Credit rating agency Moody's Investors Service has reaffirmed Saudi Arabia's credit rating at A1 and maintained a positive outlook owing to its large and wealthy economy supported by its vast hydrocarbon reserves, policy effectiveness and the government's balance sheet, including large foreign currency buffers.
Saudi Arabia is also exposed to longstanding regional geopolitical risks, the agency added.
"While oil production cuts are weighing on headline economic growth, Moody's expects Saudi Arabia's real gross domestic product to expand by 2 per cent to 2.5 per cent in 2024 and around 5 per cent in 2025, led by robust economic activity in the non-hydrocarbon sector," the report said.
"The ongoing implementation of large diversification projects will continue to support non-hydrocarbon real GDP growth in the coming years because they are designed to be modular and will be commercialised in phases."
Saudi Arabia, the Arab world’s largest economy, has been focusing on diversifying its economy away from oil as part of its Vision 2030 agenda.
Its economy contracted in the first quarter of the year on the back of a slump in the oil sector, despite an expansion in non-oil activities during the period.
The kingdom's real GDP contracted by 1.8 per cent annually in the January-March period, according to flash estimates released by the General Authority for Statistics.
This decrease was primarily driven by a 10.6 per cent decline in oil activities, it said. Non-oil activities increased by 2.8 per cent and government activities grew by 2 per cent on an annual basis.
The country has been reducing crude output along with other members of the Opec+ alliance as part of efforts to “balance the market”.
All voluntary oil production cuts in Saudi Arabia will remain in place until the end of this year, before the cuts are gradually unwound from 2025 in line with global demand growth, Moody's estimated.
At the same time, subdued oil production will weigh on the government's fiscal balance, which Moody's expects will remain in deficit at around 3 per cent to 4 per cent of GDP in 2024-2025, compared with a deficit of 2 per cent in 2023, according to the report.
"Oil prices will average $82 per barrel in 2024 and $75 per barrel in 2025," the agency estimated.
Based on Moody's fiscal projections, Saudi Arabia's government debt is likely to rise further to around 30 per cent of GDP in 2025 from 26 per cent in 2023, but the government will continue to have a strong balance sheet given sizeable financial assets, according to the report.
The positive outlook reflects the increasing likelihood that, through reforms and investment in various non-oil sectors, the sovereign's economic and fiscal reliance on hydrocarbons will, over time, materially decline, Moody's said.
Ultimately, this will not only reduce its exposure to oil price cycles and to a potential acceleration in global carbon transition, but it will also diminish the pressure to support the kingdom's implicit social contract through growth in public spending, it added.
Rating agency S&P Global in March affirmed Saudi Arabia’s sovereign rating and outlook betting on social and economic reforms to improve the country’s prospects.
The kingdom recently said it would adapt its Vision 2030 strategy to current economic and geopolitical challenges.
The kingdom would “downscale” or “accelerate” some of the projects being carried out under the programme, Finance Minister Mohammed Al Jadaan said at the special meeting of the World Economic Forum in Riyadh.
The specs: 2018 Nissan 370Z Nismo
The specs: 2018 Nissan 370Z Nismo
Price, base / as tested: Dh182,178
Engine: 3.7-litre V6
Power: 350hp @ 7,400rpm
Torque: 374Nm @ 5,200rpm
Transmission: Seven-speed automatic
Fuel consumption, combined: 10.5L / 100km
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Director: Christian Carion
Starring: James McAvoy, Claire Foy, Tom Cullen, Gary Lewis
Rating: 2/5
Opening Rugby Championship fixtures:Games can be watched on OSN Sports
Saturday: Australia v New Zealand, Sydney, 1pm (UAE)
Sunday: South Africa v Argentina, Port Elizabeth, 11pm (UAE)
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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.”
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Richard Flanagan
Chatto & Windus
Three trading apps to try
Sharad Nair recommends three investment apps for UAE residents:
- For beginners or people who want to start investing with limited capital, Mr Nair suggests eToro. “The low fees and low minimum balance requirements make the platform more accessible,” he says. “The user interface is straightforward to understand and operate, while its social element may help ease beginners into the idea of investing money by looking to a virtual community.”
- If you’re an experienced investor, and have $10,000 or more to invest, consider Saxo Bank. “Saxo Bank offers a more comprehensive trading platform with advanced features and insight for more experienced users. It offers a more personalised approach to opening and operating an account on their platform,” he says.
- Finally, StashAway could work for those who want a hands-off approach to their investing. “It removes one of the biggest challenges for novice traders: picking the securities in their portfolio,” Mr Nair says. “A goal-based approach or view towards investing can help motivate residents who may usually shy away from investment platforms.”
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Habibi Funk: An Eclectic Selection Of Music From The Arab World (Habibi Funk)
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The Melbourne Mercer Global Pension Index
The Melbourne Mercer Global Pension Index
Mazen Abukhater, principal and actuary at global consultancy Mercer, Middle East, says the company’s Melbourne Mercer Global Pension Index - which benchmarks 34 pension schemes across the globe to assess their adequacy, sustainability and integrity - included Saudi Arabia for the first time this year to offer a glimpse into the region.
The index highlighted fundamental issues for all 34 countries, such as a rapid ageing population and a low growth / low interest environment putting pressure on expected returns. It also highlighted the increasing popularity around the world of defined contribution schemes.
“Average life expectancy has been increasing by about three years every 10 years. Someone born in 1947 is expected to live until 85 whereas someone born in 2007 is expected to live to 103,” Mr Abukhater told the Mena Pensions Conference.
“Are our systems equipped to handle these kind of life expectancies in the future? If so many people retire at 60, they are going to be in retirement for 43 years – so we need to adapt our retirement age to our changing life expectancy.”
Saudi Arabia came in the middle of Mercer’s ranking with a score of 58.9. The report said the country's index could be raised by improving the minimum level of support for the poorest aged individuals and increasing the labour force participation rate at older ages as life expectancies rise.
Mr Abukhater said the challenges of an ageing population, increased life expectancy and some individuals relying solely on their government for financial support in their retirement years will put the system under strain.
“To relieve that pressure, governments need to consider whether it is time to switch to a defined contribution scheme so that individuals can supplement their own future with the help of government support,” he said.
