The GCC $3.180 trillion Sovereign Wealth Funds (SWFs) are expected to be a key player in the Gulf region’s overall development plans so as to activate the current economic climate, motivate development and recover the momentum of investment which has been affected largely by the credit crisis that hit world economies since mid- 2008.
These expected options seem to outweigh any others, especially that the GCC countries have achieved record surpluses in their budgets for 2011 due to high oil prices globally.
Kuwait recorded a budget surplus of $29.9 billion for the third quarter of 2011, while Saudi Arabia’s budget surplus is estimated at $33.8 billion, and Qatar’s budget surplus stood at $8.5 billion, part of which will be invested in infrastructure projects as part of its preparations to host the 2022 FIFA World Cup, while the other part will go to sovereign funds.
The average price of oil per barrel is estimated between $ 50 and 60 dollars in the budgets of GCC countries, while the average price per barrel in the markets is estimated at $ 80 -90 dollars, an increase of 45 percent from the GCC budgets.
According to analysts, the state of confusion in sovereign fund investments is because that 31 percent of SWF direct investments go to the real estate sector, and 19 percent in form of indirect investments also go to the real estate sector. A recent report says that about 50 per cent of the value of sovereign wealth funds is invested in the real estate sector, which does not generate jobs, and is neither considered a developmental sector.
“We in the GCC countries have a chance to amend the path of SWF investments and shift it to knowledge-based industrial investment. The Euro zone is currently passing through a crisis, and many industries suffer from a significant lack of liquidity and accumulated debts- a situation that gives us a great chance to acquire industrial companies that have patents and huge knowledge, apart from accumulated experiences in the industrial sector in European countries,” Omar Al Juraifani, Economic and Financial Analyst, said.
“The obvious poor performance of European companies makes the issue of acquiring some companies much easier, or at least having big stakes in these companies, in order to transfer the production lines or administrations of these companies to the Gulf region,” Al Juraifani added.
“This mechanism will offer job opportunities for our citizens and help us achieve high incomes from oil-reliant industries due to low costs, as well as circulate capital in our countries, instead of exporting them abroad through various investments,” Al Juraifani said.
According to the recent SWFs ranking in 2010, the Abu Dhabi Investment Authority with assets estimated at $738.9 billion is by far the world’s biggest SWF, topping the list of the 10 largest global funds, while Saudi Arabia came in the third place (about $436.3 billion), then Kuwait came seventh with its fund’s estimated value is $202.8 billion and Qatar came in the 10th place with its fund valued at $62 billion.
These figures show that the GCC countries have about 45 percent of the total value of the 10 largest global sovereign funds which stood at $3.180 trillion.