Arab states work with the world but not with each other, Davos hears

Alain Bejjani said, ‘This region (MENAP) doesn’t work together. It works with the world but not with each other.’ (Courtesy WEF)
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Updated 21 January 2020

Arab states work with the world but not with each other, Davos hears

  • Majid Al Futtaim CEO Alain Bejjani: I think you’ll be surprised when I tell you that only 16 percent of the trade in the MENAP region is within the region
  • Alain Bejjani: We forget sometimes employment is a result of economic growth — you can’t create jobs without economic growth

LONDON: Arab economies need to break down barriers and start to work together if they are to stand any chance of creating the millions of jobs they need to grow, the World Economic Forum in Davos heard.
Regional economies are estimated to have grown by just 1 percent for 2019 as a weaker oil price, geopolitical threats and the impact of global trade wars have hurt output.
But a panel of Middle East business leaders and ministers called for more efforts to break down barriers and slash red tape in order to create the sort of economic growth needed for meaningful job creation.
“We forget sometimes employment is a result of economic growth — you can’t create jobs without economic growth,” said Alain Bejjani, the CEO of Majid Al Futtaim Holding, the Dubai-based retail conglomerate that operates malls across the Middle East.
He said that most global growth was creates through regional trading blocs but that this model had not yet worked successfully in the Middle East.
“If you look at the ASEAN region as an example — it has 56 percent of its trade happening within the region. I think you’ll be surprised when I tell you that only 16 percent of the trade in the MENAP region is within the region. If you take oil out it is less than 5 percent. So in reality this region doesn’t work together. It works with the world but not with each other.”
Bureaucratic processes have also stymied growth according to Majid Jafar, the CEO of UAE-based Crescent Petroleum.
“Registering a company can take more than a year in some countries,” he said. “So how can we make that quicker? Look at what is standing in the way and how can we improve it.”
The Middle East and Central Asia is expected to record 2.8 percent growth in 2020, the IMF said on Monday. That was slightly lower than its October outlook and reflecting the latest move by the OPEC+ group of oil producers to extend supply cuts. It expects the region to pick up speed in 2021 with growth of 3.2 percent.


Tumbling oil prices leave Iraq facing a perfect storm

Updated 03 April 2020

Tumbling oil prices leave Iraq facing a perfect storm

  • The price crash means Iraq’s monthly crude revenues were slashed by nearly half from February to just $2.99 billion in March

BAGHDAD: As crude prices plunge, Iraq’s oil sector is facing a triple threat that has slashed revenues, risks denting production and may spell trouble for future exports.

So what are the challenges facing the only significant industry in Iraq, as global oil prices fall to around $25 a barrel?

The price crash means Iraq’s monthly crude revenues were slashed by nearly half from February to just $2.99 billion in March.

The second-biggest crude producer in the OPEC oil cartel, Iraq pays international oil companies (IOCs) about $3 billion quarterly to extract its crude. With oil so cheap, the government is desperately looking to cut costs and delay payments.

Last week, the Basra Oil Company — the state-owned firm coordinating production in the oil-rich southern province — asked IOCs to accept a delay in six months’ worth of payments and cut work budgets by 30 percent, according to letters seen by AFP.

“A delay in first quarter payments is necessary, and we asked for the second quarter just in case,” said Khaled Hamza Abbas, BOC’s assistant director and a signatory to the letter, saying that oil companies had yet to respond.

But IOCs are already taking independent action, according to internal letters seen by AFP.

FASTFACT

90%

Iraq relies on oil revenues for more than 90 percent of state expenses.

Oil superpower ExxonMobil immediately asked subcontractors to “reduce overall cost” with other firms asking suppliers for discounts.

“IOCs are cash-strapped,” a source at the main operator in the south said.

However, the trouble does not stop there.

IOCs expense Iraq at the end of each quarter for what it cost to extract crude, and the Iraqi government pays them in oil.

“With the lower prices, the government would have to use virtually all its crude to pay oil companies and would have barely enough to sell,” a leading Iraqi official said.

Iraq relies on oil revenues for more than 90 percent of state expenses. Its 2020 budget was based on an estimated barrel price of $56, more than twice the current rate.

The spread of the novel coronavirus has severely disrupted rotations of key foreign nationals working at Iraq’s oil fields, risking a drop in the usual 4.5 million barrel per day (bpd) production.

To stem the spread of the respiratory illness, Iraq has shut its airports and imposed a countrywide lockdown until at least April 19, although many expect an extension.

The Gharraf field in Dhi Qar province, which has produced up to 100,000 barrels per day (bpd), is offline after last month’s evacuation of dozens of Malaysian workers by operator Petronas over coronavirus fears, according to a source at the province’s state-owned oil company.

Most foreign oil workers live on the fields in Basra, and are currently stuck there beyond their normal six- to eight-week rotations due to travel bans.

“We’re seeking approvals for an exemption for foreign staff so that we can secure the rotating teams. These companies have internal rules and you can’t keep the teams here for more than two months,” said BOC’s assistant director, Abbas.

A source from a major European oil firm operating in Basra said that a halt to foreign staff rotations would be a bigger threat to production than payment delays.

Britain’s BP, too, would have to trim production if 4,000 British nationals working in the south could no longer travel.

“There are no two ways about it,” a source with knowledge of BP’s operations said.

The third threat is a global drop in oil demand for the first time in a decade, with the International Energy Agency expecting 2020 demand to decrease by 90,000 bpd, a sharp downgrade from forecasts it would grow by more than 800,000 bpd.

“It has no equal in the history that we see such a strong decline in demand and a huge massive overhang of supply at the same time,” IEA director-general Fatih Birol said.

Two countries facing shrinking demands are India and China, where Iraq sells “the lion’s share” of its crude, according to geopolitical analyst Noam Raydan.

China, where the virus first emerged, is struggling through a huge economic slump and India has entered a three-week lockdown.