Middle East & African Monitor - 13 February 2017

  • North Korea & Iran test US president’s “Red Lines”
  • OPEC cut agreement has “Made a Solid Start” – IEA
  • “Islamophobia Fuels Terrorism” – UN Secretary General
  • USD/NGN pushes above 500.00 in parallel market
  • Egyptian markets maintain their bullish tone
  • GCC targets 2018 for introduction of VAT
  • S&P affirms Angola’s credit ratings
  • Oman’s new airport set to open this year


North Korea & Iran test US president’s “Red Lines”
A ‘honeymoon” period which most incoming US administrations have experienced at the start of their terms has clearly not occurred this time around, although this is probably due in part to the confusing and at times contradictory public comments and statements issued by a number of new White House officials, as well the administration’s aggressive dealings with the press and Trump’s ongoing addiction to tweeting. Putting this noise to one side the new US President already faces two key external challenges in the Middle East and Asia, thus the way he handles recent events in Iran and North Korea will likely define the direction of US foreign policy in the years ahead. However linked to both issues is the world’s most important geo-political relationship namely USA/China, and this is the one we really need to watch. During his Presidential campaign, Trump promised to take stronger action against any “provocative’ actions undertaken by Iran and North Korea, in this regard specific sanctions were implemented on a number of Iranian companies and individuals in early February following a missile test by Tehran and the attack on a Saudi warship by Iranian backed Houthi rebels off the coast of Yemen in January. This response was pretty much in line with similar decisions taken during Obama’s tenure, however it’s worth looking deeper into the list of those targeted this time around because two companies affected are allegedly based in China, and it appears that up to three Chinese citizens are also included. This could therefore be seen as an initial warning by the new US administration not only to Tehran but also to Beijing, who has already reacted angrily to the US Treasury’s action saying; “These sanctions will not help in enhancing trust among the different parties involved and will not help in resolving international problems,” and this official statement was followed by an opinion piece published via the state-owned Xinhua news agency which observed that “Such sanctions cast a shadow over the prospects for a peaceful settlement of the Iranian nuclear issue and are a ‘ticking time bomb’ for peace and stability in the entire Middle East.” Of course Chinese firms suspected of supplying banned goods to Iran and/or hacking US firms have been targeted in the past, but Obama’s White House worked hard to improve US/China relations, the difference now is that we have a US President who has regularly and publically criticized Chinese trade policies as well as its regional power plays, the above mentioned strong reaction by Chinese officials and media underlines Beijing’s concern that Trump is planning a much more confrontational approach in relations between the two countries. Meanwhile North Korea’s test of a medium range missile this past weekend was obviously planned to coincide with Trump’s meetings with the Japanese Prime Minister who both later condemned Pyongyang’s “provocative” actions and have called for a UN Security debate over the issue. However short of war, any stronger action the US can take against this already nuclear armed state is very limited and ironically depends almost entirely on China, which is North Korea’s largest (90%) trading partner, therefore we hope this somewhat inexperienced US administration will soon realize that, at the very least cordial relations between Washington and Beijing is not only vitally important for both countries, but for the rest of the world too.

OPEC cut agreement has “Made a Solid Start” – IEA
In a statement issued last week the International Energy Agency claimed that the confirmed 91% compliance rate by OPEC participants with regards to their respective quotas, as outlined by last year’s production cut agreement, was a milestone in the organization’s history and had taken overall global production down to 32.1 mio bpd. “OPEC appears to have made a solid start to what is a six-month process. This first cut is certainly one of the deepest in the history of OPEC output cut initiatives,” the IEA stated, adding that while a rise in US and Canadian production could offset some of this, the global demand for oil also appears to be expanding especially from Europe and Asia.

“Islamophobia Fuels Terrorism” – UN Secretary General
The UN Secretary General has warned that Islamophobia needs to be overcome in order to successfully combat the rise of terrorism. “One of the things that fuel terrorism is the expression in some parts of the world of Islamophobic feelings, Islamophobic policies and Islamophobic hate speeches. This is sometimes the best support that Daesh can have to make its own propaganda,” Antonio Guterres said during a visit to Saudi Arabia yesterday.

USD/NGN pushes above 500.00 in parallel market
The Naira was reportedly changing hands for US dollars at 506.00 in the black market late last week as the chronic hard currency shortage continues. Meanwhile although the official exchange rate remains around 315.00 interbank liquidity is very limited, and the sporadic injection of foreign exchange by the Central Bank is quickly sucked up by those firms at the top of a long waiting list. Even the exchange houses are battling to stay in business as they cannot attract US dollar sellers at the official rate and are now nervous to offer bids closer to the “kerb” rate especially after a crackdown on such trading by the state security services a few months ago. As we have stressed in previous commentaries until the government allows the local currency to float freely, and the CB pursues a more aggressive interest rate policy foreign investors will likely remain on the sidelines.

Egyptian markets maintain their bullish tone
The average yield on Egyptian T-Bills tightened further at the start of this week, driven primarily by growing appetite for the paper by offshore yield hunters. The rate on 3-month bills dropped to 17.05% at yesterday’s auction against 18.62% previously. The local currency has also benefited from these foreign inflows with SPOT USD/EGP trading around 17.50 yesterday against 18.20 last Monday.

GCC targets 2018 for introduction of VAT
A senior official within the UAE’s Finance Ministry has suggested that Jan 1st 2018 is the target date for the simultaneous introduction of a value-added tax system by all the six GCC states. "By January 1st 2018, we are aiming to adopt a 5%VAT across the GCC," Younis al Khouri was quoted as saying by Reuters, adding that the UAE expects to raise AED 12 bio in domestic revenue via this new tax in the first year. The UAE appears to be the most prepared at this stage, and a federal tax authority has already been set-up to manage the implementation and ongoing management of VAT as well as certain excise and ‘sin’ taxes which may also be introduced according to a report published yesterday in the local National newspaper. Those UAE firms with over US$100,000 in annual revenues will be required to register for VAT but some sectors such as health may be exempt.

S&P affirms Angola’s credit ratings
Standard & Poors last week affirmed its B/B ratings on Angola but also retained a negative outlook. The country recently overtook Nigeria as Africa’s largest oil producer.

Oman’s new airport set to open this year
The head of Oman’s aviation authority said yesterday that Muscat’s new international airport is “96% complete” and that the facility will become fully operational by the end of this year. The Omani government is seeking to attract 5 million visitors annually to the country by 2040 and expects the tourism sector to directly contribute 5% towards its GDP by 2020.


Did you know that Angola’s name is derived from the local Kimbundu word N’gola, meaning King?

Glenn Wepener, Executive Director & Geopolitical Analyst Middle East & Africa
National Bank of Abu Dhabi
Tel: +971 2 6110 127

Click here to download the article in PDF

NBAD Middle East & African Monitor - 13 February 2017

To the fullest extent allowed by applicable laws and regulations, National Bank of Abu Dhabi PJSC (the “Bank”) and any other affiliate or subsidiary of the Bank, expressly disclaim all warranties and representations in respect of this communication. The content is confidential and is provided for your information purposes only on an “as is” and “as available” basis and no liability is accepted for or representation is made by the Bank in respect of the quality, completeness or accuracy of the information and the Bank has undertaken no independent verification in relation thereto nor is it under any duty to do so whether prepared in part or in full by the Bank or any third party. Furthermore, the Bank shall be under no obligation to provide you with any change or update in relation to said content. It is not intended for distribution to private investors or private clients and is not intended to be relied upon as advice; whether financial, legal, tax or otherwise. To the extent that you deem necessary to obtain such advice, you should consult with your independent advisors. Any content has been prepared by personnel of the Global Markets division at the Bank and does not reflect the views of the Bank as a whole or other personnel of the Bank.