IBRAHIM ABDULAZIZ AL-ASSAF wins Euromoney’s finance minister of the year award for his prudent, consistent and practical management of Saudi Arabia’s economy in a difficult and volatile regional and international climate.
He has earned national, regional and international respect as a driver of reform who has also maintained budgetary discipline and introduced measures to diversify the economy.
While much of the world has teetered on the edge of recession, Saudi Arabia’s economy, including the non-oil sector, which will have to provide employment for the growing number of Saudis coming on to the job market, has continued to grow by between 4% and 5%.
Al-Assaf’s policies have helped Saudi Arabia to maintain international confidence in the face of the rapid escalation of tension with the US, historically its closest economic and political partner, which now seems to be re-evaluating its relationship with the kingdom.
The far-reaching changes in the Saudi Arabian economy that he has championed would have been inconceivable only a few years ago. Yet Al-Assaf has won the arguments with those who want to keep a closed economy, and today the country has among the most liberal foreign investment laws in the region. The transformation of the financial sector, including capital market, insurance and taxation reforms, has been nothing short of remarkable.
A convinced free-market capitalist, Al-Assaf has played a leading role in implementing the strategy of Crown Prince Abdullah. This envisages the modernization of Saudi Arabia’s financial and business sector and encourages more open debate about the challenges facing the country, such as unemployment. During his time in office the government has started to shift from being a driver of the economy to becoming its regulator.
Open to debate Al-Assaf is a quiet, softly-spoken man who is known for his courtesy, and who chooses his words carefully. However, bankers say that his diplomatic demeanour should not be mistaken for weakness. They say he is firm and steady when it proves necessary.
They also praise his readiness to engage in debate when he disagrees with their economic assessments. They describe such discussions with him as constructive but firmly argued.
This year the Saudi economy continues to remain buoyant and is on course to produce an expected small budget surplus. This will be the fourth consecutive year of good results; the private sector continues to enjoy robust growth despite the sluggish state of the world economy. Saudi Arabia looks to be well positioned to benefit from its planned membership of the World Trade Organization.
Although it has taken some time to give momentum to structural reform, the country will soon also benefit from recently passed laws to open up and improve the regulation of capital markets and the insurance sector – policies championed by Al-Assaf and the central bank, the Saudi Arabian Monetary Agency (Sama). The capital markets law has been described as the most important reform in Saudi Arabia for 30 years.
Further legislation to update the taxation system is also likely to be passed this year.
The most recent endorsement of Al-Assaf’s seven-and-a-half year tenure at the ministry of finance and national economy came this summer when ratings agency Standard & Poor’s gave an A+ rating to Saudi Arabia’s long-term local currency debt. S&P, which is giving Saudi Arabia its first authorized rating, praised the country’s macroeconomic stability, its substantial cushion of foreign assets, the lack of external debt and the favourable composition of its debt profile, more than 80% of which is medium or long term.
Equally important has been the determination of Al-Assaf to address the long-term imbalances in the Saudi economy, including reducing the dependence on oil revenue. He has done so by creating the conditions in which a dynamic private sector (both locally and internationally owned) can grow. He has also led the long-term drive to develop those businesses that will create jobs.
Al-Assaf, 54, is married with four children. He took up his present position in January 1996 after a long career in Saudi public service. Educated in Saudi Arabia and the US – where he took a masters degree in economics at the University of Denver and a PhD in economics at the University of Colorado – he then spent 15 years as a lecturer and professor at King Abdulaziz Military Academy in Riyadh.
One of the most decisive periods in formulating his approach to Saudi Arabia’s financial challenges came in Washington where he represented Saudi Arabia at first the IMF and then the World Bank.
He was alternative executive director at the IMF from 1986 to 1989 and executive director at the World Bank from 1989 to 1995. He was appointed finance minister in January 1996 after serving for several months as the vice-governor of Sama.
Al-Assaf is now chairman of the boards of the Public Investment Fund (PIF), the Pension and Retirement Fund, the Saudi Fund for Development and the Real Estate Development Fund. He also represents Saudi Arabia on a number of leading regional and international organizations.
Managing on variable income His arrival at the ministry came at a critical moment for the Saudi Arabian economy. The days of massive petrodollar surpluses were long past and this financial squeeze was happening just when the kingdom needed major infrastructural investment.
The volatility of the oil price has made it difficult to establish the correct balance between prudence and investment. During his period in office, Al-Assaf has had to manage a national economy where 90% of revenue comes from oil, while the oil price has moved between $10 and $30 a barrel.
The local economy still does best at times of high oil prices and low international interest rates (the Saudi riyal is pegged to the dollar, so there is little room for interest rate flexibility).
Brad Bourland, chief economist at Saudi American Bank says that the key to Assaf’s success is that he “has maintained a consistent approach in good and bad times. This has given confidence to those who deal with the government that it would meet all its obligations.”
Said Al-Shaikh, chief economist at National Commercial Bank, agrees, adding that the minister has “effectively balanced the need to maintain confidence in the country while not raising expectations too high”.
Although appearing urbane and relaxed, Al-Assaf can be tough as he was when, together with Sama, he faced down international speculation against the Saudi riyal in 1998 when the oil price had fallen to just $10 a barrel. The Saudi authorities intervened heavily in the markets to drive home the message that the Saudi riyal would not be devalued.
Another example of his toughness was when he refused to continue the traditional practice of delaying payments to contractors whenever the budget arithmetic did not add up. “He has done a lot in this area and he made most of the reductions between 1995 and 1998 when it was harder to do as it was not a period of exceptional oil revenues,” says Bourland.
His longest-lasting contribution is likely to be in the reshaping of the Saudi economy and his readiness to encourage public discussion about the economic challenges facing the country.
There is, for example, much more information about the economy available to analysts and a more open discussion about such issues as government debt and unemployment. “He will always enter the debate but will present his case in a reasoned and balanced way and listen to other arguments,” says one analyst.
The encouragement of the private sector and foreign investment – three years ago Saudi Arabia introduced probably the most liberal laws on foreign participation in the region – are producing results that have even surprised local economists. The non-oil sector is now growing consistently at 4% to 5% and is helping to give the kingdom other sources of revenue. Al-Assaf is determined to promote investment and growth.
That process will receive another boost with the passing of laws to establish a formal stock exchange, in which foreign investment banks will be allowed to participate.
The minister has also made it clear that he expects to see foreign ownership of equities in the near future. He says that the new insurance law, which will create a genuinely competitive market, will reduce the risk for the business community and provide additional long-term investment opportunities.
Al-Assaf is also looking to make radical reforms in the taxation system.
He intends to create a system that ensures there is compliance from taxpayers. A corporate tax law, currently before the Supreme Council, will reduce corporate tax from 30% to 25% as well as making the law more transparent. The finance ministry is also studying plans to introduce excise taxes on luxuries.
The minister is one of the leading advocates of privatization, which recently recorded its greatest success with massive demand for the sale of 30% of Saudi Telecom through an IPO on the national stock exchange.
The minister’s agenda is to build on these achievements and demonstrate even more clearly to the outside world that the Saudi Arabian economy is opening up. The tax rises will broaden the government’s revenue base while the levels of tax and the pro-business environment will encourage the private sector to create jobs for young Saudis.
There will be no let-up in the reform strategy. As Al-Assaf notes: “While we have introduced a good number of measures, we will continue to reform and modernize the economy.”
