LONDON: Saudi Arabia’s prospects depend more on government reforms becoming “irreversible” than the price of oil, said Moritz Kraemer, global chief rating officer for S&P in an interview with Arab News.
He said: “If oil went to $100 per barrel again there would be a risk of undermining the reform momentum — and helping those campaigning to maintain the previous status quo.
“We don’t think the oil price will determine the fate of the country. The policies that are chosen will determine future economic stability,” said Kraemer.
He added that S&P’s forecast for the average price of crude in 2018 was $60 a barrel, falling to $50 a barrel in 2019, underlining how important it was that KSA reduced its dependence on crude to secure prosperity.
Kraemer said today’s Saudi Arabia contrasts with to an earlier era when there “had been so many internal, opaque checks and balances that you really never had any policy momentum developing in any direction. There was a sort of stagnation in policy-making.”
Looking at recent reform initiatives in KSA, Kraemer noted that the objectives were very demanding, but would most likely be met in the timeframe laid out. However, what was really important was “the direction of travel,” namely bringing in more private capital, to develop the country, “whether that happens slower or faster is less important than the irreversibility of the process,” he said.
The Kingdom should maintain growth of spending, and one way of trying to achieve this was by getting the private sector more involved in service delivery, health and education and also infrastructure.
Asked whether investor appetite for Saudi debt was good, Kraemer said yes, and this was seen when the government issued bonds for the first time in 2016 — with the $17.5 billion offering oversubscribed four times.
But the domestic capital market still needs developing. The take-up of Saudi government bonds was largely, but not exclusively, by foreign investors. The local market was relatively undeveloped compared to countries such as Turkey and the UAE, he said.
To remedy matters, Kraemer said regulation needed to be “more helpful,” although the authorities were working on improvements.
The assignment of credit ratings to Saudi companies would help domestic corporates to raise debt both at home and abroad — but for this to happen KSA groups would have to disclose more details about their affairs, he said.
In the context of Vision 2030, Kraemer flagged up significant financing needed for infrastructure projects. “We foresee a lot of activity linked to PPPs (public private partnerships). Funding would be partly covered by the banks, but some would have to come from debt markets,” said Kraemer.
With interest rates rising, he was relaxed about the effect on KSA. During S&P studies, the Kingdom regularly showed up as least vulnerable to the threat of outflows of foreign capital in a rising interest rate environment.
Turkey was among the countries most at risk, he said, but Qatar also had issues.
He said: “If you look at what Qatar needs to borrow compared to how much foreign exchange reserves they have, and how much current account receipts they have, it looks quite weak. They need to pay and borrow more than KSA — not in absolute terms, but relative to their export receipts.”
On the other hand, Qatar had substantive external investments, and “a hugely liquid portfolio of foreign bonds and shares that they could run down if there was a squeeze, so they were well buffered.”
Saudi debt would not reach anywhere near something that “could be described as alarming,” according to S&P forecasts, he said.
According to the World Bank’s 2018 outlook on the Middle East and North Africa, growth in the region is expected to jump to 3 percent in 2018 from 1.8 percent in 2017.
Growth in Saudi Arabia was forecast to accelerate to 1.2 percent in 2018 from 0.3 percent in 2017, while in Egypt, growth is anticipated to pick up to 4.5 percent from 4.2 percent last year.
In a report at the end of 2017, S&P said its stable outlook on KSA was based on the expectation that the Saudi authorities would continue to take steps to consolidate public finances and maintain government liquid assets close to 100 percent of GDP over the next two years.
It added: “We think the risks emanating from recent shifts in Saudi Arabia’s political power structures and societal norms, alongside various regional stresses, are balanced by the possibility that these structural reforms could empower Saudi citizens and make Saudi Arabia more attractive to investors over the medium term.”
But S&P said its ratings could come under pressure if it observed a significant increase in domestic or regional political instability as a result of the increasing centralization of power.
Future of Saudi economy about policy, not prices says S&P chief
Future of Saudi economy about policy, not prices says S&P chief
Kingdom approves 2025 annual borrowing plan with SR139bn funding target
- Strategic road map to manage country’s funding needs
RIYADH: Saudi Arabia’s Minister of Finance Mohammed Al-Jadaan on Sunday approved the annual borrowing plan for 2025, outlining a strategic road map for managing the Kingdom’s funding needs.
The plan, which has been endorsed by the National Debt Management Center’s board of directors, detailed developments in public debt in 2024, initiatives to strengthen local debt markets, and the 2025 funding framework, including a calendar for Saudi riyal-denominated sukuk issuances.
The projected funding requirement for 2025 is estimated at SR139 billion ($37 billion), according to a statement issued on Sunday.
The total encompasses two primary components: covering a fiscal deficit of SR101 billion, as highlighted in the Ministry of Finance’s official budget statement, and meeting the SR38 billion in principal repayments for debts maturing during the year.
To achieve its funding objectives, Saudi Arabia plans to enhance its access to both local and international financing channels and pursue innovative financing opportunities to stimulate economic growth, the statement added.
Moves will include private transactions such as export credit agency-backed initiatives, financing for infrastructure development, and capital expenditure projects.
The Kingdom will also explore opportunities to access new markets and issue debt in diverse currencies, depending on market conditions.
Closing Bell: Saudi main index slips to close at 12,069
RIYADH: Saudi Arabia’s Tadawul All Share Index fell on Sunday, shedding 32.73 points, or 0.27 percent, to close at 12,069.82.
The total trading turnover for the benchmark index amounted to SR4.21 billion ($1.12 billion), with 119 stocks advancing and 106 retreating.
The Kingdom’s parallel market Nomu registered a gain of 48.69 points, or 0.16 percent, closing at 31,054.38. Out of the stocks listed on Nomu, 38 advanced while 41 declined. The MSCI Tadawul Index also declined, dropping 7.32 points, or 0.48 percent, to close at 1,509.84.
Among the top performers of the day was Saudi Reinsurance Co., whose stock surged 9.94 percent to SR59.70.
Salama Cooperative Insurance Co. also posted a strong performance, with its share price rising 8.44 percent to SR21.06, while Riyadh Cables Group Co. saw its stock climb 6.34 percent to SR151.00.
However, National Medical Care Co. recorded the day’s steepest decline, falling 3.49 percent to SR160.40. Emaar The Economic City and the Power and Water Utility Co. for Jubail and Yanbu also experienced losses, with their share prices dropping 3.06 percent to SR18.38 and 2.93 percent to SR53.00, respectively.
In corporate news, Al-Yamamah Steel Industries Co. announced the signing of a SR97.5 million contract with the Saudi-based Trading & Development Partnership. The agreement involves the supply of steel towers for constructing a 380-kilovolt ultra-high voltage transmission line in the Eastern Region.
The contract, which will commence in May 2025, is expected to reflect on the company’s financial results starting from the third quarter of 2025.
Shares of Al-Yamamah Steel ended the session 6.25 percent higher at SR36.40.
The Saudi Industrial Development Co. disclosed that its subsidiary, Global Co. for Marketing Sleeping Systems, also known as Sleep High, has secured a Shariah-compliant SR9 million credit facility from Riyadh Bank.
The financing, guaranteed under the Kafalah Program, will be utilized to support the subsidiary’s working capital needs. SIDC shares closed 0.67 percent higher at SR30.00.
Saudi Arabian Amiantit Co. signed a memorandum of understanding with the Libyan Development & Reconstruction Fund to collaborate on water technology transfer, sewage treatment, and pipe production.
The one-year agreement aims to localize industries in Libya, create employment opportunities, and transfer manufacturing expertise. It also includes plans to establish joint factories specializing in fiberglass and polyethylene pipes, as well as valves, to support Libyan national projects.
Shares of Amiantit rose 1.90 percent to close at SR29.40.
United International Holding Co. announced the extension of its memorandum of understanding with Nowpay Corp. for an additional two months. The partnership aims to establish a payroll administration and processing firm in Saudi Arabia.
The venture, which will require an initial investment of SR75 million, will be 75 percent owned by United International Holding and 25 percent by Nowpay Corp.
The company’s stock closed 0.75 percent higher at SR187.40.
National Gypsum Co. revealed that it has signed an Islamic financing agreement with Riyadh Bank valued at SR35 million. The funds will be directed toward expanding operations and upgrading production lines. The financing will last for one and a half years and is backed by promissory notes and a property mortgage.
The company’s share price remained unchanged at SR22.16.
Saudi listed firms see growth in 2024 with ACWA Power and Al Rajhi as top performers
RIYADH: Saudi Arabia’s listed companies witnessed significant growth in 2024, with ACWA Power and Al Rajhi Bank emerging as the top performers on the Tadawul All Share Index.
ACWA Power Co. led the index, contributing 295 points, followed by Al Rajhi Bank with a 207-point increase, according to data from SNB Capital cited by Al-Ekhbariya.
ACWA Power’s stock surged from SR255.89 at the start of 2024 to SR401.4 by year-end, reflecting big growth. Similarly, Al Rajhi Bank’s stock rose from SR86.8 to SR94.6 during the same period. Other notable contributors included Saudi Research and Media Group, adding 44 points to the index, Elm Co. with 43 points, and Ma’aden with 40 points.
However, not all listed companies experienced gains in 2024. Saudi Aramco recorded a significant decline, losing 177 points on the index as its stock price dropped from SR140 to SR111.8. SNB Capital fell by 70 points, followed by SABIC with a 62-point decrease, Banque Saudi Fransi with 32 points, and Sahara International Petrochemical Co., or Sipchem, with 30 points.
The Kingdom’s initial public offering market also saw robust activity in 2024, with 14 IPOs raising SR14.21 billion ($3.7 billion), marking a 19 percent year-on-year increase.
Almoosa Health and Fakeeh Care Group led the IPO market in terms of size, with Fakeeh attracting the highest individual participation, drawing 1.34 million unique investors.
Despite overall success, individual subscriptions accounted for only 13 percent of the total IPO volume, amounting to SR1.94 billion.
Modern Mills Co. led in subscription coverage, achieving a rate of 21.9 times, while the average individual coverage for the year’s IPOs stood at 11.87 times.
The food production sector dominated IPO activity, contributing 26.9 percent of total listings in 2024, with successful debuts by companies such as Modern Mills, Al-Rabie, and Al Arabiya.
IPO valuations varied significantly, with an average price-to-earnings ratio of 34 times. United International Holding recorded the lowest P/E, while Nice One topped the charts with a P/E of 118 times, making it the year’s most expensive IPO.
Looking ahead, SNB Capital forecasts an 8 percent annual profit growth for companies listed on the Tadawul in 2025, with the petrochemical sector expected to lead the way with a 74 percent rise in profits.
Saudi Arabia records robust GFCF growth in Q3 2024, fueled by non-government sector investments
- Non-oil sectors grew by 4.3 percent year-on-year
- Unemployment rate dropped to 3.7 percent
RIYADH: Saudi Arabia solidified its status as a regional investment leader with a 7.4 percent year-on-year growth in gross fixed capital formation in the third quarter of 2024, led by the non-government sector.
The Ministry of Investment reported an 8.3 percent increase in the non-government division, reflecting the Kingdom’s ongoing efforts to boost private sector participation in its diversifying economy.
Government-related entities contributed to the overall GFCF growth, with a 2.3 percent increase in the third quarter of 2024.
The non-government sector’s performance aligns with Saudi Arabia’s Vision 2030 objectives, which aim to shift the economy from oil dependency by fostering a vibrant private division.
In line with these goals, the Ministry of Investment issued 3,810 investment licenses in Q3 2024, marking a significant 73.7 percent year-on-year increase.
Non-oil sectors grew by 4.3 percent year-on-year during the same period, further supporting the Kingdom’s economic diversification efforts.
Key sectors saw notable growth, including wholesale and retail trade, restaurants, and hotels rose 5.8 percent, and construction increased 4.6 percent. Transport and communication grew by 4.5 percent, and finance and real estate advanced by 4.2 percent, driven by consumer spending and a dynamic financial sector.
These expansions contributed to the Kingdom’s overall real gross domestic product growth of 2.8 percent year-on-year for the quarter, despite a marginal 0.05 percent increase in oil activities.
The real estate sector also played a pivotal role in the third quarter of 2024, with the Real Estate Price Index rising by 2.6 percent y-o-y. While residential property costs increased by 1.6 percent, commercial properties saw a more pronounced growth of 6.4 percent. However, agricultural real estate prices declined by 8.7 percent, reflecting sectoral disparities.
Complementing these trends, real estate loans by banks witnessed a 13.3 percent year-on-year increase, showcasing heightened investor interest in property development and acquisitions.
Saudi Arabia’s economic resilience is further evident in labor market improvements. The unemployment rate dropped to 3.7 percent in this period, a 0.5 percentage point decrease from the same quarter in 2023. The Saudi unemployment rate fell to 7.8 percent, a one percentage point decline year-on-year.
Global growth expected to reach 3.2% amid monetary easing: report
- QNB forecasts US Federal Reserve to cut rates by 75 bps and the European Central Bank by 150 bps
- It predicts growth of 2.2% in 2025, down from 2.6% in 2024
RIYADH: Global economic growth is set to accelerate in 2025 as monetary easing, US resilience, and recoveries in Europe and China drive momentum, with Southeast Asian economies benefiting from positive spillovers.
The Qatar National Bank projects a 3.2 percent global growth rate, outpacing Bloomberg’s consensus of 3.1 percent, the state’s news agency QNA reported.
In its latest commentary, QNB anticipates growth in major economies, driven by controlled inflation, eased financial constraints, and policy adjustments by central banks. Emerging markets, specifically the Association of Southeast Asian Nations economies, are set to benefit from these advancements.
The report said that analysts have consistently underestimated global economic performance, as initial projections for 2023 and 2024 fell short of realized growth by 80 and 40 basis points, respectively.
“Analysts and economists have been proving to be over pessimistic when it comes to forecasting major economies and global growth in recent years,” reported QNA.
The national bank added: “In fact, over the last two years, initial expectations for growth were 80 basis points and 40 bps below realized growth in 2023 and 2024, respectively.”
It forecasts the US Federal Reserve to cut rates by 75 bps and the European Central Bank by 150 bps.
“This should support further investment and consumption growth, as credit becomes cheaper, new investment opportunities become more attractive, and the opportunity costs of spending decrease,” it added.
In the US, QNB predicts growth of 2.2 percent in 2025, down from 2.6 percent in 2024 but still above the long-term average of 2.3 percent.
“The US economy is expected to remain on a strong footing as labor markets are resilient, productivity is growing rapidly with fast technology adoption, and households have robust balance sheets with the strongest financial position in decades,” QNB said.
Europe and China are expected to recover from extended periods of stagnation. Growth in the European area is forecast to rise from 0.7 percent in 2024 to 1.0 percent in 2025, supported by lower energy prices and a rebound in global manufacturing demand.
China’s growth is projected to increase from 4.8 percent to 5.0 percent, driven by policy easing and renewed economic momentum.
Emerging Asian nations, particularly ASEAN economies, are set to benefit significantly. “Stronger growth in China is likely to be a significant tailwind to emerging Asia in general and ASEAN economies in particular,” QNB said.
The region’s five largest markets, including Indonesia, Malaysia, the Philippines, Singapore, and Thailand, are forecasted to grow by 5.2 percent in 2025, up from 4.4 percent in 2024.
“All in all, we expect to see a moderate acceleration of global growth in 2025, with significant monetary easing, a resilient US economy, a cyclical recovery in Europe and China, and positive spillovers to ASEAN economies,” QNB said.
