Money from the International Islamic bonds specifically. South africas controversial president survives attempt to drive him out of office but remains under pressure. The majority of the African National conference wants zoom out. The growing tensions in the gulf with saudi arabia continuing to attack qatar over its ties to iran. Bloombergs executive editor covered this escalating row. It came out of the blue a little bit. You may remember the three countries have withdrawn from qatar over some of this conflict over support of the broad support of the Muslim Brotherhood in egypt. Exploding is suddenly on the scene again after the ciampa visit, after this show of unity of american support for the saudi line on iran. Front, theyunited really want americans support. Now they have trump support on it. And they see qatar as not being in line with iran. This is all over some statements that would appear. That is being removed. How reliable is what they are saying right now . Thing, is the surprising , it is official news agency. They would be distinguishing themselves from that. It is mainly in the newspapers. Was first to come out and say officially that there was a crisis. What fed the rage was the newly elected iranian president made consolatory noises, saying they want to overcome some of the differences. We spoke quite a bit about some of the reactions of some of their peers. How has qatar reacted to some of this . Saying they were hacked, these are statements they may or may not have made. Much reactioning to the attacks that are coming mainly in the saudi media. So far they have been quiet in terms of reacting. Tension between these three important countries in the region. We spoke with the Renaissance Capital ceo. Lets big about this divide, these tensions. From what we are seeing for the credit default swaps, take a look at what is happening on the market. Some pressure on qatari stocks. Nothing significant yet. See thee market side we only significant thing is withally foreigners foreign investor risk amy him on the market, the answer is a bit prolonged. We are seeing some volatility there. Nothing significant. We are not seeing the markets crash. Is theother big theme lack of volume and a lack of liquidity in these markets. Interest as a of prepares to open up the emerging market index. In terms of the ranking of global exchanges, it is one of the worst performing exchanges. Of the sectorst are trading from the downside. The banks, look at that. There was a view from the bank market is that the underpricing the big opportunity that could be at play here. Is there a fundamental disconnect between the reality and some of the other perceptions . Reality orook at the around the 50 price, reserves are being depleted. That is being reflected in the market. Longterm in my view. Foreigners slowly trying to chip in and stocks that are expected to be heavyweights in the potential inclusion. We are still two years away from that. I think it is going to be difficult. If we are asking about the market rice inclusion i think that is still a bit early. Saudi arabia is a huge market with a reputation of being less agile than the rest area how has this impacted investors . In the beginning i was on this show saying i think reforms are going to be very positive long term. I think that is why investors are being cautious so far. Coming up, saudi arabias foreign assets have fallen to lows not seen in more than six years. We will ask why the sale wasnt read this is bloomberg. You are watching the best Bloomberg Markets middle east. Saudi arabian foreign assets drop below 500 billion last month for the First Time Since 2011. During anned International Bond sale. People were expecting the whatr to increase in april we found instead is it went down almost by the same amount. By 8. 5 ilion dollars. The current is accelerating. The was the surprise in data, especially people dont know what is driving this, what is driving the decline. That is the concern here. So what is the speculation behind the reasons of this unexpected drop . There must be some fury out there. The government gave one possible explanation before this month. He said the government didnt withdraw from its with that from its reserve. So what you are seeing could be a result of the career contractors, those contractors are paying back overseas vendors and that is leading to the reserves decline. There is speculation around capital flights. Again, why is capital leaving . Is a because people are looking for other Investment Opportunities . Or because people are concerned about the economic direction of the kingdom. Monthare watching the 12 what is the critical number . You struggle to find someone to tell you this is really critical. The netagencies look at assets of the kingdom. Its around 100 of gdp, really strong. The concern is, people dont know why did reserves are declining heading in one direction. Thats basically creating uncertainty. When will this decline ease . The government says week rather spend through raising debts rather than reserves. The government isnt there arent really that many signs of the government increasing spending in the economy. Thats concerned. If people dont know whats driving this decline. More on this from what tony and, bank of America Merrill lynch managing director and frontier research. This continued drawdown is something we have been expecting. Economyxpect the saudi to be really lackluster this year. We expect 2017 to be a difficult year for the banks in saudi arabia. He expect issues to start showing themselves such as asset quality deterioration and the like. Is a real headwinds that the saudi economy is facing. We strike that run on to continue. The good thing is, the saudi government is implementing a lot of new and, i think very worthwhile changes which are really going to start to stem the flow of currency out of the country. In terms of the reform process and what kind of returns, are coming off the back of that but that altogether on a chart that we can pull on the bloomberg fabulous representation of whats happening with capital inflows, in terms of foreign investor net. I know lines of greener inflows with the current price their is a reference line and white as much as you might see a few increases their as of may, the reality is, as a percentage of total volume on the saudi to these are almost negligible amounts of participation. In your latest research, you underscore what we have been hearing all along, including from the bank ceo or in africa he expects 35 billion of inflows of the back of an emerging market is that too bullish . I think looking at the saudis potential inclusion in the embassy emerging markets, thats probably one of the most interesting and opportune event thats going to happen in our region. 35 billion, 36 billion is fully plausible and could indeed be too conservative on our numbers. There are scenarios depending on how large the ipo of saudi aramco is, and what the valuation there is ultimately. We see a range in the market for what the valuation could the. There are scenarios where you could see a multiple of the number coming in, or be a unlikely to read this reform and market inclusion is a hugely important driver of foreign currency inflows into the saudi economy. It is needed very much. The data today confirms that even further. This pace of reform is becoming more crucial for the saudi economy. Now is your data shows here, people are not invested in this market. Theres a very big opportunity, people are beginning to wake up to it. Thus far, it has been benchmarked. People are now thinking, its about time we start to do the work on this. If on the 20th of june we see the inclusion coming through from msdn on its watchlist, people are going to start waking up. If want to kick the tires, this will be a big eel. Big deal. How long will it take after the inclusion happens are just for for investors to wake up and flock to the market . We have got a number of president s for this. If we look toward the inclusion of guitar in the uae from Frontier Markets into the emerging markets that took the length of time. We think this will happen on a more expedited races for saudi arabia. Lets say june 20, a positive result comes out, we think it will take a year for consultation investor base. If they come out with a positive result, we will see in june of next year an announcement saudi will be included, and the inclusion will come in june of 2019. The key thing is that investors wont wait until june 2019 to start putting money to work in the saudi economy. It will come around 2018, between the middle of 2018middle of 2019, thats when you will see big close as we did with the uae and qatar. Bear in mind, during that time, most markets gained eight pe points. This is a big opportunity. People arent invested yet, they are going to start looking at this, we are very excited about the potential opportunities. The fact is, saudi arabia has moved incredibly fast when it comes to the pace of reforms. As investors havent really caught up with the changes. How have all of these changes affect investors directly . The number one concern is the increased burden at the pace of reforms is putting on corporate profits. There is still a lot of unknowns on that side read we are seeing a lot of difficult austerity measures being put to place, whether it the removal of subsidies, removal of electricity pricing races, gasoline price increases, many other taking a lot of fat out of the system so to speak. That undoubtedly is going to have to start impacting corporate earnings. The good thing is, we think theres a lot of efficiency gains to be made in the saudi economy. They havent really been driven, or being provided incentives to really change that until now. We think theres a lot of efficiency gains to come through the saudi economy. I could surprise us. We party seeing corporate profits take a hit because of the changes implemented in 2000 18, but the reality is, it couldve been a lot worse. Companies are counteracting this by implementing new measures themselves to offset that. Theres a real opportunity for gains here that we didnt foresee. That could be interesting, but still there is an air of caution. Theres still a lot of headwinds being faced in the saudi economy. When we look at banks for example, we are cautious but optimistic. Thats the view we have on saudi arabia general. Next on the best of Bloomberg Markets middle east, this sue the kurdish government in iraq for 26 billion. Details just ahead. This is bloomberg. Welcome back to the best of Bloomberg Markets middle east. Seeking damages of at least 26. 5 billion from iraqs selfgoverning kurdish region. As for delays to adventure. The story emerged on wednesday when Anthony Dipaola joined us with the details. Thats a huge figure in terms of damages the company is seeking. Of course, this is a court case in course now, so we dont have any visibility really on what kind of damages would a will get and how much. This was a filing they made with the u. S. District court in washington dc. The same time, dennis and the kurdish government are going through an Arbitration Court case in london. Its already over the summer some judgments some of the awards in favor of donna gas. But the u. S. Case does, it allows donna gas to register the case with u. S. Courts, that would allow them eventually to go after kurdish ashtead if the kurds dont pay up on awards that theyve already been given that they may expect to come down the road. You saw the case and corporate now. What happens next. . Were waiting for the decision on exactly those damages, the 26. 5 billion figure that yousef mentioned. It done against ceo on their earnings calls earlier this month, said that they expect that hearing to go ahead in september, and that they would know the amount of that award in september. This is the first time that the company has come out and disclosed the amounts they have been seeking. They havent said it yet. This is a big figure for the market to see. Coming into some money there obviously would help donna gas with some of their Financial Issues they have been battling back payments and overdue debt for a while. They got a 700 million coming up in october that they need to pay off. Theyve got about 300 million in the bank, so they are looking at restructuring that. Really what were talking about with these awards, is companys growth down the road. They want to develop those fields and curtis dan. They think they would huge potential to go on produce more oil. As is the best of Bloomberg Markets middle east. We get you more on the Economic Outlook for the region, with monica malik from abu dhabi commercial banks. Welcome back to the best of Bloomberg Markets middle east. It is saudi arabia said increase spending again . We spoke about the kingdoms economics. We have seen tensions before. In 2014. None oftive side is them fed into the economic side, economic policy, trade and so on. With kuwait as the mediator we hope that any impact on the economy will be not from the economic side. As you mentioned, oil. I think those are the areas of focus for us as economists in the region. The state of play when it comes to saudi reserves, this has the attention of experts in the field. Your blue line, your white line is your saudi reserve dropping 500 billion for the First Time Since 2011. How do you explain this . Bond sale should have contributed to an increase. What is happening here . Is the cash burn too high . It surprised us. That 9 billion in april would have led to a slight rise in reserves. Was an 8. 5ead saw billion drop. That was not expected. We did see funds moving into the monetary data. Deposits,overnment increasing and also you saw government reserves in the Banking Sector increasing. Nevertheless the size of the drop, the magnitude of the drop, not only in april, spending remains high. Not budgeted spending. Spending. Dgeted investors will need to see that coming down since oil prices have recovered somewhat and we have seen government remaining tight on spending. We were talking about saudi arabia and the decision to reduce exports to the u. S. Specifically. They have not done that in the past. How significant is this shift . Is significant. A of the visible inventory buildup weve seen has happened in the u. S. Part of that has to do was show production. It also has had to do with strong imports into the u. S. Because the focus of the market is on two factors, the supply gap and supply access, and inventories, saudi arabia is targeting those visible inventories. One of the areas we highlighted in our research is there were a number of issues with the earlier deal. Production could still focus on key markets including the u. S. This is a very important shift. There were no indications how other opec countries were going to respond, if they would see the same starts. Another critical point is we are moving into the higher demand season in the gcc as temperatures rise. A lot of the production will domestically. Ed this has come down over the years for local Power Generation but the demand increases in the summer. What happens if other countries join saudi arabia, specifically target exports to the u. S. Is there a likelihood we could see prices being impacted more significantly than just brought output cuts . Thats the area of focus. Its the question of shale producers. If you see inventory falling sharply in the u. S. , we would seem more shale production coming in. This is going to be an issue that is going to remain for opec and other nonopec members involved in the deal. To critical issue is looking balance at this point, not having such a rebound in oil that you have a be resurgence of shale production. They want oil between 50 and 60 so they could ease the pace of fiscal consolidation. Weve already seen that this year in activity in saudi arabia. Lets cross into egypt. The latest decision to go ahead with a 2. 4 billion dollars spending plan to offset the decline people have seen in real incomes after inflation surge. What is that going to do to egypt . Have twok they balance. Weve had a deep pace of fiscal ahead of the imf deal at the end of last year. Rather that is the subsidy reforms or the introduction of the ap. We have seen highly positive developments with capital inflows. Reserves have gone up. But thisides some room is going to be a longterm adjustment and what they havent tackled so far is job creation, job growth and without having support measures in place, the Economic Impact will drive Economic Activity more down. It will constrain it in one of the key areas they do need is to provide a social safety net for the people who most need it as reforms continue. We are in the month of ramadan. Region and wider Economic Trend what are you saying . See slightlyly you quieted pace of activity Economic Activity. Activity,roject before we enter the quieter. Deals done to get does tend to slow. Compared to 10 or five years ago it is stronger. You have seen more business as usual. The one thing i remember from last year, covering saudi, we had so many announcement about the economic plans. Those came the evening after the fasting was completed. Things are changing bit overall we seem to have quieter Economic Activity during ramadan. We are seeing the markets react to robin don from a don rammadan. What is that going to do to prices . I dont think youre going to see that much secondary inflation on the back of the spending increases. What you will do as the government looks to move ahead with further fiscal reforms on energy prices, thats going to be the main catalyst. We are not so much worried about driving inflation. We already have seen with devaluation the secondary impact has started to come down as a result. We believe it is performed driven. We dont believe the 200 point basis hike will have much impact. The transmission in the real economy. So its going to be a reform driven story. You need social spending to provide a safety net for those most vulnerable. That leads to a key followup. Work, transition doesnt it wasnt the best way to deal with it, what should they do more to bring inflation under control . Is a mediumterm investment story in the case of egypt. A lot has to do with the inefficiencies of th