How Saudi economy came out of the pandemic in 2021: Year in Review

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Updated 05 January 2022

How Saudi economy came out of the pandemic in 2021: Year in Review

  • Vaccination campaigns rolled out in the Kingdom and across the world drove its key oil exports

RIYADH: The Saudi economy recovered in 2021 after a tough year of pandemic restrictions as vaccination campaigns rolled out in the Kingdom and across the world driving its key oil exports.

MENA’s largest economy bounced back from last year, when the Kingdom’s gross domestic product contracted by 4.1 percent, according to the International Monetary Fund.

But this year saw higher oil output, its first quarterly budget surplus in over two years and lower unemployment drove growth.

Some economic data in 2021 even bettered pre-pandemic levels, although the full effect of the latest omicron variant is yet to be played out. 

Here are the Kingdom’s economic key highlights this year:

First quarter: Oil exports lift

The value of oil exports continued its rebound in the first quarter of 2021, rising for the third consecutive quarter and hitting the highest level since the final quarter of 2019, according to official data. 

However, in all four quarters of 2021, the Kingdom’s oil exports were lower when compared to the corresponding periods in 2019.

 

Second quarter: Unemployment eases

Oil and non-oil exports grew by an annual rate of 123 percent and 61 percent in the second quarter by value, respectively, according to the General Authority for Statistics. These were the highest annual growth rates for both categories since at least 2018.

In June, the value of Saudi Arabia’s oil exports increased by 123 percent to SR61.5 billion ($16.4 billion) from a year ago, said GASTAT. 

Oil exports accounted for 72 percent of total exports in June, up from 62 percent in the same month last year, it added. 

HIGHLIGHTS

MENA’s largest economy bounced back from last year, when the Kingdom’s gross domestic product contracted by 4.1 percent, according to the International Monetary Fund.

This year saw higher oil output, its first quarterly budget surplus in over two years and lower unemployment drove growth.

Some economic data in 2021 even bettered pre-pandemic levels, although the full effect of the latest omicron variant is yet to be played out.

The unemployment rate among Saudi nationals fell to 11.3 percent in the second quarter, the lowest since at least the same period in 2016, said GASTAT, attributed to ongoing government efforts to boost local employment in the private sector.

By contrast, Saudi unemployment had hovered at a mean rate of 13.7 percent in 2020.

 

The third quarter: Budget surplus and falling inflation

The value of oil exports hit SR206.6 billion in the third quarter, the highest since the final quarter of 2018, as the sector enjoyed rising demand and higher prices.

This led the Kingdom’s GDP to jump by 7 percent in the period, the highest annual rate since 2012. Oil and non-oil output surged by 9.3 percent and 6.3 percent, respectively.

The Ministry of Finance added that the Kingdom recorded its first quarterly budget surplus since the first quarter of 2019. The surplus was valued at SR6.7 billion, reversing a SR4.6 billion deficit in the previous quarter. 

The upswing was driven by multiyear high crude prices and government social spending cuts, as the pandemic eased.

In August, the annual inflation rate in the Kingdom hit its lowest level in 20 months, reaching 0.3 percent. Rises in consumer prices in the second half of the year slowed as the effects of the VAT hike from 5 percent to 15 percent in July 2020 faded. 

The inflation rate in June 2021 had been 6.2 percent, which tumbled to 0.4 percent in July.

The Saudi private sector experienced its strongest growth in September since 2015, according to IHS Markit, driven by new orders and higher output. Shoppers received a boost following the easing of lockdown restrictions, driving growth.

Back in 2020, Saudi Arabia’s annual inflation rate averaged 3.4 percent, driven by the VAT rise. 

Also, the budget deficit hit SR293.9 billion in 2020, rising more than two-fold compared to 2019. Spending on social benefits, subsidies and grants were all raised, at the height of the pandemic.

 

The fourth quarter: More oil production

Saudi oil exports and production in October hit their highest levels since April 2020, according to data published by Jodi. Oil shipments lifted 5 percent on the previous month to 6.83 million barrels per day. Fuel production rose to 9.78 million bpd, only slightly higher than in September, but this was 9 percent up on a year ago.

 

Forecasts for 2022

The outlook for the Saudi economy next year is favorable, according to government and economic forecasters.

The Ministry of Finance expects a 2022 budget surplus of SR90 billion as revenues are set to grow by 12.4 percent compared with estimated revenues for this year. Spending is expected to narrow by 5.9 percent. This will give the Kingdom its first fiscal surplus since 2013, if achieved.

The ministry forecasts that the economy will grow by 7.4 percent next year.

Capital Economics has a similar forecast of 7.3 percent, saying that oil production will push up the Kingdom’s output in 2022.

The GCC Statistical Center, Jadwa Investment as well as Capital Economics expect Saudi Arabian inflation in 2022 to settle at between 1 and 2 percent as last year’s VAT rise continues to ease.


Google to pay $90 million to settle legal fight with app developers

Updated 01 July 2022

Google to pay $90 million to settle legal fight with app developers

  • Some 48,000 app developers are eligible to apply for the $90 million fund, if the court approves the proposed settlement

WASHINGTON: Alphabet Inc’s Google has agreed to pay $90 million to settle a legal fight with app developers over the money they earned creating apps for Android smartphones and for enticing users to make in-app purchases, according to a court filing.
The app developers, in a lawsuit filed in federal court in San Francisco, had accused Google of using agreements with smartphone makers, technical barriers and revenue sharing agreements to effectively close the app ecosystem and shunt most payments through its Google Play billing system with a default service fee of 30 percent.
As part of the proposed settlement, Google said in a blog post it would put $90 million in a fund to support app developers who made $2 million or less in annual revenue from 2016-2021.
“A vast majority of US developers who earned revenue through Google Play will be eligible to receive money from this fund, if they choose,” Google said in the blog post.
Google said it would also continue to charge a 15 percent commission to developers who make $1 million or less annually from the Google Play Store. It started doing this in 2021.
The court must approve the proposed settlement.
There were likely 48,000 app developers eligible to apply for the $90 million fund, and the minimum payout is $250, according to Hagens Berman Sobol Shapiro LLP, who represented the plaintiffs.
Apple Inc. agreed last year to loosen App Store restrictions on small developers, striking a deal in a class action. It also agreed to pay $100 million.
In Washington, Congress is considering legislation that would require Google and Apple to allow sideloading, or the practice of downloading apps without using an app store. It would also bar them from requiring that app providers use Google and Apple’s payment systems. 


 


SpaceX’s Starlink Internet gets US regulator’s nod for use with ships, boats, planes

Updated 01 July 2022

SpaceX’s Starlink Internet gets US regulator’s nod for use with ships, boats, planes

  • SpaceX has steadily launched some 2,700 Starlink satellites to low-Earth orbit since 2019
  • It has amassed hundreds of thousands of subscribers, including many who pay $110 a month for broadband Internet

WASHINGTON: The US Federal Communications Commission on Thursday authorized Elon Musk’s SpaceX to use its Starlink satellite Internet network with moving vehicles, green-lighting the company’s plan to expand broadband offerings to commercial airlines, shipping vessels and trucks.
Starlink, a fast-growing constellation of Internet-beaming satellites in orbit, has long sought to grow its customer base from individual broadband users in rural, Internet-poor locations to enterprise customers in the potentially lucrative automotive, shipping and airline sectors.
“Authorizing a new class of terminals for SpaceX’s satellite system will expand the range of broadband capabilities to meet the growing user demands that now require connectivity while on the move,” the FCC said in its authorization published Thursday, echoing plans outlined in SpaceX’s request for the approval early last year.
SpaceX has steadily launched some 2,700 Starlink satellites to low-Earth orbit since 2019 and has amassed hundreds of thousands of subscribers, including many who pay $110 a month for broadband Internet using $599 self-install terminal kits.
The Hawthorne, California-based space company has focused heavily in recent years on courting airlines around Starlink for in-flight WiFi, having inked its first such deals in recent months with Hawaiian Airlines and semi-private jet service JSX.
“We’re obsessive about the passenger experience,” Jonathan Hofeller, Starlink’s commercial sales chief, said at an aviation conference earlier this month. “We’re going to be on planes here very shortly, so hopefully passengers are wowed by the experience.”
SpaceX, under an earlier experimental FCC license, has been testing aircraft-tailored Starlink terminals on Gulfstream jets and US military aircraft.
Musk, the founder and CEO of SpaceX, has previously said that the types of vehicles Starlink was expected to be used with pursuant to Thursday’s authorization were aircraft, ships, large trucks and RVs. Musk, also the CEO of electric car maker Tesla Inc, had said he didn’t see “connecting Tesla cars to Starlink, as our terminal is much too big.”
Competition in the low-Earth orbiting satellite Internet sector is fierce between SpaceX, satellite operator OneWeb, and Jeff Bezos’s Kuiper project, a unit of e-commerce giant Amazon.com which is planning to launch the first prototype satellites of its own broadband network later this year. 

 


Bitcoin falls below $19,000, further shaking crypto markets

Updated 01 July 2022

Bitcoin falls below $19,000, further shaking crypto markets

Bitcoin dropped 6.1% to $18,866.77 at 2004 GMT on Thursday, putting the biggest and best-known cryptocurrency down $1,226.41 from its previous close and down 60.9% from the year's high of $48,234 on March 28.
Several big players in the cryptocurrency markets have had difficulties, and further declines could force other crypto investors to sell holdings to meet margin calls and cover losses.
Ether, the coin linked to the ethereum blockchain network, dropped 7.5% to $1,016.08 on Thursday, losing $82.38 from its previous close.
Both digital assets have struggled since U.S. based lender Celsius Network this month said it would suspend withdrawals. Bitcoin and ether were further rattled by the apparent insolvency of crypto hedge fund Three Arrows Capital, which a person familiar with the matter told Reuters has entered liquidation.
Many of the industry's recent problems can be traced back to the spectacular collapse of so-called stablecoin TerraUSD in May, which saw the stablecoin lose almost all its value, along with its paired token. (Reporting by Mrinmay Dey in Bengaluru and Hannah Lang in Washington; Editing by David Gregorio)

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Crypto rules to make Europe global leader as prices plunge

Updated 01 July 2022

Crypto rules to make Europe global leader as prices plunge

  • EU to subject cryptocurrency transfers to money laundering rules

RIYADH: Europe prepares to lead the world in regulating the cryptocurrency industry at a time when prices have plunged, wiping out fortunes, fueling skepticism and sparking calls for tighter scrutiny.

The EU took a first step late Wednesday by agreeing on new rules subjecting cryptocurrency transfers to the same money laundering rules as traditional banking transfers.

A much bigger move was expected as EU negotiators hammer out the final details late Thursday on a separate deal for a sweeping package of crypto regulations for the bloc’s 27 nations, known as Markets in Crypto Assets, or MiCA.

Like the EU’s trendsetting data privacy policy, which became the de facto global standard, the crypto regulations are expected to be highly influential worldwide.

The EU rules are “really the first comprehensive piece of crypto regulation in the world,” said Patrick Hansen, crypto venture adviser at Presight Capital, a venture capital firm.

Patrick Hansen, analyst

“I think there will be a lot of jurisdictions that will look closely into how the EU has dealt with it since the EU is first here,” Hansen said.

He expected authorities in other places, especially smaller countries that don’t have the resources to draw up their own rules from scratch, to adopt ones similar to the EU’s, though “they might change a few details.”

Companies issuing or trading crypto assets such as stablecoins face tough transparency requirements requiring them to provide detailed information on the risks, costs and charges that consumers face.

Providers of bitcoin-related services would fall under the regulations, but not bitcoin itself, the world’s most popular cryptocurrency that has lost more than 70 percent of its value from its November peak.

Russia probes 400 cases

The Federal Financial Monitoring Service of the Russian Federation is trying to detect around 400 cases in which cryptocurrencies are involved, the agency’s director, Yury Chikhanchin, revealed the number during a meeting with President Vladimir Putin.

Russian law enforcement authorities have already initiated 20 criminal cases related to digital assets, Bitcoin.com reported.

Chikhanchin acknowledged that Russians continue to actively use cryptocurrency platforms located outside the country.

“This phenomenon continues to exist. And only on two foreign sites, two exchanges, several hundred thousand Russian citizens participate in transactions worth tens of billions,” he said.

According to official data released earlier this year, the number of lawsuits related to cryptocurrency mining in Russia exceeded 1,500 in 2021.

$100 million crypto hack

Digital investigative firms have concluded that North Korean hackers are most likely responsible for an attack last week that took as much as $100 million in cryptocurrency from a US company, according to Reuters.

Cryptocurrency assets were stolen on June 23 from Horizon Bridge, a service provided by Harmony blockchain that transfers assets between blockchains. The hackers’ activity since then suggests they may be affiliated with North Korea, which experts say is among the most prolific cyberattackers.

The UN sanctions monitors say Pyongyang uses the stolen funds to finance its nuclear and missile programs.

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Fitch cuts view on global sovereign debt over rise in borrowing costs

Updated 01 July 2022

Fitch cuts view on global sovereign debt over rise in borrowing costs

LONDON: Credit rating agency Fitch downgraded its view on sovereign debt on Thursday on concerns about the rise in global borrowing costs and the potential for a flurry of new defaults.

Fitch, which monitors over 100 countries, said the Ukraine-Russia war was stoking problems such as higher inflation, trade disruptions and weaker economies which are all now hurting sovereign credit conditions.

“Rising interest rates are increasing government debt-servicing costs,” Fitch’s Global Head of Sovereigns, James McCormack, said, cutting the firm’s view on the sovereign sector to “neutral” from “improving.”

“Most exposed are emerging market (EM) sovereigns, but some highly indebted developed markets are at risk as well, including in the eurozone.” The number of countries seeing their credit ratings cut has begun to rise again this year as the pressures have built.

Most of the governments Fitch covers have either brought in subsidies or cut tax cuts to try to cushion the impact of surging inflation. But that carries costs.

“While modest fiscal deteriorations can be absorbed by the positive effects inflation has on government debt dynamics, such effects depend on the retention of low interest rates, which are now less certain,” McCormack said.

While commodity exporters will benefit from higher prices, those who have to import the bulk of their energy or food will suffer.

Gross external funding needs will be highest this year in both nominal terms and relative to foreign exchange reserves for EM sovereigns that are net importers of commodities, McCormack added.

“They now face tighter global funding conditions, and with a record-high share of sovereigns rated in the ‘B’ category or lower, it is likely there will be additional defaults.”

The list of countries either in default or whose financial market bond yields suggest they will be currently stands at a record 17.

Those 17 are Pakistan, Sri Lanka, Zambia, Lebanon, Tunisia, Ghana, Ethiopia, Ukraine, Tajikistan, El Salvador, Suriname, Ecuador, Belize, Argentina, Russia, Belarus and Venezuela.

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