As Saudi Arabia raises the stakes in its dispute with Canada, the economic fallout could worsen an already serious issue for the kingdom: capital flight. Trade between the two countries is small, valued at roughly $4 billion, but the diplomatic dust-up has heightened the sense of risk in the Saudi investment climate, and is certain to scare even more capital away.
According to research by JPMorgan, capital outflows of residents in Saudi Arabia are projected at $65 billion in 2018, or 8.4 percent of GDP. This is less than the $80 billion lost in 2017, but a sign of a continued bleed. Significantly, the projection was made before the contretemps with Canada. According to research by Standard Chartered, the first quarter of 2018 saw $14.4 billion in outward portfolio investment into foreign equities, the largest surge since 2008. There are concerns that the government is leaning on banks and asset managers to discourage outflows, a kind of informal capital-control regime.
This flight signals the dimming of the optimism surrounding Crown Prince Mohammed bin Salman’s Vision 2030 economic plan. Many of the institutional reforms outlined in the plan — designed to diversify the Saudi economy, attract foreign investment and create jobs — are needed to liberalize the state-led, resource-dependent economy. Investors had hoped Riyadh would follow through on economic reforms, but have been disheartened by such high-profile actions as the arrest of prominent businessmen last year, and a recent campaign to silence critics, especially women activists. These measures — add to them now the spat with Canada — indicate that the state favors regime stability and consolidation over the rule of law, and the creation of institutions and regulations that can check the state.
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Saudi Arabia’s Problem Isn’t the Canada Fight, It’s Capital Flight
According to research by JPMorgan, capital outflows of residents in Saudi Arabia are projected at $65 billion in 2018, or 8.4 percent of GDP. This is less than the $80 billion lost in 2017, but a sign of a continued bleed. Significantly, the projection was made before the contretemps with Canada. According to research by Standard Chartered, the first quarter of 2018 saw $14.4 billion in outward portfolio investment into foreign equities, the largest surge since 2008. There are concerns that the government is leaning on banks and asset managers to discourage outflows, a kind of informal capital-control regime.
This flight signals the dimming of the optimism surrounding Crown Prince Mohammed bin Salman’s Vision 2030 economic plan. Many of the institutional reforms outlined in the plan — designed to diversify the Saudi economy, attract foreign investment and create jobs — are needed to liberalize the state-led, resource-dependent economy. Investors had hoped Riyadh would follow through on economic reforms, but have been disheartened by such high-profile actions as the arrest of prominent businessmen last year, and a recent campaign to silence critics, especially women activists. These measures — add to them now the spat with Canada — indicate that the state favors regime stability and consolidation over the rule of law, and the creation of institutions and regulations that can check the state.
More at
Saudi Arabia’s Problem Isn’t the Canada Fight, It’s Capital Flight
