Political and Economic Analysis on SWFs of Saudi Arabia

Abstract

Abstract: Sovereign Wealth Funds established by Middle Eastern countries occupy an important position in world capital markets in terms of size or activity. However, regarding the establishment and operation of the funds, Saudi Arabia pursues a conservative investment strategy as a regional power, which is quite different from other Gulf countries. It is found that the economic conditions in Saudi Arabia, such as money supply, foreign exchange reserves, external debt and domestic economic development, which are generally considered to be the determining factors for the establishment of SWFs, were not favorable compared with those in the other GCC states in the last decades. However, even when those conditions have been improved since the beginning of this century, the performance of SWFs in Saudi Arabia still lags behind compared with other Gulf countries. As the economic indicators of the country will be studied, so will a political analysis be conducted in three specific perspectives: the significance of US dollar reserve for Saudi-US diplomatic relations, the deterioration of political environment of FDI in western countries after 9/11 and a mix of public and private ownership systems brought by the royal family. In the end, one can conclude that Saudi Arabia is a conservative investor on SWFs.