51
Transformation Saudi Arabia’s Year of Change MEED subscriber briefing Moevenpick Hotel, Riyadh September 2017 Richard Thompson Editorial Director MEED
Transformation Saudi Arabia’s Year of ChangeMEED subscriber briefingMoevenpick Hotel, RiyadhSeptember 2017
Richard ThompsonEditorial DirectorMEED
60 years of Middle East business intelligence
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Since its launch in 1957, MEED has become established as the world’s leading source of Middle East business intelligence and, as well as its market-leading subscription information services MEED and MEED Projects, MEED offers a busy programme of specialist events and conferences, as well as research and advisory services.
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The Kingdom of Saudi Arabia
Region’s biggest economy
19th biggest in the world
Biggest energy producer
Regional leader
Political and cultural power
30 million people
21 million Saudis
Monarchy – Al-Sauds
Home of Islam
Yemen, Bahrain, Syria, Egypt
The engine of the region
5th1st1st
The Saudi economy
Source: IMF; World Bank
Oil and gas (inc.
refining)
27%
Admin/defence/other
19%
Trade,
restaurants,
hotels
12%
Other industry
10%
Ownership of
dwellings
8%Construction
7%
Transport,
storage,
communication
6%
Finance,
insurance, real
estate
5%
Agriculture
2%
Community, personal services
2%Electricity, gas, water
1%Mining
1%
Saudi Arabia’s GDP in 2015 was about $646bn. The economy is
diversified but still dependent on oil and gas
New Crown Prince concludes two years of change
June 2017: Mohammed bin Salman appointed Crown Prince along with
a raft of other appointments of young Saudis.
June 2016: National Transformation Programme (NTP) approved
May 2016: Government restructure
April 2016: Saudi Vision 2030 unveiled promising wide-ranging
economic restructuring based on privatization and diversification
Dec 2015: 2016 budget calls for cuts and economic reform
2015: Crude sales down 23% in 2015 puts pressure on finances.
Riyadh drawing down foreign reserves and tapping Saudi banks with
local currency bonds to plug the budget deficit. Riyadh begins spending
under review putting many decisions on hold
Jan 2015: King Salman bin Abdulaziz al-Saud accedes
• Crown Prince Mohammed bin Nayef
• Deputy Crown Prince Mohammed bin Salman
Crown Prince Mohammad Bin Salman
KIng Salman bin Abdulaziz al-Saud
Crown Prince Mohammed bin Nayef al-Saud
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
Nominal GDP ($bn current prices) GDP growth (annual %)
It has been a very tough year
Source: IMF; World Bank
GDP
growth
(%)
GDP
($bn)2009-13
Real GDP growthAve 4.1%
20161.3%
20170.1%
20181.1%
The new normal
Oil expected to remain in $50-$60 range for medium term
IMF forecasting Brent average of $55/barrel in 2017
Rising gradually to $57.5 by 2021
Source: ft.com
$50/barrel
The impact of low oil
Source: www.meed.com
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Fiscal breakeven oil price 2017 ($/barrel)
http://www.meed.com/
Saudi oil production
Saudi oil production rose from 8.3m b/d in 2009 to a record 10.45m b/d in 2016
2014 decision to abandon attempts to bolster prices in face of non-Opec output
Higher output also due to supply interruptions in Libya and Iran since 2012
This ended with the relaxation of sanctions on Iranian oil in January 2016.
2016 agreement requires kingdom to cut output to below 10m b/d
Surplus turns to deficit
GCC Bahrain Kuwait Oman Qatar Saudi Arabia UAE
The changed fiscal landscape
Kingdom has large reserves but is running large fiscal deficit
Deficit was 17.2 per cent of GDP in 2016
9.3 per cent of GDP in 2017, and
to just under 1 per cent of GDP by 2022 if reforms delivered
2016-2019, GCC average annual fiscal deficit of about 8%
Reserves have fallen about one third since the end of 2014 to below $500bn
Balancing the books
Fiscal consolidation – cut spending, restructuring, job cuts, efficiency
Diversify non-oil revenues – taxation, fees, private sector
Structural reforms – privatisation, SMEs
Energy reform – subsidy cuts, diversify, IPP/IWPP
PPP – Energy, water, housing, transport
Diversifying funding – new sources, ECAs, IPO
Source: www.meed.com
http://www.meed.com/
GCC funding needsSource: Standard & Poor’s
Riyadh needs $389bn to finance government spending to the end of 2021
Deficits financed by a mix of drawdowns on reserves, and debt
Saudi has large reserves but these are finite
Government reserves have fallen from $730bn in 2014 to about $500bn
Saudi’s net asset position will decrease by 30% by 2019
Increased borrowing
Financing deficit also through increased borrowing
S&P expects the kingdom to borrow as much as $180bn by 2019
Public debt stands at about $100bn, compared with $11.7bn in 2014.
Saudi Arabia has already raised $8bn from its local currency Islamic bond
programme, which was only launched on 20 July.
The first sukuk closed on 25 July, raising $4.5bn, and the second on 22 August,
raising $3.5bn. Both were three times oversubscribed.
Earlier this year, Riyadh raised $9bn through a dollar-denominated dual sukuk.
This followed a $10bn conventional loan and a $17bn record-breaking debt bond
in October 2016.
https://www.meed.com/sectors/finance/riyadh-closes-second-domestic-sukuk/5019877.article?blocktitle=Latest&contentID=24781
Good progress on tackling the deficit
The kingdom is on track to slash its deficit in 2017
The budget shortfall at the end of the first half of 2017 was $19.4bn
This compares with a full-year deficit of $107bn in 2016
Spending is down 2 per cent year-on-year, and revenues are up 29 per
cent.
Rise in revenues mostly due to higher oil prices than in first part of 2016.
Non-oil economy still less than 40 per cent of government income.
Plans are moving forward to boost government revenue through taxation,
but there is still a long way to go before the economy can be said to be
sustainable.
Cash crunch eases for Saudi banks2016: Liquidity crisis
• Severe liquidity crunch as Riyadh cut spending and delayed contractor
payments
• Fall in deposits and rise in borrowing saw loan-to-deposits ratios rise to 86%
• Banks raised provisioning against non-performing loans
• Cost of debt spiked with Saibor spiking at 2.4% in Oct
2017: Liquidity pressure eases
• Trend reversed with large liquidity injections into banks following $17.5bn bond
in October and payment of $28bn of overdue bills to Saudi contractors in Q4
• Increase in loan repayments saw loan-to-deposit ratio fall to 83% in Dec
• In January, three-month Saibor fell below the rate at which the central bank
lends money to commercial banks to 2%
Outlook
• Moody’s expects liquidity pressures to be moderate over next 12-18 months
• Low credit growth forecast at around 3%
• “Deposit growth will remain challenging,” – Moody’s
• Risk of government borrowing absorbing liquidity Source: www.meed.com
http://www.meed.com/
Grow private sector to 65% of GDP from 40%
Privatise government services. Up to 146 assets
Government becomes regulator
Private investment in healthcare, services, housing and energy
Up to 5% of Saudi Aramco floated in 2018 could raise $100bn
PPP for projects and services
Localisation of oil & gas sector from 40% to 75%
Launch the King Salman Renewable Energy Initiative
Saudi Vision 2030
Source: www.meed.com
http://www.meed.com/
Saudi Vision 2030 Three themes:
• A vibrant society
• An ambitious nation
• A thriving economy
The Council of Economic and Development Affairs (Ceda) is
responsible for overseeing the plan, and is setting up bodies
that will support, monitor and evaluate the programme
National Transformation Plan (NTP)NTP is roadmap to deliver Vision 2030
Approved by Ceda after Vision 2030
• 178 strategic objectives• 371 indicators• 346 targets• 546 initiatives
First phase runs for five years from 2016 at a cost of almost SR268.4bn
Bodies added each year to programme, as it is reviewed and targets are updated
NTP 2.0Saudi Arabia is redrafting NTP
Some areas planned to be reformed under NTP will be removed from the plan
and the implementation timeline for other targets will be extended to 2025 and
2030
The government has been working on amendments for the plan since July.
Some of the NTP reforms have now been moved to other programmes.
Goals of the NTP were too ambitious to achieve by 2020
Not abandoning reforms. Restating
Highlights the difficulty of delivering reforms
The amendments to the NTP are not expected to impact on the planned initial public offering (IPO) of state oil major, Saudi Aramco. Riyadh is planning to sell 5 per cent of the oil company to the public in 2018.
National PMO
Source: www.meed.com
The National Project Management Office (NPMO) was formed by the Ministry
of Economy and Planning in 2015 to introduce programme management
methodology to keep spending on major infrastructure schemes under
control, prevent wasteful spending and to manage the delivery of projects
under the NTP.
Led by economy and planning minister Adel al-Fakeih, it will review
government contracts to make sure they can be implemented efficiently
NPMO is the central delivery unit, each ministry will have a Project
Management Office which will also report into the body
Bechtel to run the National Project management Office to support
government delivery of infrastructure projects and avoid cost overruns
http://www.meed.com/
Saudi Arabia’s year of privatisation
• National Centre for Privatisation established
• Set policy and programmes for privatisation projects, PPP and
capacity building
• Public utilities, sports, healthcare, education, transport and
municipal services
• 85 PSP opportunities in budget
• MBS in May said 100 entities to be privatised
• Could yield $200bn through sale of state enterprises
Source: www.meed.com
http://www.meed.com/
PPP momentum builds• National Centre for Privatisation will lead PPP programme
• Ministry of Economy seeking advisor to develop pipeline of PPP projects
• NTP aims to carry out 5 PPP projects by 2020
• Taif is 3rd airport PPP after Medina (2011) and Yanbu (March 2017) but
Taif airport PPP was put on hold in 2016 due to concerns over revenues
• PPP model to be applied in transport, health and education
Challenges• Saudi Arabia is expected to go ahead with PPP projects without a
dedicated legal framework, using existing commercial law
• PPP track record
• Revenue streams
What is PPP?
Government projects and services where the risk is shared between a government body and a private sector partner
Turnkey contract
O & M contract
BOT, DBO, BTO, BOOT,
BOO
Concession PPP
Privatisation
Full government control
Full risk transfer to private sector
Value of PPP pipeline ($bn)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Pipeline of 156 PPP project valued at about $206bn
• Understand tendering timelines
• Obtain planned client activities
• Comprehensive list of projects
• Understand PPP legislation
• Identify future project spend
• Detailed analysis of PPP projects
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PPP in the Middle East & North AfricaDetailed insight into 150 PPP projects across the MENA region
mailto:[email protected]
TransportTransport Ministry is overseeing major infrastructure upgrades, with the Riyadh
metro its most important project.
There are also delayed plans to develop metros in other key cities to ease
congestion and, in the case of the $8bn Mecca metro, help increase religious
tourism.
The transport ministry has around $122bn-worth of projects in the pipeline to 2020,
with most of that potential value earmarked for airport and rail schemes.
Within the transport sector, by 2020 the government wants the private sector’s
contribution to building and operating road projects to reach 5 per cent, developing
and operating railway projects to reach 50 per cent and 70 per cent for ports.
Railways2,877km of mainline and 18km of light rail
10,000km+ of mainline planned and 700km of light rail, including Haramain high-speed rail, Landbridge, and metros in Riyadh, Mecca, Jeddah and Dammam
Challenge is financing such large civil engineering projects, and cost of operating
Since oil price crash in 2014, all major new rail projects have stalled
In March PTA and SRO said rail projects will be developed in partnership with private sector through the privatising of operations and through PPP funding of metros
RailwaysPrivatisation of mainline rail operations
Public Transport Authority (PTA) is seeking private developer and operator interest in Riyadh-Dammam, North-South Railway, and potentially other long-distance rail schemes
No specific investment models or timeline for assets under consideration, which include track, systems, telecoms, rolling stock, operations and maintenance. Scope split into two:- Infrastructure including track, freight yards and passenger stations, and depots- Operations including the purchase and operations of new and existing rolling stock
Metro PPPsNational Centre for Privatisation (NCP) has received interest from consultancy firms for
the contract to provide technical advisory services for PPPs for four urban rail systems for Mecca, Jeddah, Medina and Dammam. Bids due 1 Oct
Many big challengesTechnical and commercial complexity of building and operating a rail network Risk allocation that is attractive to investorsLack of regulatory frameworkCompetition from other forms of transport such as air travel and cars
https://www.meed.com/sectors/economy/saudi-arabia-establishes-ppp-unit/5013749.article?search=https://www.meed.com/searcharticles?parametrics%3d%26keywords%3dSaudi+Arabia+NCP%26PageSize%3d10%26cmd%3dAddPm%26val%3dCATEGORYCountries|42https://www.meed.com/sectors/transport/exclusive-saudi-arabia-seeks-interest-for-urban-rail-ppp/5020000.article?search=https://www.meed.com/searcharticles?qsearch%3d1%26keywords%3dNCP
Airports
Saudi has 27 airports
Gaca in August said it
wants to privatise of all
Saudi airports this year.
So far it has privatised six
Kingdom using airports
upgrade programme to
drive broader
development
Airports
Airport Privatisation modelContractor / Developer / SPV
Prince Naif bin Abdulaziz, Qassim
PPP TAV / Al-Rajhi
Hail airport PPP TAV / Al-Rajhi
Prince Abdul Mohsin bin Abdul Aziz, Yanbu (passenger terminal)
PPP TAV / Al-Rajhi
Taif International PPPAsyad / Munich Airports / Consolidated Contractors Company
Prince Mohammed bin Abdulaziz International, Medina
PPP Tibah Airports
King Abdulaziz International, Jeddah
Private operator Changi Airports
King Khalid International, Riyadh
Private operating companyGoldman Sachs (financial adviser for stake sale)
King Fahd International, Dammam
Private operating company na
AirportsSmaller airports must reach a certain level of operating standard before they are
turned over by the Saudi Civil Aviation Holding Company to the Public Investment
Fund (PIF)
The PIF will then sell stakes of these airports, following the formation of individual
airport companies, to private investors - a strategy that is parallel to what has been
adopted for the international airports in Riyadh and Dammam.
There needs to be a concerted effort between Gaca, the municipal governments and other authorities to build better infrastructure and road networks around these airports.
They also need to offer domestic air fares that reflect the airlines’ operating costs to allow the privately-owned airlines to thrive, as well as address high aircraft parking fees being charged by the airports.
Privatising the airports will also likely require passengers to pay a certain fee for using airport facilities and services, a measure that the aviation regulator has been unwilling to adopt previously on account of not wanting to tax passengers
https://www.meed.com/sectors/transport/saudi-carrier-procures-60-aircraft/5011897.article?search=https://www.meed.com/searcharticles?qsearch%3d1%26keywords%3dflynas
Project Owner Stage Size Advisers
PP15 SEC EOI 5,400MW HSBC, Fichtner, DLA Piper
National
Renewable
Programme,
round 1
MOEI Prequalificatio
n
700MW (300MW PV solar,
400MW wind)
Sumitomo Mitsui Banking
Corporation (SMBC), Fichtner,
DLA Piper
Jubail Petcoke
IPP
Saudi
Aramco
RFI 900MW/450 tonnes per hour
(steam)
Jacobs Engineering
Rabigh 3 IWP SWCC Advisers
appointed
600,000 cm/d Banque Saudi Fransi (lead
adviser), Fichtner Engineering
and Consulting, DLA Piper,
Alderbrook
Yanbu 4 IWP SWCC Advisory bids 450,000 cm/d N/a
Shuqaiq 3 IWP SWCC Advisory bids 380,000 cm/d N/a
Jubail IWPP SWCC Advisory bids 3,000MW/ 1.2 million cm/d n/a
Jeddah Airport
2 STP
NWC Advisory bids 500,000 cm/d n/a
Taif North STP NWC Advisory bids 270,000 cm/d n/a
Yabreen water
field project
NWC Advisory bids 800,000 cm/d supply n/a
Power & WaterUnbundling and privatisation of Saudi Electricity Company (SEC)
The vast majority of the kingdom’s major upcoming utilities project, the plant will now be delivered through a public-private partnership (PPP)
Water
SWCC forecasts it needs to increase the current desalination capacity of 5.1
million cm/d to 7.3 million cm/d by 2020 to meet growing demand.
SWCC is increasing the role of private investment in the desalination sector
as part of the kingdom’s Vision 2030.
Saudi Arabia’s Water & Electricity (WEC) has received expressions of
interest (EOI) in August from 55 firms for the planned 600,000 cubic
metres a day (cm/d) Rabigh 3 independent water project (IWP). The project
will have a 25-year concession period, with WEC as the offtaker, supported
by a payment guarantee from the government.
It is also preparing to privatise existing assets.
https://www.meed.com/sectors/finance/saudi-water-company-to-seek-privatisation-advisers/5009232.article
28 April 2015
Renewables programmeNational Renewable Energy Programme (NREP) launched in February
3.45GW planned by 2020 and 9.5GW by 2023
Renewable Energy Project Development Office (Repdo) is heading the programme
Repdo reports to renewable energy steering committee, chaired by Energy Minister
KA-Care will form the renewable energy monitoring agency (Remo)
On 20 Feb, Repdo launched for first two schemes totaling 700MW:
• In April, Repdo invited 27 companies to submit proposals for a 300MW photovoltaic (PV) solar project at Sakaka. Aiming to be commissioned by Aug 2019
• In August, Repdo prequalified 25 companies for a 400MW wind scheme at Dumatal-Jandal. Kingdom’s first wind farm. Originally planned for Midyan
• Later rounds cover CSP and waste-to-energy schemes
• All projects developed under the (IPP) model
The Saudi Aramco IPO
IPO
• Riyadh to raise capital from sale of Aramco shares
• Plans to float of up to 5% of Aramco in 2018
• Biggest share sale in history and could raise $100bn
• Market capitalisation estimates range from $1.5tn-2tn
(Apple is $652bn)
• Dual listing on Tadawul and international exchange
• Moelis, JPMorgan and Michael Klein advising
BUT…
Concerns about what offered and transparency
Aramco is attractive but only small stake offered
Riyadh recently cut Aramco’s tax bill to 50% from 85%
Source: www.meed.com
Engine of the economy
Aramco to invest $334bn over
10yrs to sustain oil production
• 42% on drilling
• 31% on facilities
• 11% on infrastructure
Plans to tap debt markets for
$10bn to finance its programme
• World’s biggest company by asset value
• Sole producer of kingdom’s oil and gas
• Production capacity of 12mbd
• Responsible for development of oil & gas infrastructure
http://www.meed.com/
MBS interview
Source: www.meed.com
Saudi Arabia’s Public Investment Fund (PIF) will invest
up to SR500bn ($133bn) across a number of sectors
following the public listing of oil giant Saudi Aramco,
“After the listing, [PIF] will invest up to SR500bn in the
Saudi economy. It will be in a position to help develop
the kingdom after the necessary funds are raised from
the listing of Aramco,” said MBS
.
PIF will invest 50-100 per cent of its cash inside the
kingdom, with military production and manufacturing
being a primary focus.
He also highlighted the logistics sector serving the
Red Sea as key area that is currently lacking
investment and said that the kingdom will look at ways
to develop companies serving the west coast of the
country.
http://www.meed.com/https://www.meed.com/sectors/economy/following-riyadhs-lead/5014404.articlehttps://www.meed.com/databank/companies/saudi-aramco
Engine of the economy
Investment programme
• Aramco to invest about $334bn over next 10yrs to
sustain oil and gas production
• 42% on drilling, 31% on surface facilities and 11% on
infrastructure
• It says it will spend about $33bn a year in the Saudi
economy
• It plans to tap the debt markets for $10bn to raise funds
to finance its programme
Recent Aramco project news
• Deals worth over $5bn awarded in Saudi Aramco
offshore programme (next slide)
• Bids in for $400m Tabuk tank farm project
• Seeking developer interest for IPP at Satorp refinery in
Jubail
• Could make first investment in renewables this year
• Saudi Aramco eyes $2bn sukuk sale
• Aramco receives bids for Ras al-Khair maritime package
• Bids due on $4.5bn gas expansiaion at Haradh and
Hawiyah
Aramco Long Term Agreements
Over $5bn offshore oil & gas projects
awarded since start 2016 on LTA
The LTA deals signed in 2015:
• Dynamic Industries
• Larsen & Toubro/Emas
• McDermott
• Saipem
• NPCC (from Oct 2016)
Over $800m tendered but not awarded
Aramco seeking to add new companies to
LTA programme
Upcoming major projects:
$3bn-5bn Marjan field development
Est. $5bn Zuluf offshore field dev
L&T/Emas
$2,200m
44%
McDermott
$1,343m
27%
Saipem
$1,091m
22%
Dynamic
Industries
$209m
$4%
NPCC
$184m
3%
Aramco LTA contract awards by
value Q1 2016 - Q1 2017
In Kingdom Total Value Add programme
Contractors subject to government’s In-Kingdom Total Value-Add (IKTVA) programme, which requires goods and services to be procured domestically
Aramco to double amount of energy-related goods and services procured in kingdom to 70% by 2021
By shifting focus to local industries, Aramco aims to create hundreds of thousands of skilled jobs and careers for Saudis
Aramco wants Saudi energy goods and services industry to export 30% of output over the same time
Aramco is investing $4.4bn to develop a new industrial city at Abqaiq to develop energy-related industries and create thousands of jobs
Also $5bn investment in maritime complex at Ras al-Khair
28 April 2015
Saudi construction outlook
NPMO
750,000 families eligible for public housing
Saudi construction expected to grow by 0.8% in 2017 after contracting -3.1% in 2016
Riyadh finalised land tax in May 2016 and white land fees expected to boost Housing
Ministry plans to deliver 1.5m affordable houses over next 5 years, 400,000 by
2020
Studying types of partnerships with developers including $20bn agreement with a
consortium led by South Korean Hanwha to build 100,000 homes over next 10 years
SR3bn BOT/PPP programme to provide housing to widows and orphans in
cooperation with the Ministry of Labour and Social Development
Source: MEED Projects
Value of unawarded GCC Projects ($m)
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
Bahrain Kuwait Oman Qatar SaudiArabia
UAE
Source: MEED Projects
Value of KSA future projects by sector ($bn)
Chemical
$58bn
10%
Construction
$120bn
22%
Gas
$9.9bn
2%
Industrial
$24bn
4%Oil
$13bn
2%
Power
$162bn
30%
Transport
$151bn
28%
Water
$12.3bn
2%
45 © 2014 MEED Projects
Economic Outlook
GDP growth in 2017 = 0.1 per cent due to oil production cuts
Non-oil growth in 2017 = 1.7 per cent
Growth expected to strengthen as structural reforms are implemented, but risks from
uncertainty about future oil prices and how reforms will affect the economy
Riyadh on track with economic reforms and has the fiscal space to allow a more gradual
consolidation than envisaged in its Fiscal Balance Programme
Employment growth has weakened, and the unemployment rate among Saudi nationals has
increased to 12.3 per cent.
Inflation increasing due to higher energy and water prices. Expected to increase over the
coming year as recently introduced excise taxes, further energy price reforms and
the introduction of value-added tax (VAT) at the beginning of 2018 drive up prices
Fiscal deficit is projected to decline from 17.2 per cent of GDP in 2016 to 9.3 per cent of GDP in
2017, and to just under 1 per cent of GDP by 2022 if reforms delivered
The current account balance is expected to move into a small surplus
in 2017 as oil export revenues increase and import growth and
remittance outflows remain relatively subdued.
https://www.meed.com/sectors/finance/saudi-shura-council-approves-vat-law-draft/5018076.article?search=https://www.meed.com/searcharticles?qsearch%3d1%26keywords%3dVAT
What IMF said
Economic growth will be weaker this year but outlook improving due to improved
economic outlook was because of higher growth in the rest of the world and
rising commodity prices
Downgraded growth to 0.1 percent this year and 1.1 percent in 2018 due to fiscal
consolidation and oil production cuts
“further sustained fiscal adjustment remains critical,” which would affect the
overall economic growth. Riyadh can relax tough fiscal stance “from time to time”
to avoid “reform fatigue”
$55 per barrel average oil price this year and the next though not much upside
Saudi privatisation: “Whatever can be done to improve private sector participation
is good, so I think all these initiatives are welcome. They are ambitious plans for
reform and diversification.”
High levels of debt were an issue, especially for the oil exporters
Project opportunities are still
there
$251,865
$183,973
$69,031
$44,178$26,921
$68,620
Saudi Arabia UAE Qatar Oman Bahrain Kuwait
$640bn of GCC projects at pre-execution stage
Source: Saudi Arabia 2017; MEED Projects
Outlook2017 will be another challenging year but outlook for 2018 is for strong
recovery
The extension of oil production cuts keeps pressure on government finances
but steadily. Fiscal consolidation and reform policies will continue to shape
agenda but austerity will have to ease because of the hit to growth
Consolidation will hit private and non-oil sector activity but privatisation and
PPP reforms start to gain momentum
Financing will be a primary challenge as market conditions harden
Reform and fiscal consolidation will get progressively harder
Source: www.meed.com
http://www.meed.com/
The Taxman comethVAT
GCC to introduce 5% value added tax (VAT) from the start 2018. Impact unclear until national
legislation in place but operational challenges should be expected:
• Collecting and remitting VAT will have set-up and compliance costs
• Cash flow under pressure from paying VAT on purchases before reclaiming
• Pressure to absorb cost in highly competitive, low margin sectors
• Renegotiating contracts could pose additional challenges
• Risk of errors in tax collecting and accounting could see companies liable
• Costs of staff training update or replacement of IT infrastructure
• VAT and government cutbacks could reduce disposable incomes
Companies involved in supplying goods and services between countries
or free zones likely to face additional complexities as agreements vary
Other new taxes
Saudi Arabia planning new taxes on expatriate workers this year
• Foreign worker tax on companies from 1/1/18, phased over 3 years
• Monthly fees on expats sponsoring dependents rising over 3yrs from 1/7/17
• Rising visa costs already implemented
Source: www.meed.com
http://www.meed.com/
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