Brazil’s economy dips 3.6% in 2016
THE size of Saudi King Salman’s entourage on his tour of Asia has been stealing the show, but there are big business and political priorities that are driving this month- long journey. Those priorities can be broken down into three categories: Energy, diversification and geopolitics. But the overarching theme is: Asia is a big deal to the Kingdom.
“As Saudi looks to the future, Asia of course is front and center. It is two- thirds of the world’s population, half of its economy and those shares will only grow. Asia is Saudi Arabia’s commercial future,” said Ben Simpfendorfer, founder and CEO of Silk Road Associates.
As the world’s No. 1 exporter of oil, not surprisingly energy is taking top billing in this Saudi Arabian version of shuttle diplomacy with some 1,500 people in tow.
On the first leg of the king’s visit to Malaysia and Indonesia, Saudi Arabia signed deals worth $ 13 billion to expand downstream operations. State oil giant Saudi Aramco plans to double its refining capacity to 10 million barrels a day by 2025, according to the Riyadh- based Gulf Research Center, and these transactions could help bolster the IPO plans for Aramco next year.
But basic crude still matters and fresh demand is coming from this part of the world. Asia represents nearly a third of daily global demand at 31.4 million barrels last year. It is a fact not overlooked by the major producers, with the Kingdom vying against the other Gulf states, plus Iran and Russia for their slice of the Asian market.
The name of the game in oil is new demand growth and right now Asia represents the industry’s pot of gold. According to FACTS Global Energy, of the estimated daily demand increase of 1.4 million barrels a day, 1 million is coming from Asia.
“Saudi Arabia’s largest market is no longer China but Japan now. So this is why the king is going to Japan… It is very important for them that they keep the Japanese market warm,” said Fereidun Fesharaki, the founder and chairman of FACTS Global Energy.
The Kingdom is also considering whether to list part of the Aramco IPO in Tokyo, which is another reason to carefully court Japan’s investment community.
After Japan, comes the visit to Beijing, RIO DE JANEIRO/ BRASILIA: Brazil’s economy has fallen sharply for a second consecutive year, putting Latin America’s largest country in its deepest recession in modern history.
The country’s statistics agency said on Tuesday that Brazil’s gross domestic product (GDP) shrank 3.6 percent in 2016 following a dip of 3.8 percent in 2015.
Brazil’s deepest recession had been registered in 1930-1931, when its economy dropped 2.1 percent and 3.3 percent, respectively.
Brazil’s President Michel Temer says the first signs of recovery have appeared, but many economists predict another difficult year for the country.
Temer launched an infrastructure concessions program on Tuesday to raise $14.43 billion in investment for building and operating roads, port terminals, railways and power transmission lines.
The program is a key part of his strategy to restore business confidence and pull Brazil’s economy from recession.
Inaugurating a meeting of the Investment Partnership Program (PPI), which will oversee concession tenders, Temer said 55 new projects would be opened to the private sector. where Aramco has its Asian headquarters. Saudi Arabia and China have already set up refineries in each other’s territories to cement their energy co- dependence.
But there is plenty to consider beyond energy. Saudi Arabia is eager to have China assist in its drive to diversify the Middle East and North Africa’s largest economy, a top priority of King Salman’s young but powerful son, Deputy Crown Prince Mohammed bin Salman.
His plan, Vision 2030, aims to reduce what he said is the country’s addiction to crude, boost the role of the private sector and make the Kingdom a competitive hub for manufacturing and services.
“When you have to start thinking of your non- oil future, basic manufactured goods or service offerings, then all of a sudden geography matters,” said Simpfendorfer of Silk Road Associates.
King Salman’s tilt to Asia dovetails nicely with Chinese President Xi Jinping’s “One Belt, One Road” plan. The initiative is designed to connect China with over 60 countries, from Asia to the Middle East and Europe, through the rebuilding of infrastructure to facilitate trade.
China, with its one- party, communist structure, makes it common practice to put in long- term strategic plans, an approach that can benefit the Kingdom which was lacking such thinking beyond oil until Vision 2030 was launched last year.
“You have somebody in China who has technology, money, people and the market and somebody in Saudi Arabia who wants to look at future options, the Chinese provide the options,” said Fesharaki.
Those options, strategists say, take on added importance today with US President Donald Trump in office. He has not defined Washington’s policy in the Middle East with all its complexities, especially the long- standing rivalry between Riyadh and Tehran.
“Saudi rediscovered Asia over the last 10 years, yet momentum was fading. With a less certain political landscape, the re- pivot to Asia has been reinvigorated,” said Simpfendorfer.
“We are leaving behind a deep recession and entering a phase of prosperity where private investment will be decisive,” said the president.
The infrastructure program will kick off on March 16 with auctions to run the airports of Porto Alegre, Florianopolis, Salvador and Fortaleza, which are expected to draw much investor interest.
Wellington Moreira Franco, the minister in charge of the PPI, said the government would offer 35 concessions in energy transmission.
The PPI plan includes concessions to operate John Defterios, CNNMoney emerging markets editor and CNN anchor, is the host of “Marketplace Middle East.” new terminals in the ports of Santana, Itaqui and Paranagua, and the extension of contracts in Vila do Conde, Niteroi and Santos, Brazil’s largest port. The plan offers early renovation of five railway concessions in return for new investment commitments.
With its budget squeezed by recession, Temer is betting an increase in private investment can revive the economy despite political turbulence from a sweeping anti-corruption investigation.