globalEDGE Blog - By Tag: saudi-arabia

Last September, the World Bank announced it would begin implementing new steps to lend an additional 100 billion over the next ten years. This, along with other new initiatives, would allow the World Bank to lend 150 billion more to developing countries.

The two leading generals of the third largest country in Africa have clashed over the country’s vast economic and political power. So, what is happening on the global economic stage in the face of this conflict? 

This past Monday, the United States government gave the green light for the Willow Project, a controversial oil and gas development proposal in Alaska. The project, spearheaded by ConocoPhillips, aims to extract up to 600 million barrels of oil and 3.4 trillion cubic feet of natural gas from the National Petroleum Reserve-Alaska (NPR-A), a 23 million-acre area on the North Slope of Alaska.

As agricultural growth ramps up, drought continues to worsen. This is especially prominent in the Southwest regions of the United States as they face the worst drought in 1,200 years. Rural communities in La Paz County, Arizona have been noticing water disappearing left and right. The water workers in Wenden, Arizona are reporting that they have "never seen anything like this" as they noticed moving water in a well where the water is typically still. This massive underground reservoir stores water built up over thousands of years and was discovered to be moving due to someone pumping it rapidly out of the ground. With further research, it was found that there was a neighboring well belonging to Al Dahra, a United Arab Emirates-based company that was pulling this water for its own benefit.

This is the first post in a -part blog series focused on the 2022 World Cup.

Four years ago, more than half the global population tuned in to watch the 2018 FIFA World Cup. Now, only a month away, soccer fans anxiously await the 2022 World Cup. This year, thirty-two countries will compete in the most popular sport in the world in hopes of being crowned champion. With over 3.5 billion fans worldwide and over 250 million players across 200 countries, no other event reaches such a global audience.

A mega-city featuring flying cars, high-speed rail instead of roads, robot maids, a giant artificial moon, and a resort with multimillion-dollar palaces is the vision of the Saudi Arabian crown prince and prime minister, Muhammed Bin Salman (MBS). The project, called Neom, hopes to gain $500 billion in investment with the ambitious goal of constructing a 106-mile-long carbon-neutral city with walls over 1,600 feet stretching from the Red Sea into the desert. Neom was announced back in 2017 and was originally planned to be completed by 2025, but due to the pandemic, only the first phase of the project is projected to be completed by this time. If this sounds unrealistic, MBS himself has admitted that he would be satisfied if only half of his ambitious Neom plan is completed. Half of all planned construction is an optimistic estimate as Neom has stalled due to numerous challenges. The kingdom’s sovereign-wealth fund and finance ministry have already spent $1 billion on initial infrastructure, planning, and consulting.  The country has contracted U.S.-based consulting firms from Boston Consulting Group, McKinsey & Co., and Oliver Wyman to aid with planning the project.

Oil, often considered to be a prime example of an inelastic good—always in demand regardless of price—may not hold true now due to the coronavirus epidemic.  With recent news of major air carriers and other transportation companies reducing domestic and international service, it has created a ripple effect in the travel industry as a whole (cruise ships, hotels, resorts).  With many would-be travelers canceling their plans, it is fair to say that the foreseeable future for the travel industry is bleak.  Not to mention, shutdowns in China have played a significant impact on oil when considering they are the world’s greatest importer of oil.  For these reasons, the short-term demand for oil has decreased dramatically, resulting in an eye-opening response from major oil producers across the globe.

On September 13th, Saudi Arabia fell victim to a drone attack on their state-owned oil processing facility, a resource they proudly consider to be their kingdom’s “crown jewel,” as oil accounts for 50% of Saudi Arabia’s GDP and 70% of their export earnings.  The attack sent crude oil prices up 15% to about $69 a barrel, marking the highest price increase in over three decades. With such a heavy reliance placed on Saudi Arabia’s oil reserves, it is important for world leaders to keep in mind the damaging repercussions of escalating conflict in the Middle East, an issue that presents another big problem to the world economy, in addition to the U.S. and China trade dispute.  

Many countries around the world motivate and support young citizens to travel and study outside their home country. Governments often invest in scholarship programs that provide students with the chance to leave their home country and learn in educationally advanced countries such as the United States, Britain, Canada, and Australia.

In simple terms, inflation rates measure what has happened to consumer prices over the latest 12-month period. But what increases inflation? Well, economic growth is generally followed by a stronger and growing labor market, which means that unemployment is down and wages are increasing. This increases consumer’s disposable income and increases the cost of wages for companies. Both of those factors push prices up for consumers, which in turn, increases inflation rates. This is where interest rates, inflation’s best friend, comes into play. Shortly after inflation increases, interest rates begin to increase to control inflation (generally to 2%). Governments increase interest rates to incentivize people to save a larger chunk of their disposable income and decrease discretionary spending, in turn, decreasing consumer prices.

The UAE and Saudi governments have finally implemented the Value Added Tax (VAT) system on the 1st of 2018, after more than year of planning. Many business and individuals are still struggling to grasp how to handle this new tax system. The VAT was set at 5% in both countries and is expected to stay at that rate. This rate applies to almost every good or service one purchases daily, with the exception of certain specified items stated by each government.

Business dislikes uncertainty, and there’s plenty of it now in the Gulf of Arabia region.  In case you missed it, a coalition of Gulf states led by Saudi Arabia are making life difficult for Qatar because of its alleged support of terrorist groups.  Qatar has hotly denied the charges, accusing coalition members of ganging up and attempting a takeover of the tiny sheikdom, which currently hosts 10,000 U.S. troops who are fighting the terrorists Qatar is accused of harboring and funding. 

On May 19, United States President Donald Trump embarked on his first series of foreign trips for the current presidential term. His first stop was Riyadh, the capital of Saudi Arabia, where he met with King Salman bin Abdulaziz, Crown Prince Muhammad bin Nayef, and other members of the Saudi royal family. During the two-day visit, President Trump and King Salman signed arm deals worth an immediate total of $110 billion, with additional promises of further investment over the next decade that will eventually equate to $350 billion. On a wider scale, the arms deals are part of a larger series of potential deals between Saudi Arabia and the U.S, often involving specific corporations from each nation. Collectively, they encompass the energy, defense, technology, chemicals, and mining sectors, signifying initiatives from the Saudi government to diversify its business from oil exports (part of the Saudi Vision 2030 plan established in spring 2016) and establish new trade relations within other industries within the U.S. Following the signings, global aerospace and defense stocks rebounded in value. 

Just last month, the United Kingdom Parliament triggered Article 50 of the Lisbon Treaty, officially commencing the necessary processes for leaving the European Union. The entire operation is expected to take two years, and the U.K. hopes to set up the structure for a positive international investment climate during that time. As part of this pursuit, Prime Minister Theresa May began a multiple-day visit to Saudi Arabia on April 4 to discuss trade deals between the two nations. Saudi Arabia and the U.K. have been prolific trading partners for years; the talks were intended not only to maintain this relationship, but also to discuss future developments in defense, security, and economic reform. May's visit has been criticized by various international leaders, who have cited Saudi Arabia's record on women's rights as well as the country's involvement in the current Yemen conflict. Worries abound both outside and within the U.K. government that the nation may be overlooking human rights concerns in favor of favorable trade deals.

On Wednesday, June 1, 2016, Uber gained $3.5 billion from Saudi Arabia, the largest cash infusion ever made in a private company. Venture capital investing has been growing in the Middle East where countries such as Turkey, Egypt and Saudi Arabia are turning to transportation companies, including Careem, Lyft, EasyTaxi and Uber, to boost their economy.

Saudi Aramco, the state-owned oil company of Saudi Arabia, is increasing oil production in advance of its partial IPO. While global oil production has been decreasing, Saudi Arabia has decided to stop regulating production levels and dismissed the idea of stabilizing global supply and demand. The oil giant is preparing for its first public offering, offering about 5% of the company.

Since American shale oil has joined the oil industry, oil prices have plummeted. Brent crude oil is down more than 60% since last summer, pricing at under $43 a barrel. American light crude oil is trading at the lowest prices in 10 years at under $40 a barrel. Predictions from Goldman Sachs suggest that prices could fall even further. The main concern driving this price drop is supply and demand imbalances--there is too much oil being produced and not enough customers purchasing it all.

For the first time, Saudi Arabia has opened its markets to foreign investors in hopes that in can attract more international investments in the country. Saudi Arabia has experienced solid growth over the last decade due to hundreds of billions of dollars in revenue from the sale of oil and is attempting to maintain its local spending plan after crude prices have tumbled. The opening of the stock exchange can play a role in reducing its dependence on oil as a driver in its economy and also aid in its future economic growth.

Saudi Arabia has set a date for the opening of its stock market to foreign investors. The nation’s Capital Market Authority recently announced that the country’s only stock exchange, Tadawul, will allow direct international purchases of its market shares starting June 15 of this year.

Since last year, prices of oil have decreased by over fifty percent and have festered at some of their lowest rates in many years. This has occurred due to several factors, including decreasing global demand for oil and an increasing supply. Lately, however, demand for crude oil is on the rise and overall output has been growing in major oil-producing nations such as Saudi Arabia, Iraq, and Libya. It is yet to be seen if these events will continue as an industry trend for this year, but a potential change in oil prices could certainly occur.

Shortly following the coronation of the new King Salman of Saudi Arabia, the recently minted monarch quickly assured the global energy community that the kingdom would continue its policy of encouraging top oil exporters to raise their production levels. The king's message directly contradicts with global expectations that the death of King Abdullah might lead to fundamental changes in Saudi Arabia's oil policy, but most analysts now agree that the royal family will resist any sharp changes in policy, especially as it tries to navigate multiple foreign policy challenges in the region.

Oil prices dropped by 42% in 2014, and hit a five and a half year low on Monday. Many analysts are projecting that the price of oil is only going to continue to decrease in the near future. This drop in oil prices is having a drastic effect in a multitude of sectors of the economy, all across the world. What is causing oil prices, which have continually risen in the past decade, to suddenly crash? There is not a single source of this crash, but rather a plurality of causes.

Oil prices fell 6.7% per barrel on November 27th after OPEC decided not to cut production. Currencies linked to oil such as the Canadian dollar and the Norwegian krone took a hit, as prices this low will cause many fracking companies to become unprofitable. Low cost producers in countries like Saudi Arabia will be able to sustain small profits at such low prices, but U.S. fracking companies are not profitable at a price under $70 per barrel. Falling oil prices are a positive sign for economies worldwide, since it acts like a tax cut for consumers. The current price weakness can be somewhat attributed to weak demand globally, but the rise of fracking worldwide leads us to believe that there might be an oversupply.

People around the world are questioning the objectives of China and Saudi Arabia, who are vying for seats this week on the United Nations’ Human Rights Council. The members of the General Assembly elect the members to the council’s forty-seven seats. The inquiry of these countries to the council comes on the grounds that the General Assembly is supposed to take into account the contribution to the promotion and protection of human rights, while China and Saudi Arabia may be considered to some, two of the most infamous violators of human rights.

What seemed unthinkable just a half decade ago is now reality. The United States has surpassed Saudi Arabia as the world’s biggest fuel producer. Crude output in the U.S. has hit a 20 year high and has produced the most fuel in the world for the first time since 2002. The United States is producing 11.65 million barrels of liquid fuel a day (which includes crude, refined petroleum products, and biofuels) surpassing the Saudi Arabian output of 11.25 million barrels a day.

It appears that Saudi Arabia is attempting to become more open to foreign direct investment. Currently they are a large exporter of oil. Saudi Arabia exports about 9 million barrels per day of oil. Since oil prices are high this has benefited Saudi Arabia, but they are attempting to plan for a less oil dependent society in the future. In order to do this, they will need to diversify the types of businesses in operation in the country and work more with foreign investors.

Approaching business challenges requires an open mind and willingness to take a fresh look. This couldn’t apply better than to opening new export markets. An interview with the U.S. Ambassador to the Kingdom of Saudi Arabia shed light on the opportunities opening in the Middle East. The Ambassador provided an insightful view of Saudi Arabia which presents great opportunities for businesspeople to view the country as a place to export.

It all began in 1945 with a renewed relationship between the United States and the King of Saudi Arabia, King Abdul Aziz. Since then, the country has experienced significant population growth as well as improved social and political climates. In fact, Saudi Arabia is in the process of creating 250,000 graduates of a vocational school. Education is paramount to the country’s development and will fundamentally change it from a purely oil driven economy to one that is more diverse moving ahead into the future.

The next question on your mind: But isn’t it hard to get started in the Middle East? Actually, Saudi Arabia is a capital rich environment where companies feel comfortable both manufacturing and selling products that are highly sensitive to intellectual property (IP) rights protection. As part of the current administration, IP protection has gone up because of the educational initiatives. Instead of stealing technology, the country is able to create its own.

If you are considering new countries in which to export your products, keep an open mind. Saudi Arabia is an example of a great opportunity for the right company to come in and provide solutions. China, India and Russia have recently earned over $19 billion in business that has traditionally gone to American firms. This is the time to regain confidence in the partnership that originated over 50 years ago.
 

Doug Barry of the U.S. Commercial Service has another market brief for our blog readership. In this brief, he interviews Amer Kayani, who is a Senior Commercial Officer at the U.S. Embassy in Saudi Arabia. The interview covers the potential of emerging markets, with a primary focus on Saudi Arabia. Additionally, Mr. Kayani clears up some misconceptions some may have regarding Saudi business sentiments towards U.S. investors and businesspeople.