Despite the sharp decline in oil prices, especially during the second half of 2014, the GCC countries own huge sovereign wealth. It is remarkable that the wealth of Gulf sovereign wealth funds increased during the course of the year.
According to Sovereign Wealth Fund Institute, which monitors sovereign wealth, sovereign wealth funds have registered steady growth during the past few years. Oil wealth accounts for around 60 percent of global sovereign wealth.
Based on the institute’s statistics, the value of sovereign wealth at present is around $7,111bn, rising from $7,057bn, $6,831bn, and $6,609bn in December, September, and June of 2014, respectively.
This marks steady growth in the value of sovereign wealth during the oil price fall, which indicates investments outside the oil sector.
The report said the sovereign wealth of the GCC states was $2,676bn, according to the last available statistics. This is a significant figure since it forms around 38 percent of the world’s sovereign wealth. It reflects the global importance of the Gulf.
Of course, the Gulf also controls over a quarter of global oil production. At the moment, Saudi Arabia is the biggest exporter of crude oil. Thanks to Qatar, the GCC countries are also key players in the field of natural gas.
Over the past few years, the value of sovereign wealth in the GCC has improved. Looking back, Gulf sovereign wealth formed about 36 percent of world sovereign wealth in March 2014.
The value of the GCC sovereign wealth reached $1,775bn at the end of 2012. This means that it has increased by $900bn in two years, and this is a major achievement.
As of today, the GCC countries have the best statistics when it comes to the size of their global sovereign wealth and its international significance.
Through consideration, Emirates alone acquired more than a trillion dollars (to be precise, $1,079bn), which accounts for more than 15 percent of sovereign wealth worldwide.
This figure includes wealth belonging to Abu Dhabi Investment Authority and a group of organisations belonging to the emirate of Abu Dhabi, including Mubadala Development Company, in addition to Dubai’s wealth.
The value of the sovereign wealth held by ADIA is second only to that of Norway’s retirement fund.
Norway spends only a portion of its oil revenue, keeping the rest for future generations on the principle that no one generation should benefit from the country’s wealth more than another generation.
Norway is distinct among oil producing countries in that its political circumstances do not change with oil prices.
Additionally, three GCC members own huge sovereign wealth. These are Saudi Arabia, with $763bn, Kuwait ($548bn) and Qatar ($256bn).
Qatar is known for transparency in its investments, especially since it announced the details of its purchase of the Harrods store in London.
On the other hand, Oman and Bahrain have limited sovereign wealth, according to Gulf standards, with about $19bn and $11bn, respectively.
The GCC has a remarkable record of using its wealth to solve international problems. This was clearly demonstrated during the peak of the global financial crisis in 2008.
At that time, the Gulf states generously contributed to a fund established under the supervision of the International Monetary Fund to address the crisis.
Also, some GCC countries, including Qatar, invested in Greece at the peak of the economic crisis in the debt-ridden EU member.
Moreover, the GCC countries are always ready to use their money to solve local problems. Kuwait used part of its sovereign wealth to liberate the country in 1990, and also provided financial support to its citizens who stayed abroad during the Iraqi occupation.
Kuwait is considered a pioneer in this field as it established the Kuwait Investment Authority way back in 1953.
Abu Dhabi offered financial support to Dubai in 2009 to help it out of a debt crisis after it had delayed payment of some of its financial commitments.
In the GCC, the four countries with substantial sovereign wealth had announced that they would offer $10bn in financial aid to Bahrain and Oman for development, after political unrest in the two countries at the start of 2011.
Because of their readiness to offer financial support, the GCC countries, especially the United Arab Emirates, Saudi Arabia, Kuwait and Qatar come to mind whenever there is mention of sovereign wealth funds.
The author is an economist researching GCC economies
