GCC Corporates Feel The Heat On Low Oil Prices

Standard and Poor’s (S&P) in a report titled “Some Gulf Corporates Could Feel The Heat On Low Oil Prices”, stated: “Corporate and infrastructure companies in the GCC face a weaker operating environment at present on the back of lower oil prices.

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Standard and Poor’s (S&P) in a report titled “Some Gulf Corporates Could Feel The Heat On Low Oil Prices”, stated “Corporate and infrastructure companies in the Gulf Cooperation Countries face a weaker operating environment at present on the back of lower oil prices.”

“Prices of oil have more than halved since June 2014, thereby slowing government expenditures, on which these companies largely depend.”

According to the report, the drop in oil and gas prices triggered a 58% reduction in corporate and infrastructure bond, and ‘Sukuk’ issuances over a 12 month period ended last month.  Debt issuance by corporate and infrastructure companies in the Gulf region fell in the past 12 months to nearly $7 billion, with corporate and infrastructure companies facing a weaker operating environment.

According to the latest data released on Monday by the ratings agency S&P, the credit cycle has reached a potential a peak, with higher pricing anticipated going forward.

Government expenditures, on which many companies largely depend, are also slowing as a result of oil falling more than half of its price since June 2014.

This declining issuance was partly because of the tightening of budgets at key government-related entities (GREs) that are behind all infrastructure projects.

Last year, total remittances by Qatar foreign workers slipped by 0.45% and as a share of GDP they reduced to 5.24% from 5.49% in 2013.

Asian countries workers transfers account for around 65%, while countrywide, composition of remittances remained almost the same in 2014 as in the previous year as reported by local news media.

Comparing percentage share during 2014, the transfer to the rest of the MENA region outside the GCCs reduced by 2% whilst at the same time those in direction of the GCC increased by 2%.  The top five countries continued to have around 66% of the total transfer, Qatar Central Bank (QCB) data revealed.

According to the World Bank’s Migration & Remittances fact book, Qatar has the world’s highest level of expatriates, relative to the country’s population.

With the strengthening of the dollar over Asian currencies continuing, money flows from the GCC to the developing countries carried on to grow in 2014.

It came to be known that the growing influx of expatriates seeking job opportunities in the Middle East, has had a substantial effect on improving economic prospects in Asian countries.

Meanwhile, a report by Standard and Poor’s (S&P) about Qatar, cited by local dailies, stated:  “We expect the majority of the projects to be completed ahead of World Cup.”

To this effect, Qatar’s programme has been adjusted to aim for medium-term real economic growth, despite contribution to “a deterioration in fiscal and external balances, exacerbated by large fall in oil prices”, S&P continued.

“The stable outlook reflects our view that Qatar’s economy will remain resilient, supported by strong macroeconomic fundamentals, although we anticipate continued institutional weaknesses and limited monetary flexibility over the next two years.”

S&P classified Qatar as a wealthy economy, and said it estimates the country’s per capita GDP (income) at $81,000 this year, the daily’s report added.

At the same time, other GCC governments in order to cope with the effects of dwindling oil prices are like Kuwait where public-private partnership (PPP) could help reduce the financial burden on the state and limit growth in government spending and the public sector are extensively using this financing model to create jobs positions and / or try and prevent the economy dynamics from coming to a halt

Kuwait has for some time now implemented a strategic development plan, aimed at diversifying through its infrastructure improvement across the country, and orientating its economy towards non-oil sectors.

The country has programmed that between 2015 and 2019, a second five-year development plan of investments, up to $106bn in sectors such as transport, infrastructure, power and water, eventually achieving a possible non-oil economic growth of 4% in 2015 and 2016 with the PPP having a share of 30% at $33.1bn.  This latter is expected to bring $3.31bn a year to the country’ coffers.

Sources : S & P 

Qatar Central Bank

Gulf News and The Peninsula

 

 

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