THE EMERGENCE
Adel S. Al-Ghamdi, CEO of the Saudi Stock Exchange (Tadawul), on capital market developments, strategies that helped the country deflect global market downturns, and how the exchange plans to develop the national economy.
BIOGRAPHY
Adel S. Al-Ghamdi is the CEO of the Saudi Stock Exchange (Tadawul) and a CFA Charterholder. He is a member of the CFA Society of the UK with over 18 years of experience in the financial services industry. He has held a number of senior positions, including General Manager of the Corporate Finance & Issuance Division at the Capital Market Authority, and Associate Director at the Global Investment Banking Advisory arm of HSBC Saudi Arabia, where he led a number of capital market mandates, and worked on a number of government related transactions. Adel began his career in the financial services industry holding various key positions at Riyad Bank Europe, and Riyad Bank London. He also currently serves on the Board of the Tadawul Real Estate Company and is the Chairman of the Arab Federation of Exchanges.With exception to Saudi Arabia's natural exposure to the international oil and currency markets, our society, culture, and national economy have been, to a large degree, insulated from the economic instability felt in many parts of the world. You can call it protectionist, conservative, or lucky, but in considering these adjectives, you may also consider calling it wise.
The global crisis, which began in 2007, was a regrettable financial tsunami that consumed livelihoods, homes, and uprooted financial institutions seen as symbols of economic strength and stability. Whether directly or indirectly, the impact of the crisis continues to haunt Europe, and the picture remains daunting. Indeed, due to the Kingdom's gradual but progressive steps toward global convergence, we have fortunately avoided experiencing this ill fate.
Our national economy has grown at 5.4% CAGR since 2010, fuelled by significant expenditure on education, healthcare, and infrastructure, which together comprised close to 50% of total government spending (on average) since 2010. Private sector contribution in the national economy has also continued to grow at a faster rate of 6.5% CAGR over the same period, rising from 37.7% in 2010 to 39.5% of real GDP by the end of 2014.
Whilst recent conditions in the international oil markets are expected to weigh heavily on the Kingdom's revenues, an important financial dynamic continues to counteract the impact of this decline; namely, the strong appreciation of the US dollar. Indeed, every dollar of oil-export revenues earned by the Kingdom is 18% more valuable now from a global purchasing power perspective, than when the 44% decline in oil prices began in September 2014.
Though the Tadawul All Share Index (TASI) erased 23% of its gains by the end of 2014 in response to the sharp fall in oil prices, the index has had close to zero correlation with oil prices over the last five years, and has maintained a weak positive correlation with the US dollar and US and EU markets over the same period. This relationship has not materially changed over the 12 months of 2014.
Though on the face of it the picture looks less than ideal, the expected $39 billion budget deficit in 2015 may actually represent an opportune strategic pivot point for further economic policy development. Indeed, notwithstanding the Kingdom's fiscal reserves of nearly $737 billion, a budget deficit in 2015 could actually induce the issuance of government bonds to fund the anticipated shortfall. Currently, Saudi government debt stands at an insignificant 2.7% of GDP, one of the lowest ratios in the world (versus 9.4% in Russia, 96% in the US, and 103% in the UK). The issuance of new government bonds would serve to establish a sovereign yield curve to act as a pricing benchmark for local issuers; this would then serve to stimulate the growth of private sector debt issuances, a significant topic on the national agenda, whilst also reducing the public and corporate cost of capital over the coming years.
Another topic of growing focus on the national agenda is the non-oil economy and its role in contributing to employment and sustainability. SMEs are at the very heart of this debate, asserted as engines of Saudi economic diversity. The topic of SMEs continues to gain momentum as policymakers speak of a total approach to tackling the cross-jurisdictional challenges these enterprises typically face, especially in terms of access to funding, licensing, intellectual property rights, and human resourcing. Advancement in these areas of policy focus will impact the Saudi economy, generally, and the capital market specifically.
A more imminent development set to have a profound impact on the capital market is the introduction of qualified foreign institutional investors; a new investor class, with permissible access to around $50 billion of Saudi stock market capitalization; expected to bring further diversity to our stakeholders, a more sophisticated investment outlook, and a longer -term investment horizon.
We are excited to be at the very center of this evolution knowing that it will redefine the boundaries of our scope and significantly expand our reach to global capital market stakeholders. In fact, we are currently finalizing a structured plan for reaching out to these new stakeholders via an international roadshow, which we hope will feature the critical pillars of our capital market community, including our regulator, issuers, members, and other important private and public sector stakeholders.
This, and other capital market developments, occur at a time when the Exchange is in the midst of activating its role as a self-regulating organization, whilst also being in the final leg of upgrading our trading engine to the latest in high performance trading technologies. The weight of these activities has prompted us to focus significant internal efforts in 2014 on detailed strategic planning, as well as on structural and cultural transformation, with the aim of strengthening our foundations and positioning ourselves for the future.
In 2014, we earned the honor of being voted Euromoney's Best Managed Financial Exchange in the Middle East for the third consecutive year. We ascribe this honor to the unwavering efforts of our staff who continue to respond to the evolving needs of our stakeholders whilst maintaining an exceptional level of market integrity and an outstanding operational track record. Indeed nearly 37 million trades were conducted over our platform in 2014, registering a seven year high of more than $572 billion worth of value traded; equating to trading velocity of 118%, the third highest amongst our emerging market peers. In addition, 2014 was also notable for the initial public offering of the National Commercial Bank, which stood as the world's second largest IPO and one of six listed on our platform during the course of the year. Looking ahead, we expect a minimum of eight IPOs in 2015 as a number of company filings approach the end of their regulatory review cycle.
Looking further ahead, the Exchange is expecting to make significant investments over the next five years in building internal capabilities, and honoring our national responsibilities. We firmly believe that the value we derive from our investments is measured by the contribution these investments make to our core values of trust, innovation, and excellence. Indeed, we believe that value for the Exchange, as emphasized by our strategic position in the national economy, is defined by the trust we earn from upholding the integrity and reliability of our market; the innovation we aspire to in developing market infrastructure, management processes, and in the design and delivery of our products and services; and the excellence we strive for across all customer value streams.
I am confident that these investments, combined with the prevailing policy dynamics and planned development initiatives, will see the Kingdom continue to emerge over the next five years to take its place as the natural regional hub of capital formation and the destination of choice for foreign capital flows.
TABLE OF CONTENTS
Focus: Regional Security
Solid as a Rock
Saudi Arabia's fast-growing economy and young population have helped to attract billions of dollars in FDI in recent years. But the Kingdom's longest standing draw is perhaps its well-earned stable and secure reputation in the midst of a region marred by conflict.<span></span>
read articleInterview
HE Dr. Abdul Latif bin Rashid Al Zayani, Secretary General, GCC for the Arab States of the Gulf
TBY talks to HE Dr. Abdul Latif bin Rashid Al Zayani, Secretary General of the GCC for the Arab States of the Gulf, on collaboration between the members and how Saudi Arabia plays a key role in the bloc.
read articleFocus: Chambers of Commerce
Rooms for Growth
Beginning with the establishment of the Jeddah Chamber of Commerce in 1946, the various chambers of commerce and industry have worked to represent the private sector and coordinate their efforts toward the development of the national economy.
read articleInterview
HE Sheikh Saleh Abdullah Kamel, Chairman, Jeddah Chamber of Commerce and Industry
TBY talks to HE Sheikh Saleh Abdullah Kamel, Chairman of the Jeddah Chamber of Commerce and Industry, the Islamic Chamber of Commerce, Founder and Chairman of the Dallah Al Baraka Group, on foreign investment, hiring women, and the increasing role of manufacturing in the regional economy.
read articleFocus: Economic Diversification
Beyond Oil
Although on the agenda for decades, the low price of oil has highlighted the urgent need for Saudi Arabia to make serious gains in its diversification plans. Oil revenue still makes up roughly 80% of the government budget and 90% of the Kingdom's total exports; however, many of the country's long-term investments are beginning to bear fruit.
read articleInterview
Hisham Ali Al-Bahkali, President & CEO, Saudi Arabia and Bahrain for General Electric (GE)
TBY talks to Hisham Ali Al-Bahkali, President & CEO of Saudi Arabia and Bahrain for General Electric (GE), on integrating with local manufacturers, using Saudi Arabia as a base for international services, and developments in manufacturing.
read articleInside Perspective
Adel S. Al-Ghamdi, CEO, Saudi Stock Exchange (Tadawul)
Adel S. Al-Ghamdi, CEO of the Saudi Stock Exchange (Tadawul), on capital market developments, strategies that helped the country deflect global market downturns, and how the exchange plans to develop the national economy.
read articleInterview
Ibrahim A. AlHedaithy, Executive Board Member & Managing Director, MEFIC Capital
TBY talks to Ibrahim A. AlHedaithy, Executive Board Member & Managing Director of MEFIC Capital, on product development, new investors entering the Tadawul, the outlook for the local finance sector.
read articleFocus: King Abdullah Financial District
A Good Investment
At nearly $8 billion, the King Abdullah Financial District is one of the most ambitious projects in the region. The KAFD is the centerpiece in the government's plan to transform Riyadh into a major regional and eventually global financial center, but the project itself has faced delays and criticism over its lavish excessiveness.
read articleInterview
Patrick Van Daele, Vice-President and Country Chairman, Saudi Arabia & Bahrain of Shell Overseas Services Ltd.
TBY talks to Patrick Van Daele, Vice-President and Country Chairman of Saudi Arabia & Bahrain of Shell Overseas Services Ltd., on joint ventures to develop downstream capabilities, exploration challenges in the “Empty Quarter," and economical alternatives in energy generation.
read articleFocus: Oil Refining Capacity
Refine By Me
The Kingdom's strategy of becoming a stronger global downstream player reached important milestones earlier in 2015, as the new YASREF refinery in Yanbu began exports in diesel, gasoline, and petcoke. Combined with the SATORP refinery in Jubail, which reached full capacity in mid-2014, Saudi Arabia added an impressive 800,000 bpd refining capacity in less than two years.
read articleInterview
HE Dr. Abdulrahman M. Al-Ibrahim, Governor, Saline Water Conversion Company (SWCC)
TBY talks to HE Dr. Abdulrahman M. Al-Ibrahim, Governor of the Saline Water Conversion Company (SWCC) on Saudi Arabia's water needs, the role of privatization, and opportunities for investment in the sector.
read articleReview: Industry
Going Large
Industrial development is taking a prominent role in generating jobs and non-oil exports. If natural advantage is a key to a successful industrial sector, then Saudi Arabia's concentration on promoting refined petroleum products and petrochemicals should be a winner.
read articleInterview
HRH Prince Saud Bin Abdullah Bin Thunyan Al Saud, Chairman, Royal Commission for Jubail and Yanbu
TBY talks to HRH Prince Saud Bin Abdullah Bin Thunyan Al Saud, Chairman of the Royal Commission for Jubail and Yanbu and Chairman of SABIC, on attracting international investors, developments in Ras Al-Khair city, and opportunities to diversify.
read articleInterview
Dr. Mohammad Saud Al-Badr, General Manager and Managing Director, Saudi Chemical Company
TBY talks to Dr. Mohammad Saud Al-Badr, General Manager and Managing Director of Saudi Chemical Company, on diversifying its business operations, involvement in the defense sector, and the effects of international oil price fluctuations.
read articleFocus: Defense Industry
Operation Protect
As a defense market, Saudi Arabia remains one of the world's strongest and fastest growing; however, key appointments and developments have invigorated the Kingdom's longstanding mission of domestic military industrialization and strengthening the local supply chain.
read articleFocus: MVNOs
Virtual Competition
Roughly two years after the Saudi Communication and Information Technology Commission (CITC) initially awarded licenses for mobile virtual network operators (MVNOs) to enter the Kingdom, Virgin Mobile and Lebara Mobile finally entered the market in late 2014, with a third on its way. Initial returns have been successful, but the eyes of the global telecom sector are on Saudi Arabia, which is just the second country in the GCC to adopt the MVNO model.
read articleInterview
Fawwaz Bin Abdullah Al-Khodari, CEO, Abdullah A. M. Al-Khodari Sons Company
TBY talks to Fawwaz Bin Abdullah Al-Khodari, CEO of Abdullah A. M. Al-Khodari Sons Company, on recent drivers of success, how oil prices have affected business, and what he expects the remainder of 2015 to look like.
read articleFocus: Housing Crisis
A Place to Stay
With a large young population that is putting more stress on Saudi Arabia's housing demand year after year, the already projected 1 million-unit deficit of 2015 is expected to grow even more. How Saudi Arabia addresses this demand before it becomes a full-blown crisis will be a major topic for 2015 and beyond.
read articleFocus: Kingdom Tower
Touch the Sky
Kingdom Tower, one of the country's most ambitious projects, is set to become a major landmark not just in Saudi but the region. The one kilometer race to the sky is well underway, which, if completed by the slated 2018 finish line, would wrestle the title of world's tallest building from Saudi Arabia's neighboring Dubai.
read articleInterview
Khalid M A Al Shaibani, Former CEO, King Fahad Specialist Hospital-Dammam (KSFHD)
TBY talks to Khalid M A Al Shaibani, Former CEO of King Fahad Specialist Hospital-Dammam (KSFHD) and current Director General, East Region Health Affairs, Dammam, Saudi Arabia, on the highlights of the past 10 years and how to effectively develop human capital.
read articleInterview
Masood Jaffery, Vice President & General Manager, GlaxoSmithKline
TBY talks to Masood Jaffery, Vice President & General Manager of GlaxoSmithKline, Saudi Arabia, on nuances in the Saudi market, the difficulties of attracting the right talent, and what the future holds for the local pharmaceutical industry.
read articleInterview
Bashir Shakib Al-Jabri, General Manager, Medical & Pharmaceutical Services (BASHIRCO)
TBY talks to Bashir Shakib Al-Jabri, General Manager of Medical & Pharmaceutical Services (BASHIRCO), on the long-term dynamics of the dental care sector, new opportunities in the Kingdom, and plans to implement new technology and systems.
read articleInterview
HE Dr. Khaled S. Al-Sultan, Rector, King Fahd University of Petroleum and Minerals (KFUPM)
TBY talks to HE Dr. Khaled S. Al-Sultan, Rector of King Fahd University of Petroleum and Minerals (KFUPM), on the challenge of human resources, R&D partnerships, and the creation of SMEs.
read articleInterview
Randa Bessiso, Middle East Director, Manchester Business School (MBS)
TBY talks to Randa Bessiso, Middle East Director for the Manchester Business School (MBS), on the challenges of providing professional training to executives in Saudi Arabia, addressing the needs of the country's young population, and plans for the future.
read articleInterview
HE Maher Saleh Jamal, Chairman, Makkah Chamber of Commerce and Industry
TBY talks to HE Maher Saleh Jamal, Chairman of the Makkah Chamber of Commerce and Industry, on how to best tackle the issue of unemployed youth, the potential role of Makkah, and how long-term plans are shaping its development strategy.
read articleFocus: Cultural Tourism
Preserving the Kingdom
Saudi Arabia's tourism sector has attracted billions of dollars worth of investment for religious and luxury tourism, but leaving the country's cultural treasures largely underdeveloped until recently. Now, the Saudi Commission for Tourism and Antiquities and other government entities are working to restore and preserve the Kingdom's cultural heritage.
read articleReview: Legal & Accounting
The Thick of It
Saudi Arabia has implemented a number of laws and procedures to ensure that establishing or operating a business in the Kingdom is as easy as possible. Here, Rupert Agius-Pease of KPMG in Saudi Arabia discusses accounting and legal facts every investor should know.
read article