Number of businesses in Saudi military industries sector grows to 70

The number of local and international companies operating in Saudi Arabia’s military industries sector grew to 70 by the end of 2020.
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Updated 24 February 2021

Number of businesses in Saudi military industries sector grows to 70

  • General Authority for Military Industries says that this represents a total investment of $6.4 billion

ABU DHABI: The number of local and international companies operating in Saudi Arabia’s military industries sector grew to 70 by the end of 2020, representing estimated investment of SR24 billion ($6.4 billion).

The figures were announced on Tuesday, during the 2021 International Defense Exhibition and Conference (IDEX) in Abu Dhabi, by the Kingdom’s pavilion, which is organized and led by the General Authority for Military Industries (GAMI).

The authority said it had issued 114 licenses to 70 local and international companies by the end of last year, allowing them to operate in the sector. Of those, 57 percent were manufacturing licenses, 25 percent were for military services, and 18 percent were supply licenses. National companies accounted for 81 percent of the licenses, and foreign and mixed-ownership companies for the remaining 19 percent.

GAMI said it aims to support investors and facilitate their entry into the Saudi military and security industries market, as part of its strategy to increase localization in the defense sector to more than 50 percent of government spending on military equipment and services by 2030.

The authority added that investors can apply through its online licensing portal, licensing.gami.gov.sa, for permits and military licenses covering six areas in the sector: military equipment, military services, military electronics, military electronic services, ammunition and the manufacture of explosives.

GAMI is responsible for organizing, enabling and licensing military industries in the Kingdom. It is also tasked with developing a sustainable sector for the defense and security industries that enhances the Kingdom’s strategic independence, strengthens the foundations of its national security, and supports its economic and social prosperity. The authority also plays a pivotal role in regulating the sector.

IDEX 2021 began on Sunday and continues until Thursday at the Abu Dhabi International Exhibition Center.


Erdogan’s new dove: Five questions for Turkey’s central bank

Updated 15 min 6 sec ago

Erdogan’s new dove: Five questions for Turkey’s central bank

  • Erdogan fired latest governor last month
  • Dismissed two days after he raised interest rates

ISTANBUL: Turkey’s fourth central bank chief in less than two years will oversee his first policy decision on Thursday, after President Tayyip Erdogan rocked financial markets by firing a well-respected governor who had hiked rates just last month.
Erdogan replaced Naci Agbal, a policy hawk, with Sahap Kavcioglu, who has openly criticized Turkey’s tight monetary stance and who shares the president’s unorthodox view that high interest rates cause inflation.
The shock decision on March 20 raised expectations that the policy rate, now at 19 percent, would soon be cut and sent investors fleeing, knocking the lira 12 percent lower. For many analysts, Erdogan’s latest intervention has left the bank’s credibility in tatters.
Here are five questions ahead of the bank’s policy decision this morning:

1. WHAT HAS HAPPENED SINCE LAST MONTH’S RATE HIKE?
On March 18, the bank under Agbal raised rates by 2 percentage points — more than had been expected — to address inflation that was headed beyond 16 percent, and to reinforce his hawkish rhetoric. Two days later, early on a Saturday morning, he was fired.
Minutes after trading began the following Monday, the lira had plunged as much as 15 percent, to 8.485 versus the dollar, leaving it just above the record low hit the day before Agbal was appointed in November 2020.
Stocks had their worst selloff since the 2008 global financial crisis as foreigners dumped nearly $2 billion in Turkish assets in a week. The cost of insuring investments using credit default swaps jumped by 150 basis points to 450 bps.
“Because the whole change of governor has come in such a surprising fashion, the market is quite skeptical,” said Reza Karim, assistant fund manager, emerging markets debt, at Jupiter Asset Management, which has CDS insurance on an already “underweight” Turkish position.
“If they stay put ... and maintain the hawkish policy then that’s a positive sign,” he said of Thursday’s rates meeting.

2. WHERE DOES THE NEW GOVERNOR STAND?
Kavcioglu, a former banker and lawmaker in Erdogan’s ruling party, wrote in a newspaper column as recently as February that high rates do not help the economy and “indirectly cause inflation to rise.”
Since taking the job, he has downplayed those views and promised tight policy for a while given high inflation.
Asked on a call about his past columns, he told investors he would now act in line with his “institutional task” and urged them to “judge me after” the April policy decision, according to sources who took part in the call.
The assurances have resonated — for now.
All but two of 19 economists polled by Reuters expect Kavcioglu to hold rates this week. Oyak Securities said the lira could weaken if the bank’s post-meeting statement removes a reference to raising rates if needed, while Morgan Stanley warns a surprise cut would trigger a 15-20 percent plunge.

3. HOW IS POLICY LIKELY TO CHANGE?
Beyond this month, Kavcioglu is expected to cut rates sooner than would have happened under Agbal, whose hawkish moves sparked a brief lira rally that reversed a years-long exodus of foreign funds.
Five of 14 poll respondents predicted policy easing before mid-year, while seven forecast a move in the third quarter. Yet over the next two years, money markets appear to be betting rates will end up higher due to inflation pressure.
Premature rate cuts that further weaken the lira could, in turn, prompt Turkey to consider adopting some form of capital controls, some analysts say. The government has firmly dismissed this option.
“If you can’t raise rates and you don’t have sufficient reserves, then you don’t have any other choice if you want to limit exchange rate depreciation,” said Morgan Stanley’s chief economic adviser Reza Moghadam, a former IMF regional head.
“A lot of central banks that have reserve difficulties get into those (controls) but it doesn’t usually end well.”

4. WHAT ARE THE RISKS FOR INVESTORS — AND FOR TURKEY?
Investors were drawn by higher yields as Agbal adopted one of the tightest monetary policies in the world. After he was fired, sparking some big losses, some investors said they would not come back.
Ratings agencies say the reaction to Erdogan’s decision — and the harm it does to monetary policy independence — raises the risk of a balance-of-payments crisis given Turkish banks and companies have some $160 billion in short-term foreign debt.
The buffer against such a crisis is thin: a costly and unorthodox policy in 2019-2020 of selling some $128 billion in dollars to support the lira has depleted the central bank’s FX reserves by about 75 percent.
The lira’s slide, along with higher oil prices, has meanwhile raised import prices and pushed inflation up to 16.2% in March. Wall Street banks predict it will reach as much as 19 percent this quarter, keeping basic living costs high for Turks hit by the pandemic and joblessness.

5. WHAT DOES ERDOGAN WANT?
Reuters reported that Erdogan ousted Agbal for two reasons: his long-held aversion to high rates, and politics.
Erdogan was uncomfortable with Agbal’s investigation into the $128 billion in FX sales undertaken during his son-in-law Berat Albayrak’s stint as finance minister, sources said.
Agbal had promised to rebuild the FX buffer and the government has promised to stick to free-market principles. But analysts say the bank could revert to FX interventions under Kavcioglu.
Erdogan — who has shoved out three central bank governors in two years — called for single-digit rates again this month.
“Comments from Erdogan confirm his desire to cut rates rapidly and so there is clear risk of a dovish surprise this week,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.
“The economy is suffering greatly from the pandemic and Erdogan is desperate to inject some stimulus quickly,” he said.


Egypt’s petroleum sector made up 24% of GDP — minister

Updated 15 April 2021

Egypt’s petroleum sector made up 24% of GDP — minister

  • More than 60 international oil and gas companies operate in Egypt, including well-known names such as ExxonMobil and Chevron

CAIRO: The oil and gas sector contributed 24 percent of Egypt’s gross domestic product (GDP) in 2020 and was one of the key sectors that helped rebuild the country’s economy in the wake of the economic challenges since 2011, according to a senior government minister.

Egyptian Petroleum Minister Tariq El-Molla said in a statement that the sector had played a significant role in the economic reforms the government had implemented, which helped to create an appealing environment for investors.

More than 60 international oil and gas companies operate in Egypt, including well-known names such as ExxonMobil and Chevron.

Egypt launched the EastMed Gas Forum in 2018, which was designed to encourage strategic dialogue between Eastern Mediterranean countries — whether they are producers or consumers — in a bid to achieve optimal economic benefits and address common regional challenges.

The minister said that the EastMed Gas Forum charter was signed in September 2020 and had succeeded in attracting the world’s attention. Several countries had expressed their desire to join the forum — including France, which had been approved as a permanent member, and the US as an observer.

El-Molla confirmed that the Natural Gas Advisory Committee has been formed with 29 members and international institutions.

He said that natural gas had emerged as an important transitional fuel due to its environmentally friendly nature and because the Egyptian government had introduced many projects as part of a bid to maximize gas use in homes and cars.

El-Molla added that hydrogen had become an important source of fuel, and gained the support of international institutions. One example was Egypt’s partnering with the EU to establish a special committee to develop a strategy for the use, production and exploration of hydrogen.


Almost half of Jeddah’s hotel rooms were booked in March

Updated 15 April 2021

Almost half of Jeddah’s hotel rooms were booked in March

  • Industry report says occupancy rates were second-highest since pandemic started

JEDDAH: The hotel industry in Saudi Arabia’s commercial center reported one of its highest monthly occupancy levels of the COVID-19 pandemic period, according to preliminary March 2021 data from the hotel management analytics firm Smith Travel Research (STR).

According to the figures, hotel occupancy in Jeddah reached 47.1 percent in March, and the revenue per available room (RevPAR) reached SR318.72 ($84.99).

March occupancy and RevPAR rates were the second-highest since February 2020, just behind figures for January 2021. However, the average daily rate for hotel rooms was SR676.36, remaining in line with the levels recorded in the second half of 2020.

Earlier this month, a report by STR found that Saudi Arabia has the world’s biggest hotel pipeline, anticipating a 67.1 percent increase in room supply over the next three years, the highest among the 50 most populated countries. The data showed 73,057 rooms in the Saudi hotel pipeline, with 16,965 scheduled to come online in 2021. 

The Jeddah hotel market is expected to increase hotel supply by more than 97 percent, with 11,198 rooms under development.


Saudia targets post-pandemic profitability, privatization

Updated 15 April 2021

Saudia targets post-pandemic profitability, privatization

  • Kingdom’s flag carrier gearing up for resumption of international passenger travel on May 17

RIYADH: A few minutes into our interview and it was clear that the CEO of Saudia, the Kingdom’s state-owned flag carrier, wanted to set the record straight about the aviation sector during the coronavirus disease (COVID-19) pandemic.

“Many people believe that since flying has been reduced, we (the airline industry) have just been able to relax and take a breather,” said Capt. Ibrahim AlKoshy.

“Talking to everybody in the airline industry, it’s been one of the busiest times for anyone … We took that challenge as an opportunity to actually come out stronger.”

The aviation industry has certainly had its challenges. In February, the regional president of the International Air Transport Association (IATA) told Argaam that airlines in Saudi Arabia incurred $9.6 billion in losses as passenger traffic fell by 70 percent.

The latest figures released by IATA earlier this month showed that for Middle Eastern airlines, demand in February 2021 was down 83.1 percent compared to the same month in 2019.

Capt. Ibrahim AlKoshy
​​​​​

Flights were grounded in the Kingdom in March 2020. While domestic traffic resumed at the end of May last year, and Saudia is gearing up for international flights to restart on May 17, AlKoshy said it will still be some time before a recovery to pre-pandemic levels.

“Our estimates are pretty much in line with IATA and other airlines because we’re sharing data on market recovery,” he added.

“We don’t see that full recovery taking place in international (passenger traffic) until 2024. The remainder of 2021, we do see a strong domestic (and) slight improvement in international … It seems people are still a bit cautious about long-distance traveling.”

A survey in December found that 46 percent of Saudi respondents are looking forward to traveling internationally once restrictions are lifted.

Saudia is putting everything in place to help inspire confidence in travelers to feel safe getting on an aircraft again.

FASTFACT

Operating to 90 destinations in 36 countries, Saudia has a number of code-sharing agreements and partnerships with airlines such as Abu Dhabi’s Etihad Airways and China Southern Airlines.

AlKoshy said on April 19, Saudia will trial a digital travel and health pass developed by IATA, and has implemented around 50 COVID-related health initiatives on its flights, resulting in it being awarded Diamond status by the Airline Passenger Experience Association for its efforts to ensure the highest standards of cleanliness and sanitation across its operations. “The practices that we did at Saudia weren’t done generically. We actually hired infectious disease physicians to work with us on developing the protocols,” he added.

“We’re quite proud of how we actually put that together … It seems to have gained passenger confidence quite well.”

Rebuilding passenger confidence is important, and one of the main reasons that AlKoshy and his team have not been able to take a breather over the last year.

Operating to 90 destinations in 36 countries, Saudia has a number of code-sharing agreements and partnerships with airlines such as Abu Dhabi’s Etihad Airways and China Southern Airlines. (File photo)

“It’s been a complete revisit to the strategy … We’re really looking at a lot of operational efficiencies, better utilization of all resources, aircraft crew etc., not just because of COVID-19 but it’s the right thing to do. We’ll come out much stronger on this one,” he said.

Reuters reported in December that the Kingdom’s Finance Ministry approved SR13.6 billion ($3.6 billion) for Saudia in 2019, and SR6.4 billion in the first half of 2020. AlKoshy acknowledged that like many companies during the pandemic, help from the government was needed.

While he did not get into exact figures, he said the impression that the airline is heavily government-subsidized is not accurate.

“Saudia is a state-owned airline at this stage. We’re working toward privatization, but the truth of the matter is many of the subsidies that historically people believe Saudia receives are no longer received,” he added.

“We’re operating already on our own budget. There’s been some support for staffing etc. for COVID-19, but I think it’s really important to understand that Saudia actually entered with a strong balance sheet at the beginning of this (pandemic) and we’re doing quite well. However, that’s not to say support hasn’t been received during this period. It’s due to COVID-19.”

AlKoshy forecasts that the airline will be back in the black within a few years. “What we’re looking at is … Saudia sees profitability in 2024 without question,” he said.

Privatization of state assets is a core priority for the Saudi government going forward. “Privatization is part of the plan at the Saudia group level and for the airline as well,” he said.

Last month, the airline signed an agreement worth SR11.2 billion to partially finance new aircraft orders up until mid-2024.

According to its 2020 official factsheet Saudia has 144 aircraft, but AlKoshy confirmed that there are plans for new orders.

“Saudia, when looking at its next fleet offers as well, we have our requirements. We’ll definitely be looking at the best options we have with both Boeing and Airbus,” he said. “And there’s another fleet expansion expected that we’ll be going through, so we’ll see how we can work with Boeing and Airbus. They’ve been partners with Saudia for quite a long time. It’s something we’ll look at.”

Operating to 90 destinations in 36 countries, Saudia has a number of code-sharing agreements and partnerships with airlines such as Abu Dhabi’s Etihad Airways and China Southern Airlines.

“We have very strong plans to strengthen that virtual network of codeshares, possibly through joint ventures. There are many things that are being looked at. Some of them have been actioned already,” AlKoshy said.

As the airline counts down the days to May 17, he and his team will be looking forward to getting back to some form of normalization.

But, as he was keen to point out, they certainly were not resting on their laurels over the last year.

“It’s been a very challenging time for the airline industry as a whole, but we’ll come out much stronger on this one,” he said. “Saudia has very aggressive growth plans.”


O2, Virgin Media win provisional UK approval for $43bn merger

Updated 15 April 2021

O2, Virgin Media win provisional UK approval for $43bn merger

  • The two telecommunications groups agreed last May to merge their British businesses to create a broadband and mobile powerhouse in a challenge to market leader BT Group

LONDON: Britain’s competition watchdog said on Wednesday it had provisionally cleared the £31.4 billion ($43.3 billion) merger between broadband company Virgin Media and Telefonica’s UK mobile network O2.

The Competition and Markets Authority (CMA), addressing one of its primary concerns, said that its investigation had concluded the deal was unlikely to result in a substantial reduction of competition in the supply of wholesale mobile services.

“A thorough analysis of the evidence gathered ... has shown that the deal is unlikely to lead to higher prices or a reduced quality of mobile services — meaning customers should continue to benefit from strong competition,” said Martin Coleman, CMA Panel Inquiry Chair.

The regulator said it believed there was sufficient competition within the market to prevent either player raising wholesale broadband or mobile prices to the detriment of rivals who use its infrastructure.

The decision was welcomed by Virgin Media owner Liberty Global Plc. and Spain-based Telefonica, which took note of the CMA’s provisional conclusions.

“We continue to work constructively with the CMA to achieve a positive outcome and continue to expect closing around the middle of this year,” a spokesman for Telefonica told Reuters on Wednesday.

The two telecommunications groups agreed last May to merge their British businesses to create a broadband and mobile powerhouse in a challenge to market leader BT Group.

The two sides said earlier this month that Virgin Media boss Lutz Schuler would become chief executive of the new company.