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Middle East & African Monitor – 16 May 2017

  • Venezuela’s oil production stares into the Abyss
  • US administration avoids opportunity to reverse Iran nuclear deal for now
  • Iraqi forces close-in on victory in Mosul
  • Saudi Arabia launches National Defence Company
  • Morocco receives US$350 mio world bank loan
  • QIB conducts US$750 mio SUKUK issuance
  • Zambia cuts rates
  • EU bans flights by Air Zimbabwe

REGIONAL COMMENTARY

Venezuela’s oil production stares into the Abyss
The social and economic situation in Venezuela continues to worsen with violent protests against the government occurring on an almost daily basis now across the country. Oil production is also affected with oil production in April down to 1.95 mio bpd (compared to an all-time high of 3.5 mio bpd), and a number of analysts believe this could fall by another 300,000 bpd this year. A recent Reuters report suggests a growing shortage of refined products too, with three out of the country’s four refineries reportedly operating far below capacity due to a lack of available cash to pay for maintenance. The state-owned oil firm PDVSA managed to scrape together the US$2.6 bio required to meet its obligations to bondholders last month, but a further US$3.5 bio is due in October and November and there are increasing doubts the company will be able to fulfil that amount. Meanwhile inflation has soared to such an extent that the government no longer releases actual data, although unofficial estimates suggest it is now above 800%. With the political situation close to breaking-point a total economic meltdown occurring this year is now a real risk, and such an event could in turn bring Venezuela’s crude production to a complete halt.

US administration avoids opportunity to reverse Iran nuclear deal for now
Despite Donald Trump’s threats last year to overturn the P5+1 agreement with Iran over its nuclear program once he took office, his administration extended the sanctions waiver on Iran which had been due to expire today. However the US did announce the implementation of separate fresh and non-nuclear linked sanctions on certain Iranian officials and a Chinese missile technology network. "We are communicating to the US Congress that the United States continues to waive sanctions as required to continue implementing US sanctions-lifting commitments," the State Department said yesterday adding that, "This ongoing review does not diminish the United States' resolve to continue countering Iran's destabilising activity in the region, whether it be supporting the Assad regime in Syria, backing terrorist organisations like Hezbollah or supporting violent militias that undermine governments in Iraq and Yemen. And above all, the United States will never allow the regime in Iran to acquire a nuclear weapon." The new sanctions targeted various government officials involved in Iran’s ballistic missile program as well as a defence representative, Morteza Farasatpour, who reportedly provided explosive materials to the Syrian scientific research facility accused of producing chemical weapons. Also affected were a series of Chinese companies associated with Ruan Runling, a Chinese citizen. The US claims that his network helped produce electronics such as missile guidance for Iran’s program.

Iraqi forces close-in on victory in Mosul
An Iraqi army spokesperson announced yesterday that coalition forces had managed to dislodge ‘daesh’ fighters from almost all but 12 sq km of Mosul and the government is hoping to declare victory before Ramadan begins later this month. The Iraqi comments were backed by a senior officer in the US Air Force who stated; “The enemy is on the brink of total defeat in Mosul, they are completely surrounded.” Meanwhile the speaker of Iraq’s parliament, Salim al Jabouri, has warned against any political attempts to split the country once the war is over; “Iraq is one and will not be divided and anyone who seeks life outside this country should start looking for another country. We will be absolutely against any idea of dividing or disintegrating the country under any name of excuse by this party or that hiding behind and using the constitution to justify their ambitions and turning Iraq into small states at the mercy of regional wolves. We aren’t against any concessions granted by the constitution, but in the meantime we put in our calculations the best interests of our country and its unity against any project harming the country and we will defend this with all our powers,” Al Jabouri stated. His comments come following recent demands by officials in the country’s Kurdistan region for a referendum on independence, and an alleged proposal by some Sunni politicians for the establishment of a regional government in Nineveh province.

Saudi Arabia launches National Defence Company
In line with its ongoing diversification program, Saudi Arabia has announced the creation of a state-owned defence firm called Saudi Arabian Military Industries. According to an article in Arab News the company will manufacture products and provide services across four business units: Air Systems, which will be responsible for the maintenance of fixed-wing aircraft as well as the manufacture and repair of UAVs; Land Systems, which is responsible for the production and maintenance of military vehicles; Weapons and Missiles, including ammunition; and Defense Electronics, which would cover communication systems and electronic warfare. The government expects SAMI to contribute SAR 14 bio towards the Kingdom’s GDP by 2030, create 40,000 jobs and eventually generate export revenues of up to SAR 5 bio.

Morocco receives US$350 mio world bank loan
Morocco has been granted a US$350 mio loan by the World Bank in order to support the country’s ongoing reform of its financial sector, as well as providing a new source of funding for local small and medium enterprises. A statement by the World Bank’s regional director for North Africa read; “Morocco has made significant progress over the past two decades in modernizing its financial system and creating an environment conducive to private sector development. Global experience shows that private initiative is the engine of job creation, and better access to finance for SMEs, along with other financial inclusion efforts while safeguarding financial stability, will help unlock the immense potential of Morocco’s youth and women.”

QIB conducts US$750 mio SUKUK issuance
Qatar Islamic Bank sold a US$750 mio 5-year Islamic bond this week with a profit-rate of 3.251% which is around 135bp above mid-swaps for the same tenor. Meanwhile Bank Muscat’s Meethaq is preparing to launch its debut 5-year Sukuk issue for OMR 25 mio this coming Sunday.

Zambia cuts rates
Zambia’s Central Bank lowered its benchmark lending rate by 150bp to 12.50% yesterday, it also reduced the reserve ratio from 15.50% to 12.50%. A CB official said the decision was driven by the recent dip in inflationary pressures and concerns over sluggish economic growth.

EU bans flights by Air Zimbabwe
The European Union has banned a number of airlines, including Zimbabwe’s national carrier, from operating within its skies due to safety concerns. A statement issued by the European Commission said that the following carriers had been added to its blacklist due to “safety deficiencies;” Med-View (Nigeria), Urga (Ukraine), Mustique Airways (St Vincent & Grenadines) and Air Zimbabwe.

16-05-2017

AND FINALLY…
Did you know that the word ‘Dinar’ is originally derived from the Latin word ‘Deni’ meaning ten ?

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

Click here to download the article in PDF

NBAD Middle East & African Monitor – 18 May 2017

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