Economy

Oman posts $2.2bn budget surplus

Oman booked a budget surplus of 830.1 million rials ($2.2 billion) in the first 10 months of 2011 as high oil prices pushed revenues far above projections, finance ministry data showed on Dec. 29th. The surplus is equivalent to about 3.7% of the sultanate's 2010 nominal gross domestic product, according to Reuters calculations. "It is going to be another year of surplus in 2011 and that will boost Oman's foreign reserves," said Khalid al-Saidi, analyst at Al Omaniya Financial Services Co. Analysts polled by Reuters in December expected the non-Opec oil producer to post a fiscal surplus of 6.7% of GDP in 2011 thanks to robust crude prices. These have helped to offset a 12% rise in spending compared to the initial budget projection for this year, as Oman boosted social spending to head off political unrest. Oman's budget income jumped by nearly 45% to 9.311 billion rials in January-October compared to the same period last year. It is already 28% above the initial full-year projection, the data showed. Net oil revenues surged 61% to 7.152 billion rials. Oman sold its oil at an average price of $102.4 per barrel, up from $76.4 in the first ten months of 2010, the data showed. Government expenditures soared to 6.959 billion rials in January-October from 5.835 billion a year ago. Actual expenditures under settlement, which are funds already allocated but not yet disbursed, stood at 1.522 billion rials at the end of October. The ministry initially set 2011 spending at 8.1 billion rials. But protesters demanding jobs and an end to graft prompted Sultan Qaboos bin Said to pledge an extra $2.6 billion of spending in April. As a result, fiscal spending this year is expected to reach about 9.1 billion rials, Finance Minister Darwish al-Balushi said in October. Oman, which obtained pledges in March of $10 billion in aid over 10 years from its wealthier Gulf neighbours, originally forecast a budget deficit of 850 million rials for 2011, based on a projected oil price of $58 per barrel. It plans expenditures of 10 billion rials and revenues of 8.8 billion in 2012, based on an average oil price of $75 per barrel, with the forecast deficit amounting to 5.4% of GDP. The International Monetary Fund has projected that Oman's budget break-even oil price, the minimum price which it needs to balance its budget, will rise from $81 per barrel in 2012 to $105 by 2016. Source: Reuters

GCC, EFTA free trade zone plan on track

Bahrain's Shura Council has approved the formation of a free trade zone between the GCC and member states of the European Free Trade Association (EFTA) - Iceland, Liechtenstein, Norway and Switzerland. The zone will be established in line with the Free Trade Agreement signed between both parties in June 2009. Free trade negotiations between EFTA and the GCC were launched in February 2006 and concluded in April 2008. The basis for closer trade relations had been laid by a Joint Declaration on Co-operation agreed by both sides in 2000. The free trade agreement covers a broad range of areas including trade in goods, trade in services, competition and government procurement. Additional agreements on agricultural products between each EFTA state and the GCC form part of the instruments establishing the free trade zone. A joint committee currently supervises the functioning of the agreement, which will enter into force after ratification. With a combined population of more than 12 million, the EFTA is the world's ninth largest merchandise trader as well as significant actors in the areas of trade in services and foreign direct investment, according to the association. It has concluded 18 free trade agreements with 27 partner countries outside the EU. The bill will now be referred to His Majesty King Hamad for ratification after it was earlier approved by parliament. Source: TradeArabia News Service

Gulf economies to slow, stay strong fiscally

Economic growth is likely to slow in most of the Gulf's wealthy oil exporters next year but governments will remain able to spend to counter the impact of any global slump, a Reuters poll of analysts showed in late December. Gross domestic product in Saudi Arabia, the biggest Arab economy and the world's top oil exporter, is expected to expand 4.0% in 2012, down from an estimated 6.7% this year, according to the median forecast in a global poll of 18 analysts. Next year's growth forecasts were cut for all six members of the GCC compared with the last Reuters poll, which was conducted in September. The 2012 estimate for Saudi Arabia was reduced from 4.5%. The euro zone debt crisis and signs of slowing growth in China have darkened the outlook for the Gulf, making it harder for companies to raise funds from bank lending and bond issuance, and keeping real estate and equity prices under downward pressure in many countries. In contrast to much of the rest of the world, however, the Gulf region still has ample fiscal reserves, which they can use to stimulate their economies. They ramped up government spending early this year to protect social stability during the Arab Spring uprisings in the Mena region, and are now expected to keep spending high to maintain growth. 'Increased government spending should insulate these economies from the negative impact of the global slowdown on oil demand and prices,' said Said Hirsh, Middle East economist at London-based consultancy, Capital Economics. UAE’s GDP growth is expected to slow to 3.1% next year from 3.9% in 2011, according to the latest poll, conducted in December. Three months ago, analysts predicted 3.8% growth next year. Growth is slowest in Bahrain, the only GCC state to suffer major social unrest this year. But its economy has been recovering gradually since the second quarter of 2011 and is projected to accelerate to 3.0% next year. Gulf economies were hit hard by the 75% plunge in the global oil price during 2008 and remain vulnerable to any repeat if the Western world falls back into recession. Source: Reuters

Jordan: Venturing for SMEs

Amidst a slowdown in the Middle East’s private equity industry, Jordan’s small and medium-sized enterprises (SMEs) are set to get a boost from a new private equity fund. Aimed at facilitating investment in new businesses, the fund will enable SMEs to access liquidity from a new source, a vital step as finance coming from traditional means – specifically banks – remains one of the biggest obstacles to business expansion and job creation in the country. In an October 24 press release following the World Economic Forum’s Special Meeting on Economic Growth and Job Creation in the Arab World, the Jordan Enterprise Development Corporation (JEDCO), the European Investment Bank (EIB) and Abraaj Capital unveiled the details of the fund. The $50 million Jordan Growth Capital Fund will provide long-term financing and institutional support to up to 15 SMEs with high potential in fast-growth sectors such as technology. JEDCO, EIB and Abraaj Capital will serve to anchor investors in the fund, which will be managed by an Amman-based team supported by the Riyada Enterprise Development (RED) platform, itself part of the Dubai-based Abraaj Capital Group’s $500 million SME investment scheme. “The Jordan Growth Capital Fund is the first venture capital fund targeting SMEs in the Kingdom,” said Eng. Yarub Qudah, the CEO of JEDCO. “This initiative will play a major role in attracting international venture capital funds and foreign direct investors to invest in Jordanian SMEs. In addition, it will help in encouraging Jordanians to establish their own venture capital funds that will create a new sector specialized in fund management activities.” JEDCO, in partnership with the EIB, spearheaded the Jordan Growth Capital Fund initiative in order to foster the development of the venture capital industry in the kingdom. Abraaj Capital, which is investing $20 million in the fund, was also awarded the contract to manage it. As the government’s national development and export promotion organization, JEDCO helps Jordanian companies compete globally by fostering export opportunities in targeted regional and international markets. It also helps to enhance technical, logistic and administrative expertise. Source: Oxford Business Group

Egypt may need $15bn from IMF to avoid crunch

Egypt has little choice but to return to the IMF to help it find up to $15 billion to stave off a full-blown financial crisis, but the ruling army seems to be stalling to avoid blame for approaching a foreign institution for cash on its watch, economists said. The $3 billion facility from the International Monetary Fund (IMF) that Egypt negotiated then rejected in June may no longer be enough to manage an orderly currency devaluation and get a growing budget deficit under control. Adding to woes of an economy hammered by months of turmoil and violence, credit rating agency Moody's downgraded Egypt by a notch in December and warned a further cut could be on the way because of political uncertainty. 'It's not enough, because when the $3 billion was negotiated in June, the situation was very different,' said Said Hirsh, an economist with Capital Economics. Two finance ministers during Egypt's political transition, both of now out of office, the planning minister who is still in her post and the new prime minister have all indicated Egypt was considering or needed the IMF's support. But on most occasions as government officials seem to edge close to signing up, the army has indicated its reluctance. 'The easiest thing would have been for the military council to accept the loans from abroad, give it to Egyptians to live a better life and then hand over power and the Egyptian people would have been responsible to repay these debts,' General Mokhtar al-Mullah told reporters this month. Source: Reuters

Bahrain: Looking up

After some difficult months, Bahrain’s economy has returned to growth and looks set to accelerate in 2012. While concerns remain about the international climate, public investment and renewed private sector activity are having a positive effect on the country’s economic health. The Kingdom is expecting growth of 5% next year, Sheikh Mohammed Bin Essa Al Khalifa, the chief executive of the Bahrain Economic Development Board, told the international press in late October. Al Khalifa said that the government’s stimulus spending, plus financial support from the GCC, would contribute to economic expansion. The GCC has pledged $10 billion over 10 years to support the state’s economic and social development policies, including the building of housing to address the current shortage. Al Khalifa added that local business representatives and officials were intensifying their promotion of the country as an investment destination, taking steps that have included visits to the UK, US, France, Italy and Germany. In mid-October, for example, Al Khalifa was in the UK, encouraging British firms to invest in Bahrain. He highlighted opportunities in sectors that include infrastructure, construction and manufacturing. The economy is expected to expand by between 2% and 3% in 2011. This muted growth has been attributed to an uncertain global economic outlook, as well as the effect of social unrest in Bahrain and elsewhere in the Middle East earlier this year. However, despite the slowdown, unemployment remains low, below 4%, the Bahrain News Agency reported in November, and the economy is now picking up. Public spending, which is particularly focused on the development of infrastructure, will likely boost the economy. Major projects include a 40-kilometer causeway to Qatar and road improvements to ease Manama’s chronic traffic problems. Some BD14 million ($37 million) in infrastructure projects were awarded in July and August alone. Considerable investments are also being made in new mixed-use property developments around the capital, as residents look to move to less crowded areas with more modern accommodation and amenities. Source: Oxford Business Group

Kuwait budget surplus could hit $39 billion

Kuwait could see a budget surplus of between KD8.8 billion ($31.6 billion) and KD10.7 billion ($38.49 billion) before allocations to the Reserve Fund for Future Generations, during the 2011/12 fiscal year, a National Bank of Kuwait report said. The figure is KD3-6 billion higher than last year’s surplus, and would represent Kuwait 13th successive budget surplus, it said. The fiscal year average oil prices is expected to be between $106 and $108 per barrel, an increase of 28-31% on the year earlier. The country is forecast to spend 5-10% below the government’s forecast, the report said. Kuwait's fiscal year runs from April 1 to March 31. Source: TradeArabia News

Oman: Economy on the rise

Oman’s economy looks set for a period of solid expansion, with the state’s pump-priming efforts of the past year having a positive impact on growth. Much of the same is expected in 2012 as the government increasing its spending to create jobs and improve key infrastructure. In late November, Oman’s minister of financial affairs and deputy chairman of the financial affairs and energy resources council, Darwish bin Ismail Al Balushi, briefed the members of the Shura Council on the draft budget for the coming financial year. As detailed by the minister, total spending for 2012 has been set at OR10 billion ($26 billion), with expected revenues forecast to be OR8.8 billion ($22.85 billion). The economy should grow by 5.5% this year, with GDP projected to expand by 5% in 2012, the minister said. The increase planned for next year, on top of the above budget spending to date in 2011, will help further stimulate the economy and should push growth to the levels forecast by Al Balushi. In its 2012 spending program, the government will be increasing expenditure by around 10% over the current year’s total, with much of the additional outlays being directed towards projects aimed at boosting the economy and creating employment opportunities for Omanis. “The higher spending will boost employment and create about 30,000 jobs for students expected to graduate in 2012, and 50,000 more jobs will be made available to those who are already on the waiting list,” Al Balushi said in his address to the council. Most of the positions to be created under the 2012 budget will be in the public sector, though the government hopes that the private sector will increase its hirings as the economy expands. The government has moved to encourage Omanis to take up jobs in the private sector, amending the regulations governing employment conditions to shorten the working week to five days, or 45 hours, in line with practices in the public sector, and also raising the minimum monthly wage to $472. These changes should help put the private sector on an equal footing with the public sector and make employment in the non-state segment of the economy more attractive, said Margaret Purcell, the chief economist with BankMuscat. Source: Oxford Business Group

DED extends German tradelink ties

Dubai Exports, an agency of the Department of Economic Development (DED), has extended its extends tradelink partnership with the German Emirati Joint Council for Industry & Commerce (AHK). Saed Al Awadi, CEO of Dubai Exports and Dr. Peter Goepfrich, chief executive officer, AHK signed the partnership agreement. Through this strategic partnership, both organizations aim to enhance cooperation in promoting bilateral trade for development of exports and investment relations between Dubai, the UAE and Germany. According to the Dubai Export Monitor, the emirate’s total direct exports to Germany in 2010 amounted to Dh369.15 million while the total direct re-exports posted Dh634.56 million in the same year. Meanwhile, Dubai’s total Free Zone exports were worth Dh818.04 million. “Germany and Dubai have a history of trade and cooperation with a large number of German companies already based here while some of our local companies are doing business in the said country. The Tradelink Partnership serves as a platform for us to assist our members in exporting and enhancing their presence in both markets,” said Al Awadi. Under the Tradelink Agreement, both organizations will mutually seek research topics and information on trade and exports encouraging their members to expand in the two markets. Source: TradeArabia News Service

Saudi Arabia: Economy on an even keel

High domestic spending and sound levels of liquidity are expected to offset any adverse effects of Europe’s debt crisis on the Saudi Arabian economy, and the Kingdom looks set to maintain its solid growth for the remainder of this year and into the next. Despite the cooling of many Western economies and recent forecasts from the World Bank that some Asian countries may see growth rates ease, Saudi Arabia’s GDP growth predictions have been revised upwards, with some expecting the expansion will be as much as 6.9% in 2011. Though the Kingdom’s growth rate is then expected to slow in 2012 – estimates of expansion range from 4.5% at the lower end of the scale to 5.1% at the upper – the country is still poised to outperform most of it neighbors. According to the minister of finance, Ibrahim Al Assaf, while the European financial crisis remains the main challenge to international economic growth, Saudi Arabia is well placed to overcome it. While other economies around the world are slipping in and out of recession, the Kingdom has continued to post growth throughout the extended period of the crisis, said Al Assaf. “If worse comes to worst, I am confident that we have the means to deal with any renewed challenges,” Al Assaf told the Saudi Gazette in late November. “Notwithstanding the looming challenges facing the global economy, I am confident that Saudi Arabia’s immediate and medium-term growth prospects remain strong.” Jarmo Kotilaine, the chief economist at the National Commercial Bank in Jeddah, agreed, saying that while a deepening of the crisis in Europe could weaken the purchasing power of currencies in the region, and in turn lower global oil demand, Saudi Arabia is ready to ride out any downturn, thanks to its long-term policy of diversifying the economy and investing in key infrastructure and social programs. “This consistency and clarity of the main principles of policy should serve Saudi Arabia well even in the face of a severe economic storm,” Kotilaine said in an interview with The Arab News on November 23. Diversification of another sort may also help Riyadh should Europe return to negative growth. Having developed its export markets far beyond the continent, shipping to Asia, North America and closer to home, Saudi Arabia has built a buffer against the impact of a downturn in a single region hitting it too hard. Adding to the promising expectations, Egyptian investment bank EFG-Hermes said in a report issued in mid-November that growth would remain solid going into the new year, despite an expected reduction in oil production due to Libyan supplies returning to the market. Much of this expansion would come as a result of state spending, the bank said. Source: Oxford Business Group

GCC approves $5bn aid to Morocco, Jordan

Gulf Arab states decided at a summit in late December to set up a $5 billion fund to help development projects in aspiring Gulf Cooperation (GCC) members Morocco and Jordan, a final communiqué said. 'The higher council agreed to set up a Gulf development fund, which starts with offering support for development projects in the Hashemite Kingdom of Jordan and the Kingdom of Morocco, to the value of $2.5 billion each,' the final communiqué said. Gulf countries said in September they plan to fund a five-year development aid program for Morocco and Jordan, and the amount will be set in December. The Gulf monarchies are seeking closer ties with Arab kingdoms outside the Gulf as part of efforts to contain pro-democracy unrest, analysts say. The UAE said last month there was no consensus yet among Gulf states on admitting Jordan and Morocco to the GCC. Source: Reuters