans remain out of work and many have permanently lost jobs because of the pandemic.


British Airways owner IAG expects travel recovery from July

British Airways owner IAG expects travel recovery from July
IAG’s first quarter operating loss before exceptional items of €1.14 billion was slightly better than the €1.17 billion loss forecast by analysts. (AFP/File)
Updated 08 May 2021

British Airways owner IAG expects travel recovery from July

British Airways owner IAG expects travel recovery from July
  • IAG’s first quarter operating loss before exceptional items of €1.14 billion was slightly better than the €1.17 billion loss forecast by analysts

LONDON: British Airways owner IAG is confident travel will recover from July onwards after forecasting only a minimal increase in its capacity to 25 percent for the April to June quarter.
IAG, which also owns Iberia and Vueling in Spain and Aer Lingus in Ireland, declined to forecast how much it would fly from July but said the recovery would be properly underway by then after more than a year of pandemic restrictions.
“We consider in the second half that we are going to be flying and we are prepared for that,” IAG Chief Executive Luis Gallego told reporters on Friday after the company posted a loss of €1.14 billion ($1.4 billion) in the first quarter.
Before July, however, Gallego said government action was needed on some issues, such as opening travel corridors between countries with high vaccination rates, including the United Kingdom and the US.
The rise to 25 percent of pre-pandemic capacity puts IAG’s plans behind those of rival airlines, and is only a marginal increase from the 19.6 percent it flew in the first three months of 2021.
Britain, which along with Spain is one of IAG’s main markets, is set to publish later on Friday its “green list” of low risk places where people can travel without needing to quarantine on their return.
Gallego said IAG was expecting only a small list of countries initially with more being added from June onwards.

FASTFACTS

● IAG, British Airways’ owner declined to forecast how much it would fly from July but said the recovery would be properly underway by then after more than a year of pandemic restrictions.

● The rise to 25 percent of pre-pandemic capacity puts IAG’s plans behind those of rival airlines, and is only a marginal increase from the 19.6 percent it flew in the first three months of 2021.

“Part of the reason we’re not giving guidance (for third quarter capacity) is simply because we don’t know what’s on the green list yet,” Chief Financial Officer Steve Gunning said.
Air France-KLM expects to operate 50 percent of its pre-pandemic flight capacity in the second quarter, picking up to 55 percent to 65 percent in July-September. Lufthansa expects to fly at about 40 percent of its pre-pandemic capacity for 2021 as a whole.
IAG’s first quarter operating loss before exceptional items of €1.14 billion was slightly better than the €1.17 billion loss forecast by analysts.
Shares in the company, which have risen 30 percent since the beginning of the year, traded up 0.7 percent.
“The company delivered a solid set of results and is pointing to the start of the recovery into the summer,” Goodbody analyst Mark Simpson said.
Given the ongoing uncertainty over COVID-19, IAG said it could not provide a profit outlook for 2021.


China propels BMW to strong profits, Germany lags

China propels BMW to strong profits, Germany lags
A BMW Vision Next car is seen during the 19th Shanghai International Automobile Industry Exhibition in Shanghai. (AFP)
Updated 08 May 2021

China propels BMW to strong profits, Germany lags

China propels BMW to strong profits, Germany lags
  • BMW net profit rose to €2.83 billion ($3.42 billion) from €574 million in the year-earlier period

FRANKFURT: Booming sales in China helped propel German luxury carmaker BMW to stronger profits in the first three months of the year even as its home market Germany trailed the ongoing recovery in global car markets from the worst of the pandemic shutdowns.
BMW said that its sales in China nearly doubled in the quarter to 230,120 vehicles, partly reflecting the shutdowns in early 2020 as China was hit first by the pandemic. Sales in the overall Asia region however exceeded even pre-pandemic levels.
Sales were up by double-digit percentages in most of Europe and in the US. An exception was the company’s home market in Germany, where sales dropped 5 percent. The earnings underscored the German auto industry’s strong connections with China; competitor Volkswagen said Wednesday that it recorded a 61 percent increase in first-quarter unit sales there, helping it sharply increase profits.
The company said higher sales volume across key global markets as they rebound from the pandemic recession was accompanied by improved prices. Earnings were also supported by better used car prices in the US, which increases revenues from the sales of cars that have been leased to customers.

NUMBER

BMW revenues rose 15 percent to €26.78 billion.

BMW CEO Oliver Zipse said that the quarter showed “our business model is a successful one, even in times of crisis.” He said the company’s focus is on developing digitally connected, electric cars. The company more than doubled its sales of battery and electric vehicles in the quarter over the year earlier, to 70,200.
Zipse said that the fall in sales in Germany was less than that for the total market, meaning market share had increased, and said that sales in April, the first month of the new quarter, had been “significantly better.”
BMW net profit rose to €2.83 billion ($3.42 billion) from €574 million in the year-earlier period. Revenues rose 15 percent to €26.78 billion. Per-vehicle profitability, defined as operating result on sales, reached 9.8 percent, a big increase from 1.3 percent in the year-earlier quarter and within the company’s long-term target range.
Chief Financial Officer Nicolas Peter said that the company had not lost any production due to the shortage of semiconductors — the silicon chips that enable many of the electronic functions in today’s vehicles — that has affected the auto industry worldwide.