Emirates Global Aluminium chief says Chinese producers will keep prices down

Emirates Global Aluminium chief executive Abdulla Kalban says he expects fierce Chinese competition to keep a lid on world aluminium prices for the next couple of years.

EGA is one of the world’s top 10 aluminium producers but is heavily reliant on export markets to sell its product, where it meets competition from China, which has five companies in the world’s top 10 producers alone, and its total accounts for nearly 60 per cent of world production.

Aluminium producers in the GCC “are trying to mitigate the threat to market share but the Chinese are everywhere, in Eur­ope, Asia, everywhere,” said Mr Kalban.

“The oversupply position is mainly because of the Chinese [and for] primary aluminium production there is concern from our consumers because of severe competition from the Chinese, including into our ­local markets in the UAE. I don’t expect we’ll see good prices for the next couple of years and most companies are in pain.”

Aluminium prices have recovered some ground since the start of the year, with futures prices on the London Metal Exchange gaining about 10 per cent to about US$1,620 per tonne.

But despite fairly steady increases in aluminium demand worldwide, supply additions have run ahead of demand and resulted in chronic oversupply. That has been exacerbated by a slowing in demand growth, especially in China.

World production last month was 4.9 million tonnes, of which China produced at least 2.8 million tonnes, according to the International Aluminium Institute. (It did not have an estimate for China’s “unreported” production, which could have added several hundred thousand tonnes more.)

The next largest producing region was the GCC, with output of 426,000 tonnes, 70 to 80 per cent of which must find a market outside the region, according to Mohammed Al Naki, the chairman of Arab International Aluminium Conference (Arabal), which will meet next month in Dubai for its annual gathering.

“It is not only GCC producers suffering from China; Europe and others are suffering from China too,” Mr Al Naki said.

The Middle East region has been one of the fastest growing markets for aluminium demand, but capacity additions have grown substantially since the world financial crisis: from 2.24 million tonnes per annum (tpa) in 2008 – or about 6 per cent of world capacity – to 5.59 million tpa last year, or about 10 per cent of world capacity.

There is strong demand from construction and transport sectors, but the region needs to build capacity downstream in areas like tyre and other auto­mobile parts manufacturing to secure more of the GCC final demand market, Mr Al Naki said.

The world aluminium industry has been consolidating in recent years in response to the rise of Chinese producers, which includes top 10 producers Chalco, Hongqiao, CPI, Xinfa and East Hope. That included the US$38 billion merger in 2007 of Rio Tinto and Alcan of Canada, and the creation three years ago of EGA from the $15bn merger of Dubal and Emal.

The world’s largest single producer, Rusal of Russia, benefits from being fully vertically integrated, with both bauxite and cheap energy within its borders.

Mr Kalban said EGA is pursuing its own vertical integration strategy, with a $3bn alumina refinery at Al Taweelah, Abu Dhabi, due for completion in early 2018 (originally scheduled for the end of next year).

EGA owns bauxite producer Guinea Alumina Corp and a 45 per cent stake in bauxite miner Cameroon Alumina.

In June, EGA approved a project to develop an initial 12 million tpa bauxite mine in Guinea, which will include construction of an export terminal at Port of Kamsar and rail infrastructure upgrades, with the first production due in 2018.

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Emirates Global Aluminium chief executive Abdulla Kalban says he expects fierce Chinese competition to keep a lid on world aluminium prices for the next couple of years.

EGA is one of the world’s top 10 aluminium producers but is heavily reliant on export markets to sell its product, where it meets competition from China, which has five companies in the world’s top 10 producers alone, and its total accounts for nearly 60 per cent of world production.

Aluminium producers in the GCC “are trying to mitigate the threat to market share but the Chinese are everywhere, in Eur­ope, Asia, everywhere,” said Mr Kalban.

“The oversupply position is mainly because of the Chinese [and for] primary aluminium production there is concern from our consumers because of severe competition from the Chinese, including into our ­local markets in the UAE. I don’t expect we’ll see good prices for the next couple of years and most companies are in pain.”

Aluminium prices have recovered some ground since the start of the year, with futures prices on the London Metal Exchange gaining about 10 per cent to about US$1,620 per tonne.

But despite fairly steady increases in aluminium demand worldwide, supply additions have run ahead of demand and resulted in chronic oversupply. That has been exacerbated by a slowing in demand growth, especially in China.

World production last month was 4.9 million tonnes, of which China produced at least 2.8 million tonnes, according to the International Aluminium Institute. (It did not have an estimate for China’s “unreported” production, which could have added several hundred thousand tonnes more.)

The next largest producing region was the GCC, with output of 426,000 tonnes, 70 to 80 per cent of which must find a market outside the region, according to Mohammed Al Naki, the chairman of Arab International Aluminium Conference (Arabal), which will meet next month in Dubai for its annual gathering.

“It is not only GCC producers suffering from China; Europe and others are suffering from China too,” Mr Al Naki said.

The Middle East region has been one of the fastest growing markets for aluminium demand, but capacity additions have grown substantially since the world financial crisis: from 2.24 million tonnes per annum (tpa) in 2008 – or about 6 per cent of world capacity – to 5.59 million tpa last year, or about 10 per cent of world capacity.

There is strong demand from construction and transport sectors, but the region needs to build capacity downstream in areas like tyre and other auto­mobile parts manufacturing to secure more of the GCC final demand market, Mr Al Naki said.

The world aluminium industry has been consolidating in recent years in response to the rise of Chinese producers, which includes top 10 producers Chalco, Hongqiao, CPI, Xinfa and East Hope. That included the US$38 billion merger in 2007 of Rio Tinto and Alcan of Canada, and the creation three years ago of EGA from the $15bn merger of Dubal and Emal.

The world’s largest single producer, Rusal of Russia, benefits from being fully vertically integrated, with both bauxite and cheap energy within its borders.

Mr Kalban said EGA is pursuing its own vertical integration strategy, with a $3bn alumina refinery at Al Taweelah, Abu Dhabi, due for completion in early 2018 (originally scheduled for the end of next year).

EGA owns bauxite producer Guinea Alumina Corp and a 45 per cent stake in bauxite miner Cameroon Alumina.

In June, EGA approved a project to develop an initial 12 million tpa bauxite mine in Guinea, which will include construction of an export terminal at Port of Kamsar and rail infrastructure upgrades, with the first production due in 2018.

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Sabic third-quarter profit down again but seen poised for recovery

Saudi Basic Industries Corp, the world’s fourth-largest petrochemicals company, said third-quarter profit fell by nearly 7 per cent because of weaker markets for its products and rising costs.

The company said net income was 5.2 billion Saudi riyals (Dh5.1bn) for the three months to the end of last month, compared with 5.6bn riyals a year earlier. Third-quarter sales were down by nearly 11 per cent to 33bn riyals. It is the ninth quarter in a row that profit has declined, as its oil-price-linked products have been hit by weaker end markets and lower oil prices.

Sabic, which is 70 per cent owned by the Saudi government, said a higher Zakat (religious tax) provision and an impairment charge against its Arabian Industrial Fibers Company (Ibn Rushd) subsidiary of 366 million riyals also cut into income.

Yousef Al Benyan, Sabic’s chief executive, said he expected next year also to be tough but stable while the company continues to cut costs and look for growth opportunities.

“We predict that 2017 is going to be a quite challenging year for us,” Mr Al Benyan said at a press conference in Riyadh after the results on Wednesday. “We need to focus internally on how we can improve our efficiency.”

Profit has been falling but Sabic’s shares have been among the best performers on the Tadawul so far this year, rising by 7.6 per cent against an index fall of 21 per cent. Its shares closed 2 per cent higher at 84 riyals on Wednesday in Riyadh.

“At first glance, the numbers look quite good, with a gross margin of 32.9 per cent, the highest since 2011,” said Aditya Pugalia, an analyst at Emirates NBD in Dubai, adding that the company’s cost control and restructuring efforts have helped even as it has had to deal with the government cutting subsidies on utilities this year.

Key markets are still pressured – especially China – with weaker economic growth, reflected in an average decline of 11 per cent in prices for Sabic’s products, which range from plastics to fertilisers to metals.

“We need to focus internally on how we can improve our efficiency,” said Mr Al Benyan, who said earlier this month that Sabic will combine its polymers and chemicals divisions and bring its wholly owned subsidiary, Saudi Iron & Steel Company (Hadeed), together with other metals business to rationalise and cut costs.

While earnings are still under pressure, Mr Pugalia said there are signs that Sabic is poised for turnaround, “especially if Opec does go ahead and clinches a deal [limiting crude output at its November 30th meeting] and oil finds a price floor around US$50-55 a barrel, then it should be quite positive heading into 2017 in terms of the commodities cycle.”

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Adnoc combines shipping and ports services units in reorganisation push

Abu Dhabi National Oil Com­pany will combine three of its shipping and ports services units into one as the state oil firm pushes ahead with its reorganisation and consolidation under Sultan Al Jaber, who took over as chief executive earlier this year.

The Abu Dhabi National Tanker Company (Adnatco), the Petroleum Services Company (Esnaad), and the Abu Dhabi Petroleum Ports Operating Company (Irshad), which have a combined workforce of about 4,000, will be integrated into one company – as yet unnamed – by the end of next year, Adnoc said.

The ownership and operations of a fourth company, the National Gas and Shipping Company (NGSCO), in which Adnoc has a 70 per cent stake, will also come under the new company, although it will continue to operate separately.

“By leveraging the experience and assets across the three companies, we aim to deliver an improved and cost-effective service to meet the needs of the Adnoc group,” Mr Al Jaber said.

Along with synergies and savings, the move will give the new company a better position to bid for business outside of the Adnoc group, which accounts for most of its business now.

“Upon completion of the integration, the new company will be uniquely positioned to further extend its services to customers worldwide,” Mr Al Jaber added.

Currently, a little more than 60 per cent of Adnatco’s business comes directly from Adnoc, while more than 90 per cent of both Esnaad and Irshad’s business is Adnoc-dependent. ­NGSCO, whose other shareholders are BP, Mitsui and Total, derives 100 per cent of its business from Adnoc.

The three chief executives of the companies – Sultan Al Zaabi for Adnatco and NGSCO; Dagher Darwish Al Marar for Esnaad; and Khalifa Mohammed Al Qubaisi for Irshad – will remain in place during the integration process, after which a new chief executive for the combined company will be chosen.

Just under half of the workforce of 4,000 is crew for the 165 fleet of tankers, including liquefied natural gas vessels, bulk carriers, chemical and products tankers, container and container-feeder vessels – the number of crew on a vessel is determined by regulations, which limits the scope of consolidation in that area of operations.

The combined company will also have port management, oilfield services and storage aimed at the oil and gas industry, and its ability to offer integrated services to non-Adnoc companies will help it to compete on cost and other factors, the company said.

Apart from other big oil companies, most of which operate their own fleets, competitors in the field include Swire Pacific, Tidewater and Maersk.

After this consolidation, the number of Adnoc’s operating companies – including joint ventures, such as the Borouge petrochemicals company – will have been reduced to 15 from 18.

Earlier this month, Adnoc combined its two major offshore operating companies – the Zakum Development Company (Zadco) and the Abu Dhabi Marine Operating Company (Adma-Opco) – and in spring Mr Al Jaber, who is also the Minister of State, announced sweeping changes to Adnoc’s leadership, replacing almost all of its top executives, and laid out a plan to make the company more efficient and dynamic, in part to help deal with a lower oil price environment.

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Adnoc combines shipping and ports services units in reorganisation push

Abu Dhabi National Oil Com­pany will combine three of its shipping and ports services units into one as the state oil firm pushes ahead with its reorganisation and consolidation under Sultan Al Jaber, who took over as chief executive earlier this year.

The Abu Dhabi National Tanker Company (Adnatco), the Petroleum Services Company (Esnaad), and the Abu Dhabi Petroleum Ports Operating Company (Irshad), which have a combined workforce of about 4,000, will be integrated into one company – as yet unnamed – by the end of next year, Adnoc said.

The ownership and operations of a fourth company, the National Gas and Shipping Company (NGSCO), in which Adnoc has a 70 per cent stake, will also come under the new company, although it will continue to operate separately.

“By leveraging the experience and assets across the three companies, we aim to deliver an improved and cost-effective service to meet the needs of the Adnoc group,” Mr Al Jaber said.

Along with synergies and savings, the move will give the new company a better position to bid for business outside of the Adnoc group, which accounts for most of its business now.

“Upon completion of the integration, the new company will be uniquely positioned to further extend its services to customers worldwide,” Mr Al Jaber added.

Currently, a little more than 60 per cent of Adnatco’s business comes directly from Adnoc, while more than 90 per cent of both Esnaad and Irshad’s business is Adnoc-dependent. ­NGSCO, whose other shareholders are BP, Mitsui and Total, derives 100 per cent of its business from Adnoc.

The three chief executives of the companies – Sultan Al Zaabi for Adnatco and NGSCO; Dagher Darwish Al Marar for Esnaad; and Khalifa Mohammed Al Qubaisi for Irshad – will remain in place during the integration process, after which a new chief executive for the combined company will be chosen.

Just under half of the workforce of 4,000 is crew for the 165 fleet of tankers, including liquefied natural gas vessels, bulk carriers, chemical and products tankers, container and container-feeder vessels – the number of crew on a vessel is determined by regulations, which limits the scope of consolidation in that area of operations.

The combined company will also have port management, oilfield services and storage aimed at the oil and gas industry, and its ability to offer integrated services to non-Adnoc companies will help it to compete on cost and other factors, the company said.

Apart from other big oil companies, most of which operate their own fleets, competitors in the field include Swire Pacific, Tidewater and Maersk.

After this consolidation, the number of Adnoc’s operating companies – including joint ventures, such as the Borouge petrochemicals company – will have been reduced to 15 from 18.

Earlier this month, Adnoc combined its two major offshore operating companies – the Zakum Development Company (Zadco) and the Abu Dhabi Marine Operating Company (Adma-Opco) – and in spring Mr Al Jaber, who is also the Minister of State, announced sweeping changes to Adnoc’s leadership, replacing almost all of its top executives, and laid out a plan to make the company more efficient and dynamic, in part to help deal with a lower oil price environment.

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In good sign for market, floating oil storage has plummeted

In a clear sign that the glut is abating, oil in floating storage has plummeted in the past few months.

Although the oil stored in ships is a relatively tiny portion of world oil inventory, it is a good early indicator of what is transpiring in the murky physical oil market.

A rise in floating storage is driven by a confluence of cheap shipping and oil prices that are depressed near-term but higher long-term (known as a contango market), thus rewarding arbitragers who hang on to the oil rather than sell it on to end-user refineries.

“The contango market is no longer working and Dubai is in backwardation,” said the Energy Aspects chief oil analyst Amrita Sen, referring to a market with higher prices for prompt versus future delivery.

Floating oil storage – defined as a full tanker docked for at least a week – “is a broad indicator to the extent there is a rebalancing and the crude overhang is being run down slowly”, said Ms Sen, who added: “by no means is the crude overhang gone”.

Tracking the physical oil market, including floating storage, is a highly imprecise science. It involves various competing analysts using methods ranging from satellite tracking and algorithms to individuals standing on the shore with binoculars.

One of the big mysteries in the market is Iranian oil stored in offshore tankers, which is excluded from Energy Aspects’ data.

Ellen Wald, an independent energy and geopolitics analyst, pointed out that there is dispute among analysts about how much Iranian oil is stored.

The estimates range from 30 million barrels to 47 million barrels, with the difference giving very different signals about how much oil Iran is capable of producing at present. It was a key question during tense negotiations within Opec about whether and to what extent Iran might be required to contribute to production constraint if they can agree a deal by the end of November.

“If Iran actually has had more oil in offshore storage than [some analysts] report, it could mean that Iran’s production levels are less than otherwise believed and that its exports over the last few months have come from stored oil,” Ms Wald said.

Still, the virtual disappearance of non-Iranian floating oil storage – from an estimated 75 million to 80 million barrels to about 10 million barrels – is supported by data from the largest consuming countries. Commercial inventories in the wealthy OECD countries fell in August for the first time since March, and early September data for Japan and the US showed the trend continuing, according to last week’s report from the OECD energy think tank, the International Energy Agency.

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In good sign for market, oil in floating storage has plummeted

In a clear sign that the glut is abating, oil in floating storage has plummeted in the past few months.

Although the oil stored in ships is a relatively tiny portion of world oil inventory, it is a good early indicator of what is transpiring in the murky physical oil market.

A rise in floating storage is driven by a confluence of cheap shipping and oil prices that are depressed near-term but higher long-term (known as a contango market), thus rewarding arbitragers who hang on to the oil rather than sell it on to end-user refineries.

“The contango market is no longer working and Dubai is in backwardation,” said the Energy Aspects chief oil analyst Amrita Sen, referring to a market with higher prices for prompt versus future delivery.

Floating oil storage – defined as a full tanker docked for at least a week – “is a broad indicator to the extent there is a rebalancing and the crude overhang is being run down slowly”, said Ms Sen, who added: “by no means is the crude overhang gone”.

Tracking the physical oil market, including floating storage, is a highly imprecise science. It involves various competing analysts using methods ranging from satellite tracking and algorithms to individuals standing on the shore with binoculars.

One of the big mysteries in the market is Iranian oil stored in offshore tankers, which is excluded from Energy Aspects’ data.

Ellen Wald, an independent energy and geopolitics analyst, pointed out that there is dispute among analysts about how much Iranian oil is stored.

The estimates range from 30 million barrels to 47 million barrels, with the difference giving very different signals about how much oil Iran is capable of producing at present. It was a key question during tense negotiations within Opec about whether and to what extent Iran might be required to contribute to production constraint if they can agree a deal by the end of November.

“If Iran actually has had more oil in offshore storage than [some analysts] report, it could mean that Iran’s production levels are less than otherwise believed and that its exports over the last few months have come from stored oil,” Ms Wald said.

Still, the virtual disappearance of non-Iranian floating oil storage – from an estimated 75 million to 80 million barrels to about 10 million barrels – is supported by data from the largest consuming countries. Commercial inventories in the wealthy OECD countries fell in August for the first time since March, and early September data for Japan and the US showed the trend continuing, according to last week’s report from the OECD energy think tank, the International Energy Agency.

amcauley@thenational.ae

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In good sign for market, oil in floating storage has plummeted

In a clear sign that the glut is abating, oil in floating storage has plummeted in the past few months.

Although the oil stored in ships is a relatively tiny portion of world oil inventory, it is a good early indicator of what is transpiring in the murky physical oil market.

A rise in floating storage is driven by a confluence of cheap shipping and oil prices that are depressed near-term but higher long-term (known as a contango market), thus rewarding arbitragers who hang on to the oil rather than sell it on to end-user refineries.

“The contango market is no longer working and Dubai is in backwardation,” said the Energy Aspects chief oil analyst Amrita Sen, referring to a market with higher prices for prompt versus future delivery.

Floating oil storage – defined as a full tanker docked for at least a week – “is a broad indicator to the extent there is a rebalancing and the crude overhang is being run down slowly”, said Ms Sen, who added: “by no means is the crude overhang gone”.

Tracking the physical oil market, including floating storage, is a highly imprecise science. It involves various competing analysts using methods ranging from satellite tracking and algorithms to individuals standing on the shore with binoculars.

One of the big mysteries in the market is Iranian oil stored in offshore tankers, which is excluded from Energy Aspects’ data.

Ellen Wald, an independent energy and geopolitics analyst, pointed out that there is dispute among analysts about how much Iranian oil is stored.

The estimates range from 30 million barrels to 47 million barrels, with the difference giving very different signals about how much oil Iran is capable of producing at present. It was a key question during tense negotiations within Opec about whether and to what extent Iran might be required to contribute to production constraint if they can agree a deal by the end of November.

“If Iran actually has had more oil in offshore storage than [some analysts] report, it could mean that Iran’s production levels are less than otherwise believed and that its exports over the last few months have come from stored oil,” Ms Wald said.

Still, the virtual disappearance of non-Iranian floating oil storage – from an estimated 75 million to 80 million barrels to about 10 million barrels – is supported by data from the largest consuming countries. Commercial inventories in the wealthy OECD countries fell in August for the first time since March, and early September data for Japan and the US showed the trend continuing, according to last week’s report from the OECD energy think tank, the International Energy Agency.

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The Abu Dhabi Investment Authority has bought a stake in SGN, a UK gas distribution ­company, as part of its strategy to invest some of its vast assets in infrastructure with steady earnings.

Adia paid £621 million (Dh2.77 billion) for a 16.7 per cent stake in SGN, formerly known as Scotia Gas Networks, from SSE, the second-largest energy supplier in the UK.

SGN distributes natural gas to about 6 million homes and businesses in Scotland and the south of England, and operates one of the oldest biomethane fac­ilities in the country.

The energy supplier SSE reduces its stake to 33.3 per cent from 50 per cent, with the remaining shares of SGN owned by Canadian public sector pension funds.

Adia ranks as the world’s third-largest sovereign wealth fund, behind Norway’s ­general fund and China Investment Corp, with estimated assets of US$792 billion, according to the Sovereign Wealth Fund Institute.

Adia declined to comment and typically reveals little about its investments.

In July, it reported that its 20 and 30-year returns last year dropped to 6.5 and 7.5 per cent, respectively, compared with 7.4 and 8.4 per cent for the previous year, which it put down to the fact that exceptionally high returns during the early part of those periods had dropped out of the calculation.

In its annual report, Adia gave a broad idea of the investment criteria for its infrastructure team, with the core focus on utilities and transport and energy infrastructure.

“The primary strategy is to acquire direct minority equity stakes alongside proven financial and strategic partners, with an emphasis on developed markets,” Adia said in its review, and the SGN stake fits that bill.

While Adia’s managing dir­ector indicated that the fund would pull back from investing in some of the more volatile emerging markets, he reiterated its commitment to China and India. In infrastructure, for example, Adia also bought an “anchor stake” earlier this year in Mahanagar Gas, which is developing gas supply systems in Mumbai.

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Saudi Arabia's oil hub Dammam feels the pinch across all sectors

DAMMAM // The Al Khobar Water Tower serves as maybe too convenient a metaphor for the stalled development of the largest and most bustling of the tri-city conurbation of Dammam, the oil capital of Saudi Arabia’s Eastern Province.

The 150,000-square-metre project that is the focal point of Al Khobar’s seafront skyline has been a bone of contention for the local populace, who have complained that the long-delayed structure – in the shape of a 90-metre tall palm – has been a major inconvenience for businesses in the area rather than the tourist draw that was promised.

Instead of offering eight floors of attractions, including restaurants and a panoramic viewing deck, the construction site instead has become an unsightly impediment to people going about their business around the corniche.

But the delay to the 218-million Saudi riyal (Dh213.4m) project is more to do with local government red tape than the two-year slump in oil prices, according to locals, who are anxious to follow the government’s lead and develop local tourism as a way to move the economy away from its dependence on oil.

Dammam is even more reliant than the rest of the country on oil, being the corporate headquarters of state oil company Saudi Aramco, which employs the bulk of its 55,000 employees there and doles out most of the work in the area directly or indirectly, including supporting related industries in the industrial city of Jubail, 100 kilometres to the north.

The boom decade through 2013 generated a doubling in Saudi GDP and allowed the government to spend on health, education and other services, while also salting away reserves equating to 100 per cent of annual GDP.

In Al Khobar, the fruits of that wealth are on display in a 2km stretch of opulent mansions in various styles built along the King Salman Road since 2008, known colloquially as “the Golden ville”, with many owned by businessmen from non-oil industries.

Unlike the hardest hit parts of the oil industry – such as the US shale sector, Brazil’s offshore, the declining North Sea province – Aramco has kept spending on major projects in the province, although at a slower pace and pushing down suppliers’ costs.

Local businesses are feeling the effects.

“I’d say occupancy in general in Al Khobar is down 10 to 20 per cent,” said Hakim Karoui, a Tunisian manager at the Mövenpick, one of the newer hotels in town, many of which were built in the past decade to serve the growing number of business visitors. “Also, they are spending a lot less. Budgets are tighter and instead of expense accounts many now have daily allowances, which means they are looking to save and won’t add the extras.”

Tourism and hospitality, retail and wholesaling, and construction were identified by consultants McKinsey & Co in the government-commissioned Saudi Arabia Beyond Oil report a year ago as three of the eight sectors which hold the most promise to grow the non-oil economy and provide the 5 million to 6 million new jobs needed in the kingdom by 2030.

The McKinsey report is thought to be the blueprint for the deputy crown Prince Mohammed bin Salman’s transformation plan set out earlier this year.

In Dammam, one of the tourist draws has been the Mall of Dhahran, part of the Arabian Cities portfolio, which was a rare example of pulling visitors across the causeway from Bahrain (most of the traffic is in the other direction), mainly because of it is home to the only Ikea in the area.

But for the Swedish furniture store and other mall retailers costs have been rising and customer traffic has fallen this year because of both government reforms and belt-tightening.

“From March it has really started to bite,” says Ahmed Hassan Abdullah, a general manager for the Tarfeeh division of Sedco, the billionaire bin Mahfouz family conglomerate whose Tarfeeh unit includes the Applebee’s franchise in Saudi Arabia, with five of its 19 restaurants in Dammam, including one next to the Ikea.

“The food retailers have seen the number of guests fall by 12 to 15 per cent, but some of the non-food outlets have had it worse, maybe 30 per cent down,” said Mr Abdullah, who says the traffic to the Mall of Dhahran is perhaps half from Bahrain.

“Also, spend per person is way down. Families used to come maybe once or twice a week and spend 800 riyals, 1,000 riyals, no problem. Now it is maybe once every two weeks.” Shops have reacted to the cut in subsidies this year, which pushed electricity costs up by 5 per cent, by changing to cheaper lighting. Ikea moved to LED lighting to cut its bill from 290,000 riyals a month to 80,000 riyals and other retailers have followed.

But they are still under pressure and Mr Abdullah says the mall owner – Arabian Cities, part of the Fawaz Al Hokair group – has started discussing lowering rents for its retailers. The share price of Fawaz Al Hokair, one of the largest Saudi construction and retail developers, has tumbled in the past year by 67 per cent, to about 25 riyals.

A key goal for the government is to foster a new entrepreneurship among Saudis and a desire to work in the private sector, rather than rely on cushy government or state company jobs.

“I don’t know that it will change that quickly,” said Jamal Al Yafie, who has been working in sales for Abdul Latif Jameel, which owns the Toyota and Lexus franchise in Al Khobar, since he graduated in business from Cape Breton University in Nova Scotia, Canada, last year.

“People are taking [the government changes] in their stride. They’ve seen a lot of initiatives before and they’ve learn to wait and see, but maybe the new generation are ready for change,” Mr Al Yafie said.

One of the government initiatives showing signs of progress is the hard targets set for foreign companies to locate more of their business – including manufacturing – in the kingdom rather than outsourcing it.

“There is a huge talent pool here, with 70 per cent of the population below the age of 30 and one of the largest scholarship programmes in the world,” said Amal Jamil Fatani, head of a new all-women centre at Tata, which is repatriating business services – accounting, human resources, etc – which had previously been outsourced to India.

“There is a great entrepreneurial spirit here, especially among women,” she said. “Working from home has been transformed into a culture and mechanised. The healthcare sector is 50 per cent women, but has been moving into the private sector that has been a little bit timid.”

Ms Fatani, who worked in academia and the government for 30 years, says part of the process is evolving education from its history of British and American-type systems to an “industry-academic interface” system.

“Private sectors companies are pushing the boundaries and giving people new horizons to try something new,” she sa ys id. The process won’t will not be quick but “in every society, including the West, it starts with government mandates and quotas and then it can fly after that. We are all geared to what we do best but what we do best is always changing”.

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