Saudi Arabia's King Salman inspects Malaysian guards of honor during a welcome ceremony at Parliament Square in Kuala Lumpur. Ahmad Yusni / EPA
Saudi Arabia's King Salman inspects Malaysian guards of honor during a welcome ceremony at Parliament Square in Kuala Lumpur. Ahmad Yusni / EPA

Opinion

King Salman’s Asian tour builds allies

The Saudi ruler has started a month-long tour of Asia, seeking allies and investment

National Editorial

February 27, 2017

Saudi Arabia has started the year with a flurry of diplomacy. At the start of the week, foreign minister Adel Al Jubeir made a historic visit to Baghdad – the first visit by such a senior official since 1990. As Mr Al Jubeir was in Baghdad, King Salman was beginning a month-long tour of Asia, which will take him to Malaysia, Indonesia, Japan and China. No Saudi leader has visited Indonesia or Japan since King Salman’s half-brother King Faisal was on the throne in the 1970s. That this current diplomatic tour is historic is not in dispute, but why now?

King Salman’s visits are driven by both politics and economics. Asia is the world’s fastest-growing economic region and King Salman will visit three of its powerhouses. Of course Saudi Arabia is looking to expand trade with all those countries – in particular China, where Russia still supplies more oil than Saudi Arabia. But it is also looking for investment – next year as the kingdom gears up for the Aramco IPO, it will be courting Asian investors.

Moreover, there is a strong element of foreign policy to these visits. Riyadh is serious about its Islamic Military Alliance, a coalition of nearly 40 Muslim-majority countries that aims to combat terrorism. For Saudi Arabia, the IMA is a method of increasing its weight in world affairs and bringing some coordination to the battle against ISIL. Both Malaysia and Indonesia are part of the IMA and King Salman will be keen to bring them closer – both, after all, have their own difficulties with extremists.

A similar foreign-policy objective is behind the visit of Mr Al Jubeir to Iraq. Saudi Arabia’s relations with Iraq nosedived after Saddam Hussein invaded Kuwait in 1990 and have never recovered. In the aftermath of the 2003 US invasion, Saudi Arabia was concerned by Iranian influence in Iraq. Worse, the sectarian strain of politics that overtook Iraq under Nouri Al Maliki has had an effect far beyond the country’s borders.

It was because of those sectarian clashes that a path was opened for ISIL to take over parts of the country, leading to ISIL’s involvement in Syria and ISIL’s spread to other parts of the region. What happens in Iraq, therefore, is now of paramount importance for the security of the kingdom.

Saudi Arabia is entering a new period of diplomacy and politics, both with its Asian allies and, through its diversification strategy, with itself. As it does, a new foreign policy is emerging.

Inside Palestine-Israel
Real estate tokenisation project

Dubai launched the pilot phase of its real estate tokenisation project last month.

The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.

Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013