Amid a deepening diplomatic dispute, Saudi Arabia’s decision to sell off its Canadian assets in a fire sale could benefit investors outside the kingdom and have little impact on Canada’s economy, say experts.
The Saudi central bank has instructed its overseas asset managers to sell Canadian equities, bonds and cash holdings “no matter the cost,” the Financial Times reported Wednesday.
Managers are estimated to invest more than $100 billion worth of Saudi funds in global markets, according to the report.
But this latest retaliation from Saudi Arabia could be beneficial for investors outside of the kingdom looking to pick up assets for cheap, said Rex Brynen, a political science professor at McGill University who specializes in Middle East politics.
“Since it’s a fire sale, it’s the Saudis that will be losing money and other people are going to make a profit at their expense,” said Brynen.
“You could snap up a Saudi-owned asset for fifty cents on the dollar.”
Brynen said that while there could be some negative short-term economic effects — a lower dollar value, slumping stock prices or investment capital leaving Canada — Riyadh’s decision will mostly hurt Saudi-owned firms.
“The Saudis are shooting themselves in the foot,” he said. “They seem perfectly willing to lose money and inconvenience their citizens in order to make a point.”
“Canada seems to be an easy target to signal to rest of the world ‘you can’t criticize us.’”
The Saudi-Canada feud began after Global Affairs Canada called for the “immediate release” of women’s rights activists Samar Badawi and Nassima al-Sadah.
In response, Saudi Arabia’s Crown Prince Mohammed bin Salman expelled Canada’s ambassador, froze new trade and investment, suspended a student exchange program and halted flights by state-owned Saudi Arabian Airlines to Canada for what it called “blatant interference” in its domestic affairs.
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On Wednesday, the kingdom suspended all medical treatment programs in Canada and looked to transfer Saudi patients out of the country. Saudi Arabia said there is no room for mediation on the escalating diplomatic spat and that Ottawa knows how to “fix its big mistake.”
“There is nothing to mediate,” Foreign Minister Adel al-Jubeir told a news conference in Riyadh. “A mistake has been made and a mistake should be corrected.”
Walid Hejazi, professor of international competitiveness at the University of Toronto, said the economic sanctions will have little effect on the Canadian economy as Saudi Arabia — Canada’s 20th largest trading partner — only represents roughly $4 billion in trade annually.
Canada and the U.S. trade roughly $2 billion worth of goods daily, Hejazi said.
“This is a political statement on the part of the Saudis,” he said. “Their Canadians holdings are not large enough to have any meaningful impact.”
Hejazi said the individuals travelling to and from the kingdom and companies looking to build business ties in the region will mostly be hurt by this move.
The Saudi Grains Organization also announced it is halting purchases of wheat and barley from Canada, but it was unclear whether this move affected only new purchases or delivery on previously agreed contracts.
According to Statistics Canada, the total amount of Canadian wheat sales to Saudi Arabia, excluding durum, was 66,000 tonnes in 2017 and 68,250 tonnes in 2016. Canadian barley sales totaled 132,000 tonnes in 2017.
In 2015, the Canadian Wheat Board was taken over by the state-owned Saudi Agricultural and Livestock Investment Co. and U.S. grain company Bunge. Now known as G3 Ltd., the majority-controlled Saudi firm said it has no plans to change or reduce its purchases of Canadian crops.
“It’s business as usual,” G3 vice-president Brett Malkoske told Reuters. The Saudi government has not said whether it will sell its stake in G3.
Chuck Penner, an analyst based in Winnipeg with LeftField Commodity Research, told Global News that if Saudi Arabia were to sell off its stake in G3 the impact on Canada would be “relatively seamless.”
“We’ve bought and sold grain companies before and business continues to go on,” Penner said. “Even if that was included in the list of assets they want to sell, I don’t think it would have a huge impact.”
“This is really a symbolic type of thing,” he said. “Canada won’t have any trouble selling its wheat and barley elsewhere.”
There is also concern over the uncertainty of one of Canada’s largest arms deals that saw General Dynamics Land Systems sell light armoured vehicles, known as LAV IIIs, to Saudi Arabia in a $15-billion deal in 2014.
GDLS spokesperson Doug Wilson-Hodge declined to comment on the issue.
Freeland has said that “Canada will always stand up for human rights in Canada and around the world” and that her department continues to seek clarity from Saudi Arabia on “various issues.”
“The Embassy’s Trade officers, in addition to the wider Trade Commissioner Service, are actively engaged with Canadian business interests and will continue to work with them and the relevant authorities in the coming days,” Global Affairs said in a statement. “Our government will always support Canadian workers and industries, and defend their interests at home and abroad.”
—With files from Reuters