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Middle East & African Monitor – 17 April 2017

  • Yes’ campaign triumphs in Turkish referendum
  • Crude market will be “meaningfully undersupplied” if cut agreement extended – report
  • Libya’s presidential council calls for foreign intervention
  • Mozambique govt says will only honour ’approved’ debt obligations
  • Further spending cuts needed in Bahrain – IMF
  • US$300 bio investment required to meet MENA power demand
  • Tunisia’s budget deficit widens
  • New proposals to boost standardization of SUKUK guidelines
  • UAE is most competitive tourist destination in the region – WEF

REGIONAL COMMENTARY

Yes’ campaign triumphs in Turkish referendum
Turkey’s President Erdogan and his ruling AKP party have claimed victory in their quest to amend the country’s constitution via a referendum which was held yesterday. With 99.97% of the ballot now counted Turkey’s electoral commission has confirmed media reports that the ‘Yes’ campaign had garnered 51.20% of the vote against 48.80% by the ‘No’ camp. This outcome means the position of Prime Minister and his cabinet will eventually be abolished, with future government ministers being appointed directly by the President who will also be granted other sweeping powers including; the ability to dissolve parliament, declare a state of emergency, select senior judges, set the country’s budget and be able to lead a political party as well as the country. However the final official tally still needs to be corroborated, a process which could still take a few more days and some opposition parties have promised to appeal the outcome due to what they claim are a number of serious irregularities. The deputy head of Turkey’s main opposition CHP party said that his group have already demanded a partial recount and planned to appeal against the late decision by the electoral commission to consider unstamped ballots as valid. "We will pursue a legal battle. If the irregularities are not fixed, there will be a serious legitimacy discussion," Bulent Tezcan stated. In response President Erdogan has dismissed such claims saying that the result was “clear” and that critics shouldn’t even try to challenge the outcome as their efforts “will be in vain.”

Crude market will be “meaningfully undersupplied” if cut agreement extended – report
The energy focused and Houston based, KLR Group, has released a study in which they suggest that if the signatories to the current production cut agreement extend this process for another six months, (following the deal’s initial June expiry date), this would significantly reduce inventories and eventually lead to a “meaningfully undersupplied” oil market. KLR’s estimates were referred to in an article posted on the oilandgas360.com website, and suggests that most of this potential supply drawdown will occur during the second half of 2017. Meanwhile they also expect OPEC production to average 32 mio bpd in the first half of this year compared to the 32.50 mio bpd targeted within the production cut agreement.

Libya’s presidential council calls for foreign intervention
The chairman of Libya’s ‘Presidential Council’ and acting Prime Minister within the fledgling Government of National Accord, Fayez Sarraj, published a statement via his Facebook account over the weekend, calling for urgent foreign intervention in Libya in order to avoid the security situation from worsening dramatically. Sarraj whose open letter was addressed to various organizations including the European Union, the Arab League, the African Union and the UN, specifically referenced the recent fighting between various groups around the Tamenhant air base in the south of the country stating; “We ask you to take a firm and decisive stance with regards to this escalation and we will support all decisions to re-establish security and stability in Libya. This sudden and unjustified escalation puts the country on the brink of civil war.” His call has since been slammed by the internationally recognized Libyan House of Representatives in Tobruk who were quoted by the BBC saying; "Our Libyan Arab Armed Forces are attempting to achieve security and impose the state's sovereignty. Meanwhile, militia leaders, who are benefiting from the current situation, as well as gangs trafficking in drugs, weapons and humans and allying with gangs of foreign mercenaries, are the ones who pushed the proposed Presidential Council to make such a call. As the Libyan parliament rejects such actions by the proposed Presidency Council, it reminds the international community that the council, and everything that it issues, are illegal."

Mozambique govt says will only honour ’approved’ debt obligations
Mozambique’s Prime Minister, Carlos Agostinho do Rosario, announced late last week that his government was only prepared to honour debt that was used for items and projects which were in the “public interest.” Over the past 5 years Mozambique’s debt obligations have jumped from 40% of GDP in 2012 to 130% last year, and the largest chunk of this debt is allegedly linked to loans that were not approved by the country’s parliament. The government has already defaulted on two repayments this year, the first was a US$60 mio Eurobond coupon payment in January and the second was a US$119 mio loan repayment due to Credit Suisse last month. Meanwhile the IMF suspended all financial assistance to Mozambique last year after it reportedly uncovered US$1.4 bio in undisclosed loans and has ordered a forensic audit of three state owned firms linked to these exposures, before it will resume discussions with Maputo.

Further spending cuts needed in Bahrain – IMF
The head of a recent IMF mission to Bahrain, Padamja Khandelwal, warned last week that the Kingdom needed to swiftly implement deeper public spending cuts in order to stabilize its budget and improve investor confidence. “A sizable fiscal adjustment is urgently needed to restore fiscal sustainability, reduce vulnerabilities, and boost investor and consumer confidence. In this context, fiscal measures in the near term could include the VAT, which is already agreed at the GCC level, and further rationalizing spending on subsidies, which disproportionately benefit the wealthy, and social transfers. The wage bill, which is nearly 12% of GDP and among the highest in the GCC, can be reduced in the near term by streamlining allowances and freezing nominal wages,” Khandelwal said. You can read his full statement here: http://www.imf.org/en/News/Articles/2017/04/10/pr17126-bahrain-imf-staff-completes-2017-article-iv-mission

US$300 bio investment required to meet MENA power demand
APICORP’s Energy Research department issued a report yesterday, which suggested that the MENA region will need to invest over US$300 bio into its power sector over the next 5 years in order to meet the region’s growing demand for electricity. “Of this, US$179 billion will be needed to add 138GW of generating capacity, while the rest should be invested in transmission and distribution. In the GCC, governments have coped well with the rising demand for electricity. Besides adding to the capacity, some countries have also recently increased electricity prices and introduced some limited power sector reforms. In the Mashreq region, inadequate investments and instability have weighed on the power sector and persistent blackouts continue to put pressure on governments to act, while in the Maghreb region renewable-energy projects are at the forefront of long-term government plans to diversify power-generation capacity and reduce fuel import bills. But investment in the power sector will continue to be a challenge due to finance constraints and tight government budgets," the report read.

Tunisia’s budget deficit widens
According to latest data released by Tunisia’s Central Bank, the country’s budget deficit widened sharply again in the first quarter of this year to TND 5.45 bio, while the increased use of domestic financing caused the level of outstanding public debt to expand to almost 62% of GDP by the end of last year compared with 55.40% in 2015.

New proposals to boost standardization of SUKUK guidelines
According to the head of Standard & Poors’ Islamic Finance department , a fresh proposal that was recently suggested by the ‘Accounting & Auditing Organization for Islamic Financial Institutions,’ and which covers the accounting and classification guidelines of Islamic bonds issued by financial institutions, should encourage progress towards the complete standardization surrounding the legal interpretation of such Sharia compliant instruments . “In our view, this coupled with AAOIFI’s recent proposal on centralized Sharia boards, could help the market move forward with standardizing the legal structure of Sukuk and Sharia interpretation,” Mohamed Damak was quoted as saying by Reuters, adding; “We are of the view that the proposal not only recognizes that Sukuk can be issued in the form of a liability of its sponsor, but also paves the way for strengthening the legal documentation for this type of Sukuk.”

UAE is most competitive tourist destination in the region – WEF
The World Economic Forum has ranked the UAE as the “most travel and tourism competitive country” within the MENA region and 29th worldwide.

17-04-2017

AND FINALLY…
Did you know that the world’s oldest weather report was discovered on a calcite block in Egypt? The 40 line description of a storm is believed to have been inscribed 3500 years ago.

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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