Kingdom can gain more from strong sovereign wealth fund



JEDDAH: DIANA AL-JASSEMARAB NEWS STAFF

Published — Sunday 12 May 2013

Last update 12 May 2013 4:26 am

| نسخة PDF Print News | A A

The Kingdom can reduce its dependence on oil revenues by creating a strong sovereign wealth fund (SWF), according to some experts.
Although economic conditions in Saudi Arabia like money supply, foreign exchange reserves, external debt and domestic economic development are positive factors to create a sovereign wealth fund (SWF), Saudi Arabia still lags behind in this area, one of them said.
Experts acknowledged that Saudi Arabia doesn’t prefer sovereign wealth funds like some GCC states that moved toward setting up SWFs as a main source of the economy.
Speaking to Arab News, Fahad Al-Turki, head of research department, Jadwa Investments, said it was unfair to compare the SWF of the Kingdom with that of the other GCC states, especially when Saudi Arabian Monetary Agency (SAMA) manages Saudi sovereign wealth.
“The management of SWF in Saudi Arabia differs from that of other GCC countries as the majority of the Saudi sovereign wealth is managed by SAMA with foreign exchange reserves exceeding $ 650 billion,” he said.
He added: “SAMA follows a more conservative investment strategy in managing its reserves with more weight on liquidity and safety of its investment and relatively less weight on returns. From this aspect, one cannot compare the performance of a central bank with other SWFs in the GCC.”
Al-Turki confirmed that there is no doubt the SWF in the Kingdom, estimated at $ 5 billion, is relatively small to be placed in the same league as other GCC SWFs.
“We acknowledge that SAMA is following an appropriate investment strategy for a central bank, so we highlight that it also increases the opportunity cost given the size of the current sovereign wealth related to the monetary and fiscal policy needs. Having said that, we think the establishment of the Kingdom’s official SWF in 2008, Sanabil, was a step in the right direction to improve sovereign wealth returns,” he said.
According to data from the Sovereign Wealth Fund Institute, the countries that have SWFs, whether developed or emerging states, almost all have considerable foreign exchange earnings, which is necessary for these countries to build their own SWFs. In addition, foreign exchange reserves should have an increasing trend in GDP at the time of the establishment of SWFs.
Another research into the correspondence between foreign exchange reserves and the establishment of SWFs in 241 countries shows that higher the percentage of foreign exchange reserves in GDP and higher the percentage of energy exports in the total export of goods, a country is more likely to move toward the SWF.
Al-Turki confirmed that as the Saudi economy is considerably larger than other GCC countries, allocating more financial resources to Sanabil would create another strong SWF in the region and improve Saudi sovereign wealth returns.
“This in turn would contribute to the government’s nonoil revenues and somewhat reduce the current major reliance on oil revenues. At the same time, a higher return on sovereign wealth would also build up savings for future generations,” he said.
Abdullah Al-Rashoud, CEO of BlomInvest bank, Saudi Arabia, believes that creating alternative sources of revenue remains the most important goal for SWF in all GCC countries.
However, neither a SR 20 billion nor a SR 100 billion SWF asset base is enough to decrease reliance on oil.
Al-Rashoud attributed the low performance of Saudi SWF to two reasons.
“The first reason that made us different from other GCC countries in terms of SWF is that Saudi Arabia had high public debt in comparison to GDP up until recently. Throughout the 1980s and 1990s, the nation was suffering from budget deficits due to weak crude prices and low oil production along with high public spending,” he said.
He added: “However, the government debt to GDP ratio preceded the 100 percent mark point in 1999. Paying off government debt came as a sovereign necessity as compared with launching a SWF, which may be considered somewhat of a luxury.”
According to Al-Rashoud, the Saudi government has always followed a conservative investment policy with preference to highest rated fixed income securities such as US treasury, as opposed to equity and real estate markets, which tend to offer higher returns in the long-run as seen in the policies implemented by Qatar and Abu Dhabi SWFs.
Al-Rashoud confirmed that the situation is different in the Kingdom. He believes that it might not be the best option for the Kingdom to follow the SWF strategies of other GCC countries.
“Saudi Arabia has vast large land area and population, which provide it with an economic platform capable of absorbing larger sums of investments and liquidity without creating negative impacts such as inflation, which can happen to neighboring GCC countries. That said, there remain huge economic opportunities in Saudi Arabia, which can offer returns that surpass those created overseas for a SWF. Yet it should be noted that so far, most of the Kingdom’s SWF local investments have been in subsidizing local industry and not in real investments,” he said.

What's happening around Saudi Arabia

JEDDAH: A Saudi citizen was killed in shelling fired across the border from Yemen into the southwest of Saudi Arabia on Sunday, local media reported.A shell fell on a house around dawn in Najran province, civil defense department spokesman Ali bin Om...
JEDDAH: Female voters in Al-Ahsa have urged the authorities handling the municipal elections to drop the condition of presenting the national identity card while enrolling themselves in the voters’ list. Some women in Madinah too have appealed for mo...
JEDDAH: After the recent incident of a rat eating from a bowl at a well-known food outlet in a Jeddah mall came to light, residents have called for food hygiene ratings of restaurants and roadside eateries across the city.Although the municipality wo...
JEDDAH: A muezzin (one who recites the Adhaan) of a Riyadh mosque recently sprung a surprise in the Austrian tourist town of Zell am See by his Adhaan after taking permission from members of a musical band.Social media is abuzz with the news and vide...
RIYADH: A Sri Lankan national, who works as a cleaner in the Kingdom, was commended and rewarded by the Saudi Commission for Tourism and National Heritage (SCTNH) for returning a bag containing gold to its owner.“Prince Sultan bin Salman, president o...
RIYADH: Bangladesh State Minister for Foreign Affairs Mohammed Shahriar Alam arrived in Jeddah on Sunday to meet with his Saudi counterpart Nizar Madani on Monday.On arrival at the royal terminal, the minister was received by Director General of the...
RIYADH: A report of the Saudi Commission for Tourism and National Heritage predicts the rate of growth in job opportunities in the country's tourism sector between 2010 and 2020 will be 10 percent a year as compared to a global growth rate of 2.5 per...
JEDDAH: Two million meningitis vaccines have been distributed among health centers in 20 governorates and provinces across the Kingdom for domestic Haj pilgrims.It is mandatory for all pilgrims to be vaccinated against meningitis and for those coming...
RIYADH: Some 1,500 certified documents with proper identity are issued on average to Yemenis from the Jazan region daily. More than 400,000 Yemenis have corrected their residency status from all parts of the Kingdom.The announcement was made during a...
JEDDAH: The Makkah governorate has announced four new road projects linking Makkah and Jeddah. The new roads will facilitate smoother and faster travel between the cities.An estimated 35 million people will benefit from the projects, which will inclu...
JEDDAH: A major disaster is waiting to happen in the fish market of Madinah because of the callous attitude of traders toward handling of gas cylinders. A visit to the market presents a dreadful picture of cylinders kept on top of each other without...
JEDDAH: Information and Culture Minister Adel Al-Toraifi has approved the appointment of Khalid Bo-Ali as editor in chief of the Eastern Province-based Alsharq Arabic newspaper. He was nominated for the post by the board of directors of the newspaper...
JEDDAH: Jamil Farsi, head of the Gold and Jewelry Committee at the Jeddah Chamber of Commerce and Industry (JCCI), says he expects 3,000 job opportunities to be created for Saudi women in the jewelry design and gold sector across the Kingdom, with ab...
JEDDAH: More than 50 visually challenged people successfully performed Umrah with the help of the Ebsar Foundation for the Visually Impaired and the Ambassadors of Volunteers organization under their program “Umrah for the visually impaired,” which w...
JEDDAH: Although the Ministry of Labor is opening its doors to receive complaints from private sector employees, many Saudi females employed in cosmetic and perfume shops in Madinah are not making complaints about being overworked due to fear of losi...

Stay Connected

Facebook