The Saudi Transformation

So the other day came the big announcement from the Saudi Government that people in the region were waiting for, the ambitious overhaul of their economy to get rid of their heavy dependence on oil. It’s a long-term plan up until 2030, but the Prince said that it could take as little as four years to get rid of Saudi Arabia’s oil dependence.

I don’t have all of the details but some industry privatization is in the plan, notably selling a small stake of Aramco, the creation of a US $2 trillion (yes, trillion) sovereign wealth fund, and huge development in non-oil industries. It’s seems to be a really, really ambitious plan and those timescales seem a bit unrealistic but something does need to be done, the last couple of years of low oil prices has shown the Saudi Government the dangers of oil dependence. I believe the Government is burning through $9-10 billion of their own cash reserves every month now due to the lack of oil revenue.

There is one development that I’m looking forward to – tourism! The Government plans to spend on tourism infrastructure and thus allow more non-pilgrim tourists to visit the country. I’d certainly go. All the years I’ve been in the Gulf living right next to Saudi Arabia and yet I haven’t visited it. I’m not even sure at the moment you can get a non-pilgrim tourist visa to visit the country. If they allow more tourist visas and let non-Muslims wander around the country (obviously not to Mecca and Medina, there’s no way the country will let that happen) there’s a number of places I’d like to see – the Nabatean ruins in the north, Jeddah and Taif, some of the mountains around the Riyadh plateau, maybe even the dunes in the south.

Some news articles are already slamming the idea. The argument sums up as, “No booze or bikinis, why would anyone go?” I think that’s not a good way of looking at it, people should look at it as more of an exotic adventure rather than yet another all-inclusive drinks & beach holiday resort. In fact I hope the Saudis don’t go that route. There’s plenty of places in the Mediterranean if resort vacations are your thing.

If they make reforms right away I might plan a trip in 2017.

Dukhan Beach

This weekend a bunch of us went to a private beach in Dukhan, on the West coast. Qatar Petroleum has huge operations in Dukhan so have a private beach area with cabins, majlis and so forth. The host works at QP so arranged for us to stay at one of the sites for the day.

It was a decent sized place, with an indoor majlis (with a/c, though we didn't use it as the weather was great)

outdoor majlis

BBQ, and of course, beach access. The beach had three such places along it so it was fairly private.

So we spent the day swimming, then cooking up burgers and chili.

Relaxing on the beach

And chilling out in the outdoor majlis (with a big screen TV so people could play FIFA 16, as you do).

I had never been to Dukhan beach before and it was nice to get out there while the weather was great. With summer approaching these kinds of trips will end soon.

Souq Wakra

I got a chance to visit the souq in Al Wakra just before I went on vacation. I hadn’t been there in almost a year, and there was a lot of work left to do on the site, so I was looking forward to seeing it finished.

It’s not completely finished yet, there is still some construction for a few of the buildings and there was still work on the shore, but it has improved a lot since last year. More restaurants and cafes, some the buildings in the alleyways now have shops selling crafts and other things. I had heard the shore was becoming popular and I can see why, having all the cafes along the beach is really nice.

It should be great once it’s all finished.

Back from Vacation

Was away on a long vacation in Canada meeting with the family. It's great visiting Canada but man is it a long trip. A good 24 hours of travel to reach the West Coast. It'll take a few days to shake off the jet lag.

Back to Shahaniya

So my friend invited me back to Shahaniya so that we could go over to a friend's place for dinner. This time he asked if I could wear one of my thobes.

Sure, no problem, I've started getting used to them.

Do I look Arab? Not really, primarily due to my brown hair and beard. If I dyed it black and wore sunglasses (so no one could see my grey-blue eyes) maybe from a distance no one would think I was a foreigner. I doubt it though.

As for Shahaniya it takes time to get there and, just like last time, there's further delays as you have to wait for camels.

So when I arrived my friend was running late so I sat in his outside majlis and watched the world go by (or camels, as the case may be).

After he arrived we went to the stables to see his camels. I posed for a picture with one.

Then . . .

lol, that tickled! Friendly camel.



Then off to dinner. I didn't take pictures as it was dark but after eating (goat meat on a bed of rice) one of the guys decided to fix my gurtra into a more casual bedouin style. Casual? More like my agal is slipping off my head.

And so ended another evening with Qataris and camels.

Shahaniya – Oud and Camel Races

The other day I was invited to a friend's majlis out at Shahaniya, where the camel racing tracks are. My friend owns racing camels and has a small holding area next to the majlis where he can keep his camels that he enters into races. Thanks to recent rain the weather was really nice so we spent most the time outside.

There's a big race coming up this weekend so there were competitors from all over the GCC there with their camels. Getting to my friend's majlis took a bit of time as once I got near the track I had to stop many times and wait for camels to go by.

So my friend and I, as well as a couple of other people we knew, were sitting on a carpet and chatting when an Indian man came up to them and started speaking Arabic. They answered back, chatted for half a minute, then he ran off and came back with another man and a big suitcase. I was a bit confused as to what was going on, my Arabic isn't good enough to follow conversations.

So the man then put the suitcase down and opened it.

It turns out he was an oud seller! He was wandering the neighborhood with his assistant and seeing if anyone was interested in buying oud wood and oud oil. A wandering oud salesman was definitely not something I was expecting, but later my friends told me that in Shahaniya it's quite common to see oud salesmen when there are lots of people around for a big race.

So my friends reviewed the oud, chatted and haggled, and in the end did not purchase anything. It turns out that the oud was QAR 6500 a kilo (~ US$1800, pretty expensive as far as I'm concerned but good quality oud can be far more expensive than that) and my friends felt that the quality of the wood was not great and did not justify the price. One of my friends wondered if there would be other oud sellers wandering by but no one else came. They joked it was because of my old Honda City parked out front as it would be a car that an oud seller would use -- the other sellers probably assumed someone was already there.

So if you’re interested there’s a big race coming up. On my way out of Shahaniya my friend pointed out a parking lot with the prizes, over 250 vehicles to be won (mostly Land Cruisers but there were two Bentleys!). If you want to see camel races try to get out to Shahaniya this weekend.

Oil Price and its Effects on the GCC

[Update: Coincidentally 2 days after I posted this Moody's announced it was downgrading Bahrain to junk and putting Saudi, UAE, Kuwait and Qatar on review for possible downgrades. Maybe they read this post ;-p ]

Occasionally friends back home ask me how the oil price is impacting the Middle East. Are there tons of layoffs? Empty buildings? Governments in financial trouble? Unless you’re reading the more serious financial newspapers for the most part all you’ll see is clickbait-worthy shock headlines (“Expert says Saudi Arabia will be Bankrupt in x Years!”) so it might not be the most balanced picture.

Don’t get me wrong there has definitely been an impact – a Government can’t have its income slashed by 50+% and just brush that off. Some countries are weathering it better than others, some have small populations and a large build-up of surpluses from the boom years to see them through the next while. Most have tightened their belts and cut spending and reduced subsidies, but how well it will work really depends on the country.

Now I’m not a huge expert on country analysis, and I don’t have access to all of the data, so I figured that I would put together a broad overview of each of the Gulf countries and how other agencies (IMF, credit rating agencies, etc.) have evaluated them.


Saudi Arabia

The largest of the Gulf countries, with a total population roughly 50% greater than the rest of the Gulf countries combined, problems here will inevitably ripple through the rest of the region. Oil makes up roughly 75-85% of the Saudi Government’s revenues and with their large population, as well as wars in Yemen and Syria that they are supporting, Government spending was big. There’s some murmuring in the media that consultants have been hired to develop a huge set of spending cuts for the Government, and subsidies on things like fuel have already been reduced, but there are probably some big spending cuts coming. Estimates are the Government spent $100-120 billion of their reserves in 2015 (maybe even more!) to offset the loss of revenue, something they can’t continue to do indefinitely, especially since in 2015 oil was hovering around $50-60 for much of the year, in 2016 it’s been more like the low-$30s.

Many analysts are worried. At one point during the boom S&P had Saudi Arabia rated at a quite respectable AA-, then last year downgraded them to A+. But two weeks ago they were downgraded again, to A- with a negative outlook, which means they’ll likely be downgraded again sometime over the next 12 months unless they make some big changes (to give you an idea of what an A- rating means it puts Saudi Arabia on a similar rating to Latvia and Malaysia). The IMF is pushing for Saudi to implement taxes such as a VAT to help make up for the lost revenue but I think a lot more will need to be done unless the oil price greatly improves.

Other rating agencies have been more optimistic than S&P and while they have put Saudi on a negative watch they haven’t done the big downgrades like S&P has. Perhaps they expect a rebound in oil prices.



Qatar

A much smaller country with a lot of oil & gas, Qatar is one of the countries that will weather the storm better than most other oil producing countries. They haven’t been sitting on their laurels though, there have been spending cuts, cancellations of many upcoming projects, reductions in some subsidies, and in a surprise move a recent announcement merging some Ministries and other Government organizations together to cut costs.

The 2016 budget calls for a deficit of about US$13 billion, based on oil averaging $48 a barrel. So far the price has been roughly 30-40% lower, if it continues then Qatar is facing a much bigger deficit. I expect that if oil stays at around $30-35 then in the summer we’ll see a revised budget with even more spending cuts.

The cuts are more proactive then driven by necessity, Qatar could probably fund big deficits for a decade or more given its huge sovereign wealth fund. Most analysts estimate that in the past Qatar would breakeven at around $60-65 a barrel (estimates for Saudi Arabia were over $100 a barrel), with the spending cuts the breakeven is now likely in the mid-50s so even a moderate uptick in the oil price would give Qatar breathing room and moderate deficits.

Analysts don’t seem to be too concerned about Qatar, at least for the short-term. S&P has kept its rating at AA, recently affirming the rating at stable, and the IMF was praising Qatar for the actions it was taking to reduce costs. Moody’s and Fitch have also kept their ratings for Qatar at the same high level.

Good news for Qatar’s austerity plan does not mean good news for people on the ground here, spending cuts means layoffs and as construction projects are completed there will be fewer projects starting so while the population has been relatively stable or even growing (growth in areas like construction jobs is keeping pace with layoffs in the oil and other sectors), layoffs in the construction sector are inevitable at current levels of spending. I expect the overall number of expats in Qatar to start shrinking in early-2017 unless oil rebounds.



Bahrain

Many people don’t realize that Bahrain doesn’t have a lot of oil, it was one of the first to develop its oil and because it is a tiny country (about 1/12th the size of Qatar) it did not take long to use a lot of it up so the country was not flush with cash like Abu Dhabi or Qatar. Much of the economy is still based around oil but there is also some reliance on money from Saudi Arabia, either through trade or tourism. Thus the drop in oil price impacts the Government’s revenues, but the ripple effect from Saudi adds an extra punch.

While it was once an oil-wealthy country things have been tougher over the years, and uprisings in 2011 didn’t help matters, so Bahrain did not have the high credit ratings of its neighbours. It was at a moderate BBB- rating from S&P but was recently downgraded to BB (similar to Costa Rica and Guatemala), which is in the ‘junk’ territory. This despite numerous reforms the Government has taken to try to cut spending and improve revenues. Fitch and Moody’s haven’t dropped Bahrain’s rating into junk territory just yet [update: 2 days after this post Moody's downgraded Bahrain 2 notches to match S&P's rating]. I’m assuming the ripple effect from Saudi was bigger than anticipated, or S&P expects that it will be bigger in the near future. The Government was planning to issue bonds to help cover the deficit but is now reconsidering due to the rating downgrade as they would have to offer the bonds at a higher interest rate. If they can’t fund the gap they’ll have to dig deeper into spending cuts.


Kuwait

In the same boat as Qatar: lots of oil, small population, tons of money in their Sovereign Wealth Fund to fund deficits, and a budget that did not require oil to be extremely high to make the books balance. Like everyone else they have been cutting spending anyway by removing or reducing subsidies on things like electricity and water, but unlike Qatar have also embarked on a program in 2013 to reduce the ex-pat population by around 100,000 a year for the next decade. The Government has gotten tougher about issuing residence visas, have stepped up police raids searching for illegal workers, and instructed Government organizations to try to do more to phase out ex-pat jobs (I assume so that they can be given to Kuwaitis).

Rating agencies have Kuwait rated the same as Qatar, the equivalent of AA (S&P), and don’t expect that to change in the near-term.



UAE

Actually seven emirates in one country and rating agencies tend to rate the emirates separately. In truth two of the seven dominate the economy: Abu Dhabi (largest economy, has the oil) and Dubai (2nd largest, not much oil but lots of tourism and property development). The other five, combined, wouldn’t likely be the size of Dubai’s economy.

Abu Dhabi is also similar to Kuwait and Qatar, the population is relatively small compared to the amount of oil it produces, did not need oil at $100 to run the Government spending, and it has the 2nd largest sovereign wealth fund in the world (after Norway) so has tons of money to fund any deficit. It too is rated AA by S&P and there haven’t been any threats of a downgrade yet. Moody’s does a rating for the entire country of the UAE as one entity, also the equivalent of AA.

Dubai is a bit trickier as there are no recent ratings by any of the credit rating agencies. If you recall, in 2009 Dubai hit a major crisis and had a financial collapse, triggered by the near-bankruptcy of Dubai World. S&P immediately issued big downgrades so in 2010 Dubai simply stopped paying the rating agencies to do any ratings. A Google search hasn’t found a rating since.

Dubai has recovered from the ’09-’10 meltdown, thanks in no small part to an emergency $25-30 billion (maybe more) from Abu Dhabi when everything was crashing, but while the Dubai Government does not rely heavily on oil (I think oil is <5% of the economy) the ‘ripple effect’ is hitting it. Dubai is a regional financial hub so can’t help but feel the bite when the neighbouring economies cut spending. Lots of tourists were from the GCC as well as Russia so thanks to the oil price and a strong US dollar tourist numbers and how much they spend are also decreasing. Reports note that property prices in Dubai fell around 10-15% during 2015 and the stock market has dropped around 10% in the last six months. It’s not looking too rosy but I highly doubt Dubai is anywhere near the level of financial trouble that countries like Bahrain are mired in, and they can count on some support from Abu Dhabi if things get tough.



Oman

Poor Oman. One of my favorite countries in the Gulf, and the people there so kind, yet it lacks the financial resources of its richer neighbors. The economy does rely heavily on oil just like everyone else, it's just that they don't have as much of it as their neighbours. I think the Sultan has done a good job with what he has but the country will never have the glitz and splash that the UAE and Qatar does.

Naturally this means the downturn in oil prices will hit the country hard. Unemployment will likely get worse (a touchy subject that in 2011 resulted in some protests in the country) and despite some spending cuts the government will run a significant deficit in 2016. If the oil price does not significantly improve Oman is looking at a very rough next few years.

This vulnerability has led to rating downgrades. S&P recently downgraded them from BBB+ to BBB-. Moody’s has also done recent downgrades and Fitch has been downgrading their ratings on some Omani banks. Oman's long-term debt is still investment-grade, albeit just above the line, and more spending cuts will be needed to prevent future downgrades. Like Bahrain this will increase the risk of political instability, though I don’t think Oman would ever reach the level of problems that Bahrain has in this regard.


So that’s the summary. Basically not a rosy picture. Some can weather the storm but others are going to really face issues if oil continues to remain low in the long-term.

Qatar Total Open

The ladies tennis tournament, the Qatar Total Open, has started, and I was fortunate enough to get an invite from a friend for the first day. It was VIP tickets, something I've never had before, so I figured that meant we had box seats somewhere.

When we arrived he asked if I wanted something to eat first as there was a buffet. A buffet!? So we went into the VIP area behind the stadium and sure enough there was a huge buffet hosted by the Four Seasons Hotel, with sushi and a wide array of other foods, along with tons of wait staff and a jazz band.

Here's a reenactment of my expression:

(only more handsome and with a goatee)

Luckily there were lots of TVs so we could also see the tennis while we had something to eat. And who did I see playing a match? Eugenie Bouchard, Canada's top ladies tennis player! That was awesome, I knew that Serena Williams and Maria Sharapova both had to cancel coming to the tournament so I was a bit worried that there wouldn't be anyone there I'd root for.

Eugenie had a rough match and I watched with apprehension as she went down 0-4 in the third set. Amazingly she managed to claw it back to serve, had some nail-biting moments saving TWO match points, then went on to win the match. Geez, could that get any closer?

We also met up with an Indian friend who was hoping to see Indian tennis legend Sania Mirza play doubles but unfortunately she wasn't playing that day. We chatted about the impact she has had in India being one of the few tennis stars from that country. I recall in 2006 seeing her play at the Asian Games here in Doha and how there was a huge crowd of Indians there just to watch her.

Anyway here's hoping I'll go see some more matches (doesn't have to be VIP, I'm not choosy).

Desert Roses

For Valentine’s Day I thought I’d mention a different kind of rose, of which I keep a bowl of at home.

These rose-looking objects are actually a crystal that grows in deserts near areas where there's salt. Called ‘desert roses’ there is at least one place in the southern deserts of Qatar where they can be found. I’ve been there twice, along with other groups of people, essentially mining the area for these roses. For the most part you have to dig a bit to find them.

But if you're lucky sometimes the wind removes the top layer of sand, exposing them, as shown by my Mother.

While they may look like small rocks in fact in Qatar they form an entire layer of the basin so once you hit that layer you have to break through to be able to chip roses off. The layer is quite hard and a shovel usually isn't usually enough, you need a pick or similar mining tool to get through it. It can be tough work in the sun.

They are pretty though. Unfortunately too many people were digging them up so now many groups don’t do excursions to the basin anymore. The crystals can take decades to form and they were getting depleted by all the ‘mining’. I haven’t been for at least five years and don’t intend to go anymore, I have some so no need to get greedy. My best specimens are gone though, if I have guests over they always admire them so I usually give them a nice one as a gift to take home. They make lovely souvenirs, shame they don’t grow quickly.

So why tell you about desert roses? Well, if you ever visit Qatar there is a new National Museum being built, and the architecture is making some people go WTH?

And now you know what inspired the new Museum building.

National Sports Day

Today was National Sports Day in Qatar, a day off where people are supposed to focus on activity and exercise. This is my first year being here for Sports Day, all the other years I was on vacation in Canada so I missed it.

Numerous places plan activities, such as the Aspire Zone and Katara, but each year work does a morning walk along the Corniche. So I was up at 6am to walk to the Corniche to meet everyone. Oddly enough my walk to the starting point was longer than the official walk itself but hey, those 10,000 steps a day aren't going to walk themselves y'know.

It was a beautiful day, sunny without any dust. The lack of dust was due to a shammal (north) wind blowing off the Gulf so the wind definitely had a chill to it, which I felt whenever I was out of the sun. Lots of people were on the Corniche enjoying the weather. The walk itself was just that, a roughly 2km walk with a drinks station at the end where you could get water or juice. Other groups were doing walks on the Corniche as well for Sports Day.

After the Corniche walk I wound up missing the activities at the other places in the city. I met up with a friend for breakfast at Souq Waqif, then went to his place to help with some stuff he was doing at his majlis, then a late lunch, then met up with another friend and the next thing you know it's 9:00pm. So my Sports Day didn't exactly go to plan but hey, day off work!

Souq Waqif Spring Festival

I stopped by the Souq to check out what they were doing for the Spring Festival (I think being held for the next week).

Even though it was a weekday there were four different stages with events, mostly traditional music but sometimes children's entertainment such as magicians.

A dome in the main area that was apparently showing short films. It had a line-up so I didn't go in.

and some stilt-walkers and bands wandering the souq. One set of stilt-walkers were on some type of stilt with springs so would jump over people.

There was a decent crowd at the Souq enjoying the festivities, I could only imagine how crowded it would be on the weekends. Kids seemed to be enjoying themselves so consider heading to the Souq for dinner. If you get an outdoor table along the main restaurant area you'll even have the bands and stilt-walkers walk by while you eat.