Unprecedented economic transformation in the Kingdom of Saudi Arabia (KSA) is increasingly buoying the relevance of the Saudi economy among global investors. While much of the media attention has been focused on heightened anticipation around Saudi Aramco’s expected IPO, investors are in reality honing in on a lot more than the kingdom’s pipeline privatization plans.
Broadly speaking, Saudi Arabia is experiencing inimitable economic change as a part of its Vision 2030 agenda, the program that the Kingdom is undertaking to stimulate private sector growth, diversify the economy away from hydrocarbons, privatize state-owned enterprises, and enhance the effectiveness of the Saudi capital market.
Vision 2030 and its implications on Saudi capital market
As part of Vision 2030, the development of the Saudi capital market is therefore vitally important. While this includes creating the infrastructure needed to manage the new issue volume that comes with Vision 2030’s robust privatization plans, it is also focused on introducing market reforms and increasingly opening up Saudi securities to international investors.
The sum of these changes is helping to usher in a realignment of how the Saudi market is viewed by investors within the MENA region and around the world, resulting in a growing realization of the unique investment opportunity the market offers.
There are many reasons behind the Saudi market’s rise on global investors’ radars. In my role as the CEO of Tadawul, the Kingdom’s sole authorized securities exchange, three key drivers stand out to me.
The Saudi Qualified Foreign Investor (QFI) Program
First, the growing accessibility of the Saudi capital market, coupled with favorable market dynamics, is compelling greater participation by foreign investors in the Saudi economy. Since introducing the Qualified Foreign Investor (QFI) Program in June 2015, we have observed an exponential rise in applications. As of December 2017, 120 international financial institutions have joined the QFI program – more than twice the number of program participants we had in January last year.
The accelerated growth in QFI participation has been aided in part by amendments to the program that Tadawul introduced in 2016 and 2017 in conjunction with the Kingdom’s Capital Markets Authority (CMA). These reforms have further eased qualifying criteria, foreign ownership limitations, and value of assets under management. We also introduced a measure back in January 2017 that allows QFIs to participate in all Saudi domestic IPO offerings.