Newly constructed towers in Riyadh. Real estate is among the sectors that drove Saudi Arabia's non-oil economic growth in the first half of this year. AFP
Newly constructed towers in Riyadh. Real estate is among the sectors that drove Saudi Arabia's non-oil economic growth in the first half of this year. AFP
Newly constructed towers in Riyadh. Real estate is among the sectors that drove Saudi Arabia's non-oil economic growth in the first half of this year. AFP
Saudi Arabia’s economy is on “a very firm footing”, driven by growth in the kingdom’s non-oil sector in the first six months of the year that has set the foundation for faster economic expansion in the second half of 2021, according to Jadwa Investment.
Both actual and flash estimates of the country’s gross domestic product expansion point to a rise in economic activity as the kingdom continues to recover from the pandemic-driven slowdown, the Riyadh-based asset management and advisory company said.
Jadwa upgraded its full-year GDP forecast to 1.8 per cent from 1.3 per cent. It sees oil GDP being marginally down year-on-year, contracting 0.7 per cent in 2021, in line with its previous projections.
However, it expects non-oil growth to expand 3.5 per cent, primarily driven by non-oil private sector growth of 4.4 per cent this year.
“Most non-oil high frequency data has improved consistently since the start of the year, with a dramatic rise in economic activity during Q2,” Jadwa said.
“While the rebound is no surprise, some sectors have performed better than anticipated. More specifically, we see higher growth in … real estate, non-oil manufacturing and wholesale and retail trade, restaurants and hotels.”
However, Jadwa’s 2021 economic expansion estimate of the Arab world's largest economy is below the International Monetary Fund's projection of 2.4 per cent GDP growth this year. Saudi Arabia’s swift response to the Covid-19 pandemic, rebound of its non-oil sector and investment from its sovereign wealth fund – the Public Investment Fund – will drive growth this year, the Washington-based lender said in July.
The kingdom's non-oil economy is projected to grow 4.3 per cent this year, according to the IMF. Capital Economics is more bullish and has forecast an expansion of 4.8 per cent this year and 6.3 per cent in 2022.
Saudi Arabia, Opec’s top oil exporter, is focused on diversifying the economy under its Vision 2030 programme that aims to cut its dependence on hydrocarbons and develop local industries and the kingdom's manufacturing capabilities.
.
The PIF is a central plank of Riyadh's efforts to nurture local industry, develop new non-oil sectors and create more jobs in the kingdom. In January, the PIF unveiled a five-year strategy under which it intends to double its assets to $1.07 trillion and invest a minimum of $40bn a year into the kingdom's economy until 2025.
The investment is expected to create 1.8 million jobs and contribute $320 billion to Saudi Arabia's non-oil economy.
On the fiscal side, Jadwa expects oil prices to average $67 per barrel, which translates into government oil revenue of 568bn Saudi riyals ($151.46bn) this year, up from 528bn riyals in 2020.
“With no changes to government expenditure, we see the fiscal deficit totalling 67bn riyals (-2.1 per cent of GDP), [which is] 53 per cent lower than budgeted by the Ministry of Finance,” Jadwa said.
It expects Saudi Arabia’s oil GDP to rebound in the second half of the year as the “crude oil production is set to show large yearly rises”. The bounce back is in line with the Opec+ group of oil exporters' agreement to raise overall output by 400,000 barrels a day per month from August to December.
“Higher Saudi oil output and continued growth in the petroleum refining sector will mean better performance for oil GDP in H2, year-on-year, but this will not be enough to push overall growth into the positive territory for 2021 as a whole,” Jadwa said.
.
Company profile
Name: Thndr
Started: October 2020
Founders: Ahmad Hammouda and Seif Amr
Based: Cairo, Egypt
Sector: FinTech
Initial investment: pre-seed of $800,000
Funding stage: series A; $20 million
Investors: Tiger Global, Beco Capital, Prosus Ventures, Y Combinator, Global Ventures, Abdul Latif Jameel, Endure Capital, 4DX Ventures, Plus VC, Rabacap and MSA Capital
The biog
Favourite hobby: taking his rescue dog, Sally, for long walks.
Favourite book: anything by Stephen King, although he said the films rarely match the quality of the books
Favourite film: The Shawshank Redemption stands out as his favourite movie, a classic King novella
Favourite music: “I have a wide and varied music taste, so it would be unfair to pick a single song from blues to rock as a favourite"
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
