FINANCE SECTOR PROJECTS MAKE HUGE STRIDES

The Saudi government implemented a key piece of reform as part of its effort to broaden foreign investment in the country when the Saudi Stock Exchange (Tadawul) and MSCI Inc. announced the launch of the tradeable MSCI Tadawul Index 30 (MT30).

The index initially includes Saudi Arabia’s 30 largest securities based on free float market capitalisation, screened for liquidity and international investability. It will be rebalanced four times a year and the number of securities in the index may vary within a range of 25 to 35.

The index will serve as a benchmark of the largest liquid companies in Saudi Arabia, becoming the basis for the development of an index futures contract to be listed on Tadawul. The index can be licensed for other index-linked financial instruments including, mutual funds, derivatives, and exchange-traded products.

Foreign investor ownership in Saudi stocks rose in Q1 2019, to 5.3% in March 2019 from 4.7% in December 2018.

“This reflects the attractiveness of the Saudi financial market and affirms growing investor confidence in the economy,” according to the first quarter assessment by the Financial Sector Development Programme, which is part of the overarching Vision 2030 initiative that aims to transform the economy.

FSDP is one of the key pillars of the Vision 2030, that also includes 12 other planks such as the National Industrial Development and Logistics Vision Realization Programme, Quality of Life Programme, and Privatisation Programme.

Another major development is ensuring the government is fiscally prepared to fund the projects worth billions of dollars in the Vision 2030 programme. In March, The Debt Management Office (DMO) at the Ministry of Finance said they had completed the first 15-year public issuance in the kingdom’s history, adding three maturity years from the previous month's issuance, and five years compared to 2018.

The 15-year issuance represents a new benchmark for potential government and private sector issuers to enable them to price off the government’s extended yield curve, in addition to creating demand in the market (alongside the conventional bank lending) for these tenors.

This will translate into a new source of financing, especially during the transformation that the Saudi economy is undergoing, which could be used to support financing for long-term projects, such as infrastructure and mortgage.

Other new developments this year include the launch of Apple Pay, which will allow users to easily transact through iOS smartphones, increase payment options for users in Saudi Arabia and provide more digital solutions that facilitate payments and purchases.

Saudi Arabia and the United Arab Emirates also launched the digital currency project “Aber” for use in financial settlements between the two countries through blockchain and distributed ledgers technologies.

“All these achievements are in line with the Financial Sector Development Program to enable financial institutions to support private sector growth and meet the objectives of Vision 2030,” the Ministry of Finance said.

In March, the government announced four major projects in Riyadh as part of Saudi Vision 2030 initiative’s Quality of Life Program that aims to make the kingdom a top living destination for both Saudi citizens and residents.

The Quality of Life programme is focused on upgrading the country’s healthcare, housing, and transportation, apart from creating opportunities to pursue heritage, culture and arts, social engagement, sports, entertainment and recreational activities.

Four projects – King Salman Park, Sports Boulevard, Green Riyadh and Riyadh Art – aim to upgrade living standards, create leisure and fitness spaces, public parks and museums, and other attractions for residents and tourists alike.

The spate of 2030 projects and initiatives have been praised by international institutions, especially the International Monetary Fund, which noted that “economic reforms have started to yield positive results.”

“Important reforms have been implemented to strengthen the budget process, develop a medium-term fiscal framework, introduce an online expenditure management system (Etimad), strengthen fiscal analysis, and increase publicly available information on the budget,” the IMF said in its report on the country in May.

In addition, the fund has lauded the government’s efforts to strengthen the legal framework and reduce constraints to business.

“The bankruptcy and commercial pledge laws fill important gaps in the legal infrastructure, while efforts to streamline procedures for starting a business and clearing containers through ports should support business formation and trade,” said the IMF.

The fund has also recommended that the foreign direct investment FDI licensing requirements be reviewed as planned and the privatisation and PPP programmes, which are now starting to see transactions, accelerated.