S&P: Firms to delay investments

The oil and gas industry, alongside tourism, retail, real estate and hospitality, are likely to be worst hit be a drop in investment. (AFP)
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Updated 23 July 2020

S&P: Firms to delay investments

  • Twin blows of coronavirus disease and weakened oil prices may see many companies opt for caution to keep costs down

RIYADH: Gulf companies exposed to the the coronavirus disease (COVID-19) and weak oil prices may delay investments and keep costs down, according to a report from S&P Global Ratings.

Firms will have to wait at least a few quarters to see recovery, while focusing on managing money and preserving cash flows as new investments take a back seat.

“We are generally seeing a weaker macroeconomic picture, negative employment trends and consumer spending, and a softer 2020 across the board, with a focus on preservation rather than growth”, the report said.

Since mid-March, region-wide lockdowns as well as the drop in oil prices have put most business sectors in the Gulf Cooperation Council (GCC) area under pressure.

Aviation, tourism, real estate, hospitality, non-staples retail, and oil and gas are among the sectors that are most exposed to disruption while telecommunications, utilities, and food retailers were seen to be “relatively protected from deteriorating conditions.”

The credit rating agency said it expects a mid-to-high single digit real GDP contraction for most rated GCC sovereigns in 2020, and operating conditions to remain weak over the next few quarters.

It also expects to take several quarters for international passenger and tourism numbers to normalize.

BACKGROUND

The credit rating agency said it expects the negative effects from potential foreign population outflows to be more pronounced and create performance issues across a larger number of sectors.

S&P said that travel restrictions “will significantly weigh on Dubai’s tourism and hospitality sectors”, in addition to negative impacts on occupancy rates of hotels in Saudi Arabia due to the suspension of Hajj and Umrah.

While the telecom sector has so far fared comparatively well, it too will feel some impact from the pandemic, largely because of the departure of hundreds of thousands of expatriates who will no longer be buying phones and data packages.

The credit rating agency said it expects the negative effects from potential foreign population outflows to be more pronounced and potentially create performance issues across a larger number of sectors, particularly in Dubai, where expats form the majority of the population.

“Potential negative population trends should also mean some weakening of demand and revenue generation for otherwise more resilient sectors such as telecoms, utilities, and food staples.” S&P said.

Major companies across the region have already announced unprecedented job cuts as they seek to control costs. The jobs cull has extended from the aviation sector to energy with a number of national oil companies in the region slashing costs and laying off staff.


Unusually heavy rains in Senegal expose big gap in $1.4 billion flood plan

Updated 26 min 41 sec ago

Unusually heavy rains in Senegal expose big gap in $1.4 billion flood plan

  • Three months’ worth of rain fell on Sept. 5, forcing over 3,200 people to abandon their homes in outskirts of the capital
  • The plans included improving stormwater drainage — a priority in many West African countries
DAKAR: More than two weeks after heavy rains hit Senegal, thigh-high stagnant water still fills streets in Dakar’s suburbs, as angry residents ask what happened to a $1.4 billion government plan to protect citizens from rising flood risk.
Three months’ worth of rain fell on Sept. 5, forcing over 3,200 people to abandon their homes in the poor, low-lying outskirts of the capital and nearby region of Thies.
“My children used sand, rocks, whatever was available to stop the water,” said Fatou Dioum, whose family of 10 moved to emergency shelter in Dakar’s Keur Massar district.
Many stricken residents likened their situation to more widespread floods in 2009 and 2012, crises which the authorities promised would be averted in the future through its 766 billion CFA franc ($1.4 billion) 2012-2022 Flood Management Program.
After the latest deluge critically impacted over 16,700 people, according to figures from the international Red Cross, civil society groups and opposition leaders are now asking what happened to that plan.
“People are having to use boats to get in and out of their homes,” said Babacar Ngaraf, president of a group campaigning for better sanitation. “You’d think that after eight years, we’d not be seeing floods this big.”
The plans included improving stormwater drainage — a priority in many West African countries, where seasonal floods are proving increasingly destructive due to rapid urbanization in flood-prone areas and more intense rainfall.
However, in 2014 a report by the World Bank-managed Global Facility for Disaster Reduction and Recovery expressed concern that over 700 billion CFA francs, or 90 percent, of Senegal’s landmark flood plan had not been funded.
“The government is working to resolve the gap as we go along,” the World Bank told Reuters in emailed comments, without detailing the current size of the shortfall.
The president’s office did not respond to a request for comment. On Sept. 8, President Macky Sall said the government would soon provide an update on the plan and efforts to source funding for its completion.
Some goals have been achieved. A $73 million stormwater management project, financed mainly by the World Bank, built over 50 kilometers (31 miles) of canals and 21 basins.
This and other measures have protected 167,000 people from flooding, the lender said.
In Dakar’s Yeumbeul district, the authorities built a system that drains excess water through a chain of basins. But some areas flooded again this season because of a lack of maintenance, locals said.
“The pump’s not worked since 2014,” said resident Ismaila Faye, as young children sloshed through water that had spilled into houses bordering a trash-logged swamp.
The World Bank said the government had yet to follow through on a commitment to create a fund to finance the critical work of operating and maintaining drainage infrastructure.
Meanwhile the threat to neighborhoods like Keur Massar is rising.
Floods in West Africa, partly due to extreme weather events, have increased from fewer than two per year on average before the 1990s to over eight per year during the 2000s, according to a 2018 paper in the Journal of Flood Risk Management.
The authorities must develop a better flood management program, prioritising the relocation of thousands of households from these highly flood-prone areas, said Oumar Cisse, director of the Dakar-based African Institute of Urban Management.
“In reality, we don’t see a well-documented and constructed plan.” (Editing by Bate Felix and Jan Harvey)