LONDON: Sovereign wealth funds are queuing up to finance the West’s overhauls of crumbling roads, bridges and ports as public purse strings are loosened after a period of austerity, but they still face project delays and fierce competition for deals.
Offering strong and stable cashflows generated by service users, these investments hold huge appeal for a $6.5 trillion industry that, with its focus on future generations, is able to lock up capital for years.
Qatar’s sovereign fund was first off the blocks this week, promising $10 billion for US infrastructure after President-elect Donald Trump floated plans to spend up to $1 trillion on projects that will take years to complete.
Britain has flagged projects worth nearly 500 billion pounds ($632 billion) including expanding Heathrow airport and high-speed rail, European governments are backing more spending on energy, transport and telecoms, and Canada is speaking to SWFs and pension funds to create an infrastructure bank.
Among developing economies, India has huge power and expressway projects under way.
But there are few signs yet that the imbalance between SWF demand for infrastructure assets and accessible supply is easing.
“Never have I seen such a global infrastructure deficit particularly in the OECD countries, at a time when a lot of these governments are struggling financially,” said Adrian Orr, CEO of the New Zealand Super Fund. “Yet third-party capital is struggling to get access.”
The fund has 3 percent of its investments in infrastructure.
Since the global financial crisis, cash-strapped Western governments have been forced to put projects on ice. Some have also resisted foreign ownership of strategic assets, with an outcry over national security forcing DP World in the UAE to sell management leases for six US ports in 2006.
This summer, Britain held up a $24 billion power project on concerns over Chinese investment in nuclear infrastructure.
The difficulty that SWFs have encountered sourcing deals whose appeal has risen as bond yields have sunk and equities turned more volatile, means that almost two-thirds are underweight infrastructure relative to their target allocation, according to a study by asset manager Invesco.
A second study by research provider Preqin found that infrastructure funds, which raise money from investors including SWFs, had accumulated $141 billion in “dry powder” to invest in 2016 — an all-time high.
Higher prices
With so much capital chasing a limited number of deals, prices have risen, particularly for the most attractive assets.
Preqin found the average infrastructure deal size hit a record $528 million in 2015, up from $486 million in 2014 as many winning bids came in higher than expected.
These included the $7.4 billion paid by a consortium involving SWFs for a 99-year lease of Australia’s TransGrid electricity network, and the $7.3 billion paid by another group for a 50-year lease of the Port of Melbourne.
To get into the biggest deals, many SWFs co-invest with peers, and consortia comprising SWFs and major infrastructure funds — such as the one that bought a majority stake in Britain’s gas pipe network — are typical.
Now the changing mood music from Western governments heralds a flood of new opportunities, though this will in many cases mean taking on the extra risk involved in construction projects.
“Therefore investors will typically look for a higher return component than if they are improving existing facilities,” said Declan Canavan, head of alternatives EMEA at JPMorgan Asset Management.
Investors may also have to prepare for lengthy delays as governments will still need to raise funds for new projects via taxation or borrowing, while local municipalities have shown little appetite for privatization.
“There’s a limit to what a population is prepared to pay, and that won’t suddenly rise in huge amounts,” said Gershon Cohen, head of infrastructure at Aberdeen Asset Management.
Cohen, who is skeptical about how much Trump can achieve, says infrastructure is a hard sell for politicians who are often reluctant to commit to long-term projects they may not get to cut the ribbon on.
“There’s a mismatch between long-term investment decisions and short-term political thinking,” he said.
“They need to bring projects forward — waiting 30 years for a runway is quite clearly an error.”
Successive British governments have spoken about a new airport or runway in South East England since the late 1970s.
Sovereign wealth funds face fierce competition for deals
Sovereign wealth funds face fierce competition for deals
Saudi Arabia’s date sector sees 13.7% export growth in Q1, 2024
RIYADH: Saudi Arabia’s palm and dates sector is experiencing significant growth, with exports increasing by 13.7 percent in the first quarter of 2024 compared to the same period last year.
This food division is regarded as a significant contributor to diversifying income sources and boosting the gross domestic product, as the Kingdom has ambitions to establish its dates as the premier choice globally.
The National Center for Palm and Dates has recently revealed a significant increase in value across various countries during the period, reaching SR644 million ($171.7 million), compared to SR566 million in the first quarter of 2023.
In 2023, the value reported by NCPD increased by 14 percent, reaching SR1.462 billion, compared to SR1.280 billion in 2022. By the end of 2023, the number of countries importing Saudi dates had reached 119.
In an interview with Arab News in March, Mohammed Al-Nuwairan, CEO of NCPD, emphasized that Saudi Arabia’s export portfolio extends beyond dates, encompassing derivatives like molasses, pastes, and others. This diversification enhances the sector’s export presence beyond the Kingdom’s borders.
“East Asian countries are receiving attention from Saudi exports of dates, especially to Singapore, situated in the heart of countries targeted for exporting dates and their derivatives, such as Indonesia, Malaysia, and also China in particular. What supports this is the high demand for Saudi dates, which possess high nutritional values and production quality,” he said at that time.
The total value of date and date by-product exports has surged by 152.5 percent since 2016, rising from SR579 million in 2016 to SR1.462 billion in 2023, marking a compound annual growth rate of 12.3 percent.
According to the Saudi Press Agency, date exports to several countries, including Austria, Norway, and Argentina, as well as Brazil, Portugal, Germany and Canada, exceeded 100 percent.
According to the Saudi Press Agency, date exports to several countries, including Austria, Norway, and Argentina, as well as Brazil, Portugal, Germany, and Canada, exceeded 100 percent.
Additionally, the value of Saudi date exports increased to Morocco by 69 percent, Indonesia by 61 percent, and South Korea by 41 percent. Exports to the UK, the US, and Malaysia rose by 33 percent, 29 percent, and 16 percent, respectively.
Saudi NHC teams up with Chinese firm to construct 20k residential units
RIYADH: Residential supply is set to improve as the Saudi National Housing Co. and China Machinery Engineering Corp. signed a deal to build 20,000 units in the Kingdom.
In a recent agreement signed in Beijing, the two companies joined forces to address housing needs more effectively by constructing apartments in suburban and residential areas within the Kingdom, directly benefiting individuals and families, the Saudi Press Agency reported.
The deal was signed during the official visit of the Minister of Municipal and Rural Affairs and Housing and the Chairman of the Housing Program Committee, Majid Al-Hogail, to China as part of the broader efforts to contribute to achieving the targets of the Housing Program — one of the Kingdom’s Vision 2030 programs.
This initiative aims to partner with leading global companies and attract international investments in the real estate sector.
At the signing ceremony, CEO Mohammed Al-Buty represented NHC.
The company emphasized that this agreement complements its qualitative projects with major global construction companies, SPA reported.
It added that this initiative would be implemented in various areas within the suburbs and urban communities under NHC, distinguished by integrated facilities and services, including health, education, commercial, and public services.
NHC, one of the largest real estate firms in the Middle East, aims to develop housing communities and improve living spaces in the Kingdom by creating nine integrated residential suburbs and delivering 300,000 units by the end of 2025.
The company plans to implement integrated urban projects according to the highest standards at affordable prices, as well as enhance the sustainability of residential projects in various regions in Saudi Arabia.
This comes as the Kingdom aims to elevate services for citizens and unify all efforts across sectors to achieve the targets of the Housing Program in line with the nation’s Vision 2030. This is part of its efforts to increase the homeownership rate for Saudi families to 70 percent.
Last week, NHC signed a deal with China’s CITIC Construction Group to establish an industrial city and logistic zones for building materials. The undertaking will comprise 12 factories aimed at securing supply chains for the Saudi firm’s housing projects.
In a statement, the NHC said the agreement with the Chinese construction group is part of its efforts to secure supply chains for its housing initiatives and ensure their timely completion and high quality.
The Saudi company said the deal entails the construction of 12 factories specializing in building materials, harnessing Chinese expertise, and an uplift in business standards by local factories.
It added that the agreement also aims to draw top-tier service providers across various company sectors, its subsidiaries, and other projects.
GCC prioritizes economic diversification for sustainable growth, says official
RIYADH: The Gulf Cooperation Council aims to reduce reliance on oil revenues by implementing a comprehensive vision for economic diversification, as emphasized by its Secretary-General, Jasem Al-Budaiwi.
During the Gulf Creatives Conference, organized by the Diwan at Harvard University in Cambridge, Massachusetts, Al-Budaiwi outlined a vision that embraces diverse sectoral reforms. These initiatives are aimed at strengthening economic resilience and attracting foreign investments, the Saudi Press Agency reported.
He noted GCC countries have positioned themselves as competitive digital hubs on the global map, supported by their favorable geographic location and young population.
“The strategic location, coupled with robust infrastructure, paves the way for the council member states to attract international partnerships that support their long-term development goals,” Al-Budaiwi said.
He added: “This dynamic approach is vital for sustaining economic growth and ensuring the resilience of Gulf economies in the face of global economic fluctuations and regional challenges.”
Additionally, Al-Budaiwi emphasized the numbers and data supporting these plans and showcased the advancements made by GCC nations, including the establishment of the Customs Union, the GCC Common Market, and the Unified Economic Agreement. He cited Saudi Arabia’s NEOM project as an example of urban development initiatives within GCC nations.
He explained that smart cities are designed to reduce waste, enhance energy efficiency, and streamline urban management by leveraging artificial intelligence and the Internet of Things.
He continued by stating that this further underscores the GCC nations’ commitment to technologically advanced and environmentally friendly urban design, as well as the increased emphasis on cybersecurity to mitigate growing risks and maintain confidence in the digital economy.
Moreover, Al-Budaiwi emphasized the transition from oil-dependent to diversified economies and expressed satisfaction with the outstanding economic and integration achievements of the GCC countries.
In February, he held a series of meetings in Riyadh with foreign ambassadors to Saudi Arabia.
Al-Budaiwi met with the South Korean Ambassador to Saudi Arabia, Choi Byung Hyuk, at the general secretariat headquarters in Riyadh.
During the meeting, the secretary-general discussed the developments in the free trade agreement between the GCC countries and South Korea, which was signed in December 2023.
Both sides expressed their desire to enhance cooperation between nations and increase focus on mutual interests such as education, health, investment, and pharmaceuticals.
The meeting also reviewed relations between the GCC and South Korea, emphasizing the importance of enhancing strategic dialogue through the areas of cooperation outlined in the joint action plan.
Expat remittances from Saudi Arabia hit $3.2bn in March
- The upswing is the highest since June 2022, SAMA data shows
RIYADH: Remittances by expatriates in Saudi Arabia grew 28 percent in March as compared to the preceding month to reach SR11.96 billion ($3.2 billion), the highest since 2022, official data showed.
The launching of new development projects in the Kingdom has led to an increase in the expatriate population, as they actively contribute to the growth of business activities. This, in turn, may have influenced their remittance patterns.
This growth in remittances is also exemplified by the Regional Headquarters Program, which has successfully attracted over 200 companies from across the globe to obtain licenses to set up their regional bases in Saudi Arabia.
These entities are driven by the prospect of securing lucrative government contracts. Additionally, the ongoing structural reforms to enhance foreign direct investment have further stimulated business growth in the Kingdom.
Alongside regulatory reform, Saudi Arabia has undergone modernization in its legal governance and enforcement practices such as digitization of employment contracts, virtual court hearings, and provision of online government services. These initiatives are integral components of a broader set of reforms aimed at positioning the Kingdom as one of the leading nations in terms of ease of doing business.
However, on a quarterly basis, there was a 0.34 percent decrease in expat remittances compared to the same period last year. This trend can be attributed to Saudi Arabia’s evolving economic landscape, particularly the implementation of financial sector reforms, which are increasingly enticing residents to invest a portion of their earnings within the Kingdom.
In February of this year, a report by Jadwa Investment noted that workers’ remittances were unexpectedly low despite the influx of expatriates.
This phenomenon according to their report may suggest that some expatriates opted to capitalize on the high savings rates in the Kingdom instead of remitting funds home.
The Saudi Central Bank, also known as SAMA, has raised key policy rates multiple times in 2022 and 2023, given that the Saudi currency is pegged to the dollar. This move aligns with the actions taken by the US Federal Reserve, which has been gradually increasing interest rates as part of its strategy to address inflationary pressures.
Conversely, remittances from Saudis saw a 9 percent monthly increase, totaling SR5.11 billion, yet experienced a quarterly decline of 0.53 percent.
The occurrence of Ramadan in March this year likely influenced the increase in Saudi remittances for this month. During this holy month, individuals often engage in increased charity, support their families, and fulfill religious obligations, such as zakat.
Egypt aims to attract Apple, pushing to solidify position as manufacturing hub
RIYADH: Egypt is making strides to become a manufacturing hub, with four of the top five mobile phone manufacturers — Samsung, Vivo, Oppo, and Xiaomi — agreeing to establish factories in the country.
Prime Minister Mostafa Madbouly emphasized these strategic initiatives during a tour of the 10th of Ramadan, the country’s largest industrial zone. The aim is to attract the fifth tech giant, Apple, to further bolster Egypt’s position in regional manufacturing.
Madbouly’s visit included several factories, including one specializing in producing sanitary devices at the highest standards for various international brands.
This stopover underscores the Egyptian government’s commitment, which President Abdel El-Sisi reinforced, to expanding and strengthening the industrial sector.
The prime minister noted the government’s efforts to attract significant global companies to Egypt, aiming to create high local value-added goods and foster a conducive environment for foreign investment.
He emphasized the state’s strategy to enhance communication with international investors and manufacturers, offering the necessary support to help them realize their expansion plans within the Egyptian market, particularly those targeting export activities.
This aggressive push to diversify Egypt’s industrial base and enhance its export potential is a key component of the nation’s broader economic strategy, aiming to secure a more prominent position in the global financial landscape.
The government is actively pursuing an increase in its investment attraction status as it aims to lower its import bill to reduce liquidity and foreign reserve pressures.
Earlier in May, global ratings agency Fitch revised Egypt’s outlook to positive from stable.
The agency affirmed Egypt’s rating at “B-,” citing reduced external financing risks and stronger foreign direct investment.
Since the country announced the International Monetary Fund loan program, foreign investors have poured billions of dollars into Egyptian treasury bills. After the investment in the country’s foreign portfolio and the support from the UAE, Egypt’s net foreign assets deficit shrank by $17.8 billion in March.
Fitch said that initial steps to contain off-budget spending should help to reduce public debt sustainability risks.
The country straddles North Africa and West Asia and has been grappling with an ongoing economic crisis linked to persistent foreign currency shortages. In the fourth quarter of 2023, its foreign debt climbed by $3.5 billion to $168.0 billion.
Meanwhile, Moody’s also revised its outlook on Egypt to “positive” in early March while affirming its ratings due to the high government debt ratio and weaker debt affordability compared to its peers.
