Car manufacturers are considering Saudi Arabia as a production location
Saudi Arabia is best known for its oil revenues, but the opening up of the Tadawul, the Saudi Stock Exchange, could help the Kingdom build a platform for broader economic development. The Tadawul is not yet open to direct foreign investment but from 15 June, that will change.
Foreign investors with a five-year track record and more than USD5 billion in assets under management will be able to apply to invest. They will be allowed to buy up to 5 per cent of a listed company, while total foreign ownership will be capped at 20 per cent. On a case-by-case basis, investors will also be able to participate in initial public offerings.
The Tadawul’s 169 members provide further proof that the Kingdom has economic strengths besides oil
The Tadawul has a market capitalisation of more than USD520 billion and hosts two thirds of the top 20 listed companies in the Middle East and North Africa, including one of the world’s top-three chemical companies.
While synonymous with oil, the Kingdom’s economy is not limited to petrochemicals. With vast deposits of bauxite and cheap energy, the key ingredients for producing aluminium, Saudi intends to become a global aluminium producer.
Aluminium can be used to build car parts and its light weight can help lower fuel consumption. Car manufacturers are considering the benefits of Saudi Arabia as a potential location for manufacturing. Not only is the country part of the Gulf Cooperation Council, which boasts one of the highest ratios of cars per household in the world, but it sits at the crossroads of international east-west trade routes.
The Kingdom is investing in this geographical advantage. The Tadawul-listed King Abdullah Economic City (KAEC) is a special economic zone the size of Washington DC located 60 miles north of Jeddah. Situated on the Red Sea's main global trade artery between Asia and Europe, it offers modern port facilities that can reduce shipping transit time between the two continents by five to seven days. A total of 93 companies, including well-known multinationals, intend to open operations in KAEC.
The Tadawul’s 169 members provide further proof that the Kingdom has economic strengths besides oil. About one third are in the financial services industry, another third are materials and infrastructure-related and 25 per cent are telecommunications and consumer companies.
Saudi Arabia has a young population: 70 per cent of its 29 million citizens are under 30. This is reflected in information and communications (ICT) use and readiness. According to the World Economic Forum's 2015 Network Readiness Index, it ranks sixth globally for levels of mobile phone use and eighth in terms of having a clear plan for using ICT to improve overall economic competitiveness.
Saudi Arabia has a USD130 billion plan focused on encouraging private sector growth. The opening of the stock market has the potential to support this ambition and help the Kingdom further diversify its economy.
Cian Burke, Global Head of HSBC Securities Services, also contributed to this article.