Saudi FDI reforms poised to deliver transformative impact

Reforms to the Kingdom’s economy are not new, with a World Bank report in 2020 noting the significance of measures primarily concentrated on starting a business, dealing with construction permits, and facilitating trade. (SPA)
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Updated 10 December 2023
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Saudi FDI reforms poised to deliver transformative impact

  • Main contributors to investment surge include France, Japan, Kuwait, Malaysia, Singapore, the UAE, and the US

RIYADH: Saudi Arabia continues to vigorously pursue its reform agenda, with a focus on bolstering foreign direct investment inflows and diversifying investment strategies despite a recent deceleration in its financial account as reported by the Saudi Central Bank and the Ministry of Finance.

In the second quarter of 2023, FDI inflows experienced a 21 percent decline compared to the same period last year, amounting to SR6.2 billion ($1.65 billion).

FDI outflows, which encompass the capital invested by Saudi entities in foreign countries, reached SR18.34 billion, a 53 percent decrease from the corresponding quarter of the previous year.

Albara’a Al-Wazir, an economist at the US-Saudi Business Council, said: “Despite the recent decline in FDI to SR6.2 billion, the number of investment licenses issued by the Ministry of Investment … reached 1,819 in Q2, marking a 94 percent increase compared to the previous year.”

He added: “Saudi Arabia has implemented significant legal, economic, and social changes to attract higher levels of foreign direct investment since the launch of Vision 2030.”

Al-Wazir highlighted that the Ministry of Investment granted licenses to 180 companies to establish regional headquarters in the Kingdom ahead of the January 2024 deadline.

The economist anticipates that the regional headquarters program will expedite FDI in Saudi Arabia.

“As companies seeking government projects will need to relocate, the full impact of this program is expected to manifest in the medium term, albeit with a potential lag,” he said.

Saudi Arabia has also announced tax incentives for foreign companies establishing their regional headquarters in the Kingdom, including a 30-year exemption from corporate income tax.

These measures also encompass zero income tax for foreign entities relocating their regional headquarters, effective from the issuance date of the license, as outlined by the Ministry of Investment. 




Riyadh has announced tax incentives for foreign companies establishing their regional headquarters in the Kingdom, including a 30-year exemption from corporate income tax. (SPA)

Al-Wazir said the newly introduced NEOM Investment Fund is strategically positioned to draw investors and play a role in the development of the new city.

Despite the decline in FDI in the second quarter of 2023, he emphasized that the Kingdom achieved the second-highest amount in the Middle East and Africa region during this period.

As per information disclosed by the Ministry of Investment, the FDI stock, representing the cumulative FDI in Saudi Arabia, saw a 2.89 percent increase during this period.

The ministry highlighted that this rise signifies the growing confidence of foreign investors in the Saudi investment ecosystem.

Reforms to the Kingdom’s economy are not new, with a report from the World Bank issued in 2020 noting the significance of a series of measures primarily concentrated on starting a business, dealing with construction permits, and facilitating international trade.

Additionally, the report noted that protections for minority investors were strengthened, a value-added tax was introduced, and notable improvements in trading and contract enforcement were implemented.

These reforms collectively demonstrate Saudi Arabia’s commitment to creating a more efficient and investor-friendly business environment.

According to the International Bar Association report on the Kingdom’s FDI legal framework and outlook in April 2023, Saudi Arabia is witnessing an increasing flow of FDI across various sectors. The main contributors to this investment surge include France, Japan, Kuwait, as well as Malaysia, Singapore, the UAE, and the US.

As outlined in the report, key sectors drawing substantial FDI include the chemical industry, real estate, fossil fuels, as  well as automobiles, tourism, plastics, and machinery. This diversification indicates a growing interest and confidence from international investors in Saudi Arabia’s economic landscape.

Data from the Ministry of Investment indicated a 135.4 percent annual increase in the number of investment licenses issued, reaching 2,192 in the third quarter of this year.

According to the ministry, this surge underscores Saudi Arabia’s appeal as an attractive investment destination, offering competitive advantages within a stable and supportive business environment. 

FASTFACT

Data from the Ministry of Investment indicated a 135.4 percent annual increase in the number of investment licenses issued, reaching 2,192 in the third quarter of this year.

Gross Fixed Capital Formation, reflecting investment in tangible assets like buildings, machinery, equipment, and infrastructure for production, saw a notable 7 percent increase during this period totaling SR278.9 billion, as reported by the ministry.

Within this, non-government GFCF accounted for approximately 85 percent of the total, reaching SR236.6 billion. This marked a 7.6 percent growth compared to the corresponding period last year.

In contrast, government GFCF held a 15 percent share during this quarter, with a 3.5 percent increase, reaching a total of SR42.3 billion. This data underscores the significant role of both non-government and government sectors in driving capital formation within Saudi Arabia’s economy.

The Kingdom’s financial account, which includes net values for direct investment, portfolio investment, and reserve assets, amounted to SR42.97 billion. This figure represents a 70 percent decline compared to the corresponding period last year, according to the report from the Kingdom’s central bank.

Portfolio investment, the second component of Saudi Arabia’s financial account, experienced a 66 percent decrease, primarily attributed to the Kingdom’s increased borrowings.

Meanwhile, the net acquisition of financial assets showed a robust 25 percent annual growth in the second quarter, totaling SR50.14 billion. However, this increase was countered by a rise in the portfolio’s liability section, with debt securities increasing from -SR18.53 billion to SR25.69 billion during the same period.

According to Al-Wazir: “The Kingdom signaled that it would utilize debt markets to raise liquidity to fund its projects. The increase in borrowing via debt securities underscores its commitment to achieve its desired diversification goals.”

He added: “The Kingdom has more recently issued both external and domestic debt, with domestic riyal-denominated debt accounting for approximately 63 percent of the total. In H1 2023, the government issued SR23 billion in domestic debt, while growing total domestic debt from SR615 billion to SR624 billion.”

Reserve assets, encompassing special drawing rights and currency, deposits, and securities, witnessed a 70 percent decrease. This decline is attributed to the devaluation of securities within this category.

“The topic of drawing down reserves, in this case securities, is a strategic move to decrease SAMA’s reserve holdings and redirect cash across a diversified set of vehicles,” explained Al-Wazir.

“Saudi has been adjusting its investment strategy in recent years whereby it is allocating money to national funds like the Public Investment Fund and National Development Fund. An example of this is when SAMA transferred SR150 billion from its foreign reserves to PIF in 2020,” he added.

The economist concluded by asserting that public debt remains sustainable, comfortably staying below the 50 percent debt to gross domestic product ceiling, and the fiscal capacity is substantial. He emphasized that the government’s borrowing strategy primarily aims to lengthen maturities, reduce refinancing costs, and establish a yield curve.


Bitcoin approaches $100,000 on optimism over Trump crypto plans

Updated 22 November 2024
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Bitcoin approaches $100,000 on optimism over Trump crypto plans

  • Bitcoin has doubled this year, up 40 percent since US election
  • Trump, pro-crypto Congress seen clearing regulatory clouds

SINGAPORE/LONDON/NEW YORK: Bitcoin came within a whisker of closing above $100,000 for the first time on Thursday as the election of Republican Donald Trump as US president spurred expectations that his administration will create a friendly regulatory environment for cryptocurrencies.
The world’s largest cryptocurrency was trading between $98,000 and $99,000 in late afternoon trading in the US on Thursday, after briefly touching $99,073. Bitcoin has more than doubled in value this year and is up about 40 percent in the two weeks since Trump was voted in as the next US president and a slew of pro-crypto lawmakers were elected to Congress.
Trump embraced digital assets during his campaign, promising to make the United States the “crypto capital of the planet” and to accumulate a national stockpile of bitcoin.
Crypto investors see an end to increased scrutiny under US Securities and Exchange Commission Chair Gary Gensler, whom Trump has said he will replace.
Trump also unveiled a new crypto business, World Liberty Financial, in September. Although details about the business have been scarce, investors have taken his personal interest in the sector as a bullish signal.
Billionaire Elon Musk, a major Trump ally, is also a proponent of cryptocurrencies.
Over 16 years after its creation, bitcoin appears on the cusp of mainstream acceptance.
“Everyone who’s bought bitcoin at any point in history is currently in profit,” Alicia Kao, managing director of crypto exchange KuCoin, said.
“But those who bought it early, when there were significant obstacles to doing so and there was the might of the world’s financial and governmental forces intent on crushing it, are the real winners. Not because they’re rich, but because they’re right.”
Bitcoin’s rebound from a slide below $16,000 in late 2022 has been rapid, boosted by the approval of US-listed bitcoin exchange-traded funds in January this year.
The Securities and Exchange Commission had long attempted to block ETFs from investing in bitcoin, citing investor protection concerns, but the products have allowed more investors, including institutional investors, to gain exposure to bitcoin.
Crypto rush
More than $4 billion has streamed into US-listed bitcoin exchange-traded funds since the election. This week, there was a strong debut for options on BlackRock’s ETF, with call options — bets on the price going up — more popular than puts.
“There is a persistent bid in the market,” said Joe McCann, CEO and founder of Asymmetric, a digital assets hedge fund in Miami. “$100,000 is a foregone conclusion.”
Crypto-related stocks have soared along with the bitcoin price and shares in bitcoin miner MARA Holdings were up nearly 2.3 percent on Thursday.
“Once you break out to new highs, you attract a lot of new capital,” John LaForge, head of real asset strategy at Wells Fargo Investment Institute, said.
“It’s like gold in the 1970s, where this new high is in a price discovery mode. You don’t know how high it’s going to go,” he said.
Yet the rise is not without critics.
Two years ago, the industry was wracked by scandal with the collapse of the FTX crypto exchange and the jailing of its founder Sam Bankman-Fried.
The cryptocurrency industry also has been criticized for its energy usage, with miners under scrutiny over their potential impact on power grids and greenhouse gas emissions due to their energy-intensive operations.
Crypto crime also remains a concern, with an analysis by crypto researchers Chainalysis finding that at least $24.2 billion worth of crypto was sent to illicit wallet addresses last year, including addresses identified as sanctioned or linked to terrorist financing and scams.
 


Saudi Arabia’s GACA ushers in new era of passenger experience with AI

Updated 21 November 2024
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Saudi Arabia’s GACA ushers in new era of passenger experience with AI

JEDDAH: Saudi Arabia’s aviation authority is revolutionizing the passenger experience by incorporating artificial intelligence into its services, in alignment with the nation’s strategic aviation plan, a senior Saudi official said.

At the 2024 Global Civil Aviation Forum in Shanghai, Abdulaziz bin Abdullah Al-Dahmash, vice president of the General Authority of Civil Aviation for Quality and Passenger Experience, highlighted the authority’s ongoing initiatives designed to improve passenger satisfaction.

A session dedicated to GACA’s role in enhancing the passenger experience featured international experts and focused on the authority's efforts to align with Saudi Arabia's aviation strategy and Vision 2030.

The discussion underscored Saudi Arabia's use of data analytics and AI to transform the aviation sector, supporting the National Aviation Strategy and the broader Vision 2030 objectives. This approach is part of the Kingdom's goal to achieve excellence in both aviation services and infrastructure.

The National Aviation Strategy serves as a roadmap to solidify Saudi Arabia’s position as a global leader in tourism, business travel, and logistics. Built around three core pillars — empowering national tourism, improving domestic aviation, and aligning with Vision 2030 — the strategy aims to enhance interconnectivity, increase the market share of national carriers, and expand airport infrastructure.

By leveraging its strategic location and investment potential, Saudi Arabia’s aviation strategy directly contributes to Vision 2030, which aims to strengthen services and bolster the travel and logistics sectors.

Al-Dahmash noted that to achieve the National Aviation Strategy’s ambitious goals, which include tripling passenger traffic to 330 million annually by 2030, Saudi Arabia is prioritizing major infrastructure projects.

This includes constructing new airports, such as the King Salman International Airport, and expanding existing ones to accommodate the surge in passenger numbers. Alongside this, there is a strong focus on improving operational efficiency and enhancing the overall passenger experience.

In this context, GACA is actively developing and implementing programs to meet evolving passenger expectations. One such innovation is the introduction of AI-powered systems that manage and monitor passenger flow, tracking wait times across Saudi airports.

Additionally, the “Bagless Traveler” initiative is transforming the travel process by enabling passengers to complete check-in and baggage handling from their accommodation. During its pilot phase, the service successfully assisted over one million passengers, with more than 2 million bags processed without incident.

Al-Dahmash also emphasized the importance of regulatory frameworks that GACA has implemented, noting that these efforts have significantly improved services at Saudi airports, leading to higher levels of passenger satisfaction. This success has garnered recognition, with several airports receiving local and international awards.

Moreover, GACA has presented its innovative passenger experience programs at global conferences, sharing its best practices with civil aviation authorities worldwide, demonstrating how others can leverage these advancements for similar success.


Closing Bell: Saudi main index slips to close at 11,840

Updated 21 November 2024
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Closing Bell: Saudi main index slips to close at 11,840

  • Parallel market Nomu gained 681.17 points, or 2.28%, to close at 30,540.28
  • MSCI Tadawul Index lost 4.52 points, or 0.30%, to close at 1,486.82

RIYADH: Saudi Arabia’s Tadawul All Share Index slipped on Thursday, losing 27.40 points, or 0.23 percent, to close at 11,840.52. 

The total trading turnover of the benchmark index was SR5.39 billion ($1.43 billion), as 98 of the stocks advanced and 131 retreated. 

The Kingdom’s parallel market Nomu gained 681.17 points, or 2.28 percent, to close at 30,540.28. This comes as 63 of the listed stocks advanced, while 23 retreated. 

The MSCI Tadawul Index lost 4.52 points, or 0.30 percent, to close at 1,486.82. 

The best-performing stock of the day was Al-Baha Investment and Development Co., whose share price surged 10 percent to SR0.33. 

Other strong performers included Saudi Reinsurance Co., with a 7.05 percent increase in its share price to SR43.30, and Saudi Chemical Co., which saw its share price rise 5.46 percent to SR10.24. 

Saudi Cable Co. recorded the largest decline, with its share price dropping 4.02 percent to SR97.90. 

CHUBB Arabia Cooperative Insurance Co. also saw its stock fall 3.13 percent to SR49.50. 

Naseej International Trading Co. experienced a 2.64 percent drop in its share price, which fell to SR92.30. 

On the announcements front, Saudi Awwal Bank has disclosed its intention to issue an SR-denominated Additional Tier 1 Sukuk through a private placement in the Kingdom, as part of its SR20 billion Additional Tier 1 Sukuk issuance program. 

According to a Tadawul statement, the bank has appointed HSBC Saudi Arabia as the sole lead manager for the proposed offer. The statement said the purpose of the issuance is to strengthen the bank’s capital base and support the achievement of its long-term strategic objectives. 

The amount and terms of the sukuk will be determined at a later stage, based on market conditions at that time. 

Saudi Awwal Bank closed the session at SR31.40, down 0.63 percent. 

The Saudi Investment Bank has announced the completion of its US dollar-denominated Additional Tier 1 capital sustainable sukuk offering under its Additional Tier 1 capital sukuk program. 

A bourse filing revealed that the offer is valued at $750 million, comprising 3,750 sukuk with a par value of $200,000 each and a return of 6.275 percent. 

The sukuk have a perpetual maturity, callable after five years. Settlement of the sukuk issuance is scheduled for Nov. 27, and the sukuk will be listed on the London Stock Exchange’s International Securities Market. 

Saudi Investment Bank closed the session at SR13.88, down 0.29 percent. 


Aramco to increase borrowing, focus on dividend growth, CFO says

Updated 21 November 2024
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Aramco to increase borrowing, focus on dividend growth, CFO says

RIYADH: Saudi Aramco plans to increase borrowing and focus on enhancing its dividend distribution strategy, revealed the company’s chief financial officer. 

In an interview with Bloomberg, Ziad Al-Murshed explained that this move is part of the company’s efforts to optimize its capital structure. 

Aramco is considered one of the pillars of the Saudi economy, encompassing the entire oil production chain, from hydrocarbon extraction to energy generation, as well as refining and commercial distribution activities.  

“You’ll see us do a couple of things. One is, just take on more debt compared to use of equity,” Al-Murshed said during the interview. 

“It’s nothing to do with the dividend, it is optimizing our capital structure so that we end up with a lower weighted average cost of capital,” he added. 

Aramco returned to the debt market earlier this year after a three-year hiatus, raising $9 billion in two separate issuances. In June, it launched a $6 billion offering of dollar-denominated bonds, followed by a $3 billion issuance of Islamic bonds in September.   

The CFO noted: “We had the luxury of sitting out those three years until the market became conducive.” 

Al-Murshed provided insight into how the company increased its dividend by 4 percent in each of the past two years and is now paying over $81 billion in base dividends. 

“We’re looking for it to be progressive over the years,” he said, adding that the company’s free cash flow supports this strategy. 

While the company plans to issue debt regularly, Al-Murshed emphasized that it will not be overly frequent and revealed that Aramco has no plans to sell more debt for the remainder of 2024. 

“We want to be active, but we don’t want to be too active,” he said. 

The CFO further clarified that the company’s decision to sell debt is primarily aimed at broadening its investor base. 

Al-Murshed did not specify whether Aramco would borrow to support its dividend payments, which are set to total $124 billion this year, exceeding the company’s earnings. 

Earlier this month, Aramco reported a net profit of SR103.37 billion ($27.52 billion) for the third quarter of 2024, exceeding analyst expectations, which had projected a median net income of $26.9 billion. 

However, in a statement released at the time, the company noted a 15.4 percent decline in net profit compared to the same period in 2023, attributed to challenging market conditions, including lower prices for crude oil, refined products, and chemicals. 

Aramco’s vision remains to be the world’s leading integrated energy and chemicals company, operating in a safe, sustainable, and reliable manner.   


Saudi Arabia's Ma’aden proceeds with $10bn capital raise to boost phosphate stake

Updated 21 November 2024
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Saudi Arabia's Ma’aden proceeds with $10bn capital raise to boost phosphate stake

  • Ma’aden said its shareholders will convene virtually on Dec. 11 to approve the capital increase
  • Plan includes issuing 111 million new ordinary shares valued at SR10 each

RIYADH: Saudi Arabian Mining Co., or Ma’aden, has issued a shareholder circular outlining the terms of its plan to raise its share capital to SR38.03 billion ($10.1 billion) from SR36.92 billion to boost its phosphate business. 

The move follows an earlier announcement to acquire a 25 percent stake in Ma’aden Wa’ad Al-Shamal Phosphate Co. from Mosaic Phosphates B.V., increasing its ownership in the joint venture to 85 percent. 

In April, Ma’aden announced the signing of an agreement to acquire 210.93 million shares owned by Mosaic Co. and its subsidiary, Mosaic Phosphates B.V. Regulatory approval for the transaction was granted in November by the Capital Market Authority.

In a bourse filing, Ma’aden said its shareholders will convene virtually on Dec. 11 to approve the capital increase. The plan includes issuing 111 million new ordinary shares valued at SR10 each, representing a 3.01 percent rise in the company’s share capital. 

In exchange, Mosaic Phosphates will transfer its MWSPC stake to Ma’aden, aligning with the Saudi firm’s strategic expansion in the phosphate sector. 

MWSPC, established in 2014 and based in Turaif, is a joint venture between Ma’aden, Mosaic Co., and Saudi Basic Industries Corp. Following the transaction, SABIC will retain its 15 percent stake while Ma’aden strengthens its position as a global phosphate leader. 

Mosaic Netherlands Holding Co., a subsidiary of Mosaic Co., will receive the newly issued shares, which will be subject to a three-year lock-up period. Limited transfers will begin in the fourth year, with full tradability by the fifth year, the circular said. 

The acquisition will enhance Ma’aden’s control over MWSPC, recognized as a low-cost, large-scale phosphate producer. It will also grant Ma’aden access to Mosaic’s marketing rights, a component of the deal’s valuation at SR5.62 billion. 

Ma’aden expects increased earnings per share following the transaction, reflecting anticipated synergies and enhanced operational efficiencies, according to the document. 

The company assured shareholders that all regulatory approvals for the transaction have been secured, with a detailed timeline for procedural steps provided in the circular. 

The move underscores Ma’aden’s commitment to driving value creation in the Kingdom’s mining sector, aligning with Saudi Vision 2030 goals to diversify the economy and develop industrial capabilities. 

In the first half of this year, Ma’aden achieved a net profit of SR2 billion, marking a 160 percent increase compared to the same period in 2023. 

The surge in profitability was driven by several key factors. A major contributor to this financial success was the significant boost in sales volume, according to a Tadawul statement. 

The company’s robust performance in primary aluminum and gold sales played a crucial role in driving up revenues. Ma’aden also benefited from reductions in raw material costs and lower depreciation expenses, which further enhanced its profitability. 

Ma’aden’s performance and strategic advancements underscore its commitment to leading the mining sector and contributing to Saudi Arabia’s economic diversification goals, particularly in developing mining as a critical pillar of the Kingdom’s industry.