By Dede A. Rifai[1]

 

According to the Sovereign Wealth Fund Institute (SWFI), the Sovereign Wealth Funds (SWFs) in the Middle East are managing a lot of assets amounting to  more than US$2.7 trillion.[2] Most of the SWFs in the Middle East are in the Gulf countries consisting of Saudi Arabia, the United Arab Emirates (UAE), Qatar, Kuwait, Oman and Bahrain.

The Gulf’s SWFs include the UAE’s Abu Dhabi Investment Authority (ADIA) managing assets amounting US$696.66 billion, Kuwait Investment Authority (KIA): US$592 billion, Saudi Arabia Monetary Authority (SAMA) Foreign Holdings: US$505.76 billion, Saudi Arabia’s Public Investment Fund (PIF): US$320 billion, Qatar Investment Authority (QIA): US$320 billion, UAE’s Investment Corporation of Dubai (ICD): US$239.98 billion, UAE’s Mubadala Investment Company: US$228.93 billion, Emirates Investment Authority:US$45 billion and Oman’s State General Reserve Fund: US$22.14 billion.[3]

Although the Gulf countries have experienced twin shock of Covid-19 pandemic and severely low oil price, the Gulf’s SWFs have been on a spending spree, buying substantial stakes in major Western and Asia businesses currently trading at multi-year low as a result of the pandemic.

According to SWFI, the Gulf’s SWFs directly invested $14.7 billion in the US in 2020 compared to $6.5 billion in 2019 and $6.2 billion in 2018. Most of the investment came from Saudi Arabia’s PIF amounting of $10 billion of at least $300 billion under management was held in US stocks by Q2 2020. Meanwhile, ADIA and KIA acquired $2.25 billion in distressed and discounted US equities available, following the market crash  in March 2020.[4]

 

Previously, PIF had invested in the US by buying shares of Boeing (US$713.7 million), Disney (US$495.8 million), Citigroup (US$521,9 million), Bank of America (US$522 million), Marriot International (US$513 million) and Facebook (US$521.9 million).[5] PIF has also invested in India by buying shares of Joi Platforms amounting US$1.5 billion.[6]  PIF acquired a 38% stake in South Korea’s Posco Engineering & Construction Co., an approximate 5% stake in Uber for US$3.5 billion and almost 5% of Tesla stock. PIF and SoftBank Group established a London based SoftBank Vision Fund which aims to invest up to US$45 billion.[7]

Likewise, QIA has also invested in various countries. For example, QIA and Malaysia Development Berhad agreed to cooperate in the investment projects in Malaysia amounting of US$5 billion and to establish a common investment fund amounting of US$2 billion.[8] QIA cooperating with CITIC Group Corp invested in China amounting of US$10 billion. QIA has also developed cooperation with several companies in the US by investing around US$35 billion, particularly in infrastructure and property projects. QIA has also invested billion US dollars in various projects in the United Kingdom, such as Canary Wharf Investment Holdings, Heathrow Airport and Barclays Bank.[9]

To address the Covid-19 crisis and diversify the economy in facing low oil prices, the Gulf’s SWFs need to expand investment to cover more countries to get more profits.[10] Indonesia is one of the potential countries for the Gulf’s SWFs investment.

 

Indonesia could be the best destination for the Gulf’s SWF investment because in the midst of the Covid-19 pandemic, Indonesia has been able to achieve significant progress in attracting foreign investment by issuing an omnibus Law on Job Creation on 5 October 2020.[11]

The aim of the law is to improve the ease of doing business in Indonesia and to boost the national investment climate by amending overlapping laws and/or regulations that are deemed to be obstructive towards foreign investments. When it is implemented, it would create jobs and raise foreign and domestic investments by reducing requirements for business permits and land acquisition process.

The law also shrinks the list of industries  barred from receiving private investment from 300 to just six, namely: illegal drugs, gambling, endangered fish, chemical weapons and industrial chemicals.

Furthermore, the law will cut red tape and improve bureaucratic efficiency to push for greater job creation. The law also supports the Government’s efforts to eradicate corruption through the simplification of complicated licensing, thereby eliminating the practice of illegal levies.

 

In addition, companies that employ foreign workers are only required to have a plan of foreign worker employment to simplify permit process for foreign experts. Foreigners staying longer than 183 days in Indonesia are not subject to domestic taxes. It will be eliminated through income taxes for domestic dividends and foreign dividends that have been reinvested domestically.

Foreign entities will be allowed to conduct business activities in the fields of education and healthcare in the special economic zones. A land bank will be established to do land redistribution of at least 30% of the land being managed. License applications will be considered approved if the process takes more than five working days.

To attract more foreign investment, the law mandates the creation of an Investment Management Agency for the purpose of creating aSWF. As a follow-up of the law, on 15 December 2020, the President of Indonesia, Joko Widodo, issued three government regulations related to the establishment of Indonesia’s SWF named Indonesia Investment Authority (INA).

INA has special authority to represent the sovereign status of the Indonesian government. State equity participation has also been made for the initial capital of this institution. INA has received Rp15 trillion in 2020 and another Rp15 trillion this year. Gradually, INA’s capital should reach Rp75 trillion by the end of 2021.

 

President Joko Widodo appointed the Board of Supervisors of INA consisting of Minister of Finance Sri Mulyani, Minister of State-Owned Enterprises Erick Thohir as well as members from the professional element namely Haryanto Sahari, Yozua Makes, and Darwin Cyril Noerhadi. According to Minister Sri Mulyani: the key of INA is investments. “We don’t borrow the investors’ money but they invest it with us. This is a way for us not to be too dependent on leverage or loans”.

On 16 February 2021, President Joko Widodo inaugurated the Board of Directors of INA. After the inauguration, CEO of INA, Ridha Wirakusumah, stated that: “We will strictly and surely manage INA with highest integrity and applicable governance so that we can carry out our duties properly and correctly”. Ridha also stated that he would strive to create a comfortable and convincing investment climate to lure investors to partake in the country’s development programmes.              

Last but not least, the law on Job Creation and the establishment of INA would make Indonesia a “fertile ground” for foreign investors, including the Gulf’s SWFs. The success of Indonesia in attracting the Gulf’s SWFs to invest in Indonesia would depend on the implementation of the law on Job Creation, including its 52 government regulations and presidential decrees. Furthermore, the Gulf’s SWFs would collaborate with INA to invest in Indonesia if INA’s Board of Supervisors and Board of Directors could convert their words and policies into concrete actions.

 

Image caption: People standing near water fountain in Jarkarta, Indonesia. Photo: Pexels

End Notes

[1] Senior diplomat with diplomatic rank of Minister at the Policy Analysis and Development Agency, Ministry of Foreign Affairs of Indonesia and Honorary Lecturer at the State Islamic University in Surabaya, Indonesia. This article is his personal opinion.

[2] Matthew Amlot, “Here Are the Top 10 Sovereign Wealth Funds in the Arab World”, Al Arabiya English, 20 May 2020, https://english.alarabiya.net/business/economy/2019/08/28/Here-are-the-top-10-sovereign-wealth-funds-in-the-Arab-world

[3] Ibid

[4] Arabian Business Industries, Why the US proved fertile ground for Gulf sovereign wealth investment in 2020”, 25 January 2021, https://www.arabianbusiness.com/banking-finance/457797-why-the-us-proved-fertile-ground-for-gulf-sovereign-wealth-investment-in-2020

[5] Deena Kamel, “Saudi Arabia’s Public Investment Fund invests billions of dollars in Boeing, Disney and Facebook shares”, 16 May 2020, https://www.thenational.ae/business/saudi-arabia-s-public-investment-fund-invests-billions-of-dollars-in-boeing-disney-and-facebook-shares-1.1020204

[6] Benjamin Parkin, “Saudi Arabia’s PIF invests $1.5 billion in Jio Platforms”, 18 June 2020, https://www.ft.com/content/aa7bc92c-8185-43f5-8c5a-ac080b046191; and PR Sanjai, “Saudi Arabia to invest US1.5 billion in India’s Jio Platforms”, 18 June 2020, https://www.bloomberg.com/news/articles/2020-06/18/sauudiarabia-s-pif-to-inevest-1-5-billion-in-jio-platforms.

[7] Public Investment Fund of Saudi Arabia, en.m.wikipedia.org

[8] Gregor Stuart Hunter, “Qatar and Malaysia set up fund”, 6 December 2011, thenationalnews.com

[9] Qatar Investment Authority, en.m.wikipedia.org

[10] Natasha Turak, “The Gulf’s sovereign wealth funds need to be deployed amid corona virus crisis: expert says”, 2 June 2020, CNBC.com.

[11]  Office of Assistant to Deputy Cabinet Secretary for State Documents & Translation, “Gov’t: Job Creation Law to Prioritize New Job Creation”, 7 October 2020. https://setkab.go.id/en/govt-job-creation-law-to-prioritize-new-job-creation/