Foreign Direct Investments: Lessons from a USD 1 Trillion Council
Fireside Chat with H.E. Jamal Al Jarwan
Secretary General of the UAE International Investors Council (UAEIIC)
Sponsored by Sense Strategy
25 January 2024
Moderator: Erik Almqvist, Founder and CEO, Sense Strategy; Owner, Almqvist Family Office
To enhance the competitiveness of the nation’s international investments, the UAEIIC assists the largest UAE entities with combined assets of approximately USD 1 trillion. This Fireside Chat discussed investments abroad, how to troubleshoot foreign direct investments (FDI), sync efforts between the government and private sector, and examine governance and transparency in an increasingly multipolar world.
Erik Almqvist: Â If we were to aggregate the top one hundred sovereign wealth funds worldwide by nation, Norway stands as the leader in sovereign wealth funds, followed by two Chinese funds in the ranking. The fourth spot belongs to Abu Dhabi.
When we look at sovereign wealth funds on a national level, the ranking is as follows: China holds the top position, with the UAE following closely behind in second place globally. Norway comes in third, with Singapore following suit. This positions the UAE as the second-largest holder of sovereign wealth funds worldwide. It is worth noting that the UAE, with its small population and mid-sized economy, stands out as a superpower in terms of sovereign wealth funds.
The total of all the sovereign wealth funds worldwide, is USD 11 trillion. Of this amount, an impressive USD 2 trillion comes from the UAE alone. This significant contribution highlights the extraordinary financial strength of the country. Moreover, the Council is not only a representative body for sovereign wealth funds but also for some of the largest companies in the UAE. Tell me Your Excellency, dear Jamal, how did the Council start?
H.E. Jamal Al Jarwan: The concept originated in 2009 and there were numerous challenges, particularly regarding Foreign Direct Investment (FDI) outflow in emerging markets such as Asia and Africa. These challenges encompassed regulatory, legal, and commercial issues. A group of investors convened with the Minister of Foreign Trade at the time, Sheikha Lubna Al Qasimi, in a meeting to discuss their concerns about overseas investments. The idea was subsequently approved by the Cabinet.
The idea was to create a platform where the private and public sectors can come together to discuss Foreign Direct Investment (FDI) outflow and address the challenges they are encountering. At that time, the total size of UAE investments abroad was not known. The proposal to establish a council for this purpose was swiftly approved by Her Excellency Sheikha Lubna, the Minister of Foreign Trade. This Council, consisting of prominent UAE companies such as Mubadala, Etisalat, Majid Al Futtaim, Dubai Investments, DP World, and others, has the aim to coordinate efforts in investing abroad and exporting capital. It took several years to establish the governance structure of this council.
Erik Almqvist: What was the strategic approach to attract top funds and companies after the formation of the organization?
H.E. Jamal Al Jarwan: It was quite challenging in the initial days as it was a new entity. It was essential to have a minister leading and driving the activities of the council to stimulate and enhance its functioning. Once the investors observe that government officials are actively involved in chairing and managing the council, other hesitant members will naturally follow suit. The appointment of the Minister of Economy as the Chairman was pivotal in the council’s success. Without government participation, achieving success would be a challenging feat.
Erik Almqvist: The UAE ranks second globally in sovereign wealth, surpassing Saudi Arabia and other Gulf nations. Despite not having the largest oil reserves in the world, the UAE’s ability to build wealth is noteworthy. What are your thoughts on this unexpected achievement?
H.E. Jamal Al Jarwan: In discussing the evolution of the economy, in 1975, the UAE’s GDP was approximately AED 58 billion (USD 16 billion), as per official records. Fast forward to 2020, the GDP has expanded significantly to a remarkable AED 1.3 trillion (USD 0.35 trillion) and is now more than USD 0.5 trillion (2022). This exponential growth is unparalleled globally and highlights the impressive progress made by the UAE over the past five decades. The influx of tourists visiting the UAE has also increased exponentially, further highlighting the country’s economic development.
Moreover, the number of banks operating in the UAE has surged, from around 20 in 1975 to over fifty-nine banks today. The growth and development of our airports, airlines, and overall infrastructure resemble the process of starting a nation from the ground up. This progress can be attributed to the foresight of our visionary leaders who had a sharp vision of how they wanted our country to evolve. Effective leadership plays a crucial role in transforming a nation, as it requires a great leader to drive change and progress.
This transformation does not happen on its own; it necessitates a diverse pool of talent and expertise from both local and international sources. As a nation, we have been fortunate to receive assistance from individuals who have chosen to make the UAE their home, contributing to our success and growth. The key components of this growth include a visionary leader, a talented workforce, and efficient execution of plans.
We have succeeded to accept others. We have the best infrastructure, the best roads, the best airlines and airports in the world. We can’t build this alone. Not without a diverse mix of talent. And the talent will only come if they feel they belong and feel secure. The continuity of the leadership from the late Sheikh Zayed and Sheikh Rashid to the present leadership has been fundamental. Respect, tolerance and safety have been the building blocks. We will, I am sure, continue to grow in the next 50 years.
Trust is a vital element and has been cultivated by the country. Today, we are proud to host global companies who have chosen the UAE as their regional headquarters. The strategic location of the UAE, situated between Africa and Asia, makes it a prime hub for reaching a vast population of at least four billion people within a seven-hour radius. This geographical advantage not only connects continents but also fosters a sense of unity among people worldwide. The transformation and growth experienced in the UAE have exceeded expectations, with direct flights now available to major cities like New York, Boston, Houston, Dallas, Seattle, and over two hundred other destinations. The story of this evolution is truly remarkable.
Upon examining the GDP for the year 2023, it is noteworthy to observe that UAE and GCC countries had a growth rate of more than 3%, as indicated by the IMF and the World Bank. This achievement is quite remarkable, especially considering the lingering effects of the Covid pandemic, which some countries are still grappling with in terms of economic recovery. Despite challenges such as inflation, high interest rates, and restricted lending due to capital constraints, UAE has continued to make investments in a time of adversity. It is crucial to highlight this resilience and determination amidst global uncertainties during the period of Covid-related lockdowns.
We have witnessed the commitment of two sovereign wealth funds to continue investing during challenging times. Recall Reliance’s Jio network, where ADIA and Mubadala allocated approximately USD 2.2 billion to the Jio network in India amidst the Covid restrictions on travel. Despite limited accessibility to data, the UAE demonstrated resilience and perseverance, leading to anticipated gains in 2023. This unwavering philosophy exemplifies the UAE’s approach to crisis management, highlighting the importance of handling crises effectively to achieve success.
Erik Almqvist: The council possess approximately USD 1 trillion. How do you plan to utilize this immense financial advantage to maximize its potential impact?
H.E. Jamal Al Jarwan: In this arena, the focus is on investments, growth, economy, and the circulation of liquidity – these are the key factors at play. It is essential to accurately and comprehensively recount how we utilized these elements to our advantage. Candidly, investment is not a widely discussed or acknowledged topic in this region where immediate access to raw data is limited.
When facing challenges, individuals often tend to keep their struggles to themselves. This was a common experience for me during my time working with investment banks and managing my organization’s investments while traveling to various countries. Maintaining confidentiality and discretion, especially when dealing with ambassadors and foreign investments, was crucial. However, operating in isolated silos without collaboration with government entities or peers posed challenges. Building connections with investors provided valuable insights into the true nature of investments abroad, such as the confidential investments that the UAE has strategically positioned.
Prior to 2015, individuals were not able to find information about UAE’s foreign ownership in the press. This information was confidential, although it is now available in certain sources. The Sovereign Wealth Fund Institute plays a crucial role in gathering data about foreign direct investments and international investments. This is a delicate yet important matter, to balance foreign direct investors need for privacy with the need for transparency and openess to the public.
Our total value surpasses USD 2 trillion when considering assets value, management value, and assets under management. It is important to note that this value does not solely pertain to exports. The valuation of assets can fluctuate and is more indicative of the assets themselves. For instance, the capital exported amounts to over USD 200 billion, which is more relevant to Foreign Direct Investment (FDI). It is crucial to distinguish between these two types of investments.
The FDI investments, along with financial assets and bonds, are monitored, tracked, and documented. Some investments are already executed but have not yet been assessed. In my role as secretary general of the International Council, I confidently estimate the total value to exceed two trillion.
This information requires updating on a quarterly basis. Most of the sovereign wealth funds of the UAE have seen the values of their assets appreciate quite considerably over the last few years both at home and abroad, and SWF and OFDI figures 1-2 years old may no longer be representative. In fact, they may underestimate the total SWF and OFDI asset values of the UAE.
Erik Almqvist: Â The council has been actively establishing partnerships worldwide. Could you provide insight into these alliances and discuss the benefits they have brought to the UAE and the Council members?
H.E. Jamal Al Jarwan: When we established this council and analysed the global market, we categorized the world into four regions: developing economies, the US and Europe, Africa, Asia, and the Middle East. In assessing where the greatest opportunities lie, we have observed that higher returns are associated with lower weighted average cost of capital (WACC). This correlation between low WACC and high internal rate of return (IRR) is a key consideration for investors seeking optimal returns. The lower the WACC, the higher the IRR, indicating lower risk, interest rates, and taxation, resulting in investments achieving returns of 9 to 11%. Achieving an IRR comfortably above 12% is a notable accomplishment. In my experience, the country with the lowest WACC and highest IRR is the UAE, closely followed by Saudi Arabia. The risk is low.
During a recent analysis of project initiatives, we collated statistics on the number of green field projects initiated in the UAE compared to the global scale. This information was validated and confirmed by none other than His Highness Sheikh Mohammed bin Rashid, the Vice President, Prime Minister, and Ruler of Dubai, who announced just four days ago that the UAE ranks second in the world for attracting Foreign Direct Investment and new projects. This milestone solidifies the United States and the UAE as the most sought-after investment destinations globally, as affirmed by banks and the investment community. This official declaration signifies a historic achievement for both nations. The US and the UAE are the most attractive destinations of the world. We live in the golden days of the UAE.
Erik Almqvist: Can you share with us how challenges are overcome?
H.E. Jamal Al Jarwan: The key to the Council’s and ultimately the UAE’s success is our collective investment strategy in each country we enter. This principle defines our approach and has proven effective. While we strive to be logical and reasonable in our decision-making, it is important to acknowledge that we cannot eliminate all challenges entirely. However, these challenges are now minor compared to the significant issues we faced in 2009. Back then, investments were discreetly conducted, leading to unexpected outcomes. Today, I am pleased to announce that the complexity of our international investments has decreased by 80%. This reduction is attributed to the reputation of UAE as a reliable and serious investor, as well as our collaborative approach as a group.
Throughout the course of ten years, our main objective has been to effectively manage member relations and address any associated challenges. It is important to acknowledge the difficulties we have encountered in three different countries, where legal systems are intricate, competition is fierce, and governance is complex. Despite these obstacles, we have successfully navigated through challenging situations.
 The reputation (brand value) of the UAE surpasses USD 1 trillion, signifying its importance. I commend the UAE for fostering a culture of transparency, governance, and checks and balances, which has resulted in minimal scandal within the country. This dedication to upholding best practices and ensuring the safety of its people reflects strong leadership and a commitment to excellence.
Erik Almqvist: In 2015 you called me and said, “Erik can you help us, we are growing this Councilâ€. The initial step we took together in 2015 was conducting international benchmarking of comparable councils. We analysed various models including the American, Chinese, Singaporean, Dutch, and Swedish models. Our research revealed numerous instances of efforts to integrate the private and public sectors through public-private partnerships for inward and outward investments. Although some initiatives also focused on trade, very few were able to successfully align the interests of the private sector and the government due to inherent differences in their objectives. But you succeeded in bringing the government and the private sector as partners inside one council. What was the basis for the success?
 H.E. Jamal Al Jarwan: Nine years ago I asked Erik, a fine gentleman, very focused, to help us as the Council was formed. The Boardroom was full of big names, the biggest companies and the biggest funds, presided by H.E. Sultan bin Saeed Al Mansoori, the then Minister of Economy, with the Ministry of Foreign Affairs and Ministry of Finance present. I asked Erik to give advice on the roadmap to build this Council in the UAE. He was very solid in his presentation, and he handled the Board very well. We saw the model of the world. In the USA, there is a well-established investment model that is closely followed, as they have highly engaged investors globally. In the UK, trade takes precedence over investment, reflecting a different approach. Sweden also prioritizes Foreign Direct Investment (FDI) outflow and trade. The OECD diligently tracks and supports their investors and traders worldwide through over 160 offices, displaying impressive global coverage.
We began with a budget of USD 1 million at the time, and now there exists a Ministry of Investment responsible for managing both outflow and inflow of funds in the country. I am pleased with the progress. We have contributed to shaping the culture surrounding it and generated significant interest. In 2015, I directed our PR team to amplify our presence on social media platforms such as LinkedIn, Twitter, Facebook, and Instagram, despite potential criticism. While we may have social media champions, our primary goal was to raise awareness about foreign direct investment outflow. This initiative paved the way for us to speak at events in Washington DC, Indonesia, India, and other locations, promoting FDI and UAE investments overseas. This investment has proven to be valuable and worthy of continued pursuit.
Erik Almqvist: What measures does the Council implement to promote transparency in governance for its members, government stakeholders, and the public?
H.E. Jamal Al Jarwan: Â Â This situation is of utmost importance. As the Secretary General, I am the key person responsible for managing the stakeholder relationships. It is crucial to oversee this task with precision. It is not advisable to offer too much assistance, as it may come across as intrusive. The stakeholders are well-equipped with a top-tier merger and acquisition team, comprising professionals from reputable firms. I am aware that I am dealing with the elite in the world of investment houses. They have a robust network and receive Foreign Direct Investment (FDI) deals regularly. Therefore, it is vital to understand their expertise and approach them strategically.
To be candid, it has become clear to me that our primary focus is on adhering to our mandate: corporate advocacy. It is crucial that we conduct ourselves in a highly professional manner and effectively communicate in a manner that is well-received by individuals such as bankers, lawyers, and government officials. I have come to understand the importance of respecting the privacy of investors and maintaining a strict Chinese wall between members to prevent any conflicts of interest, especially when dealing with competitors. In my role, which involves working with sovereign wealth funds and major ports such as DP World and Abu Dhabi Ports, it is imperative that I strictly adhere to these guidelines to uphold the integrity of our organization. Failure to do so would jeopardize our reputation and lead to failure in our endeavours.
Erik Almqvist: In a society fixated on quarterly profits, we find ourselves constantly pursuing the next big opportunity. As the leader of a council comprised mostly of non-publicly listed members, you have a unique advantage. Are you able to approach your investments with a long-term perspective that sets you apart from other investors?
H.E. Jamal Al Jarwan: There are both pros and cons of transparency. You are right that less requirements for quarterly transparancy may help investors take a long-term perspective. At the same, lack of transparency may hide inefficiences and make syncronized decisions harder. At the moment, the trend in the UAE is towards more transparency, with multiple IPOs in the pipeline.
Erik Almqvist: What are the benefits to members of the Council?
H.E. Jamal Al Jarwan: One notable advantage is the quick access to the Minister of Economy who is the Chairman of the Council, who carefully listens to input four times annually. This access is crucial to the success of the Council where government adherence to protective regulations plays a pivotal role. Our guiding principle remains collaborative investment and top-down protection, ensuring the sustainability of the Council for nine consecutive years.
We invest together and we have protection from above, I believe that 80% of the success lies here. They have access to the Ministry of Foreign Affairs and Ambassadors. I am privileged to be a part of this network. It is crucial to understand the workings of the government to navigate effectively within it. Collaboration with various government entities is essential in problem-solving. As the saying goes, “It’s not just what you know, but who you know.” To find solutions, one must have a comprehensive understanding of all sides involved.
Erik Almqvist: What are the requirements to become a member of the Council?
H.E. Jamal Al Jarwan: To become a member, you need to be an international investor and have your headquarters located in the UAE.