Nato Secretary General Jens Stoltenberg at a foreign ministers' meeting in Brussels, Belgium on April 5, Reuters
Nato Secretary General Jens Stoltenberg at a foreign ministers' meeting in Brussels, Belgium on April 5, Reuters
Nato Secretary General Jens Stoltenberg at a foreign ministers' meeting in Brussels, Belgium on April 5, Reuters
Nato Secretary General Jens Stoltenberg at a foreign ministers' meeting in Brussels, Belgium on April 5, Reuters

Nato members pressed to make 2 per cent of GDP investment 'a floor, not a ceiling'


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Nato Secretary General Jens Stoltenberg on Wednesday called on the alliance’s 31 members to increase their defence investment pledges above the target of 2 per cent of GDP.

“In a contested and dangerous world, we cannot take security for granted,” said Mr Stoltenberg at the opening of a meeting of Nato foreign affairs ministers at the alliance’s Brussels headquarters.

“We must invest in our defence.”

Not all Nato members endorse Mr Stoltenberg's calls, with divisions apparent as ministers arrived at the meeting after participating in a flag-raising ceremony on Tuesday to accept Finland into the alliance.

The meetings are largely devoted to preparing a heads of government summit in Lithuania in July, during which Mr Stoltenberg hopes that allies will increase their defence pledges.

Allies first committed to a minimum of 2 per cent of their GDP to defence spending in 2006, a pledge which was renewed in 2014.

But most countries still lag behind that goal, which should be “a floor, not a ceiling”, according to Mr Stoltenberg.

Russia’s invasion of Ukraine last year has heightened security fears within the alliance and its members rushed to increase military production.

Some Nato members — mostly those that border Russia, such as Poland — have increased spending and publicly stated targets above 2 per cent of their GDP.

Estonia has been leading a push for the target to be raised to 2.5 per cent of GDP.

A quarter of the sum should go to new capabilities investments, said Estonian Foreign Affair Minister Urmas Reinsalu on Wednesday.

“Two per cent is not valid,” Mr Reinsalu told reporters, adding that only one third of Nato allies will reach that threshold. Estonia is committed to spending 3 per cent of its GDP on defence.

“We need to deliver more,” said Mr Reinsalu. “One thing is nominally to speak about percentage of GDP, but the core is to look to the share of defence investments.”

Mr Reinsalu’s Czech and North Macedonian counterparts said their countries had pledged to reach the 2 per cent target by 2024.

Finland exceeds that figure.

“It’s important that everybody comes to 2 per cent level at least,” said Finnish Foreign Affairs Minister Pekka Haavisto.

Not all Nato allies agree. The strongest resistance came from Germany.

Foreign Affairs Minister Annalena Baerbock acknowledged that Nato members in Eastern Europe had “particular worries.”

She said that it was important to not just talk about “raw numbers” but “what it means in practice”.

“Measuring by GDP means that in economically difficult times, where your budget and economic strength tend to be smaller, you can achieve Nato goals without having achieved anything militarily,” she said.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Retail gloom

Online grocer Ocado revealed retail sales fell 5.7 per cen in its first quarter as customers switched back to pre-pandemic shopping patterns.

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Updated: April 05, 2023, 9:59 AM