MENA Market Outlook CATME, October 2018 - David Lee, Infrastructure Analyst
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MENA Market Outlook CATME, October 2018 David Lee, Infrastructure Analyst
Global: Oil Price Outlook
Brent Price, USD per bbl (LHS) & Y-O-Y Growth, % (RHS) Short-Term factors informing our positive oil price
outlook:
100.00 40.0
• Economic Growth: On the demand side,
90.00 we continue to expect strong economic
35.0
growth in key demand markets like the US
80.00 and China, with the latter announcing
30.0
70.00
stimulus plans to counteract the fallout
from the nascent trade war.
25.0
60.00
• Supply Outages: From a supply
50.00 20.0 perspective, we anticipate short-term
supply losses in Iran, Venezuela, and
40.00
15.0 Angola. Iranian supply will be constrained
30.00 by the return of sanctions, while
10.0 mismanagement and natural decline rates
20.00 will plague Angola and Venezuela.
5.0
10.00
0.00 0.0
2018 2019 2020 2021 2022
Brent, USD/bbl Brent, USD/bbl, % y-o-y
f = Fitch Solutions forecast. Source: Bloomberg, Fitch Solutions
fitchsolutions.com | fitchconnect.com 2Global: Oil & Gas Capex
Global CAPEX, USDbn (LHS) & Y-O-Y Growth, % (RHS) • The sharp drawback in industry capex
through the oil downcycle will manifest as a
800 15.0% lack of new project completions in the
10.0%
next two to three years.
700
5.0%
600 • The existing project pipeline is almost
0.0%
exhausted, and investment into legacy
500 brownfield capacity is weak, exposing
-5.0% underlying decline rates
400
-10.0%
300
-15.0% • Investment into natural gas infrastructure
200 globally will expand due to pricing dynamics
-20.0%
and environmental concerns
100 -25.0%
0 -30.0%
2012 2013 2014 2015 2016 2017 2018g 2019f 2020f
Global Capex USDbn Y-o-Y (RHS)
f = Fitch Solutions forecast. Source: Bloomberg, Fitch Solutions
fitchsolutions.com | fitchconnect.com 3MENA: Oil & Gas
Production % Change Between 2018 & 2022 • In light of the aforementioned lack of CAPEX
80% investment, oil production will rise at a
relatively tepid rate, due mostly to countries
70% tapping spare capacity to capitalise on higher
prices.
60%
50% • Natural gas production will rise at a more
rapid rate, as countries look to accommodate
40%
growing populations and the commensurate
30%
increase in demand for electricity in the
coming years
20%
10%
0%
Iraq Tunisia Libya Egypt Saudi Qatar Kuwait Iran Oman Algeria
Arabia
-10%
-20%
Gas Oil
f = Fitch Solutions forecast. Source: Fitch Solutions
fitchsolutions.com | fitchconnect.com 4MENA: Economic Outlook
Real GDP Growth, % Y-o-Y • MENA is forecast to outperform more
6.0 developed regions in the Americas and
Europe, but lag behind Asia and Sub-Saharan
5 Year Avg: 3.2% Africa
5.0
– Higher oil prices are the key factor informing
the upward trajectory of MENA’s growth
4.0 forecast.
– Economic diversification initiatives have
3.0 gained significant traction in the region,
particularly in the GCC
2.0 – Poor economic growth in markets like Libya,
Syria, Lebanon, and Yemen (all of whom
are characterised by either conflict or
1.0
significant political uncertainty) will act as a
drag on regional growth.
0.0
2018f 2019f 2020f 2021f 2022f
Sub Saharan (Region) Asia (Region) Europe (Region)
Latin America (Region) MENA (Region) North America (Region)
f = Fitch Solutions forecast. Source: Fitch Solutions, National Sources
fitchsolutions.com | fitchconnect.com 5MENA: Country Risk
2018f – 2022f: Average Real GDP Growth, % Y-o-Y
6 • In both Saudi Arabia and the UAE, real GDP
Higher Risk Markets growth will increase over the coming quarters
as higher oil prices enable increased
5
government spending and contribute to
improved economic confidence.
•
4
Real GDP growth is set to accelerate in Egypt
as exports and investment pick up, boosted by
3
the country's fast-expanding gas sector. Non-
hydrocarbon investment and consumption will
2 recover more gradually, as inflation and
interest rates remain relatively elevated
1
• The re-imposition of US nuclear-related
sanctions will substantially weaken Iran's
0 economy, and further fuel popular discontent
inside the Islamic Republic. A severe, multi-
year depression and resultant political
destabilisation appear unlikely to occur
f = Fitch Solutions forecast. Source: Fitch Solutions, National Sources
fitchsolutions.com | fitchconnect.com 6MENA: GCC In Focus
GCC - Individual States’ Nominal GDP, USDbn (2017) Limited scope for closer intra-bloc cooperation
in the years ahead:
Bahrain, 35.4
- Boycotting states will remain sceptical of Qatar
Kuwait, 117.2 and its stance on political Islam.
UAE, 382.8
- Qatar, Kuwait, Oman will continue to see the
larger, more assertive Saudi Arabia as a
Qatar, 172.3 potential threat to independence.
‘Two-speed’ GCC likely to emerge:
- Saudi Arabia and UAE to focus more on
Oman , 69.1 bilateral cooperation (backed by Bahrain).
- Qatar, Kuwait, Oman to seek stronger, more
diverse extra-regional ties.
Weak cooperation and simmering tensions will
weigh on stability and competitiveness vis-à-vis
other regions - potentially deterring foreign
investment.
Saudi Arabia, 686.7
Source: Fitch Solutions, Respective Central Banks
fitchsolutions.com | fitchconnect.com 7GCC: Diversification Need
Hydrocarbons Still The Predominant Growth Driver Fiscal Revenues And Exports Also Relatively Undiversified
GCC - Oil Exposure
GCC – GDP by sector, %
100
100 Kuwait
90
90 Saudi Arabia
80
80 Qatar
Hydorcarbon Exports, % Total
70
70
60
60 Oman
50 50
Bahrain
40 40
30 30 UAE
20 20
10 10
0 0
Kuwait Qatar Saudi Arabia Oman UAE Bahrain 0 20 40 60 80 100
Mining Agriculture Manufacturing Construction Retail Transport Others Hydrocarbon Revenues, % Total
Note: Data from 2016 (last available for region). Mining predominantly comprised of oil and gas Note: Data from 2017 or last available. Source: Trade Map, National Sources, UN, Fitch Solutions
Source: UN, Fitch Solutions
fitchsolutions.com | fitchconnect.com 8GCC: Diversification Progress
GCC – Diversification Scorecard GCC – Diversification Scores
Diversification 9
Country Core View
Score
8
First mover advantage in several sectors, strong business environment.
UAE 8.0 Political willingness to reform means that the UAE will maintain its
competitive advantage over its neighbours. 7
Saudi Arabia was late to diversify, but is now showing a strong
Saudi
5.0 commitment to reform. In addition, the country has a strong potential to 6
Arabia
develop a number of sectors, including tourism and manufacturing
Oman has a lot of potential in the logistics and tourism sector, but reforms 5
are moving at a relatively slow pace, especially given strained financial
Oman 3.5
resources. Questions of succession present longer-term risks to
diversification. 4
Qatar is using the FIFA World Cup as a catalyst for diversification, and has
undertaken a number of reforms of the business environment. However, 3
Qatar 3.0
limited progress seen in terms of developing non-hydrocarbon sectors
outside construction
2
Bahrain is comparatively more diversified but still highly reliant on
hydrocarbons to drive exports and revenues. Rising competition from 1
Bahrain 2.5 neighbours and increasing entertainment options in Saudi Arabia could cut
into its competitive advantage. Fiscal vulnerabilities limit the government's
ability to support diversification 0
UAE Saudi Arabia Oman Qatar Bahrain Kuwait
One of the least diversified economies in the region. Political willingness to
2017 2018
Kuwait 1.0 reform is virtually absent given continued clashes between the executive
and legislative branches.
Note: Scores out of 10. Source: Fitch Solutions Source: Fitch Solutions
fitchsolutions.com | fitchconnect.com 9Infrastructure: Saudi Arabia Key Trends
Saudi Arabia – Project Pipeline By Stage and Sector, USDmn • We forecast Saudi Arabia’s construction sector
200000 to enjoy annualised average growth of 6.3%
over the next five years. Extremely diverse
180000
project pipeline compared to regional peers.
160000
• Vision 2030 will drive significant investment
140000
inflows into the Kingdom’s commercial
120000 infrastructure sector – but overall Vision 2030 is
Social Infrastructure
overly ambitious, as nascent private sector
100000 still not up to the task.
Construction
80000 Transport
Energy & Utilities •Saudi Arabia focus on investing in
60000
petrochemical capacity in response to growing
40000 demand as the country seeks to leverage cheap
feedstock and lessen its economic reliance crude
20000 oil exports.
0
At planning Feasibility Approved In Contract Under •Transport sector will focus on port and rail
stage studies/EIA tender/Tender Awarded construction
underway launched infrastructure to boost logistics and trade
capacity and promote internal connectivity,
Source: Fitch Solutions Key Projects Database
respectively.
fitchsolutions.com | fitchconnect.com 10Infrastructure: UAE Key Trends
Construction Sector Value, AEDbn (LHS) & Y-O-Y Growth, % (RHS) • Dubai to outperform Abu Dhabi: World Expo 2020 a
catalyst.
250.00 7.00
• Abu Dhabi still good source of infrastructure
6.00 opportunities, supported by Sovereign Wealth Fund.
200.00
• Transport outperforming sector, especially rail.
5.00
150.00 • Post 2020 – slowdown as project pipeline slimmer.
4.00
3.00
100.00 30%
Total Infrastructure
2.00
Project Pipeline
50.00 Value: USD100bn
1.00
63% 7%
0.00 0.00
2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f
Energy & Utilities Social Infrastructure Transport
Real Construction industry value, AEDbn Construction Industry Value, Real Growth, % y-o-y
f = Fitch Solutions forecast. Source: Fitch Solutions, National Sources
fitchsolutions.com | fitchconnect.com 11Infrastructure: Oman Key Trends
Oman – Project Pipeline By Stage and Sector, USDmn • Oman will be one of the fastest growing
construction sectors globally, with growth
25000
forecasted to average 9.9% on an annual
basis from 2018 to 2022.
20000 Water • Logistics projects will be a key government
Roads & Bridges focus. With a strategic geographical position
Residential Construction outside of the Strait of Hormuz, we continue to
15000 Rail see infrastructure investment pour into Oman’s
Power Plants & transmission grids SEZs at Salalah, Duqm, Sohar, and Al Mazunah.
Ports
Other • Oman’s rail sector possesses the most upside,
10000
Oil & Gas Pipelines as the government looks set to tender the
Industrial Construction country’s first rail network in the coming years.
Healthcare
5000 Commercial Construction
• Private, international capital will continue
Airports
flowing into commercial and industrial projects,
leveraging the country’s business friendly –
0 regulatory environment.
At planning Contract In tender/Tender Project finance Under
stage Awarded launched closure construction
Source: Fitch Solutions Key Projects Database
fitchsolutions.com | fitchconnect.com 12Infrastructure: Kuwait Key Trends
GCC – Regulatory Risk • We expect that Kuwait will underperform its
90.0 GCC peers, with our forecast projecting
annualised average growth of 4.2%.
85.0
80.0 • The country’s anticipated underperformance is
largely predicated on continued regulatory and
75.0
political uncertainty, which will impede the
70.0 delivery of its infrastructure project pipeline.
65.0
• Kuwait is attempting to draw more private
60.0 capital into its infrastructure sector, planning new
SEZs, as well as announcing a road PPP
55.0
programme, an airport PPP, and several high
50.0 value IWPP PPP projects.
45.0
•Whether the private sector responds
40.0 affirmatively is less clear, given the country’s
United Arab Saudi Arabia Bahrain Oman Qatar Kuwait
Emirates history of project delays and regulatory volatility.
Source: Fitch Solutions Project Risk Index. Scores out of 100. Higher Scores = Lower Risk
fitchsolutions.com | fitchconnect.com 13Infrastrsucture: Qatar Key Trends
Qatar - Project Pipeline Value By Status, USDbn
• We remain bullish on Qatar’s construction
industry growth in 2018 and over the medium
Biggest Sector: Airports term.
(USD24bn)
• Although the majority of projects currently under
construction are scheduled to be complete by
2020 in time for the World Cup, the total value of
projects in pre-construction phases, will ensure
45.88 that construction growth remains elevated,
informing our positive long-term forecast of
55.13 10.3% y-o-y real growth on average to 2027.
• The supply of construction materials has not
been adversely affected by the boycott, with
Qatar now using other ports in the region for
Biggest Sector: transhipment, notably in Oman, while the
Commercial Construction development of a new deep sea port in Doha will
(USD19.8bn) boost direct maritime supply chain links over
coming years.
Under Construction Pre-Construction
Source: Fitch Solutions Key Projects Database
fitchsolutions.com | fitchconnect.com 14Infrastructure: Bahrain Key Trends
Bahrain- Project Pipeline By Sector, %. Total Value: USD38bn
• Bahrain’s construction sector will expand at a
healthy clip over the next five years. Our
1.5% 1.8% 1.0% forecast projects growth of 5.4% from 2018 –
2022.
14.5% • Growth will primarily be driven by commercial,
industrial, and residential projects, reflecting the
country’s urban geography and its already
mature energy and transport infrastructure base.
• In light of persistent macroeconomic difficulties,
25.6% 51.7% risks to our construction view are skewed
decisively to the downside.
•Bahrain’s fiscal position remains precarious on
the back of a multi-year period of lower oil
revenues and a lack of fiscal reserves, raising the
prospect that the government will not be able to
Water Roads & Bridges Commercial Construction spend at levels necessary to support its
Industrial Construction Residential Construction Other infrastructure development agenda.
Source: Fitch Solutions Key Projects Database
•
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