INTERVIEW: Fund chief Kirill Dmitriev on why Russia-Saudi relations are about more than just oil

Illustration by Luis Grañena
Updated 10 June 2019
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INTERVIEW: Fund chief Kirill Dmitriev on why Russia-Saudi relations are about more than just oil

  • CEO of Russian Direct Investment Fund explains why relations between the two countries are “the best ever”

Kirill Dmitriev was one of the bigger attractions on the “corridor of power” at the St. Petersburg International Economic Forum last week.

The chief executive of the Russian Direct Investment Fund found it difficult to walk the long central avenue of the ExpoForum center on the city’s outskirts without being stopped by journalists and quizzed about the many deals RDIF announced at the three-day event, sometimes dubbed the “Russian Davos”.

An investment banker and private equity merchant by trade, since he was appointed to the top job at RDIF in 2011 Dmitriev has emerged as one of the leading advocates of the “new” Russian economy that President Vladimir Putin is trying to forge, and a staunch defender of the country’s sometimes controversial foreign policy.

He is also a big friend of Saudi Arabia. “I think Russia now has the best relationship ever with Saudi Arabia, thanks to the efforts of President Putin, King Salman and Crown Prince Mohammed bin Salman,” he told Arab News during a break in his whistle-stop tour of the forum exhibits. Though he does not say so, his own efforts have also contributed significantly to the development of that relationship. For the past couple of years — since the first Future Investment Initiative conference in Riyadh in 2017 — RDIF has been in partnership with the Kingdom’s Public Investment Fund (PIF) on a range of joint investments in Russia and Saudi Arabia. Last year, that was extended to include a three-way investment fund between Russia, China and Saudi Arabia. It is big strategic stuff.

The relationship goes back further than just two years, Dmitriev revealed. “It started four or five years ago with the visit of the Crown Prince to the forum, where he met our president and our investors. It all came from that,” he said.

 

BIO

BORN

• Kiev, 1975

EDUCATION

• BA Economics Stanford University, California, US

• MBA Harvard Business School, US

CAREER

• Investment banker, Goldman Sachs

• Consultant, McKinsey & Co

• Private equity executive

• CEO Russian Direct Investment Fund

 

Business and personal relationships struck then have proved enduring. The news headlines in St. Petersburg were all about the Saudi-Russia entente in the energy industry, where the Opec+ deal to limit production has helped stabilize oil prices at a time of great volatility.

“There is no doubt that an Opec+ agreement that allows Russia, Saudi Arabia and others to stabilize oil markets can be positive, will stay in place and will be going forward regardless of any short-term decisions,” he said.

“Maybe there will be a slight increase in production, maybe it stays the same, but regardless of that short-term decision in June, Opec+ will definitely do positive things for the world economy and our countries,” he added, as energy policymakers from the Saudi and Russian sides met in St. Petersburg to hammer out production details ahead of the next meeting of oil producers later this month.

But the Saudi-Russia relationship is about more than just oil, as Dmitriev explained.

“Basically it is all encompassing. It’s not only in the area of investments, it’s not only in the area of oil, but also in terms of culture. There is an exhibit where two great Saudi artists presented their work on artificial intelligence. Who could have imagined just four years ago that two Saudi artists, both of them female, would be in a Russian exhibition on artificial intelligence?

“It shows how the world is quickly changing and it shows that Russia and Saudi Arabia are great partners,” he said, referring to a cultural exhibition that opened in the famed Hermitage museum on the first day of the forum.

Dmitriev spelled out some of the areas where Saudi and Russian interests coincide. “There is a huge opportunity for Saudi Arabia to invest in Russian infrastructure, in technology and in the petrochemicals sector. We are discussing a number of deals with Saudi Aramco through Sabic in petrochemicals.

“For Russian companies, the interest is in oil services, and we have a petrochemicals project in Saudi Arabia. In infrastructure, a Russian company has offered to build a major bridge in Saudi Arabia, and our Russian railroads want to build railways there,” he said.

There is also likely be ongoing joint interest in the field of artificial intelligence, which is a big priority area for both the Kingdom and for Russia, and could tap in to Saudi Arabia’s growing international financial network.

“We have a joint fund with PIF in technology. So that will be the vehicle to do some AI stuff as well. And by the way PIF has a great partnership with SoftBank, so that relationship is also very important,” he said.

Tourism and leisure is another area where he sees potential mutual benefit. “We believe that lots of Russian tourists would benefit from and would enjoy going to Saudi Arabia. We have a major tourism program that is very interesting for Russian tourists, including Muslim Russian tourists,” he said.

At home, RDIF’s mandate, with $10 billion of reserved capital under its management, is to invest in the country’s infrastructure — roads, bridges, airports, transport and logistics systems — in pursuit of the Russian national program to modernize and transform its economy.

Much like Saudi Arabia’s Vision 2030, Russia — the world’s biggest energy producer — realizes it must diversify its economy away from oil dependency, and has also to overcome the effect of US-led sanctions on some sections of Russian business, imposed after the annexation of Crimea in 2014.

RDIF is one of the main instruments for achieving both goals. Hitherto dependent largely on government funding, there were some suggestions at the St. Petersburg event that it could seek to widen its appeal to private sector investors — Russian and global — for the next stage of its development.

Apart from President Putin, who regularly attends the forum, the big foreign guest was President Xi Jinping of China. His presence on the same podium as Putin underlined that, as trade tensions with the West increase for both Russia and China, the two big powers are increasingly likely to seek mutual support, especially in relation to Donald Trump’s US.

Dmitriev’s position on that prospect is nuanced. “China is an important and very strategic relationship for Russia, but it’s not a tactical decision, that we think about China now when there are trade wars with the US.

“Russia has had a good relationship with China in the past — it is definitely a very strategic partner the last ten years and we have signed a number of deals with them, including with Alibaba this week. We think Russia and China can do lots of great things together, but its not a relationship of Russia and China against somebody else. Russia is open to China, to the US, to Europe and the Middle East,” he said.

There was no official American presence in St. Petersburg after the US ambassador to Moscow said he would boycott the event in protest at the detention of Michael Calvey, a big US investor in Russia, in a dispute over ownership of private equity firm Baring Vostok.

Dmitriev’s view on Calvey and the US absence was carefully worded: “Well, we see lots of investors who did come, and it’s important to have constructive dialogue. And by the way in the forum we announced a joint investment with Baring Vostok. Calvey is a very credible person.” 

There were a raft of deals announced by RDIF during the forum, some involving Middle East investors, such as an infrastructure finance agreement to help build a new ring road around congested Moscow.

Perhaps the most eye-catching one involving Arab partners was an early stage project involving RDIF and other Russian corporations with DP World of the UAE to develop sea routes in the Arctic region.

Dmitriev explained the rationale. “Because of global warming, there are some things happening that open some opportunities. Russia has this frozen coast all of the seasons. Now it’s opening up and it’s possible to navigate for nine months. When you have special ships you can actually have 12 months navigation. That could cut the length of travel for many ships by half.

“So that’s a huge opportunity to reduce time of delivery, reduce costs of delivery. DP World is one of the largest infrastructure players in the world, one of the largest shipment companies that controls a huge portion of trade. Their commitment is to build with us different port facilities in the northern sea route, and it’s an example of how interesting economically this infrastructure is,” he said.

Earlier in the week, Dmitriev had stood alongside Khalid Al-Falih, the Saudi energy minister, at the Hermitage to applaud the new-found Russian-Saudi cooperation in art and technology. What began as a relationship in the energy business had obviously blossomed into something broader.

“Through oil deals and investment deals we really build friendship and great camaraderie,” he said, before weaving his way again through the media ambushes in the forum halls.


Oil Updates – crude trades in tight range ahead of US election

Updated 05 November 2024
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Oil Updates – crude trades in tight range ahead of US election

SINGAPORE: Oil prices traded in a narrow range on Tuesday ahead of what is expected to be an exceptionally close US presidential election, after rising more than 2 percent in the previous session as OPEC+ delayed plans to hike production in December.

Brent crude futures ticked down 3 cents, or 0.04 percent, to $75.05 a barrel by 9:00 a.m. Saudi time, while US West Texas Intermediate crude was at $71.43 a barrel, down 4 cents, or 0.06 percent.
“We are now in the calm before the storm,” IG market analyst Tony Sycamore said.

Oil prices were supported by Sunday’s announcement from OPEC and their allies, a group known as OPEC+, to push back a production hike by a month from December as weak demand and rising non-OPEC supply depress markets.

Still, risk-taking remains limited with a busy week — including the US election, the Federal Reserve’s policy meeting, and China’s National People’s Congress meeting — keeping many traders on the sidelines, said Yeap Jun Rong, market strategist at IG.

For now, polls suggest the US presidential race will be closely contested, and any delay in election results or even disputes could pose near-term risks for broader markets or drag on them for longer, added Yeap.

“Eyes are also on China’s NPC meeting for any clarity on fiscal stimulus to uplift the country’s demand outlook, but we are unlikely to see any strong commitment before the US presidential results, and that will continue to keep oil prices in a near-term waiting game,” Yeap said.

Meanwhile, OPEC oil output rebounded in October as Libya resumed output, a Reuters survey found, although a further Iraqi effort to meet its cuts pledged to the wider OPEC+ alliance limited the gain.

More oil could come from OPEC producer Iran as Tehran has approved a plan to increase output by 250,000 barrels per day, the oil ministry’s news website Shana reported on Monday.

In the US, a late season tropical storm predicted to intensify into a category 2 hurricane in the Gulf of Mexico this week could reduce oil production by about 4 million barrels, researchers said.

“Technically, crude oil needs to rebound above resistance at $71.50/72.50 to negate the downside risks,” IG’s Sycamore said, referring to WTI prices.

“All of which suggests there won’t be a scramble to chase it higher in the short term.”

Ahead of US weekly oil data on Wednesday, a preliminary Reuters poll showed on Monday that US crude stockpiles likely rose last week, while distillate and gasoline inventories fell.


Business activities strengthen in UAE and Kuwait: S&P Global

Updated 05 November 2024
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Business activities strengthen in UAE and Kuwait: S&P Global

RIYADH: Non-oil business activity in the UAE continued its momentum in October, with the Emirates’ Purchasing Managers’ Index reaching 54.1, up from 53.8 in the previous month, an economy tracker showed. 

According to the latest PMI report compiled by S&P Global, the rise in the index was driven by a faster increase in business activity, as demand rose and firms maintained efforts to contain backlogs. 

Aligned with the economic diversification efforts of its Arab neighbors, the UAE is also reducing its reliance on crude revenues and is concentrating more on sectors such as tourism.

“The main factor keeping the PMI above its previous reading was an expansion in business activity, which accelerated notably, albeit from September’s three-year low,” said David Owen, senior economist at S&P Global Market Intelligence. 

According to the agency, the pace of business activity levels in October improved at its quickest rate since April, as firms raised output in response to higher sales volumes, healthy work pipelines and robust client numbers. 

However, the growth of new orders softened to its lowest since February 2023, which contributed to both weaker job creation and a renewed drop in selling charges.

“A softening of new business growth in October added to signs that the non-oil economy is losing strength after a robust growth period in late-2023/early-2024. Firms in the survey panel frequently indicated that crowding in the market was eating into sales, and hitting job creation which slipped to a 30-month low,” said Owen. 

He added: “Firms reduced their output prices for the first time in six months in a bid to try and reverse this slowing sales trend. Positively, this came at the same time as input price pressures softened, likewise to a six-month low.” 

The report revealed that the intakes of new work increased in October, but the rate of growth dropped to its weakest level in 20 months. 

According to the survey, business sentiment improved following September’s 18-month low, yet remained at one of its weakest levels in 2024 so far. 

The report added that companies were generally hopeful that activity and demand growth would be resilient in the future, in part supported by strong sales pipelines. Conversely, uncertainty and high competition were both noted as headwinds to growth by non-oil firms in the UAE. 

Dubai PMI slightly edges down

In the same report, S&P Global revealed that non-oil companies in Dubai registered a slower improvement in operating conditions during October with the PMI falling to 53.2, down from 54.1 in September. 

According to the survey, new business intakes in Dubai rose at the softest rate since the beginning of 2022, as a number of firms cited tougher market conditions and increased numbers of competitors. 

S&P Global added that the pace of employment growth also ticked down in October, but output growth accelerated slightly to a five-month high. 

Similar to the overall scenario in the UAE, non-oil firms in Dubai also posted a drop in average selling prices for the first time since April, due to strong competition. 

Kuwait’s non-oil sector regains momentum

In another report, S&P Global revealed that the non-oil sector in Kuwait regained momentum, with the PMI rising to 52.7 in October, up from 50.3 in September to reach its highest level in seven months. 

According to the survey, both output and new orders rose in the 10th month of the year, while companies also ramped up purchasing activity. 

The report added that advertising and competitive pricing were the main factors outlined by survey respondents which drove the growth of new orders. 

“October saw a rejuvenation of the Kuwaiti non-oil private sector, with firms much better able to bring in new business during the month and therefore seeing output growth quicken,” said Andrew Harker, economics director at S&P Global Market Intelligence. 

He added: “The latest figures raise hopes that the recent soft-patch is behind us and that growth will continue over the remainder of the year. Adding to this sense of positivity, business confidence continued to strengthen.”

While companies increased their purchasing activity rapidly, the pace of job creation remained only fractional in October, as most of the firms embraced this tactic to save costs. 

“Less positive was that firms are still often displaying a reluctance to hire additional staff as they attempt to limit costs. A renewed increase in backlogs of work, however, might mean that workforce numbers are raised more quickly in the months ahead,” said Harker. 


Saudi Arabia’s PMI rises to 6-month high in October

Updated 05 November 2024
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Saudi Arabia’s PMI rises to 6-month high in October

RIYADH: Saudi Arabia’s non-oil business activities strengthened in October, with the Kingdom’s purchasing managers’ index rising to a six-month high of 56.9, an economy tracker showed.

The Riyad Bank Saudi Arabia PMI survey, compiled by S&P Global, revealed that this figure beat the Kingdom’s September rating of 56.3 and the August level of 54.8.

The report revealed that this rise was driven by a sharper increase in sales, which supported further expansions in business activity, employment, purchasing activity, and stocks. 

S&P Global highlighted that any PMI readings above 50 indicate growth, while levels below 50 signal contraction. 

Strengthening the non-oil private sector is a crucial goal outlined in Saudi Arabia’s Vision 2030, as the Kingdom is steadily diversifying its economy by reducing its decades-long reliance on crude revenues. 

Affirming the progress of Saudi Arabia’s economic diversification, a report released by GASTAT in October showed that the Kingdom’s non-oil activities expanded by 4.2 percent in the third quarter of this year, compared to the same period in 2023. 

“In October 2024, Saudi Arabia’s non-oil private sector maintained its upward trajectory, with the PMI rising to 56.9 from 56.3, highlighting the nation’s robust economic health. This growth is part of a steady expansion trend since September 2020, driven by increasing demand and aligning with the goals of Vision 2030,” said Naif Al-Ghaith, chief economist at Riyad Bank. 

He added: “The comprehensive sectoral gains reflect a strong business environment, supported by government initiatives and heightened private sector engagement, aligning with ongoing projects under Vision 2030 that aim to diversify the economy and reduce reliance on oil.” 

S&P Global also attributed the rise in PMI to a stronger increase in sales volumes in October, as businesses commented on higher client demand and a general uplift in economic conditions. 

Survey respondents cited various factors, including customer arrivals, successful marketing strategies, and increased infrastructure development, as some key elements driving non-oil business growth in the Kingdom. 

“Over 40 percent of surveyed companies reported a surge in demand, spurred by robust domestic client interest, creative marketing strategies, and continuous infrastructure investments. These elements underscore Saudi Arabia’s economic resilience and high market confidence, further solidifying its position as a leading non-oil economy in the region,” said Al-Ghaith. 

The report added that businesses that took part in the survey were optimistic about future growth, and it encouraged companies to increase their purchase activity in October. 

Companies operating the Kingdom’s non-oil sector also raised their labor capacity in October, which enabled these firms to remain on top of workloads and curtail their levels of work-in-hand. 

Even though the pace of job creation remained stronger than average, it eased for the second month in a row, partly due to a reduction in the number of staff in the construction sector. 

“With this ongoing expansion, the non-oil sector’s contribution is projected to exceed 52 percent of the overall GDP and grow beyond 4 percent in 2024, reflecting the successful implementation of Vision 2030 and its associated projects,” concluded Al-Ghaith. 


Saudi Aramco reports $27.52bn net profit in Q3

Updated 05 November 2024
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Saudi Aramco reports $27.52bn net profit in Q3

RIYADH: Energy giant Saudi Aramco reported a net profit of SR103.37 billion ($27.52 billion) in the third quarter of this year, exceeding analyst expectations, which projected a median net income of $26.9 billion. 

In a statement, the firm revealed that its net profit for the third quarter witnessed a decline of 15.40 percent compared to the same period in 2023, due to challenging market conditions including lower market prices for crude oil, refined, and chemical products.

Saudi Arabia, aligned with the decision of OPEC+, reduced its oil output by 500,000 barrels per day in April 2023, and this cut has now been extended until December 2024. 

“Aramco delivered robust net income and generated strong free cash flow during the third quarter, despite a lower oil price environment,” said Amin Nasser, president and CEO of the company. 

He added: “We also progressed our upstream developments, strengthened our downstream value chain, and advanced our new energies program as we continue to invest through cycles.” 

According to the statement, Aramco’s overall revenue from sales stood at SR416.63 billion in the third quarter, representing a marginal decline of 1.76 percent compared to the same period of the previous year. 

In terms of capital investments, the energy giant allocated SR49.6 billion in the third quarter, showcasing its continued commitment to expansion and production capabilities. 

Aramco also issued international sukuk worth $3 billion in the three months to the end of September, which further diversified the company’s investor base and enhanced liquidity profile. 

“Our recent $3 billion international sukuk issuance highlighted strong investor confidence in Aramco and we can be proud of the significant strides the company continues to make, all while sustaining our high levels of profitability, operational performance and reliability,” said Nasser. 

He added: “As we focus on strategic growth opportunities and capturing value through integration and diversification, we intend to maintain our positive momentum and cement our position as a leading global energy and petrochemicals player.” 

In the first nine months of this year, Aramco reported a net profit of SR314.65 billion, representing a decline of 11.25 percent compared to the same period in 2023. 

The statement added that the company’s overall sales revenue stood at SR1.24 trillion over the period, marking a marginal year-on-year rise of 0.02 percent. 

In a separate bourse filing, the energy giant declared a base dividend of SR0.315 per share, totaling SR76.06 billion for the third quarter of 2024.

The company also announced the sixth payment of a performance-linked dividend of SR0.167 per share, totaling SR40.39 billion, based on the combined full-year financial results of 2022 and 2023. 

Aramco said that it continued its progress in the renewable energy sector during the third quarter as it completed the financial close for three solar PV projects, with an anticipated combined capacity of 5.5 gigawatts. 

In September, Aramco’s wholly-owned subsidiary SAPCO, along with partners ACWA Power and the Public Investment Fund announced the financial closure for three solar photovoltaic projects worth SR12 billion. 

The Haden and Muwayh projects in Makkah province each have a planned production capacity of 2 GW, while the Al-Khushaybi project in Qassim province has a planned production capacity of 1.5 GW. 


Pakistan PM says policy rate reduction to enhance business activities, boost employment

Updated 05 November 2024
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Pakistan PM says policy rate reduction to enhance business activities, boost employment

  • Pakistan’s central bank slashed key policy rate by 250 basis points to 15 percent on Monday 
  • With fourth straight reduction since June, Islamabad aims to revive sluggish economy 

ISLAMABAD: Pakistan’s Prime Minister Shehbaz Sharif has welcomed the central bank’s decision to cut the policy rate by 250 basis points, saying the move would help boost the country’s business activities and enhance employment opportunities, state-run media reported on Tuesday.

Pakistan’s central bank slashed its key policy rate by 250 basis points to 15 percent on Monday for a fourth straight reduction since June. The development takes place as Islamabad attempts to revive a sluggish, fragile $350 billion economy as inflation eases. 

Monday’s move follows cuts of 150 bps in June, 100 bps in July, and 200 in September that have taken the rate from an all-time high of 22 percent, set in June 2023 and left unchanged for a year. It takes the total cuts to 700 bps in under five months.

“Prime Minister Shehbaz Sharif says the reduction in policy rate will enhance business activities, exports and employment opportunities in the country,” state broadcaster Radio Pakistan reported. 

Sharif was chairing a meeting of the ruling Pakistan Muslim League-Nawaz’s (PML-N) parliamentary party on Monday when he touched upon the central bank’s move. The premier noted that inflation has reduced from an alarming 38 percent in May 2023 to 7 percent at present.

The Pakistani premier informed members of the PML-N parliamentary party about his visit to Saudi Arabia and Qatar last week, saying that “a new chapter” has been added to the Pakistan-Saudi investment partnership. 

“The Saudi leadership assured all kinds of support for the stability and development of Pakistan’s economy,” Sharif said according to the state broadcaster. 

The Pakistani prime minister also informed the lawmakers about his visit to Qatar, saying that the Qatari leadership also assured an increase in investment for Pakistan. He said talks were held between both sides on giving “a practical shape” to projects worth $3 billion in Pakistan. 

“He said Qatar will invest in various sectors including aviation, hoteling, information technology and energy sectors in Pakistan,” the state broadcaster said. “Shehbaz Sharif said the government is taking steps on a priority basis to facilitate investment and increase foreign investment in Pakistan.”