1. Investment of Public Pension Funds in the MENA Region Mohammad M.Sartawi,CEO The Third Annual Public Pension Fund Management Conference Washington, Sep. 20-22,2004 The World Bank Sartawi Consulting / (Management and Actuarial Consultants) e - mail : mm_sartawy@yahoo.com www.sartawi-consulting.com

2. Contents: - MENA - Jordan - Sudan - Oman - Bahrain

3. MENA Countries Indicators - 10 oil exporters. - 7 significant labor exporters. - 6 depend highly on diversified manufacturing and service industries. - Total population : 306 million (2002). - Average life expectancy = 69 years. - GDP 670.7 billion US Dollars. - GDP Per capita $ 2193 (2002). MENA

4. Population ( m)Life expectancy (Yrs.) Under – 5 mortality rate per 1000 MENA 3066954 Algeria317154 Bahrain0.6773-- Egypt666939 Iran666941 Iraq2463125 Jordan57233 Lebanon47132 Libya57219 Morocco306843 Oman2.574-- Saudi Arabia227328 Sudan32.858.4-- Syria177028 Tunisia107326 West Bank and Gaza373-- Yemen1957114 MENA

5. CountryPension Expenditures % of GDP Algeria2.7 Bahrain1.4 Iran1.2 Jordan2.4 Morocco2.1 Tunisia3.4 Djibouti2.6 Saudi Arabia0.2 Egypt2.2 Yemen0.45 Lebanon3.7 West Bank and Gaza0.8 Pension expenditures of major MENA countries in 2003: MENA

6. CountryPension Funds Assets % of GDP Algeria1.75 Bahrain50.8 Egypt33 Iran6 Jordan25 Morocco9 Oman4.2 Tunisia6.5 Yemen4 Saudi Arabia135 Lebanon9 Sudan1.3 The size of Fund assets as % of GDP in 2003 MENA

7. MarketTotal Market Capitalization (Billion$) Saudi Stock Market157.3 Kuwait Securities Market59.5 Abu Dhabi Securities Market30.3 Cairo and Alexandria Bourses27.8 Dubai Financial Market14.3 Doha Securities Market26.7 Casablanca Bourse13.05 Amman Bourse10.9 Bahrain Securities Market9.7 Muscat Securities Market7.2 Tunis Securities Bourse2.4 Beirut Bourse1.5 Khartoum Securities Market0.75 Algeria Bourse0.14 Total361.54 Source : Muscat Securities Market (MSM) Internet Data Total market Capitalization MENA

8. Investment Policies (SSIC) The main investment policies of SSIC include : - Priority to national viable instruments within parameters and standards ensuring risk management and liquidity requirements. - Diversification of asset class, sector and time. - Investment decisions are based on economic fundamentals thus avoiding speculative instruments. - Follow strict guidelines to ensure safety and diversity of overseas investments. Jordan

9. Asset Class5-years targetsLong term targets Money Market instruments5% - 25%10% - 20% Fixed Income Securities7% - 30%15% - 35% Listed local Equities17% - 30%25% - 40% Non - listed local Equities8% - 20%10% - 20% Loans7% - 15%10% - 20% Real Estate3% - 15%10% - 20% International Fixed Income0 - 10%5% - 10% International listed Equity0 - 2%0 - 5% Asset allocation policy :- Jordan

10. Size and Growth of Investment Fund: YearSize of investment (m.JD)% of GDP 19804.20.4 19851216.2 199035713.1 199574416.5% 2002162725% 20031930- 20083170- 202312533- Jordan

11. Distribution of investments SSC Year Stocks and Shares Loans and Bonds Real Estate Bank Deposits Total 1997 176.1 (17.8%) 255.1 (25.8%) 51.5 (5.2%) 505.3 (51.2%) 988.0 1998 191.7 (17%) 267.5 (23.7%) 52.2 (4.5%) 619.4 (54.8%) 1130.8 1999 235.5 (18.3%) 231.3 (18%) 57.5 (4.4%) 763.4 (59.3%) 1287.7 2000 346.6 (24%) 281.1 (19.4%) 63.6 (4.6%) 756.4 (52%) 1447.7 2001 475.8 (30%) 232.6 (14.7%) 84.3 (5.3%) 789.8 (50%) 1582.5 2002 503.0 (30%) 388.4 (23.2%) 92.4 (5.6%) 690.3 (41.4%) 1674.1 2003 714.6 (37%) 487.9 (25.3%) 110.7 (5.7%) 615.8 (32%) 1929 Jordan

12. JSSS Revenues, Expenditures and Surplus in million JD(1980 – 2023) Year Contribution Revenue (1) Investment Income (2) Total Revenues (1+2)=3 Total Expenditure s (4) Annual Surplus (3-4) Size of Investment Fund 19804.70.1044.80.3094.494.5 198534.45.439.86.2433.56121 199050.525.475.920.355.6357 2002200652651421231674 2003237723091691401929 20084002416412953463170 202317589392697178890912533 Jordan

13. Supply of Investment Instruments - The type and volume of investment instruments available for pension funds and other investment have developed significantly since the beginning of fund accumulation. Jordan - Traditionally, the main investment instruments include bank deposits, physical properties, ( lands, buildings and tourist facilities ) loans and ownership in companies.

14. Types of Instruments Due to the increasing demand for investment instruments ( by pension funds and others ) and the economic developments in Jordan in general, more instruments were introduced which can be classified as follows :- - Cash and cash equivalent - Fixed Income securities - Equities - Physical properties Jordan

15. A- Cash and cash equivalent :- - Time deposits - Certificate of Deposits (CD’s) - Treasury Bills - Commercial papers Jordan

16. B- Fixed Income securities - Government bonds - Commercial bonds - Development bonds - Debentures - Commercial loans - Housing loans Jordan

17. C – Equities :- - In listed companies (listed in Amman Stock Exchange – ASE) - In unlisted companies - Mutual Funds - Overseas instruments ( Global Investments ) Jordan

18. D- Physical properties - Land Plots - Buildings - Tourist facilities - Other physical projects Jordan

19. Share of SSC investment in the Market 20022003 1. SSC equities in listed companies: Market value of SSC portfolio (million JD)517.2820 Market capitalization (million JD)50297772.8 Share of SSC equities10.3%10.6% 2. SSC bank deposits SSC time deposits (million JD)671464.5 Total banks deposits in Jordan (billion JD)9.410 Share of SSC deposits in total deposits of Jordanian banks7.1%4.7% 3. SSC Loans SSC loans portfolio (million JD)53.569.8 Total Jordanian’s banks credit facilities and loans (billion JD)5.15.3 Share of SSC loans in total credit facilities1.05%1.32% 4. SSC real estate portfolio: Value of SSC land and property portfolio95111 Total value of real estate market (million JD)17831874 Share of SSC real estate in total market5.3%5.9% 5. SSC Bonds Value of SSC bonds216418 Total bonds13451525 Share of SSC bonds in total bond market16%27.4% Jordan

20. The Role of SSC Investment in the Market - SSC investments (as pension funds) has important role in the development of capital market. - Considered as a reliable source for long – term capital. Jordan

21. The role of capital market for SSC investment includes :- 1- Provide a forum to buy / sell securities at ease thus reducing investment costs. 2- Diversification through investment in exiting companies that are subject to control and distribution of investments in various sectors of the economy and several terms (medium and long- term with respect to time of investment). 3- Allow control of decisions through membership in company boards of directors and through general assembly. 4- Allow profit maximization through dividends and capital gains. Jordan

22. Sudan Public Pension System 1- The National Social Insurance Fund (NSIF) covers all Private sector workers working for employers with 5 or more workers as will as all government workers in public organizations and institutions. 2- The Public Service Pension Fund (PSPF) covers all employees in the service of the Government. 3- Total contributors are currently 706000. 4- Total cost of the two schemes including administration costs, stands at 9.5 billion SD at present Sudan

23. 1- Management of Investment Funds NSIF and PSPF are governed by a unified Board of Directors with Director General of both funds as member of Board. Sudan

24. 2- Investment Policy 1- Investment objectives :- - Maximize social protection efforts through improving the living conditions of the retirees. - Preserve the real value of assets of both schemes - Contribute to the social and economical development and activate the economy. 2- Investment principles :- - Security - Liquidity - Yield - Economic and Social development. Sudan

25. 3- Priorities and controls :- - Priority to low risk investment. -Priority to investment projects that require less execution and follow – up costs - Priority to investments that provide products and / or services to the retirees. - Coordination of investment plans / programs with the country fiscal and financial policies. Sudan Investment Policy

26. 4- Investment Classes :- a- Short – term investments - Bank Deposits - Shahama bonds ( 3-6 months ). - Commercial investment( buying and selling goods and produce) for duration of 3 years only. b-Medium term investment :- - Bonds ( one year ). - Lease and contract bonds. - Trade in Khartoum Stock Exchange. - Banks. - Shares of Sudatel ( telecommunication ). - Food industries. Sudan Investment Policy

27. C- Long – term investment :- - Acquisition of administration buildings for NSIF and PSPF. - Social investment programs and productive households. Sudan Investment Policy

28. Size and Growth of Investment Funds (NSIF and PSPF) Year Size of PSPF investment Fund (Billion SD) Size of NSIF investment Fund (Billion SD) Total size of investment Funds %of GDP 19983.5NA 199911.5NA 20001617331.1% 20012219411.2% 20022921501.28% 2005*302555 * Estimated based on historical growth taking into consideration Sudan

29. Distribution of NSIF and PSPF investment A – NSIF Year Commercial Investments ( %) Bank Deposits (%) Equities (%) Real Estate and Construction Projects (%) Total (%) 200051.440.38.30.0100 200148.519.611.120.6100 200222.321.334.521.8100 Sudan

30. Distribution of NSIF and PSPF investment B – PSPF Type of instrument % Of total investments Commercial investments45 Land, Real Estate and projects 23 Shares and bonds16 Equities13 Bank deposits3 T o t a l100 Sudan

31. Demand for Investment Instruments by Pension Funds 1- The system costs of both NSIF and PSPF is high at present where NSIF pays abut 52% of the contributions collected as pension expenditures and PSPF pays about 80% of the contributions collected as pension and administration expenditures. 2- The high systems costs coupled with the high growth rate of expenditures would leave limited flow of investment to the market for a limited time. 3- The size of two funds is currently 50 billion SD and is expected to grow to 55 billion SD in 2005 then to 60 billion SD in 2015 and may deteriorate within couple of years afterwards based on the high growth of the system costs. Sudan

32. The types of available instruments are :- 1- Bank deposits. 2- Equities :- - In listed companies. - In unlisted companies. 3- Loans (commercial and Islamic). 4- Trading in basic commodities and produce including purchase and export of some produce like sesame, sugar cane --- etc. 5- Land and real estate projects including buildings and apartments.This activity involves acquisition of existing physical properties as well as development and construction of new projects. 6- Bonds including development and Islamic bonds (shihama and Shamam). Sudan

33. The role of NSIF and PSPF Investment in the Market 1- The role of PSPF and NSIF investment in the market become of significance since the beginning of 1997. 2- Due to lack of financial instruments, PSPF investment were shifted from the long-term real estate investment to commercial investment and other short term instruments including the buying and selling of land, real estate and construction development projects thus contributing to the economic development of Sudan and Maintaining reasonable return. 3- Other parts of the investment (NSIF) were directed towards the improvement of the living standards of the retirees due to high inflation. 4- The investment market in Sudan is very shallow as offerings in the Khartoum Securities Market (KSM) is very limited and market capitalization is very low in terms of both stocks and bonds ( in 2003 KSM market capitalization was 767 million U.S dollars. Sudan

34. Major roles of NSIF and PSPF :- 1- PSPF investment provide financing to various projects and institution therefore supporting the mission of the commercial banks by adding complementary and, in certain cases new products and instruments. 2- Participation in major economic institutions thus providing long – term financing. Institution include banks,industrial and service companies and others. 3- Investments, on short- term basis, through trading portfolios, Khartoum Stock Exchange thus improves market capitalization and turnover. The share of stocks and bonds in PSPF investment reached 16 % in 2002. Sudan

35. Oman Public Pension System - There are twelve public and private pension and social insurance schemes in Oman. - The public pension system consists mainly of the Public Authority for Social Insurance (PASI) and the Civil Servants Pension Fund(CSPF). - Active contributors of PASI increased from 34000 in 1997 to 65878 in 2002. - Insurance expenses paid by PASI were (24.7), (35.4) and ( 40.9) million RO during the years 2000,2001 and 2002 respectively. - The CSPF was incorporated in 1986. - Total CSPF active contributors reached 74294 in 2002 while total beneficiaries were 28843 during the same year. - Total pensions and other compensations bill paid by CSPF in 2002 was50 million RO. Oman

36. Investment Policies/Objectives - To ensure the scheme’s long term ability to pay future liabilities to the insured employees by achieving good investment returns. - To properly allocate the investment into different and flexible classes that can maintain the real value of the money and diversify risks. Oman

37. The investment policy of CSPF relies upon the following principles - Safety of investment through diversification of risks and preservation of assets. - protect the assets value against inflation effects. - Increase self reliance and self financing of the scheme through improvement of the investment function thus achieving higher income. - Provide liquidity to finance CSPF future liabilities. - Contribute to the economic development through participation in commercially feasible projects and development components. Oman

38. Both PASI and CSPF invest in instruments as determined by the Royal Decree No.31/96 and the investment guidelines developed accordingly. The investment instruments include: - Equities in local companies - Local bonds - International Equities - Local Real Estate - Deposits in local and international banks including certificate of deposits (CDs) - International investment funds - International funds of private shares Oman The investment policy of CSPF relies upon the following principles

39. YearMSM market Capitalization (M. RO) Estimated Size of PASI Investment fund (m.RO) Estimated Size of CSPF investment fund (m.RO) Total size of public pension fund investments (M. Ro) % Of GDP % Of market capitalization 19982265 NA 1999226211391204 9.02% 200019481421142653.47 % 13.6% 200117221571262833.7%16.43% 200219481821463284.2%16.84% 200327902231784014.8%14.37% Oman

40. Distribution of PASI and CSPF Investments. a : CSPF Year Instruments 1998 % 1999 % 2000 % 2001 % 2002 % Government & Non – government bonds 16.41 27.60 26.05 23.77 32 Bank Deposits (RO) 63.60 41.70 25.21 30.67 20.70 Bank Deposits (US $) --- --- 7.32 6.45 3.46 Bank Deposits ( UAE Dirahms ) --- --- --- --- 1.21 Equities (Local) 18 28.5 39.23 37.44 39.68 Local portfolios * 0.99 1.10 1.10 0.62 0.63 Real Estate 0.0 0.0 0.0 0.0 0.35 Overseas Investments 1 1.10 1.09 1.05 1.97 Total 100 100 100 100 100 Oman

41. b- PASI Year Instruments 1998 % 1999 % 2000 % 2001 % 2002 % Government and corporate bonds 17 1617.422.2 Bank Deposits, CD’s and short term investments 29284553.947.6 Equities45.5 483426.227.4 Real-Estate2 322.52.8 Loans6.5 43--- Total 100 100 Oman

42. Both Schemes (and Particularly PASI) Is Not Yet in the Maturity Stage. It Is Expected That the Scheme Will Continue to Generate Surplus Thus Establishing More Demand for Investment instruments in the short &medium term. Estimated size of PASI and CSPF investments relative to market capitalization ranges from 9.02 % in 1999 to 14.37% in 2003 with more potential for growth in the future. Oman

43. Types of Investment Instruments a- Cash and cash equivalent: i. Time deposits in local and foreign currencies. ii. Certificates of Deposits (CD). iii. Treasury Bills. b- Fixed income securities: i. Government bonds ii. Non-government bonds iii.Commercial loans. c- Equities: i. In listed companies (listed in MSM) ii. In portfolios d- Real Estate and projects.

44. The values of PASI and CSPF portfolios relative to the market size are as shown :- 20012002 1-PASI and CSPF equities in local companies Value PASI and CSPF equities (million RO ) Market capitalization (million RO) Share of PASI and CSPF equities 92 1722 5.34% 108.4 1948 5.56% 2- PASI and CSPF bank deposits PASI and CSPF value of bank deposits (million RO) Total bank deposits in Oman (million RO) Share of PASI and CSPF in total deposits in Oman banks 143 2683 5.33 % 117 2777 4.21% 3- PASI and CSPF bonds Value of PASI and CSPF bonds (million RO) Total bonds (million RO) Share of PASI and CSPF bonds in total bond market 59.6 422 14.12 % 87.1 416.4 20.92% 4- PASI and CSPF Real Estate Value of PASI and CSPF Real Estates Total value of Real Estate market Share of PASI and CSPF in Real Estate market -- -- 5.6 256.8 2.18 % Oman

45. The Role of Public Pension Funds Investments in the Market Public pension funds investments has provided, and will continue to do so in the future, the market with long term capital thus contributing to the deepening of the capital market in Oman. Oman

46. The role of capital market for pension funds and other investments includes: 1- Provide investment opportunities in securities thus reducing investment costs. 2 - Regulate dealings in securities and provide protection to investors. 3- Provide a suitable environment for maintaining the counterbalance between supply and the easy liquidation of funds invested in securities. 4- Diversification through investment in exiting companies that are subject to control Oman

47. Bahrain Public Pension System Bahrain The public pension system of Bahrain consists of: - The pension Fund Commission (PFC) - The General Organization for the Social Insurance. The number of contributors of PFC increased from (13275) in 1976, to 37690 in 2002 and the number of beneficiaries ( pensioners and survivors ) increased from (15191) in 2000 to (21062) in 2002. The PFC is a partially funded defined-benefits scheme with the size of investment fund reaching 917.5 million BD at the end of 2002. Total contributors covered by GOSI increased from (158894) in 2001 to (174809) in 2002 while the number of pensioners increased from 5976 to 6964 in the same years.The size of GOSI investment fund reached 721.6 million BD at the end of 2002.

48. Investment Policies Bahrain GOSI and PFC aim at the preservation and maximization of the real value of the assets through diversification and risk management. Investment polices are based on the principles of guarantee, profitability and liquidity The investment funds follow the conservative investment approach and concentrate their investments in Bahrain thus supporting economic activities and contributing to the economic and social development of the country.

49. The public pension funds size developed as follows (in million BD) YearGOSI Investment Fund PFC Investment Funds Total Public Pension Investments Funds 1999---746.7--- 2000664.5814.71479.2 2001707.1866.51573.6 2002721.6917.51639.1 2003773.3--- Bahrain

50. Asset class BondsBank Deposits StocksLoansReal Estate Alternativ es Total YearGO SI PFCGO SI PF C GO SI PF C GO SI PF C GO SI PFCPFC PF C GOSIPF C 1999_26.1 % _33. 7% _11. 5% _9.6 % _0. 8 % _18. 3% _100 % 200022 % 29.4 % 39%29. 2% 20 % 9.7 % 0.012 % 5.4 % 0. 7 % 13. 6% 19 % 100% 200120 % 23.8 % 40%29. 7% 22 % 13 % 0.012. 2% 4.5 % 1%1% 13. 5% 20. 3% 100% 200222 % 22.6 % 40%27. 9% 15 % 15. 8% 0.012. 2% 4%1%1% 19 % 20. 5% 100% 200314 % _47%_16 % _0.0_4%_19 % _100% Bahrain

51. YearPercentage Investments In Bahrain GOSI PFC Percentage Global Investments GOSI PFC Total Investments GOSI PFC 2001 2002 2003 --- 83.2% 77 --- 74 --- 16.8% 23% 17.2% 26 % --- --- 100% 100% 100% --- Bahrain

52. The surplus generated by GOSI and PFC over the period ( 1999-2002) Bahrain YearGOSI surplus (million BD) PFC surplus (Million BD) Total demand for investment instruments (million BE) 199955.851.0106.8 200052.257.4109.6 200149.453.5102.9 200252.043.795.7

53. Types of Instruments: Bahrain a- Cash and cash equivalents: - time deposits ( in BD, US $ and others ) - Treasury Bills - Certificate of Deposits (CDs) b- Fixed Income Securities: - Government Bonds, Commercial Bond and International Bonds. - Islamic Bonds (Sukuk –Tajer and Salam). - Commercial loans and Loans to PFC contributors. - Pension commutation (loans). c- Equities: - In listed companies (in Bahrain Stock Exchange – BSE). - In unlisted companies. - Mutual funds. d- Land, real estate and physical properties.

54. Share of GOSI and PFC Investments in the Market During 2001 and 2002, GOSI and PFC investments were distributed in various instruments with allocations shown above. The values of GOSI and PFC portfolios relative to available instruments ( i.e market size) were as shown : Bahrain

55. 20012002 1-Equities GOSI and PFC portfolios (million BD) Market Capitalization (million BD) Share of GOSI and PFC equities 268.2 2500 10.7% 253.2 2900 8.73% 2- Bank deposits GOSI and PFC bank deposits (million BD) Total Bank deposits( million BD) Share of GOSI and PFC deposits in total deposits in Bahrain banks 540.2 2717.9 19.9% 544.5 2840.5 19.2% 3- Loans PFC loans ( million BD) Total banks credit (million BD) Share of PFC in total banks credit 105.7 1448.2 7.3% 112 1629.8 6.8% Bahrain

56. The Role of GOSI and PFC Investments in the Market Public pension funds were established in the mid of 1975 and Bahrain Stock Exchange commenced operation in 1989 with 29 companies listed on the Exchange. Pension funds investment size has grown to around 4.3 billion U.S Dollars at present with annual demand for investment instruments of around 265 million US Dollars. The conservative investment of pension funds and the long- term nature is considered an important element in providing long-term capital that flows into the investment market. In addition, public pension fund investments require diversification of investment in various instruments thus enhancing the development of new financial instruments. Bahrain

57. The capital market has expanded in terms of capitalization and type of instruments since the operation of BSE in 1989. Besides meeting the increasing demand for investment in Bahrain, BSE mission is to be an innovative and competitive international capital market. Bahrain

58. The strategy focused on four main areas, - Strengthening the legal infrastructure. - Adopting automated technical system. - Staff training. - Marketing and promotion. Bahrain

59. Thank You Discussion