Do the numbers add up?

11 January 2002

The portrayal of immensely wealthy Gulf shaikhs in the international media has become something of a cliché, and the images are fuelled by exorbitant estimates of the volumes of GCC private wealth held abroad. With the word 'private' meaning what it says in the private banking industry, there is no hard statistical base upon which the estimates are built. Perhaps the most high-profile guess comes in the Merrill Lynch/Cap Gemini Ernst & Young 'World Wealth Report'. The latest edition makes a string of bald statements: 'There were an estimated 220,000 HNWIs [high-net-worth individuals] in the Middle East at the end of 2000. The combined value of their wealth grew 18 per cent to $1.3 trillion [million million] over the past year, despite the volatile financial markets last year, as most HNWIs in the Middle East continued to grow their assets. The wealth held by HNWIs in the Middle East has increased 216 per cent since 1986 - and is forecast to rise almost 54 per cent to $2 trillion by the end of 2005.'

Some analysts, such as Brad Bourland, chief economist at Saudi American Bank, concur. He estimates that there are some 200,000 HNWIs in the GCC holding about $1.2 trillion of private wealth abroad. There are even some optimists in the private banking community who think these figures are conservative. 'You have to assume that there is some downplaying of the figures for political reasons,' says a senior international private banker based in Dubai. 'It gets embarrassing for some of the major families when their immense wealth is highlighted - it smacks of pretty uneven distribution of oil revenues, which is politically sensitive. I think the Merrill Lynch report might be anything up to $1 trillion shy of the real figure.' Another Dubai-based private banker offered an estimate as high as $3 trillion for total offshore private wealth.

However, it remains difficult to discern the foundations upon which such estimates are based, and some of the more transparent statistics can be revealing. For example, aggregate Saudi exports between 1974 and 2000 add up to a total of $1.3 trillion, according to IMF figures at current prices, with a peak performance of $112 billion ('000 million) in 1981. Every year between 1983 and 1995, Saudi Arabia had a current account deficit, and the country's highest-ever current account surplus, recorded in 1980, was only $41 billion. Against such a backdrop, some of the more exorbitant estimates seem hard to support. Even allowing for very strong returns from international investments, a significant domestic multiplier effect, limited cash-burn and very low levels of government spending ending up in foreign pockets, an extraordinarily high proportion of oil revenues must have moved immediately into private hands and headed offshore if the estimates of Saudi private wealth abroad of $700 billion-1,000 billion are to be accurate.

To put the Saudi figures in context, a close examination of the balance sheets of the 10 banks active in the kingdom - which themselves have aggregate assets in excess of $120 billion, the bulk of which has not left the country - would indicate fresh annual outflows from Saudi nationals of about $10 billion a year in recent years, and that this figure is exceeded by inflows from international investments. The pile, if it is growing at all, is growing at rate lower than its own yield. How long this has been the case is more difficult to estimate but it undermines the case for exponential growth, as do almost 20 years of budget deficits, which have been covered by draw-downs from international investments and domestic borrowing. Allowing for average inflation of 5 per cent over the last 25 years, and average annual returns on portfolios of 10 per cent (and limited profligacy) the figures do not appear to add up.

Total aggregate export figures for other GCC countries would suggest some of the estimates for their citizens' private wealth abroad might also be exaggerated. The UAE had total exports of $550 billion between 1974 and 2000 and Kuwait $315 billion in the same period. As with Saudi Arabia these figures stand uneasily next to even the more conservative estimates of $266 billion and $163 billion respectively of private wealth held abroad by the nationals of each country.

However, even if the figures of $3 trillion of GCC private wealth abroad are overestimates, this is not to suggest that the volumes of wealth are insignificant. If the true figure for Saudi nationals' private offshore wealth were to be as low as, say, $500 billion, this would still be almost three times the country's gross domestic product in 2001. What is beyond dispute is that the repatriation of only a small proportion of this wealth could have a massive economic impact.

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