Dubai’s economy stays strong amid PMI decline: S&P Global /node/2424516/business-economy
Dubai’s economy stays strong amid PMI decline: S&P Global
Despite a slight dip, Dubai’s Purchasing Managers’ Index maintained a positive trajectory, decreasing from 57.4 in October to 56.8 in November. Shutterstock
Dubai’s economy stays strong amid PMI decline: S&P Global
Updated 12 December 2023
Arab News
RIYADH: Dubai has recorded robust economic demand, secured new client acquisitions, and witnessed increased project work, all contributing to a surge in new order intakes midway through the final quarter, according to an economic tracker.
Despite a slight dip, Dubai’s Purchasing Managers’ Index maintained a positive trajectory, decreasing from 57.4 in October to 56.8 in November, according to S&P Global data.
The report highlighted that new business growth eased from October’s 52-month peak, leading to diminished confidence among non-oil companies regarding the activity outlook.
However, it pointed out that the decline indicated another upturn in the non-oil private sector, as the index has consistently stayed above the 50 mark every month since December 2020.
A reading above 50 signals expansion in the manufacturing sector, and despite the dip, Dubai's index continues to reflect growth.
While new order growth also stayed above trend, November data indicated a clear slowdown from October’s 52-month record.
After accelerating one month ago, sales momentum in all three of the key monitored sectors dropped to the weakest since August. Some firms attributed this decrease in momentum to increased market competition.
The tougher sales environment also took a heavy toll on business projections for the next 12 months, with the report indicating confidence falling sharply in November to the lowest since April.
Similarly, all three categories were less upbeat than in October, particularly wholesale and retail.
David Owen, senior economist at S&P Global Market Intelligence, said: “The Dubai PMI signaled that demand momentum had come off the accelerator pedal in November, as multiple non-oil sectors recorded a slowdown in new business growth. Softness in the demand environment contributed to a steep drop in year-ahead expectations, with firms indicating some concern about how they will perform as market competition toughens.”
He added: “That said, with these forward-looking survey metrics merely rowing back from multi-year highs in October, the latest data continues to put the non-oil sector in a positive overall position. Moreover, other metrics such as output and inventories remained strong compared to historical trends, suggesting that firms are still expecting to grow and hence expanded both input buying and output volumes.”
US interest rate cut could see funding taps turn on for GCC startups
Updated 20 September 2024
Nour El-Shaeri
RIYADH: After almost two years of rate hikes, the US Federal Reserve has slashed interest rates by half a percentage point to a range of 4.75-5 percent, but what does this mean for the startup and venture capital ecosystem?
The relationship between the US Federal Reserve and the global startup ecosystem is somewhat complicated.
Washington’s decisions on interest rates significantly influence the availability and cost of capital, which are crucial factors for startups and venture capital firms.
Lower interest rates generally make borrowing cheaper, potentially encouraging more investment into riskier asset classes, including startups.
Gulf Cooperation Council central banks followed suit in rate cuts, as their currencies are pegged to the US dollar.
Venture data analyst and founder of MAGNiTT, Philip Bahoshy, shares a nuanced perspective on the potential impact of rate cuts on the global and regional startup ecosystem.
In an interview with Arab News, Bahoshy said that the cut itself may not be the most significant, but rather, the potential trend expected to take place.
“To answer what impact will the cut have on VC investment, you need to understand why the Fed has taken this decision,” Bahoshy said.
“Ultimately, Jerome Powell (chair of the US Federal Reserve) says that the aim is to bring down or keep inflation steady while keeping moderate to low unemployment in the US,” he added.
“The signs are that we are trying to avoid a recession and/or an economic downturn in the US and that things are healthy, and therefore bringing down interest rates can help stimulate disposable income and people’s consumption,” the analyst said.
This, in turn, brings down the cost of capital, also known as the borrowing cost, which in turn makes VC a less attractive investment.
On the flip side, when interest rates are high, the implication of putting money in the bank or investing in less riskier options like real estate becomes the go-to for investors.
If an investor is earning 6 percent on a savings account, knowing that their money is secure, there’s little incentive to take on the uncertainty of investing in a startup, not knowing when or if they’ll get their money.
On the lending side, lower interest rates also make borrowing cheaper for startups.
Entrepreneurs, who are often very focused on maximizing every dollar, will appreciate the ability to borrow at lower costs which enables them to allocate more resources toward growing their businesses, rather than paying high interest costs.
Bahoshy has mentioned in previous reports that the decline in venture capital funding in the Middle East and North Africa region in the last couple of years has been, though not solely, due to high interest rates.
Venture data analyst and founder of MAGNiTT, Philip Bahoshy. Supplied
The MENA region saw a 34 percent year-on-year drop in funding in the first half of the year, compared to the same period last year.
In 2023, VC investments declined by 23 percent on an annual basis.
Interest rates and venture stakes
Bahoshy explained that the Fed’s last cut will not immediately impact VC investments, but the implication of continued rate reductions will.
“We anticipate that this will create a lower cost of capital for late-stage investors, more willingness for people to invest in other asset classes because fixed deposits become less attractive and, therefore, more investments going into venture in general,” Bahoshy said.
“My view is that the immediate impact will be somewhat limited. However, heading into 2025, if we continue to see rate cuts in the US, it will likely stimulate venture capital investments globally and in turn likely to return investor appetite for venture capital in the region. However, that’s likely not to impact Q4, more likely to impact 2025 positively,” he added.
Echoing Bahoshy’s prediction, Tushar Singhvi, deputy CEO and head of investment at venture capital firm Crescent Enterprises, feels somewhat positive that more cuts are underway.
Speaking to Arab News, Singhvi said: “The Fed rate cut sets the trend for a series of rate cuts expected over the next few quarters – this will result in higher liquidity in general, and the venture asset class will also benefit from higher liquidity.”
Short-term projections
Bahoshy pointed out that there have already been signs of growth in the VC landscape in the US in the first half of the year, which will probably be reflected in the MENA region.
“We noted back in the H1 report that in the US, we believe that we were reaching an inflection point and that we saw for the first time two consecutive quarters of growth in venture capital deployment,” he said.
“I anticipate that Q3 will continue to be higher globally and within the region, which is what the trends show and this rate cut will continue to support a potentially higher Q4 globally than Q3,” he added.
Bahoshy tempers his predictions, stating that the increase will be “moderate”, and not reaching 2021-2022 levels.
When it comes to startup strategies, the rate cut should hardly affect valuations or funding strategies, Singhvi said.
“Startups should continue to be as capital efficient as possible and focus on growth and profitability – and their funding strategies should be devised around that,” he added.
VC’s will most likely maintain their plan of action. Singhvi stated that the rate cut will not immediately change the focus areas of VCs in the region.
“VCs will continue to pursue startups which are building transformational businesses within high growth sectors and leveraging technology to build innovative and sustainable businesses,” he added.
Bahoshy also feels the same way. “I don’t think that a change in interest rates is going to impact sectorial shifts,” he said.
He highlighted that an even bigger concern exists within the startup ecosystem across the Middle East and North Africa.
“The biggest challenge for the region remains exits, liquidity and return on investments back to investors, which means that they have shown the success of their investment strategy and paid off their LPs (limited partners), increases risk appetite to raise new funds and to go into less traditional sectors,” Bahoshy said.
Singhvi adds that the increase of liquidity due to reduced rate cuts over time will definitely fuel exits in the region.
“There will be a positive impact of the rate cuts over time on exit strategies for VC backed companies as M&A (mergers and acquisition) activity will pick up and tech IPOs (initial public offerings) will also gain more momentum due to higher liquidity,” he added.
Tushar Singhvi, deputy CEO and head of investment at venture capital firm Crescent Enterprises. Supplied
The geographical impact
When asked about whether the anticipated investment growth will be across the entire MENA region, Bahoshy said that the effects of the rate cuts might be more regionally dispersed rather than concentrated in key markets like Saudi Arabia and the UAE.
“When you look at the sovereign entities, whether it be Saudi Arabia, UAE, and Qatar, what’s more interesting to track is how does interest rate impact oil prices or natural assets that have been beneficial to the sovereign entities,” Bahoshy said.
He questioned whether this would “stimulate oil prices to increase because consumption has increased, or will this lead to a further reduction in the oil prices which have been a big stimulus to investment and wider growth of the economy and venture capital.”
Bahoshy added: “I don’t think that has necessarily a geographical specific impetus here in the region. In fact, many of the economies like the UAE and Saudi Arabia have performed better as a result of government focus and their ability to deploy capital during a time where other geographies haven’t.”
He went on to say that while the interest rate cut may be beneficial, there was a question over how it will impact oil and natural resource prices.
Late-stage startups, get ready
In the first half of the year, early-stage investments were the primary focus, with almost 75 percent of deals flowing in that direction.
Bahoshy explained that this trend could start to change in the next 12 months if interest rates continue to go down.
“However, I don’t think that this specific rate cut is going to stimulate that, but if we continue to see rate cuts to year end and into H1 2025, we may see a return of later stage investment while it’s healthy for early-stage investment to continue to grow,” he said.
Oil Updates – prices set to end week higher after US rate cut
Updated 20 September 2024
Reuters
SINGAPORE: Oil prices, which eased on Friday, were on track to end higher for a second straight week following a large cut in US interest rates and declining global stockpiles.
Brent futures, which were trading 26 cents or 0.4 percent lower at $73.62 a barrel at 8:27 a.m. Saudi time on Friday, gained 4.3 percent this week.
US WTI crude futures, which were down 15 cents, or 0.2 percent at $71.80 a barrel, registered weekly gains of 4.8 percent.
The benchmarks have been recovering after they fell to near three year-lows on Sept. 10, and have registered gains in five of the seven sessions since then.
Prices pared some gains on Friday, after rising more than 1 percent on Thursday following the US central bank’s decision to cut interest rates by half a percentage point on Wednesday. Interest rate cuts typically boost economic activity and energy demand, but some also it as a sign of a weak US labor market.
“Prices had been under pressure in recent months amid concerns demand would weaken, as tight monetary policies stifled economic activity,” analysts at ANZ Research said in a note.
“Easing monetary policy helped reinforce expectations that the US economy will avoid a downturn,” ANZ said.
Also supporting prices were a decline in US crude inventories, which fell to a one-year low last week.
A counter-seasonal oil market deficit of around 400,000 barrels per day will support Brent crude prices in the $70 to $75 a barrel range during the next quarter, Citi analysts said on Thursday, but added prices could plunge in 2025.
Crude prices were also being supported by rising tensions in the Middle East. Walkie-talkies used by Lebanese armed group Hezbollah exploded on Wednesday following similar explosions of pagers the previous day.
Security sources said Israeli spy agency Mossad was responsible, but Israeli officials did not comment on the attacks.
Weak demand from China’s slowing economy was weighing on prices, with refinery output in China slowing for a fifth month in August. China’s industrial output growth also slowed to a five-month low last month, and retail sales and new home prices weakened further.
Saudi Arabia’s expat fee waiver fuels industrial growth, boosting GDP by 14.7%
Updated 19 September 2024
MOHAMMED AL-KINANI
JEDDAH: Saudi Arabia’s decision to waive fees for expatriate workers in the industrial sector has significantly contributed to a robust 14.7 percent increase in gross domestic product, soaring from SR392 billion ($104.5 billion) in 2019 to SR592 billion in 2023.
According to a report by the Economic Studies Center at the Federation of Saudi Chambers, this policy has not only spurred GDP growth but also enhanced non-oil exports, which have climbed to approximately SR208 billion, marking a 12 percent increase since 2019.
Effective until Dec. 31, this initiative is part of the Kingdom’s broader strategy to stimulate growth and attract investment in its industrial sector. The report also notes that the opening of new markets and the signing of various trade agreements have played crucial roles in this upward trend, with the local content value in non-oil sectors reaching SR1.14 trillion by the end of 2023.
Over 8,000 industrial firms have benefited from the waiver, which eliminated around SR5 billion in expatriate labor fees. The analysis highlights that this policy has encouraged industrial establishments to adopt innovative business models, localize advanced technologies, and attract skilled professionals, ultimately increasing the availability of products to meet local demand.
The number of products bearing the Saudi quality mark has also seen a rise, reflecting enhanced product quality. A comprehensive analysis conducted by the Saudi Press Agency evaluates the decision’s impact based on seven economic indicators, including GDP contribution, the growth of industrial establishments, and investment volumes.
Key findings indicate that the industrial sector’s GDP surged from SR392 billion in 2019 to SR592 billion in 2023, with a 14.7 percent contribution rate. The number of industrial establishments grew from 7,625 in 2019 to 11,868 in 2024, a growth rate of 55.6 percent, while investments in the sector increased by 54 percent, reaching SR1.5 trillion compared to SR992 billion.
Moreover, the report reveals a substantial rise in foreign investments due to government support measures, such as covering financial fees and implementing the local content system. The number of foreign factories jumped from 622 to 1,067, reflecting a 71.5 percent growth rate, while invested capital soared from SR43 billion to SR93 billion, marking a staggering 116.2 percent increase.
In terms of employment, the industrial sector employed around 1.2 million workers by the end of the first quarter of 2024, with 358,000 being Saudi nationals, resulting in a 28 percent Saudization rate. Workers in this sector accounted for 12.9 percent of all nationals employed in the private sector.
The report underscores that various government incentives have encouraged the private sector to increase Saudization, creating more job opportunities for citizens. The industrial sector emerged as the largest contributor to job creation for Saudis between Jan. 1, 2023, and March 31, witnessing a 59 percent increase with over 82,000 new jobs added.
Saudi EV market poised for significant growth by 2026, Petromin CEO predicts
Updated 19 September 2024
MANAL AL-BARAKATI
RIYADH: Saudi Arabia is preparing for a substantial rise in electric vehicle sales as battery prices fall and infrastructure improves, according to an industry leader.
In an interview with Arab News at the EV Auto Show in Riyadh, Kalyana Sivagnanam, CEO of Petromin Group—a Saudi-based provider of automotive, lubricant, and EV charging solutions—indicated that EV sales could soon approach parity with internal combustion engine vehicles within the next 12 to 18 months.
“By 2026/2027, you’re going to see a massive surge in the sales of electric vehicles,” Sivagnanam stated, linking this growth to rapidly changing market conditions and declining battery costs.
In certain markets like China, the price of EVs is already nearly equivalent to that of traditional vehicles, a trend expected to gain momentum in Saudi Arabia, he added.
Sivagnanam pointed out that Saudi Arabia’s Vision 2030 has played a crucial role in nurturing the EV sector, attracting major global players such as Lucid Motors, which has commenced local manufacturing, as well as new entrants like Ceer and Hyundai.
“The EV industry definitely in Saudi Arabia is looking very, very promising,” he remarked, noting that some forecasts predict EVs could make up 35 to 40 percent of the market by 2030.
He also discussed the “chicken and egg” challenge of EV adoption, where limited charging infrastructure deters consumers from buying electric vehicles.
The top executive stressed the significance of initiatives like the Public Investment Fund’s EVIQ program, designed to enhance the country’s EV charging infrastructure. “In the months and years to come, we can see how this will pave the way for more adoption of electric vehicles.”
Electromin, a subsidiary of Petromin Corp., is closely monitoring the pace of EV sales to inform its expansion of charging stations. “Our ability to install chargers will depend on how fast the vehicles sell,” Sivagnanam explained.
The CEO highlighted Electromin’s comprehensive services for fleet customers, providing decarbonization strategies as well as EV charger installation and maintenance.
“For example, if you are a fleet company, you don’t want to go to somebody for chargers, somebody for maintenance, and someone else for your vehicles,” he said, emphasizing the need to streamline the transition to electric vehicles.
Electromin has already made notable progress, establishing the first national AC charging network in Saudi Arabia, with chargers accessible in 52 cities. “Today, any customer in the Kingdom, doesn’t matter where he drives, he will find an AC charger,” Sivagnanam remarked.
Although these are not fast chargers, they ensure that drivers can access charging facilities wherever they are, he added.
The company has also provided Saudi Arabia’s first electric van to Pepsi, the inaugural electric bus to Red Sea, and a passenger bus to Riyadh Air.
With growing government support and robust corporate initiatives, Saudi Arabia’s EV market is set for considerable expansion in the coming years.
“What is very exciting about this journey is the way this country is focusing on sustainability and EV adoption,” the executive concluded.
Saudi Arabia’s EV growth outpaces global trends by 10x, says industry leader
Updated 20 September 2024
MANAL AL-BARAKATI
RIYADH: Saudi Arabia is rapidly advancing in the electric vehicle sector for commercial transportation, outpacing many other countries, according to an industry leader.
In an interview with Arab News during the EV Auto Show 2024, Gary Flom, president and CEO of National Transportation Solutions Co., praised the Kingdom’s swift development, noting that it has achieved in five years what took the US 25 years.
“The speed of progress here is like light speed,” he remarked.
“Everything here is accelerated — maybe 10 times when you look at Europe or the United States,” he added.
As part of its Vision 2030 initiative, Saudi Arabia is focused on creating a comprehensive EV ecosystem to diversify its economy and reduce reliance on oil. The government aims for 30 percent of vehicles in Riyadh to be electrified by 2030.
To meet this ambitious goal, significant investments are being made in EV infrastructure, including public charging stations and policies favorable to EV adoption.
Additionally, the government is collaborating with international partners to build an EV supply chain that encompasses sourcing raw materials for batteries and enhancing manufacturing capabilities.
Flom acknowledged the difficulties in transforming the passenger vehicle market but expressed optimism about the advancements in the commercial sector.
“It’s a lot easier to decarbonize the commercial sector because we know what the customer does,” he said. “We know where the vehicle goes, where it lives, and the payload it carries. We know how to design the charging infrastructure for it,” the executive said.
NTSC is leading these efforts with its decarbonization roadmap. According to Flom, this comprehensive plan aims to assist government and private fleet operators in transitioning from internal combustion engine fleets to electric and hydrogen-powered vehicles. The roadmap is designed to measure the carbon baseline of fleets, provide the necessary ecosystem for charging infrastructure, and manage the maintenance of electric commercial vehicles using advanced software.
“Our decarbonization Roadmap gives government fleets and private fleets a cost-effective, organized way to transition from ICE fleets to new energy fleets,” Flom said. This initiative also provides accredited carbon reduction data, which will be crucial for carbon credit trading in Saudi Arabia as the market for this system continues to grow.
Flom added: “We give them this plan over the next few years on how to decarbonize their fleet. And also we give them the accredited carbon reduction data so they can actually use it to trade carbon credits when that becomes available in Saudi Arabia.”
The roadmap has already resulted in strategic partnerships with key players in the transportation sector, including agreements with J&T Express, Saudi Bulk Transport (SBT-SENDDEX), and UPS. These collaborations, announced at the event, are instrumental in promoting advanced decarbonization strategies across the Kingdom. “Our collaboration with SBT-SENDDEX and Electromin reflects our commitment to advancing sustainable transportation with leading companies in KSA,” Flom said.
“By leveraging innovative decarbonization strategies, we aim to make a significant impact aligned with the UN Sustainable Development Goals,” he added.
In addition to strategic partnerships, NTSC has developed innovative technologies such as DarbConnect, a proprietary fleet management software. The platform uses Internet of Things technologies to provide real-time GPS tracking, predictive maintenance, and a range of data services, helping fleet operators enhance efficiency and reduce costs. “DarbConnect has proven to be a huge success,” Flom said.
“In less than two years, we signed up more than 330 B2B and B2G customers and gained about 35 percent market share of the entire commercial units and operation sector,” he added.
While the commercial sector is advancing quickly, Flom noted that decarbonizing the passenger vehicle sector presents more challenges due to the variability in individual vehicle use. Unlike commercial fleets, which have predictable routes and payloads, passenger vehicles are utilized for various purposes, complicating the establishment of a uniform charging infrastructure and user behavior model.
Looking ahead, Flom remarked that the company aims to become a regional leader in sustainable transportation, planning to export its expertise, roadmap, and technologies to the broader Middle East and North Africa region. “NTSC will become not only the leader for fleet management and sustainable multi-modal mobility, but we also look to export the same outside of Saudi Arabia,” said Flom.
