Euromoney sponsored by Al Rajhi Bank
Yasmin Arfaoui
Euromoney Research Guides

Saudi Vision 2030:
Global Economic Impact Study

Vision 2030 is Saudi Arabia’s grand plan to rebalance its economy, diversifying into a host of new sectors, from financial services to high-end manufacturing and tourism to entertainment and culture. It aims to transform the kingdom, the Middle East’s biggest economy, into the region’s most attractive investment, financial and lifestyle destination.

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 91st in the latest Global Financial Centres Index, a ranking of international financial centres published twice a year by London-based Z/Yen Group. In the region, five other cities ranked higher, including Dubai in 12th 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.

Hand catching coins
“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.”
Downtown Riyadh

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.

Which areas of banking are likely to take off fastest?Rollover to explore

Stylised briefcase made of polygons

InvestingIn Saudi Arabia's Future

Saudi Arabia is opening up fast. Under Vision 2030, a bold reform agenda championed by Crown Prince Mohammed bin Salman (MbS), capital is starting to flow in both directions. Saudi-based funds are buying stakes in listed firms and start-ups, most of them US-based, while global institutional investors are buying and absorbing debt issued by the Gulf state’s largest companies.

The next few years will be key to the success of Vision 2030. There will be ups and downs, but one fact will endure: the international business community, from universal lenders to global investors to key policy-makers, want the plan to succeed.

Political leaders in Riyadh are actively shaping their country’s future. Take the flagship Future Investment Initiative (FII), hosted by MbS and held each autumn. Referred to by some as ‘Davos in the Desert’, it regularly draws many of the biggest names in business.

#saudivision2030 | SAUDI VISION 2030 definition

“Rarely does a month go by without Saudi Arabia making a big splash in the business world.”

Attendees to the FII over the past two years have included BlackRock CEO Larry Fink, US Treasury secretary Steven Mnuchin, and IMF managing director Christine Lagarde. The event is always framed by a strong theme, from investment to global growth, and makes headlines around the world.

At the 2018 event, $50 billion worth of deals were finalized, with the Public Investment Fund – the kingdom’s $300 billion sovereign wealth fund – investing more than $1 billion in Silicon Valley start-ups. A year earlier, MbS unveiled plans to build Neom, a $500 billion digital mega-city on the Red Sea coast, to be staffed by robots and powered by renewable energy.

THE FUTURE HAS BEGUN. FIND OUT HOW BELOW. TO FIND OUT MORE ABOUT NEOM CLICK HERE

Map WIP
Description - cooler than the rest of the GCC
Description - 35x larger area of land than Singapore
Description - 450km of unspoilt coastline
Description - 10.3m/s2 on average wind speed
Description - 70% of globe less than 8 hours away
Description - 10% of world trade through red sea

When Euromoney and Al Rajhi Bank assembled an advisory board of 70 financial-sector experts, we asked them to rate the importance of new special economic zones focusing on everything from finance to manufacturing, springing up around the country. They said the projects were vital to the country’s future, and well-planned and achievable.

Rarely does a month go by without Saudi Arabia making a big splash in the business world. In April 2019, Saudi Aramco raised $12 billion via an inaugural US dollar bond that drew over $100 billion worth of orders from global investors. The big event over the next few years will be Aramco’s long-planned initial public offering (IPO), set to raise upward of $100 billion, valuing the oil super-major at up to $2 trillion.

Another momentous development saw Saudi Arabia join the MSCI Emerging Markets Index. By the end of 2019, 69 Saudi-listed stocks, with a combined market cap of $84 billion, will be tracked by the index. Fellow index providers S&P Dow Jones and FTSE Russell began to add Saudi stocks to their indices in March 2019, but the MSCI move is the big one: an estimated $14 trillion in global investor assets track its indices.

Saudi Aramco and Air Products inaugurate Saudi Arabia's first hydrogen fueling station - screenshot of Tweet
Screenshot of Saudi Aramco twitter
Screenshot of Saudi Aramco twitter
Leadership Center
Wind Farm
Stock Exchange

Investing in Saudia Arabia

$2Trillion

POTENTIAL VALUE OF SAUDI ARAMCO AFTER THEIR LONG PLANNED INITIAL PUBLIC OFFERING.

$500Billion

COST OF NEOM, a digital mega-city on the Red Sea coast, to be powered by renewable energy.

$84Billion

Combined market cap of 69 Saudi-listed stocks tracked on the MSCI Emerging Markets Index.

Over half our advisory board said more local stocks would begin to show up in the hundreds of global exchange-traded funds and mutual funds that track the index or use it as a performance benchmark.

That in turn will suck billions of dollars into the kingdom, encouraging the state to push ahead with privatization, feeding into the agenda of Vision 2030, with its aim of diverting productive capital out of oil and into lower-carbon and higher-margin sectors, from food to chemicals, and AI to robotics.

The index compiler MSCI, which has more than $1.9 trillion in assets benchmarked to its group of emerging markets indexes, have decided to include Saudi Arabia in its group of emerging markets from June 2019. What impact will this have? CLICK EACH SECTION TO FIND OUT MORE

Chart Percentages
56%
POSITIVE
THIS COULD ENCOURAGE OTHER INTERNATIONAL BENCHMARKERS TO FOLLOW SUIT
22%
NEUTRAL
JUST BECAUSE THE MARKET IS INCLUDED IN THE MSCI DOESN’T MEAN IT’LL HAVE A NET POSITIVE OUTCOME
19%
VERY POSITIVE
THIS IS AN ENDORSEMENT OF SAUDI ARABIA AND ITS PLACE ON THE GLOBAL STAGE
3%
NEGATIVE
THIS COULD HIGHLIGHT PROBLEMS IF THE 2030 VISION DOESN’T GO TO PLAN

The next event of global consequence will take place in November 2020, when Riyadh will host the annual G20 summit, offering another chance to underline its sovereign credentials as a steadfast financial and economic partner.

Saudi Arabia continues to unlock investment opportunities. Mall operator Arabian Centres made a splash in May 2019 when it raised $660 million in the first IPO to seek international backing in five years. Riyadh needs more big firms to follow suit, giving global funds further cause to invest in the country’s future.

The long-term aim is to build a thriving capital markets base, spilling over with investment opportunities, overseen by a fair-minded regulator that investors can trust. More than half the members of our advisory board said the biggest challenge facing Riyadh here was the need for “reliable and enforceable rule of law” and the promotion of “fair and impartial courts”.

“SCALING THEM UP WILL REQUIRE FINANCIAL EXPERTISE AND CAPITAL, AND THAT IS WHERE WE COME IN. AND ALL THESE PROJECTS CANNOT BE FUNDED SOLELY USING ONSHORE CAPITAL, SO MANY WILL OFFER MAJOR OPPORTUNITIES FOR INTERNATIONAL LENDERS, AND WE LOOK FORWARD TO WORKING WITH MANY OF THEM.”
Hand presenting a sapling tree

Fund of the FutureSaudia Arabia's Public Investment Fund

Saudi Arabia’s Public Investment Fund (PIF) is one of the Middle East’s largest sovereign wealth funds, with $300 billion in assets under management (AUM). But if the ambitions set out in the Vision 2030 reform agenda are to be achieved, this is just the start. Under Vision 2030, Riyadh aims to transform the PIF into the largest of its kind in 10 years, with $2 trillion in AUM, double the size of the current largest, the Government Pension Fund of Norway.

The PIF is already making great progress. It has hired seasoned bankers from HSBC and Bank of America Merrill Lynch, deployed $50 billion into US assets, and is set to open offices in New York, London and San Francisco. Managing director Yasir Othman Al-Rumayyan said in April 2019 that America would remain the fund’s “number-one target of investments”.

The fund has invested billions of dollars in listed firms and start-ups via a partnership with SoftBank’s Vision Fund, and has teamed up with investment company Blackstone to invest over $100 billion in US infrastructure. PIF owns a 5% stake in Tesla, worth an estimated $2 billion, as well as a $3.5 billion stake in ride-sharing app Uber.

Al-Rumayyan is also keen to open an office in Asia, to focus on investments in China. Saudi Arabia is China’s largest supplier of crude oil, and Beijing is keen to embed the Gulf state more deeply in its landmark Belt and Road Initiative.

Vision 2030’s authors are clear in their intent. The text reads: “We will transform the Public Investment Fund into the world’s largest sovereign wealth fund.” It adds that rather than competing with the private sector, the fund will “unlock strategic sectors [that require] intensive capital inputs”, and help to develop “entirely new economic sectors” and build “durable national corporations”.

The PIF looks set to be run as a classic sovereign wealth fund, deploying the fruits of Saudi Arabia’s most valuable asset – revenues earned from the global sale of oil – into local and global securities and assets. It also acts as a driver of local innovation. In recent years, PIF managers have dipped into their coffers to establish Super Esco, a $500 million energy-efficiency firm, and set aside $1.1 billion to support small and medium-sized enterprises.

10%
Believe the PIF is
important to SAUDI
ARABIA’S FUTURE Source: Euromoney and Al Rajhi Bank

Its managers lack neither cash nor ambition: in 2018, the fund raised $11 billion from banks in order to boost its financial firepower. But the really big step will come when the government, as is widely expected, transfers ownership of Saudi Aramco to the sovereign fund, after the oil giant completes its long-awaited initial public offering (IPO).

An advisory board comprising more than 70 bankers, investors and economists was assembled by Euromoney in order to ask two very simple questions: what Saudi Arabia is trying to achieve through its Vision 2030 plan; and if those aims were achievable. When our advisory board was asked to grade, on a scale of one to 10, the PIF’s long-term value and importance, two-thirds of participants gave an answer of seven or higher.

It proves that not only is the PIF potentially the biggest and most important sovereign wealth fund the world has ever seen, but that it is of paramount importance to the success of Vision 2030 and the development and diversification of the Middle East’s largest and most fascinating economy.

Great Mosque of Mecca
“Its managers lack neither cash nor ambition: in 2018, the fund raised $11 billion from banks in order to boost its financial firepower.”
An Economy in Transition - Coming Soon
Saudi Arabia: Stepping into the Future - Coming Soon