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Trade, Economy and Investment
Monitor Report
Foreign Trade Division
Foreign Trade Policy Department
1st Quarter 2015
1
TABLE OF CONTENTS
Contents
PAGE NO
Executive Summary
3
Trade Monitor
5
UAE Joined China Led Asian Infrastructure Investment Bank
6
Global Trade Scenario
9
Australia and GCC to sign Free Trade agreement
11
Economy Monitor
12
IMF World Economic Outlook
13
Regional Economic Analysis
15
Economic Outlook for MENA region
20
Analysis – Decline in Crude Oil Prices
23
Quanititative Easing by European Central Bank
29
Investment Monitor
32
Global Equity Markets overview
33
Overview Regional Equity Markets
38
UAE Primary Markets
41
Country in Focus – Nigeria
42
Currency Monitor
51
Fluctuating Currencies
52
Euro Depricaiton Impact on UAE
56
2
EXECUTIVE SUMMARY
Global Trade has grown modest in 2014 and the growth is less than 3% for
the third consecutive year and this modest growth is due to slowdown in
economic growth across the world. Muted growth in global trade had its effect
even on UAE’s international trade as prorated 2014 figures show a negative
growth.
Last quarter, UAE has joined China led Asian Infrastructure Investment Bank
as a founding member which is a multilateral bank designed to provide
financial support for infrastructure and regional connectivity in Asia. As a
founding member UAE will have the right to participate and create
governance and operational rules for the bank.
Australia and GCC countries are likely to sign a Free Trade agreement deal
and this deal will have multiple benefits to businesses in gulf region. Some of
the major highlights of the deal are double taxation agreement for Investments
and import tariffs. This deal will have a positive impact on Investors from GCC
investing in Australia.
IMF has released it global economic outlook and forecasts a moderate growth
with uneven prospects across major countries and region. Global growth is
projected to be around 3.5% in 2015. IMF forecasts Economic growth for
MENA region to be around 2.9% and 3.8% in 2015 and 2016. Some of the
factors dominating global scenario are decline in Oil prices and large
exchange rate movements.
Oil prices declined significantly form levels of above $100 per barrel to $45
per barrel in the past quarter. This significant drop in oil prices is attributed to
demand and supply mismatch, Weak global economy and Increase in energy
efficient machines and automobiles.
European Central bank has introduced quantitative easing as tool to stimulate
growth and contain deflation. As part of the plan European central bank will
buy Euro 60 billion worth of bonds and is targeting a total purchase of Euro 1
Trillion by end of September 2016.
3
Global Equity markets gained significantly due to a positive outlook of global
economy and due to availability of capital at lower rates. US S&P 500 gained
by 2.4% and European index Euro Stoxx 50 by 15.5% year till date. Chinese
Equity markets soared by 33.8% in 2015 and was the best performing equities
in the world. Saudi Arabia has announced that it is opening up its stock
markets to foreign investors from 15th June and this helped Saudi stock
market Index Tadawul to increase by 16% Year till date. UAE has issued new
legislations regarding the issuance of IPO’s and relaxed rules such as
decreased the minimum float of shares from 55% of shares to 30%. This will
encourage more businesses to launch IPO’s as most of the owners do not
want to lose majority stake when raising capital.
Nigeria is the country of focus as an Investment destination as it has grown as
the largest economy in Africa. Some of the Investment highlights of Nigeria
are diversification strategy adopted by new elected government and favorable
demographics. Agriculture, Education, Infrastructure and Mining will be the
sectors of interest for Investors as they offer enormous potential and attractive
opportunities.
Major currencies like US dollar, Euro, Swiss franc and Japanese yen
fluctuated and reached year highs and lows. Fluctuating currencies has been
one of the major concerns for countries and companies operating globally.
Many businesses with major transactions in cross currencies see volatile
currency as a significant risk.
4
TRADE MONITOR
5
1. UAE
JOINED CHINA LED ASIAN INFRASTRUCTURE INVESTMENT
BANK
The UAE has joined the China-led Asian Infrastructure Investment Bank
(AIIB) as a founding member. The UAE joins fellow AIIB founder members
Saudi Arabia, Oman, Qatar, Egypt and Jordan, as well as other countries from
Asia and Europe, including the UK, Germany and Russia. Founding members
have the right to create governance and operational rules for the bank.
THE ASIAN INFRASTRUCTURE INVESTMENT BANK
The Asian Infrastructure Investment Bank (AIIB) will be a new multilateral
development bank (MDB) designed to provide financial support for
infrastructure development and regional connectivity in Asia. AIIB’s
approach will be ―lean, clean and green‖, with a focus on efficiency,
sustainability and transparency. The Bank will work in close cooperation with
the existing multilateral development banks -- complementing, supplementing
and enhancing their development efforts
As of April 15, 2015 there are 57 Prospective Founding Members (PFMs).
PFM which signed the memorandum to build AIIB
Approved as PFM of AIIB
Applying to become an ordinary member of AIIB
Application under consideration
No commitment to participate or rejected
Uncommitted
AIIB will focus on the development of infrastructure and other productive
sectors in Asia, including energy and power, transportation and
telecommunications, rural infrastructure and agriculture development, water
6
supply and sanitation, environmental protection, urban development and
logistics, etc.
The authorized capital of AIIB is expected to be USD 50 billion and is very
likely to be increased to USD 100 billion. As a regional development bank,
AIIB’s regional members will be the majority shareholders; non-regional
members will hold smaller equity shares. The main financial instruments of
the AIIB will include loans, equity investments and guarantees. AIIB will invest
in proposals that would generate positive financial and Economic benefits.
POSITIVE IMPACTS ON UAE
1. Strengthens role played by UAE Internationally
Being a founding member of AIIB will boost the prime economic role played
by the UAE regionally and internationally, by focusing efforts on development
projects with great socio-economic benefits
2. Improves Trade relations with China
China has emerged as the top trading partner with UAE and joining AIIB
will boost trade ties with China
UAE-China Trade Trends
UAE -China Trade in AED Billion
6.9%
70
UAE & China Trade in AED Billion
8%
7.5%
6.6%
6.2%
6.2%
7%
60
6%
50
5%
40
4%
66
30
49
52
71
3%
57
20
2%
10
1%
0
0%
2009
2010
2011
2012
SOURCE: UAE STATISTICS.GOV.AE
7
2013
UAE- China % contribution Total UAE Trade
80
% Share of China total UAE Trade
Trade Growth in Percentage
UAE TRADE GROWTH IN %
25%
UAE - International
20%
UAE -China Trade in AED Billion
23.0%
14.4%
15%
14.2%
13.8%
10%
10.1%
7.5%
5%
5.7%
0.9%
0%
2010
2011
2012
2013
SOURCE: UAE STATISTICS.GOV.AE
3. China emerging as an alternate Economic Superpower to US
As per IMF latest report, China is contributing 17% to global GDP when
compared 16% by US in 2014. It is likely that China will maintain the
current growth rates and will emerge as a dominant economic power in
coming decade. Being a founding member of AIIB will be beneficial to UAE
in maintaining healthy trade ties with China.
References
http://www.aiibank.org/
http://www.thenational.ae/business/banking/UAE-signs-up-as-foundingmember-of-asian-infrastructure-investment-bank
http://www.emirates247.com/business/UAE-joins-asian-infrastructureinvestment-bank-2015-04-06-1.586522
http://www.UAEstatistics.gov.ae/EnglishHome/ReportDetailsEnglish/tabid/121
/Default.aspx?ItemId=2348&PTID=104&MenuId=1
8
2. GLOBAL TRADE SCENARIO
The modest gains in 2014, marked the third consecutive year in which trade
grew less than 3%. Trade growth averaged just 1.6% between 2012 and
2014, the slowest rate on record for a three year period over the past few
decades (Except during 2009 crisis). As per WTO Economist estimates,
growth in the volume of world merchandise trade will pick up only slightly over
the next two years, rising from 2.8% in 2014 to 3.3% in 2015 and eventually to
4.0% in 2016.
WORLD TRADE
World Trade in Trillion USD (Current Prices)
20.4%
17.3%
World Trade growth in %
25%
20%
12.8%
200
15%
150
0.2%
1.7%
2.80%
3.30%
4.00%
10%
5%
0%
100
148.9
167.9
130.0
50
156.5
183.5
183.8
187.0
192.2
198.6
206.5
-5%
-10%
-15%
-22.6%
-20%
0
-25%
2007A
A – Actuals
2008A
2009A
2010A
E – Estimates
2011A
2012A
2013A
2014E
2015F
2016F
F- Forecasts
Source: World Trade Organization Statistical database
Factors contributing to the Sluggish growth in global trade are
1.
2.
3.
4.
5.
6.
Slowdown in emerging countries like China, Russia and Brazil
Uneven recovery of developed economies like Europe and Japan
Protectionist measures adopted by countries
Geo political tensions in Middle East and Ukraine
Exchange rate fluctuations
Sharp decline in commodity prices in global markets especially Oil and Metals
9
World Trade growth in %
World Trade in Trillion USD
250
IMPACT OF GLOBAL SLOWDOWN ON UAE TRADE
IMPACT GLOBAL SLOWDOWN ON UAE TRADE
UAE TRADE in Billion AED
1,200
930
Trade Growth in %
1,058
1,065
1,049
1,000
800
25%
20%
756
662
600
22.87%
15%
14.23%
13.84%
10%
400
5%
200
0%
0.68%
-1.50%
2009
2010
2011
2012
2013
UAE Trade Growth in %
Total UAE Trade in Billion AED
-5%
2014P
Note: 2014P - Prorated numbers for 2014 using six month data for 2014
SOURCE: UAE STATISTICS.GOV.AE
Slowdown in global trade had its impact on UAE overall trade numbers. The
growth in total trade just increased by 0.68% in 2013 when compared to an
increase of 22.87% and 13.84% in 2011 and 2012 respectively. Prorated data
in 2014 shows a decrease in trade numbers by -1.5%.
10
3. AUSTRALIA AND GCC TO SIGN FREE TRADE AGREEMENT
Australia initially started negotiating a FTA deal with the United Arab Emirates
in 2005. However, the negotiations were halted in 2009 when the GCC
decided to negotiate collectively. Australia and GCC countries are likely to
sign a Free Trade Agreement deal and this deal will have multiple benefits to
Businesses in gulf region.
Australia is prepared to remove previous ―road blocks‖ such as Car Tariffs
and double Taxation

Double Taxation agreement for Investments - The double taxation is an
agreement that if the Gulf States invest companies in Australia they
wouldn’t get taxed in Australia and back in the Gulf States. So there will
be no taxation.

Gulf States got 5% tariffs on Imported cars from Australia
This agreement will help in improving trade and Investments between UAE
and Australia


Agreement would secure more scope for reliable, high-quality,
foodstuffs from Australia. Agriculture makes up around 12 percent of
Australia’s GDP.
Will open up Investment opportunities for UAE Investors in Australia.
Some of the attractive sectors in Australia are Agro processing, Mining
and Education
Reference:http://english.alarabiya.net/en/business/economy/2015/04/12/Austr
alian-trade-minister-FTA-with-GCC-possible-within-months-.html
11
ECONOMY MONITOR
12
1. IMF RELEASES WORLD ECONOMIC OUTLOOK
(APRIL-2015)
IMF Forecasts global Economic growth to be moderate, with uneven
prospects across main countries and regions. Global growth is projected to be
around 3.5 percent in 2015, in line with earlier forecasts.
When compared to previous forecasts, outlook for advanced economies is
improving, while growth in emerging market and developing economies is
projected to be lower, primarily due to weak prospects for some emerging
economies and Oil-exporting economies.
Emerging Markets like China, Russia and Brazil are experiencing a slowdown
in recent quarters and advanced economies like Japan and Europe are
expected to underperform over the next few years.
Historical
Projections
World Output (Annual
Percentage)
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2020
World
5.7
3.1
-
5.4
4.2
3.4
3.4
3.4
3.5
3.8
4.0
Advanced Economies
2.8
0.2
(3.4)
3.1
1.7
1.2
1.4
1.8
2.4
2.4
1.9
Emerging and
Developing Economies
8.7
5.8
3.1
7.4
6.2
5.2
5.0
4.6
4.3
4.7
5.3
Source: World Economic Outlook report – April 2015
Two factors currently dominate the global scenario are
1. Decline in price of Oil: Price declines have largely effected the
reallocation of real Income between Oil Importers and Oil Exporters. Oil
Importing countries like US, Europe, China and India have seen an
increase in real spending due to cheaper Oil. Oil exporters have cut
spending but to a smaller extent and have substantial financial
reserves and are in a position to reduce spending slowly.
2. Large Exchange rate movements: Exchange rate Movements have
been usually large. This is due to different monetary policy approaches
followed by Central Banks of Major economies like US, Euro and
13
Japan. Among Major currencies dollar has seen a major appreciation
due to an anticipation of increase in Interest rate by Federal Reserve.
Euro, Yen depreciated sharply due to financial Stimulus carried by their
respective central banks.
References:
World Economic Outlook report – April 2015
14
2. REGIONAL ECONOMIC ANALYSIS
ADVANCED ECONOMIES
FORECASTED GDP GROWTH IN %
ADVANCED ECONOMIES OUTLOOK
3.5
3.0
2.5
2.0
1.5
1.0
0.5
2014
2015P
United States
Euro Area
United Kingdom
Canada
2016P
Other Advanced Economies
Source: World Economic Outlook report – April 2015
1. US and Canada recovering and expected to remain solid.
Lower Energy prices has boosted growth momentum in US. Labor markets,
Business and consumer confidence have shown some improvements and the
outlook for them is very positive. Weak International markets and strong dollar
are posing challenges to growing US economy.
Lower Oil prices pose downside risks to Canada as its economy is largely
dependent on Energy sector.
2. Euro facing Slowdown
Signs of pickup in economy can be seen in Euro area. Lower oil prices and
favorable financial conditions due to monetary easing will help Euro Economy
to improve further. Low Inflation in many countries is still a concern
15
ASIA PACIFIC
FORECASTED GDP GROWTH IN %
ASIA PACIFIC OUTLOOK
8
7
6
5
4
3
2
1
0
-1
2014
2015P
2016P
Axis Title
Japan
China
India
Australia
Korea
Source: World Economic Outlook report – April 2015
Asia Pacific is moderating but still outperforms other regions in economic
growth. Asia pacific moderated in economic growth slightly due to an external
factors such as weak demand in Euro and US. China and India are expected
to grow more than 6% and 7% respectively. Japan is an exception which is
facing slowdown in economy and deflationary pressures. Australia and Korea
will grow moderately between 3 to 4%.
LATIN AMERICA AND THE CARRIBEAN
Growth in Latin America and the Caribbean has slowed further as falling
commodity prices have hot the region’s commodity exporters. External current
account deficits have continued to widen in most countries in the region,
although the recent collapse in oil prices has provided relief to net importers,
notably in Central America and Caribbean. Lower oil prices should also assist
disinflation, but their effects will be partly offset by weaker exchange rates,
which are playing a crucial role in facilitating external adjustment.
16
LATIN AMERICA AND CARRIBEAN
FORECASTED GDP GROWTH IN %
South America
Central America
Carribean
5.0
4.0
3.0
2.0
1.0
2014
2015P
2016P
(1.0)
Source: World Economic Outlook report – April 2015
COMMON WEALTH OF INDEPENDENT STATES
Common wealth of Independent states region is projected to slide in to
recession. Mainly for two reasons
1. Significant contraction of Russian economy to International sanctions and
much of the States are dependent on Russia for their economic growth.
2. Fall in Oil prices will have an Impact on the Oil exporting nations in CIS
FORECASTED GDP GROWTH IN %
COMMON WEALTH OF INDEPENDENT STATES
Overall CIS
Russia
Kazaksthan
5
4
3
2
1
0
-1
2014
2015P
-2
-3
-4
-5
Source: World Economic Outlook report – April 2015
17
2016P
SUB SAHARAN AFRICAN ECONOMIES:
Growth in Sub Saharan Africa remains strong at 5% in 2014. Although it is
expected to slow in 2015. Due to the following reasons
1. Declining Commodity Prices
2. Epidemic in Ebola effected countries
FORECASTED GDP GROWTH IN %
SUB-SAHARAN AFRICA
Overall Sub-Saharan Africa
Nigeria
South Africa
7
6
5
4
3
2
1
0
2014
2015P
2016P
Source: World Economic Outlook report – April 2015
IMPACT OF SLOWDOWN ON UAE
ADVANCED ECONOMIES
Improving Economic activity in advanced nations will improve trade and
Investment activities.


Decreased Energy prices will boost domestic demand as consumers
will have much disposable Income than the period when Energy prices
were higher. This increased domestic demand will increase in number
of Imports and will see a slight increase in trade numbers to Advanced
Economies.
Policy measures taken by the governments and central banks in order
to boost economic activity will improve Investment Climate and will
result in increased flow of capital to this countries.
CIS COUNTRIES


Fall in Number of tourists to UAE from CIS countries
Decline in Trade numbers from CIS countries
18
SUGGESTED POLICY INITIATIVES FOR UAE
SLOWDOWN AND INVESTMENT OPPORTUNITIES IN CIS COUNTIRES
Good Opportunity for UAE Investors to Invest in Russia and CIS countries
due to the following reasons


Rouble has depreciated more than 50% in the past quarter and
gives an opportunity to International Investors who will invest in
dollars or Euros.
Businesses are at their lowest valuations and hence providing a
fantastic opportunities for Investors looking for value Investing.
OPPORTUNITIES FOR UAE INVESTORS IN AFRICA


Africa as a whole is a growing economy and strong inflows of
foreign funds in to Infrastructure, Mining and Power.
Increased Private consumption in Africa will open Investment
opportunities for businesses operating in Utilities, Telecom and
Banking
LOOK EAST INVESTMENT POLICYINVESTMENT OPPORTUNITIES
ASIAN
COUNTRIES
OFFER
With a slowdown in US and Europe, UAE has to adopt a policy of ―Look East‖
as China and India are the largest trading partners. Not only trade Asia pacific
has a lot of opportunities for Investment.
Some of the attractive sectors for Investment are




Infrastructure
Power
Industrials ( India attracting Manufacturers’ by ―Make in India‖
Policy)
High technology
19
3. ECONOMIC OUTLOOK FOR MIDDLE EAST AND NORTH AFRICA
As a result of the steep decline in oil prices, Oil exporters in MENA region are
experiencing large losses of export and fiscal revenues. Most of the region’s
oil exporters are expected to avoid sharp cuts in spending by drawing on their
large buffers and use available financing.
As per IMF forecasts, Economic growth for the region in 2014 was around
2.6% and is projected to be around 2.9% and 3.8% in 2015 and 2016
respectively.
GDP Growth in Percentage
MENA GDP GROWTH FORECASTS
Overall MENA Region
Oil Exporting Nations
Oil Importing Nations
2014
2015P
2016P
5
4
3
2
Source: World Economic Outlook report – April 2015
Economic growth in MENA region suffered due to the following factors
1. Decline in Oil prices
2. Conflicts in the region
3. Policy Uncertainty by governments
20
As per IMF forecasts, Economic growth for UAE in 2014 was around 3.6%
and is projected to be around 3.2% in 2015 and 2016 respectively.
UAE ECONOMIC FORECASTS
GDP GROWTH IN %
GDP GROWTH IN %
3.6
2014
3.2
3.2
2015P
2016P
GDP GROWTH FORECAST %
10
Iran
GDP GROWTH FORECAST %
Iraq
8
Saudi Arabia
7.6
6
7
Kuwait
7.1
6.5
6.1
6
5
4
3
2
4
1.3
0.6
0
2014
-2
8
Qatar
2015P
1.3
2016P
3
3
2.7
2
1
-2.4
3.6
1.3
1.7
1.8
2015P
2016P
0
2014
-4
Source: World Economic Outlook report – April 2015
Some of the risks in the region are
1. Decline in Oil Production and Prices
2. Deepening of Conflicts and security disruptions could undermine economic
growth activity, delay reforms and dampen confidence in the region
21
UAE POLICY SUGGESTIONS
1. Reassessing Medium to long term spending plans by governments and
be prepared for low oil prices:
Reassessing and cutting government spending
 Decreasing operating expenditure of government by setting
Individual targets to each and every government department
 Realigning the capital expenditure of government and prioritizing
projects which will create high yielding assets
2. Focusing on fiscal consolidation plans:
With a fall in Oil prices, Fiscal Surplus of UAE might turn in deficits with the
current level of spending of government. Focus has to shift towards cutting
slippages in expenses by government which will lead towards fiscal
consolidation.
3. Diversification of Economy:
The contribution of oil to economy has increased from 25% in 2001 to 39% in
2013. A well drafted strategy to be in place to diversify UAE Economy. Few
rising sectors have to be identified and government can devise strategies to
boost this sectors. Supportive environment for SME’s is one of the Initiative
which can boost diversification of economy.
UAE ECONOMY BREAK UP BETWEEN OIL AND NON OIL SECTORS
Non Oil Sector %
Oil Sector %
100%
25%
23%
25%
75%
77%
75%
29%
34%
37%
34%
37%
27%
32%
39%
39%
39%
61%
61%
61%
2011
2012
2013*
80%
60%
71%
73%
66%
63%
66%
63%
68%
40%
20%
0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
SOURCE: UAE STATISTICS.GOV.AE
4. Introduction of Taxes:
UAE which plans to spend hugely on Infrastructure and now with decline in Oil
prices will have find alternative ways of Revenues for the government.
Introduction of taxes will contribute to government planned spending on
developing Infrastructure. Taxes can be introduced in phased manner starting
with VAT and then Corporate and Income Tax can be considered
22
4. ANALYSIS - DECLINE IN CRUDE OIL PRICES
The Price of crude Oil has fall sharply over the past few quarters. A barrel of
crude oil typically was traded for around $ 100 as recently as last May but it
plummeted to as low as $ 45 per barrel. Over the Past year, Oil Prices have
fell by more than 50% and there is slight recovery in the short term. When we
compare the prices from January 2015 to April 2015 there is slight recovery in
Oil prices and they have increased by 20% from $51 to $ 59. The reasons for
this change are twofold - weak demand in many countries due to insipid
economic growth, coupled with surging US production.
ONE YEAR CRUDE OIL HISTORICAL DATA IN USD
105
103
100
98
96
91
80
80
54
60
59
May-15
51
Apr-15
55
Feb-15
60
Jan-15
67
Dec-14
120
49
40
20
Mar-15
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
May-14
Jun-14
-
Source: IEA Statistics
4 MONTH CRUDE OIL HISTORICAL DATA IN USD
70
60
51
54
60
59
Apr-15
May-15
49
50
40
30
20
10
0
Jan-15
Feb-15
Mar-15
Source: IEA Statistics
23
Factors Contributing to decline in Crude Oil Prices
1.
2.
3.
Demand and Supply mismatch
Weak Global Economy
Increase in Energy efficient machines and Automobiles
1. DEMAND- SUPPLY MISMATCH:
WORLD OIL SUPPLY AND DEMAND
Demand
MILLION BARRELS PER DAY
96
Supply
94.9
95
94
92.9
93
91.8
92
91
92.0
92.1
91.3
90.5
92.6
90
89
94.5
94.0
90.6
93.0
92.9
91.3
91.7
93.7
94.1
93.0
94.7
92.7
91.6
88
Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15
Source: IEA Statistics
2. WEAK GLOBAL ECONOMY:
Demand for Imported crude oil has fallen or is flat over the past 2 years. Weak
Demand for Oil due to weak economic growth in many advanced economies
such as US, Europe, Japan and slowdown in emerging economies such as
China, Russia & Brazil
24
Former
Soviet
Union,
4.96
Demand for Oil in 2013
Former
Soviet
Union,
4.64
(Million Barrels per day)
Africa,
3.82
Middle
East,
7.77
Demand for Oil in 2015
(Million Barrels per day)
Africa,
4.06
Middle
East,
7.88
America,
31.14
Asia +
Oceania,
30.93
America,
30.71
Asia +
Oceania,
31.68
Europe,
14.28
Europe,
14.01
Source: IEA Statistics
SUPPLY SIDE OF CRUDE OIL
Development of domestic shale based Oil fields by US over the past few
years. The U.S for instance have managed to double their production in the
last 6 years alone. Once a fixed market for importing oil from the Middle East,
the U.S is now looking for markets to export themselves. Other countries like
Russia, Canada and Iraq are increasing their domestic crude oil production
and export volume. The global supply of crude oil has been on the increase
for the last few years.
World Oil Production – Top Producers (Million Barrels per day)
2013
Million
Barrels
Per
Country
day
United States 10.24
Russia
10.87
Saudi Arabia 9.4
China
4.18
Iran
2.68
Iraq
3.08
UAE
2.76
Kuwait
2.55
Brazil
2.12
Venezuela
2.5
Nigeria
1.95
Total Supply 91.39
2014
Million
Barrels
Market
Per
Share
day
11.20%
11.81
11.89%
10.95
10.29%
9.53
4.57%
4.19
2.93%
2.81
3.37%
3.33
3.02%
2.76
2.79%
2.61
2.32%
2.34
2.74%
2.46
2.13%
1.9
100.00% 93.48
25
Q1 2015
Million
Market
Barrels
Share
Per day
12.63%
12.57
11.71%
11.03
10.19%
9.74
4.48%
4.14
3.01%
2.82
3.56%
3.48
2.95%
2.84
2.79%
2.7
2.50%
2.51
2.63%
2.39
2.03%
1.83
100.00% 94.55
Market
Share
13.29%
11.67%
10.30%
4.38%
2.98%
3.68%
3.00%
2.86%
2.65%
2.53%
1.94%
100.00%
Though the prices of oil have declined, dominant suppliers of Crude Oil such
as US, Russia and Saudi Arabia have increased their Oil Production in the
past 2 years. Saudi Arabia with its OPEC peers has decided not to intervene
in the Oil market. Instead it has decided to raise Crude oil production in order
to increase its market share.
Oil Production in 2013
(Million Barrels per day)
Brazil,
2.12
Kuwait,
2.55
Oil Production in 2015
(Milion Barrels Per day)
Venezula, Nigeria,
1.95
2.5
Venezula,
2.39
Brazil,
2.51
Kuwait,
2.7
United
States,
10.24
UAE,
2.76
Nigeria,
1.83
United
States,
12.57
UAE, 2.84
Iraq, 3.48
Iraq, 3.08
Russia,
10.87
Iran , 2.68
China,
4.18
Iran , 2.82
Saudi
Arabia,
9.4
China,
4.14
Russia,
11.03
Saudi
Arabia,
9.74
Source: IEA Statistics
IMPACT OF OIL PRICE ON THE MENA REGION

Loss in Export Revenues: As per IMF estimates due to fall in crude
oil prices, GCC nations combined will have a direct revenue loss of $
300 billion.

Slow Economic growth: Economic growth for Gulf region in 2014 was
around 3.6% and with a fall in Oil prices it is expected to be around
3.4% in 2015.

Shift from fiscal surplus to deficits: At current oil price most of the
nations will have fiscal deficits and have to rely on foreign currency
reserves or Sovereign Wealth funds to fill the gap in fiscal budgets.
26
Estimated Oil Prices to balance Fiscal Budgets
($ per Barrel for Break-even Prices in 2015)
124
Libya
Yemen
120
Algeria
100
Bahrain
UAE
96
Oman
76
88
Saudi Arabia
70
Iraq
Kuwait
52
64
Qatar
159
Source: Financial Times
Source: Financial Times
OUTLOOK AHEAD:
As per current market forecasts, price of Oil is forecasted to be around $72
per barrel till 2019. Some of the strategies which can be adopted are



Expenditure control: GCC nations have to slash operating
expenditures such as power subsidies, public wages and careful
prioritization of Infrastructure projects
Diversification of Economy: GCC governments except UAE are set
to pose significant challenges to diversify economy. By providing
Incentives and encouraging Entrepreneurship, private sector will create
lot of employment opportunities.
Introduction of Taxes: Introduction of taxes will diversify the revenue
sources of the governments.
27
References



https://www.iea.org/media/omrreports/tables/2015-04-15.pdf
http://www.bbc.com/news/business-29643612
http://www.ft.com
5. QUANTITATIVE EASING (QE) BY EUROPEAN CENTRAL BANK
28
EXPLAINING QUANTITATIVE EASING:
QE is the policy tool used by Central Bank to indirectly encourage consumer
and business spending in an economy. Central Bank creates money and uses
this money to buy bonds from financial Institutions. Buying bonds will inject
cash in to the system and increases the supply of money in the system. This
excess liquidity system pushes Interest rates down from the current levels.
Low Interest rates will encourage Businesses and Consumers to spend more
which will result in higher Investments and spending. Increase in Investment
and consumption activity will increase the economic output of the economy.
EUROPEAN CENTRAL BANK QE APPROACH
European
Central Bank
Creates
Money
Uses Money
to buy Bonds
from
Financial
Institutions
Injects Cash
and reduces
Interest
Rates in to
System
Low Interest
rates will
encourage
Busineses
and People to
borrow
ECONOMIC CASE FOR QUANTITATIVE EASING
29
More
Borrwoing
will increase
consumption
and
Investment
Increased
Investment
and
Consumption
will increase
the Economic
Output
1. To Stimulate Economic Growth:
The recovery since the double-dip recession between late 2011 and early
2013 has been weak and faltering. Euro faced recession in 2012 and the
growth rate was 0% in 2013. In order to revive European Economy, ECB was
forced to use QE as tool to economic recover growth
EURO (28) ECONOMIC OUTPUT GROWTH IN %
3.4%
2.5%
1.5%
3.1%
2.1%
2.0%
1.7%
1.3%
0.5%
-0.5%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0.0%
2013
2014
-4.4%
Source: Eurostat
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pco
de=tec00115&plugin=1
2. To contain Deflation in Europe:
ECB’s primary target is to keep inflation below, but close to, 2 per cent — a
goal it has missed for the past two years. Low Inflation or deflation will create
more problems than increased inflation. QE will inject money in to the system
to increase money supply which is likely to increase the Inflation.
EURO Inflation(%)
4
3
2
1
0
2007
2008
2009
2010
2011
2012
2013
2014
-1
Source: European Central Bank Data http://sdw.ecb.europa.eu/
ECB’S QE PLAN:
30
2015
The European Central Bank intends to purchase more than €1tn in assets,
including government and private sector bonds, by 2016 September. As Part
of the programme ECB will buy assets worth €60 billion. This programme of
QE is aimed at revitalizing the Eurozone economy and countering deflation.
IMPACT OF QE ON EUROPE:


Central Bank’s €1.1tn quantitative easing policy has suppressed borrowing
costs and cheapened the single currency (Euro against major currencies)
It will push Inflation up in Europe and a positive sentiment in the business
community
31
INVESTMENT MONITOR
1. GLOBAL EQUITY MARKETS OVERVIEW
32
ADVANCED EQUITY MARKETS
EQUITY MARKETS IN US
After a solid gain of 13% in 2014 S&P 500 equity index rose 2.4% from the
beginning of the year to till date in 2015. Some of the concerns which are
effecting US stocks are
 Economic growth slower than expectations
 Concerns over raising Interest rates
 Corporates or MNC’s which have operations across the globe
are effected due to appreciating dollar against other major
currencies
US S&P 500 INDEX
2,150
2,100
2,117
2,058
2,050
2,108
2,000
1,950
1,900
Jan 02,
2015
Jan 16,
2015
Feb 02,
2015
Feb 17,
2015
Mar 03,
2015
Source: Investing.com
Returns: 2.4%
Highest: 2,117 (2.9%)
Lowest: 1,992 (-3.2%)
33
Mar 17,
2015
Mar 31,
2015
Apr 15,
2015
Apr 29,
2015
EQUITY MARKETS IN UK:
UK stocks returned 6.7% from the beginning of the year .Some of the triggers
to watch are
 Election results in UK
 GDP and Manufcturing numbers
FTSE - 100
7,500
7,000
6,548
6,986
6,500
6,000
5,500
Jan 02, 2015
Jan 23, 2015
Feb 13, 2015
Mar 06, 2015
Mar 27, 2015
Apr 21, 2015
Source: Investing.com
 Returns: 6.7%
 Highest: 7,103 (8.5%)
 Lowest: 6,366 (-2.8%)
EQUITY MARKETS IN EUROPE:
A major driver of the European share rally has been money flowing into the
market from foreign-based investors, although a weakening euro lowers their
overall return. European Stock markets rallied in the past quarter and by the
end of the Quarter they rose by 22% towards new cyclical highs. Share
markets in Germany, France, the Netherlands and Italy have all risen more
than 20 per cent so far this year. Some of the key factors contributing to the
rally in stocks were
1. Quantitative Easing by European Central Bank
2. Good Corporate earnings reports
3. Weak Euro has increased the export numbers
The declining value of the euro, which has fallen 12 per cent this
year, also provides a boost for Eurozone companies that rely on
foreign-based revenues, providing a notable tailwind for large
multinationals such as Merck, BASF, Volkswagen, Adidas, Peugeot
and Airbus.
34
EURO STOXX 50
4,100
3,700
3,300
3,625
3,139
2,900
2,500
Jan 02,
2015
Jan 16,
2015
Jan 30,
2015
Feb 13,
2015
Feb 27,
2015
Mar 13,
2015
Mar 27,
2015
Apr 14,
2015
Apr 28,
2015
Source: Investing.com
YTD Returns: 15.5%
Highest: 3,829 (22.0%)
Lowest: 3,008 (-4.2%)
EQUITY MARKETS IN JAPAN:
Central Bank of Japan’s massive monetary policy easing has resulted in
rallying of stocks in Japan.
NIKKEI 225 (JAPAN)
21,000
19,532
20,000
19,000
18,000
17,409
17,000
16,000
15,000
Jan 05,
2015
Jan 20,
2015
Feb 03,
2015
Feb 18,
2015
Mar 04,
2015
Source: Investing.com
 Returns: 12.2%
35
Mar 18,
2015
Apr 01,
2015
Apr 15,
2015
Apr 30,
2015
 Highest: 20,188 (16.0%)
 Lowest: 16,796 (-3.5%)
EMERGING MARKETS
CHINESE EQUITY MARKETS:
Chinese Equity markets soared by 33.8% in 2015 and were the best
performing equities in the world. Utilities and Industrials stocks are leading the
Stock markets.
Outlook:
Fears of bubble in Chinese Equity Markets as they have rose more than
120% in the last 18 months. Chinese Economy is slowing and Equity markets
are soaring, the real economy and Markets are moving in opposite direction.
SHANGHAI COMPOSITE - CHINA
4,482
4,500
4,000
3,500
3,351
3,000
Jan 05,
2015
Jan 19,
2015
Feb 02,
2015
Feb 16,
2015
Mar 09,
2015
Source: Investing.com
INDIAN EQUITY MARKETS
36
Mar 23,
2015
Apr 07,
2015
Apr 21,
2015
Indian markets were one of the best performing markets globally in 2014. The
BSE Sensex and NSE Nifty jumped 30% buoyed by hopes of a better
economy and reforms by the Narendra Modi government. India also emerged
as one of the strongest economies amongst the emerging markets. The year
2015, however, began on a mixed note. NSE Nifty rose more than 8.5% in
Feb and then fell -2.2% in March. Overall returns till date in 2015 is around
0.58%.
Outlook:
1. One of the strongest emerging Markets
2. Reforms adopted by the new government
3. Corporate Earnings expected in range of 17-18%
4. Lower oil prices will benefit India as it is one of the largest Importer of oil
NSE NIFTY (INDIA)
9,000
8,500
8,332
8,284
8,000
Jan 01,
2015
Jan 15,
2015
Jan 30,
2015
Feb 13,
2015
Feb 28,
2015
Mar 16,
2015
Source: Investing.com
2. OVERVIEW OF REGIONAL EQUITY MARKETS
37
Mar 30,
2015
Apr 16,
2015
Apr 30,
2015
EQUITY MARKETS IN UAE
In the first half of the Equity markets dropped further due to fall in Oil prices.
Mena equity markets will remain captive to oil price moves, but the correlation
has weaken as investors get accustomed to lower oil prices. UAE equity
markets will be interesting to watch as there can be some major IPO’s to be
listed in the second half of 2015.
ADX GENERAL
4,548
4,700
4,430
4,200
Jan 04,
2015
Jan 20,
2015
Feb 05,
2015
Feb 23,
2015
Mar 11,
2015
Mar 29,
2015
Apr 14,
2015
Apr 30,
2015
Source: Investing.com
 Returns: 2.2%
 Highest: 4,706 (5.7%)
 Lowest: 3,008 (-3.8%)
Some of the top performers YTD are
 Agthia Group – 20.0%
 International Fish farming Holding Co- 14.36%
 Union National Bank – 13.79%
 United Arab Bank – 10.7%
 RAK Ceramics – 9.0%
Some of the worst performers YTD are
 Insurance House -19%
 Green Crescent Insurance Co -18.92%
 RAK Cement and Construction Co -17.62%
 Abu Dhabi National Company for Building Materials -17.50%
 Abu Dhabi ship building Co -15.79%
38
DFM GENERAL
4,600
4,099
4,200
3,689
3,800
3,400
3,000
Jan 04,
2015
Jan 20,
2015
Feb 05,
2015
Feb 23,
2015
Mar 11,
2015
Mar 29,
2015
Source: Investing.com
 Returns: 11.1%
 Highest: 4,299 (14.6%)
 Lowest: 3,407 (-7.6%)
Some of the top performers YTD are





Takaful Emarat PSC - 135%
Dubai Investments - 39.42%
Dubai Parks and Resorts PJ. - 30.82%
Gulf General Investments - 30.14%
Commercial Bank of Dubai - 25%
Some of the worst performers YTD are





National General Insurance -17.25%
AJMAN BANK PJSC -13.39%
Dubai National Insurance- 8.57%
Arabtec Holding – 7.51%
Drake Scull International – 6.82%
39
Apr 14,
2015
Apr 30,
2015
EQUITY MARKETS IN SAUDI ARABIA
Saudi Arabia announced it is pressing ahead with plans to open up the
stock market directly to foreigners from June 15.
The size and depth of the Saudi Arabia market:



Current Market Capitalization at $554bn.
Number of listed companies: 168 listed companies
Covering 15 industries– Petrochemicals, Banks, Telecoms,
Hospital groups, Education and Travel
Liquidity: Attracting foreign Investors will increase liquidity levels
and can trade up to $4bn shares per day

Despite of fall in oil prices which has effected most of the equity
markets in MENA region. But Saudi markets are rallying due to
opening of the market for foreign investors in June.
TADAWUL ALL SHARE INDEX - SAUDI ARABIA
9,766
10,000
9,500
9,000
8,410
8,500
8,000
Jan 01,
2015
Jan 15,
2015
Feb 01,
2015
Feb 15,
2015
Mar 01, Mar 15, Mar 29,
2015
2015
2015
Source: Investing.com
 Returns YTD: 16%
 Highest: 9,834 (16.9%)
 Lowest: 8,057 (-4.2%)
3. UAE PRIMARY MARKETS
40
Apr 12,
2015
Apr 26,
2015
Companies in the Middle East and North Africa raised $11.5 billion in 2014
through 27 IPOs, almost four times more than the $3 billion in the previous
year, according to a new report by Ernst and Young. Saudi Arabia and UAE
are the active markets when it comes to IPO markets in MENA region.
New rules of legislation by UAE has made the floating of IPO’s easier for the
businesses. Weak equity markets in the UAE, partly due to the plunge of oil
prices, have caused at least several UAE companies to suspend IPO plans.
New rules will help companies to revisit their listing plans.
When it comes to UAE market, many businesses have postponed or held
their IPO’s due to weak equity markets. Companies feel this is not the right
time issue equity as some of the stocks in secondary markets have fell more
than 25% in the last four months. Companies fear markets may not respond
positively to their offerings.
Some of the companies which held IPO’s are
1. Abu Dhabi based Massar Solutions
Some of the likely IPO’s to watch for in second half of 2015 in UAE are
1. Dubai’s Aster Healthcare
2. Daman Investments
UAE ISSUES NEW LEGISLATION FOR LAUNCH OF IPO’S
Some of the new rules are
Companies now can float a minimum of 30% of their shares, which was
earlier 55% of shares. Under this rule more businesses will be
interested to float their IPO’s as 30% floating will still help the
promoters to retain their control over the company. This will encourage
businesses to list their companies in coming future.
2. New law will also allow book building process to price their shares.
Book building process is by which the issuer attempts to determine at
what price to offer an IPO based on demand from Investors.
3. Listed companies will be able to convert their debt in to capital. This will
help companies to issue convertible debt, which converts debt in to
equity under agreed conditions.
1.
Source: Arabian Business Magazine
41
COUNTRY IN FOCUS – NIGERIA
1. INVESTMENT DESTINATION – NIGERIA
42




ECONOMIC PROFILE OF NIGERIA
GDP Current USD - $521.8 Billion (2013)
Region: Sub Saharan Africa
Income Level: Lower Middle Income
Population: 173.6 Million (2013)
ECONOMIC STRUCUTRE OF NIGERIAN ECONOMY
Services,
31.9%
Agriculture,
32.5%
Industry, 35.6%
Source: ET Intelligence
ECONOMIC CHALLENGES FACED BY NIGERIA:
1.
Slowing of Economic growth:
Oil and Gas contributes to 16% of the GDP of Nigerian Economy. With a
decrease in Oil demand and prices globally, Nigerian economy has been
effected.
2.
Falling Foreign reserves:
Over the past year due to fall in crude Oil Prices, Nigerian foreign reserves
have fell about 20% from $ 43.16 billion to $ 34.38 Billion. Though the
reserves have fallen sharply, they are still in acceptable levels (More than
5 months of the short-term debt)
43
NIGERIAN FORIEGN RESERVES IN $ BILLION
43.16
34.38
Jan-14
Jan-15
Source: UN Population Survey
3.
Fiscal and Current deficits:
Over the past few years Nigerian Fiscal account was running in Surplus of
between 2 to 6%. Drop in Oil prices has pushed Nigerian Fiscal account
from a Surplus to a deficit of 2% economic output. Analysts estimate the
deficit to continue till 2016 to reach 3% of the GDP.
4.
Economy dependent on Oil prices:
Oil and gas accounts for more than 90% of Nigeria’s export revenues,
which has roughly being halved in past one year. Nigerian Government
relies on Oil for covering more than 70% of the fiscal expenditure. With Oil
prices falling more than 45% since last year, Nigerian economy is in bad
state.
5.
Depreciating Currency and Inflation:
The impact of falling oil demand and the uncertainty ahead of the election
have depreciated the naira. The dollar has gained 8.7 per cent against the
Nigerian currency in the past year, making it one of the worst performer in
Africa. Depreciating currency has pushed the cost of Imports and has led
to Inflation which is hurting the business and consumers.
44
NIGERIAN NAIRA PER USD
215
205
198.88
195
183.86
185
175
Jan 01,
2015
Jan 15,
2015
Jan 29,
2015
Feb 12,
2015
Feb 26,
2015
Mar 12,
2015
Mar 26,
2015
Apr 09,
2015
Apr 23,
2015
Source: Investing.com
INVESTMENT HIGHLIGHTS OF NIGERIA
1. Largest Economy by size in Africa
Nigeria has overtaken South Africa as Africa's largest economy after a
rebasing calculation almost doubled its gross domestic product to more
than $500bn.
GDP ESTIMATES IN 2013 $ BILLION
370
South Africa
521
Nigeria
Source: World Bank Data
2. Economy diversification strategy adopted by Government
As Part of diversification of economy, Nigerian government has identified
Infrastructure as the key sector for economic growth. One of the big
45
Infrastructure projects signed recently by China as part of Silk route
strategy, China Railway Construction Corp will build a $3.5bn intercity rail
line in Nigeria.
3. New and Promising leadership
Nigeria recently elected its new president Muhammad Buhari. With new
leadership in place, it is expected that Nigerian government will work
towards curbing corruption, inflation and Economic growth. Being an exMilitary general, he is expected to fight against Insurgency by radicals in
Northern Nigeria. Nigerian stock market, one of the world’s worst
performers since the start of this year, has rebounded in recent months
with the positive expectations from the new President.
NIGERIA ALL SHARE INDEX
37000
34941.79
33000
34844.79
33943.29
29000
27728.63
25000
Jan 05,
2015
Jan 21,
2015
Feb 06,
2015
Feb 24,
2015
Mar 12,
2015
Mar 30,
2015
Apr 16,
2015
Source: Investing.com
4. Favorable Demographics:
Nigerian Economic growth is related to an increase in the share of its
working-age population. Currently Nigerian population is around 170
million and estimated to increase to 400 million by the end of 2050.
Nigeria has more than 100 million working people who will contribute to
the growth of economy.
46
NIGERIAN POPULATION ESTIMATES
(IN MILLION)
400
170
2014A
2050 E
Source: UN World Population Survey
ATTRACTIVE SECTORS FOR INVESTMENT IN NIGERIA
1. AGRICULTURE
Agriculture accounts for one-third of the economy and accounts for twothirds of labor. Nigeria’s Agriculture sector growing at 2 to 5% per annum
over the last decade.
Growth drivers for growth in Agriculture are
 Huge Investment opportunity in large scale arable lands for farming.
Only 30% of the land is cultivated despite 70% (98,300,000
hectares) of land is considered suitable for crop cultivation.
 Nigeria is an Importer of Food and aspires to be a self-sufficient in
food production by adopting suitable import substitution programs
 Nigeria has the potential to emerge as food exporter to the world
 Favorable conditions for Agriculture – Fertile lands, abundant water
resources and suitable climate
Some of the suitable Investment Opportunities in agriculture in Nigeria are







Food processing and preservation
Livestock and fisheries production
Agricultural inputs supplies like quality seeds and fertilizers and
machinery rentals
Water resources development especially for flood control
infrastructure and irrigation.
Commodity Trading and Transportation
Exploitation of timber and Wood processing activities
Development and fabrication of mechanized technologies for food
processing
47
2. MINING
Nigeria is endowed with vast resources of solid minerals. Nigerian mining
sector has a potential for investments in 44 minerals spread across the
country which can be commercially exploited. Private businesses involved
in mining enjoy Tax exemptions for importation of machinery which will be
utilized for mining.
Estimated and proven Solid mineral reserves in Nigeria
Solid Mineral
Estimated Reserves
Remarks
Coal
396 Million Metric tons 4 out of 9 potential Coal blocks auctioned to
Investors and remaining 5 kept for reserve
for government entities
Bitumen
58 billion barrels
Limestone
31 Million tons
4 out of 6 blocks are sold to Investors and
remaining 2 to be placed for bidding in
future
Most of them used in cement manufacturing
Iron Ore
Barites
882 Million tons
111,000 tons
21 Million metric tons –unproven reserves
Lead-Zinc
100,000 tons Lead
800,000 tons Zinc
Gold
50,000 Ounces
30 licenses issued for gold mining
Source: KPMG report on Nigerian Mining Sector
3. INFRASTRUCTURE
Nigeria’s poor Infrastructure is holding Nigeria’s economic development.
Nigerian Government has identified this as a bottleneck for growth and is
pushing Private participation in developing its Infrastructure. It is estimated
that Nigeria needs $3tn will be required in the next 30 years to build and
maintain adequate infrastructure supplies.
Of these Energy and transport will need the major funding
Energy - $ 1tn
Transport - $ 775bn
INVESTOR
INVESTMENT SIZE
Arm-Harith
Infrastructure
Fund, Raised $250 million in funds and plans
focusing on Infrastructure in Nigeria
to raise more in coming years
China Railway Construction Corp
$3.5 billion intercity railway line in
Nigeria
Source: FT News
48
4. EDUCATION
Attractive Private Education Sector in Nigeria
Private schools operating Nigeria and serving the low and Mid Income groups
operate by charging $1 per day as school fees. Main challenge faced by
school proprietors is
Limited access to finance restricting their ability to expand and improve the
quality of education they offer. Given the low fees they charge, few have the
cash flow to qualify for commercial bank loans and those on leased premises
can’t provide collateral. Banks are also reluctant to lend to them because of
their uncertain legal status.
As per estimates by UK department for International Development (DEEPEN),
Lagos financial capital of Nigeria alone requires $ 900 million funding in low
cost schools with return on equity around 5 to 9 percent per annum.
INVESTOR
Gray Matters Capital, US
Investment firm
INVESTMENT SIZE AND TYPE
Impact Built ―80 modular classrooms‖ in Kenya
and leases them. Planning to expand
in Nigeria
GMC’s
Indian
School
Finance Invested $20 Million in 1,400 low cost
company
private schools. 95% repayment rate
with more than 5% return on Equity
UK department for International $29 Million in 5 years
Development (DEEPEN)
Source: Financial Times
RISKS ASSOCIATED WITH NIGERIA
1. Currency Risk:
Foreign Investments in Nigeria face currency risk, as it is still expected that
Naira to depreciate further against dollar in the coming quarters. Weak
International crude oil prices, low fiscal buffers and domestic uncertainties
will add to the depreciating currency.
2. Nigeria’s sovereign Credit rating:
Recently Standard & Poor’s has downgraded Nigeria’s credit rating to B+
from BB-, citing the impact of seven months of declining oil prices and
rising political tensions on Africa’s biggest economy. Decline in Oil prices
has effected Nigeria’s external position and external vulnerability.
3. Underdeveloped Financial markets:
Nigeria’s financial markets lack depth and breadth in their offerings.
Investors might face risks such as illiquidity of assets as they might not be
49
able to find buyers at the time of exit. Lack of risk management products
will increase risks related to currency and interest rates.
4. Fears of Islamist Insurgency:
The advancement of Islamic militant group Boko Haram and its continued
disruptions in the northeast of the country will effect Investment and
business climate negatively.
Reference Sources:
Reuters News
Financial Times
Economist News Articles
50
CURRENCY MONITOR
51
1. FLUCTUATING CURRENCIES
Recently, one of the biggest concerns for Countries and companies operating
globally has been the fluctuating currencies. Many of the MNC’s with cross
currency transactions see it as one of the major concerns.
US DOLLAR INDEX:
A measure of the value of the U.S. dollar relative to majority of its most
significant trading partners. Index is calculated by factoring in the exchange
rates of six major world currencies: the euro, Japanese yen, Canadian dollar,
British pound, Swedish krona and Swiss franc.
US DOLLAR INDEX
102
100.72
100
98
96
94
95.51
92
90
91.38
88
86
Jan 02,
2015
Jan 23,
2015
Fe b 13,
2015
Mar 06, Mar 27,
2015
2015
Apr 17,
2015
Source: Investing.com
In the same quarter US Dollar has appreciated 10.2% and by the end of April
it has depreciated by 5.2% against major currencies.
I.
Appreciation of US Dollar
US dollar appreciated against most of the currencies in till mid of March in this
year. The main reasons for dollar rally against other currencies was
 Strong Fundamental numbers such as increase in expected GDP
growth, decrease in Unemployment numbers. Though US Economy is
expanding at a slower pace, it is likely to grow at potential rates in
coming quarters
 US Federal Reserve signaling a tight Monetary Policy
 Stimulus Packages by European and Japanese Central banks
52
II.
Depreciation of US Dollar
Weak US economy in the first quarter also suggested an inventory hangover
will hold back second-quarter growth and the signals of US Economy losing
momentum has led to slid in US dollar against major currencies. It has fallen
by more than 5% in the last one month.
US DOLLAR – EURO
U S D O LLAR - EURO
0.98
0.96
0.8909
0.94
0.92
0.9
0.88
0.86
0.84
0.82
Apr 28, 2015
Apr 23, 2015
Apr 19, 2015
Apr 14, 2015
Apr 09, 2015
Apr 05, 2015
Mar 31, 2015
Mar 26, 2015
Mar 22, 2015
Mar 17, 2015
Mar 12, 2015
Mar 08, 2015
Feb 26, 2015
Mar 03, 2015
Feb 22, 2015
Feb 17, 2015
Feb 12, 2015
Feb 08, 2015
Feb 03, 2015
Jan 29, 2015
Jan 25, 2015
Jan 20, 2015
Jan 15, 2015
Jan 11, 2015
Jan 06, 2015
Jan 01, 2015
0.8
Source: Investing.com
Some of the factors contributing to the rapid fall of Euro against dollar
The monetary easing game plan of Mario Draghi, president of the European
Central Bank, is for its $60bn-a-month bond-buying programme to stimulate
growth has also contributed to depreciation of Euro against dollar. A weaker
euro has already partly explained some of the upwards revisions to growth
and inflation in the central bank’s latest forecasts.
Impact of Weak Euro on European countries and Companies
Weak Euro will have a mixed response with in the European countries
1. There is a hope that a weaker currency will provide a much-needed boost
to the region’s exporters by making their goods and services cheaper to
customers outside the currency area. Weak Euro will benefit the Exporting
nations like Germany. European Companies focused on exports will
directly benefit from a depreciating Euro as they have their input costs not
53
changing much but will have an immediate incremental revenue due to
Weak Euro.
2. Eastern and Central European countries which have much of their Imports
like Oil, Capital goods from outside Europe will find their Imports
expensive due to weak Euro. Weakening of Euro leading to expensive
Imports might lead to inflation in near term.
SWINGING ASIAN CURRENCIES AGAINST DOLLAR
As the dollar has risen, the currencies of Asian Markets have fallen. In the
past quarter, Brazilian real lost more than a fifth of its dollar value. The
Turkish Lira, Russian rouble, South African and Indian Rupee have also
depreciated significantly.
As exports become cheaper, imported goods and any locally-made products
with imported inputs become more expensive. Yet, with falling oil and other
commodity prices, those imports are much cheaper, even when paid for in a
weaker currency.
U S D O LLAR - JAPANESE YEN
122
120.14
121
120
119
118
117
Source: Investing.com
54
May 04, 2015
Apr 16, 2015
Mar 30, 2015
Mar 12, 2015
Feb 23, 2015
Feb 05, 2015
Jan 19, 2015
Jan 01, 2015
116
US DOLLAR - CHINESE YUAN
6.32
6.28
6.2052
6.24
6.2
Apr 19, 2015
Apr 01, 2015
Mar 15, 2015
Feb 25, 2015
Feb 08, 2015
Jan 21, 2015
Jan 04, 2015
6.16
Source: Investing.com
US DOLLAR - INDIAN RUPEE
64
63
62
61
Jan 01,
2015
Jan 19,
2015
Feb 05,
2015
Feb 23,
2015
Mar 12,
2015
Source: Investing.com
55
Mar 30,
2015
Apr 16,
2015
2. EURO DEPRECIATION IMPACT ON UAE
Euro depreciation will have an impact on the UAE economy. As UAE has
strong trade and Investment links with European countries, devaluation Euro
against USD will have an impact on trade, inflation, Investments, interest
rates.
I.
IMPACT ON UAE AND EUROPE TRADE
Currency fluctuation will have an Impact on the International trade. Since AED
is pegged to USD, any currency fluctuations of USD against major currencies
will have a direct Impact on Trade numbers. Companies with overseas
branches, or those that trades internationally, are at the most affected due to
global currency fluctuations. As is the case with private investments, changes
in conversion rates can wipe out profits or increase gains.
Imports
Non-Oil
Exports
Re-Exports
2014 Six Month Figures
Projecting for 2015 Six
Month (Assuming 5%
growth)
2014 Six Month Figures
Projecting for 2015 Six
Month (Assuming 5%
growth)
2014 Six Month Figures
Projecting for 2015 Six
Month (Assuming 5%
growth)
Weight in KG
Value in AED
Value in USD
Value in USD
per Kg
3,477,008,440
74,943,093,696
20,420,461,498
6
4,093,556,327
1,115,410,443
2
18,190,539,128
4,956,550,171
73
3,650,858,862
511,089,743
536,644,230
67,958,155
71,356,063
Source: National Bureau of Statistics
56
UAE Imports from Europe have become expensive and the estimated
overall lose is around AED 5.7 Billion
IMPACT ANALYSIS ON IMPORTS FROM EUROPE
3,650,858,862
Imports Weight in Kg ( 6 months 2015)
6
Value Per Kg in USD
Value of Imports in USD
21,441,484,573
78,690,248,381
Value of Imports in AED
EUR to USD
1EUR to USD (1st Jan'15)
0.8262
0.8909
1EUR to USD (30th Apr'15)
Percentage of Depreciation in Currency
-7.3%
Loss on Imports due to USD Depreciation in
AED
(5,714,736,861.9)
UAE Exports to Europe have become cheap and the estimated gain is around
AED 336 Million
IMPACT ANALYSIS ON EXPORTS TO EUROPE
Exports Weight in Kg ( 6 months 2015)
Value Per Kg in USD
Value of Exports in USD
Value of Exports in AED
USD to EUR
1 USD to EUR (1st Jan'15)
1 USD to EUR (30th Apr'15)
Percentage of Depreciation in Currency
Gain on Imports due to USD Depreciation in AED
536,644,230
2
1,171,180,966
4,298,234,144
1.210360687
1.122460433
7.8%
336,596,162
Re-exports usually have a neutral impact or even adverse impact on the
trade. Currently assuming it will have a net-net neutral impact.
Overall Impact on the UAE trade numbers due to Euro depreciation is
negative 5.3 Billion AED
II.
INFLATION:
Devalued Euro will have a slight impact on goods imported from Europe.
Goods imported from Europe will see an increase in prices to a extent which
the Euro has been devalued.
57
III.
LOAN REPAYMENTS:
UAE Businesses which have borrowed loans from European banks in the
past and repaying the installments will find the payments to be cheaper
than earlier quarters. Loan installments in Euro will be cheaper by around
7 to 8% for the companies.
SUGGESTED POLICY INITIATIVES
Adverse currency moves can significantly impact business and trade,
especially those companies who have substantial forex exposure in
International currencies. Government can create awareness and
encourage businesses to use Currency Hedging. Some of the Hedging
tools to decrease the impact of currency fluctuations are Currency futures,
Forwards and Options.
58