Reputation is key to GCC SWFs growth ‘Kuwait strongest economy in ME’

KUWAIT CITY, June 2: Nearly three quarters (74 percent) of elites would approve of investment coming from Kuwait, according to the Sovereign Brands Survey 2010, the most extensive study into the attitudes of global broad elites to sovereign wealth as a concept, the reputation of host nations and sovereign wealth funds (SWFs). This figure is the highest for any of the Middle East countries covered in the survey. Conducted by Hill & Knowlton and Penn Schoen Berland, two of the world’s pre-eminent communications, research and strategy consultants, the study interviewed elites in 7 marketsii on their views of 19 host countries and their SWFsiii. Nearly all (98 percent) of the respondents felt the reputation of the country directly influences the reputation of SWFs. It also identified that lack of familiarity with SWFs may lead to suspicion about the overall objectives of the funds. Of the countries surveyed, the US, UK and India were least familiar and least favourable to SWF investment, whilst Egypt, Germany, Brazil and China were most familiar and most favourable. Stephen Davie, Hill & Knowlton’s Head of Financial Communications, ME, commented: “Despite being considered one of the least volatile forms of investment compared to other sources of capital, it is surprising that low familiarity still drives low favourability towards this type of funding. The survey results show by working on their reputation and by increasing awareness of their SWFs is a key step for Middle East countries looking to open up significant investment opportunities.”

Survey
The Sovereign Brands Survey looked in detail at the factors elites wanted to see if SWFs intended to invest in their country or industries. They identified transparency as essential, 72 percent citing this as very important, closely followed by accountability (68 percent) and good governance (65 percent). Kuwait again scored very well on transparency recording the best result for a ME country. More than half (54 percent) of the respondents said that they strongly or somewhat agreed with the approach being taken by Kuwait in terms of financial records and transparency of investments. This placed Kuwait fourth in this field, behind Norway (81 percent); Singapore (66 percent) and Hong Kong (64 percent).
Davie believes that transparency will always be key for SWFs: “The recession has spurred interest in SWF investment but concerns over transparency could obstruct investment strategies. Brazil (80 percent), India (63 percent) and China (78 percent) are more favourable towards this form of investment since the global downturn; this interest is likely to accelerate as the global economic outlook improves, which is very good news for SWFs. By demonstrating transparency Kuwait has clearly removed a significant block to new investment opportunities.”

The strength and stability of the Kuwait economy was highlighted, but there are still some concerns over the political stability of the country. Only 36 percent of elites thought there was stability with this figure dropping to only 19 percent in India and 22 percent in the US. The positive view of investment from Kuwait covered all sectors with a very healthy 43 percent of elites saying that they would be happy for Kuwait to invest in their energy sector. The impression of the performance of the Kuwait SWFs was also the highest in the Middle East, with 55 percent saying that the funds performed very or quite well in the past two years. Norway and Hong Kong led this category (65 percent), followed by Singapore (63 percent), China (61 percent) and then Kuwait. Joel Levy, Chief Executive Officer, Penn Schoen Berland, EMEA commented: “The economic downturn has created a real opportunity for sovereign wealth funds. SWF’s images are largely determined by country reputation, and despite low familiarity and concerns over transparency, broad elites see SWFs as least likely to have contributed to recent market turmoil. This puts sovereign wealth funds in a prime position to consider their positioning and reputation in contrast to other funds and asset classes.”

Barrier
The data was very clear especially when looking at Government influence. This remains a barrier to accepting SWF investment according to the majority of elites. Kuwait scored reasonably well in this area with 54 percent of respondents comfortable that there is transparency over the Government’s influence on its funds. But most elites believe that more can and should be done following the introduction of the voluntary Santiago principles by the IMF in September 2008iv, poor adoption may be deterring consideration of certain asset classes amongst the host countries interviewed. For example, all were adverse to SWFs investing in their defence sectors, this view felt most strongly by the UK (30 percent), Germany (21 percent) and Egypt (37 percent), than Brazil (70 percent), India (57 percent) and China (54 percent).

“SWFs have a vital role to play as economies start to pick up. To take advantage of this they need to look closely at the way their image interacts with, and is influenced by, the national brand and fully understand which messages work in which market. If this happens I think we will hear more about the positive role this important investment stream has to play.” concluded Mr Davie. Research conducted amongst 150 broad elites in each of 7 markets between Jan 15 and Feb 1, 2010. For the survey broad elites are defined as influential members of society who are university educated, generally within middle to upper management, earning in excess of £50k or local market equivalent and with an active interest in national and international affairs in the both politics and the business world. This group is commonly used within political campaigns as a proxy for the ruling class/decision makers. Markets where research was conducted: UK, US, Egypt, Brazil, Germany, China and India. Host countries with SWFs: Norway, Singapore, Hong Kong, Malaysia, Abu Dhabi, Dubai, Kuwait, Qatar, China, Bahrain, Oman, Mexico, Russia, Libya, Kazakhstan, Brunei, Algeria, Nigeria and Botswana.


By: Hill & Knowlton

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