Saudi net foreign assets put at $600 bn

Saudi Arabia’s net foreign assets stood at around $494 billion at the end of 2010 and strong oil prices are expected to have boosted the assets to nearly $600 billion at the end of 2011, according to a Saudi investment firm. Publishing data on total foreign assets and liabilities for the first time, the Saudi Arabian Monetary Agency (SAMA) showed the combined foreign assets of the government, companies and individuals peaked at nearly $707 billion at the end of 2010, the Riyadh-based Jadwa Investments said. With Saudi entities and individuals owing nearly $213 billion to foreigners, total net foreign assets stood at $494 billion at the end of 2010, it said in a study sent to Emirates 24/7 on Wednesday. “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,” Jadwa said. The data, known as the international investment position, gives a full picture of the Kingdom’s financial position versus the rest of the world, it said. 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.” Jadwa said the international investment position is considered an important indicator of the health of an economy in relation to its transactions with the rest of the world. In particular, it added, this position 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.” it said. Its figures showed that 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 report noted that 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 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,” the study said. “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.” Jadwa said no data is available on the makeup of the government’s holdings of foreign securities but 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.” The report showed 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, it showed. “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.” It said 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,” it said. Citing SAMA’s figures, it said that 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.”