Opinion

Saudi, UAE stimulus packages are good first response to economic threats

Saudi, UAE stimulus packages are good first response to economic threats

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The financial authorities of the two largest economies in the Arabian Gulf — Saudi Arabia and the UAE — have taken commendably rapid action in a bid to head off the economic hit from the coronavirus outbreak.

Over the past few days, the Saudi Arabian Monetary Authority and the UAE Central Bank have announced stimulus packages worth a combined $40 billion to counter the economic damage that will inevitably follow from escalating levels of infection in the region and in the world.

Although it was not specifically part of either announcement, the two authorities must also have their eye on the economic fallout from the recent falls in the oil price. Those are bound to add to economic volatility in both countries, and have financial consequences — for individuals, companies and treasuries — that are rightly top of the central bankers’ priorities.

In Saudi Arabia, a SR50 billion package was aimed at small and medium enterprises (SMEs), to grant them temporary deferrals on bank payment and other forms of credit financing. The SME sector has been one of the main focuses of the Vision 2030 strategy that seeks to diversify the economy away from oil dependency.

SME’s are growing in their importance in the Kingdom, but are still in relative infancy and need that kind of protection.

Analysts regard them as essential to boost the non-oil areas of the economy. 

The banking and financial systems of Saudi Arabia and the UAE remain strong, and should be resilient enough to withstand the economic recession that now looks unstoppable.

Frank Kane

The UAE went a step further, with an AED50 billion package to provide zero-interest loans to banks, and a further AED50 billion worth of leeway in their capital requirements, which should enable the banks to be indulgent to retail and business customers who might face financial hardship in the next few months.

It is worth seeing the Gulf actions as part of a global reaction to the threat posed by coronavirus.

The Federal Reserve in the US, the European Central Bank and the People’s Bank of China have all taken similar steps to inject liquidity into their systems and ease borrowing conditions for companies whose business and financial lines have been disrupted in recent weeks.

Will those actions be enough to counter a threat that has been increasing by the day? Western markets seemed to give a positive response at the end of last week, with the main share indicators rising — after an admittedly horrible week of falls — when the packages were announced. We will be in a better position to judge when European and American markets open after the weekend.

In the Gulf, perhaps because of the additional problem of lower oil revenues and its effect on government spending, Sunday’s reaction was less conclusive. The Tadawul, the Abu Dhabi Securities Market Index, and the Dubai Financial Market were all down.

The Dubai benchmarks were hardest hit, down more than 3 percent, perhaps reflecting the emirate’s position as the leading tourism and travel hub in the region at a time when flights are being canceled, visitor numbers restricted and tourist attractions mothballed.

The UAE had previously announced an even bigger tranche of measures — fee and levy reductions, cuts in customs charges and utilities charges — to address the travel and retail sectors of the country.

But there is a difference between the economic fallout that seems inevitable from a shrinking global economy, and the financial repercussions as reflected in the money markets. The banking and financial systems of Saudi Arabia and the UAE remain strong, and should be resilient enough to withstand the economic recession that now looks unstoppable.

It seems certain that regional and global financial markets will have several stressful periods in the weeks ahead, and that further stimulus packages will be required to help them over those bad patches.

The need is for policymakers to be adaptable, and to keep resources in store to fight the inevitable fires that will break out in regional economies. The recent stimulus packages were a sign that the financial authorities are aware of the risks, and have the tools and skills at their disposal to keep heading them off.

•  Frank Kane is an award-winning business journalist based in Dubai.

 

 

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view

Saudi Aramco makes $88.2 billion profit in ‘difficult’ year

Last month, Aramco committed itself to a $110 billion plan to invest in the Al-Jafura gas field in the Eastern Province, another step in the strategy of getting away from burning oil for domestic power generation. ( AFP)
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Updated 18 March 2020

Saudi Aramco makes $88.2 billion profit in ‘difficult’ year

  • Saudi state oil giant cements its position as the world’s most profitable company despite ‘exceptional challenges’
  • ‘Capital spending for 2020 expected to be between $25 billion and $30 billion’

DUBAI: In what was described as an “exceptional” year, Saudi Aramco cemented its position as the world’s most profitable oil company with net income of $88.2 billion, big dividend payments and low borrowings.

The result — announced on Sunday to the Tadawul stock exchange in Riyadh where the shares are listed — was achieved despite a “difficult macroeconomic environment.” In the course of the year, Aramco was subject to attacks on its facilities, lower oil prices and output, and challenging margins in the refining and petrochemicals industries.

Last year, Aramco also notched up its first-ever international bond issue, raising $12 billion in a heavily oversubscribed offering, and in December became the most valuable company in history with its record-breaking initial public offering (IPO).

President and CEO Amin Nasser said: “2019 was an exceptional year for Saudi Aramco. Through a variety of circumstances — some planned and some not — the world was offered unprecedented insight into our agility and resilience.

“Our unique scale, low costs, and resilience came together to deliver both growth and world-leading returns, while also maintaining our position as one of the world’s most reliable energy companies.”




Amin H. Nasser, president and CEO of Saudi Aramco, described 2019 as an exceptional year for the global oil giant. (Reuters)

The financial period closed before the full effects of the coronavirus and the end of the OPEC+ oil output agreement. 

Nasser said: “The recent COVID-19 outbreak and its rapid spread illustrate the importance of agility and adaptability in an ever-changing global landscape. This is central to Saudi Aramco’s strategy, and we will ensure that we maintain the strength of our operations and our finances. In fact, we have already taken steps to rationalize our planned 2020 capital spending.”

Net income was $88.2 billion for the full-year 2019, compared to $111.1 billion in 2018. The decrease was primarily due to lower crude oil prices and production volumes, coupled with declining refining and chemical margins, and a $1.6 billion charge associated with the subsidiary Sadara Chemical Company, the financial statement said.

Despite the profit fall, Aramco remains the most profitable company in the world, ahead of others like Apple, Alphabet (owner of Google) and big Asian banks.

Free cash flow — the amount of cash a company generates after accounting for operational expenses and investment — came to $78.3 billion, and total dividend payments were $73.2 billion, of which $3.9 billion will go to ordinary investors who bought in the IPO last December. 

Aramco is committed to paying $75 billion in dividends in 2020. Capital expenditure was $32.8 billion in 2019, up from the previous year. 

FASTFACTS

Last year, Saudi Aramco also notched up its first-ever international bond issue, raising $12 billion in a heavily oversubscribed offering.

Aramco is committed to paying $75 billion in dividends in 2020.

Capital expenditure was $32.8 billion in 2019, up from the previous year.

“The company expects capital spending for 2020 to be between $25 billion and $30 billion in light of current market conditions and recent commodity price volatility.

“Capital expenditure for 2021 and beyond is currently under review. The company’s low upstream costs and low sustaining capital provide significant flexibility and demonstrate differentiation to its peers,” Aramco said.

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Last month, Aramco committed itself to a long-term $110 billion plan to invest in the Al-Jafura gas field in the Eastern Province, another step in the strategy of getting away from burning oil for domestic power generation and, eventually, gas exports. The first phase is expected to be developed by early 2024.

In 2019, Aramco also committed to a deal with the Pubic Investment Fund to buy petrochemicals producer SABIC in a $69 billion transaction, which is expected to be completed in the first half of 2020, making it one of the biggest petrochemical businesses in the world. 

“Following the attacks on two facilities in September, the company restored production levels within 11 days due to its emergency response training and procedures. As a result, it demonstrated its long-standing reputation for reliability,” Aramco said.

The company is committed to high environmental standards and has achieved among the lowest carbon intensity levels in the world from its products.

Nasser said: “As the world deals with the difficult and dual challenge of satisfying demand for more energy alongside responding to the rising desire for cleaner energy, I believe we are well positioned given our oil production is among the least carbon intensive in the world.”

The financial results were in a range expected by energy analysts, given already available price and output data. The figures will be discussed in an online conference call between Aramco executives and analysts on Monday.v

 

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Egypt’s annual urban consumer price inflation fell to 4.2% in July

Updated 10 August 2020

Egypt’s annual urban consumer price inflation fell to 4.2% in July

  • Month on month inflation has increased in Egypt over the past month

CAIRO: Egypt’s annual urban consumer price inflation fell to 4.2% in July from 5.6% in June, the central statistics agency CAPMAS said on Monday.
Month on month inflation increased to 0.4% in July from 0.1% in June, the agency said.