Saudi Arabia:A Financial Hub in the Making.
Saudi Arabia has all it needs to be the Middle East’s premier financial centre. The economy is big and rich, thanks to its enormous reserves of oil. Many of its lenders, including Al Rajhi Bank, are ambitious and well run. The Saudi Arabian Monetary Authority is probably the region’s best central bank. Driven by Vision 2030, an ambitious reform agenda championed by Saudi Crown Prince Mohammed bin Salman, it is now time for Saudi Arabia to realize its manifest potential.
A survey carried out by Euromoney and Al Rajhi Bank asked more than 70 white-collar professionals what it would take to transform Riyadh into a leading financial centre. Riyadh placed 96th in the 26th Global Financial Centres Index, a ranking of international financial centres published twice a year by London-based Z/Yen Group. In the region, six other cities ranked higher, including Dubai in 8th place.
Under Vision 2030, that will change. Finance minister Mohammed Al-Jadaan aims to transform Riyadh into a top-ten global financial marketplace by 2030, and our advisory board believe this is achievable. Over half of our advisory board said Saudi Arabia had all the right attributes required to transform its capital into a leading financial hub over the next decade, and 22% said this was “likely” or “very likely” to happen. Vision 2030 outlines plans to have a total of three Saudi cities included in Vancouver-based Resonance Consultancy’s ranking of the world’s best 100 cities, as measured by place, reputation and competitive identity.
Four years after opening up the Saudi Stock Exchange, or Tadawul, to foreign investors, the onshore capital markets are heating up. In May 2019, mall operator Arabian Centres raised $660 million in the first initial public offering (IPO) to actively seek international backing in five years. Global investors are now eagerly awaiting the $100 billion IPO of oil super-major Saudi Aramco, slated for completion by early 2021.
“Driven by Vision 2030, an ambitious reform agenda championed by Saudi Crown Prince Mohammed bin Salman, it is now time for SAUDI ARABIA to realise its manifest potential.”
Aramco completed its inaugural US dollar bond in April 2019, drawing over $100 billion in orders from global money managers, and raising $12 billion. The sale was a big moment in the development of Saudi Arabia’s debt markets. Nearly 90% of our advisory board said the best way to add depth to the market was to: a) diversify it; and b) make it more accessible to foreign investors.
Over half our experts pointed to the need to forge a thriving commercial sector filled with big, well-run corporates keen to sell bonds and expand at home and abroad. King Abdullah Financial District in Riyadh is also getting a timely overhaul. The $10 billion project is a swarm of activity, with plans to transform it into a ‘city within a city’, a financial hub that also acts as a high-end residential and lifestyle destination.
10%Believe Saudi Arabia WILL become a world leader in Islamic finance/bankingSource: Euromoney and Al Rajhi Bank
What about Islamic finance and banking: can Saudi Arabia become a world leader in either – or both? 70% of our advisory board believe it already is, while 15% said it was the area of banking set to accelerate fastest as the country opens up. Saudi Arabia has 16 Islamic banks, the largest of which is Al Rajhi Bank, which became the country’s first fully-licensed Islamic lender in 1984.
Islamic banks account for 51% of all industry assets, while Iocal lenders and corporates are leading issuers of Shariah-compliant bonds. In April 2019, the Jeddah-based Islamic Development Bank printed a $1.5 billion sukuk – though it was listed on the Nasdaq Dubai, the biggest global centre for sukuk listings by value. A key goal for Riyadh must be to supplant Dubai as global leader in the field.
“There is little doubt that Saudi Arabia, guided by the ambitions of vision 2030, is a financial hub in the making.”
Steps need to be taken to ensure Saudi Arabia realizes its financial ambitions. Our advisory board points to the need for a well-regulated banking sector and a globally credible ratings agency. Financial deregulation must accelerate, while attracting more foreign professionals will deepen the capital markets and lead to better governance.
Under Vision 2030, a flourishing private sector will emerge that makes up 65% of GDP, against 40% at present, as well as a market bristling with small and medium-sized enterprises generating 35% of economic output, against today’s 20%. When asked what banking services would take off fastest over the next decade, our advisory board offered a compelling response: 28% said project finance, while 13% of respondents identified retail banking or investment banking, and 10% pointed to infrastructure lending.
And when asked who stood to benefit most from financial deregulation, 42.5% said foreign banks and 20% said local lenders. In April 2019, the financial regulator added Credit Suisse to the list of foreign lenders licensed to operate onshore, joining JPMorgan, Citi, HSBC, Standard Chartered and two regional providers, First Abu Dhabi Bank and Emirates NBD. There is little doubt that Saudi Arabia, guided by the ambitions of Vision 2030, is a financial hub in the making.