nahed taher lecture

DR. NAHED TAHER

FOUNDER & CEO

GULF ONE INVESTMENT BANK

GCC MACROECONOMIC PERFORMANCE, PROSPECTS, PROBLEMS AND POLICY PRIORITIES

1(C) Copyrights 2010. Gulf One Investment Bank B.S.C. (c).

Lancaster University, 17 May 2011

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AGENDA

Review of Global Macroeconomic Outlook

Economic Performance, Prospects and Problems in the

GCC Region

Policy Priorities for addressing key risks & challenges facing

the Gulf Region

The Role of Gulf One Investment Bank in supporting

economic growth in the Middle East

Conclusion

(C) Copyrights 2011. Gulf One Investment Bank B.S.C. (c).

Global Macroeconomics


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Global Economic Recovery Still in a Two-Speed Mode Between Developed & Emerging Economies


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Real GDP Growth Rate (%)

Source: IMF (WEO, April 2011), Gulf One Bank

Emerging and Developing Economies

Advanced Economies

A closer look at the two-speed recovery: BRICS would continue to be the main drivers of global growth ....


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Real GDP Growth Rate in Selected Countries/Regions (%)

2009 2010

2011f 2012f

Source: IMF (WEO, April 2011); Gulf One Bank

World Economic Outlook – Growth Rates of Real GDP (%)

2009 2010e 2011f 2012f 2013f 2014f

World output -0.52 5.01 4.40 4.51 4.54 4.63Advanced economies -3.36 2.97 2.38 2.58 2.50 2.47

United States -2.63 2.83 2.76 2.87 2.72 2.73

Euro area -4.08 1.74 1.63 1.77 1.83 1.85

Germany -4.67 3.50 2.54 2.09 1.88 1.77

France -2.55 1.49 1.65 1.78 2.00 2.07

Italy -5.22 1.30 1.05 1.30 1.36 1.38

Spain -3.72 -0.15 0.83 1.61 1.77 1.93

Greece -2.04 -4.53 -3.04 1.08 2.11 2.13

Japan -6.28 3.94 1.40 2.07 1.69 1.51

United Kingdom -4.87 1.25 1.66 2.33 2.49 2.49

Emerging and developing economies 2.72 7.25 6.54 6.48 6.54 6.66

Brazil -0.64 7.49 4.46 4.13 4.12 4.16

Russia -7.80 3.95 4.83 4.51 4.34 4.24

China 9.20 10.30 9.59 9.52 9.47 9.52

India 6.75 10.36 8.24 7.82 8.16 8.14

Middle East 1.78 3.76 4.06 4.22 4.33 4.90Source: IMF, WEO, April 2011

... and despite pockets of downside risks, global economic outlook remains encouraging


Economic Outlook & Challenges in the GCC

(C) Copyrights 2010. Gulf One Investment Bank B.S.C. (c). 7

Economic growth gathers momentum

• Favourable oil price boosts production and growth; improves fiscal & external positions

• Fiscal space is allowing continued execution of infrastructure programmes

• Private sector activity has started to pick up after a brief lull

Risks & medium term challenges

• Inflation remains a key concern

• High unemployment, especially among youth, poses real challenge

• Low human capital endowment is bane to productivity growth

• Deepening & strengthening the financial sector is a real headache

• Diversifying the economy away from hydrocarbon remains illusive

Summary of Key Issues

Favourable Economic Fundamentals in the GCC


RISING OIL PRICES TO IMPROVE ECONOMIC FUNDAMENTALS IN GCC COUNTRIES


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World Oil Price (US$/Barrel)

Source: Thomson Reuters, and G1 Bank

The boom end 2007-beginning 2008

The global financial crisis

Ideal path

Social political unrest in MENA & natural catastrophes


GCC economies have recovered from the downturn of 2009 and economic growth outlook is promising


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GCC Bahrain Kuwait Oman Saudi Arabia UAE

Real GDP Growth Rates in GCC Countries (%)

2009 2010e 2011f 2012f

All GCC countries would continue to enjoy favourable external account positions ....


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Bahrain Kuwait Oman Qatar Saudi Arabia UAE

Current Account Balances in GCC Countries (% of GDP)

2009 2010 2011f 2012f Source: IMF (WEO, April 2011); Gulf One Bank

... and despite recent ‘extra-budgetary’ spending fiscal balances would remain healthy as rising oil prices exceed break-even levels used in the budgets


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Fiscal Balances in GCC Countries (% of GDP)

2009 2010 2011f 2012f


Sovereign Ratings of GCC countries remain sound & stable….


Entity Domestic Rating Foreign Rating T&C Assessment

International:Brazil BBB+ BBB- BBB+ China A+ A+ A+ France AAA AAA AAA Germany AAA AAA AAA India BBB- BBB- BBB+ Japan AA AA AAA United Kingdom AAA AAA AAA United States AAA AAA A AA

GCC:Abu Dhabi AA AA AA+ Bahrain A A AA-Ras Al Khaimah A A AA+ Kuwait AA- AA- AA+ Oman A A AA-Qatar AA AA AA+ Saudi Arabia AA- AA- AA+ Source: Standard and Poor’s

RISKS AND MEDIUM TERM CHALLENGES


Inflation poses a key risk to growth although prices are likely to be contained below pre-financial crisis levels


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Inflation Rates in GCC Countries (%)

2009 2010 2011f 2012f

Source: IMF (WEO, April 2011); G1 Bank


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Source: Reuters; G1 Bank

Inflation Inflationary Gap

But the region’s inflation is underestimated as the high Inflationary Gap figures suggest …

Inflation & Inflation Gap in Saudi Arabia

High youth unemployment is a real problem

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Total Unemployment (%)

Source: IMF, ILO, Gulf One Bank*: Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia

MENA6*

Saudi

Sub-Saharan Africa

SE Asia &Pac.

Developed Economies

World

East Asia

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Unemployment Rate in MENA Region

Unemployment of resources lead to a huge Output Gap (Potential GDP exceeds Actual GDP)


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Sources: Thomson Reuters, Gulf One Bank

Saudi Arabia: Actual GDP versus Potential GDP

Potential GDP

Observed GDP

Expon. (Potential GDP)

Expon. (Observed GDP)

Low Public Sector Labour Productivity is a Real Concern

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Saudi Arabia: Labour productivity in the private & public sectors

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ENVIRONMENTAL CONCERNS


Another challenge to economic growth comes from rising CO2 Emissions


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Source: World Resources Institute

CO2 emissions from industrial processes in the GCC countries

Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates

Cost of Environmental Wastage in KSA has risen by more than three-fold since 1980 ...


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Saudi Arabia: Environmental Emission Costs (1980-2009)

Value of Environment Emissions (Billion Riyals) Environment Emission Cost (% GDP)Source: Gulf One Bank

Biggest CO2 Emissions in KSA come from Electricity Generation!


FINANCING CHALLENGES


Global Infrastructure Financing Gap Is Huge


Total infrastructure required inGCC infrastructure by 2020 = US$1,500 billion

Equity required =

30% of total investment

Current regional infrastructure equity funds = < 5% of total equity required

US$450 billion

US$22 billion

GCC INFRASTRUCTURE EQUITY FUNDS GROSSLY INADEQUATE


...Despite Attractiveness of Infrastructure Asset Class


POLICY PRIORITIES


Policy priorities


Education and Market

Development

Labour market flexibility

Diversification And Competitiveness

Managing International

Financial linkages

Jobs and Sustainable

Growth

A knowledge-based investment bank for financing infrastructure in the GCC and MENA Regions

Mission: To mobilise local & global capital to execute infrastructure projects via innovative financial solutions

Strategy:a catalyst for unleashing the GCC's potential to achieve

sustainable economic growth and social prosperity by building on region’s resource strength and competitive advantagestructuring and investing in infrastructure projects and

energy-related mega-initiatives, by building of strategic partnerships and alliances with local and international investors and institutions in our core businessesProviding advisory and debt arranging services to

infrastructure, PPP/BOT sector(C) Copyrights 2010. Gulf One Investment Bank B.S.C. (c). 31

GULF ONE INVESTMENT BANK

SECTOR FOCUS KEY FOR ECONOMIC GROWTH AND DEVELOPMENT

SAUDI ARABIA INCOME MULTIPLIER

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Sector Income multiplier (GDP / loans)

Crude oil -

Non-crude oil industries 4.3

Transport and communication 4.5

Water, gas and electricity 3.1

Finance 1.8

Construction 1.6

Commerce and tourism 1.2

Source: Gulf One analysis from official data


ONGOING INVESTMENTS

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Fund / Deal Sector Market

Moya Holding Company B.S.C.

(c)Water sector MENA / India

Gulf One SME Opportunities

Fund SMEs GCC

Gulf One Buchanan Industrial

Technologies Fund I L.P.Industrial Technologies

Germany, Austria,

Switzerland

Montajat Veterinary

Pharmaceuticals Co.Pharma Saudi Arabia

Jao Investment Fund Aviation GCC

Z Aljazira Power Saudi Arabia

SCC & SCC–MENA Environment GLOBAL & GCC

Source: Gulf One Bank


Jeddah Hajj Terminal: Islamic Deal of the Year 2007 – Euromoney PF

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Advisory:A 20-year BTO concession for the Hajj Terminal at King AbdulazizInternational Airport, Jeddah

Our Projects



Moya Holding Company

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Our Projects



Investment:

A PE Company in partnership with the Bushnak Group investing inwater projects (desalination, wastewater treatment, distributionetc.) principally in the MENA region and the Indian Subcontinent

JAO Investment Fund

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Our Projects

Jao Investment Fund



Investment:

A MENA focused private equity fund investing in attractiveopportunities within the aviation sector

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Our ProjectsGulf One Buchanan Industrial Technologies Fund: DACH Fund

GULF ONE BUCHANAN

INDUSTRIAL TECHNOLOGIES

FUND I LP



Investment:A private equity fund developed in partnership with BIT, investing inattractive companies in the industrial technologies sectors withinthe DACH Mittelstand – a conduit for industrial technology transferto the GCC

Our Projects

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Investment:An exclusive MENA joint venture operating company forthe carbon abatement, Clean Development Mechanismand alternative energy business in the MENA region


SCC MENA

Despite ongoing unrest in the Middle East, economic fundamentals in the GCC region are encouraging

But economic growth in the region will remain below potential unless appropriate policy measures are put in place to address key challenges –high unemployment, inflation, imbalances in the education system, labour market rigidity, shallow financial markets, difficult business climate, environmental & diversification concerns

Policy priorities should focus on job creation and sustainable economic growth through sustained policy reforms that could tackle the risks and challenges and unleash growth potentials

GULF ONE’s strategic positioning to finance key infrastructure projects will help to support sustainable economic growth in the region


CONCLUSION

Gulf One Investment Bank

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Thank you

nahed taher lecture

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