That’s often what comes to mind for investors considering Saudi Arabia as a destination to do business. But with ongoing efforts to diversify the economy, the Kingdom is well positioned to unlock the Kingdom’s other hidden economic treasures. For investors and Saudi residents alike, the Kingdom has more to offer than simply oil.
Emerging Areas Ripe for Foreign Investment
A major stimulant to growing an economy starts with opening a country’s capital markets. The Saudi Stock Exchange — also called the Tadawul, which means “trading” in Arabic — has a market capitalization of more than $400 billion. Mohammed El-Kuwaiz, vice chairman of the Capital Market Authority, recently told CNBC, “The Saudi capital market was an island unto itself. It was viewed as targeting local issuers and investors.”
Currently, the only way a foreigner can invest in the Saudi equity market is by registering as a Qualified Foreign Investor (QFI), and the conditions are restrictive. Those foreign investors are generally large financial institutions or fund managers that must have at least $1 billion USD in assets under management. Under the Saudi government’s expansion, QFIs will have the right to subscribe in IPOs on the Tadawul.
Saudi Vision 2030 specifically states, “we still lack a competitive renewable energy sector at present.” One goal is to maximize solar and wind power by generating 9.5 gigawatts of renewable energy. Saudi Arabia began the path to this when, in 2012 and 2014, Germany’s Phoenix Solar built two solar panel parks on the site of the Kingdom’s petroleum research center in Riyadh. Saudi Aramco ordered the 3.5 megawatt and 1.8 megawatt solar parks. According to Klaus Friedl, managing director for Phoenix Solar Oman, the company has up to eight more projects lined up for Saudi Arabia.
Saudi Arabia is home to various other natural resources besides oil. Alcan Primary Metal Group and the Saudi Arabian Mining Company recently signed a $7 billion joint venture agreement to mine bauxite reserves in the northern part of the Kingdom. “[Saudi Arabia] has promising sites of minerals such as gold, silver, copper, iron, platinum and other strategic materials,” said Jaap Meijer, head of equity research at the Dubai-based investment bank Arqaam Capital.
International public-private partnerships
The Saudi government is now pushing for more public-private partnerships, and Saudi Arabia says it wants to increase foreign direct investment from the current 3.8 percent to 5.7 percent of GDP by 2030. Already, the Kingdom has signed multi-billion dollar deals with Indonesia, Malaysia, China and Japan. “We see utilities, airports, health care and real estate holding the best opportunities from the point of view of public-private partnerships,” said Saleem Khokhar, head of fund management at National Bank of Abu Dhabi.
While the expansion of production industries are promising developments for Saudi Arabia, there are also challenges to consider. The most obvious challenge will be changing several tightly emboldened traditions, such as expanding workforce participation among all Saudis while ensuring highest levels of transparency in business, investment and government processes. Saudi Arabia’s economic overhaul leans on the hope that non-governmental employment will grow quickly as the Kingdom wants to increase the private sector’s contribution from 40 percent to 65 percent of GDP.
Read more at CNBC.