1

Trade, Economy and Investment

Monitor Report

Foreign Trade Division

Foreign Trade Policy Department

1st

Quarter 2015

2

TABLE OF CONTENTS

Contents PAGE NO

Executive Summary 3

Trade Monitor 5

UAE Joined China Led Asian Infrastructure Investment Bank 6

Global Trade Scenario 9

Australia and GCC to sign Free Trade agreement 11

Economy Monitor 12

IMF World Economic Outlook 13

Regional Economic Analysis 15

Economic Outlook for MENA region 20

Analysis – Decline in Crude Oil Prices 23

Quanititative Easing by European Central Bank 29

Investment Monitor 32

Global Equity Markets overview 33

Overview Regional Equity Markets 38

UAE Primary Markets 41

Country in Focus – Nigeria 42

Currency Monitor 51

Fluctuating Currencies 52

Euro Depricaiton Impact on UAE 56

3

EXECUTIVE SUMMARY

Global Trade has grown modest in 2014 and the growth is less than 3% for

the third consecutive year and this modest growth is due to slowdown in

economic growth across the world. Muted growth in global trade had its effect

even on UAE’s international trade as prorated 2014 figures show a negative

growth.

Last quarter, UAE has joined China led Asian Infrastructure Investment Bank

as a founding member which is a multilateral bank designed to provide

financial support for infrastructure and regional connectivity in Asia. As a

founding member UAE will have the right to participate and create

governance and operational rules for the bank.

Australia and GCC countries are likely to sign a Free Trade agreement deal

and this deal will have multiple benefits to businesses in gulf region. Some of

the major highlights of the deal are double taxation agreement for Investments

and import tariffs. This deal will have a positive impact on Investors from GCC

investing in Australia.

IMF has released it global economic outlook and forecasts a moderate growth

with uneven prospects across major countries and region. Global growth is

projected to be around 3.5% in 2015. IMF forecasts Economic growth for

MENA region to be around 2.9% and 3.8% in 2015 and 2016. Some of the

factors dominating global scenario are decline in Oil prices and large

exchange rate movements.

Oil prices declined significantly form levels of above $100 per barrel to $45

per barrel in the past quarter. This significant drop in oil prices is attributed to

demand and supply mismatch, Weak global economy and Increase in energy

efficient machines and automobiles.

European Central bank has introduced quantitative easing as tool to stimulate

growth and contain deflation. As part of the plan European central bank will

buy Euro 60 billion worth of bonds and is targeting a total purchase of Euro 1

Trillion by end of September 2016.

4

Global Equity markets gained significantly due to a positive outlook of global

economy and due to availability of capital at lower rates. US S&P 500 gained

by 2.4% and European index Euro Stoxx 50 by 15.5% year till date. Chinese

Equity markets soared by 33.8% in 2015 and was the best performing equities

in the world. Saudi Arabia has announced that it is opening up its stock

markets to foreign investors from 15th June and this helped Saudi stock

market Index Tadawul to increase by 16% Year till date. UAE has issued new

legislations regarding the issuance of IPO’s and relaxed rules such as

decreased the minimum float of shares from 55% of shares to 30%. This will

encourage more businesses to launch IPO’s as most of the owners do not

want to lose majority stake when raising capital.

Nigeria is the country of focus as an Investment destination as it has grown as

the largest economy in Africa. Some of the Investment highlights of Nigeria

are diversification strategy adopted by new elected government and favorable

demographics. Agriculture, Education, Infrastructure and Mining will be the

sectors of interest for Investors as they offer enormous potential and attractive

opportunities.

Major currencies like US dollar, Euro, Swiss franc and Japanese yen

fluctuated and reached year highs and lows. Fluctuating currencies has been

one of the major concerns for countries and companies operating globally.

Many businesses with major transactions in cross currencies see volatile

currency as a significant risk.

5

TRADE MONITOR

6

1. UAE JOINED CHINA LED ASIAN INFRASTRUCTURE INVESTMENT

BANK

The UAE has joined the China-led Asian Infrastructure Investment Bank

(AIIB) as a founding member. The UAE joins fellow AIIB founder members

Saudi Arabia, Oman, Qatar, Egypt and Jordan, as well as other countries from

Asia and Europe, including the UK, Germany and Russia. Founding members

have the right to create governance and operational rules for the bank.

THE ASIAN INFRASTRUCTURE INVESTMENT BANK

The Asian Infrastructure Investment Bank (AIIB) will be a new multilateral

development bank (MDB) designed to provide financial support for

infrastructure development and regional connectivity in Asia. AIIB’s

approach will be ―lean, clean and green‖, with a focus on efficiency,

sustainability and transparency. The Bank will work in close cooperation with

the existing multilateral development banks -- complementing, supplementing

and enhancing their development efforts

As of April 15, 2015 there are 57 Prospective Founding Members (PFMs).

PFM which signed the memorandum to build AIIB Approved as PFM of AIIB Applying to become an ordinary member of AIIB Application under consideration No commitment to participate or rejected Uncommitted

AIIB will focus on the development of infrastructure and other productive

sectors in Asia, including energy and power, transportation and

telecommunications, rural infrastructure and agriculture development, water

7

supply and sanitation, environmental protection, urban development and

logistics, etc.

The authorized capital of AIIB is expected to be USD 50 billion and is very

likely to be increased to USD 100 billion. As a regional development bank,

AIIB’s regional members will be the majority shareholders; non-regional

members will hold smaller equity shares. The main financial instruments of

the AIIB will include loans, equity investments and guarantees. AIIB will invest

in proposals that would generate positive financial and Economic benefits.

POSITIVE IMPACTS ON UAE

1. Strengthens role played by UAE Internationally

Being a founding member of AIIB will boost the prime economic role played

by the UAE regionally and internationally, by focusing efforts on development

projects with great socio-economic benefits

2. Improves Trade relations with China

China has emerged as the top trading partner with UAE and joining AIIB

will boost trade ties with China

SOURCE: UAE STATISTICS.GOV.AE

49 52 57

66 71

7.5%

6.9%

6.2% 6.2%

6.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

10

20

30

40

50

60

70

80

2009 2010 2011 2012 2013

UA

E-

Ch

ina %

con

trib

uti

on

Tota

l U

AE

Tra

de

UA

E &

Ch

ina T

rad

e i

n A

ED

Bil

lion

UAE-China Trade Trends

UAE -China Trade in AED Billion % Share of China total UAE Trade

8

SOURCE: UAE STATISTICS.GOV.AE

3. China emerging as an alternate Economic Superpower to US

As per IMF latest report, China is contributing 17% to global GDP when

compared 16% by US in 2014. It is likely that China will maintain the

current growth rates and will emerge as a dominant economic power in

coming decade. Being a founding member of AIIB will be beneficial to UAE

in maintaining healthy trade ties with China.

References

http://www.aiibank.org/

http://www.thenational.ae/business/banking/UAE-signs-up-as-founding-

member-of-asian-infrastructure-investment-bank

http://www.emirates247.com/business/UAE-joins-asian-infrastructure-

investment-bank-2015-04-06-1.586522

http://www.UAEstatistics.gov.ae/EnglishHome/ReportDetailsEnglish/tabid/121

/Default.aspx?ItemId=2348&PTID=104&MenuId=1

14.2%

23.0%

13.8%

0.9%

5.7%

10.1%

14.4%

7.5%

0%

5%

10%

15%

20%

25%

2010 2011 2012 2013

UA

E T

RA

DE

GR

OW

TH

IN

%

Trade Growth in Percentage

UAE - International UAE -China Trade in AED Billion

9

2. GLOBAL TRADE SCENARIO

The modest gains in 2014, marked the third consecutive year in which trade

grew less than 3%. Trade growth averaged just 1.6% between 2012 and

2014, the slowest rate on record for a three year period over the past few

decades (Except during 2009 crisis). As per WTO Economist estimates,

growth in the volume of world merchandise trade will pick up only slightly over

the next two years, rising from 2.8% in 2014 to 3.3% in 2015 and eventually to

4.0% in 2016.

A – Actuals E – Estimates F- Forecasts

Source: World Trade Organization Statistical database

Factors contributing to the Sluggish growth in global trade are

1. Slowdown in emerging countries like China, Russia and Brazil

2. Uneven recovery of developed economies like Europe and Japan

3. Protectionist measures adopted by countries

4. Geo political tensions in Middle East and Ukraine

5. Exchange rate fluctuations

6. Sharp decline in commodity prices in global markets especially Oil and Metals

148.9 167.9

130.0 156.5

183.5 183.8 187.0 192.2 198.6 206.5

12.8%

-22.6%

20.4% 17.3%

0.2% 1.7% 2.80% 3.30% 4.00%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

2007A 2008A 2009A 2010A 2011A 2012A 2013A 2014E 2015F 2016F

Worl

d T

rad

e g

row

th i

n %

Worl

d T

rad

e i

n T

rill

ion

US

D

W O RLD T RADE World Trade in Trillion USD (Current Prices) World Trade growth in %

10

IMPACT OF GLOBAL SLOWDOWN ON UAE TRADE

Note: 2014P - Prorated numbers for 2014 using six month data for 2014

SOURCE: UAE STATISTICS.GOV.AE

Slowdown in global trade had its impact on UAE overall trade numbers. The

growth in total trade just increased by 0.68% in 2013 when compared to an

increase of 22.87% and 13.84% in 2011 and 2012 respectively. Prorated data

in 2014 shows a decrease in trade numbers by -1.5%.

662

756

930 1,058 1,065 1,049

14.23%

22.87%

13.84%

0.68%

-1.50% -5%

0%

5%

10%

15%

20%

25%

-

200

400

600

800

1,000

1,200

2009 2010 2011 2012 2013 2014P

UA

E T

rad

e G

row

th i

n %

UA

E T

RA

DE

in

Bil

lion

AE

D

IMPACT GLOBAL SLOWDOWN ON UAE TRADE

Total UAE Trade in Billion AED Trade Growth in %

11

3. AUSTRALIA AND GCC TO SIGN FREE TRADE AGREEMENT

Australia initially started negotiating a FTA deal with the United Arab Emirates

in 2005. However, the negotiations were halted in 2009 when the GCC

decided to negotiate collectively. Australia and GCC countries are likely to

sign a Free Trade Agreement deal and this deal will have multiple benefits to

Businesses in gulf region.

Australia is prepared to remove previous ―road blocks‖ such as Car Tariffs

and double Taxation

Double Taxation agreement for Investments - The double taxation is an

agreement that if the Gulf States invest companies in Australia they

wouldn’t get taxed in Australia and back in the Gulf States. So there will

be no taxation.

Gulf States got 5% tariffs on Imported cars from Australia

This agreement will help in improving trade and Investments between UAE

and Australia

Agreement would secure more scope for reliable, high-quality,

foodstuffs from Australia. Agriculture makes up around 12 percent of

Australia’s GDP.

Will open up Investment opportunities for UAE Investors in Australia.

Some of the attractive sectors in Australia are Agro processing, Mining

and Education

Reference:http://english.alarabiya.net/en/business/economy/2015/04/12/Austr

alian-trade-minister-FTA-with-GCC-possible-within-months-.html

12

ECONOMY MONITOR

13

1. IMF RELEASES WORLD ECONOMIC OUTLOOK

(APRIL-2015)

IMF Forecasts global Economic growth to be moderate, with uneven

prospects across main countries and regions. Global growth is projected to be

around 3.5 percent in 2015, in line with earlier forecasts.

When compared to previous forecasts, outlook for advanced economies is

improving, while growth in emerging market and developing economies is

projected to be lower, primarily due to weak prospects for some emerging

economies and Oil-exporting economies.

Emerging Markets like China, Russia and Brazil are experiencing a slowdown

in recent quarters and advanced economies like Japan and Europe are

expected to underperform over the next few years.

Historical Projections

World Output (Annual Percentage) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2020

World 5.7

3.1

-

5.4

4.2

3.4

3.4

3.4

3.5

3.8

4.0

Advanced Economies 2.8

0.2

(3.4)

3.1

1.7

1.2

1.4

1.8

2.4

2.4

1.9

Emerging and Developing Economies

8.7

5.8

3.1

7.4

6.2

5.2

5.0

4.6

4.3

4.7

5.3

Source: World Economic Outlook report – April 2015

Two factors currently dominate the global scenario are

1. Decline in price of Oil: Price declines have largely effected the

reallocation of real Income between Oil Importers and Oil Exporters. Oil

Importing countries like US, Europe, China and India have seen an

increase in real spending due to cheaper Oil. Oil exporters have cut

spending but to a smaller extent and have substantial financial

reserves and are in a position to reduce spending slowly.

2. Large Exchange rate movements: Exchange rate Movements have

been usually large. This is due to different monetary policy approaches

followed by Central Banks of Major economies like US, Euro and

14

Japan. Among Major currencies dollar has seen a major appreciation

due to an anticipation of increase in Interest rate by Federal Reserve.

Euro, Yen depreciated sharply due to financial Stimulus carried by their

respective central banks.

References:

World Economic Outlook report – April 2015

15

2. REGIONAL ECONOMIC ANALYSIS

ADVANCED ECONOMIES

Source: World Economic Outlook report – April 2015

1. US and Canada recovering and expected to remain solid.

Lower Energy prices has boosted growth momentum in US. Labor markets,

Business and consumer confidence have shown some improvements and the

outlook for them is very positive. Weak International markets and strong dollar

are posing challenges to growing US economy.

Lower Oil prices pose downside risks to Canada as its economy is largely

dependent on Energy sector.

2. Euro facing Slowdown

Signs of pickup in economy can be seen in Euro area. Lower oil prices and

favorable financial conditions due to monetary easing will help Euro Economy

to improve further. Low Inflation in many countries is still a concern

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2014 2015P 2016P

FO

RE

CA

ST

ED

GD

P G

RO

WT

H I

N %

ADVANCED ECONOMIES OUTLOOK

United States Euro Area

United Kingdom Canada

Other Advanced Economies

16

ASIA PACIFIC

Source: World Economic Outlook report – April 2015

Asia Pacific is moderating but still outperforms other regions in economic

growth. Asia pacific moderated in economic growth slightly due to an external

factors such as weak demand in Euro and US. China and India are expected

to grow more than 6% and 7% respectively. Japan is an exception which is

facing slowdown in economy and deflationary pressures. Australia and Korea

will grow moderately between 3 to 4%.

LATIN AMERICA AND THE CARRIBEAN

Growth in Latin America and the Caribbean has slowed further as falling

commodity prices have hot the region’s commodity exporters. External current

account deficits have continued to widen in most countries in the region,

although the recent collapse in oil prices has provided relief to net importers,

notably in Central America and Caribbean. Lower oil prices should also assist

disinflation, but their effects will be partly offset by weaker exchange rates,

which are playing a crucial role in facilitating external adjustment.

-1

0

1

2

3

4

5

6

7

8

2014 2015P 2016P

FO

RE

CA

ST

ED

GD

P G

RO

WT

H I

N %

Axis Title

ASIA PACIFIC OUTLOOK

Japan China India Australia Korea

17

Source: World Economic Outlook report – April 2015

COMMON WEALTH OF INDEPENDENT STATES

Common wealth of Independent states region is projected to slide in to

recession. Mainly for two reasons

1. Significant contraction of Russian economy to International sanctions and

much of the States are dependent on Russia for their economic growth.

2. Fall in Oil prices will have an Impact on the Oil exporting nations in CIS

Source: World Economic Outlook report – April 2015

(1.0)

-

1.0

2.0

3.0

4.0

5.0

2014 2015P 2016P

FO

RE

CA

ST

ED

GD

P G

RO

WT

H I

N %

LATIN AMERICA AND CARRIBEAN

South America Central America Carribean

-5

-4

-3

-2

-1

0

1

2

3

4

5

2014 2015P 2016P

FO

RE

CA

ST

ED

GD

P G

RO

WT

H I

N %

COMMON WEALTH OF INDEPENDENT STATES

Overall CIS Russia Kazaksthan

18

SUB SAHARAN AFRICAN ECONOMIES:

Growth in Sub Saharan Africa remains strong at 5% in 2014. Although it is

expected to slow in 2015. Due to the following reasons

1. Declining Commodity Prices

2. Epidemic in Ebola effected countries

Source: World Economic Outlook report – April 2015

IMPACT OF SLOWDOWN ON UAE

ADVANCED ECONOMIES

Improving Economic activity in advanced nations will improve trade and

Investment activities.

Decreased Energy prices will boost domestic demand as consumers

will have much disposable Income than the period when Energy prices

were higher. This increased domestic demand will increase in number

of Imports and will see a slight increase in trade numbers to Advanced

Economies.

Policy measures taken by the governments and central banks in order

to boost economic activity will improve Investment Climate and will

result in increased flow of capital to this countries.

CIS COUNTRIES

Fall in Number of tourists to UAE from CIS countries

Decline in Trade numbers from CIS countries

0

1

2

3

4

5

6

7

2014 2015P 2016P

FO

RE

CA

ST

ED

GD

P G

RO

WT

H I

N %

SUB-SAHARAN AFRICA

Overall Sub-Saharan Africa Nigeria South Africa

19

SUGGESTED POLICY INITIATIVES FOR UAE

SLOWDOWN AND INVESTMENT OPPORTUNITIES IN CIS COUNTIRES

Good Opportunity for UAE Investors to Invest in Russia and CIS countries

due to the following reasons

Rouble has depreciated more than 50% in the past quarter and

gives an opportunity to International Investors who will invest in

dollars or Euros.

Businesses are at their lowest valuations and hence providing a

fantastic opportunities for Investors looking for value Investing.

OPPORTUNITIES FOR UAE INVESTORS IN AFRICA

Africa as a whole is a growing economy and strong inflows of

foreign funds in to Infrastructure, Mining and Power.

Increased Private consumption in Africa will open Investment

opportunities for businesses operating in Utilities, Telecom and

Banking

LOOK EAST INVESTMENT POLICY- ASIAN COUNTRIES OFFER

INVESTMENT OPPORTUNITIES

With a slowdown in US and Europe, UAE has to adopt a policy of ―Look East‖

as China and India are the largest trading partners. Not only trade Asia pacific

has a lot of opportunities for Investment.

Some of the attractive sectors for Investment are

Infrastructure

Power

Industrials ( India attracting Manufacturers’ by ―Make in India‖

Policy)

High technology

20

3. ECONOMIC OUTLOOK FOR MIDDLE EAST AND NORTH AFRICA

As a result of the steep decline in oil prices, Oil exporters in MENA region are

experiencing large losses of export and fiscal revenues. Most of the region’s

oil exporters are expected to avoid sharp cuts in spending by drawing on their

large buffers and use available financing.

As per IMF forecasts, Economic growth for the region in 2014 was around

2.6% and is projected to be around 2.9% and 3.8% in 2015 and 2016

respectively.

Source: World Economic Outlook report – April 2015

Economic growth in MENA region suffered due to the following factors

1. Decline in Oil prices

2. Conflicts in the region

3. Policy Uncertainty by governments

2

3

4

5

2014 2015P 2016P

GD

P G

row

th i

n P

erc

en

tage

MENA GDP GROWTH FORECASTS

Overall MENA Region Oil Exporting Nations Oil Importing Nations

21

As per IMF forecasts, Economic growth for UAE in 2014 was around 3.6%

and is projected to be around 3.2% in 2015 and 2016 respectively.

Source: World Economic Outlook report – April 2015

Some of the risks in the region are

1. Decline in Oil Production and Prices

2. Deepening of Conflicts and security disruptions could undermine economic

growth activity, delay reforms and dampen confidence in the region

3.6

3.2 3.2

2014 2015P 2016P

GD

P G

RO

WT

H I

N %

UAE ECONOMIC FORECASTS

GDP GROWTH IN %

3

0.6 1.3

-2.4

1.3

7.6

-4

-2

0

2

4

6

8

10

2014 2015P 2016P

GDP GROWTH FORECAST %

Iran Iraq

3.6

3 2.7

6.1

7.1

6.5

1.3 1.7 1.8

0

1

2

3

4

5

6

7

8

2014 2015P 2016P

GDP GROWTH FORECAST %

Saudi Arabia Qatar Kuwait

22

UAE POLICY SUGGESTIONS

1. Reassessing Medium to long term spending plans by governments and

be prepared for low oil prices:

Reassessing and cutting government spending

Decreasing operating expenditure of government by setting

Individual targets to each and every government department

Realigning the capital expenditure of government and prioritizing

projects which will create high yielding assets

2. Focusing on fiscal consolidation plans:

With a fall in Oil prices, Fiscal Surplus of UAE might turn in deficits with the

current level of spending of government. Focus has to shift towards cutting

slippages in expenses by government which will lead towards fiscal

consolidation.

3. Diversification of Economy:

The contribution of oil to economy has increased from 25% in 2001 to 39% in

2013. A well drafted strategy to be in place to diversify UAE Economy. Few

rising sectors have to be identified and government can devise strategies to

boost this sectors. Supportive environment for SME’s is one of the Initiative

which can boost diversification of economy.

SOURCE: UAE STATISTICS.GOV.AE

4. Introduction of Taxes:

UAE which plans to spend hugely on Infrastructure and now with decline in Oil

prices will have find alternative ways of Revenues for the government.

Introduction of taxes will contribute to government planned spending on

developing Infrastructure. Taxes can be introduced in phased manner starting

with VAT and then Corporate and Income Tax can be considered

75% 77% 75% 71%

66% 63%

66% 63%

73% 68%

61% 61% 61%

25% 23% 25% 29% 34% 37% 34% 37% 27% 32% 39% 39% 39%

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

UAE ECONOMY BREAK UP BETWEEN OIL AND NON OIL SECTORS

Non Oil Sector % Oil Sector %

23

4. ANALYSIS - DECLINE IN CRUDE OIL PRICES

The Price of crude Oil has fall sharply over the past few quarters. A barrel of

crude oil typically was traded for around $ 100 as recently as last May but it

plummeted to as low as $ 45 per barrel. Over the Past year, Oil Prices have

fell by more than 50% and there is slight recovery in the short term. When we

compare the prices from January 2015 to April 2015 there is slight recovery in

Oil prices and they have increased by 20% from $51 to $ 59. The reasons for

this change are twofold - weak demand in many countries due to insipid

economic growth, coupled with surging US production.

Source: IEA Statistics

Source: IEA Statistics

103 105 98 96

91

80

67

55 51 54

49

60 59

-

20

40

60

80

100

120

May-1

4

Ju

n-1

4

Ju

l-14

Au

g-1

4

Sep

-14

Oct

-14

Nov-1

4

Dec-

14

Jan

-15

Feb-1

5

Mar-

15

Ap

r-15

May-1

5

ONE YEAR CRUDE OIL HISTORICAL DATA IN USD

51 54

49

60 59

0

10

20

30

40

50

60

70

Jan-15 Feb-15 Mar-15 Apr-15 May-15

4 MONTH CRUDE OIL HISTORICAL DATA IN USD

24

Factors Contributing to decline in Crude Oil Prices

1. Demand and Supply mismatch

2. Weak Global Economy

3. Increase in Energy efficient machines and Automobiles

1. DEMAND- SUPPLY MISMATCH:

Source: IEA Statistics

2. WEAK GLOBAL ECONOMY:

Demand for Imported crude oil has fallen or is flat over the past 2 years. Weak

Demand for Oil due to weak economic growth in many advanced economies

such as US, Europe, Japan and slowdown in emerging economies such as

China, Russia & Brazil

90.6 91.3

92.6 92.9

91.7 91.6

93.0 93.7

93.0 92.7

94.1 94.7

90.5

91.3

91.8 92.0 92.1

92.9

94.0

94.9 94.5

88

89

90

91

92

93

94

95

96

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15

MIL

LIO

N B

AR

RE

LS

PE

R D

AY

WORLD OIL SUPPLY AND DEMAND Demand Supply

25

Source: IEA Statistics

SUPPLY SIDE OF CRUDE OIL

Development of domestic shale based Oil fields by US over the past few

years. The U.S for instance have managed to double their production in the

last 6 years alone. Once a fixed market for importing oil from the Middle East,

the U.S is now looking for markets to export themselves. Other countries like

Russia, Canada and Iraq are increasing their domestic crude oil production

and export volume. The global supply of crude oil has been on the increase

for the last few years.

World Oil Production – Top Producers (Million Barrels per day)

2013

2014

Q1 2015

Country

Million Barrels Per day

Market Share

Million Barrels Per day

Market Share

Million Barrels Per day

Market Share

United States 10.24 11.20% 11.81 12.63% 12.57 13.29%

Russia 10.87 11.89% 10.95 11.71% 11.03 11.67%

Saudi Arabia 9.4 10.29% 9.53 10.19% 9.74 10.30%

China 4.18 4.57% 4.19 4.48% 4.14 4.38%

Iran 2.68 2.93% 2.81 3.01% 2.82 2.98%

Iraq 3.08 3.37% 3.33 3.56% 3.48 3.68%

UAE 2.76 3.02% 2.76 2.95% 2.84 3.00%

Kuwait 2.55 2.79% 2.61 2.79% 2.7 2.86%

Brazil 2.12 2.32% 2.34 2.50% 2.51 2.65%

Venezuela 2.5 2.74% 2.46 2.63% 2.39 2.53%

Nigeria 1.95 2.13% 1.9 2.03% 1.83 1.94%

Total Supply 91.39 100.00% 93.48 100.00% 94.55 100.00%

America,

31.14

Europe,

14.28

Asia +

Oceania,

30.93

Middle

East,

7.77

Former

Soviet

Union,

4.96 Africa,

3.82

Demand for Oil in 2013 (Million Barrels per day)

America,

30.71

Europe,

14.01

Asia +

Oceania,

31.68

Middle

East,

7.88

Former

Soviet

Union,

4.64 Africa,

4.06

Demand for Oil in 2015

(Million Barrels per day)

26

Though the prices of oil have declined, dominant suppliers of Crude Oil such

as US, Russia and Saudi Arabia have increased their Oil Production in the

past 2 years. Saudi Arabia with its OPEC peers has decided not to intervene

in the Oil market. Instead it has decided to raise Crude oil production in order

to increase its market share.

Source: IEA Statistics

IMPACT OF OIL PRICE ON THE MENA REGION

Loss in Export Revenues: As per IMF estimates due to fall in crude

oil prices, GCC nations combined will have a direct revenue loss of $

300 billion.

Slow Economic growth: Economic growth for Gulf region in 2014 was

around 3.6% and with a fall in Oil prices it is expected to be around

3.4% in 2015.

Shift from fiscal surplus to deficits: At current oil price most of the

nations will have fiscal deficits and have to rely on foreign currency

reserves or Sovereign Wealth funds to fill the gap in fiscal budgets.

United

States,

10.24

Russia,

10.87

Saudi

Arabia,

9.4

China,

4.18

Iran , 2.68

Iraq, 3.08

UAE,

2.76

Kuwait,

2.55

Brazil,

2.12

Venezula,

2.5

Nigeria,

1.95

Oil Production in 2013

(Million Barrels per day)

United

States,

12.57

Russia,

11.03

Saudi

Arabia,

9.74

China,

4.14

Iran , 2.82

Iraq, 3.48

UAE, 2.84

Kuwait,

2.7

Brazil,

2.51

Venezula,

2.39

Nigeria,

1.83

Oil Production in 2015

(Milion Barrels Per day)

27

Source: Financial Times

Source: Financial Times

OUTLOOK AHEAD:

As per current market forecasts, price of Oil is forecasted to be around $72

per barrel till 2019. Some of the strategies which can be adopted are

Expenditure control: GCC nations have to slash operating

expenditures such as power subsidies, public wages and careful

prioritization of Infrastructure projects

Diversification of Economy: GCC governments except UAE are set

to pose significant challenges to diversify economy. By providing

Incentives and encouraging Entrepreneurship, private sector will create

lot of employment opportunities.

Introduction of Taxes: Introduction of taxes will diversify the revenue

sources of the governments.

52 64

70 76

88 96 100

120 124

159 K

uw

ait

Qata

r

Iraq

UA

E

Sau

di

Ara

bia

Om

an

Bah

rain

Alg

eri

a

Lib

ya

Yem

en

Estimated Oil Prices to balance Fiscal Budgets ($ per Barrel for Break-even Prices in 2015)

28

References

https://www.iea.org/media/omrreports/tables/2015-04-15.pdf

http://www.bbc.com/news/business-29643612

http://www.ft.com

5. QUANTITATIVE EASING (QE) BY EUROPEAN CENTRAL BANK

29

EXPLAINING QUANTITATIVE EASING:

QE is the policy tool used by Central Bank to indirectly encourage consumer

and business spending in an economy. Central Bank creates money and uses

this money to buy bonds from financial Institutions. Buying bonds will inject

cash in to the system and increases the supply of money in the system. This

excess liquidity system pushes Interest rates down from the current levels.

Low Interest rates will encourage Businesses and Consumers to spend more

which will result in higher Investments and spending. Increase in Investment

and consumption activity will increase the economic output of the economy.

ECONOMIC CASE FOR QUANTITATIVE EASING

European Central Bank

Creates Money

Uses Money to buy Bonds

from Financial

Institutions

Injects Cash and reduces

Interest Rates in to

System

Low Interest rates will encourage Busineses

and People to borrow

More Borrwoing

will increase consumption

and Investment

Increased Investment

and Consumption will increase the Economic

Output

EUROPEAN CENTRAL BANK QE APPROACH

30

1. To Stimulate Economic Growth:

The recovery since the double-dip recession between late 2011 and early

2013 has been weak and faltering. Euro faced recession in 2012 and the

growth rate was 0% in 2013. In order to revive European Economy, ECB was

forced to use QE as tool to economic recover growth

Source: Eurostat

http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pco

de=tec00115&plugin=1

2. To contain Deflation in Europe:

ECB’s primary target is to keep inflation below, but close to, 2 per cent — a

goal it has missed for the past two years. Low Inflation or deflation will create

more problems than increased inflation. QE will inject money in to the system

to increase money supply which is likely to increase the Inflation.

Source: European Central Bank Data http://sdw.ecb.europa.eu/

ECB’S QE PLAN:

1.5%

2.5% 2.0%

3.4% 3.1%

0.5%

-4.4%

2.1% 1.7%

-0.5% 0.0%

1.3%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

EURO (28) ECONOMIC OUTPUT GROWTH IN %

-1

0

1

2

3

4

2007 2008 2009 2010 2011 2012 2013 2014 2015

EURO Inflation(%)

31

The European Central Bank intends to purchase more than €1tn in assets, including government and private sector bonds, by 2016 September. As Part of the programme ECB will buy assets worth €60 billion. This programme of QE is aimed at revitalizing the Eurozone economy and countering deflation.

IMPACT OF QE ON EUROPE:

Central Bank’s €1.1tn quantitative easing policy has suppressed borrowing

costs and cheapened the single currency (Euro against major currencies)

It will push Inflation up in Europe and a positive sentiment in the business

community

32

INVESTMENT MONITOR

1. GLOBAL EQUITY MARKETS OVERVIEW

33

ADVANCED EQUITY MARKETS

EQUITY MARKETS IN US

After a solid gain of 13% in 2014 S&P 500 equity index rose 2.4% from the

beginning of the year to till date in 2015. Some of the concerns which are

effecting US stocks are

Economic growth slower than expectations

Concerns over raising Interest rates

Corporates or MNC’s which have operations across the globe

are effected due to appreciating dollar against other major

currencies

Source: Investing.com

Returns: 2.4%

Highest: 2,117 (2.9%)

Lowest: 1,992 (-3.2%)

2,058 2,117

2,108

1,900

1,950

2,000

2,050

2,100

2,150

Jan 02,

2015

Jan 16,

2015

Feb 02,

2015

Feb 17,

2015

Mar 03,

2015

Mar 17,

2015

Mar 31,

2015

Apr 15,

2015

Apr 29,

2015

US S&P 500 INDEX

34

EQUITY MARKETS IN UK:

UK stocks returned 6.7% from the beginning of the year .Some of the triggers

to watch are

Election results in UK

GDP and Manufcturing numbers

Source: Investing.com

Returns: 6.7%

Highest: 7,103 (8.5%)

Lowest: 6,366 (-2.8%)

EQUITY MARKETS IN EUROPE:

A major driver of the European share rally has been money flowing into the

market from foreign-based investors, although a weakening euro lowers their

overall return. European Stock markets rallied in the past quarter and by the

end of the Quarter they rose by 22% towards new cyclical highs. Share

markets in Germany, France, the Netherlands and Italy have all risen more

than 20 per cent so far this year. Some of the key factors contributing to the

rally in stocks were

1. Quantitative Easing by European Central Bank

2. Good Corporate earnings reports

3. Weak Euro has increased the export numbers

The declining value of the euro, which has fallen 12 per cent this

year, also provides a boost for Eurozone companies that rely on

foreign-based revenues, providing a notable tailwind for large

multinationals such as Merck, BASF, Volkswagen, Adidas, Peugeot

and Airbus.

6,548 6,986

5,500

6,000

6,500

7,000

7,500

Jan 02, 2015 Jan 23, 2015 Feb 13, 2015 Mar 06, 2015 Mar 27, 2015 Apr 21, 2015

FTSE - 100

35

Source: Investing.com

YTD Returns: 15.5%

Highest: 3,829 (22.0%)

Lowest: 3,008 (-4.2%)

EQUITY MARKETS IN JAPAN:

Central Bank of Japan’s massive monetary policy easing has resulted in rallying of stocks in Japan.

Source: Investing.com

Returns: 12.2%

3,139 3,625

2,500

2,900

3,300

3,700

4,100

Jan 02,

2015

Jan 16,

2015

Jan 30,

2015

Feb 13,

2015

Feb 27,

2015

Mar 13,

2015

Mar 27,

2015

Apr 14,

2015

Apr 28,

2015

EURO STOXX 50

17,409

19,532

15,000

16,000

17,000

18,000

19,000

20,000

21,000

Jan 05,

2015

Jan 20,

2015

Feb 03,

2015

Feb 18,

2015

Mar 04,

2015

Mar 18,

2015

Apr 01,

2015

Apr 15,

2015

Apr 30,

2015

NIKKEI 225 (JAPAN)

36

Highest: 20,188 (16.0%)

Lowest: 16,796 (-3.5%)

EMERGING MARKETS

CHINESE EQUITY MARKETS:

Chinese Equity markets soared by 33.8% in 2015 and were the best

performing equities in the world. Utilities and Industrials stocks are leading the

Stock markets.

Outlook:

Fears of bubble in Chinese Equity Markets as they have rose more than

120% in the last 18 months. Chinese Economy is slowing and Equity markets

are soaring, the real economy and Markets are moving in opposite direction.

Source: Investing.com

INDIAN EQUITY MARKETS

3,351

4,482

3,000

3,500

4,000

4,500

Jan 05,

2015

Jan 19,

2015

Feb 02,

2015

Feb 16,

2015

Mar 09,

2015

Mar 23,

2015

Apr 07,

2015

Apr 21,

2015

SHANGHAI COMPOSITE - CHINA

37

Indian markets were one of the best performing markets globally in 2014. The

BSE Sensex and NSE Nifty jumped 30% buoyed by hopes of a better

economy and reforms by the Narendra Modi government. India also emerged

as one of the strongest economies amongst the emerging markets. The year

2015, however, began on a mixed note. NSE Nifty rose more than 8.5% in

Feb and then fell -2.2% in March. Overall returns till date in 2015 is around

0.58%.

Outlook:

1. One of the strongest emerging Markets

2. Reforms adopted by the new government

3. Corporate Earnings expected in range of 17-18%

4. Lower oil prices will benefit India as it is one of the largest Importer of oil

Source: Investing.com

2. OVERVIEW OF REGIONAL EQUITY MARKETS

8,284 8,332

8,000

8,500

9,000

Jan 01,

2015

Jan 15,

2015

Jan 30,

2015

Feb 13,

2015

Feb 28,

2015

Mar 16,

2015

Mar 30,

2015

Apr 16,

2015

Apr 30,

2015

NSE NIFTY (INDIA)

38

EQUITY MARKETS IN UAE

In the first half of the Equity markets dropped further due to fall in Oil prices.

Mena equity markets will remain captive to oil price moves, but the correlation

has weaken as investors get accustomed to lower oil prices. UAE equity

markets will be interesting to watch as there can be some major IPO’s to be

listed in the second half of 2015.

Source: Investing.com

Returns: 2.2%

Highest: 4,706 (5.7%)

Lowest: 3,008 (-3.8%)

Some of the top performers YTD are

Agthia Group – 20.0%

International Fish farming Holding Co- 14.36%

Union National Bank – 13.79%

United Arab Bank – 10.7%

RAK Ceramics – 9.0%

Some of the worst performers YTD are

Insurance House -19%

Green Crescent Insurance Co -18.92%

RAK Cement and Construction Co -17.62%

Abu Dhabi National Company for Building Materials -17.50%

Abu Dhabi ship building Co -15.79%

4,430

4,548

4,200

4,700

Jan 04,

2015

Jan 20,

2015

Feb 05,

2015

Feb 23,

2015

Mar 11,

2015

Mar 29,

2015

Apr 14,

2015

Apr 30,

2015

ADX GENERAL

39

Source: Investing.com

Returns: 11.1%

Highest: 4,299 (14.6%)

Lowest: 3,407 (-7.6%)

Some of the top performers YTD are

Takaful Emarat PSC - 135%

Dubai Investments - 39.42%

Dubai Parks and Resorts PJ. - 30.82%

Gulf General Investments - 30.14%

Commercial Bank of Dubai - 25%

Some of the worst performers YTD are

National General Insurance -17.25%

AJMAN BANK PJSC -13.39%

Dubai National Insurance- 8.57%

Arabtec Holding – 7.51%

Drake Scull International – 6.82%

3,689

4,099

3,000

3,400

3,800

4,200

4,600

Jan 04,

2015

Jan 20,

2015

Feb 05,

2015

Feb 23,

2015

Mar 11,

2015

Mar 29,

2015

Apr 14,

2015

Apr 30,

2015

DFM GENERAL

40

EQUITY MARKETS IN SAUDI ARABIA

Saudi Arabia announced it is pressing ahead with plans to open up the

stock market directly to foreigners from June 15.

The size and depth of the Saudi Arabia market:

Current Market Capitalization at $554bn.

Number of listed companies: 168 listed companies

Covering 15 industries– Petrochemicals, Banks, Telecoms,

Hospital groups, Education and Travel

Liquidity: Attracting foreign Investors will increase liquidity levels

and can trade up to $4bn shares per day

Despite of fall in oil prices which has effected most of the equity

markets in MENA region. But Saudi markets are rallying due to

opening of the market for foreign investors in June.

Source: Investing.com

Returns YTD: 16%

Highest: 9,834 (16.9%)

Lowest: 8,057 (-4.2%)

3. UAE PRIMARY MARKETS

8,410

9,766

8,000

8,500

9,000

9,500

10,000

Jan 01,

2015

Jan 15,

2015

Feb 01,

2015

Feb 15,

2015

Mar 01,

2015

Mar 15,

2015

Mar 29,

2015

Apr 12,

2015

Apr 26,

2015

TADAWUL ALL SHARE INDEX - SAUDI ARABIA

41

Companies in the Middle East and North Africa raised $11.5 billion in 2014

through 27 IPOs, almost four times more than the $3 billion in the previous

year, according to a new report by Ernst and Young. Saudi Arabia and UAE

are the active markets when it comes to IPO markets in MENA region.

New rules of legislation by UAE has made the floating of IPO’s easier for the

businesses. Weak equity markets in the UAE, partly due to the plunge of oil

prices, have caused at least several UAE companies to suspend IPO plans.

New rules will help companies to revisit their listing plans.

When it comes to UAE market, many businesses have postponed or held

their IPO’s due to weak equity markets. Companies feel this is not the right

time issue equity as some of the stocks in secondary markets have fell more

than 25% in the last four months. Companies fear markets may not respond

positively to their offerings.

Some of the companies which held IPO’s are

1. Abu Dhabi based Massar Solutions

Some of the likely IPO’s to watch for in second half of 2015 in UAE are

1. Dubai’s Aster Healthcare

2. Daman Investments

UAE ISSUES NEW LEGISLATION FOR LAUNCH OF IPO’S

Some of the new rules are

1. Companies now can float a minimum of 30% of their shares, which was

earlier 55% of shares. Under this rule more businesses will be

interested to float their IPO’s as 30% floating will still help the

promoters to retain their control over the company. This will encourage

businesses to list their companies in coming future.

2. New law will also allow book building process to price their shares.

Book building process is by which the issuer attempts to determine at

what price to offer an IPO based on demand from Investors.

3. Listed companies will be able to convert their debt in to capital. This will

help companies to issue convertible debt, which converts debt in to

equity under agreed conditions.

Source: Arabian Business Magazine

42

COUNTRY IN FOCUS – NIGERIA

1. INVESTMENT DESTINATION – NIGERIA

43

ECONOMIC PROFILE OF NIGERIA

GDP Current USD - $521.8 Billion (2013)

Region: Sub Saharan Africa

Income Level: Lower Middle Income

Population: 173.6 Million (2013)

Source: ET Intelligence

ECONOMIC CHALLENGES FACED BY NIGERIA:

1. Slowing of Economic growth:

Oil and Gas contributes to 16% of the GDP of Nigerian Economy. With a

decrease in Oil demand and prices globally, Nigerian economy has been

effected.

2. Falling Foreign reserves:

Over the past year due to fall in crude Oil Prices, Nigerian foreign reserves

have fell about 20% from $ 43.16 billion to $ 34.38 Billion. Though the

reserves have fallen sharply, they are still in acceptable levels (More than

5 months of the short-term debt)

Agriculture,

32.5%

Industry, 35.6%

Services,

31.9%

ECONOMIC STRUCUTRE OF NIGERIAN ECONOMY

44

Source: UN Population Survey

3. Fiscal and Current deficits:

Over the past few years Nigerian Fiscal account was running in Surplus of

between 2 to 6%. Drop in Oil prices has pushed Nigerian Fiscal account

from a Surplus to a deficit of 2% economic output. Analysts estimate the

deficit to continue till 2016 to reach 3% of the GDP.

4. Economy dependent on Oil prices:

Oil and gas accounts for more than 90% of Nigeria’s export revenues,

which has roughly being halved in past one year. Nigerian Government

relies on Oil for covering more than 70% of the fiscal expenditure. With Oil

prices falling more than 45% since last year, Nigerian economy is in bad

state.

5. Depreciating Currency and Inflation:

The impact of falling oil demand and the uncertainty ahead of the election

have depreciated the naira. The dollar has gained 8.7 per cent against the

Nigerian currency in the past year, making it one of the worst performer in

Africa. Depreciating currency has pushed the cost of Imports and has led

to Inflation which is hurting the business and consumers.

43.16

34.38

Jan-14 Jan-15

NIGERIAN FORIEGN RESERVES IN $ BILLION

45

Source: Investing.com

INVESTMENT HIGHLIGHTS OF NIGERIA

1. Largest Economy by size in Africa

Nigeria has overtaken South Africa as Africa's largest economy after a

rebasing calculation almost doubled its gross domestic product to more

than $500bn.

Source: World Bank Data

2. Economy diversification strategy adopted by Government

As Part of diversification of economy, Nigerian government has identified

Infrastructure as the key sector for economic growth. One of the big

183.86

198.88

175

185

195

205

215

Jan 01,

2015

Jan 15,

2015

Jan 29,

2015

Feb 12,

2015

Feb 26,

2015

Mar 12,

2015

Mar 26,

2015

Apr 09,

2015

Apr 23,

2015

NIGERIAN NAIRA PER USD

521

370

Nigeria

South Africa

GDP ESTIMATES IN 2013 $ BILLION

46

Infrastructure projects signed recently by China as part of Silk route

strategy, China Railway Construction Corp will build a $3.5bn intercity rail

line in Nigeria.

3. New and Promising leadership

Nigeria recently elected its new president Muhammad Buhari. With new

leadership in place, it is expected that Nigerian government will work

towards curbing corruption, inflation and Economic growth. Being an ex-

Military general, he is expected to fight against Insurgency by radicals in

Northern Nigeria. Nigerian stock market, one of the world’s worst

performers since the start of this year, has rebounded in recent months

with the positive expectations from the new President.

Source: Investing.com

4. Favorable Demographics:

Nigerian Economic growth is related to an increase in the share of its

working-age population. Currently Nigerian population is around 170

million and estimated to increase to 400 million by the end of 2050.

Nigeria has more than 100 million working people who will contribute to

the growth of economy.

33943.29

27728.63

34941.79

34844.79

25000

29000

33000

37000

Jan 05,

2015

Jan 21,

2015

Feb 06,

2015

Feb 24,

2015

Mar 12,

2015

Mar 30,

2015

Apr 16,

2015

NIGERIA ALL SHARE INDEX

47

Source: UN World Population Survey

ATTRACTIVE SECTORS FOR INVESTMENT IN NIGERIA

1. AGRICULTURE

Agriculture accounts for one-third of the economy and accounts for two-

thirds of labor. Nigeria’s Agriculture sector growing at 2 to 5% per annum

over the last decade.

Growth drivers for growth in Agriculture are

Huge Investment opportunity in large scale arable lands for farming.

Only 30% of the land is cultivated despite 70% (98,300,000

hectares) of land is considered suitable for crop cultivation.

Nigeria is an Importer of Food and aspires to be a self-sufficient in

food production by adopting suitable import substitution programs

Nigeria has the potential to emerge as food exporter to the world

Favorable conditions for Agriculture – Fertile lands, abundant water

resources and suitable climate

Some of the suitable Investment Opportunities in agriculture in Nigeria are

Food processing and preservation

Livestock and fisheries production

Agricultural inputs supplies like quality seeds and fertilizers and

machinery rentals

Water resources development especially for flood control

infrastructure and irrigation.

Commodity Trading and Transportation

Exploitation of timber and Wood processing activities

Development and fabrication of mechanized technologies for food

processing

170

400

2014A 2050 E

NIGERIAN POPULATION ESTIMATES (IN MILLION)

48

2. MINING

Nigeria is endowed with vast resources of solid minerals. Nigerian mining

sector has a potential for investments in 44 minerals spread across the

country which can be commercially exploited. Private businesses involved

in mining enjoy Tax exemptions for importation of machinery which will be

utilized for mining.

Estimated and proven Solid mineral reserves in Nigeria

Solid Mineral Estimated Reserves Remarks

Coal 396 Million Metric tons 4 out of 9 potential Coal blocks auctioned to Investors and remaining 5 kept for reserve for government entities

Bitumen 58 billion barrels 4 out of 6 blocks are sold to Investors and remaining 2 to be placed for bidding in future

Limestone 31 Million tons Most of them used in cement manufacturing

Iron Ore 882 Million tons

Barites 111,000 tons 21 Million metric tons –unproven reserves

Lead-Zinc 100,000 tons Lead 800,000 tons Zinc

Gold 50,000 Ounces 30 licenses issued for gold mining

Source: KPMG report on Nigerian Mining Sector

3. INFRASTRUCTURE

Nigeria’s poor Infrastructure is holding Nigeria’s economic development.

Nigerian Government has identified this as a bottleneck for growth and is

pushing Private participation in developing its Infrastructure. It is estimated

that Nigeria needs $3tn will be required in the next 30 years to build and

maintain adequate infrastructure supplies.

Of these Energy and transport will need the major funding

Energy - $ 1tn

Transport - $ 775bn

INVESTOR INVESTMENT SIZE

Arm-Harith Infrastructure Fund, focusing on Infrastructure in Nigeria

Raised $250 million in funds and plans to raise more in coming years

China Railway Construction Corp $3.5 billion intercity railway line in Nigeria

Source: FT News

49

4. EDUCATION

Attractive Private Education Sector in Nigeria

Private schools operating Nigeria and serving the low and Mid Income groups

operate by charging $1 per day as school fees. Main challenge faced by

school proprietors is

Limited access to finance restricting their ability to expand and improve the

quality of education they offer. Given the low fees they charge, few have the

cash flow to qualify for commercial bank loans and those on leased premises

can’t provide collateral. Banks are also reluctant to lend to them because of

their uncertain legal status.

As per estimates by UK department for International Development (DEEPEN),

Lagos financial capital of Nigeria alone requires $ 900 million funding in low

cost schools with return on equity around 5 to 9 percent per annum.

INVESTOR INVESTMENT SIZE AND TYPE

Gray Matters Capital, US Impact Investment firm

Built ―80 modular classrooms‖ in Kenya and leases them. Planning to expand in Nigeria

GMC’s Indian School Finance company

Invested $20 Million in 1,400 low cost private schools. 95% repayment rate with more than 5% return on Equity

UK department for International Development (DEEPEN)

$29 Million in 5 years

Source: Financial Times

RISKS ASSOCIATED WITH NIGERIA

1. Currency Risk:

Foreign Investments in Nigeria face currency risk, as it is still expected that

Naira to depreciate further against dollar in the coming quarters. Weak

International crude oil prices, low fiscal buffers and domestic uncertainties

will add to the depreciating currency.

2. Nigeria’s sovereign Credit rating:

Recently Standard & Poor’s has downgraded Nigeria’s credit rating to B+

from BB-, citing the impact of seven months of declining oil prices and

rising political tensions on Africa’s biggest economy. Decline in Oil prices

has effected Nigeria’s external position and external vulnerability.

3. Underdeveloped Financial markets:

Nigeria’s financial markets lack depth and breadth in their offerings.

Investors might face risks such as illiquidity of assets as they might not be

50

able to find buyers at the time of exit. Lack of risk management products

will increase risks related to currency and interest rates.

4. Fears of Islamist Insurgency:

The advancement of Islamic militant group Boko Haram and its continued

disruptions in the northeast of the country will effect Investment and

business climate negatively.

Reference Sources:

Reuters News

Financial Times

Economist News Articles

51

CURRENCY MONITOR

52

1. FLUCTUATING CURRENCIES

Recently, one of the biggest concerns for Countries and companies operating

globally has been the fluctuating currencies. Many of the MNC’s with cross

currency transactions see it as one of the major concerns.

US DOLLAR INDEX:

A measure of the value of the U.S. dollar relative to majority of its most

significant trading partners. Index is calculated by factoring in the exchange

rates of six major world currencies: the euro, Japanese yen, Canadian dollar,

British pound, Swedish krona and Swiss franc.

Source: Investing.com

In the same quarter US Dollar has appreciated 10.2% and by the end of April

it has depreciated by 5.2% against major currencies.

I. Appreciation of US Dollar

US dollar appreciated against most of the currencies in till mid of March in this

year. The main reasons for dollar rally against other currencies was

Strong Fundamental numbers such as increase in expected GDP

growth, decrease in Unemployment numbers. Though US Economy is

expanding at a slower pace, it is likely to grow at potential rates in

coming quarters

US Federal Reserve signaling a tight Monetary Policy

Stimulus Packages by European and Japanese Central banks

91.38

100.72

95.51

86

88

90

92

94

96

98

100

102

Jan 02,

2015

Jan 23,

2015

Feb 13,

2015

Mar 06,

2015

Mar 27,

2015

Apr 17,

2015

US DOLLAR INDEX

53

II. Depreciation of US Dollar

Weak US economy in the first quarter also suggested an inventory hangover

will hold back second-quarter growth and the signals of US Economy losing

momentum has led to slid in US dollar against major currencies. It has fallen

by more than 5% in the last one month.

US DOLLAR – EURO

Source: Investing.com

Some of the factors contributing to the rapid fall of Euro against dollar

The monetary easing game plan of Mario Draghi, president of the European

Central Bank, is for its $60bn-a-month bond-buying programme to stimulate

growth has also contributed to depreciation of Euro against dollar. A weaker

euro has already partly explained some of the upwards revisions to growth

and inflation in the central bank’s latest forecasts.

Impact of Weak Euro on European countries and Companies

Weak Euro will have a mixed response with in the European countries

1. There is a hope that a weaker currency will provide a much-needed boost

to the region’s exporters by making their goods and services cheaper to

customers outside the currency area. Weak Euro will benefit the Exporting

nations like Germany. European Companies focused on exports will

directly benefit from a depreciating Euro as they have their input costs not

0.8909

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0.84

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0.92

0.94

0.96

0.98

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Fe

b 0

8,

20

15

Fe

b 1

2,

20

15

Fe

b 1

7,

20

15

Fe

b 2

2,

20

15

Fe

b 2

6,

20

15

Ma

r 0

3,

20

15

Ma

r 0

8,

20

15

Ma

r 1

2,

20

15

Ma

r 1

7,

20

15

Ma

r 2

2,

20

15

Ma

r 2

6,

20

15

Ma

r 3

1,

20

15

Ap

r 0

5,

20

15

Ap

r 0

9,

20

15

Ap

r 1

4,

20

15

Ap

r 1

9,

20

15

Ap

r 2

3,

20

15

Ap

r 2

8,

20

15

US DOLLAR - EURO

54

changing much but will have an immediate incremental revenue due to

Weak Euro.

2. Eastern and Central European countries which have much of their Imports

like Oil, Capital goods from outside Europe will find their Imports

expensive due to weak Euro. Weakening of Euro leading to expensive

Imports might lead to inflation in near term.

SWINGING ASIAN CURRENCIES AGAINST DOLLAR

As the dollar has risen, the currencies of Asian Markets have fallen. In the

past quarter, Brazilian real lost more than a fifth of its dollar value. The

Turkish Lira, Russian rouble, South African and Indian Rupee have also

depreciated significantly.

As exports become cheaper, imported goods and any locally-made products

with imported inputs become more expensive. Yet, with falling oil and other

commodity prices, those imports are much cheaper, even when paid for in a

weaker currency.

Source: Investing.com

120.14

116

117

118

119

120

121

122

Ja

n 0

1,

20

15

Ja

n 1

9,

20

15

Fe

b 0

5,

20

15

Fe

b 2

3,

20

15

Ma

r 1

2,

20

15

Ma

r 3

0,

20

15

Ap

r 1

6,

20

15

Ma

y 0

4,

20

15

US DOLLAR - JAPANESE YEN

55

Source: Investing.com

Source: Investing.com

6.2052

6.16

6.2

6.24

6.28

6.32

Ja

n 0

4,

20

15

Ja

n 2

1,

20

15

Fe

b 0

8,

20

15

Fe

b 2

5,

20

15

Ma

r 1

5,

20

15

Ap

r 0

1,

20

15

Ap

r 1

9,

20

15

US DOLLAR - CHINESE YUAN

61

62

63

64

Jan 01,

2015

Jan 19,

2015

Feb 05,

2015

Feb 23,

2015

Mar 12,

2015

Mar 30,

2015

Apr 16,

2015

US DOLLAR - INDIAN RUPEE

56

2. EURO DEPRECIATION IMPACT ON UAE

Euro depreciation will have an impact on the UAE economy. As UAE has

strong trade and Investment links with European countries, devaluation Euro

against USD will have an impact on trade, inflation, Investments, interest

rates.

I. IMPACT ON UAE AND EUROPE TRADE

Currency fluctuation will have an Impact on the International trade. Since AED

is pegged to USD, any currency fluctuations of USD against major currencies

will have a direct Impact on Trade numbers. Companies with overseas

branches, or those that trades internationally, are at the most affected due to

global currency fluctuations. As is the case with private investments, changes

in conversion rates can wipe out profits or increase gains.

Weight in KG Value in AED Value in USD Value in USD

per Kg

Imports

2014 Six Month Figures 3,477,008,440 74,943,093,696 20,420,461,498 6

Projecting for 2015 Six Month (Assuming 5% growth)

3,650,858,862

Non-Oil Exports

2014 Six Month Figures 511,089,743 4,093,556,327 1,115,410,443 2

Projecting for 2015 Six Month (Assuming 5% growth)

536,644,230

Re-Exports

2014 Six Month Figures 67,958,155 18,190,539,128 4,956,550,171 73

Projecting for 2015 Six Month (Assuming 5% growth)

71,356,063

Source: National Bureau of Statistics

57

UAE Imports from Europe have become expensive and the estimated

overall lose is around AED 5.7 Billion

IMPACT ANALYSIS ON IMPORTS FROM EUROPE

Imports Weight in Kg ( 6 months 2015) 3,650,858,862

Value Per Kg in USD 6

Value of Imports in USD 21,441,484,573

Value of Imports in AED 78,690,248,381

EUR to USD 1EUR to USD (1st Jan'15) 0.8262

1EUR to USD (30th Apr'15) 0.8909

Percentage of Depreciation in Currency -7.3%

Loss on Imports due to USD Depreciation in AED

(5,714,736,861.9)

UAE Exports to Europe have become cheap and the estimated gain is around

AED 336 Million

IMPACT ANALYSIS ON EXPORTS TO EUROPE

Exports Weight in Kg ( 6 months 2015) 536,644,230

Value Per Kg in USD 2

Value of Exports in USD 1,171,180,966

Value of Exports in AED 4,298,234,144

USD to EUR 1 USD to EUR (1st Jan'15) 1.210360687

1 USD to EUR (30th Apr'15) 1.122460433

Percentage of Depreciation in Currency 7.8%

Gain on Imports due to USD Depreciation in AED 336,596,162

Re-exports usually have a neutral impact or even adverse impact on the

trade. Currently assuming it will have a net-net neutral impact.

Overall Impact on the UAE trade numbers due to Euro depreciation is

negative 5.3 Billion AED

II. INFLATION:

Devalued Euro will have a slight impact on goods imported from Europe.

Goods imported from Europe will see an increase in prices to a extent which

the Euro has been devalued.

58

III. LOAN REPAYMENTS:

UAE Businesses which have borrowed loans from European banks in the

past and repaying the installments will find the payments to be cheaper

than earlier quarters. Loan installments in Euro will be cheaper by around

7 to 8% for the companies.

SUGGESTED POLICY INITIATIVES

Adverse currency moves can significantly impact business and trade,

especially those companies who have substantial forex exposure in

International currencies. Government can create awareness and

encourage businesses to use Currency Hedging. Some of the Hedging

tools to decrease the impact of currency fluctuations are Currency futures,

Forwards and Options.