Sovereign funds offer new, global investment opportunities in the GCC: we interviewed Adel Al Hosani, president of Abu Dhabi’s Maam Property Investment.
Q: The technical concept of sovereign funds has not existed until quite recently. In particular, thanks to the Arab countries that emphasize the function of different wealth contents and the importance and the value for the world market of the sovereign fund.
We mean that also Italy, France, and the UK have the ‘treasure’ or sovereign wealth of the State as the Ministry of the Treasury but they don’t consider it in the same way as a ‘sovereign fund’.
The sovereign fund is a new concept that was strongly emphasized when some countries connected to the petrol industry started to have a huge amount of capital and they were overwhelmed because they could not provide, in that moment, for an adequate investment platform.
The media attention to sovereign funds began less than 10 years ago. You are one of the protagonists of Arab finance, particularly from the perspective of the Emirates. It seems that in Arab finance, and I think we have to distinguish it from Islamic finance (which is a different concept), but I think for both, the ethical aspects are crucial. From the beginning of your career, what would you say are the most important ‘revolutions’ in the financial sense that you have seen or that you have noted?
Adel Al Hosani: On the global market the sovereign funds play, I would say, 90% of the role for foreign investment. But also, sovereign fund have changed. If we talk about 20 or 25 years ago, investments were only in G7 groups – mainly in the United States in Europe, specifically in the UK. In the Far East it was limited to Japan; but, there wasn’t any investment in emerging markets or growth countries and investments were in the bonds market.
Q: State bonds?
AH: Yes state bonds, private equity, real estate. Since the early 90’s we have seen a major revolution in portfolio diversification on the global market and also investments diverted to different sectors. We have seen a lot of investment in oil and gas, offshore. Take into consideration that most of the sovereign funds belong to GCC countries and are owned by states that are producers of oil, so they have been investing in high-stream, middle-stream and down-stream, overseas (especially in the Far East). They have been buying up a lot of refineries, gas stations, and also supplying crude oil to those projects.
Also we have seen a lot of interest in investing in infrastructure: classic infrastructure, like roads, bridges, highways, trains, power stations, pipelines, main power; or, “new classic”: education, health care, hospitality and real estate. In 2000, also at the end of the 1990s, we have seen a lot of investment in technology markets by the NASDAQ and in other countries.
That was a new sector also where sovereign funds were being invested, typically in a private equity or through other funds. After 2000 there was also an appetite for the sovereign funds to go invest in the new, developing countries. We have seen a lot of approaches to India, Brazil, Latin America, African countries, Asian countries.
Q: There is an acronym, BRICS.
AH: BRICS yes, also investment recently, if we go back 3 to 4 years, after the crises we had: global crisis, credit crisis, financial crisis and real estate crisis; new opportunities for investment have been introduced in food sectors, and in agriculture. We have begun to see new countries that are of interest to sovereign funds such those in Eastern Europe and Ukraine. There are also countries like Columbia, Panama, Venezuela, and some countries in North Africa like Morocco and Mauritania, Sudan, which have become a major destination of sovereign fund investments in food, linked to food security or linked to opportunities. Globally, the economists started talking about this, that food and commodity prices are going to be the most interesting investment, because there is going to be a shortage in the future related to the increase in the population and limited natural resources in food and agriculture. We have seen that that is a new line that sovereign funds are being moved into; it’s an opportunity in that type of investment and also for strategic security reasons.
The other new investment line, which these days we’re hearing about specifically in countries from the GCC like the United Arab Emirates, is the new energy, alternative energy like wind turbines, solar panels and other possibilities for energy. Everybody knows that there is a time limit for oil production globally.
AH: In our country we are trying to save as much as we can for future generations and we want to reduce dependency on using fuel for normal needs. Now they are trying to do it with international corporations and other countries as well, with nuclear stations, the Koreans. We do it here in Abu Dhabi and also they are trying to find opportunities to invest in wind turbines in countries like Greece, Spain, Portugal, something in Italy, Germany. This is also done through some subsidiaries of sovereign wealth funds like ADIA in which belongs to the Abu Dhabi government.
Q: Exactly, I take the occasion to inform you that today there is an event in which ADNOC with Masdar present a new project regarding the merger between an experienced company in research for oil and gas, research for new energy that have to point to reduce carbon results…
AH: Well Masdar is a unique city, the only unique city in the world and it has been constantly been in development in these 5-6 years, it is one survival of the government, the first one has been done and currently they are considering a joint venture with international companies from Japan, from Germany, from China, to create a set-up for them in and within the Masdar zone. This is give a commitment of renewal with the government.
Q: It’s Mubadala all the money coming from. It is a sovereign fund also…
Q: In this very rare example, Masdar, maybe one the sole examples that we’ve found in which the government points directly to a laboratory in which the laboratory is an expression of industrial plans, coming directly onto the market. We submit it to you because we think it is very close to what you said in the last words about the energy investment. Well about the ethical part of this, we have become acutely aware that Arab states, Islamic states, are very interested to invest also in cooperation with poor countries, countries with difficulties. We think that the generosity of some investments and some policies in which this investment has been directed can distinguish the order and the social goals that are part of Islamic countries. What do you think? We think it is very a positive thing that you can have a very particular example in which the sovereign fund, the finance policy of the wealthy, energy state also invests in the growth of some poor economies. I think that much of the media in the western countries are not aware, or have not emphasized this function. This is not help, it is cooperation in research and in the growth of some countries for example: if I help in expanding agriculture in a very difficult country, it is very important. It is in combination with research to help the countries that are not so…
AH: The investment is typically government to government, specifically now that we are undergoing the situation, the revolution that we are having in the Middle East, what they call the Arabian Spring. First of all, our country – as part of our commitment to the GCC – have a first commitment to the Gulf Countries. We have two countries which need help: Oman and Bahrain. Because both of them have very limited natural resources, all of the GCs decided a year ago to support both countries with 20 billion dollars to be invested in the next 5 years.
This is the kind of help those countries need infrastructure projects and national housing and accommodation, some government premises and maybe something for cleaning the exterior areas in Oman. The other commitment that our country has with the Arabian world is poor countries such as Tunisia, Lybia and Syria because they have problems. Lebanon we have issues and also countries with which we have a strategic partnership, such as Morocco and Jordan which both have…
AH: Egypt has now become a main concern for the Arab world because Egypt is up and down politically and Egypt is the most important player in the Middle East. If Egypt goes wrong, the whole Middle East can go wrong. Then our country, our government can find that they are then forced to move aggressively in Egypt to make sure that things in Egypt will be in safe hands and stable. I think our government, when they went to Egypt, went in a smart way; they didn’t go and give cash to the people because as usual, cash will be misused. No, they went with an agenda; we’re giving five to ten billion dollars for projects: education, healthcare, infrastructure, agriculture.
Q: In every case there is research?
AH: Yes, and now our government is thinking seriously about investing in a strategic project in Egypt together with some other GCC countries such as Saudi and Kuwait and, it’s no secret that yesterday we announced by way of the Egyptian government that the GCC countries including Kuwait and Saudi Arabia will be the major funders of the expanding of the Suez Canal and this will change the whole situation of the economy of Egypt. This is going to bring in around 100 billion dollars.
The problem is, when you come to help, and this is related to your relationship with one party, this party can go. I think our country now is helping Egypt not because of one person, the leader, or because of a government party, which can go or can be changed. I think the most important thing is, when you come to help a country, you have to give to the country for the people, for the poor people, and you do something long-term, in relationship, in partnership with the people. You don’t come just for a short-term agenda, because those people, who invite you to deal with them, can be changed tomorrow because they are powerful. Let’s take for example Hosni Mubarak, overnight he was released from Cairo; definitely the guy has done a great job to build relations with GCC partners over 25-30 years and he brought a lot of foreign investment, personally. But, at the end of the day, everybody has time limits, so, whoever wants to come to Egypt or any other country has to consider that his investment is a long term relationship; it’s an investment to improve life for poor people and to help the country, not linked to a personal agenda related to one person or to one regime in power.
Egypt is a big country, it has a huge potential; but, the foundation of the investment has to be accurate, it has to be proper. You don’t do short-term; you have to do long-term. You have to do specific and you have to send your people there. You don’t give cash; no, you do projects, you employ the people, you help the country.
Q: Yes this is an investment in the real sense. What is your opinion about the possibility of a unique currency in the GCC area?
AH: Well, actually, I personally am assuming that we have one currency because all of our currencies, Kuwaiti or Saudi or Omani or Bahraini Dinar or Qatari Riyal are linked to the dollar and fixed; so, in reality it’s dollar-based. It is one currency. The only issue is when to issue a Gulf currency, like European currency, there were some differences about where the central bank will be, some want it in the UA while other countries want to have it in Saudi Arabia. Personally I don’t see any difference in having one currency or keep the currencies as they are.
I think it’s very important that we need to ask ourselves questions, every country in the Gulf, what a unified currency will give us and what it will take from us. We have the most advanced banking sector in the Gulf; we have the most flexible rules and regulations.
The UAE government has implemented and spends a lot of investment to put the infrastructure in place: legal infrastructure, technology, banking, business help. My concern, if we come to have a one single currency, is the issue one single currency or are we looking for a global, Gulf economy? I think there is a big gap from country to country. We’re talking about big gap.
Then there is another major issue, the accounting basis. Many GCC governments have their internal debts, which are not showing on their balance sheets. How will they resolve this problem?
Many countries do their payments to Contractors (for the infrastructure) they give the contractors bills and the contractors can go to the bank and discount it. We don’t have that here in the UAE. I don’t know if other countries have it or not but some countries you see that. How are they going to resolve this problem? Is there enough transparency on the internal debt? Now it all goes under the exposure of the local bank, how will they solve this problem? Will this continue after having one currency? Will contractors in any countries in the GC still receive bills – Treasury bills or discount bills from the government? When they go to the bank under one currency, is that acceptable or not?
Q: We agree with the idea that Abu Dhabi can become another pole for Italian financial investment, but we have to organize something too, something very strong to convince the people is a come, because 4 or 5 hours of flying is nothing.
AH: It’s nothing but still, I think Italians are very slow to come over here. They are very slow. Most of the people we’ve met there, 90% of them have never been to the Emirates or the Middle East. Some of them pass in transit, to the Dubai airport, some of them have been to Sharm-el-Sheikh in Egypt for the resort.
Maybe, maybe we didn’t play a good role in making introductions; but also the Italian people they are a little bit slow in comparison with the English or the French or the Americans, which you can see everywhere in the world. Every single country in the world, in Africa, in Asia, you find the British people everywhere.
Now, who are the most aggressive people? Chinese! They are everywhere! They are everywhere in Italy.
We need to educate people, we need to involve them, we need to do it properly. We need to do this, but also, the other party needs to make a little effort to come. You know, I go to Italy almost every year; I go, for business or for vacation, and I meet different people. Business people, rich people, corporations etc. and after we have a good discussion with them or we have dinner or lunch, I ask them, “Have you been?” They answer “no”, why? They don’t know.