JEDDAH - Gulf sovereign wealth funds (SWFs) will stand to lose around $450 billion, Henry Azzam, Deutsche Bank CEO for the MENA region, predicted.
“This loss is equivalent to the region’s oil income for a whole year,” he said in an exclusive interview with CNBC Arabiya Fil Omoq program.
He said the region’s sovereign funds may not perform well in 2009 after poor 2008 results.
During the show, Azzam speaks about his vision and expectations for the real estate market in the UAE.
“If multinational companies and banks in Dubai keep reducing their workforce, as well as the exit of the professionals who buy and rent real estate, then the correction process in the market might take longer time, or won’t end in 2009,” he said.
Commenting on the affects of the current economic climate on the banking sector, he said “investment banks are facing problems today, and a possible solution for those banks which have some capital is to acquire weaker commercial banks. With that we’ll create more trade and investment banks.” Azzam said the region should focus on key historical lessons and employ tactics to ensure financial growth.
“We must not lose what has been gained during the past twenty years, all of the openness should not go back to closure, on the contrary, we should learn from the crisis, and there should be some smart monitoring and controls employed,” he added.
Deutsche Bank, the largest German bank and one of the world’s leading investment banks, has developed a strong presence in the MENA region, operating out of the UAE, Bahrain, Saudi Arabia, Iran, Egypt and Algeria.
Saudi Arabia’s plans for SWF are still “on the drawing board and is not going to be sizeable and will be around $6 billion only and run by the Public Investment Fund (PIF)”, Sayari Hamad Al-Sayari, governor of Saudi Arabian Monetary Agency (Sama), said earlier.
As SWFs are entities that manage state savings for the purposes of investment, a healthy national current account surplus is a prerequisite. Saudi Arabia is enjoying unprecedented wealth, with a current account surplus of more than $95.5 billion and foreign asset reserves above $250 billion.
SWFs have grabbed the limelight lately, mainly due to the size of some acquisitions. The Abu Dhabi Investment Authority (Adia), one of the world’s largest fund, controls around $900 billion in assets. Investments such as its $7.5 billion in Citigroup received plenty of attention.
The total assets of sovereign wealth funds have soared to nearly $3 trillion, surpassing the $1.5 trillion managed by hedge funds worldwide, according to Morgan Stanley estimates published recently.
Some economists forecast they will grow to $12 trillion by 2015, an amount that roughly corresponds to the size of the entire US economy.