Rapid Growth in the Kingdom's Foreign Assets
Apr 25, 2012, 12:29 ET
RIYADH, Saudi Arabia, April 25, 2012 /PRNewswire/ --
For the first time, data on the total foreign assets and liabilities of all components of the Saudi economy (government, companies and individuals) has been published. It shows that their combined foreign assets grew rapidly in recent years to stand at $707 billion at the end of 2010. With Saudi entities and individuals owing $213 billion to foreigners, total net foreign assets stood at $494 billion at the end of 2010. We estimate that the Kingdom's net foreign assets rose to almost $600 billion at the end of 2011. This is very high and represents a core source of strength for the economy.
The data, known as the international investment position, gives a full picture of the Kingdom's financial position versus the rest of the world. Produced by SAMA, it shows the value and types of assets that are owned, and the liabilities owed, by all parts of the Kingdom's economy. Data on the position of the government and the banks are reported on a monthly basis by SAMA, but this is the first time that data has been issued which includes the private sector.
The international investment position is an important indicator of the health of an economy in relation to its transactions with the rest of the world. In particular, it gives a guide to the ability to repay debts, absorb external shocks (such as a fall in the oil price) and support the exchange rate. For the Kingdom, the international investment position is an important strength. This is clear from a comparison with other countries.
At the end of 2010, the Kingdom's net international investment position was equivalent to 110 percent of GDP. Of the 42 countries for which the international investment positions are published and easily accessible (primarily in Europe and Asia) only Hong Kong, Singapore, Taiwan and Switzerland had a higher net position. The US and Eurozone both had negative net international investment positions, and Greece, Spain, Ireland and Portugal were among the five countries with the largest shortfall in foreign assets compared to foreign liabilities.
The four years of data that were released by SAMA (see table on page 3) show a consistent improvement in the net international investment position, which climbed to $494 billion at end-2010 from $375 billion at the end of 2007. This was driven by higher oil revenues. For most of the period between 2007 and 2010, oil revenues were in excess of government spending, enabling a large build up of reserves in the form of foreign securities and bank deposits. No data is available on the makeup of the government's holdings of foreign securities; we assume that the bulk is comprised of foreign government bonds.
In 2009, when the government drew down its reserves to finance spending during the global recession, the Kingdom's total foreign assets still rose, owing to a jump in investment in foreign equities and bonds by the private sector and an increase in the price of these assets over the year. Direct investment by Saudi companies abroad grew by 56 percent over the three years to end-2010, but at $26.5 billion it was well below investment by foreign companies into the Kingdom and accounted for only 3.8 percent of total foreign assets.
Liabilities grew at a faster pace than assets, rising by 84 percent between end-2007 and end-2010. This is almost entirely the result of inflows of direct investment. Improvements in the business environment, greater foreign access to local opportunities and the relative attractiveness of the Kingdom compared to other investment destinations caused the total value of foreign direct investment to surge by 132 percent over the three years to end-2010. Foreign portfolio investment was very low, both as a proportion of total liabilities (1.7 percent at end-2010) and compared to the size of the economy (0.8 percent) reflecting the limited foreign access to the local stock market and small amount of debt issued.
We think the Kingdom's international investment position improved further last year. Data published by SAMA shows that reserves rose by $96 billion in 2011, to $541 billion, and the net foreign assets of the banking sector increased by $9.3 billion. Over the first three quarters of 2011 holdings of foreign assets grew by a greater amount than foreign liabilities (net outflows of portfolio and other investment totaled $12 billion each, while net inflows of foreign direct investment were $10 billion). As a result, we assume the Kingdom's total foreign assets exceeded $800 billion at the end of last year and the net international investment position was almost $600 billion.
A breakdown by the holder of assets and liabilities is not contained in the new data; however, it is possible to derive this from the data. Of the $707 billion of total foreign assets at the end of 2010, reserves totaled $445 billion, foreign assets of local banks were $51 billion and independent government organizations' (such as the pension funds) deposits with foreign banks and investment in foreign securities amounted to $79 billion. This leaves $132 billion, which we assume was the value of foreign assets held by the private sector (both businesses and individuals).
Of the liabilities that the Kingdom had to the rest of the world at end-2010, $25 billion was accounted for by local banks and a further $3 billion by foreign institutions' deposits at SAMA. This leaves $185 billion, which we assume to be the amount the private sector owes to the rest of the world. Although this figure is larger than private sector foreign assets, it is primarily direct investment by foreigners, which has been beneficial to the Saudi economy. Furthermore, many independent estimates put the stock of foreign assets of the private sector at well above the level we derive from the new data; measuring these assets is very tricky and it is possible that the new data does not capture everything.
Nonetheless, the publication of the international investment position is another example of the improvement in data dissemination in the Kingdom, with April also seeing the first release of detailed quarterly real GDP data. Bahrain is the only other country in the region that publishes its international investment position. Greater availability of data helps investors in their assessment of the Saudi economy.
Saudi Arabia's international investment position
($ billion)
2007 2008 2009 2010
Assets 490 622 635 707
Direct investment 17 20 23 27
Portfolio investment 106 97 131 156
Equity securities 56 55 77 101
Debt securities 50 43 54 55
Other investment 61 62 71 79
Loans 3 4 4 3
Currency and deposits 42 40 48 51
Other assets 17 18 20 24
Reserve assets 306 443 410 445
Currency and deposits 93 132 111 117
Securities 211 308 286 315
Other reserve assets 2 3 13 13
Liabilities 116 159 197 213
Direct investment 73 112 147 170
Portfolio investment 3 4 4
Equity securities 2 3 3
Debt securities 1 1 1
Other investment 42 44 46 39
Loans 13 14 13 13
Currency and deposits 28 28 25 25
Other liabilities 1 1 7 1
Net international
investment position 375 464 439 494
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This report was developed by Jadwa Investment Research Department
SOURCE Jadwa Investment Research Department