Arabs need to learn from Norwegian experience

Most Gulf sovereign funds recently announced losses after Britain voted to exit from the European Union and the subsequent impact on the British economy as a consequence of this decision. A large amount of the Gulf funds’ profits invested in real estate and tourism sectors suffered greatly. They declared additional losses owing to this vote. The British decision has also shaken other sovereign investment funds. The estimated Gulf sovereign funds losses, including those of banks and the private sector, were between $600 and 700 billion. That was during the 48 hours following the referendum as revealed by former president of the Union of Arab Banks, Adnan Ahmed Yousuf, who explained that this resulted in losses exceeding $2 trillion in the global capital markets.

We notice that the Norwegian Sovereign Wealth Fund recently announced positive returns in the second quarter of 2016 due to the gains made by fixed income instruments worldwide.

The fund emerged during the same period in which most Arab sovereign funds began in the wake of the upsurge of oil revenues with huge surpluses for the Arab since mid-seventies.

The Norwegian Fund, one of the largest funds globally, increased its revenues by 1.3 per cent in the second quarter, less by 0.1 percentage point than the standard level. It is one of the distinctive funds internationally.

Its success is unique, as it management in its investments.

Many countries around the world benefit from its experience in management, regulations and investment policies. They strive to develop their systems and similar institutions by following the methods used by this fund. The objective of establishing this fund was to invest oil revenues, the same as Saudi Arabia, the UAE, Kuwait and other oil-producing countries.

The total value of this fund at $893 billion, 65 per cent of which is invested in the stock market and 35 per cent in the bond market and 5 per cent in the real estate market.

Thus, the negative repercussions of investing in the British real estate market were minimal. This fund also aims at making a minimum oil-producing countries adopts sound return of 4 per cent per year. During the past years, the value of the Norwegian oil fund capital increased achieving significant progress in many investments pumped into global markets and especially in private European companies.

Many oil-producing countries resources, including the Norwegian Fund, had to withdraw some money to pay for general expenses. It, however, increased the share of its investments in fixed income instruments in various sectors. It also invested in many government bonds, such as US bonds worth $57 billion and in Japanese government bonds worth $21.3 billion, as well as in German bonds worth $18 billion.

Gulf sovereign funds have suffered from many tremors that afflicted the world due to global financial crises. The last one was the 2008 crisis.

However, some observers point to the promising opportunities awaiting the Gulf Cooperation Council (GCC) countries in Britain. They could realise new earnings after stabilisation of the situation there.

They could also achieve gains in the European Union countries, thus compensating for this fall in their investments there.

The international sovereign funds endeavour is to sustain local economies and implement their policies of global investments.

Subsequently, the Norwegian government has announced from the outset the future generations own the fund.

Accordingly, it barred itself from using an amount exceeding 4 per cent of the resources of the fund for the construction of infrastructure projects and other public projects. It invested the rest of the money in international capital markets.

Thus, it was able to ensure that oil revenues must not exceed 30 per cent of total government revenues and that the oil sector constitutes only 23 per cent of GDP by 2015 estimates.

It is necessary to follow this example and take advantage of these effective policies in how to manage our Arab sovereign fund’s investments, which began to erode significantly under the oil and financial shocks and the daily withdrawals to finance wars and regional conflicts, which would probably undermine the remainder of their funds one day.