Download GCC and Sub-Saharan Africa Relations

Privileged in a Downturn:
GCC Countries and the Global Financial
Crisis
Dr. Eckart Woertz
Program Manager Economics
Gulf Research Center
Dubai
Economic and Social Commission for Western Asia (ESCWA),
Damascus, May 5-7, 2009
Copyright © Gulf Research Center 2009 All rights reserved
Page 1
Overview
1) Direct Financial Impact: Losses of Banks and SWFs
2) Indirect Financial Impact: Higher Costs of Lending
3) Effects on the Real Economy
4) Mitigating Measures of Central Banks and Governments
5) Changing GCC Investment Patterns
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Page 2
Direct Financial Impact
Officially Announced Subprime Losses of GCC Banks
Write-downs in $ million
Bank
Abu Dhabi Commercial Bank
272
Gulf Investment Corp.
246 (another 200 expected)
Gulf International Bank
966
Arab Banking Corporation
1200
Gulf Bank, Kuwait
740 (currency derivatives)
Source: Various Newspapers
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Page 3
Direct Financial Impact
SWF Losses 2008, Estimates
0
-5
ADIA
KIA
QIA
-10
SAMA
Norwegian
Oil Fund
Percent
-15
-20
-25
-30
-35
-40
-45
Source: Brad Setser, Rachel Ziemba, Council on Foreign Relations, January 2009, (as share of
Dec. 2007 portfolio, excluding new inflows)
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Page 4
Direct Financial Impact
SWF Assets Dec. 2008, Estimates
600
Billion US$
500
400
300
200
100
0
ADIA
KIA
QIA
SAMA
Norwegian
Oil Fund
Source: Brad Setser, Rachel Ziemba, Council on Foreign Relations January 2009
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Page 5
Indirect Financial Impact
GCC Corporates (GCCI): Spread above LIBOR, HSBC/ DIFX GBCI Index
Source: HSBC, DIFX
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Page 6
Irrational Exuberance?
Until Oct. 2008: Capacity Constraints, Project Delays and Cost Escalation
have become a daily occurrence
Since then: Bubble has burst – how bad will it be?
Population Dubai (mn)
Gulf Construction Projects
Billion US$
500
400
300
Planned
200
Under Way
100
0
UAE
2007
1.4
2010
2.5
2017
4
2020
5
Saudi Qatar Kuwait Bahrain Oman
Arabia
Source: MEED
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Page 7
Effects on the Real Economy
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Page 8
Oil as % of Budget
and Export Revenues
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Page 9
Oil Demand Down…,
1500
1000
500
0
-500
-1000
-1500
-2000
North
America
Europe
Formers
Soviet Union
Source: IEA
Middle East
2007
2008
Asia
Latin
America
Af rica
2009
… but so is investment
 Supply constraints in the middle run
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Page 10
Mitigating Measure Central Banks
• Inflation fears and reluctant following of Fed rate cuts in the first
half of 2008 have given way to accommodative stance and
successive rate cuts
•Initial UAE AED50 bn facility too passive and too expensive,
interbanking rates did not come down  Direct deposit of AED
70bn
• Kuwait more aggressive: Direct central bank deposits with
banks, and early rate cuts from 5.75 percent to 4.5 percent on
September 29
• SAMA equally cut its repo rate in October for the first time since
2007 and reduced reserve requirements from 13 percent to 10
percent
• No coordinated GCC policy  Danger of erratic intra-GCC capital
flows, which could make capital controls tempting
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Page 11
Varying Deposit Insurance
• Kuwait: All
deposits guaranteed without cap or time
limit
•UAE: All existing deposits for three years, no limit, not
new ones, all domestic and foreign banks with
“significant operations”, regional and Iranian banks
excluded
• Saudi Arabia: Announcement of general commitment
but no details
• Qatar: No explicit guarantee
• Bahrain: Insurance scheme since 1994 up to BD
15.000. Larger commitments impossible because of
deposits/ GDP
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Page 12
SWF Stepping In?
• West: State is massively buying into the economy
•Russia and China: SWF investing in domestic Markets
•Kuwait Investment Authority (KIA) announces to invest
in local capital markets
• Qatar Investment Authority (QIA) has set aside funds
of $5.3 bn in order to buy 10-20% stakes of Qatari banks
• Abu Dhabi bailing out Dubai
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Page 13
Imbalances: Picture changing?
Current Account Balances
Euro area
1000
600
Newly industrialized Asian
economies*
400
Japan
200
United States
14
China
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
-400
20
04
-200
05
0
20
Billion US$
800
GCC
-600
-800
Other Oil exporters**
-1000
Source: IMF, World Economic Outlook Dataset April 2009
*Hong Kong, Taiwan, Singapore, South Korea
** Russia, Norway, Venezuela, Algeria, Libya, Iran, Nigeria, Angola, Brunei. Iraq data not available
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Page 14
Surpluses to Deficits?
Source: IIF
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Page 15
Capital Outflows
Source: IIF
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Page 16
Too much Debt
• Debt worldwide has risen
dramatically. US, for example:
Total private and public debt =
$57 trillion. $187.000 for every
man, woman and child
• In 2008, US debt increased 5
times faster than US GDP
• 79% ($45 trillion) of total US
debt was created since 1990, a
period primarily driven by debt
instead of by productive
activity
Source: Grandfather Economic Report
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Page1717
Diversification into the Euro?
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Page 18
Dollar hedging
Watch this chart in times of quantitative easing:
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
U
Eu US
A
ni
te ro A
d
K i re a
Al ng
l C do
ou m
nt
r ie
s
C
hi
na
Ja
pa
n
In
di
Sa Ru a
ud ss
i A ia
ra
bi
Ku a
w
ai
Q t
at
ar
U
AE
Percent
Gold % of total FX Reserves 2008
Source: WGC
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Page 19
GCC Food Security
60% import dependence by 2010 (FAO)
Main GCC food imports from: EU, AUS, Ukraine, Syria, Brazil, India,
US
GCC eyes overseas investments: Sudan, Pakistan etc.
GCC Net Food Import
18000
16000
US Million $
14000
12000
10000
8000
6000
4000
2000
0
1990
1992
Bahrain
Qatar
GCC
1994
1996
1998
Kuwait
Saudi Arabia
2000
2002
2004
2006
Oman
United Arab Emirates
Source: Trademap
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Page2020
Key Trends
• Money printing and lack of investments: Oil demand will
remain sluggish but oil prices will rise again, possibly
dramatically
• Asset management: More domestic, more strategic, more
conservative. Less SWFs?
• Lack of institutions: More domestic project finance, a
GCC bond market and credit for SMEs necessary
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Page 21
Thank You
Gulf Research Center
P.O. Box: 80758, Dubai
United Arab Emirates
www.grc.ae
Tel: +971 4 3247770
Fax: +971 4 3247771
Copyright © Gulf Research Center 2009 All rights reserved
Page 22