Saudi Arabia's King Abdullah has introduced important changes to the kingdom's religious establishment and its role in government.
Saudi Arabia's King Abdullah has introduced important changes to the kingdom's religious establishment and its role in government.

Shake-up hints at wider reform plan



JEDDAH // King Abdullah bin Abdulaziz's shake-up of government on Saturday, widely lauded by reform-minded Saudis, relied for the first time on non-state and non-religious actors, seen as a precursor to a wider reform plan that aims to turn Saudi Arabia into a knowledge-based society, analysts said yesterday. "Although I think that there will be more changes in the pipeline, I believe that we are witnessing the rise of the fourth Saudi state," said Saudi journalist Samir Al Saadi. The shake-up introduced important changes to the structure of the kingdom's religious establishment and its relationship to government, and relied on planning by Saudi Aramco and Al Aghar Group, a Saudi think tank, both key to devising the reform agenda decreed on Saturday. Al Saadi said he believed the reshuffle was significant not only because it allowed for reform at the core of the Saudi system - traditionally built on the ties between the government and the religious institutions - but because it involved a new player: the national oil giant Saudi Aramco. "Saudi Aramco was heavily involved in the new state legal and social planning and this was obvious from the number of people from the company involved on the King's reform project," Al Saadi said. Saudi Aramco, he continued, is the best model the government has and is the only state-owned company that has a professionally organised system. Decades ago Saudi Aramco, while under the control and management of US oil companies, was the first Saudi company to mobilise the kingdom's economy and had a profound influence on society. It hired and created a modern workforce, erected modern towns and cities around the country and built a road network when the Saudi socio-economic system was still traditional. The company was the first state-owned enterprise to allow women to work side-by-side with men and to allow Saudi women to hold managerial posts. That resulted in a number of important changes in key facets of Saudi society. Many highlighted the appointment of Prince Faisal bin Abdullah bin Mohammed, a former figure in the Saudi Intelligence and who headed the Al Aghar group, as minister of education replacing Abdullah Al Obaid, a conservative Islamist. Prince Faisal worked with the Al Aghar Group's think tank, comprising 300 Saudi men and women, to formulate a strategy for transforming Saudi Arabia into a knowledge-based society by 2022. The strategy was approved by King Abdullah. In a column he wrote last year, Prince Faisal said the new Saudi society "should be characterised with a sense of sustainable growth through people working in an environment of advanced technology and equipped with a state-of-the-art infrastructure aimed at achieving a high standard of living, while holding on to the Shariah and sublime Islamic values". The reshuffle was also significant because it challenged the authority of the head of the Supreme Judiciary Council and the head of the Saudi morality police, the two other leading figures in the reform of the Saudi religious institution beside the Grand Mufti. The replacement of Shaikh Saleh Al Lihedan as the head of the judiciary with former Shoura chief Shaikh Saleh Bin-Humaid was itself a sign of progress, said Abdul-Aziz Qassim, a Saudi journalist and expert on Islamic affairs. "Al Lihedan is one of the leading 'eagles' of the Saudi religious establishment and his removal means more openness," said Mr Qassim, who added that he expected to see more reforms in the judicial system. Mr Qassim said Shaikh Bin-Humaid was more "tolerant" because he grew up in the Hijaz when the four Islamic schools of thought were taught at the Holy Mosque in Mecca. wmahdi@thenational.ae

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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.”