Arabia Monitor. Sino-MENA: Reconfiguring the Silk Road. Middle East & North Africa Outlook Q3 2015

Transcription

1 Sino-MENA: Reconfiguring the Silk Road Middle East & North Africa Outlook Q Florence Eid-Oakden, Ph.D Tel: With Cyrus Sassanpour, Ph.D, Waleed Shoukry, Charlene Rahall, Hadi MENA Makarem, Outlook Ph.D, Q Yifu Jia, Nadine Mezher.

2 Outline Topic Slides Topic Slides Our View: Pockets of resilience leverage new opportunities 5 Sino-MENA: Growing trade relations 15 Global Outlook: UK and US recovery 6 Sino-MENA: Chinese high-tech gaining a foothold in MENA 16 Global Outlook: The worrisome Japanese economy 7 Sino-MENA: Bilateral FDI small but rising 17 Sino-MENA: Enhancing economic relations 8 Sino-MENA: WiMAX licensing offers an effective means of entering the broadband market in some MENA countries 18 Sino-MENA: Overview of Chinese diplomacy with MENA 9 Sino-Qatar: Business ties forging ahead 19 Sino-MENA: Expanding markets through strategic partnerships 10 Sino-UAE: From strength to strength 20 Sino-MENA: Looking to upgrade bilateral ties 11 Sino-Iran: Business as usual 21 Sino-MENA: The energy dynamic 12 Sino-MENA: A walk on the wild side 22 Sino-MENA: Escalating dependency on MENA 13 Sino-MENA: Deepening economic and political ties 23 Sino-MENA: It s not all about oil anymore 14 Iran Market Monitor: Hope at last for banking? 24 2

3 Outline Topic Slides Topic Slides MENA Credit Monitor: Macro Themes Sovereign Credit MENA FX Markets: FX Levels Analysis 40 MENA Credit Strategy: Outright CDS & Bond analysis MENA Credit Analysis: Arabia Credit CDS Monitor 41 MENA Credit Strategy: Relative value CDS & Bond analysis 30 MENA Credit Analysis: Arabia Credit Bond Monitor 42 MENA FX & Local Markets Monitor: Macro Themes Sovereign FX MENA FX Analysis: Arabia FX Monitor 43 MENA FX Strategy: Outright FX analysis 34 MENA Local Markets Analysis: Arabia Local Markets Monitor 44 Arabia Credit Monitor: 5-yr CDS vs. Credit Ratings 35 Arabia Credit Monitor: Credit ratings 45 Arabia Credit Monitor: Bond Z-Spread vs. Credit Ratings 36 MENA Macro Dashboard 46 MENA Credit Markets: CDS Spread Analysis 37 Algeria: Agriculture - an engine of growth? 47 MENA Credit Markets: Bond Z-Spread Analysis 38 Bahrain: Retail sector demonstrates market confidence 48 MENA Credit Markets: Sovereign Sukuk Bond Z-Spread Analysis 39 Egypt: ISIS declares war on the Pharoahs 49 3

4 Outline Topic Slides Topic Slides Egypt: Reaping the reward of political stability 50 Oman: A diplomat among warmongers 60 Iraq: Ripe for adventurous investors 51 Palestine: Broken promises delay reconstruction 61 Jordan: SMEs - small but crucial 52 Qatar: Stellar performance in banking 62 Kingdom of Saudi Arabia: ISIS knocking 53 Qatar: What if? 63 Kingdom of Saudi Arabia: Retail sector in the spotlight 54 Sudan: Exploiting telecom market potential 64 Kuwait: FDI law to boost non-oil growth 55 South Sudan: Economy dragged down by conflict 65 Lebanon: Sluggish performance in construction 56 Syria: Redrawing the front lines 66 Libya: At a critical juncture 57 Tunisia: FDI resilience despite instability 67 Mauritania: Favourable outlook despite low iron ore prices 58 UAE: Free zones driving non-oil trade 68 Morocco: The new pioneer of Islamic finance? 59 Yemen: Quietly, al-qaeda expands 69 4

5 Outline Topic Slides GCC sovereign ratings update 70 MENA ex-gcc sovereign ratings update 71 5

6 Our View: Pockets of resilience leverage new opportunities While the global economy is set for a gradual pick up, the economic outlook for MENA remains tepid, but individual countries continue to post varying degrees of resilience. Low oil prices, conflict and continued uncertainty have led the IMF to revise its regional average growth projections for 2015 from 3.2% in January to 2.7% in May. Fiscal deficits are mounting, leaving the region with an average deficit of 8% of GDP in The dramatic decline in oil prices since 2014 has injected a good deal of uncertainty into revenue, expenditure, and GDP forecasts, but the private sector has remained broadly resilient so far. We highlight pockets of opportunity in the non-oil sector in the region. In our Country Pages, you will invariably read a similar story, namely that the nonoil side of some MENA economies is poised to do very well in 2H. - The outlook for the Saudi retail sector remains positive, buttressed by a growing population, rising disposable income and robust consumer confidence. - There could be temporary effects on banking activities if Qatar loses the right to host the World Cup. However, banks in Qatar are structurally sound and there is little to suggest that their balance sheets will be harmed by the cancellation or slowdown of some of the ongoing projects. - The agricultural sector in Algeria has always been a promising means of reducing reliance on energy, and recent developments suggest that it could start to play a role in diversification. In Libya, ongoing peace talks have failed to meet the 17 June deadline. The internationally recognised parliament dropped out of the talks in protest over a plan that would mean sharing power with rivals. - Meanwhile, ISIS is strengthening its hold in central Libya. Complete control over Sirte could cement ISIS positions on the west side of Sirte Basin (home to about 70% of the country s crude reserves). - ISIS already controls Naufaliya, 30 miles from Es Sider and Ras Lanuf. We believe that moving in on these two oil facilities is one of its goals and while they may not overrun them due to bolstered security, they could cause damage and significantly affect oil exports. Our regional theme this quarter analyses growing relations between China and MENA with a focus on energy, merchandise trade and FDI. China s energy dependency is expected to rise to 61% by end-2015 and MENA countries are likely to be the major beneficiaries. The GCC in particular remains the largest source of China's crude oil imports. 1 ; IMF. Figure 1 MENA Vs. GCC Fiscal Balance 1 - The share of oil imported by China from MENA rose modestly from 48% in 1990 to 52% in 2014, but the volume of these imports rose dramatically, from 700K bpd in 1990 to 3.2M bpd in Chinese investments in MENA still constitute a small proportion of total Chinese FDI (2.4%), but a sizeable proportion of MENA GDP (6.4%). - This lies in sharp contrast to the EM average which constitutes 4.9% of total Chinese outward FDI but only 0.1% of total EM GDP; - These figures highlight the sizeable impact that a marginal FDI increase from China could have on the MENA region, and the significance of what is starting to unfold. - As China looks beyond oil investments, MENA s real economy and markets provide compelling new destinations for telecom, agriculture, manufacturing and consumer-driven industries. - MENA imports of high-tech products from China accounted for 14.6% of total 2014 MENA imports of these goods, and only 4.2% of China s global exports of high-tech products, underscoring ample room for growth. The proposed Free Trade Agreement between GCC and China acts as a step towards achieving more synergies. MENA imports of high-tech products from China accounted for 14.6% of total 2014 MENA imports of these goods and only 4.2% of China s global exports of high-tech products, underscoring ample room for growth. 6

7 GCC sovereign ratings update Moody s Last Moody s action S&P Last S&P action Rating O/L* Action Date Rating O/L Action Date Rating change considerations Bahrain Baa3 (-) Downgrade 16-Apr-15 BBB- (-) 12-Jun-15 The weakening fiscal revenue base which remains dominated by oil receipts, given the current oil price assumption outlook could lead to another rating downgrade over the short term. Kuwait Aa2 13-Mar-15 AA 13-Feb-15 An improvement in the relationship between government and parliament could spur policy formulation and implementation to develop the non-oil sector and attract FDI. Reducing the oversized public sector is another consideration. Oman A1 (-) 20-Feb-15 A- 22-May-15 Uncertainty over the effectiveness of the government's policy response to challenges posed by lower oil prices to government finances, external current account, and growth performance in Qatar Aa2 08-Jan-15 AA 27-Mar-15 Rating could improve in view of a faster-than-expected maturation of domestic institutions and if growth became less dependent on public sector investment. Saudi Arabia Aa3 O/L Stable 01-Apr-15 AA- (-) 01-May-15 Ratings could be lowered over the next two years if the government's liquid assets fell well below 100% of GDP. The ratings could also come under pressure if domestic or regional events compromised political and economic stability. UAE Aa2 11-Mar-15 N/R Reducing the debt of government-related enterprises of Abu Dhabi Banks and Government of Dubai could support upgrade considerations in the medium term. Bloomberg; Moody s; S&P; JPMorgan. *O/L stands for outlook Note: Political & institutional factors, rather than just fiscal & economic performances, constrain GCC ratings starting from Moody s Aa & S&P s A categories 7

8 MENA exc. GCC sovereign ratings update Moody s Last Moody s action S&P Last S&P action Rating O/L* Action Date Rating O/L Action Date Algeria N/R N/R Rating change considerations Sovereign rating likely on hold due to domestic and global conditions. Egypt B3 Upgraded 07-Apr-15 B- (+) O/L (+) 15-May-15 Political transition strengthens relations between the government and wider society and brings about a sustained improvement in external performance, including net international reserves, thereby easing external pressures. Jordan B1 22-Jan-15 BB- 24-Apr-15 Successful implementation of key political and structural economic reforms, supporting more sustainable and economic growth and further easing fiscal and external vulnerabilities would support an improvement in rating outlook. Lebanon B2 (-) 26-Mar-15 B- 27-Mar-15 Significant improvement in government finances to lessen dependence on domestic bank funding and a reduction in political risk are necessary for a rating change consideration. Morocco Ba1 07-Apr-15 BBB- 17-Apr-15 Higher economic growth to substantially exceed forecasts, for exchange rate flexibility to increase markedly, and for Morocco's institutional and governance quality to rise above that of similarly rated peers would be supportive of ratings upgrade. Tunisia Ba3 25-May-15 N/R Implementation of the structural reforms agreed under the extended IMF program, including public bank recapitalization and governance reform. A sustained fiscal and external rebalancing would also exert upward pressure on the rating. Bloomberg; Moody s; S&P. *O/L stands for outlook 8

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