GCC can contain fallout from Egypt crisis

Egypt’s crisis is unlikely to hit the economies of Gulf oil producers while their crude output may not be impacted unless the Suez canal is blocked, a key Saudi investment firm has said.

“While it is convenient to consider all of the countries in the Middle East as similar entities, there are actually vast differences between them and in particular, we believe the Gulf Cooperation Council (GCC) countries stand apart both economically and from a stability standpoint,” said NCB Capital (NCBC), an offshoot of Saudi Arabia’s largest bank, National Commercial Bank.

The report noted that oil prices surged towards $100 a barrel on Friday given fears on production in the region.

But as far Egypt is concerned, the Arab country is a small oil producer so will have little global impact if production slows, it said.

“We see little chance of production being affected in the main GCC producing countries (Saudi Arabia, UAE, Kuwait) on the instability of the surrounding countries, the report said.

“However, transportation is another issue, with fears that shipping through the Suez canal may be impacted by the protests in Egypt.”

It also saw little direct impact on stocks in Saudi and other GCC members despite the plunge in the region over the past two days.

“Saudi companies generally have little direct exposure to the Egyptian market and are more exposed to either domestic and/or GCC demand as well as global demand.”

It said a slide in Saudi Arabia’s bourse, the largest and busiest in the Middle East, could offer buying opportunities for some of the high quality stocks in the market which have little to no exposure in Egypt including SABIC, Mobily, Sipchem and SAFCO.

Some companies, however, do have exposure to Egypt including Savola, which had approximately 12 per cent of 2010 revenues from Egypt; Al Hokair, which has about 60 out of 900 stores in Egypt and Almarai, which has about two per cent of revenues from Egypt.

Another study said it is too early to determine the impact of Egypt’s incident on Saudi Arabia’s economy, the largest in the Middle East.

“Egypt is one of the larger markets for the Kingdom’s non-oil exports. Total non-oil exports to Egypt were $1.3 billion in 2009, 4.2 per cent of the total,” the Riyadh-based Jadwa Investments said.

“As Egypt is an oil producer, its share of total Saudi exports was much lower, at just 1.2 per cent (the total was $2.2 billion). Saudi imports from Egypt were $1.4 billion in 2009, 1.5 percent of the total.”

It said direct exposure to Egypt is an issue for some Saudi firms that have bought into Egyptian companies and set up production facilities, though “we do not think that Saudi bank exposure is a concern.”

“Egypt is not a large source of foreign direct investment into the Kingdom. A further economic link is the large number of Egyptian migrants that work in the Kingdom.”

Citing local data, it said Egyptians accounted for around 15 per cent of new work visas in Saudi Arabia last year.

“If they constitute a similar proportion of the expatriate population, there would be around 1.1 million in Saudi Arabia. Uncertainty at home may well affect the amount of money Egyptian expatriates remit from the Kingdom to their country.”

Both reports did not mention fears expressed by Saudi Arabia and other Gulf nations over their investment in Egypt, the most populous Arab nation and one of the largest regional capital destinations.

Official Arab figures showed the UAE is the largest Arab investor in Egypt, with its cumulative foreign director investment (FDI) in that country standing at nearly $5.188 billion at the end of 2009, almost half the total Arab FDI in Egypt of about $10.79 billion.

Kuwait is the second largest investor in Egypt with around $2.01 billion, followed by Saudi Arabia with nearly $1.37 billion, according to data by the Kuwaiti-based Inter-Arab Investment Guarantee Corporation (IAIGC), a key Arab League establishment.

Qatar has around $260 million in Egypt while FDI by Bahrain and Oman stood at $218 million and $90 million respectively.

The figures showed cumulative global FDI in Egypt totaled around $49 billion at the end of 2009, making it the largest Arab FDI destination after Saudi Arabia and the UAE.

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