tv Best Of Bloomberg Markets Middle East Bloomberg December 23, 2016 7:00pm-8:01pm EST
♪ yousef: welcome to the "best of bloomberg markets middle east." i'm yousef gamal el-din. the major stories driving headlines from the region's -- region. the world bank approved a new loan to egypt worth $1 billion. it is the second of three and it will create thousands of new jobs. we spoke with investment manager of the implications for markets. the interview is coming up. months of cheap oil is forcing many to consolidate. this week, three banks in qatar announced that they are in initial talks for a merger and
we will go over their plans later on. and president putin called for a crackdown on terrorism after the russian ambassador to turkey was shot dead. andrey karlov was murdered at an art exhibition on monday. our managing editor took us through what happened. riad hamade: as you remember last year the turks took down a , russian warplane, which had crossed briefly into turkey. that has really damaged the relationship and turkey suffered , the turkish economy suffered. and more recently, they have worked hard to bring the relationship back together to a place where they are talking about syria, partly because the situation in syria has changed. and they are now both saying that they do not want to change the improved relationship, they need to continue to be working together, especially in view of these situations. yousef: as you said, the relationship was just beginning to recover, so a headwind there. what does this imply?
this event. riad hamade: the risk for turkey partly is economic. turkey has been hit by terrorist attacks recently, especially from kurdish separatists, but also from isis related attacks. turkey has acted -- they have been fighting separatists in southeast turkey itself and they have put troops inside syria to thereeparatists emphasizes away from the border. economically, the economy has anank and tourism, which is important part of the economy, has been hit hard. so more attacks will not be a good thing. >> is turkey going to change policy regarding syria? riad hamade: turkey has changed policy recently.
initially, they supported rebels in syria. however, their aim was much more limited, before it was about a regime change in syria. they still say they want to get rid of assad, but now it seems more limited in trying to limit those separatists on the border english isis away from the border -- order and push prices away from the border. they are working to get people evacuated now out of aleppo. yousef: john paul on the program. to kick things off my foot of a chart and viewers can do the same on the bloomberg. this is stocks and bonds, going back to 2012. you can see the trend has been downward. this is taking a breather, not only because of the improving
relations with russia over the last few months. again, what does this even mean for turkey? how big of a setback is it? >> it is a tragic event for the russian ambassador and it kind of continues the trend in turkey of elevated security risks, which has defined 2016 for the economy. even before what we saw overnight, the data has been horrible and it is because whether it is an isis attack for the field -- failed coup, confidence have fallen out over turkey. the numbers last week, there was number to like that nothing to like. -- nothing too late. retail sales, industrial production, that is still pointing to an economy that was fundamentally weak in the fourth quarter. so these events over the past 24
hours them is another setback for them. angie: i want to bring up another bloomberg chart and go into the terminal right now. signals weullish have seen on the turkish benchmark since august. the last date was september 20. we still have strong buy signals. what do you make of this? is this one side of the story that counters the negative one you have really -- relayed? >> that is a great question. it is a typical outlook for turkey going into 2017. on top of the security risks, you have the broader outlook for turkey in terms of their relations with the eu, in terms of how policy has basically slipped this year, and the
global environment. when you look forward to the next month, it will not be conducive to turkish economic recovery, number one, the oil prices trending higher. that is a negative for an importer like turkey. and the global environment in terms of the u.s. hiking rates more aggressively than anticipated. that is a negative for turkey and other emerging markets that rely on, they have these deficits, so not a good outlook for 2017. yousef: you mentioned pressure on the currency. you can see on the return basis, the turkish currency one of the worst performing coming down 9% this year. we saw an additional weakness off of the back of the reaction. how is that going to complicate the decision the central bank must make today? >> going to bed last night was a tough call, there is
justification to hold steady because of the week economic outlook which we spoke about. ultimately, going into last night, i thought 25 basis points was on the cards committee protect turkish currency. waking up to the news of the russian ambassador, that is effectively a done deal. they need to be concerned about the weakness in turkish currency, because of the size of the debt file. yousef: coming up, jpmorgan expecting $58 a barrel next year. and we talked to the head of regional oil and gas minutes. -- next.
sam wilkin: it really is this stockpile, according to the bloomberg survey command that has given the price down but it has come down modestly paid we see it consistent -- modestly. we see a consistent drawdown after effects -- after the opec agreement. that supply has not come off the market and the deal will take effect the first of january. it is about sentiment in the market and the effect on the price since the deal, which now in its sense for the u.s. to drawdown on stockpiles rather than add it to them. is the supply looking like next year, for those not taking part? sam wilkin: we have some interesting news. in the u.s. and the u.s. again, president obama is said to have been considering using a lot to
protect certain areas in the arctic and in the atlantic the leasehold oil -- which holds oil. an attempt to protect the areas in a durable way that will continue to have effect after he leaves office and donald trump takes office. what we see is a move by the obama administration to create a durable environmental protection and it will have an interesting impact on supply for next year, when we might expect the supplies increase under president trump. aboutn, we need to think whether they can get foreign investment into the country to increase the oil production next year. they have already basically achieved pre-sanction output level, that is the low hanging fruit, now they have an emption.e -- ex but we think they need for investment to do so.
we have not seen anything solid yet and we need to think how much they can add in the next year. angie: all really good questions. let's dig deeper, where do we see oil going in the coming year? our next guest expects it will be $62 a barrel and agrees that they will come under pressure. joining us as scott darling, the head of regional oil and gas. downgradingrs are their crude stockpiles, how sustainable are we at these prices? scott darling: we think there is upside going into the next three quarters mother will be adherence to the cuts. that is why we have a rise in oil price outlook to $62 in the third quarter next year. angie: are you counting u.s. producers piling and when the
price rises, and also saudi arabia and everybody else to meet the production cuts? believe there we will be some adherence. angie: not all? thet darling: no, i think u.s. is a good point. we did analysis of the u.s. and we are around $50 today and from the second half of next year we will add 200,000 barrels. about $65,00, then you can see almost $1 billion -- one billion barrels a day being added. yousef: i pulled of this chart which shows the point that he made more vividly, this is the forecast of decline in the crude stock piles, this is for the fifth week, and a blue line, that is the price of wti.
how quickly can the u.s. oil production come down? scott darling: we think there is at least six months. this is from the second half of next year. i think in terms of stockpiles, if we rise in terms of adherence of the cuts, you could see it around .7 million barrels a day of the drawdowns for the first half of next year and i think the market broadly as consensus around 1 million and cuts for the first half of next year. looking at jp morgan stanley and they say that cutow these -- saudis must over 2 million barrels a day to make sure this works. is this something that you can join as well? scott darling: i think that saudi production can be cut anyway, exports may not read if you come in -- not.
if you come in with the summer period, there will be better gas supply in saudi arabia and therefore less need for the oil burns. exports may not change love the production could come down. yousef: what about the libyan variable? they have been exempt from the agreement in terms of freezing and cutting oil production. could that be a black swan? maybe the variable that could the real the plan going into -- derail the plan going into next year? scott darling: i think some of the producers, if you look at the conference calls, they said the same thing about visibility and the outlook. 700,000 forecasts barrels a day for libyans and their output next year. on the still to come "best of bloomberg markets middle east." thisy kept rates unchanged
♪ yousef: welcome back to the "best of bloomberg markets middle east." turkey's central bank kept all interest rates unchanged this week. overnight,e present and the borrowing rate is at 7.25%. why theyonur ant stayed put? onur ant: it is obvious that the turkish central bank is worried about the slowdown in growth, that is thought to be the reason why they chose to keep the interest rates unchanged yesterday, a surprise. it is defining market
expectations -- defying market expectations. and they did announce a third contraction in seven years, due to the slowdown in consumption and investment following a attempt intary coup july. it had a role to play in the slowdown. , upsettingerforce the impact of the turkish lira on inflation. that is basically what gave the central banks the opportunity to maintain policy unchanged, at least for now. angie: what now? what does this say about monetary policy going forward? great -- rates, we
will wait to see if there is despite the weak currency. analysts in the financial community say there is a strong possibility that higher interest rates in the u.s. will increase the pressure on the turkish lira that the central bank might be forced to raise their own lending -- to bolster the currency. an economist said that the pressure to hike might be unbearable as early as the first quarter of 2017. the bank is signaling they do not intend to take a check -- but manytime soonn, think that the global backdrop could force a rethinking of that strategy. angie: we will leave it there. thank you. malaysia says it will not introduce capital controls,
despite having the lowest slump since the financial crisis in asia. pledge inni made the mean interview -- in an interview with bloomberg. shamim adam was there. what concerns do investors have? shamim adam: investors have long memories and the asian financial crisis and what happened when they implemented the capital controls, that is in the back of their minds. so we listened to what the minister had to say this time around. roomi ghani: there is no to talk about capital constraints. i do not call it crisis. what did the minister have to say about since donald
trump was elected president? shamim adam: there has been a 5.6% decline against the dollar in the past month and what the minister said is he sees no reason why it has weekend is so much in a short are not of time, the fundamentals for the economy have not changed and there should be a better value. and what the figure should be. angie: the world bank has approved a $1 billion loan to egypt and it is the second portion of the $3 billion deal to support job creation. we have our middle east editor standing by. where does this leave the reserves now? guest: egyptian reserves jumped after the imf loan deal that we had earlier. reserves and $19 billion, not at $23 million and it is the highest level since 2011.
the central bank said they want to intervene again after abandoning -- we will likely see reserves go up again at the end of this month, putting them again at the highest levels we have seen since the revolution and that eases pressure on the country. yousef: one remaining challenge going forward for the currency situation, because a lot of the knots have been undone, but there are hurdles ahead, right? guest: the biggest challenge is that, so the central bank says we are not intervening in the currency market and we will pick up -- build of the reserve cushion. banks are trying to attract dollars and that is why the pound is weakening, because they are competing with the remaining strands of the black market. until the banks build up enough
dollar deposits and we see more egypt, theing to expectations of the pound will be finding its floor, the clearing level. yousef: a lot of the sentiment is reflected in the equity market. we pulled out of the index and you can see what has been happening, the circle line in yellow, that is valuation for it and you can see how it has made gains. and blue, additional gains since the fed rate hike. how sustainable is this? the interesting part is a lot of it is foreign investors. guest: true. this is part of the sentiment and it becomes a bargain when you have a move from a peg situation to a free float, not just devaluation. one of the key benchmarks we will keep an eye on and which the data unfortunately it comes with a lag, which egypt needs
more, the fixed income market, the local economy fixed income market. this is where you had foreign money before the era of spring -- arab spring. the last number we had was $900 billion that came back into the market, so we need more inflows to say, ok, ere is a syndicate rebound in investment sentiment. on the other hand, there is a whole host of factors, security and that housing situation. egypt needs foreign investment in part of it will come through the stock market and we are looking at a significant rally. bp underpants up, nderpins itself in the gulf of mexico. -- in the gulf.
♪ yousef: welcome back to the "best of bloomberg markets middle east." i'm yousef gamal el-din. bp has cemented its relationship with abu dhabi with a $2 billion deal for a stake in one of the largest oil concessions. they will issue shares to pay for the 10% of them, giving up a stake in bp for return. ceo why the deal has taken so long. bob dudley: we have been working here for 75 years, it is important work we have done for a long time with a strategic relationship here in abu dhabi.
given our framework we have had and meeting obligations in the u.s., it took us awhile to work through the point where we can make this investment with abu dhabi. the key elements is using bp shares and abu dhabi will be a 3% owner of bp. this means additional barrels of oil, continuing a long-term relationship is important for us. and the economics are good for us and good for shareholders, and for bp it brings in a strategic owner of the company, which i am pleased about. bp has worked here a long time and i believe we have shown what we can do with management capability and we will move and work with them, going to their own transformation and we will bring our best people and resources into it and maximize
future recoveries of abu dhabi's resources. we have experience in managing big oil fields, water flooding, and technical things we will bring. i think that is one thing we bring, as well as a responsibility about the privilege of working with the national resources of abu dhabi. these are the crown jewels of abu dhabi. >> in this a sign for oil majors to ramp up investments? bob dudley: i think you have to have confidence in the price. we have gotten ourselves down to inefficient level and we will balance resources and funds around a $55 oil price, one year now it is $55. i think we will remain disciplined about the capital that we spend, the project we select, it is time for bp to
start growing. we have worked through difficulties in the u.s. and now we are well-positioned for growth. >> we recently saw a historic and a potentially more historic deal by those non-opec producers to join in with cuts. how do you feel about opec and the future of oil? bob dudley: i think it is very stiff -- significant what happened. you have non-opec countries seriously talking about reducing output. someeople have said opec is not a real organization anymore and it is not actually bring things together and i think all caps is an important -- opec is an important organization. you can already see it. i know, because we work in russia, there is a schedule of reducing output from russia. so i think it is very serious. i think oil prices between
$55-$60 is realistic and growth will continue in china and in north america. -- donaldminated trump has nominated rex tillerson for secretary of state. is he good for the job? bob dudley: he knows leadership around the world and he is a very serious person. i think he will do a great job, not just because i'm in the industry, this is a man that really knows the world and knows how to manage global organizations. >> we know that donald trump is potentially more friendly to the whattry than predecessors, does that mean for you and other companies? bob dudley: surprises are happening all over the world. many are surprised by what is happening in the u k and even the referendum in columbia, which has gone in another direction.
that was a surprise. i think we are in for moore 17.rises in 20 we are a long-term industry, we need to think 10-15 years outside we will navigate and work through this. bp finally has its discipline back and we will adapt to whatever the circumstances. angie: we are getting more on the bp deal with abu dhabi, with robin mills. we were talking about the structure of the deal, vp trading shares for a stake in the offshore deal. walk us through again the strategy. we saw them do something different when they took their own state. -- stake. paid in cash.hey now, we were not far into the oil crisis event and companies
felt like they had more cash on hand. bp is paying in stock and that is a defensive move to raise capital and defend cash, bringing in one of its largest investors in the stock. gets a very long-term investor, potentially, with very deep pockets. we heard that the stake will be held by one of the biggest in the world. robin mills: that was interesting. it is itself is a major oil and gas investor through other energy products it has, it makes sense to give the bp stake. and they are looking at another oil and energy focus, so it makes sense for those interests to be held there. tracy: let's step back for a
second and talk about the history between bp and agnoc. they do have a share that expired in 2014 and they let it expire, why did they do that and then inflates for the years -- wait for two years to purchase a new stake? year mills: it was a 75 concession, going back to the early days of the oil industry in the middle east and bp and shell oil did have big stakes in it. when it expire, exxon decided not to bid for a renewal. dealotal concluded a fairly quickly, but it did take much longer for bp to come in and there is potentially some stake out there for shell. tracy: we still have 12% that is up for grabs for investors, so
where do you see that going? will we get another sale announcement anytime soon? robin mills: we might. i felt li there was in a society to bring another big company into balance out the picture. one company from south korea and one from japan have come in with smaller stakes. whether shell for another large company will come in, it opens the question, but i always thought it was important to have at least two of them in there. tracy: now we do. in my discussion with bob dudley, he says it was a good time to wrap up the investment. the company will be considerate in terms of deals and spending public oil has turned a corner and we have seen the deal with opec and not opec producers, should we take this as a sign
that we might finally get the upturn in investment? robin mills: that is three consecutive years of spending by the industry, so i think at some point in capital spending must turn around. and there has to be investment in new production. oil prices have recovered busier on the back of the opec deal, so we could have more spending next year, but i do not think the floodgates are going to open. they will continue to be cautious on what they look at. tracy: let's talk about the outlook. bp saying they can cover their own spending and dividends without having to borrow, with oil around $55 a barrel per year, down from an earlier estimate of $60 a barrel. how are they achieving that spending? robin mills: like all of the major oil companies, it is a focus on cost. they want to cut costs and
nonessentials mother there has been -- nonessentials, but it has shown deflation. i think this will be a long process of continuing to squeeze out costs and it does take a long time to reduce structural costs. if prices recovered and there is more activity, some of those cyclical costs will come back. but on the other end, there was a cut of investment and that obviously cannot be sustained indefinitely, they must invest in the future at some point. and most cuts have come around with more expensive projects, the deepwater in the arctic and so long, but that is the opposite end of the spectrum. geologically well understood and in a stable country, so it is a very large reserve, very large oil
♪ yousef: welcome back to the "best of bloomberg markets middle east." uber is facing competition around the world, including in the middle east. careem raised money from investors, including saudi japanese company. they valued it at $1 billion. we talk about the company's plans with its cofounder. isassir sheikha: careem focused on the middle east region, but we work all the way
from pakistan to morocco. and we have about 20 countries and there are a lot of cities. ninently in 11 countries, that still need to the cap -- tapped into. and we are in major cities, but there need to be more cities in those markets. yousef: when i look at how many countries you injured in 2016, put the meat on the bone, which countries are you targeting? mudassir sheikha: probably three or four countries in north africa that are still open. yousef: which ones? mudassir sheikha: algeria, tunisia, we just launched turkey a month ago, which has been in the news. the country focus is limited, but the city focus is bigger. we just launched in four cities in egypt and will be launching
exceed hisi city can head that is what we are going after. angie: a huge fundraiser expected, and you also have a lot of foreign investors that are piling in to invest and other middle east technologies, but what exit strategy are you willing at some point to outsource that and offset that and to sell to a foreign investor? so, the wayikha: that we build the business it is really to remain independent and be a thriving, local business that becomes an institution in the region and that is the way that we built it. exits, thefocused on right time will come for these discussions. potentiallypath to
listing, and that is the current path we are on. angie: what makes careem different from uber for other r ide hailing apps? mudassir sheikha: i think the difference is our at two levels. the region is a bit different from other parts of the world. i think the two big things that make it different is, the first, unlike europe and the u.s. would have public infrastructure built up with trains, buses, unfortunately we do not get to build those in our cities, most of the region still in the process of building these. there is an opportunity through these platforms to start building the infrastructure in a different way. and that is one thing that makes the region different. and the second is my the region is conservative, which means in
most parts of the region, women are not comfortable driving and some cannot even drive. so there is a need to provide women with a safe and reliable means of transportation. so we are catering to those differences in the region and overall when you look at the service compared to others in the region, careem is the better service. yousef: part of the challenge has been fundraising, we understand this to be the last fundraising round for an ipo. mudassir sheikha: it should be. i do not think we should need more money than this, this should be the last time before we see something. yousef: so when with the ipo come? mudassir sheikha: we have not thought about that too much. yousef: yes you have. mudassir sheikha: the focus is on growing the business and at the right time that could become a possibility. if you ask me to give you an estimate, probably 2018 or 2019.
yousef: and the listing would be the one that makes the most sense? mudassir sheikha: we would have to call them bankers and advisers. yousef: that is an open invitation. and a question on the challenges dhabi somend abu services have been limited. our restrictions something you need to take into consideration? mudassir sheikha: overall, they have been open to ride hailing, because of the regional governments realize the potential of the platform to create jobs and build transport that is not exist. yousef: coming up on the "best of bloomberg markets middle east." middle eastern carriers under pressure to adapt as growth slows, we will take a look at how etihad is dealing with the challenge. this is bloomberg.
♪ yousef: welcome back to the "best of bloomberg markets middle east." etihad is cutting hundreds of jobs in the face of slowing growth after aggressive expansion. how difficult is the challenge facing them and other carriers? we asked our middle east aviation reporter deena kamel. deena kamel: it has been difficult times for the gulf airlines, they no longer see the same pace of growth they had before. and etihad said they are going through a process of restructuring, looking at ways to cut costs and boost revenues. part of that is they are going to reduce their headcount across the business, they cite competition and a weaker global economy. yousef: run us through the numbers and give us a sense of the extent of the cuts.
deena kamel: sources have told us the range of the total layoffs could be between 1000-3000 jobs, that is quite a bit. a figure that the airline would not confirm. if you put that into the context 20,000y were employing core staff, 26,000 including subsidiaries and those abroad, so these cuts are across different units of the business, i.t., commercial sales, that is what we are hearing. yousef: what is driving the cuts? if you look at neighboring emirates, they are under pressure as well. is this part of a wider trend in middle eastern airlines, more of the coming out and saying we are overextending and we need to rein in things? deena kamel: that is right.
it is not the massive growth of days past, there is a broader picture of a slowdown in growth for the gulf airlines. if you months ago, the emirates had dropped considerably. and complaints about the oil and gas industry, the bread and butter, that has been softening. and it comes within a general bigger picture of the gulf economies facing slower growth because of oil prices, and even here in the united arab emirates we have seen a general trend of job cuts with banks and others. yousef: that is it for this "best of bloomberg markets middle east." a busy week ahead in the region. we have more reaction to the budget announcement, and in turbulent 2016 drawing to a
>> coming up on bloomberg best, the stories that shaped the year in business across asia. china's economy showed signs of stability even as growth sometimes seemed to sputter. >> i think we have a hard landing in the stock market already. >> the old economy drivers are back in action. it's the new drivers stalling. >> japan's leaders went back to the stimulus well again and again with mixed results. >> we have to continue our monetary policy. >> japan has become a test tube for the rest of the world.