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BUDGET DEFICIT OF SAUDI ARABIA

Riyadh, Dubai: Saudi Arabia’s first-quarter deficit narrowed on higher oil revenue, boosting the government’s efforts to repair public finances as it implements an economic blueprint for life after oil.

The budget deficit for the three months to March was 26.2 billion riyals (Dh25.6 billion, $7 billion), the finance ministry said in a report on Thursday. That compared with 91 billion riyals in the period a year ago, according to Bloomberg calculations using the official data. Quarterly revenue rose 72 per cent to 144.1 billion riyals, while expenses fell 2.5 per cent to 170 billion riyals, the ministry said.

The government’s target for a balanced budget by 2020 is central to its long-term plan to wean the economy off oil, which includes creating the world’s biggest sovereign wealth fund and privatizing some state assets. While Finance Minister Mohammad Al Jadaan said the report indicates the plan is on course, it also shows that oil still dominates public finances – its share of total revenue grew in the period – making the kingdom susceptible to price swings.

“The budget deficit is narrowing very sharply, although it’s largely the effect of a rebound in oil prices,” said Jason Tuvey, Middle East economist for London-based Capital Economics. “There was only a paltry rise in non-oil revenue, so there has been little further progress in reducing the government reliance on oil receipts.”

Quarterly oil revenue more than doubled to 112 billion riyals from 52 billion riyals, or 78 per cent of government revenue, compared with 62 per cent in the same period last year, the data show. Non-oil revenue was 1.3 per cent higher at 32.1 billion riyals, the ministry said.

TRANSPARENCY

The Saudi government is shifting to quarterly statements on the economy – having typically reported only annually – to boost transparency as it implements its economic plan, dubbed Saudi Vision 2030.

In December, the government said it planned to spend 890 billion riyals in 2017, with revenue at 692 billion riyals and a full-year deficit of 198 billion riyals. Non-oil revenue was estimated at 212 billion riyals.

“Overall, we don’t expect this quarterly performance to continue in the second, third and fourth quarters,” Al Jadaan said at a press conference in Riyadh. But the government does expect to have a budget “close” to that announced at the start of the year, he said.

BETTER TIMES AHEAD FOR UAE BANKING SECTOR

Dubai: The UAE’s banking sector is expected to perform better in 2017 in terms of asset growth, asset quality and profitability compared to 2016, said Dr Bernd van Linder, Chief Executive Officer of Commercial Bank of Dubai (CBD).

Speaking to reporters at the bank’s headquarters in Dubai on Monday, van Linder said with improvements in macroeconomic conditions in the country and GCC region, the banking sector is expected to witness improved operating environment resulting in better performance.

“The UAE’s banking sector is in reasonably good shape. We expect overall loan growth for the sector in the range of 2 to 5 per cent this year. While the overall liquidity situation has improved from last year, provisions have largely stabilised and the capitalization levels are strong across the sector,” said van Linder.

The UAE banking sector faced a general spike in loan impairments and provisions from the second quarter of 2015, specifically in some segments such as small and medium enterprises, retail loans and some of the unsecured lending portfolios.

While banks have largely repaired their balance sheets, some amount of impairments and resulting provisions are expected to linger on for a few more quarters, but the situation is likely to get better compared to last year, he said.

CBD, he said is in a much stronger position in terms of assets growth, asset quality and margins compared to last year. In the first quarter of 2017 the bank’s operating income increased by 9 per cent to Dh627.9 million, mainly due to a 5.7 per cent increase in net interest income to Dh430.1 million compared to Dh407 million and a 16.9 per cent increase in non-interest income to Dh197.9 million from Dh169.3 million in the same quarter last year. The bank’s fees and commission incomes were up 28.5 per cent and other income up 22.5 per cent respectively in the first quarter year on year.

Total assets were up 4.2 per cent at Dh66.8 billion at the close of the first quarter of this year compared to the same period last year. Loans and advances increased by 13.6 per cent to Dh44 billion from Dh38.8 billion at the close of the first quarter last year.

Rising US interest rates, he said will be positive for CBD’s net interest margins because of strong low cost Current and savings accounts [CASA) deposits that are relatively less sensitive to interest rates. CBD’s customers’ deposits increased by 11.7 per cent in the first quarter of this year to Dh45.9 billion compared to Dh41.1 billion at the close of the first quarter last year. Current and savings accounts [CASA] balances represent 50 per cent of the total deposits and the liquidity is strong with loans to deposits ratio at 95.8 per cent at the end of the first quarter.

EXPANSION PLANS

CBD is planning to expand its reach in Abu Dhabi. “By expansion we donot necessarily mean branch expansion. We want to reach out to more customers in Abu Dhabi through our electronic channels,” he said.

The bank recently launched CBD Now, the UAE’s first digital-only bank targeting millennial and digitally connected customers. The new proposition allows customers to completely change the way they manage their finances using technology to serve all their banking needs.

“Our customers want to bank in the most convenient way. All our digital propositions have been well accepted by our customers with more than 96 per cent of the non-branch transactions now done digitally,” he said.

 

US COMPANY TO SUPPORT IRAN ON MANUFACTURING OIL AND GAS EQUIPMENT

TEHRAN – An American company is to start cooperating with Iran on manufacturing oil and gas equipment for the country, IRNA reported on Wednesday quoting an Iranian official.

According to Neda Mousavizadegan, a member of Society of Iranian Petroleum Industry Equipment Manufacturers (SIPIEM), the U.S. Pall Corporation will be co producing advanced filtration equipment with Iran. “The company will bring the knowledge and technology of advanced refining and petrochemical filtration systems to the country,” Mousavizadegan said during a press conference held on the sidelines of the Iran Oil Show 2017 (May 6-9) in Tehran. According to the official, the necessary licenses have been acquired and the production line will be established soon. “With such equipment being manufactured inside the country, we would not only be able to supply domestic needs but also export to other countries like Iraq and central Asian nations,” she noted. Mousavizadegan further said that importing one hydraulic filter to the country – although from sources with low quality and standards- would cost near $10,000 while the costs for production inside the country will be cut to one tenth. Elsewhere in the press conference, the American corporation’s representative also expressed his company’s eagerness for resumption of activities in Iran. “We are using the Iran Oil Show as an opportunity for grasping a better view of Iran’s oil industry, its potentials, capabilities and great market,” he said.

HUGE OIL AND GAS POTENTIAL OF IRAN

TEHRAN- European exhibitors participating in the 22nd International Oil, Gas, Refining and Petrochemical Exhibition of Iran (Iran Oil Show 2017) believe that there is huge potential for business in Iran’s oil, gas and petrochemical sectors.

The exhibition, which was held at the Tehran Permanent International Fairgrounds from May 6 to 9, hosted some 2500 domestic companies and 1500 foreign participants from 37 countries including Germany, France, Spain, Britain, Italy, Austria, the Netherlands, China, South Korea, Australia, the U.S. and Canada.

’HIGH POTENTIAL, POSSIBILITIES FOR GROWTH’

Edwin Chen, head of global projects division in Buhlmann Group, a German premium distributor specializing in steel pipes and tubes, pipe-fittings and accessories with global operations, said that there is high potential and possibilities for growth in the Iranian market, “There are many resources and we’re really seeing thing are moving forward.”

Describing Iranian market, another first-time German participant, Raphael G.D. Murswieck, the business development manager in Oil Dynamics GmbH, a company providing turnkey pumping solutions, said: “There is huge potential, nice people, and nice to be here and provide our solutions.” About the downside of business in Iran, he said: “Maybe the currency issues, for the payments, but in general I don’t see many downsides.”

’HUGE NUMBER OF OPPORTUNITIES’

Markus Gumplmayr, from the Austrian Chamber of Commerce Headquarters in Vienna, who was the organizer of Austrian pavilion in the exhibition, described the Iranian market in this way: “There is a very young generation, very interested people in innovations, huge number of opportunities in Iran and from this point of view I think it’s a very attractive market for everybody.” “There is long historical tie between Iran and Austria and we’ll be happy to support Iranians with the high quality products”, he underlined.

“We have been here (in the oil show) several times and this is the second time after the sanctions that we are here and we plan to grow and to develop the Austrian pavilion and to enlarge the group in the next year”, the Austrian participant stated. “If I want to evaluate and compare [this edition of the event with the previous editions], I say that people are more open-minded, there are more people interested in talks, business to business talks are interesting, and I hope the contact between Iran and Austria will also be developed in positive way, not only in business bust also in politics”, he commented.

’NUMBER OF FRENCH PARTICIPANTS DOUBLED IN 2 YEARS’

Agnes Hagyak, the oil and gas project manager in Business France, a big agency in charge of promoting France abroad, who was the organizer of French pavilion in the exhibit, said: “We organized the French pavilion for the third year, so we began in 2015 with a small pavilion with 15 companies, we had 30 participants last year and 35 ones this year.”

DEBT FINANCING IN UAE

Dubai In the early stages of development, firms need cash to sustain and/or build their business. The type of financing your company needs depends on the requirements you have. There are two primary forms of financing, debt financing and equity financing.

Debt financing simply means borrowing money and not giving up your ownership. Thus, when a firm raises money for working capital or capital expenditures; it borrows cash from a bank or lender or any other financial institution at a fixed interest rate. Based on the conditions in the borrowing agreement, the principal amount plus interest must be paid back in full by the predetermined maturity date. Fixed installments are usually paid back to the lender to cover the loan amount. Equity financing, on the other hand, is raising capital in exchange for shares or ownership in your company. You could offer shares of your company to family, friends and other small investors as well as venture capitalists or angel investors. In contrast to debt financing, you do not have to pay the money back if the company fails. Furthermore, the funds raised are interest free, however, you lose ownership of part of the company equivalent to the amount received from the investor. In equity financing, you do not need to pay installments to repay the funds raised, the lender shares the risk of the company.

Retain control; the relationship is at arm’s length. Thus, the bank or lender has no say in the way you run your company. The business relationship ends once you have repaid the loan in full. The interest you pay is tax deductible (in case of taxable environment, not necessarily applicable for the UAE), which effectively reduces your net obligation.

DISADVANTAGES

If you rely on debt and have cash flow problems, you will have trouble paying the loan back. Additionally, too much risk could limit your ability to raise equity financing as the business will be seen as “high risk”.

You need to have a good enough credit rating to receive financing, otherwise you need to provide business or sometimes even personal assets or guarantees as collateral to the bank or lender to guarantee the loan. You will need to have the financial discipline to make repayments on time. Exercise restraint and use good financial judgment when you use debt.

Money must be paid back within a fixed amount of time otherwise the assets you provided to the lender as collateral could be at potential risk. Sometimes debt can make it difficult for a business to grow because of the high cost of repaying the loan. It is vital for SME’s to understand their financing requirements before deciding on debt or equity financing. It is highly recommended to have internal discussions with your finance team or reach out to external consultants that could help you choose the right financing model for your business.

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