Saudi macro | Stars are aligning for progressive growth
Saudi remains ahead of the pack. A strategic off-budget investment plan in diversification under the National Investment Strategy (NIS) cements our favourable view on Saudi. This is expedited by the current oil windfall and puts it ahead of the UAE and Kuwait. Adherence to fiscal discipline ensures it is well positioned against downside risk of oil demand destruction. We see it maintaining its key role in OPEC, supported by Aramco’s commitment to raise capacity to 13mn/bpd by 2027 from 11.5mn/bpd. This compares to Adnoc’s target of 5mn/bpd production capacity by 2030 from 4.2mn/bpd, currently.
Capturing full recovery in 2022. We forecast a fiscal surplus of 8.5% of GDP in 2022e – the first since 2013 – vs. -2.3% of GDP in 2021. We look for oil GDP growth of 13.5% in 2022e vs. 0.2% in 2021e, on 14.4% y-o-y higher production. Progressive lifting of restrictions for international Hajj pilgrims in 2022, paired with the easing of restrictions, should boost non-oil GDP by 3.8% and 3.2%, in 2022 and 2023, respectively. This increase is driven by stronger private consumption (c38% of GDP and 58% of non-oil GDP).
Healthier labour market partially mitigates inflationary pressures. We anticipate global food inflation to drive headline inflation to 2.5% in 2022 vs. 3.1% in 2021, despite the dissipating impact of the VAT. We do not see the 15% VAT reduced to 5% in 2022/23, to ensure a stronger fiscal footing. Rising labour participation among Saudi women (35.6% in 4Q21 vs. 19.5% in 4Q17) and declining Saudi unemployment to a 12-year low should improve domestic spending. A solid improvement in liquidity should alleviate the impact of the expected rate hikes in 2022. We forecast continued healthy credit growth of 14.5% in 2022 vs. 15% in 2021.
Limited trade flows with Russia-Ukraine to maximise oil spillovers. The conflict presents minimum downside risks to Saudi Arabia on relatively low exposure to tourism and import activity from Russia and Ukraine. We project a current account surplus of 14.3% of GDP vs. 6.6% of GDP in 2021. We believe the SAR peg will prevail, backed by ample external buffers, equivalent to 157% of GDP, on our estimates. Public debt, maintained at c26% of GDP, further supports higher expected reserves, while generating current account and fiscal surpluses.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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