5 September 2017 Volume 1, Week 34 + 35
STRATEGIC SAUDI ARABIA UPDATE • Strategic Analysis • Insight News
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SAUDI ARABIA STRATEGIC UPDATE
Volume 1, Week 34 + 35 5 September 2017
STRATEGIC ANALYSIS ...... 3 Saudi Iran political thaw not yet imminent ...... 3 Qatar Saudi crisis Phase 2.0? ...... 5 Saudi financial situation still under threat ...... 7
The Aramco IPO: A Geopolitical Game Of Thrones ...... 9 Saudi Arabia China to challenge Dollar Oil connection ...... 11
STRATEGIC INSIGHT NEWS ...... 12 Iraqi envoy: Saudi Arabia to open two consulates in Basra and Najaf...... 12 Saudi Arabia's Largest Bank Said to Hire Investment Banking Head ...... 12 Goldman Sachs gets equities trading license in Saudi Arabia ...... 12
Goldman Said to Name AlDossari Saudi Investment Banking Head ...... 13 Saudi Arabia issues rules for small-scale solar energy generation ...... 13 Public sector contractors in Saudi Arabia exempt from workers' tax...... 14 Saudi Arabia moves to 100 percent foreign ownership for engineering consultants ...... 15 Saudi Arabia's Incredibly Shrinking Inventories ...... 15
Saudi Arabia proves it has many cards to play in Qatar crisis ...... 16 Tight spending and oil revenues drive fiscal improvement in 1H17 ...... 17 Saudi Arabia's Vision 2030: Overview of Recent Developments ...... 19
Saudi wealth fund to hire new head for $111 bln portfolio ...... 20 Saudi Arabia Announces Stricter Requirements for Hiring Foreign Engineers ...... 21 In Saudi diplomatic shift on Iraq, a hand to Sunnis ... and Shiites ...... 21 Saudi Arabia’s newest no-frills airline gets first aircraft ...... 24
China, Saudi Arabia forge nuclear energy cooperation ...... 24 Boeing receives $222.5M contract for Chinook helicopters for Saudi Arabia ...... 25 Saudi Aramco, SABIC launch bidding at chemical project: report ...... 25
Saudi Arabia, China to set up $20 bln investment fund ...... 25 Goldwind signs MoU with Saudi Arabian authorities ...... 26 Bahri subsidiary inks $120 mln deal with Hyundai Heavy Industries ...... 26
Saudi contractors still owed 70% of dues: report ...... 26 Digital banking outlook in Saudi Arabia promising ...... 27 Hong Kong and Saudi Arabia Enter into Tax Pact ...... 28 Dow Chemical plans to increase stake in Saudi Arabia’s Sadara ...... 29
About VEROCY Saudi contractors still owed 70% of dues: report ...... 29 Verocy is a boutique consultancy that Saudi aviation authority tenders 12 airport projects: report...... 30 provides risk integrated strategy Four contractors prequalify to bid for Aramco gas pipeline ...... 30 services and solutions for companies Middle East Investment gets CMA nod to amend business profile ...... 30 and organizations that need to develop and manage the value of Saudi Arabia seeks bids for 400 MW wind power project ...... 30 assets and resources in the MENA- Saudi Arabia’s Taqnia secures financing ...... 31 region. Saudi Labor Ministry sets conditions for recruitment of house workers ...... 31 HFI to help North Sea energy firms gain leverage from Saudi Arabia's IKTVA program . 32
Transformation of education in Saudi Arabia: One year on ...... 33 China's ICBC in talks with Gulf states on yuan bonds: report ...... 34 PÖYRY awarded Shoaiba 4 engineering services assignment ...... 34 Saudi Arabia accelerates the rollout of major rail projects Saudi ArabiaTransport ...... 34
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Saudi private sector growth edges up in early Q3 ...... 36 Expat remittances from Saudi Arabia up 10% in July 201 ...... 36 Saudi Arabia's oil giant Aramco explores Bengal options ...... 37 European investments drove Mideast energy deals in Q2: EY ...... 38 The great Saudi sell-off: why bankers and lawyers are flocking to the Gulf ...... 38 Saudi Aramco makes gains from R&D ahead of listing ...... 40 Technological focus gives Saudi Aramco strong upside: BMI Research ...... 41 Saudi Prince Khaled’s KBW to invest in Egypt ...... 41
ABOUT THE EDITORS ...... 42 SUBSCRIBTION INFORMATION ...... 42
About VEROCY Verocy is a boutique consultancy that
provides risk integrated strategy services and solutions for companies and organizations that need to develop and manage the value of assets and resources in the MENA- region.
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2 COMMENTARY 5 September 2017
SAUDI IRAN POLITICAL THAW NOT YET IMMINENT
After years of full diplomatic and economic The news about the possible Saudi diplomatic STRATEGIC confrontation between Iran and Saudi Arabia, delegation’s visit to Iran was already stated Kuwait ANALYSIS largely caused by the power struggle between newspaper Al Jarida had published an article Sunni and Shi’a led governments, a possible thaw indicating that the Saudis would be travelling to is imminent. The main players, Sunni-Wahhabi Iran just after the end of the Eid Al Adha festivities, Saudi Arabia and Shi’a power broker Iran, are which mark the end of the Hadj season. Iran has currently reassessing their diplomatic relations, also reiterated that Iranians will be visiting the which were severed after that Iranian protestors Iranian diplomatic sites in the Kingdom, but now attacked the Saudi Embassy in Tehran and its time indication could be given yet. consulate in the Iranian city of Mashdad in January 2016. These preparations have stirred some anxiety inside of the region, as a possible thaw between Since that period both sides continued a very the two main adversaries could again reshuffle the frosty relationship, only talking to each other total power balance and alliance structures in during international meetings of the UN, OPEC or place. The diplomatic crisis between the two World Economic Forum. countries emerged after that Iranians protested the execution by Saudi Arabia of leading Saudi Iran’s ministry of foreign affairs spokesman Shi’a cleric Sheikh Nimr Al Nimr in January 2016. Bahram Qasemi however has stated that a Saudi The latter was seen by the Saudi government as Arabian delegation will visit Iran very soon. Qasemi leading a possible Shi’a uprising in the country’s stated that "the Saudi delegation simply comes to Easter Province, which is well known for the vast oil visit diplomatic buildings because the buildings and gas reserves of Aramco. Saudi Arabia has have been empty after the two countries broke off always accused Iran of interfering or meddling in relations. At the same time, we will visit our the Kingdom’s internal affairs. Riyadh has been buildings in Saudi Arabia". The latter is not an blaming Tehran of fueling the Shi’a uprising in the opening on the diplomatic level, but Arab analysts Eastern Province and in Bahrain. Both sides got are indicating that there has been an ongoing really embroiled after the death of thousands of diplomatic discussion lately between Saudi and pilgrims, including hundreds of Iranians, in Iranian high level officials. Iran indicated to the September 2015 in Mina, near Mecca. Tehran press that the Saudi visit was already prepared openly blamed Saudi Arabia for the human before, as visas were already in place. Qasemi disaster, and casted doubt on the kingdom’s added that the date for the Iranian delegation's efficiency in hosting the rituals. The latter was seen visit has not been set yet. ‘ inside of Saudi Arabia as a direct attack on the position of the King and the Royal Family.
Iran is still pursuing the truth about the disaster in 2015, as no real official report has been published yet. A representative of Iran’s leader Ayatollah Seyyed Ali Khamenei told Iranian pilgrims in Mina last week that the Islamic Republic was pursuing the cases of "martyrs" in Saudi Arabia. Still, the cold is partly removed in the bilateral relations, as has been shown by the rational approach and cooperation of the two countries during the preparations of the Hadj this year when Iranian
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Hajj officials and diplomats met with Saudi officials between Saudi Arabia and Iran continues still. to discuss arrangements for Iranian pilgrims. This Iran’s involvement in Syria, its interference in year more than 80,000 Iranian pilgrims have been Bahrain, Saudi’s Eastern Province and the power in Saudi Arabia to perform the Hajj. Last year no projections in Iraq, Yemen and Lebanon, are not Iranian pilgrims have come to Saudi Arabia. seen as promising a real rapprochement. Even that Saudi news sites have reported that the Saudi King The perceived thaw between both parties is also has ordered or asked for a more lenient way of backed up by a statement last weeks by Iranian dealing with Iran, leading Saudi government President Hassan Rouhani, who said that if all goes officials are not yet convinced. When looking at smoothly, the pilgrimage could set the stage for the Saudi media and political environment there is further talks. Foreign Minister Mohammad Javad not yet a win-win situation for the powers around Zarif also said last month that Iran and Saudi Crown Prince Mohammed Bin Salman to open up Arabia were preparing to exchange diplomatic for a discussion with Iran. Diplomatic endeavors visits. will not be blocked but the reality on the ground, especially the growing military might of Iran and its proxies, prohibits any departure from the road currently taken. Saudi minister of foreign affairs Adel Al Jubeir stated bluntly in London that a remarks about a rapprochement are just laughable. Tehran first will need to change its politics and respect international law. “At this time, we do not see... that they’re serious about wanting to be a good neighbor,” Al Jubeir said. The Saudi minister reiterated that the current opening was only linked to the Hadj season. According to The last weeks the signs have been promising, Riyadh the bilateral relations are at their worst in when looking at the official statements given by years. The ice was broken, but winter is still Iranian officials. However, the power struggle coming.
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QATAR SAUDI CRISIS PHASE 2.0?
The crisis between the Saudi-led GCC states and these two are going to be the stage, the saga will Qatar seems to be heading for an attrition war continue. scenario. Saudi and Emirati officials have already indicated that they will be putting pressure on Adel Al Jubeir, Saudi minister of foreign affairs, Qatar to comply to the list of requirements with said to the press that “I think the Qataris may be in regards to funding of terrorism, meddling in other denial because they talk about being blockaded states and harboring terrorists. Saudi officials and they forget the core issue, which is their stated that Qatar is prolonging the GCC stalemate support for terrorism”. Since 5 June Saudi Arabia, by failing to address the concerns of the four Arab the UAE, Bahrain and Egypt, have cut all diplomatic countries boycotting it. and transport ties with Qatar. Al Jubeir even reiterated that the quartet anticipated the Two front-runners have appeared, NYSE and LSE, stalemate will hold for some time, saying that if the with of course the Riyadh Stock Exchange Qatar crisis continued for another two years “so be (Tadawul) already in place. Saudi sources have it”. now indicated to news agency Reuters that there is a tendency to favor NYSE, but analysts are Qatar’s current regional political decisions also are warning for possible negative repercussions of not supporting any real change in attitude of its handing over part of the Aramco treasures to a US Arab neighbors. In a bold, but maybe not well listing. The LSE is still a strong other option, as thought off, move Qatar decided to restore full there are less legal and financial issues and diplomatic relations with Iran, even promising to political interference is almost non-existing. Until send its ambassador back to Tehran. Initial Saudi’s Crown Prince Mohammed Bin Salman, who reactions in the other Arab capitals have been very is also the main promotor of the Aramco IPO, has clear, a total condemnation of this unilateral move come forward and openly has stated that one of by Doha. Some have indicated that this is a further
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step towards a full divorce. No real solutions are Ahmad bin Ali Al Thani, was deposed in 1972 and on the table currently to get this marriage again replaced by the current Qatar royal family branch. functional. Diplomatic attempts by the US, Kuwait, The real impact of this visit should however not be Turkey and Russia, have not resulted in any overestimated, as the power position of the Sheikh optimism. Abdulla and a possible Qatari opposition is still unclear. Saudi strategists will for sure not be The current decision by Doha is totally contrary to putting their money on a regime change in Doha, the demands on the table, made by its Arab based on these royals or a perceived opposition neighbors. One demand stipulates that Qatar will group. downgrade its relations with Iran. Saudi Arabia, Egypt and UAE, are accusing the latter to be The coming months the conflict will continue, as meddling in their internal politics and supporting Saudi-Egypt-UAE lines are set in the sand, and opposition. The Arab countries also request that Doha has shown to be unwilling to comply. Doha’s Qatar will shut all its diplomatic posts in Iran and move towards Iran is a strong signal to Riyadh, Abu remove all IRGC members. The only trade and Dhabi and Cairo, that with the current pressure on commercial activities between Iran and Qatar the Qataris no results will be reached. The Riyadh should be based on the options presented within Cairo Axis will need to reassess their options. To the US sanctions on Iran. get Qatar on its knees more is needed than only ‘ empty threats or a blockade of interregional trade Some analysts have indicated that the current and transport. Doha’s military cooperation with Qatari move is a reaction to the media attention Turkey and increasingly even with Iran could for the visit of a Qatari royal to Saudi Arabia. The however become an issue to be considered. The meeting between Saudi Crown Prince Mohammed Arab Sunni military powers will not allow that a bin Salman and Qatari Sheikh Abdullah bin Ali bin further integration of Qatar into the Turkish- Jassim Al Thani has been interpreted by many as a Iranian fold can lead to a destabilization of the sign that Riyadh, and its friends, are targeting other countries. An attrition war scenario is at regime change in Doha. The Qatari royal is present however the most feasible and likely, as member of a branch of the royal family that was the Arab boycott is starting to bite, Qatar’s sidelined when his brother, Qatari Emir Sheikh economy is hurting and financials are down.
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SAUDI FINANCIAL SITUATION STILL UNDER THREAT
Saudi Arabia’s overall financial situation is still very additional information, but some have suggested volatile. Central Bank data shows that Saudi that the poor performance was mainly due to government could still need to draw reserves private sector activity. Others are blaming the down to cover its budget deficit. In its latest report, Saudi military operations in Yemen for the financial the bank states that the Kingdom’s foreign deficits. reserves resumed falling in July. The threat that the government still needs to draw reserves down to Other insiders have raised another option, which cover a potential budget deficit still exists. The seems to be very likely one of the culprits. A large main reason for the current financial pressure is part of the current decline in foreign assets is still relatively low oil prices. linked to the transfer of money to state funds investing abroad. The main party in this is the main Since late 2014, Riyadh has been liquidating its Saudi sovereign wealth fund, the Public reserves, showing a rapid decline from its former Investment Fund (PIF). record level of $737bn in August that year. The draw down continued until June 2017, when a first increase in reserves was reported. The latter supported some optimism as it could have meant that the government budget cuts had been effective, resulting in a situation that no more cash would be needed from the reserves. However, July’s figures are again showing that the bank’s net foreign assets have fallen by $6.3bn from June to At the same the Saudi government wants to cover $487bn in July, their lowest level since early 2011. its deficit via debt sales, largely to prevent a further Total reserves showed a 12.8 percent decline in draw down of its reserves. During July main focus comparison with levels a year ago. Analysts have however was on the sale of foreign securities. not expected this situation, as the government also Based on the available data, the central bank’s launched monthly domestic issues of Islamic holdings of foreign securities shrank by $4.3bn bonds in July, which raised 17bn riyals. At present, from June to $333bn. This stands in stark contrast government officials have declined to give to the fact that deposits with banks abroad edged up by almost $1bn to $95bn. The report also indicated that the Saudi economy overall is still weak. One prime indicator of this is the fact that outstanding bank loans to the private sector shrank from a year earlier for the fifth straight month in July; they fell 1.3 percent, after a 1.4 percent drop in June.
Still, analysts are still not clear about the overall situation of the country’s financial reserves. Main point of discussion is still the fact if the country’s counter-cyclical buffers are large enough to counter a renewed economic shock. The setup of the National Transformation Program 2020 and Saudi Vision 2030 are seen as part of a mitigation strategy , as the government has adopted fiscal consolidation and adjustment in order to ensure economic sustainability. For the present situation
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it seems to be sufficient, but the verdict on the possibility of counter future shocks is still out. By the end of 2016, Saudi’s net foreign assets covered around 30 months of imports and were also 12 times the short-term external debt whether private or public. When taking into account a multitude of economic stress factors, which have occurred during the last economic crisis, it can still be said that Saudi reserves remained adequate at 7 times coverage, despite declining since 2013, which implies that the economy can cover its financing needs, withstand capital outflows, and sustain its imports
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THE ARAMCO IPO: A GEOPOLITICAL GAME OF THRONES
The already strong bilateral relations between Saudi Arabia has, in recent years, shown a Saudi Arabia and China are hitting new levels, as willingness to form more in-depth relationships the Kingdom and the Chinese Tiger have decided with its main Asian customers, China, India and to set up a joint US$20 billion investment fund. The Japan. The Chinese energy demand, which is still fund was announced by Saudi minister of energy the main driver of the global oil and gas market Khalid Al Falih, after meeting with Chinese vice- growth, is considered to be vital for Saudi Arabia’s prime minister Zhang Gaoli in Jeddah. Falih future. The Kingdom is currently in a heavy battle indicated that both countries will share the total with Russia and arguably Iran for the title of investments and will be splitting the revenues of China’s biggest oil supplier, a title that Russia took the fund, which is going to target projects in from Saudi Arabia at the start of this year. Several infrastructure, energy, mining and materials.. analysts have been very worried about this development as it could weaken the IPO of Saudi This is not a surprise, as Saudi Arabia has already Aramco. However, Aramco’s prominent position in been heavily investing in energy and the Chinese market, and the ongoing investments petrochemicals in China the last decades. Saudi that the Saudi oil giant is making in downstream Aramco’s main downstream investments lately production and capabilities in China, will contain almost all have been focusing on increasing the any negative repercussions from loss of market Saudi footprint in downstream China, mainly to share. In the long-run, Aramco’s position in China lock in Chinese demand for crude and products. will only strengthen, which will allow the Kingdom Falih also reiterated that both countries will sign to lock in a hefty portion of its export volumes. around $20 billion in value of projects in the coming days. As reported in the press, Saudi The fact that both sides are willing to set up a new Arabia will be willing to invest in the fund partly in investment fund, holding $20 billion, is a clear sign yuan. The current visit by the Chinese is of of not only the readiness of Saudi Arabia to link its significance, as it could be a precursor to a hefty future to China, but also its eagerness to support Chinese involvement in the eagerly awaited Saudi any Chinese involvement and interest in the Aramco IPO next year. In March, during a visit of Aramco IPO. The willingness of Saudi Arabia to the King Salman to China, the two countries signed consider funding in yuan not only reflects the several energy and space technology deals worth interest of Riyadh in China, but also indicates the $65 billion. rising importance of the Chinese currency in Gulf markets. The possible threat to the U.S. dollar, English Pound or Euro, should not be overestimated though. The total trade value between both China and Saudi Arabia is still low in comparison to other trade partners. The current focus is still on the extension of an energy-based economic relationship. This can and will however change in the coming years, analysts expect.
The increased influence that China, in stark contrast to its historically inward-looking strategies, has gained in the Gulf region, Iran and the Horn of Africa, has been recognized in Riyadh. Saudi Arabia is aware that an economic relationship with such an influential country also increases security. China’s involvement and links with Saudi adversaries, such as Iran, Syria, or even
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Qatar, are seen as potential mitigating forces in a indicated that China could step in as a financial regional conflict. savior. With around 8.5 million bpd of crude oil imports, which is 2.5 million bdp more than in The growing friendship and intricate economic- 2014, the attractiveness of having a stake in Saudi strategic relationship between Beijing and Riyadh Aramco is huge. Even though an energy will have an impact on the Chinese relationship diversification program is in place, China’s imports with other Arab countries and Iran. China could from Saudi Arabia are going to increase. become involved in the ongoing sectarian and political battle that is currently raging in the Gulf For Beijing, a stake in one of its main suppliers is a region. very attractive proposition. It will not only lock in Saudi crude oil and petroleum product exports to The Financial Times reported this week that China China but it will also provide some additional could be willing to invest in, or even buy outright, political and strategic clout in the heart of the Saudi Aramco’s 5 percent. There is still no clarity Middle East. As the U.S. is beginning to remove its on where Aramco will be listed or how the rights military assets, new players have stepped in. of minority shareholders can be protected, which Riyadh’s new leader, MBS, will have looked at the means a major national entity stepping in is opportunity to play the two main other players, entirely realistic. After the IPO, the Saudi Russia and China, against each other. On both government will still be a 95 percent shareholder, sides, the rewards for Saudi Arabia will be high. owning and deciding the future of the oil giant. Moscow is needed to stabilize oil markets, and Saudi’s new crown prince Mohammed Bin Salman could assist gas flows to the GCC, while China is has linked his future, and that of his grand-scale needed as an export destination. Both at the same economic diversification plans called Saudi Vision time are needed to stabilize the Gulf region, as 2030, to the success of the Aramco IPO. Valuing they are linked already to Iran, and increasingly the company at more than $2 trillion, the risks are Egypt. China’s historical reluctance to be militarily clear. A failure of the sale could be not only putting involved outside of its own influence spheres in part of Saudi’s economic plans on hold, but could Asia has changed. The current aggressive buildup mean a destabilization of the Saudi regime or even of Chinese military hardware and forces in the Gulf a removal of the crown prince. The FT, in a blog, region and Africa is forcing a realignment of Saudi geopolitics. An economic-financial bridge could be forged via Aramco. Current deal discussions in Jeddah could be linked to this.
Aramco and the Saudi crown prince will be weighing their options. The attractiveness of having the Chinese onboard is clear, but providing China with too much influence in the region could spell trouble for the Saudis. Playing other investors, financial institutions and countries against each other is now the name of the game. HBO would be wise to have a real good look at the GCC adventures right now. A real Game of Thrones is now being played out, and while Aramco’s IPO may be the first battle, it will be far from the last.
Also published on Oilprice.com
10 COMMENTARY 5 September 2017
SAUDI ARABIA CHINA TO CHALLENGE DOLLAR OIL CONNECTION
In a move to increase its connections to the China investment opportunities in China's transport and its vast financial sectors, Saudi Arabia is sector and other infrastructure sectors. The holding discussions at present, including obtaining interest of establishing a link between Saudi’s PIF, additional funds in Chinese yuan. The latter is seen Aramco and China is clear. The Saudi government, by the majority as a move to strengthen its ties as only shareholder of Saudi Aramco, is looking for with the top oil consumption market at present, institutional investors to subscribe to the Aramco China. Saudi Vice Minister of Economy and IPO in 2018. Riyadh at the same time is also Planning Mohammed Al Tuwaijri has been quoted looking to raise cash on the international markets in the media as stating that “obtaining some funds to cover its budget deficit and fund major in yuan could give Saudi Arabia more financial investment projects. The Aramco IPO is part of the flexibility”. total conundrum, as the revenues from the IPO will be put into the PIF to be used to fund national and Tuwaijri indicated also that Saudi wants to diversify international projects. Chinese investors and state its overall funding basis. One of the options funds are a prime target for this. available at present is to increase its access to international investors or bodies of liquidity in the On a different level, Saudi Arabia and China have market. China is a prime market for this, including agreed to set up a major $20 billion investment unique funding opportunities, private placements, fund. The latter will be operated jointly, sharing panda bonds etc. Panda bonds are yuan- profits and costs on a 50:50 basis. According to denominated bonds from non-Chinese issuers Saudi minister of energy Khalid Al Falih, the that are sold within China. In addition to the yuan company will be set up between the Royal options, Chinese advisors also will be able to offer Commission for Jubail and Yanbu, Aramco and a funding in renminbi or something else. Tuwaijri Chinese company in order to attract Chinese stated that Industrial and Commercial Bank of industrial investments. It is seen as a link between China and other divisions have expressed interest Saudi Vision 2030 and Chinese economic plan in the opportunity. Chinese Belt and Road Initiative. Both sides see it as a bilateral economic cooperation project. In These discussions are also held on totally different 2015, Beijing already has agreed to set up a $10 levels, as Saudi’s main sovereign wealth fund billion investment fund with the UAE. Public Investment Fund (PIF) is mulling several
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STRATEGIC Iraqi envoy: Saudi Arabia to open two Nawaz had been at the securities arm of Banque Saudi Fransi since 2006, according to his LinkedIn INSIGHT consulates in Basra and Najaf profile. Saudi Fransi Capital has worked on more NEWS 19 August 2017 initial public offerings in the kingdom over the past Iraqi Ambassador to Saudi Arabia Rushdi Al-Ani five years than any other bank, according to data announced that the Kingdom is seeking to compiled by Bloomberg. Banks are hiring in Riyadh establish two new consulates in Iraq and is in anticipation of a boom in fees as the preparing to open a new border crossing between government ramps up efforts to wean the the two countries. Al-Ani said in an interview with economy off oil. Alyaum: “The Kingdom sent me an urgent request to open a general consulate in Najaf and there are Elyas Algaseer, Mitsubishi UFJ Financial Group Inc. also intentions to open a Saudi consulate in Basra. co-head in the Middle East and North Africa, told We welcome this initiative and consider it as a step Bloomberg that the bank was looking to hire in in the right direction.” Saudi Arabia in expectation that privatizations in the country could exceed $350 billion in about five The Saudi crossing border of Jamima in Iraq will years. soon be open, and work to open the border crossing is real progress, he said. He added that Usman Sikander, who was co-head of investment the crossing will serve the south of Iraq, along with banking at Saudi Fransi Capital with Nawaz, will the Arar crossing which days ago saw a heavy flow become head of investment banking, the people of pilgrims headed for Hajj. Al-Ani added that said, asking not to be identified as the information “Saudi-Iraqi relations are at their highest and most is private. promising level since their re-establishment, https://www.bloomberg.com/news/articles/2017-08- indicating that the two countries are coordinating 20/saudi-arabia-s-largest-bank-said-to-hire- investment-banking-head to fight the “terrorism cancer.” Saudi Arabia and
Iraq reopened the Arar crossing this week for the
first time in 27 years. http://www.arabnews.com/node/1147101/saudi-arabia Goldman Sachs gets equities trading license in Saudi Arabia 20 August 2017 Saudi Arabia's Largest Bank Said to Hire Investment Banking Head Goldman Sachs received approval on Sunday to 20 August 2017 trade equities in Saudi Arabia, joining the growing band of western investment banks and fund Sameer Nawaz has been appointed head of managers expanding in the kingdom. Western investment banking at Saudi Arabia’s Al Rajhi financial institutions have been looking to tap new Capital as the Islamic bank looks to build its opportunities in Saudi Arabia since the advisory business, according to people familiar government unveiled plans for oil giant Saudi with the matter. Nawaz will be responsible for Aramco's US$100 billion initial public offering and building an investment banking team at the introduced reforms to attract foreign capital as securities division of Al Rajhi Bank as the part of moves to reduce the economy's kingdom’s biggest lender by market value seeks to dependence on oil. Goldman, which has been capitalize on an expected surge in deals, the operating in the kingdom since 2009 as an agent people said, asking not to be identified as the and underwriter, applied to the Saudi Capital information is private. Previously, Nawaz was co- Market Authority (CMA) for a license to trade head of investment banking at Saudi Fransi equities, sources told Reuters in June. Capital. In a statement on Sunday, the regulator said it had approved a request by Goldman to amend its
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business in the kingdom and that the bank was Arabian Oil Co., which the kingdom has said could now authorized for principal dealing, fund and value the state oil company at $2 trillion. portfolio management and advisory and custody Representatives for Goldman Sachs and HSBC activities. A source familiar with the matter Saudi Arabia declined to comment. confirmed that the license was for the approval of Goldman Sachs has been expanding its business in equities trading. Saudi Arabia as the country looks to boost foreign investment and sell off state assets, diversifying its Citigroup obtained a Saudi investment banking oil-based economy. The bank was one of the firms license in April, which will allow it to return to the that helped arrange Saudi Arabia’s debut kingdom after more than 13 years, while Credit international bond sale last year, and the Suisse is seeking a Saudi license to build a fully- kingdom’s Capital Market Authority has given the fledged onshore private banking business. bank approval to trade local equities, the regulator said in a statement Sunday. It is the second time in three years Goldman has HSBC has also grown its team in the country, changed its services in Saudi Arabia. In 2014 the doubling its investment banking group to about CMA authorized it to arrange, advise and manage 18 in the past year, one of the people said. HSBC investment funds and portfolios, according to its named Kapil Chadda vice chairman of its global website. The Saudi stock exchange opened itself to banking business in the Middle East, North Africa direct investment by foreign institutions in mid- and Turkey, with a focus on developing the 2015 and last year eased restrictions on foreign business in Saudi Arabia, a person familiar with the ownership in its stock market to improve the matter said earlier this month. investment environment. Banks are hiring in Riyadh in anticipation of a boom in fees as the government ramps up efforts International firms such as BlackRock, Citigroup, to wean the economy off oil. Al Rajhi Capital has HSBC and Ashmore Group have since been among appointed Sameer Nawaz, formally co-head of those to join the list of institutional investors that investment banking at Saudi Fransi Capital, to can directly trade the market. In an attempt to build an investment banking team at the Islamic secure a role on Aramco's IPO, Goldman bought a lender, people familiar with the matter had said. portion of the oil company's $10bn credit facility, https://www.bloomberg.com/news/articles/2017-08- Reuters reported this month, citing sources. 21/goldman-is-said-to-name-aldossari-saudi- https://www.thenational.ae/business/goldman-sachs- investment-banking-head gets-equities-trading-license-in-saudi-arabia-1.621388
Saudi Arabia issues rules for small-scale Goldman Said to Name AlDossari Saudi solar energy generation Investment Banking Head 21 August 2017 21 August 2017 Saudi Arabia has issued a regulatory framework for Goldman Sachs Group Inc. has hired Eyas electricity consumers to operate their own, small- AlDossari as head of investment banking for Saudi scale solar power generating systems and export Arabia as the U.S. bank looks to expand in the unused power to the national grid, the kingdom, according to people familiar with the government said. The rules will come into force matter, who asked not to be identified because the next July 1 and cover small photovoltaic facilities appointment isn’t yet public. with generating capacity of no more than 2 AlDossari was most recently an associate director megawatts, the Electricity and Cogeneration for investment banking advisory at HSBC Holdings Regulatory Authority said. Consumers will have Plc’s unit in the country, where he’d worked for five their excess electricity offset against their future years, according to his LinkedIn page. His team consumption and after a year they will receive cash was involved in the initial public offering of Saudi payments at a tariff approved by the authority.
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“What has been achieved is an essential step will be exempt from expatriate workers’ tax. The forward towards the realisation of the deployment exempted contractors include those who are of renewable energy in the Kingdom of Saudi currently working on projects scheduled to be Arabia,” said Fayez al-Jabri, the authority’s completed after 2018, Al-Watan Arabic daily said. director-general of technical affairs. A committee will be formed to set procedures for compensating projects that have been hindered Saudi Arabia, the world’s top oil exporter, currently due to the decision. The exemption was decided has few renewable energy facilities but has said it after the Council of Saudi Chambers approached aims to generate 9.5 gigawatts of electricity from Crown Prince Muhammad Bin Salman, deputy such sources annually by 2023 through 60 premier and minister of defense and head of the projects, investing between $30 billion and $50 Council of Economic and Development Affairs billion. (CEDA).
Solar energy is expected to lead the renewables The Council of Saudi Chambers requested the drive. The energy ministry is drawing up an Crown Prince for a review of the proposed incentive program to encourage both companies expatriate workers’ tax. It argued that the decision and households to generate their own solar power, could disrupt the workflow and seriously affect the but no timetable for its introduction has been set, budget of the project. an industry source told Reuters. The council further argued that because of the A second source said the scheme was feasible at cash crunch, the contractors may not be able to current Saudi electricity tariffs and further power pay wages to their workers which could impede price rises could make it more attractive. Seeking the flow of work. It said the same was the case to save money in an era of cheap oil, the when new fees was levied on the issuance and government raised ultra-low electricity tariffs for renewal of operation licenses. major industrial and residential users in early 2016. Such inconveniences could hinder the project from It initially planned another round of tariff hikes in achieving the goals of Vision 2030, the council mid-2017; this has now been put on hold, partly to petitioned. avoid hurting sluggish economic growth, but it is expected to go ahead late this year or early next. Public sector projects usually take 3 to 5 years to The government has not made a firm decision on complete. Companies plan their budget per timing, industry sources said. Households account project and the budget is usually meticulous and for about half of power consumption in the desert accurate from calculating the expenses of the kingdom, much of it for air conditioning. materials to calculating the salaries of the workers. https://www.reuters.com/article/saudi-electricity- Any additional expenses could be detrimental to solar/saudi-arabia-issues-rules-for-small-scale-solar- the sustainability of the project, the council said. energy-generation-idUSL8N1L70T4 The Council of Saudi Chambers also requested to allow hiring of expatriate workers in fields where qualified Saudis are not available. Such fields Public sector contractors in Saudi Arabia include cleaning works, sewer work and others. exempt from workers' tax 21 August 2017 The CEDA forwarded the proposal to the Cabinet and urged a reply to the proposal within 60 days. The Council of Ministers has announced that The Cabinet held a meeting with its Commission of contractors working on public sector projects Experts and the latter approved the proposal after before the decision to impose workers’ tax are studying its feasibility. exempt from paying the levy. All contractors https://www.zawya.com/mena/en/story/Public_sector_c working on public sector projects that began ontractors_in_Saudi_Arabia_exempt_from_workers_tax- before the decision was issued in December 2016 ZAWYA20170821044322/
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Saudi Arabia moves to 100 percent foreign deal went into effect. JODI's recent June data ownership for engineering consultants appears to confirm the positive trend. 21 August 2017 JODI Data from June 2017 The Saudi Arabian General Investment Authority As promised and as seen in both OPEC and US EIA (SAGIA) has recently been authorized to grant data, Saudi Arabia has scaled back its total exports engineering consultancy licenses, signaling a in recent months. Here's a monthly chart (updated relaxation of foreign ownership restrictions in the to June, along with a 4 week rolling average). Kingdom of Saudi Arabia (KSA). Effectively, this means that 100-percent non-KSA owned consultants can now apply for engineering consultancy licenses in the Kingdom.
This recent development shows the Kingdom's appetite and willingness to attract quality foreign expertise in an area which many commentators expect to boom as new infrastructure is built under the Vision 2030 strategy. We expect that the development will result in increased market entry from high-profile international consultancy businesses, whilst also encouraging existing businesses already operating in the Kingdom to further strengthen their on-the-ground presence. Whilst complete details on implementation remain to be seen, it is clear that the KSA authorities are Some of this can be explained by production. The seeking to attract international engineering large fall in exports coincided with the OPEC/Non- consultancy firms with significant and varied experience (e.g. 10 years of experience in at least OPEC cuts. Saudi crude production since Q1 has flattened out, as the country continues to shoulder four countries), with the likely increased the majority of weight in the OPEC/Non-OPEC participation by such firms leading to research and deal. Production you'll notice, did increase slightly development spending, knowledge transfer and in the past few months. the creation of quality employment opportunities for KSA nationals within the Kingdom's economy. http://www.jdsupra.com/legalnews/saudi-arabia- moves-to-100-percent-21450/
Saudi Arabia's Incredibly Shrinking Inventories 21 August 2017 A few months ago we took a look at Saudi Arabia and its oil inventories. Given then reports that Saudi Arabia was planning to decrease exports we wanted to know after a few months whether these barrels were simply diverted into inventories. Balloning inventories would mean that Saudi Arabia could in the future release such inventories, and the eventual destocking would again repeat what occurred in Q4 2015 right before the OPEC
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This production was largely absorbed by the "whatever it takes" moment is necessary to jolt the higher domestic crude demand, which has a oil market price higher. strong seasonality component, thus any increase became a non-factor for inventory purposes. It also means that as it stands, the reduction in exports didn't come with the expense of a future destocking event, which would've simply kicked the proverbial can down the road. For now (and likely for July and August as domestic demand continues to ramp higher), it looks like we're on pace for more Saudi inventory drawdowns. Nice news for oil bulls https://seekingalpha.com/article/4100832-saudi- arabias-incredibly-shrinking-inventories?page=2
Saudi Arabia proves it has many cards to play in Qatar crisis 22 August 2017
A little-known Qatari shaikh has been thrust into the limelight as a Saudi Arabia-led bloc tries to
wring concessions from his nation to end the So where does Saudi Arabia's inventories stand? political feud dividing the Arabian Gulf. Shaikh Currently at slightly more than 257M barrels, its Abdullah Bin Ali Al Thani, a descendant of Qatar’s lowest level in over 5.5 years (February 2012). founder, was welcomed warmly in Saudi Arabia by
Crown Prince Mohammad bin Salman, then jetted off to Morocco, where Saudi King Salman hosted him at his vacation spot in Tangier. And while the Qatari government said the shaikh was on a personal visit, some media outlets close to the alliance portrayed his meetings as a triumphant diplomatic effort.
Shaikh Abdullah said King Salman and his son agreed to open Qatar’s only land border, snapped shut on June 5, to allow Muslim pilgrims to travel to the holy city of Makkah. The king even offered to dispatch planes at his own expense to fly in others and set up an operations centre under the shaikh’s command to help Qataris entangled in the
crisis. We're still uncertain whether this intentional drawdown of inventory is a strategic shift to lower Saudi Arabia and allies that severed diplomatic and inventory levels as part of the Saudi Aramco IPO transport links with Qatar in June have denied process, or if it's simply a byproduct of the seeking regime change in Doha, making the OPEC/Non-OPEC deal. Likely a bit of both. What emergence and front-page treatment of the this does mean, however, is that if inventories shaikh a surprising development. Promoting him is continue to decline it leaves room for Saudi to probably part of a plan to add pressure on Qatari reduce exports even further if it decides a ruler Shaikh Tamim Bin Hamad Al Thani, who has
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refused to capitulate to the bloc’s 13 conditions for him to power. His emergence, however, serves as ending the feud, said Abdul Khaleq Abdullah, a a way of telling Qatari leaders and global powers political analyst in the United Arab Emirates. that the crisis is far from over, he said. http://gulfnews.com/news/gulf/qatar/qatar-crisis/saudi- Saudi Arabia, the United Arab Emirates, Bahrain arabia-proves-it-has-many-cards-to-play-in-qatar- and Egypt accuse Qatar of destabilising the Middle crisis-1.2078080 East by supporting Islamist groups. “Saudi Arabia has many pressure tools that it hasn’t used until now and this is one of them,” Abdullah said, Tight spending and oil revenues drive adding that he doesn’t believe the alliance is fiscal improvement in 1H17 currently pursuing a policy to change the Qatari 22 August 2017 leadership. Spending discipline and higher oil revenues are Yet should Saudi Arabia decide that is needed, it helping improve the fiscal picture. The 2Q17 fiscal can mobilise a support network within Qatari deficit stood at SAR46.5 billion ($12.5 billion), with society and the ruling family “to spur a palace 1H17 deficit standing at SAR73 billion annualising coup,” he said. Al Bayan, a Dubai-owned daily, SAR145billion ($39 billion). The financing for the described Shaikh Abdullah on its front page as “the budget deficit was taken from the government's voice of reason to whom the hearts of Qataris have reserves account at SAMA (SAR15 billion) as well opened.” as external borrowing (international Sukuk of SAR 33.7billion; $9 billion). Simplistically, the fiscal It also said that he’s known for being “widely deficit target of the authorities (SAR 198billion; 7.8 accepted within the Al Thani family in particular, per cent of GDP) could be within reach for 2017 at and Qataris in general.” The shaikh is a scion of a the current pace excluding any off-budget ruling family branch that was in power for decades spending and seasonality. This is well below our until 1972. His brother, Ahmad, was deposed in expectations of SAR 326 billion (12.8 per cent of 1972 by Shaikh Tamim’s grandfather, Saudi- GDP) and last year's outturn of SAR 416 billion owned Al Arabiya news network said. (17.2 per cent of GDP).
The shaikh’s diplomatic exploits have turned him The increase in fiscal oil revenues over 1H17 into an instant social media celebrity. Within three appears due to a mix of higher oil prices and a days of joining Twitter, his account has attracted higher pay-out ratio from Saudi Aramco. Oil more than 250,000 followers. He gave out contact revenues are c70 per cent yoy higher in 1H17 details of the operations center. Underscoring his despite the OPEC production cuts thanks to higher reach, he said he also spoke with the Saudi central oil prices as well as a higher fiscal transfer ratio bank governor, who denied that banks in the from Saudi Aramco. The fiscal transfer ratio has kingdom had stopped “giving out Qatari riyals to been pro-cyclical to oil prices and is broadly in line Qatari citizens.” “The king has honored me by in 1H17 with the ratios achieved at similar levels of accepting my mediation on behalf of my people in oil prices. While Saudi crude oil exports are down Qatar,” he wrote. by 0.4mn bpd in 1H17 compared to 1H16, oil prices are $12/bbl higher over the same period. Other mediation efforts by Kuwait’s emir and US The additional export revenues (SAR 58.6billion) Secretary of State Rex Tillerson, who visited the represent c70 per cent of the year-on-year region last month, have failed to resolve the increase in fiscal oil revenues (SAR 82billion), dispute. Andreas Krieg, a lecturer in the suggesting a higher pay-out ratio from Saudi department of defense studies at King’s College in Aramco as oil prices recovered. London, said the shaikh is a London-based businessman with commercial interests in the Gulf, As 1H17 fiscal oil revenues have reached roughly but lacks public support that would help propel 44 per cent of the budget target, this suggests that
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the budgeted proceeds of domestic energy infrastructure and transportation, and economic subsidy reform for 2017 could be relatively minor, resources. Military, security and regional or that the first phase of energy pricing reform administration stood at a combined 44 per cent of programme could take place late in the year. budgeted spending although it is unclear if this can be sustained going forward. As anticipated, the retroactive (to 1 January) fiscal regime change for Saudi Aramco in late 1Q17 has Infrastructure underspending suggests that capex not changed the government fiscal intake. As the spending may have been slowed down over 1H17. tax rate in the oil sector was brought down from Furthermore, capex may have already been tightly 85 per cent to 50 per cent, fiscal oil revenues would budgeted in 2017. This is because the previously likely have benefited from higher dividends off-budget government capex spending from the instead. According to the press, authorities are budget surplus fund appears to be now taking considering a proposal to replace the current fixed place on-budget. Spending from the budget royalty system (20 per cent) on the oil sector with surplus fund (largely the metro project) was a more flexible system that would increase it material last year at SAR 25billion ($6.6 billion; one automatically if oil prices rise significantly. per cent of GDP). The announced restart to the $26.6 billion Grand Mosque expansion project, Non-hydrocarbon fiscal revenues to increase which was halted in late 2015, is likely to push going forward - Non-oil revenues are somewhat capex higher going forward. lower year-on-year in 1H17 but should increase materially starting from 2018 onwards as fiscal Reported fiscal spending may exclude cSAR20 reforms kick in. 1H17 non-oil revenues stood at billion of arrears to contractors repaid over 1Q17. c45 per cent of the budget target. In the meantime, The larger drawdown of government deposits in the excise tax on soft drinks, tobacco and energy SAMA in 2H17 compared to the reported financing drinks as well as the fee on dependents of suggests some off-budget spending of around expatriate workers could add in SAR7.5 billion of SAR20 billion. non-oil revenues in 2H17. The introduction of VAT, Spending discipline may be tested in 2H17 due to the introduction of an expatriate worker levy, the seasonality as well as the reversal of public sector possible introduction of tariffs on luxury products allowance cuts on a retroactive basis (cSAR7 and the increase in fees on dependents of billion). The reintroduction of the public sector expatriate workers could add SAR80 billion ($21.3 allowances (SAR7 billion) and the introduction of billion; three per cent of GDP) to non-oil revenues military personnel one-off bonus (SAR4 billion) in in 2018. April 2017 should have started to be included in 2Q17 data. However, this may have been Authorities appear to have underspent the accommodated within the budget envelop. The budgeted target, helping improve fiscal accounts. introduction of the Household Allowance program While the authorities' track record has been one of (at a cost of SAR25 billion) as well as linkage of overspending in recent years, the 1980s did see gasoline and diesel to reference prices (with instances of underspending. This was in years potential revenue of SAR22 billion) appears to where the realised oil price turned out to be lower have been both delayed. Nevertheless, the delay is than the estimated budgeted oil price, somewhat fiscally neutral for now. similar to the current situation. Tight spending suggests non-oil economic activity Compared to the targeted budget spending of is likely to remain fragile. The non-hydrocarbon SAR 890billion, spending stood at only SAR real GDP growth stood at 0.6 per cent yoy in 1Q17 381billion (43 per cent of target). All of the budget (private non-oil sector: 0.9 per cent yoy; public sectors saw realised spending come below the 50 non-oil sector: -0.1 per cent yoy). This suggests per cent mark versus the targeted level. that the economy may not avoid a headline Underspending was most pronounced in recession this year as the OPEC-mandated oil
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production cuts drive real GDP growth to negative Saudi Arabia's Vision 2030: Overview of territory. Although political developments and Recent Developments seasonal increase in domestic energy 23 August 2017 consumption may have delayed the next leg of fiscal reforms, we still expect the latter to take Over the past two years, the Kingdom of Saudi place by year-end. Positively, the imposition of the Arabia has been steadily implementing its Vision expatriate dependent fee (part of the planned 2030 plan, the Kingdom’s flagship initiative that is fiscal reforms) went ahead on schedule on 1 July. centered on establishing a modernized legal and The weak economy complicates the government's investment framework that boosts private sector plans to implement further fiscal reforms. This may activity, attracts foreign investors and encourages suggest a more back-loaded path for fiscal the employment of Saudi workers in line with the consolidation or the concurrent introduction of a Kingdom’s Saudization program. As part of this private sector support package alongside fiscal initiative, Saudi Arabia has put into place reforms. substantive legal and institutional reforms to enable facilitated market entry, promote greater The improvement in the fiscal balance suggests administrative efficiency and create further that capital outflows remain the main driver of the investment incentives for investors looking to Fx reserves loss. Central government deposits at establish or expand their presence in the Kingdom. SAMA declined by $17.9 billion over 1H17, while Noteworthy recent developments relating to the SAMA Fx reserves declined by $35 billion. The Kingdom’s Vision 2030 program include the large $18 billion acquisition in foreign currency following: and deposits in 1Q17 despite achievement of a current account surplus may be outflows linked to SAGIA Instant Online Services repayment of government arrears. The Saudi Arabian General Investment Authority Fx reserves held steady at c$500 billion in June due (SAGIA) now has a government website offering (i) to a mix of factors. On the negative side, banking an “Instant Renewal Service,” which allows users to sector foreign liabilities dropped by $2.1 billion efficiently validate documents online, and (ii) an during the month. Also, private sector deposit “Instant License Service,” which allows qualified dollarization increased from 7.6 per cent to 9.8 per investors to obtain investment licenses instantly. cent. As private sector SAR deposits dropped by $2 Qualified investors in this context are defined as billion but private sector Fx deposits increased by any company that: a much larger $7.8 billion during the month, this Is listed on a local or international stock suggests that dollarization was not the major market; and driver of the build-up in private sector Fx deposits. Has any one of the following: To the extent these Fx deposits were repatriated At least SAR 70 million (approximately USD 19 from abroad or fresh inflows, this may have million) in revenue for the preceding two years; supported SAMA Fx reserves. Assets worth at least SAR 100 million SAMA Fx reserves were also likely supported by (approximately USD 27 million) (partner assets the c$3.9 billion drop in the foreign assets of can be counted towards this requirement); independent institutions and agencies managed Net profits equivalent to at least SAR 50 million off-balance sheet by SAMA. Outstanding repo (approximately USD 13.5 million) (net profits liabilities of SAMA increased by $4.7 billion, attributable to an entity’s partner can be supporting an increase in the liquidity of domestic counted towards this requirement); banks and the full reversal of the increase in Employee count of at least 10,000 (a partner’s interbank lending towards SAMA after the global branches can be counted towards this international Sukuk issuance in April. requirement); http://www.cpifinancial.net/news/post/42526/saudi- At least three branches in other countries; or arabiabofa-merrill-lynch Possession of an invention patent approved by the Saudi Patent Office.
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Five-Year Investment Licenses Mining Sector SAGIA now offers five-year investment licenses to Saudi Arabia officially announced that, as part of all existing and new investors. Previously, Vision 2030, it is seeking to increase investment investment licenses were limited to one-year opportunities in the mining sector. While further terms. details relating to proposed changes to the mining sector framework are yet to be published, we note 100 Percent Foreign Ownership of Trading Entities that companies operating in this space are entitled Qualified foreign investors are now permitted to to import their equipment and other technology obtain 100 percent ownership of a trading entity in into Saudi Arabia on a tax-free basis. Saudi Arabia if they already have a presence in https://www.lexology.com/library/detail.aspx?g=1f180fff three countries before entering the Kingdom. -cae7-426c-a8f7-23228e4ae807 Entry into the Saudi market with 100 percent ownership can be accomplished through (i) the investment of SAR 300 million (USD 80 million) Saudi wealth fund to hire new head for over an initial five-year period, with a minimum of $111 bln portfolio SAR 30 million (USD 8 million) in paid-in capital, or 23 August 2017 (ii) an investment of SAR 200 million (USD 53 million) over an initial five-year period, with a firm Saudi Arabia’s Public Investment Fund (PIF) has commitment to promote local manufacturing, appointed Rashed Sharif as head of domestic invest in research and development and establish investments, according to sources familiar with the a regional sales hub in the Kingdom. matter. Sharif will manage $111 billion worth of 100 Percent Foreign Ownership of Engineering Saudi assets in the fund and will report to Services Firms managing director, Yasir Al-Rumayyan, the sources confirmed to Argaam, on condition of anonymity. Qualified foreign investors are now permitted to He had earlier served as chief executive officer of wholly own engineering services companies Riyad Bank’s investment banking unit, Riyad operating in the Kingdom. In order to qualify, Capital. foreign companies must be at least 10 years old and engaged in operations in at least four The domestic portfolio of the sovereign wealth countries. fund, which is being transformed into a $2 trillion investment giant, includes stakes in companies 100 Percent Foreign Ownership of Manufacturing such as Saudi Basic Industries Corp. (SABIC), Entities National Commercial Bank and Saudi Telecom Co. While SAGIA has yet to publish an official (STC). announcement on full foreign ownership of manufacturing entities in Saudi Arabia, its May The fund also owns about 60 private companies, 2017 Service Manual appears to indicate that 100 with total assets of SAR 587 billion at the end of percent foreign ownership of such entities is June 2016, according to the prospectus for the permitted. Mayer Brown’s Middle East team is government’s $9 billion Islamic bond sale actively monitoring SAGIA’s updates relating to published in April. the manufacturing sector and in general. A spokesperson for Riyad Capital had told MOCI Online Services Bloomberg that Adel Al Ateeq will replace Sharif as The Saudi Ministry of Commerce and Industry chief executive of Riyad Capital, without (MOCI) now allows existing commercial and commenting on whether he has joined PIF. investment entities to renew their commercial http://www.argaam.com/en/article/articledetail/id/5019 registration status electronically. Additionally, 11 commercial entities are now permitted to file their Articles of Association online.
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Saudi Arabia Announces Stricter In Saudi diplomatic shift on Iraq, a hand to Requirements for Hiring Foreign Sunnis ... and Shiites Engineers 24 August 2017 23 August 2017 With the so-called Islamic State on the brink of Saudi Arabia’s Ministry of Labor and Social defeat in northern Iraq, the government in Development has announced that it will prevent Baghdad is set to mark another victory: the recruitment of foreign engineers with less than reconciliation with regional hegemon Saudi five years of experience. Expatriate engineers will Arabia. The oil-rich kingdom and dominant Sunni also be required to undergo a professional test power has effectively been absent from Iraq since and a personal interview before being allowed to Riyadh cut ties with Baghdad after Saddam work in the kingdom to ensure they are familiar Hussein’s invasion of Kuwait in 1990. with the profession. Following the 2003 US invasion of Iraq, the Saudis The decision is aimed at providing opportunities distanced themselves from their neighbor further, for Saudi engineers in the government and private writing Iraq off as a “lost cause” that was sectors, according to Saudi Press Agency. The hopelessly under the influence of archrival Iran, kingdom’s engineering authority previously issued and working to effectively freeze Baghdad out of a requirement for foreign engineers to have at Arab regional politics. least three years of experience, a personal interview and professional test before working in Experts say a rapprochement now with Saudi the kingdom. The new stricter requirements come Arabia could have a profound impact on Iraq by as the kingdom seeks to decrease unemployment encouraging disenfranchised Sunnis to reconnect among Saudi citizens. with the political process, curbing Iran’s broad influence over Iraqi affairs, and revitalizing hopes The Institute of International Finance said in a for a political settlement to end the sectarian report earlier this month that the kingdom’s violence that has wracked the country for more economy would contract 0.4 per cent this year in than a decade. part due to an increase in Saudi unemployment to 12.3 per cent. The labor ministry is also moving to Diplomatic turnaround bar the recruitment of foreigners in some areas The Saudi move isolating Iraq was a self-fulfilling including as workers in shops selling female- prophecy, experts say. Without Saudi Arabia and specific items, shopping malls, grocery stores, car its Sunni Gulf allies to keep Iraq in the Arab fold, rental offices and management roles at tourism the country and its leaders were forced to increase agencies. their reliance on Shiite Iran for security, stability, and economic sustainability. Yesterday, the kingdom’s tourism authority warned travel firms that they have limited time to Now, with the new leadership in Riyadh meet a December deadline to install Saudis as confronting both a decline in oil revenue and its managers and department heads. own limitations in militarily checking Iranian https://www.albawaba.com/business/saudi-arabia- influence in its disastrous war in neighboring announces-stricter-requirements-hiring-foreign- Yemen, Saudi Arabia is adopting a new strategy to engineers-1013632 boost its influence in Iraq (and not just incidentally tweak Iran): diplomacy.
In a flurry of high-profile visits to Riyadh in late July, Saudi Arabia hosted a series of senior Iraqi officials, including the country’s interior and oil ministers. But the most groundbreaking, and
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surprising, visit was that of Moqtada al-Sadr, the granting concessions to Shiites and Kurds, and in firebrand Shiite cleric and fervent nationalist who their ability to gain concessions of their own. Such holds deep sway among Iraq’s Shiites. a development would be critical in efforts to reach a fairer power-sharing agreement that would bring The visits were followed by a host of goodwill Sunnis into the Iraqi state and quell political and gestures from Saudi Arabia this month, starting sectarian violence. with the reopening of the Arar border crossing for the first time in 27 years. Saudi Prince Faisal bin “In the near-term, this could pave way for a new Khalid bin Sultan, governor of the northern border power-sharing agreement between Sunnis and region, was present to personally welcome and Shiites where Sunnis feel like they are given greet the first batch of Iraqi pilgrims to enter the political power and economic influence in crossing. proportion to their demographics,” says Kenneth Pollack, an Iraq expert and resident scholar at the Critically, Saudi Arabia announced that it plans to American Enterprise Institute. open consulates in Najaf and Basra, major Shiite cities in Iraq with religious and economic “This would allow Iraqis to address importance, and build air and land links with the decentralization, executive power, and the role of cities. According to Iraqi officials, the Saudi cabinet security services and other enormous issues in Iraq also announced the formation of a joint trade stemming from gaps and vagueness in parts of the council and a committee to oversee a series of constitution that has led to different projects such as hospitals in Baghdad and Basra interpretations.” and the opening of free trade zones. Sunni tribal leaders, in interviews with the Monitor, It is a deployment of soft power with a personal stress that although they welcome Saudi Arabia’s touch that Riyadh hopes will convince Baghdad, increased role in Iraq as a long overdue “return” to and Iraqis, that their years of isolation in the Arab the Arab fold, they need to see the Iraqi world are over – and that after a long absence, they government make a goodwill gesture to allow for can rely once again on Saudi Arabia. negotiations, namely disarming and demobilizing Shiite militias. Political settlement The immediate impact of Saudi Arabia’s “An increased role by Saudi Arabia is positive,” says reengagement with Iraq is the bolstering of the Abdalrazzaq Suleiman, a leader of an Anbar tribe. country’s beleaguered Sunni minority. Since the “But before we can talk about the future of Iraq, we 2003 invasion, many of Iraq’s Sunni leaders have have to see that this government is willing and refused to come to the negotiating table to hash able to stop these militias from acting outside the out a new political agreement with the country’s law.” Another Anbar tribal leader says, however, Shiites and Kurds. that Riyadh may lead the realignment many Sunnis have been waiting for. “The government in Sunnis have long believed that Iraq’s Shiites, Baghdad has tied us to Iran and pitted us against thanks to their backing by Iran, hold the upper the rest of the world. We want Saudi Arabia to help hand and can dictate their demands on a us rejoin the Arab world, where we belong,” says leaderless and exposed Sunni community. Trust the leader, who requested not to be named. between Sunnis and the Shiite-majority government deteriorated further after the Coalition-building perceived targeting of Sunni communities and The Saudi outreach comes as a shrewd recognition leaders by former Prime Minister Nouri al-Maliki. by Riyadh that not only Sunnis, but Iraq’s With Saudi Arabia growing its political and moderate and nationalist Shiites, such as Mr. Sadr economic influence in the country, experts say and Prime Minister Haider al-Abadi, are growing Iraq’s Sunnis may now feel more confident in
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weary of Iran’s dominance in Iraqi internal affairs, predominately Sunni cities of Mosul, Tikrit, Falluja, analysts say. and Ramadi.
By building economic, transport, and diplomatic The Iraqi government estimates it will cost $100 ties with key Shiite cities and leaders, Riyadh is billion to rebuild the mainly Sunni areas hit by ISIS emboldening moderate Shiite leaders such as Mr. and coalition airstrikes, while the UN has called for Abadi and Ayad Allawi, a vice president and former $985 million in humanitarian relief alone. “The prime minister, who would like to engage and post-ISIS reconstruction has provided an partner with Sunnis. That is an engagement that opportunity for Saudi Arabia to influence Iraq as Iran and its hardline allies within Iraq have well as an opportunity for Iraq, which is discouraged – and at times torpedoed – over the desperately looking for investors,” says Mr. last decade. Mansour. But initial signs say Riyadh is not ready to write a blank check to Baghdad just yet. With an alternative power such as Riyadh, emboldened Shiite political forces may consider Push-back from Iran moves unpopular in Tehran such as the Saudi Arabia has been burned by the limited demobilization of the Popular Mobilization Units influence it gained from funneling billions of and other Shiite militias influenced by Iran that dollars to Egypt, while a drop in oil prices has have sparked a backlash from the Sunni forced the kingdom to cut back on public community. spending and embark on its own ambitious economic transformation plan. Rather than “Abadi is not 100 percent supportive of Saudi throwing money at Iraq, Saudi Arabia is likely to Arabia’s policy in the region. But this is an select a few, small-scale projects to build the opportunity to chart a new course that is not confidence of both the Iraqi government and dependent on Iran and that puts Iraq’s national public, such as the rehabilitation of a strategic oil interests first,” says Raed Mansour, a fellow at export pipeline running from Iraq through Saudi Chatham House. Arabia to the Red Sea, and the rehabilitation of the The timing for such a push is not a coincidence. road connecting Baghdad with Amman. The 2018 parliamentary elections in Iraq are several months away. By encouraging Sunni The question remains whether Saudi Arabia has participation in the polls and offering an olive the patience to play the long game. In Iraq there branch to the Shiite community, Riyadh and its will undoubtedly be setbacks and elements loyal allies could help further foster the cross-sectarian, to Iran who will push back, and perhaps even Shiite-Sunni coalition building that is vital to Iraq’s attempt to sabotage their reconciliation with political and physical stability. Baghdad, observers say. “The question is: when they meet Iranian resistance, how will they “It would not be unrealistic to see a reemergence respond?” says Mr. Pollack. “Will they give up and of a coalition that includes moderate Sunnis and throw their hands up, or will they double down and Shia that can bring stability to Iraq. This is certainly try harder?” Iran has trained, equipped, and directs on the minds of Saudi policy-makers,” says Firas several Shiite militias, has the presence of its elite Maksad, director at The Arabia Foundation in Islamic Revolutionary Guards Corps, and can use Washington. its offer of military and security support – expertise and power Saudi Arabia lacks – to sway Iraq’s Saudi Arabia’s rapprochement with Iraq can also politicians, clerics, and decision-makers. “Iran is have an immediate impact on the reconstruction going to be a very significant and perhaps the of towns and cities hit by the war against ISIS. dominant player in Iraq for quite some time,” says News reports, and Saudi insiders, say Riyadh and Mr. Maksad. “But the reengagement of Iraq by Gulf Baghdad are negotiating a role for Saudi Arabia in states opens opportunities to check some of Iran’s rebuilding Iraq’s war-torn cities, namely the
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unwanted influence and that is important in and of its fleet as newer, more •fuel-efficient plane itself.” models are introduced by manufacturers, the https://www.csmonitor.com/World/Middle- airline’s chief executive, Adel Ali told The National East/2017/0824/In-Saudi-diplomatic-shift-on-Iraq-a- in an interview this month. hand-to-Sunnis-and-Shiites Second-quarter net profit for Air Arabia, the only listed airline in the UAE, increased 21 per cent to Saudi Arabia’s newest no-frills airline gets Dh158 million on the back of operational first aircraft efficiencies and cost cuts. 24 August 2017 https://www.thenational.ae/business/aviation/saudi- arabia-s-newest-no-frills-airline-gets-first-aircraft- Flyadeal, the low-cost carrier arm of state-run 1.622419 Saudi Arabian Airlines (Saudia), has received the first of eight Airbus A320 aircraft, becoming the newest operator of the European planes in the China, Saudi Arabia forge nuclear energy Arabian Gulf. The delivery of the aircraft is part of cooperation a lease deal with Dubai Aerospace Enterprises 24 August 2017 (DAE). Flyadeal will receive the remaining planes this year and next, the airline said in a statement, China and Saudi Arabia have signed a without giving the size of the deal with DAE or how memorandum of understanding (MOU) to push it will finance it. forward cooperation on nuclear energy, China’s top state assets regulator said. The two sides will Flyadeal will commence operations on September speed up uranium and thorium exploration in 23, Saudi Arabia’s national day, and will initially Saudi Arabia to meet the country’s demand for serve routes within the kingdom before expanding radioactive resources, according to the agreement into other markets around the region. The budget between China National Nuclear Corporation carrier plans to operate a fleet of up to 50 narrow- (CNNC) and Saudi Geological Survey. body jets by 2020, Saleh Al Jasser, the director Under a previous MOU signed in March this year, general of Saudia said last year. Flyadeal will the CNNC has already completed a two-month compete with Riyadh-based budget airline Flynas field geological survey in nine Saudi Arabian which has been operating since 2007 and has a regions and targeted a number of areas for next- fleet of 29 aircraft that fly to 17 destinations within stage development, said the State-owned Assets the kingdom and 15 international destinations. Supervision and Administration Commission Yields have been under pressure for airlines in the (SASAC). Saudi Arabia has launched a nuclear Gulf on the back of softer economic conditions, development plan and is seeking international even as many of their international peers have partners to build its nuclear industry and improve reported higher profitability in the first half of this the country’s energy mix to ease its dependence year, according to industry body data. However, on oil and gas in power generation. some of the region’s budget carriers that have simpler business models and route flexibility have The CNNC has been working closely with Saudi done relatively well compared to full-service Arabian authorities and progress has being made counterparts including Etihad Airways and in sectors such as uranium resources, nuclear fuel Emirates. recycling and nuclear-powered water desalination, the SASAC said. China and Saudi Arabia agreed to While larger airlines are being cautious set up a series of bilateral energy cooperation regarding fleet and route expansion, the region’s mechanisms during Chinese Vice Premier Zhang budget airlines are considering growth plans. Air Gaoli’s visit to the Gulf Arab country last week. The Arabia, the largest low-cost carrier in the Middle two sides have also reached broad consensus on East and North Africa, may order new aircraft for
24 STRATEGIC INSIGHT NEWS 5 September 2017
bilateral cooperation in fields including energy, Saudi Aramco, SABIC launch bidding at finance and industrial capacity. chemical project: report http://pakobserver.net/china-saudi-arabia-forge- 24 August 2017 nuclear-energy-cooperation/ Saudi Arabian Oil Co. (Saudi Aramco) and Saudi Basic Industries Corp (SABIC) have launched Boeing receives $222.5M contract for bidding for engineering work on their joint $20 Chinook helicopters for Saudi Arabia billion crude oil to chemicals project, industry 24 August 2017 sources told Reuters. The closing date for bids for pre-front end engineering and design work (pre- The Boeing Co.-Philadelphia has received a $222.5 FEED) and FEED is Sep. 25, 2017, one of the sources million modification to an existing contract for the said. delivery of eight CH-47F Chinook heavy-lift helicopters to the Royal Saudi Land Forces. The The pre-FEED phase is expected to be completed Department of Defense announced Wednesday by late 2018, with FEED to be finalized by late 2019. that the CH-47Fs to be delivered are new builds, as Bidding for construction will be launched by mid- opposed to refurbished ones, with production 2020, it was reported. taking place in Ridley Township, Penn. Production is expected to be completed by July 30, 2021. The plant, which will process Arabian Light and Extra Light crude oil, is expected to be The Royal Saudi Land Forces of the Kingdom of commissioned by end of 2024. Saudi Arabia deploy a variety of U.S.-built helicopters, including UH-60 Black Hawk medium- Aramco and SABIC are still considering whether to lift transport aircraft, AH-64 Apache gunships and locate the chemicals site: at Yanbu, near a power the CH-47, among others. Saudi Arabia is the plant; or in Jubail close to Sadara, an Aramco JV largest recipient of U.S. arms sales in the world. The with Dow Chemical. SABIC's CEO told Reuters in State Department approved the sale of 48 CH-47F May that the project could produce more than 18 Chinooks and associated equipment in a deal million tons of materials annually, according to worth an estimated $3.5 billion last year. earlier news reports.
The CH-47F Chinook is a twin-engine tandem In June 2016, both companies signed an rotor heavy-lift helicopter used by the U.S. Army, agreement to establish the first industrial complex Saudi Arabia, and many other allied nations. Its in the Kingdom to process crude oil into chemicals, primary role is the transportation of troops and without refining large payloads at high speed and long ranges in http://www.argaam.com/en/article/articledetail/id/5021 battlefield conditions. 66
The helicopter is capable of external sling-load operations such as placing artillery, battlefield Saudi Arabia, China to set up $20 bln resupply and air assault missions. The Chinook investment fund series has seen service since its introduction in 24 August 2017 1962, and has been upgraded and refurbished many times. Saudi Arabia and China plan to establish and https://www.upi.com/Boeing-receives-2225M-contract- operate a $20 billion investment fund, the for-Chinook-helicopters-for-Saudi- Kingdom’s energy minister Khalid Al-Falih told Arabia/2201503590161/ Reuters on the sidelines of a Chinese-Saudi
investment forum held in Jeddah. Both parties
agree on sharing costs and profit on a 50:50 basis, he added. Another 11 agreements worth about
25 STRATEGIC INSIGHT NEWS 5 September 2017
$20 billion are expected to be signed between the needs of the local and global markets. The carriers two countries, Al-Falih said, offering no other will be designed with environmentally-friendly details. specifications, with a capacity of 80,000 metric http://www.argaam.com/en/article/articledetail/id/5020 tons each, the statement said. 82 http://www.argaam.com/en/article/articledetail/id/5023 88
Goldwind signs MoU with Saudi Arabian authorities Saudi contractors still owed 70% of dues: 25 August 2017 report 28 August 2017 Chinese manufacturer Goldwind has signed a memorandum of understanding with two Saudi Nearly 70 percent of dues owed to contractors for Arabian agencies to research investment public projects in Saudi Arabia remain unpaid, opportunities in the kingdom. Goldwind has despite the government’s announcement late last signed an MoU with Saudi Arabian authorities. year that it would start settling delayed payments, Goldwind has signed the MoUs with Saudi Okaz reported, citing Saudi Contractors' Authority industrial property authority Modon and the chairman Osama Al-Afaleq. National Industrial Clusters Development Programme (NICDP). According to the Saudi The delay was attributed to a lack of budget for Arabian government's official news service, SPA, some projects, and concerned government Goldwind signed the deals at an investment forum departments not issuing payment orders. "The between the two countries. Under the deal, Finance Ministry will release the payments only Modon will "allocate" Goldwind sites in its after it received orders from those ministries for industrial cities, while NICDP will assist with finding their respective projects," Al-Afaleq said. “But the investment and local partners, SPA said. problem is that some ministries refuse to issue such orders on the grounds that they do not have In May, the renewable energy project budgets for some projects, causing delays in development office announced the 24 companies, payments,” he added. including Goldwind, had qualified to take part in a 400MW wind power program. Saudi Arabia's first The Council of Saudi Chambers was recently utility-scale turbine was commissioned in January. requested to determine the value of the delayed http://www.windpowermonthly.com/article/1442980/go payments, which indicated that there was no ldwind-signs-mou-saudi-arabian-authorities mechanism used to determine the outstanding dues, he said. Saudi Arabia’s construction sector has been severely affected by the tumble in oil Bahri subsidiary inks $120 mln deal with prices since mid-2014, which led the government Hyundai Heavy Industries to cancel or delay major projects and halt 27 August 2017 payments owed to contractors. Hit by high debts, the Kingdom’s major contractors laid off Bahri Dry Bulk Co., which is 60 percent-owned by thousands of workers and delayed wages, leading The National Shipping Company of Saudi Arabia to protests in the country last year. (Bahri), has signed contracts worth $120 million on http://www.argaam.com/en/article/articledetail/id/5025 Aug. 25 with Hyundai Heavy Industries (HHI). HHI 96 will build four bulk carriers for Bahri Dry Bulk, to be delivered in H1 2020, Bahri said in a statement to Tadawul. Financial impact of the contracts will appear after the vessels are delivered. The deals are part of Bahri’s plans to expand its fleet to meet
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Digital banking outlook in Saudi Arabia physically visit a branch. Indeed, the introduction promising of digital banking has given customers an easy way 28 August 2017 to interact with their bank as and when they please. Gone are the days you had to physically go With over 21 million Saudis and 10.4 million to your local branch to get an update on your expats, Saudi banks are looking at ways in which finances – today, all this can be done via a few they can cater to this growing customer base. clicks on your laptop or a couple of touches on Alternative delivery channels and finding new ways your smartphone. Customers rely less on physical of doing business have been key for traditional branches for routine transactions such as transfers banks to expand their horizons and reach new and balance enquiries. However, branches will still customers. Several banks in the Kingdom have play an important role for more complex already adopted digital banking solutions as a core transactions, loans and investment plans. It is very strategy to cater to constantly changing consumer clear that banks need to adjust their offer so behaviors. With the support of the government branches offer higher-value consultancy services through its National Plan for Telecommunication to remain relevant. and IT approved in 2007 and the National Transformation Program under Vision 2030, Saudi On the back of expanding digitalization, there is an banks have been able to transform their increased concern over security, which proves to transactions to ‘e-transactions’ to make banking be one of the main concerns around digital seamless and convenient for millions of people in banking. The key to enable the success of their everyday lives. eBanking services depends on the ability of banks to combine convenience and simplicity for With 69.6% of the total population using the customers with security and trust. Although Internet, it is no surprise that Saudi residents leading banks in the region are keen to invest in expect to make speedy transactions anywhere, security, our study found that the traditional anytime, on any device. Banks must keep up to password remains the main security feature for meet the ever-evolving needs of their customers – eBanking solutions (81%) with more sophisticated by going digital. Millennials, who make up security features, such as encryption (25%) and approximately 50% of the total population, expect biometrics (17%) much further down the list. their banks to be at the forefront of the economy’s Security threats can affect banks through technological transformation. numerous vulnerabilities.
The country consequently has a high level of We also found that 50% of Saudi consumers think digital banking usage, which is only set to increase that there are security gaps in eBanking solutions, over the years. We recently surveyed 900 global IT and 29% are concerned that using banking and business decision-makers from the banking applications and websites put them and their sector and 11,000 consumers across 14 markets, personal information at risk. A bigger worry for including Saudi Arabia, on the topic of ebanking. decision makers is that 69% of Saudi consumers The findings of our study underpinned the notion use the same password across multiple accounts. that eBanking is on the rise in the region, as results With so many consumers still feeling this way, it is showed that 66% of Saudi consumers currently use clear that Saudi banks need to optimize their online and mobile banking. security without compromising on convenience and strike a perfect balance between the two, in While banks continue to focus on digitalization, order to ensure that digital banking continues to our research shows that one of the main benefits evolve and achieves its full potential. If this isn’t of digital banking is customer convenience, achieved, banks risk losing their customers’ trust, especially when compared to traditional banking. with many (51%) taking their business elsewhere In fact, 69% of Saudi respondents said that it is where they feel their valuable personal information easier to use eBanking solutions than having to is more secure.
27 STRATEGIC INSIGHT NEWS 5 September 2017
Fortunately, Saudi decision-makers are aware that trade connections with Saudi Arabia, and I have security features must be improved even further every confidence that the signing of the CDTA will and are planning to implement changes, with two- bring the trade relations between the two places factor authentication at the top of their list. A lot to a new level." of banks are now considering biometric solutions, such as fingerprint scanning, facial recognition and In the absence of a CDTA, the profits of Hong Kong iris recognition, which are seen as key technologies companies doing business through a permanent of the future and planned to be implemented over establishment in Saudi Arabia may be taxed in the next five years. It is heartening to note that both places if the income is Hong Kong sourced. biometrics are front of mind for Saudi consumers For Saudi Arabian companies, the income earned with 43% keen to use the technology for mobile in Hong Kong is subject to both Hong Kong and banking, of which 75% believe that it is more Saudi Arabian tax. secure than usernames and passwords, while 41% believe that they are more convenient than Under the agreement, double taxation will be traditional methods. avoided in that any Saudi Arabian tax paid by Hong Kong companies will be allowed as a credit The strong uptake of digital banking in Saudi against the tax payable in Hong Kong on the same Arabia presents significant opportunities for the profits, subject to the provisions of the tax laws of entire financial services industry. To be successful, Hong Kong. banks clearly need to harness the right kind of technology and processes to provide the best Likewise, for Saudi Arabian companies, the tax paid combination of convenience and security for their in Hong Kong will be allowed as a deduction from customers. the tax payable on the same income in Saudi * The writer is Digital Banking Director for the Arabia. CISMEA region at http://saudigazette.com.sa/article/516015/BUSINESS/Sa Moreover, the agreement provides the following udi-Arabia tax relief arrangements:
(a) Saudi Arabia's withholding tax rate for Hong Hong Kong and Saudi Arabia Enter into Kong residents on royalties (currently at 15 Tax Pact per cent) will be capped at 8 per cent and it 28 August 2017 will be further reduced to 5 per cent if the royalties are for the use of, or the right to use, The Government of the Hong Kong Special industrial, commercial or scientific equipment; Administrative Region has signed a (b) Hong Kong airlines operating flights to Saudi comprehensive agreement for the avoidance of Arabia will be taxed at Hong Kong's double taxation (CDTA) with Saudi Arabia, which corporation tax rate, and will not be taxed in signifies the government's sustained efforts in Saudi Arabia; and expanding Hong Kong's CDTA network, in (c) Profits from international shipping transport particular with economies along the Belt and Road. earned by Hong Kong residents in Saudi The CDTA sets out clearly the allocation of taxing Arabia will be exempted from tax liability rights between the two jurisdictions and will help therein. investors better assess their potential tax liabilities from cross-border economic activities. The Hong Kong-Saudi Arabia CDTA has also incorporated an article on exchange of "This is the 38th CDTA that Hong Kong has signed information, which enables Hong Kong to fulfil its with its trading partner,” says James Lau, Secretary international obligations on enhancing tax for Financial Services and the Treasury. “Hong transparency and combating tax evasion. Kong has all along treasured the economic and
28 STRATEGIC INSIGHT NEWS 5 September 2017
The CDTA will come into force after the completion Saudi Aramco President and CEO Amin H. Nasser of ratification procedures on both sides. In the said: Dow’s larger stake in Sadara is an case of Hong Kong, the CDTA is implemented by endorsement of the Kingdom’s vibrant ecosystem, way of an order to be made by the Chief Executive and signals Dow’s confidence in our partnership as in Council under the Inland Revenue a model of mutually beneficial foreign direct Ordinance. The order is subject to negative vetting investment. The time is right to fully leverage by the Legislative Council. Dow’s global leadership to further contribute to https://www.cfoinnovation.com/story/13539/hong- the Kingdom’s economic transformation in line kong-and-saudi-arabia-enter-tax-pact with Vision 2030.” http://gulfnews.com/business/sectors/energy/dow- chemical-plans-to-increase-stake-in-saudi-arabia-s- Dow Chemical plans to increase stake in sadara-1.2081492 Saudi Arabia’s Sadara 28 August 2017 Saudi contractors still owed 70% of dues: The Dow Chemical Company and the Saudi report Arabian Oil Company (Saudi Aramco) announced 28 August 2017 a non-binding Memorandum of Understanding (MOU) that sets forth a process for Dow to acquire Nearly 70 percent of dues owed to contractors for an additional 15 per cent ownership interest from public projects in Saudi Arabia remain unpaid, Saudi Aramco in Sadara Chemical Company despite the government’s announcement late last (Sadara), a joint venture developed by the two year that it would start settling delayed payments, companies. Okaz reported, citing Saudi Contractors' Authority chairman Osama Al-Afaleq. The delay was The current equity ownership split is 65 per cent attributed to a lack of budget for some projects, Saudi Aramco and 35 per cent Dow. If the potential and concerned government departments not transaction is concluded as presently proposed, issuing payment orders. Dow and Saudi Aramco would each hold a 50 per cent equity stake in Sadara. “Sadara is the result of "The Finance Ministry will release the payments a game-changing partnership between Saudi only after it received orders from those ministries Aramco and Dow by delivering market-driven for their respective projects," Al-Afaleq said. “But solutions that support the diversification of the the problem is that some ministries refuse to issue country’s economy,” said Andrew Liveris, Dow’s such orders on the grounds that they do not have chairman and CEO in a statement on Monday. budgets for some projects, causing delays in “Increasing our equity stake in this iconic joint payments,” he added. venture is a powerful example of our strategic partnership with Saudi Aramco and is yet another The Council of Saudi Chambers was recently accelerator in Dow’s long-term growth strategy requested to determine the value of the delayed designed to capture growing consumer-led payments, which indicated that there was no demand in our key end-markets of transportation, mechanism used to determine the outstanding infrastructure, packaging, and consumer products dues, he said. in developing regions.” Saudi Arabia’s construction sector has been The Sadara chemical complex, the largest of its severely affected by the tumble in oil prices since kind ever built in a single phase is currently mid-2014, which led the government to cancel or operating all of its 26 world-scale units that delay major projects and halt payments owed to manufacture a portfolio of valued-added contractors. Hit by high debts, the Kingdom’s performance plastics and speciality chemicals. major contractors laid off thousands of workers
29 STRATEGIC INSIGHT NEWS 5 September 2017
and delayed wages, leading to protests in the Four contractors prequalify to bid for country last year. Aramco gas pipeline http://www.argaam.com/en/article/articledetail/id/5025 28 August 2017 96 Four contractors have prequalified to install new gas pipelines at Saudi Aramco’s Juaymah gas Saudi aviation authority tenders 12 airport export facility, MEED reported, citing an industry projects: report source. The firms include Arkad Engineering & 28 August 2017 Construction Company (formerly known as Saudi KAD), China Petroleum Pipeline Engineering Saudi Arabia’s General Authority of Civil Aviation Corporation, Saudi Services for Electro Mechanic (GACA) has invited bids for four work package Works, and Huta Group. The project, known as contracts to develop 12 different domestic Enhanced LPG Piping Network, has an estimated airports, MEED reported on Monday. The four budget of $100 million. Design and front-end packages cover greenfield projects, which are engineering (feed) was completed by US-listed aimed to develop a new airport or terminal and Jacobs Engineering Group. The deadline to submit related facilities in an existing airport; and bids is Aug. 30. brownfield projects that include rehabilitation and http://www.argaam.com/en/article/articledetail/id/5025 upgrade of existing terminals and related facilities. 71 Contracting firms will submit bids no later than November 15. No further details were provided about the value of the contracts. Middle East Investment gets CMA nod to The packages will be tendered using conventional amend business profile procurement methods and will include: 29 August 2017 1) Al-Baha brownfield airport on a total area of 160,181 square meters Saudi Arabia’s Capital Market Authority (CMA) has 2) Sharurah brownfield airport on a total area of approved the Middle East Financial Investment 146,899 sqm Co.’s request to amend its business profile and 3) Qunfudhah greenfield project on a total area stop providing agency services, the regulator said of 6.05 million sqm in a bourse statement. Thus, the company is 4) Wadi Al-Dawasir brownfield airport on a total currently authorized to deal as a principal and an area of 145,708 sqm underwriter. It will also manage investment funds 5) Najran greenfield project on a total area of 6.84 and discretionary portfolios, in addition to million sqm providing advisory and custody services. 6) Wajh brownfield airport on a total area of http://www.argaam.com/en/article/articledetail/id/5028 556,476 sqm 30 7) Al-Jouf brownfield airport on a total area of 374,956 sqm 8) Qurayyat brownfield airport on a total area of Saudi Arabia seeks bids for 400 MW wind 191,349 sqm power project 9) Farasan greenfield project on a total area of 5.5 29 August 2017 million sqm 10) Rafha brownfield airport on a total area of Saudi Arabia has released the request for 166,805 sqm proposals for a 400 megawatt wind power project 11) Qaisumah brownfield airport on a total area of in Dumat Al Jandal, Al Jouf region. The request was 190,845 sqm issued by the country’s renewable energy project 12) Turaif brownfield airport on a total area of development office (REPDO), which said the 166,220 sqm project is its first utility-scale wind power project http://www.argaam.com/en/article/articledetail/id/5025 within the National Renewable Energy Program 75
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(NREP). A total of 25 companies have qualified for communications and remote sensing, and is fully the REF stage as either “managing members” or Saudi-owned. The satellite communications “technical members” or both, REPDO said in a initiative will use high-speed space statement. Bidding for the project is set to close communications with High Throughput Satellite in January 2018. Technical criteria for round one of (HTS) technologies to provide voice NREP projects include a 30 percent local content communication and television reception services. requirement. http://advanced-television.com/2017/08/29/saudi- arabias-taqnia-secures-financing/ “Round two of the NREP will be launched before the end of this year, keeping us firmly on track to deliver 9.5GW of renewable energy by 2023,” Saudi Labor Ministry sets conditions for Khalid Al-Falih, minister of energy, industry and recruitment of house workers mineral resources, said in the statement. 29 August 2017
Round one of the NREP also comprises a 300 MW The Ministry of Labor and Social Development has solar PV (photovoltaic system) in Sakaka, Al Jouf approved a set of conditions for those who wish to region, for which the bid opening will take place hire house workers, be they citizens or residents. on October 3; and winning bids will be announced One of the major conditions is that a married on November 27. The Dumat Al Jandal and Sakaka citizen should have at least a balance of SR35,000 projects are 100 percent private independent ($9,333) in his bank account while salaries of power producer (IPP) programs, which will be residents should not be less than SR10,000 to backed by 20 and 25-year power purchase recruit house workers or drivers. Based on agreements, respectively, REPDO said. regulations for granting visas for house workers’ http://www.argaam.com/en/article/articledetail/id/5028 recruitment, the Ministry of Labor has the right to 11 verify the financial position of an applicant to approve or reject, accordingly, the ministry said. The ministry may give the applicant additional Saudi Arabia’s Taqnia secures financing visas (two visas maximum) if the contract of the 29 August 2017 house workers is 18 months or over with the applicant. Applicants of five-year cards will be Saudi Arabia-based Taqnia Space has secured treated in accordance with conditions set for Saudi further finance through a long-term agreement individuals. with Bank Albilad. Taqnia Space says it aims to transfer and market satellite technology, support On the other hand, the maximum number of visas the sustainable development of GDP, diversify the for a married Saudi citizen is three, including one economy, create high-quality jobs, and attract male house worker. Other categories of jobs outstanding talent in related fields. allowed for house worker recruitment are female house worker; male house worker; private driver; Taqnia, which is backed by Saudi Arabia’s Public baby sitter; male cook; female cook; waiter; male Investment Fund, already has an agreement in nurse and female nurse. Additionally, financial place with Eutelsat to supply email, social ability of not less than SR5,000 should be ensured networking and live streaming to passengers to on the first visa with a bank balance of SR35,000 Taqnia’s Saudia aircraft flying over the MENA which could reach up to SR500,000 on the fifth regions and Mediterranean and European visa. destinations. The ministry also allowed male and married female Abdullah Al-Osaimi, CEO at Taqnia Space, added residents with salaries above SR10,000 to recruit that the technical solutions that will be provided two house workers under their sponsorship. by the company are in the field of satellite However, for a bachelor, one house worker may be
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recruited. Job categories in this case are female Saudi economy. The target of 70% is high and house workers, private drivers or baby sitters. presents challenges for those that want to become The number of recruitment offices registered with or to remain a supplier to Saudi Aramco.” the house worker program (Musanid), one of the ministry’s initiatives, stands at 605, while the “However, with those challenges come many number of beneficiaries from the Musanid portal opportunities for North Sea firms. As well as the stands at 61,411. prospect of establishing a permanent business http://www.arabnews.com/node/1152221/saudi-arabia entity in Saudi Arabia to meet these new conditions, there are many options for joint ventures and strategic alliances,” observed Fraser. HFI to help North Sea energy firms gain “For example, a firm with its origins in the North leverage from Saudi Arabia's IKTVA Sea may want to look at collaborating with a program partner in Saudi Arabia that has a high percentage 30 August 2017 of local employees and is committed to investing in furthering the skills of its workforce,” explained Middle East business expansion specialist HFI Fraser. Consulting International has launched a new service to help energy and water firms develop “Given that one pillar of the Saudi Arabia 2030 joint ventures in the wake of major plans to Vision is for the Kingdom’s businesses become diversify Saudi Arabia's economy. more globally competitive, there are numerous “Companies with origins in the North Sea have an local firms that are now interested in working with unprecedented opportunity to form local alliances international partners to achieve that goal,” following the unveiling of the In-Kingdom Total revealed Fraser. Value-Add (IKTVA) programme as a key aspect of the Saudi 2030 Economic Vision and National “Having been based in the region for two decades, Transformation Plan,” said Hugh Fraser, founder we have deep knowledge and experience of and managing partner, HFI Consulting business structures to help UK firms leverage the International. benefits of Saudi’s national transformation plan and expand despite the challenging new IKTVA aims to reduce the country’s reliance on oil requirements,” opined Fraser. revenue while creating high-quality skilled jobs for Saudis – a move which means that international Under the IKTVA system, Saudi Aramco is looking suppliers must employ more local people and for its suppliers to put 70% of revenue earned into increase local spending. the local economy, scoring across training and development of Saudis and the salaries paid to Details of HFI’s IKVTA Solutions service will be them, and spend on local goods and services. unveiled at Offshore Europe in Aberdeen during 5- It is part of a drive to diversify the kingdom’s 8 September 2017, where the firm will be part of economy away from oil and gas, to upskill workers the Energy Industries Council pavilion. across new technologies and to transform Saudi Aramco from an oil producing company into an Fraser has been helping companies with advanced industrial powerhouse. technology development in the Middle East and North Africa (MENA) region for 20 years, and Saudi Arabia is committed to spending $30bn a believes the new scheme will be a game-changer year on its petroleum industry for the foreseeable for firms looking to expand there. future, but the Saudis also want to see innovation and diversification as key pillars of their economic Fraser added, “Every supplier to Saudi Aramco is strategy. That is now leading to the emergence of now scored on the proportion of the revenue it parallel opportunities, including a $30-50bn earns against how much of it goes back into the
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investment programme in renewables and nuclear The SAGIA website states (our underlining): power, which was announced in January. The historical growth rate of 10% in the Education sector is expected to be sustained going forward, Fraser concluded, “North Sea firms are renowned driven by significant investments by the Saudi as innovators with technology and know-how that Government. For example, USD 56 billion has been the rest of the world wants to utilise. I believe there allocated to projects in the Education sector for the will be even greater demand as Saudi Arabia 2014/15 budget, in addition to USD 21 billion accelerates the diversification of its economy and approved five-year plan driven by the Tatweer reduce its reliance on oil and gas.” education development company.
IKTVA solutions service will be provided through There are several broad opportunity areas for the collaborative activities with a local law firm in Saudi private sector to explore in the education Arabia and HFI’s team across its Aberdeen, Beirut ecosystem, including: setting up privately and Dubai offices. operated colleges and universities; establishing pre-school institutions and day-care offerings; The Beirut office is the firm’s legal base, while enhancing labor market linkages and job Dubai is the base for consulting services. These placement programs to match graduates to jobs; combine to provide specialist services for clients creating and delivering blended learning with projects in the MENA region while also innovations. In addition, there is an opportunity for working closely with the team in Aberdeen, which private sector provision of support services to is focused on North Sea clients. existing public and private education http://www.arabianoilandgas.com/article-17735-hfi-to- institutions. Examples include: site maintenance, help-north-sea-energy-firms-gain-leverage-from-saudi- canteen operations, cleaning services, IT arabias-iktva-programme/ infrastructure and management services.
Whilst there are no current opportunities listed on Transformation of education in Saudi the relevant section of the SAGIA website we Arabia: One year on expect this to change given it is still comparatively 30 August 2017 early days in the programme. What will be of particular interest is whether and to what extent In a previous edition we looked at Saudi Arabia’s FDI is encouraged in this context. Furthermore, the Vision 2030 (and the National Transformation same approach may not necessarily apply to Program which flows from it) (“Vision”) and the schools as to other sections of the education ambitious road-map for education reform in the market; it was previously suggested that FDI in Kingdom of Saudi Arabia. In this article we check schools is unlikely in the short term. in to see where things currently stand in the Kingdom. PPP The Vision also indicates that some form of Public FDI in Education Private Partnership structure is contemplated in a Foreign direct investment in education in the number of areas and, although it doesn’t Kingdom was traditionally very limited. However, specifically mention education, one would expect one of the stated goals of the Vision is for that this would be closely looked at given it is increasing private sector participation in the capital intensive. sector. What form this private sector participation may take is critical, especially in the context of the Conclusion updated Companies Law which has broadened the The scope for private sector involvement in the potential for foreign ownership in Saudi education sector in the Kingdom is massive given companies but which does not specifically address the demographics and sheer size of the potential the education sector.\ market there. However, it is still early days in the
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reform process with many of the specifics PÖYRY awarded Shoaiba 4 engineering remaining unclear. Al Tamimi continues to closely services assignment monitor events at the various ministries to ensure 31 August 2017 that our clients are in the most up to date position and we will publish an update to this note when The Saline Water Conversion Company (SWCC) Francis is an integral member of Al Tamimi & has awarded Pöyry with the owner's engineer Company’s Education team where he supports services assignment for the Shoaiba 4 desalination education providers in the Kingdom on all legal plant in the Kingdom of Saudi Arabia. Shoaiba 4 aspects of their operations. For further will meet the potable water requirements of Saudi information, please contact Francis Arabia's second largest city and its five million ([email protected]). people. Using reverse osmosis membranes, https://www.zawya.com/mena/en/story/Transformation Shoaiba 4 will process up to 400 000 m3 of sea _of_education_in_Saudi_Arabia_One_year_on- water into fresh water per day. ZAWYA20170830100741/
Pöyry's scope includes Review of Contractor's
Engineering and Supervision of Construction, China's ICBC in talks with Gulf states on Erection and Commissioning. "Pöyry has a long- yuan bonds: report standing relationship with SWCC going back some 30 August 2017 30 years. As one of the world's leading power
engineering companies, Pöyry is proud to support The Industrial and Commercial Bank of China SWCC in this important project that will provide (ICBC) is in talks with GCC governments and state- the required water needs to the people of Jeddah", linked entities that are interested in issuing yuan- says Ari Asikainen, Pöyry's Head of Thermal Power denominated bonds in China, Zhou Xiaodong, and Renewable Energy in the Middle East. general manager of ICBC Dubai told Reuters on The value of the order is not disclosed. The order Wednesday. will be recognized within the Energy Business
Group order stock in H2/2017. One government entity is currently applying to https://globenewswire.com/news- issue yuan-denominated instruments, known as release/2017/08/31/1105945/0/en/P%C3%B6yry- panda bonds. Accordingly, it would be the Middle awarded-owner-s-engineer-services-assignment-for- East's first issuer in China’s interbank bond market, Shoaiba-4-desalination-plant-Saudi-Arabia.html he added without further details. “The debt market in the Middle East is growing very fast, and while a lot of it is related to U.S. dollar Saudi Arabia accelerates the rollout of issues, renminbi-denominated bonds are an major rail projects Saudi ArabiaTransport alternative channel for companies wanting to tap 31 August 2017 the Chinese market," Zhou said. Potential issuers had to have investment-grade credit ratings. China The Saudi government is stepping up investment is encouraging foreign bond issuers as part of its in transport infrastructure in Saudi Arabia, fast- efforts to internationalize its yuan or renminbi tracking key projects and creating new currency and open up sources of finance for its opportunities for service providers. In July the planned “Belt and Road” trade route. Saudi Railways Organisation (SRO) conducted the first complete trial run of the Haramain High- Last week, Saudi Arabia’s vice minister of economy Speed Rail. The project connects Jeddah to Medina and planning Mohammed Al-Tuwaijri said the in just 90 minutes, at speeds of up to 330 km per Kingdom was willing to consider funding itself hour. Additionally, the next stage of the $17bn partly in yuan to cover its budget deficit and Makkah Metro is expected to be put to tender finance major investment projects. either by the end of this year or in early 2018. http://www.argaam.com/en/article/articledetail/id/5030 10
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The move to speed up the Makkah Metro project, could offer sizeable opportunities to service along with proposals to revitalize development of providers and logistics operators. Railway a 149-km metro network for Jeddah, shows that expansion aims to improve passenger and freight interest in big-ticket transport projects is returning capacity after two years of constraints due to fiscal tightening, Benjamin Highfield, executive vice- Another key objective of the NTP is improving the president of construction and business live-ability of Saudi Arabia’s cities by developing consultancy HKA, told local media. comprehensive public transport networks. The national broad-gauge rail network expansion, The government is moving to accelerate the which foresees the laying down of 15,000 km of rollout of the network, while also looking to secure track, will boost freight-handling capacity, as well alternative funding streams, he added. NTP as long-distance passenger movements. envisages greater role for private sector. Rail systems being developed in cities have more Transport infrastructure was identified in both the localized goals. The Riyadh metro is currently long-term Vision 2030 for economic and social under development and consists of 176 km of development and the medium-term National track on six separate routes, supported by an Transformation Program (NTP) as vital to the expanded bus network. In August the $22.5bn broader economic overhaul. project was 57% completed and is scheduled to open at the end of 2018. Once operational, it will The NTP also calls for greater private sector rank as the most extensive mass transport system contribution in developing and operating rail in the region, with the capacity to carry up to 3.6m projects, targeting a 50% input by 2020, up from passengers a day and the potential to help reduce 5% currently. road traffic congestion by 75%, according to local media reports. At the infrastructure development stage, that The improved transit network is forecast to have a contribution could come through the utilization of number of direct knock-on effects for the public-private partnerships (PPPs), according to economy, including an increase in productivity; Rumaih Al Rumaih, president of the Public faster commutes could not only reduce time lost Transport Authority and SRO. Speaking at the by workers stuck in traffic, but also offer the Middle East Rail convention in March, Al Rumaih potential for commercial and office developments said the PPP model could be used for funding the away from existing centralized business hubs. Makkah and Jeddah metro projects, along with others in the pipeline in Dammam and Medina. Infrastructure spending projected to reach $14bn Under the 2017 budget, spending on transport Following a 2016 royal decree, Saudi Railway and infrastructure developments has increased, Company (SAR) is in the process of acquiring rising from SR37.6bn ($10bn) in outlays in 2016 – ownership of SRO’s assets, including the Haramain up from an initial projected expenditure of High-Speed Rail and the Dammam-Riyadh railway. SR30.8bn ($8.2bn) – to SR52.1bn ($13.9bn) In August Bashar Al Malik, chief executive of SAR, earmarked for this year. According to the Ministry announced the company’s intention to invite the of Finance’s second quarter update released in private sector to build and operate the $7bn, 958- mid-August, only 24% of the transport and km Saudi Landbridge project connecting Riyadh to infrastructure budget was spent in the first half of Jeddah, set to begin in early 2018. 2017, leaving SR39.8bn ($10.6bn) still to be spent this year. Given the significant increase in passenger and freight capacity planned for the coming years, The broader transport sector represents a coinciding with the projected rise in demand for significant segment of the Kingdom’s rail services, promoting private sector involvement development pipeline, with a recent MEED report
35 STRATEGIC INSIGHT NEWS 5 September 2017
estimating there are more than $63bn worth of The main factors contributing to the upward sector-related projects in the pre-execution stage. trajectory of the non-oil private sector economy Of the $250bn in unawarded contracts as of early were sharper expansions in both new orders and 2017, transport accounted for 27% of total project output. Anecdotal evidence highlighted greater volume, trailing only the energy sector (33%) and projects, good economic conditions, stronger construction (29%). underlying demand and higher construction Although there had been some challenges to the activity. government’s development plans due to falls in oil revenue, according to MEED the country remained Concurrently, June’s increase in new export orders the largest market for projects in the region, was short-lived, with non-oil private sector representing almost 40% of the GCC total. companies noting a renewed contraction in July. http://www.oxfordbusinessgroup.com/news/saudi- The rate of decline was fractional, however. arabia-accelerates-rollout-major-rail-projects Panelists commented on weaker demand from international markets for Saudi Arabian goods and services. Saudi private sector growth edges up in early Q3 Underlying data provided evidence of ongoing 31 August 2017 pressures on operating capacity as backlogs rose for the ninth consecutive month. Subsequently, Growth in Saudi Arabia's non-oil private sector firms increased their payroll numbers, but only picked up at the start of the third quarter on the marginally. back of sharper increases in output and new In response to greater output requirements, orders, according to a new survey. The Emirates businesses scaled up their purchasing activity NBD Saudi Arabia Purchasing Managers’ Index during July. Moreover, the upturn in input buying (PMI) showed that greater output requirements was the quickest since April. Subsequently, encouraged companies to purchase more inputs inventories rose substantially. and stimulated job creation in the sector. On the price front, input cost inflation quickened to the fastest since April and was solid overall. Weakness was seen regarding trade, however, as Underlying data suggested that cost pressures new export orders fell. On the price front, input mainly emanated from higher purchasing prices. costs rose at a solid and accelerated pace. http://www.arabianbusiness.com/industries/banking- However, firms’ ability to fully pass on higher cost finance/377708-saudi-private-sector-growth-edges-up- burdens to customers was restricted by intense in-early-q3 market competition and charges increased only marginally. Khatija Haque, head of MENA Research at Emirates Expat remittances from Saudi Arabia up NBD, said: “Faster growth in output and new 10% in July 201 orders helped the headline PMI in Saudi Arabia rise 31 August 2017 in July, signaling the fastest rate of non-oil sector expansion in three months."Firms were more Remittance outflows from expatriates in Saudi optimistic last month, and this likely contributed to Arabia rose 10 percent year-on-year (YoY) to SAR increased buying activity and inventory 11.3 billion in July 2017, data issued by the Saudi accumulation.” Arabian Monetary Authority (SAMA) showed. On a month-to-month basis, expat remittances grew The headline seasonally adjusted Emirates NBD 8 percent increase in July. The Kingdom has said Saudi Arabia PMI rose from 54.3 in June to 55.7 in it’s not planning to impose a new tax on expat July. This was consistent with a robust remittances. improvement in overall business conditions, the strongest since April.
36 STRATEGIC INSIGHT NEWS 5 September 2017
Saudi Arabia's oil giant Aramco explores Saudi Remittances (SAR bln) Bengal options Month 2016 2017 Variation 1 September 2017 January 5.42 4.96 (8%) February 5.90 4.13 (30%) Saudi Aramco, Saudi Arabia's state-owned oil company that's counted among the world's largest March 5.54 4.46 (19%) petroleum and natural gas firms, is exploring
April 4.96 3.89 (22%) investment opportunities in West Bengal. May 5.81 7.12 +23% Speculation is rife that the oil giant may be June 5.54 3.03 (45%) interested in the proposed TCG-run oil refineries in July 3.43 6.70 +95% Haldia and in some downstream projects of Haldia Petrochemicals Ltd. August 4.87 -- --
-- September 4.14 -- Representatives of the company that has both the October 5.36 -- -- world's second-largest proven crude oil reserves November 4.23 -- -- and second-largest daily production met chief December 4.37 -- -- minister Mamata Banerjee at Nabanna on Thursday to discuss possibilities in oil exploration, Total 59.58 -- -- downstream petroleum production, refining and Transfers by Saudi nationals to other countries marketing. almost doubled to SAR 6.7 billion in July, compared to a year earlier. Javed Yunus, senior advisor of Aramco Asia India Pvt Ltd, a subsidiary of Aramco of Saudi Arabia and Expat Remittances (SAR bln) representative director of the company Eyad al Month 2016 2017 Variation Subei, met Banerjee at 11.30 am. Over the next January 12.03 12.62 +5% hour, they discussed areas of mutual interest and investment potential. February 12.63 10.77 (15%)
March 12.96 12.75 (2%) Later, speaking about the meeting with the April 11.88 11.41 (4%) Aramco Asia India official, Banerjee said: "The May 14.11 13.04 (8%) company has expressed interest in investing in the state. Bengal has huge potential. They will June 15.84 10.43 (34%) undertake a feasibility study to identify possible July 10.30 11.29 +10% areas for further interaction. They have promised August 12.84 -- -- to come to Bengal Global Business Summit next September 10.85 -- -- year." October 12.82 -- -- An Aramco official said the meeting was November 12.11 -- -- exploratory in nature but refused to comment December 13.53 -- -- further. When asked about the areas where Total 151.90 -- -- Aramco could invest, he said, "We have expertise in crude oil exploration, refining, marketing, http://www.argaam.com/en/article/articledetail/id/5026 downstream petroleum production and 27 hydrocarbon. As the state is rich in mineral and oil reserve, these are areas which can be explored. But it is too early to make a prediction or speak in more definite terms."
37 STRATEGIC INSIGHT NEWS 5 September 2017
Based in Dhahran, Saudi Aramco is valued “Across the region, energy reforms remain a prime between $1.25 trillion and $10 trillion. It manages source of investment opportunities as over 100 oil and gas fields in Saudi Arabia, governments work to increase the appeal of their including 288.4 trillion standard cubic feet (scf) of markets to private capital. Many governments are natural gas reserves and operates the world's also diversifying their energy mix as oil prices fall,” largest onshore (Ghawar) as well as offshore EY said. (Safaniya) oil fields. http://timesofindia.indiatimes.com/city/kolkata/saudi- Saudi Arabia has recently launched a tender to oil-giant-aramco-explores-bengal- build a 400 MW utility scale wind power plant – a options/articleshow/60316309.cms first in the country. Meanwhile, in June, Botswana Power Corp.’s 100 MW solar tender attracted 166 domestic and foreign bidders. European investments drove Mideast energy deals in Q2: EY Going forward, market reforms will drive 3 September 2017 investment in the P&U sector, EY said. Marafiq, a Saudi Arabian integrated power and water An influx of European investors in Middle East and company, plans to launch an initial public offering Africa saw deal activity in the region’s power and (IPO) by 2019. Elsewhere, South Africa is planning utilities (P&U) sector increase six times quarter-on- to remove subsidies from electricity prices by quarter (QoQ) this year to reach $845 million in Q2 2019. 2017, consultancy firm Ernst & Young (EY) said in In the Arab World, Saudi Arabia and Egypt remain a recent report. Increasing merger and acquisition attractive to investors, the consultancy said. “Saudi (M&A) activity signifies growing investor Arabia is moving ahead with its plan to develop confidence towards the region, the consultancy more than 30 renewables projects by 2027 – 400 said, while noting that greenfield investment, MW of wind and 300 MW of solar. The government mainly by foreign banks, outstripped brownfield has shortlisted developers to set up the projects,” investment. P&U deals worldwide had a combined the report said. In Egypt, Scatec Solar, a European value of $30.8 billion in the second quarter, down utility, has agreed to build a 400 MW solar power 32 percent QoQ. Renewables transactions plant, it added. accounted for $6.1 billion in Q2, the consultancy http://www.argaam.com/en/article/articledetail/id/5029 said. 90
Global deal volume grew from 115 in Q1 2017 to 134 in the second quarter — a 17 percent increase, The great Saudi sell-off: why bankers and EY said. Renewable energy deals accounted for lawyers are flocking to the Gulf nearly half, or 48 percent, of total deal volume in 3 September 2017 the sector. “The report shows how renewable energy asset valuations are increasing with Don’t even think about getting the Sunday demand,” the consultancy said in a statement. morning flight from Dubai to Riyadh. The same applies to the Thursday afternoon slots going In the Middle East and Africa region, Q2 2017 saw back. Both – and many in between – are booked more greenfield renewables projects, mainly in solid by investment bankers, corporate lawyers, Africa including plans by Bui Power to build a 250 accountants, consultants and PR advisers who megawatt (MW) solar-hydro plant in Ghana. In appreciate the weekend comforts of the UAE, but another project, France’s Engie partnered with UK- who know the big business is to being done in based eleQtra to build a 50 MW wind project in Saudi Arabia. A huge economic transformation is Ghana. planned for the kingdom, and the fees on offer are well worth a few days of strawberry juice in the
38 STRATEGIC INSIGHT NEWS 5 September 2017
puritan luxury of a five-star hotel in the Saudi That is a huge sum, four times the amount of the capital. biggest IPO hitherto. But it is only half of the estimated value of the rest of the privatisation Saudi Arabia is lining up a privatization of state schedule. Mohammad al-Tuwaijri, the former assets that dwarfs the Thatcher “revolution” of the HSBC banker who is now deputy economy and 1980s, and rivals the 1990s dissolution of Soviet planning minister, said earlier this year that he assets in scale and significance. It has hung a “for expected to raise $200bn from the state sell-off sale” sign on virtually every sector of Saudi over the next few years. economic life: oil, electricity, water, transport, retail, schools and healthcare. Even the kingdom’s Although al-Tuwaijri said he had a “crystal clear football clubs are due to be auctioned off. idea” of the privatisation strategy, not everybody has such a good view of the road ahead. Questions The sell-off program is the central part of the remain on the motivation for the plan, the legal economic transformation plan envisaged under and regulatory structures that will govern it, and the Vision 2030 strategy. With oil stuck around the the form the sell-offs will take: IPOs, private equity $50 mark, Saudi budgets are creaking and deficits deals, or trade sales to non-Saudis. are widening. Around $75 is regarded as the break-even point for the national finances. A Saudi banker, who asked to remain anonymous because his bank was involved in pitching for parts But in 13 years, if all goes to plan, the kingdom will of the privatisation mandate, said there were two be financially stable, with a more dynamic imperatives behind the sell-off plan. “The cash they economy and society, less reliance on oil and will raise is relevant and should not be ignored, but government spending, and with a thriving private the main aim is to support the Vision 2030 goal of sector that releases the pent-up entrepreneurial encouraging greater private sector involvement in spirit of Saudi men and (whisper it in the kingdom) the economy.” Saudi women. Having private control of education, perhaps with It is, of course, a big “if”, but for an economy stuck foreign involvement, would be revolutionary in in the rentier mentality of the 1930s – when it Saudi Arabia became a country under the house of Saud and oil was discovered, and which has been ruled by the Nasser Saidi, the former economics minister of strict orthodoxy of Wahhabi Islam ever since – this Lebanon and now an economic consultant, led an will be nothing less than a revolution. abortive attempt to privatize big chunks of his country in the early 2000s. He says: “When you Rather than the Thatcher and Soviet analogies, approach privatization you have to have a legal some analysts compare it to the capitalist and regulatory framework, which is not there yet revolution brought about by Chinese modernizer in Saudi.” Deng Xiaoping, which changed the economic shape of the world within three decades. There is, however, a clearer idea of what assets are on offer, because virtually everything is potentially The centre-piece of the privatisation is the planned on the block. The National Centre for Privatization, initial public offering (IPO) of Saudi Aramco, the which began operating in March this year, has country’s oil company and the source of all its drawn up a list that reads like a cross-section of the wealth. If it goes ahead at the $2 trillion valuation Saudi economy. “Environment, water and hung on it by Mohammed bin Salman – Saudi’s agriculture; transport; energy, industry and mineral crown prince and architect of Vision 2030 – it will resources; labor and social development; housing; raise $100bn on global markets, with London and education; health; municipalities; New York vying for the lucrative IPO, in addition to telecommunication and information technology; Riyadh’s own stock market, the Tadawul.
39 STRATEGIC INSIGHT NEWS 5 September 2017
and Hajj and Umrah [Islamic pilgrimage] services,” silver, or asking them to buy something they its website declares, are all subject to the program. already own. Some financial advisers only half-joke Within that list, there are some obvious jewels in about the need for a public education program – the crown. The Saudi banker says that, because of “Tell Sayeed” – about the benefits of state sell-offs the kingdom’s youthful demographic, health and along the lines of the Thatcherite “Tell Sid” education are potentially lucrative investments. He campaign of the 1980s. singles out the King Faisal Specialist Hospital, the Riyadh complex that is probably the best medical Preferential allocations for Saudi citizens in any facility in the kingdom, as one of the most eye- IPOs, which the Saudi banker believes is a catching potential privatizations. necessary sweetener, could overcome some of those reservations. But, as many other privatizers have found, there are serious issues attached to selling off assets The western advisers cramming the Riyadh flights regarded as central to the nation’s social and are there for the fees, of course. But there is also cultural fabric. “Having private control of an increasing degree of buy-in from many experts education, perhaps with foreign involvement, on the whole strategy. would be revolutionary in Saudi Arabia. Would the investors want to have control of [the] curriculum? Ellen Wald, an American Middle East expert and It could go against the whole culture and tradition author of forthcoming book Saudi, Inc., says: “It’s of the kingdom,” says Saidi. an ambitious plan. Even if the Saudis fall short, they will have made positive and necessary progress in To overcome these sensitivities, other more diversifying and privatizing their economy.” secular assets – such as power stations, https://www.theguardian.com/world/2017/sep/02/great desalination plants and transport infrastructure – -saudi-sell-off-bankers-lawyers-flocking-gulf are more likely initial subjects for the program.
The sale of the kingdom’s airports has already Saudi Aramco makes gains from R&D begun, with Goldman Sachs appointed to oversee ahead of listing the privatization of King Khalid international 4 September 2017 airport in Riyadh. Jeddah’s King Abdulaziz airport is already well down the privatization runway, with Investments in technology and research are Singapore’s Changi Airport Group winning the bid helping to boost profits and production at Saudi to run it. Arabia’s national oil company ahead of its planned initial public offering (IPO), analysts say. BMI The whole issue of foreign involvement is fraught. Research, part of Fitch Group, has claimed that Traditionally, foreigners wanting to do business in continued technological advancements offer a the kingdom have needed a Saudi firm or strong upside to Saudi Aramco’s profit, reserves individual as their “partner”, which has led to and production capability, despite a lower oil price charges of inefficiency and corruption. environment.
These rules have been changed with respect to The state-owned oil giant – soon to be part- certain sectors – retail and wholesale, engineering privatized in an IPO expected to raise up to $100 and most recently health and education – but large billion – is investing heavily in R&D to enhance swaths of the Saudi economy are currently off- resource discovery and improve operational limits for full foreign ownership: areas such as efficiencies. Among the investments cited by BMI energy, defence, media and telecommunications. are a new seawater optimization program to There are other hurdles to overcome. Some Saudis, increase offshore oil recovery, and a new pump and not just Islamic fundamentalists, have system for oil capture, reducing the need for a rig. criticized the privatization plan as selling the family
40 STRATEGIC INSIGHT NEWS 5 September 2017
Other innovative projects include the use of Saudi Arabia has another core focus that is shifting geochemical techniques, optimized drilling to gas. The oil firm is currently deploying a new systems, 3D oil reservoir modelling to determine seismic technology around the Turayqa gas field in where the biggest supplies are, and autonomous the Empty Quarter, an area that had been explored machines. earlier through joint ventures with several foreign oil producers, including Royal Dutch Shell, Italy's However, there remain barriers to developing gas Eni and Repsol. However, these companies exited resources in the kingdom’s tight reservoirs, said the market over the past decade, due to the lack BMI. These include low state-set gas prices and of commercial finds. lack of foreign participation, as well as geological complexity and underdeveloped infrastructure. The Kingdom's tight reservoirs also represent a Again, new technological investments will be major gas resource base. Development of such required to overcome such barriers and bring resources is hindered by low local gas prices, the resources to market. lack of foreign participation, geology complexity, http://www.arabianbusiness.com/industries/energy/377 water scarcity and under-developed infrastructure 869-saudi-aramco-makes-gains-from-rd-ahead-of- in the region. listing Technological advancement will be key to overcoming these hindrances through the current Technological focus gives Saudi Aramco R&D programs that include the use of waterless strong upside: BMI Research fracturing fluids and the use of resin-enhanced 4 September 2017 locals and to cut production costs. BMI analysts added that these programs are still in early stages, Saudi Aramco has strong upside to profit, reserves expecting progress on unconventional products to and production backed by continued continue to lag, in the absence of major pricing technological advancements, particularly with reforms and opening up to foreign entrants into regard to development of non-associated and the market. tight gas resources, BMI Research, a Fitch Group http://www.argaam.com/en/article/articledetail/id/5033 company, said in a recent report. As companies 31 focus on maximizing gains from existing resources amid continued declines in oil prices, the state- owned oil producer has huge investments in Saudi Prince Khaled’s KBW to invest in research and development (R&D) to enhance its Egypt resource discovery and recovery rates and improve 4 September 2017 operational efficiencies. Saudi Arabia’s Prince Khaled bin Alwaleed bin Aramco, however, uses geochemical techniques, Talal, chairman of UAE-based KBW Investments, chemical and CO2 EOR, optimized drilling and plans to invest in projects in Egypt, especially in completions, alternative fracturing fluids and Sharm El-Sheikh. In a meeting last week with proppants, 3D integrated reservoir modelling and Egyptian investment minister, Sahar Nasr, Prince autonomous machines in other projects. "From a Khaled said that he also plans to enter partnerships global perspective, the focus on technology is to expand several ongoing projects, and that he is appropriate given the soft recovery in prices and willing to support stalled projects in Egypt, the increasingly bearish outlook on demand,” BMI Egyptian ministry of investment and international added. “Against this backdrop, where revenue cooperation said on its website. The prince said he growth is somewhat constrained, the challenge is encouraged to invest in Egypt following its to protect and grow the margins. For this, measures to improve the investment environment, technological advancements have a key role to which includes a new investment law. play, in lower costs and improving productivity."
41 STRATEGIC INSIGHT NEWS 5 September 2017
Prince Khaled is the son of billionaire Al Waleed bin Talal, chairman and founder of Saudi-listed Kingdom Holding Company. Nasr commended the Egyptian-Saudi Business Council's decision to increase Saudi public and private sectors’ investments in Egypt to $51 billion. The council plans to inject investments in the Suez Canal Development Axis, as well as the agricultural, tourism, energy and real estate sectors in Egypt. KBW, a portfolio group based in Dubai, invests in a diverse range of businesses— from construction to technology to e-commerce. http://www.argaam.com/en/article/articledetail/id/5033 30
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ABOUT THE EDITORS
CHIEF EDITOR PRODUCER Dr. Cyril Widdershoven is Managing Partner & Founder and Mr. Rob van der Stel is Managing Partner & Founder and Sr. Sr. Advisor Geopolitics & Country Risk at Verocy. Advisor Technology Investment & Valorization at Verocy.
He is a long-time observer of the global energy market and He holds a BSc in Chemical Engineering and has successfully presently holds several advisory positions with international completed several business management, marketing and think tanks in the Middle East and energy sectors in the economics courses to support his career. His most recent Netherlands, the United Kingdom, and the United States. He graduation is from Vlerick Business School where he completed earned his post graduate degrees at King’s College, University of the Executive Masterclass in Innovation & Entrepreneurship. Rob London, Department of War Studies, and an MA in Middle East has 20 years of experience in business management and Studies at the University of Nijmegen, Netherlands. marketing of complex technical product portfolio’s. In the past 7 years, he has been working for a research and technology Dr. Widdershoven has throughout his career lived and worked in development organization TNO as the Sr. Manager New Business numerous Middle East countries, with a home base in Egypt, & Ventures of TNO Energy. where he was Head of Investment and Research at ARTOC Group for Investment and Development in Cairo. He is also has founded He supports companies with the assessment, development and North Africa’s first English language oil and gas monthly North valorization of (new) technology in all economic sectors but he Africa Oil and Gas Magazine, now called Petroleum Africa, and has a special interest in technology that will maximize the value was one of the founders of the Middle East Oil Gas Newsletter of natural energy resources. and Africa Oil Newsletter at Newsbase (UK).
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