The Beirut Blast and its Recovery & Reconstruction dominate news in the Middle East…

Lebanon Focus:
The Beirut port explosion on 4th August – which left at least 220 people dead, 6000 injured and 300k homeless – was possibly the last straw for the people already immiserated by an economic, banking & financial meltdown (since October 2019) alongside dealing with the COVID-19 outbreak. The explosion led to calls for the resignation of the government (three ministers have resigned, including after the blast, citing failure to reform), with demonstrations gaining traction over the weekend. In addition to the loss of human lives and destruction of buildings (homes and businesses), it is critical to understand the importance of the ports: 80% of the country’s food imports come through the port, in addition to medical supplies as well as oil and gas. The silos have been demolished (which hold 2-3 months supplies of grain), leading to shortages of food (& higher prices – food inflation had surged by 108.9% in H1 2020 and by 250% in June 2020); expedited imports of food and fuel will also be constrained by damaged logistics (transport and warehouses). Additional cuts in electricity (given the impact on fuel supplies) will negatively affect hospitals (that are fighting the COVID-19 outbreak in additional to normal operations) and businesses.
Damage to infrastructure (port, transport, logistics and related facilities), housing and businesses are extensive. A detailed survey will be required to assess the total costs of reconstruction but it is clear that Lebanon does not have the fiscal space and will require international support. The destruction will further depress economic activity through a negative impact on consumption, investment and export activity. We forecast an overall reduction in real GDP by some 30% (Great Depression levels) along with continuing and potentially accelerating inflation.  Beirut’s Governor stated (without presenting evidence or survey estimates) that the repair bill for the capital alone will cost up to USD 5bn while the overall cost of damages is estimated at around USD 15bn. The Cabinet’s approval of exceptional allocation of LBP 100bn [or USD 26.3mn at the central bank’s set rate of LBP 3,800 to the USD at money transfer firms] to deal with the crisis will fall way short of requirements. International donors pledged EUR 252.7mn for humanitarian aid at the Paris conference yesterday held to raise emergency relief for Lebanon. President Macron during his visit to the location stated that he would “propose a new political pact” to all political forces in Lebanon, also assuring that aid would “not go to corrupt hands”.
The way forward is to undertake a comprehensive series of macroeconomic reforms, including at various sectoral levels – ranging from reforms of the power sector to the banking sector, to exchange rate reform alongside an active intent to increase transparency and stamp out corruption. So far, there has been a refusal by the authorities to bite the bullet and undertake reforms. The donor conference yesterday (as well the CEDRE pledges in 2018) are promising: but the aid should only be released within the umbrella of a broader IMF programme – with clear conditionalities of reform (and potentially bringing in independent ‘technocrats’ to form a new government). The country is in urgent need of an equivalent of a Marshall Pan (size of USD 25-30bn and growing), given cumulative losses owing to lack of reforms so far.

UAE News:
The UAE Ministry of Economy plans to roll out a flexible plan in 3 phases, with 33 initiatives, to support economic growth– covering 8 aspects ranging from “support for labour market, stimulation of trade, enhanced flexibility of financing activities, increased productivity, support for digital transformation, acceleration of green economy growth and enhanced food security”. SME’s will be a key area of focus in the 1st and 2nd phases of the plan.
As of July, 260k individuals and 9,527 SME’s availed the interest-free loans worth AED 3.2bn and AED 4.1bn (9.3% of the total disbursed amount) respectively under the central bank’s Targeted Economic Support Scheme.
UAE dirham will be included as a settlement currency in the Arab regional payments clearing and settlement system called “Buna”, designed to support and boost inter-Arab trade and investment.
Dubai attracted AED 12bn in FDI (foreign direct investment) in H1 this year, into 190 announced projects. In H1 2019, Dubai witnessed the inflow of AED 46.6bn in foreign investments (+135% YoY).
Abu Dhabi government disclosed that it would spend AED 2.78bn (USD 757mn) to disburse mortgage loans for 1500 Emirati citizens and exempt mortgage repayments for 476 retirees.
Abu Dhabi’s Department of Economic Development will permit businesses to renew licenses for 3 years, with the aim to also reduce and simplify the number of processes involved in the renewal process. In H1 this year, renewed licenses touched 33116, accounting for 42.3% of the total number of expired licenses.
The Dubai Land Department launched a fractional title deed programme i.e. an investor will be able to buy up to half or a quarter of a hotel or serviced apartment; transfer fee will be paid only on the amount invested, and not the total value of the unit. These fractional title deeds can be transferred, sold or mortgaged.
The Dubai Airport Freezone Authority (DAFZA) posted a 54% rise in general exports in Q1, with China, India and Switzerland accounting for 21%, 16.6% and 14% of DAFZA’s trade. The number of companies registered in DAFZA increased by 19% YoY in H1 this year, while new businesses including SMEs grew by 23% YoY.

MENA News:
Bahrain will accept applications for new work permits starting this week, according to the Labour Market Authority. The fees imposed by the Authority to issue and renew all types of work permits has been reduced by 50% for the period July-September.
Partial salary payments (50%) have been completed for 60,416 insured Bahrainis in 1,120 firms in the private sector most affected by COVID-19; half their salaries were covered for the period July-September from the unemployment insurance fund.
Travel through the King Fahad Causeway – connecting Bahrain and Saudi Arabia – has dropped by 99% since the COVID-19 outbreak, according to the Finance and National Economy Minister. Though the bridge was opened to permit Saudi citizens to return home, operations are not expected to return to normal before October.
An Iraqi delegation to Lebanon informed the latter’s PM that the country would provide fuel aid and wheat to Beirut, following the blast on 4th August.
Iraq’s PM called an early general election on 6th June, 2021, roughly a year ahead of when it would normally be held. The parliament must still ratify the election date.
Jordan decided to postpone the reopening of its airports to international commercial flights (scheduled for 5th August) “until further notice”.
Jordan has set 10th November as the date for parliamentary elections. 
Kuwaitization gains speed: 50% of expats working for contracting firms are to be laid off in the next three months, reported Arab Times.
In a bid to reduce the number of foreigners, Kuwait has stopped the transfer of residency permits of expat children to their mothers in the case of the father’s final exit from the country or expiry of residency permit. Exceptions are in place for 3 categories: female teachers (employed by the education ministry), female healthcare workers (at the health ministry) and women doctors (at the general directorate of criminal evidence).
Lebanon’s central bank froze the accounts of the heads of the Beirut port and Lebanese customs along with 5 others, reported Reuters. Separately, banks were instructed to offer exceptional dollar loans at zero interest to individuals and firms affected by the explosion.
Support from international organisations: The IMF (International Monetary Fund) called for movement on reforms in Lebanon, also stating that the organization is “exploring all possible ways to support” the country. The World Bank stated that it was willing to “reprogram existing resources and explore additional financing” to rebuild the economy.
Lebanon’s foreign minister tendered his resignation early last week, blaming lack of political will to roll out reforms required to revive the economy.
Qatar disclosed that it had submitted a request to the International Olympic Committee to host a future Games, possibly in 2032.

Global News:
In the US, last Friday’s jobs report and lack of consensus on the stimulus bill stopped markets from touching a new record high; mounting tensions between US and China (banning US transactions with WeChat & TikTok) put a dampener on Europe and Asia-Pacific while markets dipped in China in spite of strong export numbers. Regional markets were mostly up, with UAE benefitting from Q2 earnings results and news of the latest stimulus measures announced to support economic recovery. During the week, the euro touched the highest vis-a-vis the dollar since May 2018 while the Turkish lira continued to slide. Oil prices edged up and gold surged to a record high above USD 2000 last week. Among asset classes, gold has been the biggest gainer this year (+36% YTD) and Brent crude the worst performer (-31.75%)

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SOURCE:
Nasser Saidi & Associates