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Middle East & African Monitor - 28 February 2017

  • Oil prices keep firm tone as Russia hints at speeding up its production cut program
  • Senior US General calls for resumption of military exercises with Egypt
  • Delayed reforms & US sanctions limit economic growth in Iran - IMF
  • Naira strengthens on CB action – Arik Air debt load revealed
  • ARAMCO to invest US$7 Bio in Malaysian petrochemical development
  • Raytheon wins US$1 bio Qatar contract
  • Oman’s bond roadshow ends today
  • SASOL bullish on Mozambican oil discoveries

REGIONAL COMMENTARY

Oil prices keep firm tone as Russia hints at speeding up its production cut program
The Russian Energy Minister, Alexander Novak, was quoted as saying yesterday that his country’s crude production this month will be lower than January, and that they hoped to move faster towards meeting their commitment for a tiered reduction in Russian output to 300,000bpd than had initially been envisaged. "We will be aiming to cut faster, depending on companies' capabilities," Novak stated.

Senior US General calls for resumption of military exercises with Egypt
The man in charge of US Central Command, General Joseph Votel, has said that his country wants to resume its bi-annual military exercises with Egypt as soon as possible. “It is my goal to get that exercise back on track and try to re-establish that as another key part of our military relationship,” Votel was quoted by the NY Times as saying. The exercises which are known as ‘Bright Star” were first initiated as far back as 1980 but were suspended in 2013 by the Obama administration. Congressional approval for the war-games to restart will be required and this may receive push-back from certain senators, while the Pentagon will also need to apply for additional funding. However looking at today’s news reports that Trump plans to increase the overall US military budget by US$54 bio could mean that the latter issue at least may not be too much of a problem.

Delayed reforms & US sanctions limit economic growth in Iran - IMF
The IMF published its latest assessment on the health of Iran’s economy yesterday saying that despite the country’s strong economic performance in 2016, which was driven primarily by the increase in oil production, hopes for continued expansion in the near term remain hampered by the lack of progress on important structural reforms and from ongoing anxiety by potential offshore investors and financial institutions over the new US administration’s policies towards Tehran. According to the report a number of Iran’s banks still need to be restructured and recapitalized, while the Central Bank requires independence in order to better manage inflation and the country’s exchange rate regime. Other reforms required include; improving corporate transparency, allowing for more flexibility in the country’s labour market, and introducing foreign investor friendly programs. Action on these matters could spur growth in the medium term, but the IMF warned that both domestic and international politics remain a significant hurdle in achieving these goals and that if the nuclear accord with Iran was disrupted and/or new sanctions imposed, this could push the economy back into recession. You can read the entire IMF report here.

Naira strengthens on CB action – Arik Air debt load revealed
The Naira has strengthened from 520.00 to 450.00 against the US Dollar in the unofficial parallel market since the CB’s decision to provide some fresh liquidity to the local banks, and to lift some of the hard currency allocation restrictions. However in our view as outlined in our recent special report on Nigeria, these latest actions will likely only provide some temporary relief to the local currency market, it will not solve structural problems and nor will it trigger an increase in much needed foreign inflows. If you have not yet read our commentary on this subject you can access it here along with all of our other research pieces.
Meanwhile the Asset Management Corporation of Nigeria, which recently took over the running of the heavily indebted domestic airline Arik Air, has reportedly discovered that aside from the carrier’s NGN 300 bio debt due to AMCON, it apparently also owes around US$78 mio in unpaid service charges to the IATA. These claims were made by AMCON’s media consultant, Simon Tumba, and published on Nigeria’s ‘Premium Times’ website. AMCON has enlisted KPMG to undertake a forensic audit of Arik Air’s finances and hopes to eventually turn the airline around. “Arik Air, under the former management, was owing everywhere they operated, and apart from the over NGN 300 billion owed to AMCON, the airline also owes about NGN 50 billion to Nigerian banks and another US$78 million to IATA. The airline was also in indebted to its fuel suppliers and was not able to pay staff salaries for months,” Tumba was quoted as saying yesterday, adding that; “AMCON is not interested in liquidating Arik Air. We believe that the airline, which has one of the youngest fleets in Africa, can be turned around through good corporate governance and financial discipline. The current management is looking at the backlog of salaries owed to staff because they should be motivated to get the airline running properly, we have also resolved the issue of fuel supply, which has improved Arik Air’s flight operations since the takeover.”

ARAMCO to invest US$7 Bio in Malaysian petrochemical development
Malaysia’s Prime Minister, Najib Razak, announced yesterday that Saudi Aramco had agreed to invest up to US$7 bio in a new 300,000bpd refinery and petrochemical complex in Malaysia’s Johor state. The deal would reportedly see Aramco receive a 50% stake in the Petronas linked development.

Raytheon wins US$1 bio Qatar contract
US based Raytheon has been awarded a US$1.1 bio contract to supply and install an early warning radar system in Qatar.

Oman’s bond roadshow ends today
A roadshow conducted by Oman ahead of its estimated US$2.5-3.0 bio bond issue is due to conclude today in Hong Kong and Boston. This upcoming conventional issuance will have 5, 10 and 30 year maturities and could be followed swiftly by a US dollar SUKUK. The government stated last month that it planned to borrow up to US$5.5 bio this year. Oman is currently rated at BBB- by S&P.

SASOL bullish on Mozambican oil discoveries
South African energy firm SASOL is reportedly hoping to commence oil production from its Inhassoro and Temane fields in Mozambique within the next few years according to a recent statement by the company’s CEO, Stephen Cornell. “This will be the first oil wells in Mozambique that go to full development, probably in two, maximum three years. We have drilled four wells, two of them gas, two of them oil, all showing positive results. In one of the areas where we expected mostly gas we found gas and oil,” Cornell was quoted as saying by Reuters.

28-02-2017

AND FINALLY…
Did you know that Camel’s milk contains 10-times more iron and 3-times more vitamin C than cow’s milk?

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 - 28 February 2017

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