DECLINE IN COMMODITY PRICES GCC OUTLOOK NOVEMBER 22 ND, 2015 1
EVERYONE HAS A PLAN UNTIL THEY GET PUNCHED IN THE FACE 2
HE WHO IS NOT COURAGEOUS ENOUGH TO TAKE RISKS WILL ACCOMPLISH NOTHING IN LIFE 3
IT ISN T THE MOUNTAINS AHEAD TO CLIMB THAT WEAR YOU OUT; IT S THE PEBBLE IN YOUR SHOE 4
MIDDLE EAST NORTH AFRICA (MENA) SUB SAHARAN AFRICA (SSA) 5
ADVANCED NATIONS (G7) 6
OIL PRODUCING & EXPORTING COUNTRIES (OPEC) 7
GULF COOPERATION COUNCIL (GCC) Dubai Abu Dhabi 8
GROSS DOMESTIC PRODUCT (GDP) & GROWTH Why is GDP a very important economic indicator? It helps to measure the size of a country s economy relative to other countries. GDP can be expressed on a per capita (person basis) to further assist our understanding of global differences between nations & regions. Countries can be classified into different income groups based on GDP figures. High income, middle income, and low income countries. A country s growth rate is determined by the percentage increase or decrease in GDP. 9
RICHEST COUNTRY IN THE WORLD? 10
RICHEST COUNTRY IN THE WORLD? 1980 % World Share 1 United States 25.94% 2 Japan 9.85% 3 Germany 7.49% 4 France 6.38% 5 United Kingdom 4.92% 6 Italy 4.26% 7 China 2.80% 8 Canada 2.49% 9 Argentina 2.26% 10 Mexico 2.13% 38 United Arab Emirates 0.37% 1990 % World Share 1 United States 27.74% 2 Japan 14.40% 3 Germany 7.18% 4 France 5.93% 5 Italy 5.29% 6 United Kingdom 4.75% 7 Canada 2.76% 8 Spain 2.41% 9 Brazil 2.16% 10 China 1.88% 40 United Arab Emirates 0.23% 2000 % World Share 1 United States 31.26% 2 Japan 14.38% 3 Germany 5.75% 4 United Kingdom 4.55% 5 France 4.17% 6 China 3.63% 7 Italy 3.37% 8 Canada 2.25% 9 Mexico 2.08% 10 Brazil 1.96% 37 United Arab Emirates 0.32% 2010 % World Share 1 United States 23.19% 2 China 9.22% 3 Japan 8.52% 4 Germany 5.13% 5 France 4.11% 6 United Kingdom 3.56% 7 Brazil 3.32% 8 Italy 3.19% 9 India 2.65% 10 Canada 2.50% 35 United Arab Emirates 0.44% 2014 % World Share 1 United States 22.51% 2 China 13.39% 3 Japan 6.17% 4 Germany 4.94% 5 France 3.75% 6 United Kingdom 3.68% 7 Brazil 2.90% 8 Italy 2.75% 9 Russia 2.66% 10 India 2.65% 29 United Arab Emirates 0.54% 2020 % World Share 1 United States 21.92% 2 China 15.36% 3 Japan 5.38% 4 Germany 4.51% 5 United Kingdom 3.67% 6 France 3.36% 7 India 3.15% 8 Brazil 2.86% 9 Russia 2.57% 10 Italy 2.43% 28 United Arab Emirates 0.56% 11
8 7 6 5 4 3 2 1 0-1 -2-3 -4 700 600 500 400 300 200 100 GDP GROWTH BY REGIONS Sub Saharan Africa MENA Advanced (G7) Real GDP Growth (% y-o-y) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sub Saharan Africa MENA Advanced (G7) Real GDP Growth 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 12
COMMODITY PRICE INDICES The (2014-2015) & (1985-1986) the commodity price declines were primarily driven by supply-related factors. The recent (2008-2009) energy price collapse was caused by global financial crisis. There are several similarities between the two periods supply related price declines. In 1984, energy output surged in Alaska, the North Sea, and Mexico. Similarly, in 2014 production surged from the U.S. & Canada oil sands. Both these supply shocks also were answered by the same response by OPEC: in both episodes they focused on market share preservation. Following the most recent commodity price decline during 2008-09, oil prices recovered within a couple of years. Prices stayed low for almost two decades following the 1985-86 decline. The actual period of price stability was 18 years, 1985-2003. During this period, there was over-supply and restrained demand. OPEC invested heavily to increase spare capacity. The Soviet Union collapsed (1991). Commodity demand weakened due to the Asian financial crisis in 1998 and the U.S. recession in 2001. Technological advances in extraction methods have been instrumental in reducing operating costs in the shale oil/gas, and mining industries. Because of slowing economic growth in advanced/mature countries, demand for commodities has weakened. These dynamics could lead to another prolonged period of low commodity prices. Depreciation of many emerging market currencies has boosted revenues in local price terms vs what they would have been, thus perpetuating over-supply 13
COMMODITY PRICE INDICES (NOMINAL) (WORLD BANK) US$ nominal, 2010=100 150 125 100 75 Energy Metals Agriculture 50 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 14
COMMODITY PRICE INDICES (REAL) (WORLD BANK) US$ real, 2010=100 140 120 100 80 60 Forecast Energy 40 Metals Agriculture 20 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 15
COAL & NATURAL GAS PRICES (WORLD BANK) US$/mmbtu 20 Coal Natural Gas (US) Natural Gas Europe 15 Natural Gas (Japan) 10 5 0 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 16
PRECIOUS METAL PRICES (WORLD BANK) US$/toz 2,100 US$/toz 45 1,800 Gold (LHS) Platinum (LHS) Silver (RHS) 35 1,500 25 1,200 900 15 600 5 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 17
OIL PRICES (REAL & NOMINAL) 120 110 Nominal Price Real Price MENA Spring 100 90 80 70 60 50 Iran-Iraq War GulfWar 1 40 Oil Embargo 1973 Global Financial Crisis 30 20 10 0 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 18
LIQUID FUELS PRODUCTION & CONSUMPTION. 100 98 Forecast 6 5 96 94 92 Implied stock change and balance (right axis) World production (left axis) World consumption (left axis) 4 3 2 90 1 88 0 86-1 84-2 82-3 2010-Q1 2010-Q4 2011-Q3 2012-Q2 2013-Q1 2013-Q4 2014-Q3 2015-Q2 2016-Q1 2016-Q4 19
OIL & GAS RESERVES Rank Country Global Oil Reserves By Country (2014) Reserves Billion Barrels % Total Rank Global Gas Reserves By Country (2014) Country Reserves Trillion Cubic Feet % Total World 1,655.56 100.00% 1 Venezuela 297.74 17.98% 2 Saudi Arabia 268.35 16.21% 3 Canada 173.20 10.46% 4 Iran 157.30 9.50% 5 Iraq 140.30 8.47% 6 Africa 126.73 7.65% 7 Eurasia 118.89 7.18% 8 Kuwait 104.00 6.28% 9 UAE 97.80 5.91% 10 Russia 80.00 4.83% 11 Libya 48.47 2.93% 12 Nigeria 37.14 2.24% 13 USA 36.52 2.21% 14 Kazakhstan 30.00 1.81% 15 Qatar 25.24 1.52% 16 China 24.38 1.47% 17 Brazil 15.05 0.91% 18 Europe 12.28 0.74% 19 Algeria 12.20 0.74% 20 Mexico 10.07 0.61% Rest of world 97.80 5.91% World 6,972.52 100.00% 1 Russia 1,688.00 24.21% 2 Iran 1,193.00 17.11% 3 Qatar 885.29 12.70% 4 Africa 605.96 8.69% 5 USA 338.26 4.85% 6 Saudi Arabia 290.81 4.17% 7 Turkmenistan 265.00 3.80% 8 UAE 215.04 3.08% 9 Venezuela 196.41 2.82% 10 Nigeria 180.74 2.59% 11 Algeria 159.10 2.28% 12 China 155.38 2.23% 13 Iraq 111.52 1.60% 14 Indonesia 104.71 1.50% 15 Mozambique 100.00 1.43% 16 Kazakhstan 85.00 1.22% 17 Malaysia 83.00 1.19% 18 Egypt 77.20 1.11% 19 Norway 73.81 1.06% 20 Canada 66.72 0.96% Rest of world 703.53 10.09% Source: EIA Source: EIA 20
OIL PRICE COST OF PRODUCTION Brent US$ 45/pb Nov 19th 21
WHAT THE EXPERTS (IMF) ARE SAYING GCC countries: oil price drop affects fiscal positions Fiscal Breakeven Oil Price, 2015 (U.S. dollars per barrel) 200 160 120 80 40 0 $73 200 160 120 80 40 0 A projected oil price of USD 73 per barrel for 2015 will barely exceed the break-even price for the UAE budget HaraldFinger-IMF-Presentation entitled The Global and Regional Economy in 2015: Prospects, Challenges, and Implications for the UAE December 16, 2014 22
UAE BANKING SECTOR _1 18% Deposits (AED billion) 16% % change y-o-y (LHS) 14% 12% 10% 8% 6% 4% 2% 1,436.80 1.58% 1,500 1,400 1,300 1,200 1,100 1,000 12% 10% 8% 6% 4% Net Loans (AED Bilion) % change y-o-y (RHS) ` 1,366.20 10.20% 1,400 1,350 1,300 1,250 1,200 1,150 1,100 0% -2% 900 2% 1,050-4% May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 800 Sep-15 0% Apr-10 Dec-10 Aug-11 Apr-12 Dec-12 Aug-13 Apr-14 Dec-14 1,000 Aug-15 Gross LTD Net LTD 115% 110% 70% 60% 50% CB FX Assets (AED Billion) % change y-o-y (LHS) 350 300 102.33% 105% 100% 40% 30% 20% 267.11 250 95.49% 95% 90% 10% 0% -10% ` 200-4.75% 85% -20% -30% 150 Aug-09 May-10 Feb-11 Nov-11 Aug-12 May-13 Feb-14 Nov-14 80% Aug-15-40% Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 100 Sep-15 23
UAE BANKING SECTOR_2 60% Government & Public Sector Deposits (AED Billion) 50% % change y-o-y (RHS) 40% 30% 20% 10% ` 0% -10% -20% 400 330.971 350 300 250 200-16% 150 40% 30% 20% 10% 0% -10% -20% -30% -40% May-10 Government Deposits (excl. public sector) % change y-o-y (RHS) ` Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 300 280 260 240 220 200 165.5 180 160 140-20.47% 120 100 Sep-15-30% Apr-10 Dec-10 Aug-11 Apr-12 Dec-12 Aug-13 Apr-14 Dec-14 100 Aug-15 Monetary Aggregates (% change y-o-y) M1 M2 M3 30% 25% 20% M1 = Currency held by the Public + Cash at Banks + Monetary Deposits M2 = M1 + Quasi-monetary Deposits M3 = M2 + Government Deposits at banks operating in the UAE as well as at the Central Bank. 15% 10% 5.22% 5% 3.55% 0% Jun-10 Mar-11 Dec-11 Sep-12 Jun-13 Mar-14 Dec-14-2.89% -5% Sep-15 24
SAUDI ARABIA 30% 25% SAMA FX Assets (US$bn) RHS % change y-o-y (LHS) 745 800 750 90% Loan To Deposit Ratio 20% 15% 700 655 650 85% 10% 5% 600 550 500 80% 81.1% 0% -5% 450 400 75% -10% 350-15% Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 300 Sep-15 70% Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 35% Monetary Aggregates (% change y-o-y) 30% M1 M2 25% M3 20% 12.8% 15% 10% 5% 9.7% 8.5% 0% Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 600 500 Budget Surp/Def(SAR) LHS % of GDP (RHS) 35 400 25 300 200 15 100 0 5-100 -5-200 -6.9-5.1-300 -8.9-15 -13.6-15 -400-17.4-20 -500-25 1991 1996 2001 2006 2011 2016f 25
OIL PRICES (REAL & NOMINAL) 120 110 Nominal Price Real Price MENA Spring 100 90 80 70 60 50 Iran-Iraq War GulfWar 1 40 Oil Embargo 1973 Global Financial Crisis 30 20 10 0 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 26
GCC OIL PRICE IMPACT US$ 55 (2015) Net Foreign Assets: Gross Foreign Assets Total External Debt Gross Foreign Assets : Reserves + Gold + Monetary System Foreign Assets + Sovereign Wealth Funds(SWF) Total External Debt: Government + Financial Institutions Report to BIS+ Public&Private Entities 27
GCC OIL PRICE IMPACT US$ 55 (2016) Net Foreign Assets: Gross Foreign Assets Total External Debt Gross Foreign Assets : Reserves + Gold + Monetary System Foreign Assets + Sovereign Wealth Funds(SWF) Total External Debt: Government + Financial Institutions Report to BIS+ Public&Private Entities 28
WHAT THE GOVERNMENT OFFICIALS & EXPERTS WERE SAYING OIL PRICES WILL GET BACK TO WHERE THEY SHOULD BE. US$100 29
WHAT THE OFFICIALS & EXPERTS ARE SAYING RECENTLY 30
BUDGET DEFICIT? ENERGY SUBSIDIES Estimated Energy Subsidies in GCC countries 2014 (% of GDP) Gasoline Prices US$/Per Litre (November 16 th, 2015) Venezuela 0.02 Bahrain 12.5% Libya Saudi Arabia 0.14 0.16 Saudi Arabia 9.9% Kuwait Algeria 0.21 0.21 Kuwait 7.0% Qatar Bahrain 0.27 0.27 Oman 6.2% Turkmenistan Oman 0.28 0.3 UAE 5.7% Iran Brunei 0.33 0.37 Qatar 3.5% 0% 2% 4% 6% 8% 10% 12% 14% Ecuador UAE Nigeria Malaysia 0.44 0.46 0.46 0.47 Kazakhstan 0.49 Bolivia 0.52 Russia 0.55 Puerto Rico 0.62 Kyrgyzstan 0.63 USA 0.64 Earlier this year the IMF urged Gulf governments to reduce subsidies and other current spending (e.g. public sector wages) rather than cut capital expenditure and use assets. 31
BUDGET DEFICIT? MILITARY SPENDING 32
BUDGET DEFICIT? GCC MILITARY SPENDING 2014 (%GDP) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 Military Spending(%GDP) Bahrain Kuwait Oman Qatar KSA 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 KSA UAE Iran 12.38 11 11 4.48 3.94 2.81 1.78 4.48 3.96 33
RUMBLE IN THE JUNGLE 34
MUHAMMED ALI S PREVIOUS STRATEGY 35
FACED WITH A STRONGER, YOUNGER & FASTER OPPONENT DEFENSIVE BOXER ASSUMES A PROTECTED STANCE, LYING AGAINST THE ROPES WHICH ALLOWS MUCH OF THE ENERGY TO BE ABSORBED BY THE ROPES RATHER THAN THE BODY, WHILE LETTING OPPONENT EVENTUALLY WEAR OUT. AT THE SAME TIME LOOK FOR AN OPPORTUNITY, WAIT PATIENTLY FOR A FINAL COUNTER ATTACK 36
ROPE A DOPE FOR 8 ROUNDS 37
ROUND 8; LAST 20 SECONDS 38
EVERYONE HAS A PLAN UNTIL THEY GET PUNCHED IN THE FACE HE WHO IS NOT COURAGEOUS ENOUGH TO TAKE RISKS WILL ACCOMPLISH NOTHING IN LIFE IT ISN T THE MOUNTAINS AHEAD TO CLIMB THAT WEAR YOU OUT; IT S THE PEBBLE IN YOUR SHOE 3 9
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