Billionaire investor Warren Buffet has recently written a check for $37 billion to the Bill Gates Foundation, which already had $32 billion from Bill Gates own funds. This still leaves Buffet with a cool $7 billion to ease his retirement, but it is the single biggest personal charitable donation the world has ever witnessed. The Middle East boasts of thousands of multimillionaires and quite a few billionaires. Maybe the time is right for some in the Middle East to follow in the footpaths of these mega philanthropists and repay society for part of their good fortune.
The act of charity and setting up of foundations for different causes is not new, as evidenced by the multitude of charitable foundations that have sprung up in the Middle East and Saudi Arabia over the past few years, but what makes the Bill Gates Foundation unique is both the sheer size and scope of its mission. It has committed millions to fighting diseases and injustice in the world, and focuses on “hopeless” causes that other individuals and governments often ignore, or have found themselves under funded by the more traditional charities.
Saudi family corporations, publicly listed companies and banks are amongst the most profitable in the world, both by their own admittance as well as by independent analysts. While the majority have competed effectively in many areas to earn such large profits, yet undoubtedly important elements in their profitability are large government contracts for companies, and the large element of deposits of current accounts for Saudi banks. Due to religious beliefs and other social factors, Saudi bank clients have in effect subsidized large bank profits without seeing corresponding meaningful repayment by Saudi banks to society in terms of charitable and philanthropic donations to match these profits.
Over time the monopoly over Saudi government contracts will be eroded due to fair market access following WTO (World Trade Organization) accession, while changing investment habits and lifestyles will erode the surplus current account balances of Saudi banks. For the time being however, both sectors are still blessed with large profitability.
If one examines the annual reports of major foreign financial institutions, or any other foreign corporation, one is impressed at the level of transparency shown in these reports, The board of directors proudly announce the sizeable donations made to specific charities, sponsorships and other social activities that promote them as ethically and socially responsible institutions. This is despite the fact that the majority of Western financial institutions have, on average, less than 5 percent of their deposits as “free” current accounts which receive no commission. By contrast, and according to Saudi Arabian Monetary Agency statistics, the Saudi bank current account base stood at over SR220 billion or 46 percent of total deposits. If we deduct government deposits and statutory reserve requirements held by SAMA from these deposits, this leaves a staggering SR195 billion in private sector current accounts with Saudi banks. Assuming the banks invest these sums at a small margin of around 3 percent for short term lending, which is not an unreasonable rate to assume, the Saudi banks earned around SR6 billion in 2005 from these current accounts.
And what have been the responses of the Saudi banks in terms of charitable donations? Analysis of individual Saudi banks’ annual reports reveals varying degrees of transparency on the matter, with some banks stating clearly how much they paid and to who, while others did not mention such donations at all, or buried the subject under a vague reference for unspecified payments to unspecified charities. If one assumes that Saudi banks contributed, on average, around SR8 million each, which was the highest level mentioned by one bank, then their total contribution back to society is around SR80 million compared with the profits made on such free deposits.
The situation is not that much better for Saudi corporations and publicly listed companies, but some notable exceptions stand out. The Abdul Latif Jameel Foundation to help small entrepreneurs is a shining example of what can be done by a leading family business to establish a well thought out charity with specific goals.
What are required are not charity donations but a more meaningful partnership between philanthropists and society to share in their good fortune. Institutions and individuals could establish more scholarships; endow more academic chairs at universities, set up entrepreneurship and venture capital funds to help smaller industries and young professionals, as well as fund school refurbishment programs in computers and libraries. Sponsoring scientific research is also vital to Saudi Arabia. The Saudi government is aware of the importance of scientific research, and has set an example with its own companies such as Saudi Electricity Co. (SEC) and Saudi Telecom Co. (STC), by allocating a certain percentage of net profits to scientific research and charitable donations and endowments. In the end everyone is a winner, as society as a whole ploughs back socially responsive investments in the future.
(Dr Mohamed A. Ramady is visiting associate professor, finance and economics, at King Fahd University of Petroleum and Minerals.)