Malaysian-Saudi economic ties enter new era

At a time when the global economy was under tremendous pressure, securing a commitment of US$1.5 billion investment from anywhere would be an achievement.

Coming from Saudi Arabia, it was significant as it marks a new milestone in economic cooperation between the two countries and considering other rivals were also jostling to attract Saudi money to their shores, it was a coup that Malaysia was the chosen one.

Together with Malaysia's commitment of US$1 billion, both the country's 1Malaysia Development Bhd (1MDB) and Saudi Arabia's PetroSaudi International on Wednesday surprised the market when they jointly announced formation of a US$2.5 billion (RM8.71 billion) investment fund to invest in high impact projects in Malaysia and abroad.

Wednesday's announcement was not of a mere memorandum of understanding (MOU). Malaysian Prime Minister Datuk Seri Najib Razak said the operating joint-venture company managing the fund would start work immediately.

Najib also said that he was informed by Bank Negara Malaysia officials that the money from Saudi is already here in Malaysia, while on its part, Malaysia will use money from a sovereign bond issued recently to subscribe for its portion of the joint-venture.

Also interesting is that the investment fund size is not limited to the US$2.5 billion. Najib said it will be increased later.

Even at the initial RM8.7 billion, the investment fund can be considered sizeable. That was about the amount spent to build the entire North-South Expressway, a project which dumped all political rhetorics that went against it and in the end was recognised not only as an economic catalyst during the last downturn, but also as an important testimonial for all the contractors involved in it. Many of them are today building roads, bridges, airports and buildings overseas.

Amid the current weak financing and investment environment, the RM8.7 billion Saudi Arabia-Malaysia joint-investment fund could not have come at a better time. Malaysia has somewhat struggled to attract foreign invesments this year.

But perhaps, the most significant part of Wednesday's announcement was on where the fund would channel its money to.

Najib spoke of high impact projects in the petroleum, renewable energy and real estate sectors - a clear indication that the investments being aimed for will be long term in nature.

Which makes it a lot more meaningful than equity investments from overseas that can come and go with just the touch of a computer keyboard.

On why PetroSaudi chose Malaysia, surely it knows best. Arabs are historically competent investors and PetroSaudi would have done its homework before signing on the dotted line.