Saudi investment plans, UAE vaccine, Jordan-IMF - Capital Economics
Middle East & North Africa Economics

Saudi investment plans, UAE vaccine, Jordan-IMF

Middle East Economics Weekly
Written by James Swanston
The Shareek investment program launched in Saudi Arabia this week may help diversification efforts, but there is a risk it leads to a misallocation of resources that damages longer-run growth prospects. Elsewhere, the announcement that the UAE will produce the Sinopharm COVID-19 vaccine should help to maintain rapid vaccine progress there and help other countries in the region, allowing restrictions to be lifted sooner than we currently assume. Finally, while the decision by the IMF to increase the size of Jordan’s deal is positive news, the Fund is likely to demand further austerity, which will weigh on economic growth.

Shareek program aims to boost Saudi investment

Saudi Arabia launched a new investment drive this week that aims to boost the role of the private sector in the economy over the next decade. But, while this may drive diversification efforts, there is a risk that it leads to a misallocation of resources and damages economic growth in the long run.

The Shareek program amounts to SAR12trn (equivalent to around 40% of GDP per year) of investment by 2030. Of this, SAR5trn will be invested by the corporate sector (60% of which will be driven by Aramco and SABIC), along with SAR3trn from the Public Investment Fund (PIF) and a further SAR4trn of which half is hoped to come from foreign investors. In order to fund these investments, companies have agreed to cut dividends over the period (although this will, apparently, not affect dividends by Aramco to private investors).

In exchange for firms taking part in the scheme, Crown Prince Mohammed bin Salman (MbS) announced that the government “will help them with regulations, more subsidies, and other incentives”. Some have argued that lower dividends will reduce the attractiveness of these firms’ stocks to investors, although MbS has argued that should not be the case as the investments will help to diversify and improve the long-run prospects of the economy.

But we’re not convinced that these measures will significantly lift the Kingdom’s long-term outlook. Of the local private sector companies enlisted to be part of the plan, many of them are at least part-owned by the PIF. As a result, the Shareek program is, de facto, a state-led investment drive. We had warned recently that the weakness of foreign investment in recent years would prompt Saudi authorities to pursue this path and ultimately result in a misallocation of resources (See here.)

The program has also raised some concerns about the impact on Saudi’s fiscal position. Lower dividends from Aramco will weigh on the government’s revenues, as will lower pay-outs from other state- or PIF-owned firms. But we suspect that some of the investment being planned as part of the Shareek program may have previously been set to be undertaken by the central government and so public capital expenditure may now prove to be lower than would otherwise have been the case, offsetting the impact from lower dividends on the budget position.

UAE vaccine production to boost regional rollout

The UAE announced that it would begin producing China’s Sinopharm COVID-19 vaccine this month. It had been rumoured for some time that the UAE would produce the vaccine having been part of Sinopharm’s trial. The UAE has already fully vaccinated half of its population and more supply would help to maintain the recent strong pace of vaccinations. But, given the UAE’s strong logistic and trade ties in the region, it is likely that many of the vaccines produced there will be exported. This would help to strengthen vaccine rollouts in Bahrain, Egypt, Jordan, and Morocco, which have already approved the Sinopharm vaccine.

Jordan’s IMF deal to help rein in twin deficits

The IMF announced on Tuesday that it had approved the disbursement of the second tranche of Jordan’s Extended Fund Facility and increased the size of the deal by $200mn to meet the country’s large financing needs. The COVID-19 pandemic caused Jordan’s budget and current account deficits to widen last year and IMF financing comes at a crucial time when a surge in virus cases has led to a reimposed lockdown. Going forward, fiscal consolidation will be needed to rein in the twin deficits and curb the rise in public debt. But this will add to the headwinds facing economic growth.

The week ahead

March’s batch of PMIs are likely to show that recoveries in non-oil sectors remained weak.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

2nd Apr

Bah

Consumer Prices (Feb.)

-1.1%(-2.7%)

+0.7%(-0.7%)

5th Apr

Egy

Whole Economy PMI (Mar.)

49.3

Sau

Whole Economy PMI (Mar.)

53.9

UAE

Whole Economy PMI (Mar.)

50.6

Qat

Whole Economy PMI (Mar.)

53.4

6th Apr

Leb

Whole Economy PMI (Mar.)

42.2

Tun

Consumer Prices (Mar.)

0.0%(+4.9%)

+0.9%(+5.0%)

8th Apr

Kuw

Private Sector Credit (Feb.)

(+3.6%)

Egy

Foreign Exchange Reserves (Mar., USD)

40.2bn

UAE

Consumer Prices (Feb.)

+0.1%(-1.9%)

+0.4%(-1.2%)

Selected future data releases and events

11th Apr

Egy

Consumer Prices (Mar.)

+0.2%(+4.5%)

12th Apr

Oma

Consumer Prices (Mar.)

0.0%(-1.4%)

Bah

Private Sector Credit (Feb.)

Oma

Private Sector Credit (Feb.)

(+2.7%)

13th Apr

OPEC

OPEC Monthly Oil Market Report

15th Apr

Tun

Industrial Production (Feb.)

16th Apr

Qat

Consumer Prices (Mar.)

-0.1%(-1.4%)

20th Apr

Jor

Consumer Prices (Mar.)

+0.7%(+0.4%)

22nd Apr

Sau

Consumer Prices (Mar.)

-0.1%(+5.2%)

Mor

Consumer Prices (Mar.)

+0.1%(+0.3%)

24th Apr

Jor

GDP (Q4, q/q(y/y))

(-2.2%)

Jor

Industrial Production (Jan.)

27th Apr

Leb

Consumer Prices (Jan.)

+8.2%(+145.8%)

Leb

Consumer Prices (Feb.)

Leb

Consumer Prices (Mar.)

28th Apr

Sau

Private Sector Credit (Mar.)

29th Apr

Egy

Interest Rate Announcement

8.25%

Qat

Private Sector Credit (Mar.)

(+8.1%)

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Refinitiv, Capital Economics


Main Economic & Market Forecasts

Table 1: GDP & Consumer Prices (% y/y)

Share of

World 1

2008-18

Ave.

GDP

Consumer Prices

2018

2019

2020

2021

2022

2018

2019

2020

2021

2022

Saudi Arabia

1.2

3.5

2.4

0.3

-3.9

2.3

6.3

2.5

-2.1

3.4

3.8

1.8

Egypt

0.9

3.9

5.4

5.5

1.0

6.0

6.3

14.4

8.6

5.2

5.8

4.5

UAE

0.5

2.8

1.7

3.0

-9.0

9.8

6.8

3.1

-1.9

-2.1

2.5

3.0

Algeria

0.4

2.8

1.5

0.8

-9.3

4.5

4.0

4.3

2.0

2.4

5.0

6.5

Morocco

0.2

3.8

3.0

2.3

-6.5

9.5

4.3

1.8

0.2

0.7

1.0

1.3

Qatar

0.2

7.4

1.4

-0.4

-2.8

4.5

4.3

0.3

-0.6

-2.6

1.3

2.5

Kuwait

0.2

1.1

1.2

0.4

-7.8

4.0

5.3

0.6

1.1

2.1

3.3

2.5

Oman

0.1

4.1

2.0

0.5

-7.3

7.0

2.8

0.9

0.1

-0.8

2.8

1.3

Tunisia

0.1

2.3

2.5

1.0

-8.6

8.0

3.5

7.3

6.7

5.6

5.3

5.8

Jordan

0.1

3.2

2.0

2.5

-1.5

2.8

2.3

4.5

0.8

-0.3

2.0

3.8

Lebanon

0.1

3.4

0.2

-3.0

-40.0

-10.0

6.8

6.1

2.9

84.9

59.0

9.5

Bahrain

0.1

3.8

2.0

1.8

-4.5

6.0

3.3

2.1

1.0

-2.3

1.0

1.8

Middle East & North Africa

4.0

3.7

2.7

2.0

-5.2

4.9

5.6

5.3

1.5

4.1

4.9

3.3

Sources: Refinitiv, Capital Economics. 1) % of GDP, 2019, PPP terms (IMF estimates).

Table 2: Central Bank Policy Rates

Policy Rate

Latest
(1st Apr.)

Last Change

Next Change

Forecasts

End
2021

End
2022

Saudi Arabia

Reverse Repo Rate

0.50

Down 75bp (Mar. ’20)

None on the horizon

0.50

0.50

Egypt

Overnight Deposit Rate

8.25

Down 50bp (Nov. ’20)

Down 50bp (Q4 2021)

7.75

6.75

UAE

Repo Rate

0.75

Down 75bp (Mar. ’20)

None on the horizon

0.75

0.75

Algeria

Discount Rate

3.25

Down 50bp (Mar. ’20)

None on the horizon

3.25

3.25

Qatar

Deposit Rate

1.00

Down 50bp (Mar. ‘20)

None on the horizon

1.00

1.00

Kuwait

Discount Rate

1.50

Down 100bp (Mar. ’20)

None on the horizon

1.50

1.50

Morocco

Key Rate

1.50

Down 50bp (Jun. ’20)

None on the horizon

1.50

1.50

Oman

Overnight Repo rate

0.50

Down 100bp (Mar. ’20)

None on the horizon

0.50

0.50

Tunisia

BCT Key Rate

6.25

Down 50bp (Sep. ’20)

None on the horizon

6.25

6.25

Jordan

Overnight Deposit Rate

1.75

Down 100bp (Mar. ’20)

None on the horizon

1.75

1.75

Lebanon

Repo Rate

10.00

Down 200bp (Dec ‘09)

None on the horizon

10.00

10.00

Bahrain

1-week deposit facility

1.00

Down 75bp (Mar. ’20)

None on the horizon

1.00

1.00

Sources: Bloomberg, Capital Economics

Table 3: Currencies and Stock Markets

Currency

Latest
(1st Apr.)

Forecasts

Stock Market

Latest
(1st Apr.)

Forecasts

End
2021

End
2022

End

2021

End
2022

Saudi Arabia

SAR/USD

3.7503

3.7500

3.7500

TASI

9,922

10,850

13,050

Egypt

EGP/USD

15.64

16.00

17.00

EGX30

10,568

13,800

16,400

UAE

AED/USD

3.6728

3.6725

3.6725

DFMGI

2,542

2,975

3,500

Algeria

DZD/USD

133.3

160.0

170.0

Qatar

QAR/USD

3.6416

3.6400

3.6400

QSE

10,426

12,650

14,800

Kuwait

KWD/USD

0.3020

0.3040

0.3040

KWSE

5,798

7,000

7,000

Morocco

MAD/EUR

10.64

11.25

11.50

MADEX

9,336

9,950

10,000

Oman

OMR/USD

0.3849

0.3845

0.3845

MSM30

3,682

4,500

5,200

Tunisia

TND/EUR

3.25

3.60

3.80

TUNINDEX

7,098

7,150

7,250

Jordan

JOD/USD

0.71

0.71

0.71

ASE

1,769

2,050

2,350

Lebanon

LBP/USD

1505.7

7,500

7,500

BLOM

869

875

875

Bahrain

BHD/USD

0.3769

0.3761

0.3761

BHSE

1,458

1,850

2,100

Sources: Bloomberg, Capital Economics


James Swanston, MENA Economist, james.swanston@capitaleconomics.com