Abu Dhabi, UAETuesday 11 December 2018

Saudi foreign aid: untied and praiseworthy

The saying that one's left hand should not know what the right hand is giving aptly describes the aid efforts of the Gulf countries.

The saying that one's left hand should not know what the right hand is giving aptly describes the aid efforts of the Gulf countries in general and Saudi Arabia in particular. Although faced with its own pressing domestic needs, huge infrastructure projects and a large population, the kingdom has continued to shoulder its international aid responsibilities without waiting for thanks or favours. The UN says the annual aid-donation target for the richest countries of the Organisation for Economic Co-operation and Development was set at 0.7 per cent of GDP. With the exception of the Netherlands and some Nordic countries such as Norway, Sweden and Denmark, nearly all countries' donations fall woefully short of that target.

The recent global financial crisis and meltdown in some industrialised economies has also put a brake on giving aid, as politicians find little stomach to champion the world's poor while being pressed to sort out problems nearer to home. Despite oil price volatility and the associated fluctuations in revenues, Saudi Arabia has been a large and generous contributor of foreign aid on a direct, bilateral and multilateral basis through international organisations such as the World Bank, the IMF and the Saudi-based Islamic Development Bank.

Most Saudi bilateral project and development aid has been channelled through the Saudi Fund for Development (SFD), with emphasis on direct project assistance as Saudi Arabia builds up its disbursement and project-monitoring capability. What has been noticeable, however, is that most Saudi aid comes "untied", unlike western aid. In essence, most western aid is granted on the understanding that projects will be funded only if companies in the donor countries benefit from the aid through exports or technical assistance.

Saudi aid, on the other hand, seems to benefit non-Saudi companies in the recipient countries; in effect, the kingdom subsidises western companies and their economies. While the Saudi approach to aid may change over time to include a larger element of "tied" aid as Saudi companies develop international expertise and cross-border project-management capability, for the time being, the old adage on giving aid seems to apply.

Whatever the approach, the amount of Saudi aid has been significant. The latest SFD figures show that institution has granted nearly 29 billion riyals (Dh28.4bn) in aid over the past 30 years to some 73 countries, with nations in Africa accounting for nearly 50 per cent of the total. The range of projects has been diverse; from social infrastructure building to capacity building in these nations. While SFD-directed aid might be large, Saudi multilateral aid has totalled about US$30bn (Dh110.19bn) over the past 30 years to institutions such as the Organisation of the Islamic Conference, and about $15bn through various regional and international aid organisations such as the Arab Bank for Economic Development in Africa, the Arab Fund for Economic and Social Development and the Arab Monetary Fund.

Saudi aid channelled through the World Bank and the IMF has also been impressive, at more than $16bn, earning the kingdom a well-deserved place in the IMF and the Group of 20 leading and emerging economies. Given the size of Saudi Arabia's GDP, the amount of aid the kingdom has extended over the years represents an average of between 1.2 per cent and 1.3 per cent a year of Saudi GDP, well above the UN target.

Saudi Arabia, like other Gulf countries, also extends direct and undisclosed aid to friendly and other Muslim countries, helping them in emergencies and providing balance-of-payments supports. The kingdom also provides aid by purchasing essential commodities for needy countries. Such aid tends to fluctuate according to the kingdom's revenue fortunes. That assistance is listed under "other government services" in the official balance-of-payments accounts. Such aid reached impressive peaks of about 80bn riyals during the oil boom of the mid-1970s, before averaging between about 40bn riyals and 45bn riyals a year over the past decade.

Other Gulf countries have, of course, made significant aid contributions over the years. Kuwait, in particular, led the way from the 1960s in establishing the foundation of international aid agencies. The Kuwait Fund for Arab Economic Development, commonly known as the Kuwait Fund, was founded in December 1961 and was operational shortly after the country's independence, ensuring that Kuwait's newly discovered oil wealth was used to benefit neighbours and friends.

The UAE has also been a generous aid donor and has recently set up a Foreign Aid Co-ordination Office to track such aid, after some dispute with the UN over the amount of aid the country has given as a proportion of its GDP. While the global recession has reduced many countries' appetite for providing aid - a setback for the Millennium Development Goals - it is important for the sake of worldwide stability that countries remain, like Saudi Arabia and others in the Gulf, generous in aid.

After all, if your neighbour's house is on fire your own house is at risk. Dr Mohamed Ramady is a former banker and visiting associate professor, finance and economics, at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia