Post Brexit Opportunities between Britain, Saudi Arabia & Jordan

Theresa May, Britain’s Prime Minister, traveled to Saudi Arabia and other countries in the middle east to discuss matters of trade and security and strengthen ties with the area throughout this past week. IN Saudi Arabia, May met with their Crown Prince to discuss cooperation for the Vision 2030 plan, which is a “blueprint that expresses long-term goals and expectations and reflects our (Saudi Arabia) country’s strengths and capabilities”. For more information, view Saudi Arabia and the missions of other countries here. Security was a main topic of discussion between Britain and SA. May described the situation as one that would work in both of their interests. Britain is invested in their long-term stability through aiding SA with regional challenges. After Britain departs from the European Union, they want to continue to strengthen their ties with middle eastern countries. Specifically, this partnership works in the interests of SA and Jordan to create a more stable region in terms of security, health and individual rights for their citizens. I find it interesting that Britain is choosing these countries particularly to strengthen ties. This seems like a power move initiated by the need for oil and other natural resources. This works in the favor of the middle eastern countries by providing them with strong ties to a powerful international player like Britain. One important note PM Theresa May made was that wants to see full humanitarian, as well as commercial access through the port of Hodeida in Yemen. This demonstrates the strong push for more clarity in Yemen’s port situation.

https://www.thenational.ae/world/mena/theresa-may-to-seek-post-brexit-opportunities-for-british-business-on-riyadh-visit-1.680056

http://www.gard.no/web/content/yemen-port-situation

Retail Boom for Bahrain

The blog post I’m writing today will be about Bahrain. Being that I had never heard of the country until today, I figured none of you have either. So, I’ve decided to write a brief summary of the country's geography and population so that there’s a better understanding of the information forth coming from the article. Bahrain is an Arabian constitutional monarchy that is located in the Persian Gulf. It consists of a main island and is surrounded by a small chain of islands that lay around it. The island is located between the Qatar peninsula and the eastern coast of Saudi Arabia. It is the third smallest nation in Asia, only 780 kilometers in size, with a population of 1,234,571 people. It has a high Human Development Index rating of 0.824, and is regarded as a high-income economy. The reason I mentioned some of this is to give a scope of how much of an impact FDI can have on such a small nation.

Recently, through government intervention, Bahrain has had an increase FDI and the real estate market of the country has gone through a positive upswing. The increase of the countries real estate market has encouraged the increase of retail space and goods. By 2020, there should be over 455,000 square meters of new retail space. The confidence of these logistics is based in the new projects of 21 retailers that have combined over $734.5 million into the growing market of retail. Bahrain will also be home to the Gulf’s largest IKEA, that will be opened at a cost of $47 million and will create 600 jobs. The entire country is going through an economic upswing and it’s markets will likely continue to grow. $734.5 million is a lot of money, but when it's being invested in a nation that is roughly ten times smaller than the U.S, you can imagine how that kind of investment will have a greater impact.

Source: Bahrain set to see $734m retail space boom by 2020.” ArabianBusiness.com, www.arabianbusiness.com/industries/retail/382952-bahrain-set-to-see-734m-retail-space-boom-by-2020.

Oil Surplus for OPEC

The UAE (United Arab Emirates) has stated that there is nearly 158 barrels of surplus crude oil that remains on the market. Such a surplus may lead to an extension of a deal made last year, in which UAE members struck an agreement to cut the total amount of barrels produced per day to 1.8 million. The reason for the cut in the output of crude oil is that the massive production beforehand had caused destabilization in the market, which was sought to be solved by the new capped limit at 1.8 million per day. To give an idea of the fluctuations in the market, oil is now $64 a barrel, when last year it was $40. The massive changes cause’s investors to lose confidence in the market, leading to them pulling investments or neglecting to make them any longer with the new loss of confidence. This is a major issue for any country involved in OPEC and countries dependent upon OPEC for their own oil consumption (which is pretty much the entire world) as oil is OPEC’s lifeblood, and a country dependent upon OPEC will face an uncertain future in oil pricing.

A UAE spokesman claims that all members of UAE are fairly unanimous in extending the deal. The actual length of the extension is still under debate and has yet to be announced. OPEC members will be holding a meeting in Vienna at the end of the month and will be urging other countries to adhere to the quota system that has been established. Urging countries such as Libya, Iran, and Nigeria to join the system of capping the amount of oil that they produce. OPEC leader, Mohammed Barkindo, also urging nations worldwide to discuss the reservation and future of energy to secure a global plan and understanding of the industry.  

Source: “UAE sees oil producers extending cuts to rebalance market.” ArabianBusiness.com, www.arabianbusiness.com/industries/energy/383436-uae-sees-oil-producers-extending-cuts-to-rebalance-market.

IMF Egyptian Reforms

Egypt has been struggling economically since the 2011 uprising, scaring away potential investors and other sources of FDI.  They are heavily importing but are trying to improve their exports.

The IMF has given Egypt a 12 billion dollar loan and are set to get the second installment.  The government is trying to gather public support with billboards on the side of their highways.

Reforms include reduced government spending, new taxes, and a "radical" currency revaluation.  Middle East economist, Jason Tuvey, says they are taking the conditions seriously such as floating the currency, undertaking subsidy cuts, and introducing VAT and other fiscal consolidation measures.

Controversy:

Some are not sure about the devaluation of the Egyptian pound.  After decades of strict bank control, they announced free float in November.  It helped investors but the average citizens are disliking their reduced purchasing power. For example, one US dollar was 18 Egyptian pounds compared to before the free float when it was pegged at 9 pounds.  That is a very large difference in exchange rate to happen so suddenly. Inflation is also estimated to be just over 30 percent.

At the same time, the government is in a tight bind with their reserves being depleting before implementing the free float.  It seems like it this is necessary for Egypt to get back on the right track.  The IMF hopes that it will strengthen their social safety net increasing food subsidies and direct transfers to the poor.  However, there is still hard ship.  For example, food subsidy cuts designed to reduce state-sponsored bread from 4000 to 500 loaves per bakery sparked protests.

The government is balancing what subsidies to cut and what to keep.  Executive chairman at Templeton Emerging Markets Group says that they should cut taxes and regulations instead.

He goes on to further say, that the IMF deal is not enough on it's own to reform the economy. 

Conclusion

When a nation is struggling economically it is a very hard situation to get out of.  Sometimes it must get worse to get better.  It's important to remember though, that economies are incredibly complicated and exactly what steps to take to improve an economy aren't always visible.  Devaluation of currency is something that can be used strategically to improve an economy or for other desires.  It's not something to be taken lightly though. 

Trade Relations are nuts

Oil isn't the only product being affected by tensions between Iran and the US. The pistachio industry has been caught in the middle of trade difficulties. In general, Iranian farmers have faced hardships with distributing their products due to strict restrictions, tariffs and sanctions. The Joint Comprehensive Plan of Action, under former President Obama, was put into place in 2016 which removed sanctions to improve trading agreements within the US and their allies. This aided the pistachio growers in Iran because as the product gained popularity in the US and around the world, they were able to increase production and sell more. However, Trump decertified this agreement in October. Iran and the US dominate the pistachio industry and together have produced "between 70% and 80% of yearly output for the last decade." If President Trump decides to completely end this agreement, the reinstating of previous trade sanctions will leave Iran in a noncompetitive state and prices will continue to increasingly fluctuate.

Link: The US and Iran battle over the pistachio nut trade

Syria Reopening International Job Fair

Syria will be holding its first international trade fair since the civil took hold of the country in 2011. The event being hailed as a “victory” by Syrian officials and a symbol of confidence from the war-ravaged nation. The fair is being held a few kilometers away from the rebel held suburb of Damascus and is a showing of Assad’s military might as much as it is about employment opportunities.

The state-run media claims that 43 countries are taking part in the 10 day fair and will be seeing major investors from China, Russia, and Iran. Egypt, South Africa, and Belarus will also be taking part, as well a few European countries, but who will be doing so in a “private” capacity. For those that don’t know, the west has been supporting the rebels, so any company seen doing business with the Syrian government will likely face intense backlash.

The fair is made possible by a combination of assistance from Russian and Iranian forces that have assisted the Syrian governments military in taking back major territories in the past two years. The Syrian government is partly holding the fair as a show of strength against rebel forces and to celebrate their victories in the past few years. Syrian prime minister Imad Khamis claims that the fair is “an indication of Syria's recovery and insisted the war waged against Syria could not kill the Syrian people's love for life.” Which is slightly ironic considering the various war crimes and violations of the Geneva Convention that the Syrian government has committed in the past six years, including the use of chemical weapons against rebels and firing weapons upon protesters. Additionally, Roman Khudyakov, a Russian politician, speaks of wanting to invest further in Syria and to bring more Russian tourism there.

Source: “Syria claims business comeback with international trade fair.” Fox Business, Fox Business, 17 Aug. 2017, www.foxbusiness.com/markets/2017/08/17/syria-holds-first-international-trade-fair-since-war-erupted.html

Brave New Saudi Arabia

King Salman of Saudi Arabia has many new plans for Saudi Arabia.  He has created the Saudi Vision 2030 plan which is divided into pillars.

• "vision is our status as the heart of the Arab and Islamic worlds."  He says that "Allah the Almighty has bestowed on our lands a gift more precious than oil." (Saudi Vision 2030 Foreword)
• Non-renewable energy sources are on the decline and Saudi's economy is heavily based on oil.  They have 267 billion barrels of proven reserves with a 10.2 percent share of world production.  
• "determination to become a global investment powerhouse" in order to "diversify our revenues" (Saudi Vision 2030 Foreword)  King Salman says that Saudi has very strong investment capabilities.  They will invest in many projects.
• Transform their "strategic location into a global hub connecting three continents: Asia, Europe, and Africa."  

For reference they are in a great spot:

They are taking FDI very seriously for the future.  They will turn "Aramco from an oil producing company into a global industrial conglomerate," "transform the Public Investment Fund into the world's largest sovereign wealth fund," "encourage major corporations to expand across borders and take their rightful place in global markets," they plan to "manufacture half of our military needs within the Kingdom to create more job[s]," and "expand the variety of digital services to reduce delays and cut tedious bureaucracy."  (Saudi Vision 2030 Foreword)

Saudi really plans to become a big global player in the coming decade and they have already set in motion big changes.  

Firstly, women are now allowed to drive (Guardian).  According to my Saudi friend, many households had chauffeurs to reduce the impact of not being allowed to drive.  Many men also taught women how to drive there.  Many, many Saudis everywhere and on UW Stout campus are excited for this change and are hopeful for the future.  Auto manufacturers may change their marketing to reflect this new change.  

Secondly, a huge resort project across 50 natural red sea islands for tourism has been announced.  This will hopefully bring in many different tourists to the country.  Tourist women will be allowed to wear bikinis despite of the clothing laws for citizens.  This will bring large amounts of revenue to Saudi and reduce their dependence on oil (Telegraph).  With more tourism in Saudi and more external influence, this may cause Saudi to change more laws and modernize even more.  This is fascinating: normally we think that culture influences business but if Saudi were to change more based on this we may see business influencing the culture.  This really brings to light how globalism will affect the world as a whole.

Pay attention for any more changes in Saudi within the next few years.  I'm sure many will come!  It may be a prime time to put some FDI in Saudi right now.

Sources

Foreword | Saudi Vision 2030

‘This is a huge step for us’: jubilation as Saudi women allowed to drive

Saudi Arabia to open luxury beach resort where women can wear bikinis