UAE authorities offer Ukraine assistance with creating sovereign fund

The authorities of the United Arab Emirates have offered aid to Ukraine in forming a sovereign fund, and they will be engaging experts to do so.

The press service of the President's Office reported this following the meeting of the head of the presidential office Andriy Yermak with the delegation of the UAE.

What is the problem?

There are over three thousand state-owned enterprises in Ukraine, which make up about 13% of the assets of all companies in the country. The constant question for the state is what to do with this almost two trillion portfolio of investments in its ownership.

The way out should be large-scale privatization. However, this process will not be quick, especially during war.

Furthermore, the governance of state–owned enterprises is currently divided among numerous governmental bodies and agencies. Concurrently, the government has yet to be in a position to divest its primary assets, including Naftogaz.

What is the solution?

At various times, the authorities voiced the idea of uniting their largest companies into a single holding.

In October 2022, in an interview with Forbes, the head of the State Property Fund of Ukraine, Rustem Umerov, said he wanted to create a sovereign fund into which enterprises from strategically essential industries for the state should enter.

How does it work?

To create a sovereign fund, the experience and expertise of one of the world's largest sovereign funds, ADQ, and their consultants from the Contango company will be involved.

The sovereign fund will work with state-owned enterprises that the state will not put up for privatization. The purpose of the sovereign fund is to increase the country's capitalization.

^{Photo: Office of the President}

The following should enter the fund:

• Enterprises of energy and critical transport infrastructure,
• Enterprises with a unique market position.
• It also applies to enterprises that have licenses for extracting natural minerals and their processing.

^{Photo: Office of the President}

On June 11, a UAE delegation led by the Minister of Climate Change and Environment, Head of the Office of International Affairs under the President of the UAE, Mariam Almheiri, arrived in Kyiv.

^{Photo: Office of the President}

Volodymyr Zelensky instructed the head of the Office of the President, Andriy Yermak, to conduct this meeting.

During the meeting, the parties paid immediate attention to implementing the Ukrainian peace formula and the possibility of joining the UAE in implementing its points, particularly regarding the guarantee of food security, radiation and nuclear safety, and the prevention of ecocide.

The parties also discussed the issue of further expansion of Ukrainian-Emirati cooperation, particularly in the trade, economic, and investment fields.

For reference:

Established in Kuwait in the mid–20th century, the Sovereign Wealth Fund is a public–investment fund typically comprised of surplus revenues from international trade. These funds can be utilized within Kuwait and internationally to invest in equities, bonds, and metals.

Some of the most significant sovereign funds in the world, for example, in Kuwait or Norway, were formed from the sale of oil. Such funds can reduce the risks for countries' economies from a drop in income in the event of price instability on world markets.

Kuwait's sovereign wealth fund, which in 2020 was the fourth largest in the world with assets of $500 billion, helped rebuild the economy after the Persian Gulf War.

The state can also establish a sovereign fund to accumulate surplus resources for payments to future generations. Such a mechanism exists in the UAE, where after reaching the age of 18, citizens receive about 100,000 dollars.

In Ukraine, before the war, there was an idea to create a similar mechanism in the form of an "economic passport." The fund for the project was supposed to be filled with rent for the use of the subsoil, and after reaching the legal age, Ukrainians would receive 20,000 euros each.

In many instances, sovereign funds are paramount in a nation's industrial development strategy. For example, Malaysia's Khazanah is responsible for financing infrastructure facilities, while Kazakhstan's Kazyna invests in initiatives to further industrial processing.