Sovereign Wealth Funds in the GCC: Driving Global Investment
In a groundbreaking move, sovereign wealth funds across the Gulf Cooperation Council approved a staggering $55 billion in 126 transactions during the first nine months of 2024. This accounted for a whopping 40 percent of global deals, as revealed by a new report.
The region’s “Oil Five” — including Abu Dhabi’s ADIA, ADQ, and Mubadala, along with Saudi Arabia’s Public Investment Fund and Qatar’s Qatar Investment Authority — emerged as the key players in this investment surge, identified by US-based organization Global SWF.
With assets totaling $4.9 trillion currently under management, GCC sovereign wealth funds are poised to surpass $5 trillion by early 2025 and potentially hit $7 trillion by 2030, projecting a formidable growth trajectory, according to the report.
Foreign reserves in the central banks of the region are also witnessing a significant uptick, indicating a potential influx of additional funds into these sovereign wealth entities.
Traditional markets like the US and UK continue to be prime targets for GCC investments, with $18.9 billion and $9.5 billion pouring into these regions, respectively, over the past year.
However, the emergence of China as a major investment destination cannot be ignored, with GCC investors funneling $9.5 billion into the Asian powerhouse during the same timeframe.
GCC sovereign wealth funds have swiftly ascended as dominant figures on the global investment stage, leveraging a unique blend of high oil revenues, strategic reforms, and adept investment strategies to make their mark.
The surge in oil prices in recent years has provided a strong foundation for these funds to grow organically through robust market performance, as well as through governments directing surplus capital and state-owned assets into SWFs.
Moreover, the low debt levels across GCC governments enable them to selectively issue debt, ensuring fiscal sustainability even during oil price fluctuations.
Tax reforms such as VAT and corporate levies further bolster the financial resilience of the region, shielding its economies from market volatility.
The shift towards diversifying revenue streams is evident through investments in key sectors like technology, infrastructure, and renewables, signaling a proactive approach towards future-proofing the economy.
Notably, the expansion of GCC financial markets, boasting seven active stock exchanges and over 877 listed companies with a combined market capitalization of $4.3 trillion, underscores the region’s growing influence in global finance.
Collectively, these factors position GCC sovereign investors as influential and stable entities capable of shaping financial landscapes both regionally and globally.
Global SWF highlighted the geopolitical advantage held by GCC sovereign wealth funds, emphasizing their strong relationships with Western and Eastern powers, which enhance their strategic flexibility in global investments.
At a domestic level, these funds wield significant influence, controlling 70 percent of equity markets within the GCC, underscoring their substantial impact on local economies and the global financial arena.
Saudi Arabia’s heightened focus on domestic investment, particularly through the Kingdom’s Public Investment Fund (PIF), has fueled substantial growth in local projects.
PIF’s assets surged by 29 percent, reaching $765.2 billion in 2023, primarily driven by investments in Saudi infrastructure and real estate, which grew by 15 percent to SR233 billion.
With PIF’s assets expected to surpass $1 trillion by 2025, the fund is poised to become a global heavyweight in the investment landscape.
The report singled out Saudi Arabia as the largest economy in the GCC, contributing half of the region’s $2.2 trillion economic activity. By 2029, the Kingdom’s GDP is forecasted to hit $1.43 trillion, constituting 51 percent of the projected GDP for the GCC, which stands at $2.8 trillion.
This growth trajectory is fueled by non-hydrocarbon sectors, aligning with Saudi Arabia’s ambitious Vision 2030 plan aimed at reducing oil dependency and propelling sectors like tourism, entertainment, and renewable energy.
PIF plays a pivotal role in this transformation by strategically deploying capital across diverse industries to drive economic diversification.
Evolving Trends in Foreign Direct Investment, Debt Issuance, and Partnerships
Most GCC nations have formulated comprehensive strategic plans to nurture economic growth and reduce reliance on oil, with a strong emphasis on attracting foreign direct investment (FDI) for long-term sustainability and resilience.
Over the past six years, approximately 84 percent of FDI inflows into the GCC have been directed towards Saudi Arabia and the UAE, with a noticeable surge observed between 2021 and 2023.
The region now accounts for 4.2 percent of global FDI inflows, significant growth from 1.3 percent in 2019.
According to the latest report from the Saudi Ministry of Investment, foreign investment in the Kingdom reached $25.6 billion in 2023, surpassing the target set by the National Investment Strategy by 16 percent.
Saudi Arabia aims to elevate FDI to 5.7 percent of its nominal GDP by 2030, a substantial increase from the current 2.4 percent, with a target of attracting $100 billion annually.
GCC sovereign wealth funds are increasingly tapping into third-party capital as part of their strategic initiatives, enhancing risk management practices and ensuring long-term sustainability.
Mubadala emerges as a standout fund in this realm, having issued 36 bond tranches totaling $29.2 billion since its inaugural $1.8 billion dual-tranche bond in 2009.
Furthermore, Mubadala has secured $18 billion in equity from domestic and international investors, showcasing its prowess in funding diversification strategies. Other Abu Dhabi-based funds like ADQ have also ventured into the bond market, with a $2.5 billion bond issuance in May 2024.
Saudi Arabia’s PIF has raised $21.9 billion through 15 bond tranches and is gearing up to issue a 3-year sukuk and an 8-year green bond, underscoring its commitment to sustainable finance.
According to S&P Global, Saudi Arabia and the UAE are poised to lead the Middle East’s sustainable bond market, having issued $16.7 billion in the first nine months of 2024.
The agency predicts continued robust activity in this sector, fueled by financial institutions and the growing importance of green bonds.
PIF has been at the forefront, raising $3 billion in 2022 and $5 billion in 2023 through these instruments, with $5.2 billion earmarked for environmentally focused projects as of June 2024.
Green sukuk, which fund renewable energy initiatives, are gaining momentum in the region, constituting 35-40 percent of sustainable bond issuances, up from 25-30 percent in late 2023.
Notably, the region’s funds are actively pursuing bilateral investment agreements, often surpassing $5 billion, especially as the impacts of the COVID-19 pandemic subside.
PIF has established subsidiaries in countries like Egypt and Iraq, while Mubadala has initiated Country Investment Programs to bolster economic ties with nations such as France and the UK.
Collaboration with local sovereign funds is on the rise, notably in Egypt where PIF pledged $10 billion to stabilize the economy. Turkiye has also garnered attention, with ADQ launching a $300 million technology fund and making substantial earthquake relief pledges.
The UK remains a strategic focus for Gulf SWFs, with significant post-Brexit investment commitments. While actual investment figures may not always meet lofty targets, these agreements lay a crucial foundation for future capital deployment.