Saudi Arabia’s Problem Isn’t the Canada Fight, It’s Capital Flight
As Riyadh dawdles on reforms, money is stampeding to the exits.
The shine seems to have come off Crown Prince Mohammed bin Salman’s “Vision 2030” plan.
Photographer: Abaca Press/Associated Press
As Saudi Arabia raises the stakes in its dispute with Canada, the economic fallout could worsen an already serious issue for the kingdom: capital flight. Trade between the two countries is small, valued at roughly $4 billion, but the diplomatic dust-up has heightened the sense of risk in the Saudi investment climate, and is certain to scare even more capital away.
According to research by JPMorgan, capital outflows of residents in Saudi Arabia are projected at $65 billion in 2018, or 8.4 percent of GDP. This is less than the $80 billion lost in 2017, but a sign of a continued bleed. Significantly, the projection was made before the contretemps with Canada. According to research by Standard Chartered, the first quarter of 2018 saw $14.4 billion in outward portfolio investment into foreign equities, the largest surge since 2008. There are concerns that the government is leaning on banks and asset managers to discourage outflows, a kind of informal capital-control regime.