OPEC will have no problem defending a floor of around $50 a barrel for oil for the next decade.

Project finance activity is booming in the Middle East, with Saudi Arabia, the world’s largest oil producer, leading the way as it embarks on a massive program of downstream development that will create jobs in plastics and chemicals production, as well as in the manufacture of finished goods.
As reported by Gfmag.com, the desert kingdom will enjoy the biggest inflow of petrodollars in its history of approximately $163 billion this year, according to Brad Bourland, chief economist at Samba Financial Group, based in the Saudi capital of Riyadh.
New structural realities in the energy market will keep prices high, such as growing demand from China and other emerging market economies for energy and industrial feedstocks. The Organization of Petroleum Exporting Countries will have no problem defending a floor of around $50 a barrel for oil for the next decade, he says.
Meanwhile, in December 2005 Saudi Arabia became a member of the World Trade Organization. One of the clear winners from WTO membership, according to Bourland, is the Saudi petrochemical industry, which is dominated by government-controlled Sabic, or Saudi Basic Industries. The company was created in 1976 to add value to the country’s hydrocarbon resources and create jobs for its growing population.
Foreign markets for Saudi petrochemical exports will be opened further as a result of WTO membership, while the country’s natural advantage of low-cost feedstocks will be preserved. Thus, Saudi petrochemical manufacturers will retain a substantial cost advantage over their foreign competitors while gaining better access to foreign markets as tariffs decline globally, according to Samba’s chief economist.
The Petro-Rabigh project is one of the biggest oil refining and integrated petrochemicals projects in the world and the largest project financing to date in Saudi Arabia, as well as the largest in the region to incorporate long-term Islamic financing.
The project’s capital of $9.8 billion is divided equally between Saudi Aramco and its Japanese partner, Sumitomo Chemical. The complex, to be completed in 2008, will produce 2.4 million metric tons of ethylene- and propylene-based petrochemicals a year, in addition to 18.4 million metric tons of benzene and other refined products, including gasoline.
The joint-venture partners raised $5.8 billion, including a $2.5 billion loan from Japan Bank of International Cooperation, or JBIC, and a $1 billion loan from the Saudi Public Investment Fund. Last year’s financing package also included a $1.7 billion commercial bank facility from 15 banks and a $600 million Islamic financing tranche led by the Islamic Development Bank and including seven other Islamic banks.
Sumitomo Mitsui Banking and its European affiliate acted as financial adviser to the sponsors, while HSBC Saudi Arabia, through its HSBC Amana unit, was financial adviser on the Islamic financing. Some 25 percent of the Petro-Rabigh project’s capital will be floated by public subscription.
The petrochemicals project will create private-sector investment opportunities for utilities and related infrastructure. An industrial complex to process Petro-Rabigh’s downstream products will be constructed on some 30 nearby sites, with domestic and foreign investments managed by Sagia, the Saudi Arabian General Investment Authority.
Middle East project finance lending more than doubled in the first half of 2006 to $24 billion from $11.8 billion in the first half of 2005. The Middle East and North Africa had the biggest increase in project finance activity of any region of the world last year, with a 96 percent rise to $44.3 billion, of which $38 billion were new-build projects, according to Dealogic.
While every country in the Persian Gulf Cooperation Council, or PGCC, is also upgrading the development of natural resources and investing heavily in industrial infrastructure, Saudi Arabia and Qatar are currently the biggest markets for project finance in the region. Numerous Western banks are rushing in to take advantage of the boom.

Africa has moved from last place to third in this year’s regional rankings forÊ reforms that encourage new enterprises, formal sector jobs and growth, according to the World Bank/ International Finance Corporation (IFC) report, Doing Business 2007: How to Reform.
This marks the first time Africa has been among the top three reformers, following Eastern Europe and the OECD countries in the number of business-friendly regulation reforms.
Forty-five regulatory changes in 30 economies in the region reduced the time, cost, and hassle for businesses to comply with legal and administrative requirements. Two-thirds of African countries made at least one reform. And two African countries--Ghana and Tanzania--ranked ninth and tenth across 175 economies for improvements that ease the terms of doing business.
While Africa performed well in reforming the business climate, the continent still lags behind other regions in its overall rankings under the Doing Business index.
The top-ranked countries in Africa are South Africa (29), Mauritius (32), and Namibia (42). Guinea-Bissau (173) and the Democratic Republic of Congo (175) rank lowest in the region. The Democratic Republic of Congo also ranks lowest in the world.

Reforms for Growth
Doing business in Africa became easier in 2005-2006 because reformers simplified business regulations, strengthened property rights, eased tax burdens, increased access to credit, and reduced the cost of exporting and importing.
“Such progress is sorely needed. African countries would greatly benefit from new enterprises and jobs, which can come with more business-friendly regulations,“ said Michael Klein, World Bank-IFC vice president for finance and private sector development and IFC chief economist.
“Big improvements are possible. If an African country adopts the region’s best practices in the 10 areas covered by Doing Business, it would rank eleventh globally.“

A country breakdown shows the extent of the reforms:
Ghana--the top reformer in Africa, reformed trade, tax, and property administration. It introduced a single window clearance process at customs where traders can now file all paperworkÑfor all agenciesÑat one place. Clearance time dropped from seven days to three days for imports and from four days to two days for exports. Ghana also reduced the corporate tax rate and reconstruction levy for businesses.
Tanzania--the tenth-ranked reformer worldwide--reduced the cost to register new businesses by 40 percent through a reduction in licensing requirements. It introduced a new electronic customs clearance system and implemented risk-based inspections of cargo to cut turnaround time. Customs clearance times dropped from 51 to 39 days for imports and 30 to 24 days for exports.
Nigeria embarked on a large-scale court reform to improve court efficiency. The time to resolve simple commercial cases dropped from 730 days to 457, and now close to one-third are settled during pretrial conferences. When contracts are enforced more efficiently, businesses expand their trade networks, employ more workers, and have easier access to credit.
Rwanda reorganized its court structure under a new constitution and introduced a specialized commercial division in the high court. To ease company start-up, a presidential decree increased authorized notaries from one (a legacy from King Leopold’s colonial era) to 33, with 449 expected once implementation is complete. As a result, time to register a new business fell from 21 days to 16 days. Rwanda also decreased its corporate income tax rate from 35 percent to 30 percent in 2005.
Kenya replaced its paper-based customs administration with an electronic data interface system. Traders can electronically submit their customs declarations and pay for customs duties online. Importing sped up by seven days as a result. Kenya also eliminated 26 licensing requirements for businesses, with a proposed cut of 92 more.
Niger quickened new company registration by nine days (from 35 to 24 days) by permitting legal clerks to continue with registration while founders obtain the criminal records, previously a prerequisite.
Mauritius launched a public credit information bureau within the central bank to collect and distribute credit information. Now lenders can check the credit history for 10 percent of Mauritian adults before extending them loans.
Mali eased construction requirements by placing a time limit on obtaining a building permit. It also streamlined on-site inspections. These reforms cut construction time by two months and reduced the cost by 36 percent.
Burundi cut the time to resolve simple business disputes from 433 to 403 days. It also adopted its first bankruptcy law, providing more detailed guidelines for administrators and setting time limits for accomplishing major steps in closing down the business.
Lesotho computerized its tax system and unified VAT and income tax registration forms. Tax registration for new companies can now be accomplished in one day. Time for businesses to comply with tax regulations decreased from 564 to 352 hours annually.
Benin, Ethiopia, Madagascar, Mozambique, and Uganda eased registration requirements for new companies, making it easier for them to operate in the formal sector and facilitating their access to credit, allowing them to grow.
Botswana, the Central African Republic, Cote d’Ivoire, Mauritania, Seychelles, South Africa, and Swaziland strengthened property rights by making it easier to transfer titles on real estate.

Despite the much publicized tensions and tit-for-tat, the second round of the China-US Strategic Economic Dialogue (SED) ended in a positive atmosphere, with both Washington and Beijing hailing the Washington meeting as a success.
The two countries have agreed to deepen cooperation on a wide variety of issues, including financial services, energy efficiency, environmental protection and civil aviation. They have also agreed to make further efforts to address China’s currency value, enforcement of intellectual property rights, and implementation of World Trade Organization commitments, wrote Xinhua news agency.
Strategically, the most significant outcome of this round of SED is the clearly expressed commitment from both sides to continuing the SED process. This came amidst criticism from various interest groups that the SED has failed to achieve satisfactory results.
This commitment is significant not only because the continuing process helps enhance the mutual understanding necessary for resolving existing problems, but also because leaders in both countries realize that confrontations do not serve the long-term interests of either nation.
Indeed, thanks to the overwhelming globalization and China’s ever-growing integration into the world economy, the US and China have become each other’s second largest trading partners.
The deepening and irreversible economic interdependence speaks volumes about this unprecedented round of SED. Never has a China-US dialogue drawn in so many high-level government officials from both countries, and never have their discussions assumed such breadth and depth.
Given their increasingly interconnected interests, both Washington and Beijing have become reluctant to resort to unilateral action to solve the problems in their economic relations. Such a confrontational approach would inevitably boomerang.
Instead, as proven by the just-ended talks, only through cooperation can the two great powers realistically hope to reach the meaningful compromises necessary for achieving win-win solutions.
It is in the spirit of seeking compromise rather than provoking confrontation that both the Chinese and US teams, led by Vice-Premier Wu Yi and Secretary of Treasury Henry Paulson, took painstaking efforts to prevent their disagreements on key issues from upsetting the more important strategic interests.
While standing unflinchingly on principles, Beijing demonstrated notable flexibility and willingness to accommodate US concerns. Likewise, political leaders in Washington displayed commendable patience in their efforts to move the dialogue forward, despite forces aimed at derailing the process.
Even Speaker of the House Nancy Pelosi, who was perceived as relentless in demanding Beijing take serious action to address the issue of “unfair trade“, showed her hospitality and rationality to the visiting Chinese team.
This spirit of mutual accommodation indicates a consensus that the China-US economic relationship does not have to be a zero-sum game, and that there are enormous stakes in improving this relationship through compromise and cooperation, instead of damaging duels.
It demands great political skill for both sides to translate their commitment to further cooperation into meaningful solutions to the persistent China-US problems.
However, most of these problems, especially the trade imbalance, are not necessarily policy oriented. They are rooted in the two nations’ domestic economic structures that have not readily come into line with globalization.
Thus, the solution to these problems requires both Washington and Beijing to readjust and even restructure their economies. Although this readjustment is by no means easy, Washington and Beijing have little choice.
The present prosperity needs to be grounded firmly in the mainstream of globalization.