Saudi Arabia opens up to foreign investment – does it see a long term game?
Famed for its balancing act between cultural conservatism and economic prosperity, Saudi Arabia will finally open its stock market to foreign investors. From June 2015 the Saudi Stock Exchange will lift strict controls in a bid to move away from oil dependence and usher in a new era of economic diversification First created in 1994, the Saudi Stock Exchange is currently valued in the region of $600 billion, trumping the wealth of many Middle Eastern nations including Qatar and United Arab Emirates combined. There is a presumption that much of this prosperity goes hand in hand with oil and gas, as seen by a sharp index drop in line with oil prices prior to the death of King Abdullah bin Abdulaziz. Despite the hydrocarbon influence, there are signs of a diverse, non-oil economy opening up to the world.
Not a single oil company is listed on the Saudi Stock Exchange. Banking, telecommunications and petrochemicals make up the top five listed companies. Access to India and China pits Saudi Arabia as a leader in petrochemical industries as it seeks to move away from oil and gas dominance – if not dependence. Oil accounts for 45 percent of GDP and almost 80 percent of government revenue. Slimming down a dependence on crude energy whilst maintain accelerating economic growth can only happen with alternative investments from a number of diverse industries. Real Estate will also play a growing part in diversifying Saudi’s economy. Around 50 percent of Saudis are under the age of 25, creating a demand for potential housing and related infrastructure. Demographics is critical in this industry, where young men are expected to own a house before marriage. Soaring demand will ensure prices and returns for investors remain high. Foreign investors will keep an eye on Dar Al Arkan, Saudi Arabia’s largest property developer planning developments in Media, Jeddah and Riyadh. Young, upcoming Saudi families will no doubt welcome foreign stakeholders playing its role in accelerating the long term prospects of the region.
A broader, forward thinking approach suggests an evolution which may lead to Saudis finally shedding off a hydrocarbon skin. Foreign investment will be greatly applauded outside the Kingdom by environmentalists and CEO’s. Inside the Kingdom, the economic cake will have a new look in years to come. Think oil, think again.