1. FDI into GCC countries: The “World Investment Report 2017” provides a mixed picture on foreign direct investments (FDIs) into the Gulf countries. GCC economies collectively attracted about $20.9 billion in 2016, down from $23.3 billion in 2015. The figures for 2014 and 2013 are $20.7 billion and $22.5 billion, respectively. The combined inflows into the GCC are not significant by global standards — India alone enticed about $45 billion of FDIs in 2016.
The sustained drop in inward investments into Saudi Arabia is partly responsible for GCC’s inability to post larger figures. Saudi Arabia had some $39.5 billion as FDI in 2008, only to see the figures declining subsequently, with the UAE later emerging as the primary recipient. The latest data on inward FDIs into the kingdom stand at $7.5 billion in 2016, down from $8.1 billion in 2015.
Among other things, the report confirms the UAE’s regional leadership in attracting foreign investments, getting $12 billion in 2016; thus, the UAE has generated more than half of the GCC inflows. The UAE is the second largest economy within the Arab world, but the main destination for FDIs. At $774 million, Qatar ranks a distant third in Gulf states’ ability to attract FDIs. Like other GCC countries, Qatar experienced a slide of foreign investments in 2016. Inflows of FDIs into Bahrain, Kuwait and Oman amounted to $282 million, $275 million and $142 million, respectively.
2. Decline in Saudi foreign reserves: Net foreign assets at Saudi Arabia's central bank, a measure of its ability to support its currency, look set to fall sharply this year as oil prices slump and Riyadh expands its sovereign wealth fund to invest abroad. They shrank from a record high of $737 billion in August 2014 to $529 billion at the end of 2016, as the government liquidated some assets to cover the huge budget deficit caused by the fall in oil prices.
This year, an austerity drive and a partial rebound in oil prices have helped Riyadh make progress in cutting the deficit -- which narrowed 71 percent from a year ago to 26 billion riyals ($6.9 billion) in the first quarter.
But, net foreign assets have continued to shrink at about the same rate, by $36 billion in the first four months of 2017. Some analysts have speculated the fall is due to spending on Saudi Arabia's military intervention in Yemen. This is unlikely: a top Saudi official indicated in late 2015 that the intervention -- largely a limited air campaign, not a major ground war -- was costing about $7 billion annually, in line with estimates by foreign military experts.
An international banker in touch with Saudi authorities said much of the decline in foreign assets appeared due to the transfer of money to state funds investing abroad -- particularly the main sovereign wealth fund, the Public Investment Fund (PIF). Riyadh plans to invest big amounts overseas to win access to technology and boost returns on its capital.
The PIF has said it will invest up to $45 billion over five years in a technology fund created by Japan's Softbank, and $20 billion in an infrastructure fund planned by U.S. firm Blackstone. Transfers to the PIF would not represent any reduction in the government's total wealth, but they would mean a cut in the liquid assets which the central bank has available to defend the riyal if needed.
July 3, 2017