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Energy Subsidy Reform In Gulf Nations

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Gas price subsidies originally intended to level the playing field for the major oil producing nations now fall under heavy scrutiny for a variety of reasons. Reduction of fuel prices resulting from these subsidies leads to increased wasteful consumption and pollution. Reform policies now meet resistance from residential consumers and commercial interests. 

The six primary Gulf state producers all figure among the top 10 per capita energy consumers worldwide. While awareness is high among the producers that the subsidies desperately require reform, steps toward actual reform are gradual. Qatar, where gasoline and electricity subsidies are highest, is number one on the list, with 18,500 kg oil-energy-equivalence per capita, a level of consumption almost three times that of the USA or England.

Gas is so heavily subsidized in the Gulf States that consumers in Europe and America must find the prices shocking. Qatar, Bahrain, and Kuwait are all under $0.30 per liter as of the time of this writing. Although low fuel prices obviously bring about a trend of excessive and wasteful consumption, the big six producers’ lethargic reforms are not driven by a sense of urgency. Starting mid-2014, Qatar, Bahrain, and Kuwait raised diesel fuel prices by 50% with no fixed index, but rather with prices remaining a function of world market prices. Saudi Arabia has yet to establish any price reforms. 

GCC governments could once afford to subsidize energy prices and this works against reform today. When a falling oil price reduces profit there is additional resistance to subsidy reform. While in theory reducing subsidies should serve to diversify the industrial base of a country, it is not clear that this is a strong motivational force among the actual producers. After all it is a competitive force at work against reform. Awareness of other important factors is high, such as depletion of energy resources, damage to the environment, and slowed economic growth. But awareness does not lead to discipline, and energy consumption in the big six is higher than ever.

Less than $0.01 per kilowatt hour in Kuwait

Energy consumptionApproximately half of the subsidies are for electricity, and the growth rate in consumption of electricity here is approaching 10%. In Kuwait for example, the price of electricity is fixed at less than $0.01 per kilowatt hour. According to energy think tanks such levels of subsidisation and consumption are absolutely unsustainable. However with electricity consumption divided almost equally among commercial and residential interests, there is stalwart resistance to reform these programs which cap prices and keep consumers happy.

In countries like Saudi Arabia and Iran, subsidies for energy consumption are up to two to three times their expenditures for education and health care. Tempting though it may be to view this as a window on the way a society prioritizes its use of valuable resources, it is instead a residential consumer base of individuals devouring 58% of available electricity. Reduced air quality and other forms of environmental impact do not as yet serve to dissuade individual consumers from excessive use. 

UAE the first GCC country to eliminate price controls

Perhaps the most substantial step forward is United Arab Emirates’ announcement to deregulate transportation fuel prices in 2015. This makes UAE the first to eliminate price controls, and to take an extraordinary measure toward subsidy reform. This year with falling oil prices all of the GCC nations are under new pressure to institute subsidy reforms, especially in Saudi Arabia, where pre-tax energy subsidies to fiscal expenditure were more than 10% last year. 
As OPEC and IMF predict oil prices to remain below 2014 levels for at least the next five years, subsidy reform is clearly the mandate among the GCC nations. With consumption accelerating, the depletion of oil reserves and an inflationary rise in the cost of living may leave these energy-rich nations no alternative.

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Africa and the Middle East: Going Mobile

Comments (0) Business, Featured, Middle East

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By Enu Afolayan, Contributor

Going mobile. That’s the tune businesses, and marketers, are singing in the Middle East and Africa as the end of 2015 nears. If you don’t have a plan or haven’t started one, for the mobile marketplace, then you are at risk at being a generation behind the competition. You’re still driving a moped while everyone else is passing you by in their sleek, new electric cars that are almost driving themselves. Moreover, they are working on an app for that.

The people of the MEA market are snatching up mobile devices at a rapid rate and are second only to the Asia-Pacific market as the largest users of mobile phones. According to eMarketer, an independent market research company, 606 million people in the region have at least one mobile phone. They expect an increase to over 789 million in 2019. That’s a lot of phones. That’s a lot of people with phones who use mobile services and are increasingly buying goods and other services with them.

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Lubna Olayan, a Modern Arab Business Leader

Comments (0) Featured, Leaders, Middle East

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by Sheldon Mayer, Managing Editor

Lubna Olayan appears in “Most Powerful Women” lists every year, featured by Forbes, Fortune, and Bloomberg as a model of modern international business leadership. She was named Entrepreneur of the Year in 2010 by her alma mater Cornell University. After her renowned father and founder of OFC summoned her to head the Middle Eastern sector of his OFC conglomerate, Lubna Olayan raised the standards, and quietly began modernizing work flow practices, undaunted by her singularity as the only woman in a conservative, heavily male-dominated Arabic business-scape. Notably she now continues a trend to fill roles in her companies with women who are “deserving” of positions in business and engineering, in what she describes as a unique meritocracy for Middle Eastern businesses. Her meritocracy sweeps across vast borders of business and finance, and as a holding company it is uniquely diverse.

Although Olayan Financing Company is reserved in comments about their revenue and profit, assets are currently estimated to range from seven to ten billion dollars. With the leadership of Lubna Olayan the company expanded into real estate, manufacturing, and partnerships in international brands such as Nabisco and Burger King. Lubna, her brother, and two sisters sit on the board of directors of this global enterprise, each sibling taking a role as leader of a particular geographic area within the global scope.

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The Fraught Four: China’s Economic Crash Has Serious Consequences for Four Southern African Nations

Comments (0) Africa, Business, Featured

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By Enu Afolayan, Contributor

China is a superpower. If there was any lingering doubt as to this, it should have been erased as the widespread fall-out from China’s recent economic crash became evident. For Sub-Saharan Africa in particular, the impact of the crash was particularly harsh.

The stock market crash on August 24th had several immediate consequences: the yuan was devalued, there was a huge injection of capital into the Chinese economy to support financial markets and the risk of a decrease in Chinese tourism worried many nations.

China is the number one trading partner for most African countries. It has more than $20billion USD in investments in addition to billions in development aid. China is one of the biggest customers for Africa’s robust resource-selling market, particularly for mined minerals and crude oil. The devaluation of the yuan against the dollar will likely result in less demand for African goods as the purchasing power of the yuan plummets, thus increasing the relative price for Chinese consumers. For South Africa, Angola, Zambia and Sierra Leone in particular, China’s economic troubles may be manifested in crippling ways.

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Tentative Optimism as Cote D’Ivoire Heads Into First Election Since 2010 Violence

Comments (0) Africa, Featured, Politics

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By Sheldon Mayer, Managing Editor

In the first step towards their landmark election, nine candidates have formally announced that they will run in the October election against incumbent Alassane Ouattara.

While the official campaign season does not begin until October 11th, just two weeks before the election on October 25th, the announcement by the Constitutional Council is an unofficial green light for candidates to begin their campaigning.

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Ibe Emmanuel Kachikwu Takes on Corruption at Nigeria’s State Oil Company

Comments (0) Africa, Featured, Latest Updates from Reuters, Politics

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by Enu Afolayan, Contributor

The President of Nigeria, Muhammadu Buhari, is committed to fighting corruption in his country. On June 26th, immediately after being elected, he ordered the dissolution of the board of the Nigerian petroleum company NNPC. Nigeria extracts two million barrels of crude every day, which makes it the largest producer of black gold in Africa. By attacking the petroleum sector, Buhari made a brave attempt to solve the country’s most serious mismanagement and corruption problem.

In 1970s, Buhari was the Minister of Oil and oversaw the birth of the NNPC. Corruption began to spread in the corporation as early as 1978, when it failed to repay the Treasury of Nigeria. Now, the “Father of the NNPC” is determined to put an end to the widespread corruption. He appointed Ibe Kachikwu as the new head of the petroleum corporation to take on this challenge.

Kachikwu arrived at the helm of NNPC right after the publication of an independent analysis by the Resource Governance Institute (NRGI). The analysis unveiled that over $32 billion in oil revenue was lost by Nigeria due to money laundering at the NNPC.

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World Economic Forum Reveals Morocco as North Africa’s Most Competitive Country

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Preparations Ahead Of The Davos World Economic Forum 2015

According to the latest report by the World Economic Forum (WEF), at 72nd Morocco is the most competitive country in Northern Africa (an improvement from the previous report), and ranked 4th in all of Africa. Above are Mauritius, South Africa and Rwanda at 39th, 56th and 62nd respectively. Morocco is making a transition toward lower, and eventually, elimination of subsidized government spending through collaboration with international lenders, and more toward innovation, education, and free trade leading to overall economic amelioration.

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China’s Development of Ethiopia : Investment in a Country, or in an Industry ?

Comments (0) Business, Featured

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Ethiopia, a country of about 90 million people, covers just 1,127,127km2—less than 10% of the territory of China. Despite its comparably tiny size, Ethiopia is proving to be a massively important resource for China’s demand for essential minerals necessary in its insatiable demand for technological goods.

Some experts, British-born Ethiopia specialist Richard Pankhurst, believe that trade between the two countries could date back more than 1400 years. Though China’s demand on Ethiopia has evolved from exotic animals and jewelry to minerals and leather, their trade partnership has an unbroken past.

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Bosch registers sales growth in the Middle East

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The Middle East is proving to be a lucrative market for Bosch, a German multinational company with expertise in engineering and electronics. The company closed the 2014 fiscal year with AED 945 million (approximately USD 257 million) in consolidated sales across 15 countries in the region, representing an increase of seven per cent over the previous year.

Since the opening of its regional office in Dubai a little over ten years ago, Bosch has experienced continued expansion and sales growth in the Middle East. The UAE now accounts for the highest sales in region, with the largest percentage of growth coming from power tools business.

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From the Bottom(ish) Up: Aliko Dangote, Africa’s Richest Man

Comments (0) Featured, Leaders

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Aliko Dangote is Africa’s richest man. Valued at $17.4billion, this Nigerian magnate is the 67th richest billionaire in the world, one of an elite circle of fabulously wealthy individuals who have made their fortunes in the poorest region of the world. Thirty years ago, Dangote received a loan from his uncle, which he used to break into commodity trading. In the intervening decades, 54-year-old Dangote has managed to build a multinational trading empire.

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