Egypt’s economic reforms yielding positive results: finance minister

Non-tax revenues saw an increase of 122.9 percent, according to Egypt’s finance minister. Shutterstock
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Updated 15 April 2024
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Egypt’s economic reforms yielding positive results: finance minister

RIYADH: Egypt’s new economic path, focused on structural reforms empowering the private sector to lead growth and attracting investment, has begun to yield positive results, said the country’s finance minister.  

Mohamed Maait highlighted that despite the harsh impacts of global and regional economic crises, Egypt has seen financial indicators surpass budget estimates and targets over the past nine months of the fiscal year 2023-2024, Egyptian daily Al-Ahram reported. 

The minister noted that this success reflects the international recognition of the north African country’s economy for achieving better-than-expected performance metrics.  

Last month, Egypt secured an additional $5 billion in loans from the International Monetary Fund following the central bank’s decision to raise interest rates and allow the pound to depreciate by nearly 40 percent in value. 

Earlier this month, the IMF announced that it would link payments to the country under an $8 billion financial program to Cairo’s decision to allow market conditions to determine the price of its currency and to make foreign exchange available to businesses and private individuals. 

Further emphasizing the economic strategies, Maait pointed out the significant improvements in non-tax revenues, which saw an increase of 122.9 percent, and tax revenues which surpassed 1 trillion Egyptian pounds ($20.6 billion), marking a growth of 41.2 percent annually.   

He proudly noted these gains were achieved without imposing new burdens on citizens or investors, thanks to expanded mechanization intended to broaden the tax base and integrate the informal economy into the formal sector.   

Maait pointed out that the country’s continues effort to boost its economy is evident in the Ministry of Finance’s ongoing dialogues with over 2,000 investment institutions a year.   

The ministry’s Investor Relations Unit plays a crucial role in these engagements, maintaining open dialogue throughout the year and issuing monthly performance reports. 

These reports provide foreign investors with precise, up-to-date economic data, including details about debt levels, deficits, and primary surpluses, the state-owned newspaper reported.  

They also offer a simplified guide on the various incentives, including tax advantages available to investors, aiming to alleviate any concerns and accurately address potential economic risks.  

Meanwhile, data released earlier this month by Egypt's Central Agency for Public Mobilization and Statistics showed a slowdown in the country’s urban consumer price inflation rate to 33.1 percent in March from 36 percent in February.  

Additionally, month-on-month prices rose by 10 percent in the third month of 2024, down from an 11.4 percent increase in the previous period. 

This development follows the central bank’s announcement in early March of a 600 basis points hike in interest rates at an unscheduled meeting, along with a shift to an inflation-targeting regime, allowing the exchange rate to be determined by market forces. 

Furthermore, Egypt’s Ministry of Petroleum and Mineral Resources has announced that construction of a solar power plant at the Assiut Oil Refining Co. has begun, in an effort to lower carbon emissions.   

The project, spearheaded by the consortium of ENPPI and Petrojet, involves the creation of a 10-megawatt solar facility, with an investment of 550 million Egyptian pounds.   

Scheduled for completion within 11 months, this initiative is a part of a broader strategy for energy transition and emissions reduction across the country’s petroleum sector.  

This solar power project is complemented by another initiative at the Egyptian General Petroleum Corp., aiming to produce 6.5 MW of electricity from solar energy, with a similar investment of 500 million pounds.   

Both projects are financed through a EU grant under the Energy Sector Policy Support program, aligning with the ministry’s goal to implement actionable projects that advance the sector’s sustainability objectives.  


Saudia tops Kingdom’s airlines in May for passenger satisfaction and resolution: GACA 

Updated 23 June 2024
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Saudia tops Kingdom’s airlines in May for passenger satisfaction and resolution: GACA 

RIYADH: Saudi Arabia’s flagship carrier, Saudia, registered the fewest complaints among the Kingdom’s airlines and documented a 95 percent resolution rate, according to official data. 

In its May rankings of air transport service providers and airports, the General Authority of Civil Aviation noted that a total of 1,318 complaints were registered against Saudi airlines. 

As part of its efforts to uphold passenger rights and promote transparency in the aviation sector, the authority has been conducting a monitoring and inspection program to ensure that Saudi airports and carriers adhere to international standards and recommendations. 

This monthly classification, based on traveler complaints received by GACA, considers Saudia, flyadeal, and flynas, as well as multiple airports across the Kingdom. 

Saudia emerged with the lowest incidence of complaints among airlines, with only 10 per 100,000 travelers and an impressive 95 percent resolution rate. 

Following closely, flyadeal recorded 11 complaints per 100,000 passengers, with a resolution rate of 99 percent, while flynas had 13 complaints per 100,000 travelers and a resolution rate of 100 percent. 

The primary grievances centered around issues concerning luggage, flights, and ticketing. 

Among international airports serving over 6 million passengers annually in the Kingdom, King Fahd Airport in Dammam demonstrated good performance, registering a mere three complaints per 100,000 travelers and achieving a 100 percent resolution rate. 

Similarly, Prince Sultan bin Abdulaziz Airport in Tabuk reported only one complaint per 100,000 passengers, with a 100 percent resolution rate. 

Najran Airport stood out among domestic airports with two complaints per 100,000 passengers and a 100 percent resolution rate. 

Emphasizing its commitment to transparency and service excellence, GACA reiterated that the monthly classification report serves to foster fair competition, enhance service quality, and bolster trust among travelers, the Saudi Press Agency reported. 

Furthermore, GACA has equipped airport operators with comprehensive guidelines for handling complaints, underscoring adherence to service agreements and regulatory standards, SPA added. 

Regular workshops conducted by GACA further empower airline and ground service company staff to implement passenger protection measures effectively. 

According to the authority, it maintains multiple communication channels, including phone, email, and social media, open around the clock to enable interaction with travelers and airport visitors. 

The complaints received through these channels often concern issues such as boarding passes, employee behavior, and services for persons with disabilities and limited mobility. 


Gulf economies set to flourish on oil output increase, interest rate cuts

Updated 22 June 2024
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Gulf economies set to flourish on oil output increase, interest rate cuts

  • MENA region’s GDP forecast to grow by 1.5 percent this year, before accelerating to 3.9 percent in 2025

RIYADH: Growth of the Gulf economies is projected to pick up from September thanks to anticipated interest rate cuts and an increase in oil output, according to new data. 

In its latest Middle East and North Africa Gross Domestic Product report, UK-based independent research firm Capital Economics warned that the decision by the Organization of the Petroleum Exporting Countries to keep output low until October means a boost to GDP will take longer to materialize than previously expected.  

OPEC and its allies, known as OPEC+, have implemented substantial output cuts since late 2022, totaling 5.86 million barrels per day, or about 5.7 percent of global demand.  

Earlier this month, OPEC+ extended 3.66 million bpd of cuts until the end of 2025 and prolonged 2.2 million bpd of voluntary cuts until September 2024. The voluntary cuts will be phased out gradually from October 2024 to September 2025. 

The countries which have made voluntary cuts to output include Kuwait, Oman, Saudi Arabia and the UAE.  Despite this delay, “non-oil sectors should continue to grow relatively strongly,” the report states.  

“A monetary loosening cycle should begin soon as the Gulf follows the Fed (US Federal Reserve), which we expect to start cutting rates from September,” it added.  

Furthermore, inflation in the Gulf is expected to slow over the second half of the year, easing the squeeze on real incomes and supporting credit demand and consumer spending. 

However, the report also notes that non-oil growth across much of the Gulf is expected to ease over the next few years. 

A decline in oil prices next year presents a challenge to non-oil sectors, with budget and current account positions likely to weaken. 

Non-oil growth across much of the Gulf is expected to ease over the next few years. (SPA)

The UAE and Qatar are expected to maintain loose fiscal policies, leveraging their strong balance sheets to support their economies.  

Kuwait may also utilize its strong balance sheet. In contrast, Oman and Bahrain will need to persist with a tight fiscal stance.

Saudi economy outlook

Saudi Arabia’s decision to maintain low oil output as part of the OPEC+ deal will constrain GDP growth in the near term, the report said.

Despite efforts to manage crude prices, the report suggests that revenue will fall back next year, potentially leading the Saudi government to scale back some spending plans.  

Nevertheless, the Saudi economy expanded by 1.4 percent quarter on quarter in the first three months of 2024, ending the technical recession. Both oil and private non-oil activities contributed to this growth, offsetting weaker government activities. 

The report further elaborates on the OPEC+ decision to extend oil output cuts until October, which will limit GDP growth in the short term.  

However, Saudi Arabia is expected to gradually unwind its 1 million barrels per day voluntary output cut starting from the fourth quarter of 2025, with a more aggressive increase in oil output projected thereafter. 

In light of the OPEC+ rollover, oil prices are anticipated to remain higher than previously expected for the rest of the year.  

Despite this, Saudi Arabia is projected to continue running budget deficits, which are likely to be wider than currently budgeted. 

FASTFACTS

• Saudi Arabia’s economy is expected to grow by a modest 1.3 percent this year. As oil output increases from the fourth quarter and through 2025 to 2026, growth is projected to accelerate to 4.5 and 4.8 percent, respectively.

• The UAE’s GDP growth is expected to reach 3.3 percent this year, with an acceleration to 5.5 percent in 2025, the report stated.

The state has ample financing options, demonstrated by significant sovereign debt issuance and a recent Aramco share sale.  

The Kingdom’s Public Investment Fund also plans to ramp up local investments this year, equating to about 2 percent of GDP, relieving the central government of some financial burdens, the report further highlighted. 

Overall, Saudi Arabia’s economy is expected to grow by a modest 1.3 percent this year. As oil output increases from the fourth quarter and through 2025 to 2026, growth is projected to accelerate to 4.5 and 4.8 percent, respectively.

Elsewhere in the Gulf

Additionally, the UAE is forecast to raise oil output sooner than other OPEC+ members, bolstered by supportive fiscal policies.  

This positions the country as the fastest-growing economy in the Gulf for both this year and the next.   The UAE’s GDP growth is expected to reach 3.3 percent this year, with an acceleration to 5.5 percent in 2025, the report stated. 

Qatar’s economy is likely to record modest growth this year and much of next year, but is expected to take off as liquefied natural gas output surges from the end of next year.  

The report indicates that economic growth in Qatar slowed last year due to capacity limits in the hydrocarbon sector and the fading boost from the 2022 FIFA World Cup.  

Non-hydrocarbon growth is expected to pick up this year due to lower interest rates and slowing inflation. However, lower global LNG prices will shrink the budget surplus, limiting fiscal support. 

Qatar’s GDP growth is forecasted at 2 percent and 2.3 in 2024, 2025, weaker than consensus estimates, the report highlighted.  

Nevertheless, growth is expected to jump to 11.5 percent in 2026, making it one of the fastest-growing economies globally. 

The Saudi economy expanded by 1.4 percent quarter on quarter in the first three months of 2024. (SPA)

For Kuwait, Oman, and Bahrain, economic growth will be weaker this year than previously expected due to the OPEC+ decision.   Governments in Oman and Bahrain are likely to maintain tight fiscal policies, weighing on non-oil sectors.  

Capital Economics also stated that hydrocarbon receipts are expected to be weaker, leading to deteriorating budget and current account balances.  

Oman is better positioned to weather this due to recent government commitments to fiscal tightening, though strict measures are likely to continue.  

Bahrain, on the other hand, needs to aggressively tighten fiscal policy to stabilize and reduce its debt-to-GDP ratio, the report stated.

Beyond the Gulf

Outside the Gulf, current account deficits have narrowed, easing external strains.  

In Egypt, this forms part of a broader policy shift requiring tight monetary and fiscal policies. Although inflation has peaked, interest rate cuts are not expected until early 2025.  

Morocco is set to begin a monetary loosening cycle soon due to low inflation, potentially allowing the central bank to widen the dirham’s trading band, leading to appreciation against the euro. 

Tunisia remains an exception, with high inflation and dwindling foreign exchange reserves threatening a balance of payments crisis and potential sovereign default. 

Capital Economics forecasts the MENA region’s GDP to grow by 1.5 percent this year, before accelerating to 3.9 percent in 2025 and 4.6 percent in 2026, outpacing consensus estimates for the latter years.


SAMA’s new initiatives propel KSA’s financial landscape forward

Updated 22 June 2024
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SAMA’s new initiatives propel KSA’s financial landscape forward

  • Host of pivotal initiatives reaffirm dedication to fostering financial innovation and inclusivity

RIYADH: As Saudi Arabia strides forward with its Vision 2030 objectives, the Kingdom’s central bank is at the forefront, driving a host of pivotal initiatives and greenlighting various enterprises in 2024. These actions reaffirm the nation’s dedication to fostering financial innovation and inclusivity. 

The Saudi Central Bank, known as SAMA, has ushered in a wave of programs and approvals this year, ranging from the introduction of secure account services to engaging in high-level discussions on reserve management and expanding investment training endeavors. 

Additionally, it has issued licenses to bolster payment and crowdfunding services, fortifying its pivotal role in the Kingdom’s economic diversification. 

Here are some of the significant developments and initiatives undertaken by SAMA this year:

Enhancing security and accessibility 

In May, SAMA announced the launch of a new initiative named “View My Bank Accounts” for individual bank account holders. The new service aims to enhance reliability and reduce the risks of suspicious transactions, unauthorized account use, and impersonation.  

SAMA added that it is continuously working on developing electronic financial transactions in accordance with international best practices.

Navigating macro-financial challenges 

In April, the apex bank convened a high-level meeting on reserve management, targeting the complexities of the current macro-financial environment. The event united reserve managers and experts from central banks across the Middle East and North Africa region, alongside participants from other apex financial institutions, to delve into the latest trends in managing foreign exchange reserves.  

SAMA Governor Ayman Al-Sayari highlighted how the evolving global landscape introduces new challenges and opportunities for central bank reserve managers. He emphasized the significance of such high-level meetings in navigating the complexities of the current macro-financial environment. 

Investment immersion program

In another development, the Saudi Central Bank initiated the registration process for its fourth edition of the Investment Immersion Program in April, aimed at nurturing and employing local investment professionals.  

Developed in collaboration with the Wharton School of the University of Pennsylvania, alongside major global banks and asset managers, this program offers a comprehensive curriculum featuring academic courses and practical training across various investment domains. 

“The program offers an advanced technical course, on-the-job training with international banks and assets management companies, and job-rotation in the investment deputyship at the Saudi Central Bank under the supervision of experts in asset management and global financial markets,” said SAMA. 

Additionally, participants will benefit from continuous development programs aimed at enhancing their technical investment skills, as well as a range of distinctive employment perks.  

The program is tailored for Saudi nationals below the age of 27 who hold bachelor’s or master’s degrees in finance, accounting, economics, statistics, or business-related fields from either domestic or accredited international universities. 

Steering financial stability

In February, the central bank, represented by SAMA Gov. Al-Sayari, co-chaired the Financial Stability Board Regional Consultative Group for MENA meeting in Riyadh.  

Also in attendance were Hassan Abdulla, governor of the Central Bank of Egypt, and Klaas Knot, chair of the Financial Stability Board.  

Discussions during the meeting centered on the challenges related to global and regional financial stability vulnerabilities, including the implementation of the global regulatory framework for crypto-asset activities. 

Additionally, the meeting analyzed lessons learned from the turmoil that affected the global banking sector in 2023, along with the financial risks arising from the high-interest rate environment and non-bank financial intermediation.  

Al-Sayari emphasized the MENA region’s emergence as a global development hub, driven by strategic location and ongoing economic diversification efforts. He also highlighted the International Monetary Fund’s affirmation in its Regional Economic Outlook that MENA is resilient to adverse macro-financial risk scenarios. 

Al-Sayari underscored the importance of devising plans that support financial stability while aligning with the economic and financial conditions of the region, fostering interrelation between its economies.  

Members also received an update on the FSB’s work program for 2024 and discussed the FSB’s report on initial lessons learned from the banking disturbances in 2023.  

The FSB’s Regional Consultative Group for the MENA region includes finance and regulatory authorities from Saudi Arabia, Kuwait, and the UAE, along with Bahrain, Oman, and Qatar. Additionally, it encompasses Egypt, Algeria, and Jordan, as well as Lebanon, Morocco, Tunisia, and Turkiye.

Fostering financial innovation 

Throughout the year, the central bank has been proactive in granting licenses to various payment and crowdfunding service providers. 

It commenced the year by authorizing Thara to offer debt-based crowdfunding solutions. Concurrently, SAMA also granted licenses to Network International Arabia for point-of-sale payment services and to Barraq for e-wallet services. 

HIGHLIGHTS

• The Saudi Central Bank, known as SAMA, has ushered in a wave of programs and approvals this year, ranging from the introduction of secure account services to engaging in high-level discussions on reserve management and expanding investment training endeavors.

• SAMA Governor Ayman Al-Sayari underscored the importance of devising plans that support financial stability while aligning with the economic and financial conditions of the region, fostering interrelation between its economies.

“This decision reflects SAMA’s endeavor to support the financial sector, increase efficiency of financial transactions, and promote innovative financial solutions for financial inclusion in Saudi Arabia. SAMA emphasizes the importance of dealing exclusively with authorized financial institutions,” said the apex financial institution.  

In February, the central bank extended authorization to Alpha Arabia Finance Co. to engage in financing activities for small and medium enterprises. 

In April, SAMA licensed Funding Souq to provide debt-based crowdfunding solutions, thereby bringing the total number of such companies operating in the Kingdom to 10.

Sohar International receives SAMA’s nod 

In January, Sohar International, the second-largest bank in Oman, received a non-objection certificate from SAMA as it set its sights on expanding into Saudi Arabia.  

This strategic move aligns with the bank’s growth strategy, demonstrating its capability to identify sustainable expansion opportunities.  

The bank’s entry into the Saudi market is anticipated to assist Omani corporations seeking to enter the Kingdom’s market. 

“At the core of the bank’s strategic expansion lies a synthesis of personalized, customer-focused offerings and avant-garde services. These form the linchpin of the bank’s overarching strategy, aiming not only for growth but also for the sustained enhancement of the customer experience in an ever-evolving financial landscape,” said Ahmed Al-Musalmi, CEO of Sohar International.  

Overall, SAMA’s proactive measures underscore its commitment to supporting Saudi Arabia’s economic growth and resilience in an ever-evolving global financial landscape.


Dyna.Ai sets its focus on Saudi Arabia’s fintech sector

Updated 22 June 2024
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Dyna.Ai sets its focus on Saudi Arabia’s fintech sector

  • Singaporean AI-powered startup cements its local presence with domestic office

CAIRO: Saudi Arabia’s financial technology sector is attracting a new breed of artificial intelligence startups aiming to take part in the already booming industry.  

With presence in seven countries, Singaporean AI-powered startup Dyna.Ai is moving its focus to the Saudi fintech market as it aims to cement its local presence with a domestic office. 

In an interview with Arab News, Tomas Skoumal, chairman of Dyna.Ai, shared that the company is in the process of registering in the Saudi market.  

“We are already in the process of securing our registration which we hope will be completed within the next quarter. The feedback from our partners in Saudi Arabia has been extremely encouraging, and we are looking forward to having a physical presence very soon,” Skoumal said. 

The company plans to establish a local office in the Kingdom, reflecting its commitment to the region.  

“We will have an office there and we will be hiring locally. Saudi Arabia is a crucial part of our global growth strategy, and we are committed to supporting job creation as well as building long-term partnerships with our clients,” he said.  

“The financial sector faces numerous challenges, and businesses need to accelerate their transformation rapidly by digitizing services to meet the needs of modern customers,” Skoumal explained. 

Dyna.Ai offers solutions that address these challenges by providing end-to-end offerings through products for customer acquisition, marketing, risk management, and operational productivity.  

Skoumal noted that the company’s Result-as-a-Service business model is designed to ensure clients realize tangible benefits from the deployment of their products.  

“We work with traditional banks, digital banks, fintechs, insurtechs, and other sectors providing various AI-powered solutions,” he said. 

Dyna.Ai’s immediate goals include embedding AI solutions at the heart of the financial sector and hiring local talent to support their operations.

Embedding AI in fintech 

“By investing in domestic talent with a commitment to constantly upskill them, we are excited about the opportunities to demonstrate Saudi Arabia’s commitment and sector leadership to the global AI ecosystem,” Skoumal emphasized.  

 The company’s long-term vision involves creating a significant impact on the Saudi financial services sector, which is projected to benefit from AI advancements significantly.  

“Artificial intelligence solutions are expected to create a $320 billion impact on the Middle East, with the largest gains of $135.2 billion expected to be seen in Saudi Arabia,” Skoumal noted. 

Dyna.Ai’s expansion strategy in Saudi Arabia includes a strong local presence and collaboration with governmental bodies. 

We work with traditional banks, digital banks, fintechs, insurtechs, and other sectors providing various AI-powered solutions.

Tomas Skoumal, chairman of Dyna.Ai

Skoumal explained that the company is already in conversation with government-backed institutions and semi-government entities to tailor their solutions for the Kingdom. 

The company’s growth objectives for the next year include launching the office, expanding their product portfolio, and deepening industry expertise in Saudi Arabia and the wider Middle East and North Africa region.  

“To achieve these objectives, we will invest in our local team and collaborate with government, local partners, academic institutions, and research organizations,” Skoumal said.  

Dyna.Ai has also introduced new products specifically tailored for the Saudi market, including Dyna Avatar and Dyna Athena, which are designed to enhance customer interaction and communication in local dialects. 

“The operating environment for AI businesses is constantly changing, and around the world where we operate, we ensure that we are closely working with policymakers to ensure alignment with local regulations,” Skoumal explained.  

He further praised Saudi Arabia’s advanced and welcoming regulations in the fintech sector that allow businesses to operate in a sandbox while testing services and solutions. 

The Saudi market is pivotal for Dyna.Ai’s due to its rapid adoption of innovative AI solutions and its young, tech-savvy population, Skoumal explained.  

“Saudi Arabia is one of the most exciting markets for technology businesses in the Middle East. The pace of change and adoption of innovative AI solutions is not just inspiring but extremely exciting,” he said. 

“Further, the Kingdom is home to one of the youngest populations in the region with 63 percent under the age of 30,” Skoumal pointed out.

He added that the Kingdom’s geographic location and its role as the region’s largest economy make it an ideal hub for driving AI adoption in the Middle East. 

FASTFACT

The company’s growth objectives for the next year include launching the office, expanding their product portfolio, and deepening industry expertise in Saudi Arabia and the wider Middle East and North Africa region.

Assessing the current market landscape, Skoumal remarked: “The AI sector around the world, and in Saudi Arabia, is still at an early stage. However, the progress of the technology is fascinating, with incredible advances in very short periods.” 
“AI is expected to create a multi-billion dollar impact on the Saudi economy by 2030, and by investing early in the Kingdom, we believe that we will be well positioned to empower work and enrich lives,” he stated. 
Dyna.Ai aspires to not only provide advanced solutions to the financial sector but also to equip Saudi youth with cutting-edge skills and technology access. Looking at future industry trends, Skoumal highlighted several opportunities.  
“The AI and fintech landscape is constantly evolving, with new technologies, competitors, and regulatory requirements emerging regularly. We see increasing demand for AI-driven solutions across industries, expansion of AI applications into new areas, and the emergence of new technologies and business models,” he said. 
These trends present significant opportunities for Dyna.Ai. 
“We are continuously investing in the local market, swiftly refining our localized solutions, establishing a more professional local team, and developing collaborative models that align with local requirements. This approach allows us to maximize our grasp on these opportunities,” Skoumal said. 

Business fundamentals 
Regarding profitability, Skoumal stated: “We have strong unit economics and robust fundamentals. At the moment our focus is on growth, and deploying our solutions with clients. As with the enterprise technology sector, profitability will be achieved as we grow, and our global expansion is a crucial part of this.” 
The motivation behind founding Dyna.Ai stemmed from Skoumal’s extensive experience in the global financial sector.  
“Financial institutions are generally slow to adopt modern technology due to concerns over security, regulations, deployment, and other factors,” he noted.  
While Dyna.Ai is well-capitalized and focused on growth, expansion, and local hiring, Skoumal emphasized that the company is continuously looking for opportunities to innovate and refine its solutions.  
“We are extremely proud of the fact that 50 percent of our workforce is dedicated to research and development efforts, which means we are able to constantly innovate while bringing new solutions and updates to market very quickly,” he highlighted.


Saudi Arabia’s M&A volume hits $955m in Q1, fueled by chemicals sector

Updated 21 June 2024
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Saudi Arabia’s M&A volume hits $955m in Q1, fueled by chemicals sector

RIYADH: Saudi Arabia led the Middle East in mergers and acquisitions in the chemicals sector in the first quarter of 2024, with $500 million worth of deals, according to recent data.

Figures from financial markets platform Dealogic showed that the Kingdom’s total M&A deal volume during this period reached $955 million, with the chemicals sector accounting for 52.4 percent of the total. 

Saudi Arabia was the only country in the region to show activity in this sector, and a report from management consulting firm Kearney earlier this month suggested that chemical executives are expecting more M&As led by strategic investors such as national oil companies.

“Recent deals by major players like Aramco and ADNOC underscore the region’s commitment to leveraging M&A as a key growth lever, setting the stage for a dynamic and transformative period ahead,” said Jose Alberich, partner, Middle East and Africa at Kearney at the time.

The figures from Dealogic revealed that the professional services sector was the second targeted sector, with deals worth $160 million, accounting for a 16.8 percent share of the Kingdom’s total.

Technology was close behind with $138 million in deal value, capturing a 14.5 percent share. 

Retail and insurance sectors represented 7 percent and 4.1 percent of the total, respectively.

Across the region

The figures revealed that during the first three months of the year, the Middle East targeted M&A volume reached $6.21 billion, with technology being the leading sector with 42 total deals worth $1.56 billion. 

Finance followed with 9 deals amounting to $1.3 billion, while the oil and gas sector, which topped the list a year ago with deals valued at $3.5 billion, fell to the eighth place with just $273 million in deals.

According to Dealogic, domestic transactions were the dominant contributor, making up 55 percent of the Middle East’s M&A volume across 91 deals. In contrast, outbound transactions accounted for 45 percent with a total of 38 deals.

Kuwait emerged as the top contributor to GCC nations’ total M&A deal volume, amounting to $1.12 billion, all of which were outbound deals.

The UAE followed closely with a deal value of $988 million, of which 58 percent were domestic.

Saudi Arabia secured the third position with 18 deals valued at $955 million, of which 60 percent were outbound.

Compared to the same quarter of 2023, the Middle East’s deal volume declined by 27 percent. 

Global slowdown

In its report, Dealogic explained that global M&A activity experienced a significant decline during this period, with the number of transactions falling by 31 percent to 7,162, marking one of the quietest quarters for dealmakers in nearly two decades.

The slowdown was largely attributed to high capital costs, with Switzerland being the only major economy to cut interest rates in 2024. 

Additionally, geopolitical tensions, including the emergence of the Middle East as a new trouble hotspot alongside ongoing conflicts involving Russia and Ukraine, and tensions between Washington and Beijing over Taiwan, further contributed to the subdued activity in deal making.

Drivers of activity

In a paper published in September, the Boston Consulting Group said government support has been a driving force behind significant M&A activities among emerging market players in recent years, particularly in the Middle East, as firms aim at expanding their global presence.

Saudi Arabia’s SABIC acquired a 31.5 percent stake in Clariant, nearing the 33.3 percent threshold for a mandatory takeover bid under Swiss law. 

The UAE’s state-owned ADNOC purchased a 24 percent interest in OMV, increasing its indirect stakes in Borealis and Borouge, and is in talks to merge them.

ADNOC also made an $11 billion offer for Covestro, which was rejected, and expressed interest in Brazil’s Braskem. These moves highlight a trend of leveraging government support to enhance regional footprints and integrate into global value chains

Additionally, Saudi Aramco acquired Valvoline Inc.’s global products business for $2.7 billion in 2023. This acquisition, according to BCG, enhances Aramco’s lubricant portfolio by integrating Valvoline’s manufacturing and distribution network and its research and development capabilities.

The research highlighted three additional key reasons driving changes in macro trends in M&A, portfolio diversification, vertical integration, and technology acquisition.

Companies are increasingly expanding their portfolios through acquisitions to enter new markets and product segments, often over extended periods. Additionally, the focus has shifted from traditional feedstock-focused acquisitions to sustainable diversification of petrochemical value chains, prioritizing higher-margin and less cyclical businesses.

In essence, this means that rather than primarily acquiring companies to secure raw materials, the emphasis is now on achieving sustainable and balanced growth across the petrochemical value chain. The current priority is to invest in businesses that generate higher profits and are less affected by market fluctuations. This shift aims to create a more resilient and profitable business model in the long term.

This strategic emphasis on specialties is fostering vertical integration into downstream segments, as evidenced by significant acquisitions by industry leaders such as Saudi Aramco, SABIC, Thailand’s PTT, and Malaysia’s PETRONAS.

According to the BCG paper, gaining or retaining technology leadership is a key driver for M&A activity. Acquisitions and joint ventures are crucial for positioning companies as major suppliers in the e-mobility segment and the related electronic chemicals and battery industry.

As demand for sustainable solutions grows, companies are increasingly recognizing the potential of e-mobility. Through strategic M&A, including technology acquisitions and research and development investments, they aim to secure competitive advantages in this rapidly expanding market.

According to Dealogic, technology-focused deals accounted for 21 percent of the global M&A activity in the first three months of 2024. This was followed by healthcare at 14 percent and finance at 11 percent. 

Oil and gas stood at 9 percent, with utility and energy at 7 percent, and real estate and property sectors representing 5 percent of the total M&A activity.

AI attracting funds

Dealogic’s report highlighted that the largest global technology deals were driven by artificial intelligence. The surge in AI has significantly boosted Nvidia’s market capitalization to $2.4 trillion, with the company making investments in seven AI-related firms during this period.

Saudi Arabia also plans to establish a $40 billion fund dedicated to investing in artificial intelligence, according to a report from the New York Times in March. 

Set to launch in the second half of 2024 and spearheaded by Saudi Arabia’s Public Investment Fund, it aims to attract partnerships with US venture capital firm Andreessen Horowitz and other financiers, according to the report.

It will focus on supporting various AI-related ventures in Saudi Arabia, including chip makers and large-scale data centers, NYT wrote at the time.