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Middle East & African Monitor – 14 April 2017

  • Ahmadinejad announces surprise election bid
  • Chinese oil imports surge to a record high
  • Turkey prepares for referendum
  • EU calls on Algeria to improve its investment climate
  • Nigerian interbank rates jump - CB eases FX loan limits on banks
  • Former CB governor concerned over Zambia’s debt levels
  • Saudi Arabia conducts successful SUKUK issuance
  • Libyan Dinar weakens again in parallel market
  • Salini Impregilo wins contract in Saudi Arabia

REGIONAL COMMENTARY

Ahmadinejad announces surprise election bid
Mahmoud Ahmadinejad surprised many Iranians and Iran-watchers this week by registering to stand as a candidate in next month’s Presidential elections. The former conservative President was not expected to enter the contest especially after the country’s Supreme Leader had previously made strong hints that he should forgo such an attempt. During his submission processing this week Ahmadinejad described the Ayatolla’s comments as “just advice” and that it had not deterred him because; "There is extensive pressure on me from dear people of different walks of life as their small servant to come to the election." However his candidature still needs the approval of the ‘Council of Guardians’ and thus there is a fair chance he won’t be permitted to run anyway. An article published in the NY Times suggests that this move may be purely calculated to ensure that at least one of Ahmadinejad’s hardline allies makes it through the vetting process, arguing that it would be difficult to justify eliminating all those representing that political grouping. But from our point of view this action is more likely to split the conservative factions within the regime even further and thus ironically could end up benefitting the incumbent Hassan Rouhani.

Chinese oil imports surge to a record high
China’s oil imports hit a record high of 9.17 mio bpd last month making it the world’s largest buyer of foreign crude. The reasons for this rise have been attributed to various factors, including; the ongoing build-up of China’s strategic reserves, an increase in demand for fuel linked to the expansion of vehicle ownership, new import quotas for Chinese refineries and some accounting anomalies. Meanwhile domestic production is falling, with the country’s national statistics bureau reporting an 8% decline in output during the first two months of this year and probably another reason for the reported 15% increase in oil imports during Q1 of 2017.

Turkey prepares for referendum
Turkey is set to go head to the polls this coming Sunday in a referendum which if the ‘yes’ vote triumphs, will grant substantial powers to the President, a constitutional amendment that would possibly be the most significant political change in the country’s recent history. The eventual outcome is just too close to call, with an aggregate of the latest polls suggesting that the ‘yes’ camp is slightly in the lead at 50.80%, although there is still a large percentage of ‘undecided’ voters.

EU calls on Algeria to improve its investment climate
The European Union’s climate commissioner, Miguel Arias Canete, was quoted as saying earlier this week that while Algeria is likely to remain a strategically important supplier of gas to Europe, the North African state needs to quickly initiate structural reforms to make it a more attractive destination for investors, especially within the energy sector. “There is one aspect of our gas relationship in which progress is necessary. It is necessary that the regulatory framework for investments be improved so that Algeria becomes more attractive destination for European investments. Our expert group has already started working to identify problems that impair investments and solutions which can facilitate them,” Canete stated. Algeria is Europe’ s 3rd largest source of gas supplies after Russia and Norway, filling 55% of Spain’s current gas demands and around 15% of Italy’s and Portugal’s. Conversely Algeria relies on oil and gas for more than 90% of its exports and close to 60% of government revenues, thus the fall in energy prices since 2014 has weighed on the economy and depleted its FX reserves, which dropped from US$190 bio in 2013 to US$109 bio by February this year. So economic diversification is imperative and drove the government’s recent unveiling of its “new growth model” which acknowledges the need to move away from this current heavy reliance on hydrocarbons, but its eventual success will very much depend on its effective implementation.

Nigerian interbank rates jump - CB eases FX loan limits on banks
Short-term interbank rates rose to 300% yesterday as a shortage of Naira continued to squeeze liquidity, this situation has been exacerbated by the ongoing sale of USD/NGN in the spot and forward domestic FX market by the Central Bank. Meanwhile the authorities have announced a lifting of the cap on hard currency loans taken by local banks from 75% of shareholder funds to 125% , although the new regulation demands that all such borrowing (including Eurobond issuances), be hedged and that the debt excluding trade lines, must have a minimum 5 year maturity. The CB has also promised to increase the amount of US dollars it provides on a weekly basis to the exchange houses from US$20,000 to US$40,000, although this news has not yet appeared to have had much effect on the parallel USD/NGN exchange rate which closed yesterday at 410.00.

Former CB governor concerned over Zambia’s debt levels
The former head of Zambia’s Central Bank, Caleb Fundanga, has publically expressed his concern over the sharp increase in his country’s external debt commitments that have jumped from US$1.97 bio in 2011 to US$6.7 bio last year, due primarily to three Eurobond issuances conducted in 2012, 2014 and 2015, and which will begin maturing from 2022. "The government must undertake fiscal consolidation to avoid rapid accumulation of debt as current debt levels are unsustainable," Fundanga stated, adding that the authorities should explore cheaper sources of funding.

Saudi Arabia conducts successful SUKUK issuance
Saudi Arabia’s debut international Islamic bond issue this week was well received, with the Kingdom raising US$9 bio from a reported order book of over US$33 bio. The total was split evenly at US$4.5 bio between the 5 and 10 year tranches, and this successful sale will help further ease pressures on the country’s FX reserves.

Libyan Dinar weakens again in parallel market
The Libyan Dinar was reportedly changing hands at LYD 8.30 to the US dollar in the unofficial ‘kerb’ market this week against an official exchange rate of 1.40.

Salini Impregilo wins contract in Saudi Arabia
Italy’s Salini Impregilo has been awarded a US$300 mio contract to refurbish a retail complex in Riyadh.

14-04-2017

AND FINALLY…
“Write bad things that are done to you in sand, but write the good things that happen to you on a piece of marble” – Arabic Proverb.

Glenn Wepener, Executive Director & Geopolitical Analyst Middle East & Africa
National Bank of Abu Dhabi
MarketInsights&Strategy@nbad.com
Tel: +971 2 6110 127

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NBAD Middle East & African Monitor – 14 March 2017

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