Getting rid of red tape seen as key to Saudi reform push

Saad A. Alrashed, founding partner of law firm ZS&R. (Supplied)
Updated 07 February 2019
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Getting rid of red tape seen as key to Saudi reform push

  • Legal expert sees ‘real efforts and measures’ underway in the Kingdom, led by the government
  • Saad A. Alrashed: There’s a push to ‘buy Saudi Arabia’ from international funds

Saad A. Alrashed, the founding partner of law firm ZS&R in association with Hogan Lovells, speaks to Arab News about the investment climate in Saudi Arabia and why 2019 is set to be the year of deal-making.

Q: We are seeing the return of merger-and-acquisition activity in the Gulf, at its highest in a decade. How is this likely to play out in Saudi Arabia, and in which particular sectors — beyond Saudi Aramco’s proposed acquisition of a controlling stake in SABIC — are we likely to see deals being done?
A: Apart from SABIC/Aramco, there are two large ones taking place: NCB and Riyad Bank, and before that SABB and Hollandi, and negotiations are still ongoing.
Banks in Saudi Arabia have among the highest profitability in the world, and local boutique banks are usually good for the economy and end-consumer, therefore it’s difficult to foresee more logical mergers in this sector.

Q: How would you describe international investor sentiment toward the Kingdom currently, and to what extent will Saudi Arabia benefit from improving investment interest in emerging markets?
A: The Saudi economy in 2017 was in slight negative growth (real gross domestic product at -0.7 percent), yet it grew (in 2018 by almost) 2.5 percent and is upgraded to reach about 2.7 percent this year. The G20 can be split into two sections: Advanced and emerging. Both have been downgraded by the IMF as per growth (as seen in 2018 and as estimated for 2019). For example, the US economy grew last year around 2.9 percent (real GDP growth), and is expected to slow down this year. Saudi Arabia is one of the few countries in the G20 that have an upgraded growth forecast for this year and next year (along with Italy, Canada and Russia).
Japan got a downgraded growth forecast along with Australia and South Korea, and even China and India got downgraded forecasts (China’s GDP growth, which was 6.9 percent in 2018, was downgraded from a forecast of 6.6 percent to 6.0 percent for 2019). India’s economy is expected to slow down slightly to 7.3 percent.
As for how the Saudi economy is viewed internationally juxtaposed to all this, there’s a push to ‘buy Saudi Arabia’ from international funds (such as Passive Funds, with little or no active management, which usually seek to emulate their international exposure for emerging markets), also reflected in light of the Kingdom’s inclusion in the MSCI and the FTSE’s Emerging Markets Index.
This was clearly reflected as well in the national Saudi market (Tadawul) from the beginning of last year until today, with leading company stocks soaring, which indicates a general positive view of the whole economy. Of course, this is all in retrospection against 2017.
In terms of investor sentiment, there’s some hesitation that I believe is totally unjustified, since the real local feel and mood of the Saudi populace is a positive one in light of all the changes and new adaptations taken by the leadership.
And generally it’s difficult to ignore Saudi Arabia and its economy, which is the largest in the Middle East and North Africa, with a stable and deep system, a large local population, and massive growth potential and oil reserves.

Q: Which areas of the economy would benefit from further reforms?
A: It’s difficult to say, but a lot of the SMEs (small and medium enterprises) have been impacted by hikes in import labor fees, utility fees and different tax measures. And consumer spending is seen to have slowed down last year. This is of course as a result of Saudization measures and localizing labor.
Reforms benefit the whole economy. There are many sectors that need reform and can benefit from it, and now there are many courageous government initiatives in all directions really. Just last month, we saw around 34 excellent openings in all fields, from infrastructure to mining to logistics. Thankfully, there’s a huge push now by the Ministry of Commerce and Investment to cut down business establishment costs in order to encourage entrepreneurship and help initiate SMEs across the country (right now, according to unofficial figures from the ministry, setting up a new business in Saudi Arabia is more expensive than in Turkey and Dubai, for example).
This will definitely help alleviate the hikes mentioned earlier that affect SMEs and consumer spending. There seem to be real efforts and measures to cut red tape and start-up costs, led by the Saudi government.

Q: Given the prevailing sentiment in markets, are we likely to see many initial public offerings (IPOs) this year, and in what sectors?
A: I believe there are around six offerings this year in the stock market, which is a healthy number. This can be addressed further by financial experts.


India suspends Kashmir border trade with Pakistan

Updated 19 April 2019
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India suspends Kashmir border trade with Pakistan

  • Kashmir has been on edge since a February suicide attack that killed 40 Indian paramilitaries
  • India said it had reports that trade on the border was being “misused by Pakistan-based elements for funnelling illegal weapons, narcotics and fake currency”

NEW DELHI: India has suspended trade across its disputed Kashmir border with Pakistan, alleging that weapons and drugs are being smuggled across the route, as tensions simmer between the nuclear-armed neighbors.
Kashmir has been on edge since a February suicide attack that killed 40 Indian paramilitaries and brought the two countries to the brink of war with cross-border air strikes.
On Thursday, India’s government, which is in the middle of a tough national election, said it had reports that trade on the border was being “misused by Pakistan-based elements for funnelling illegal weapons, narcotics and fake currency.”
It also said many of those trading across the Line of Control, which divides Kashmir into zones under Indian and Pakistani control, had links to militant organizations.
The home ministry said trade would be suspended until a stricter inspection mechanism is in place.
The cross-border trade is based on a barter system, with traders exchanging goods including chillies, cumin, mango and dried fruit.
It began in 2008 as a way to improve strained relations between New Delhi and Islamabad, who have fought two of their three wars over the disputed region.
The Indian Express newspaper said Friday that 35 trucks carrying fruit traveling from the Indian side of the border had been stopped after the government order.
Trade on the border has been suspended before, including in 2015, when India accused a Pakistani driver of drug trafficking.
The latest move comes after India withdrew “Most Favoured Nation Status” — covering trade links — from Pakistan after the February attack, which was claimed by the Pakistan-based Jaish-e-Mohammed Islamist group.
Islamabad has denied any involvement in the attack.
India’s Hindu nationalist Prime Minister Narendra Modi has made national security a key plank of his re-election campaign, pointing to the recent flare-up of violence as he battles the center-left opposition Congress party.
He is seeking a second term from the country’s 900 million voters in the mammoth election which kicked off on April 11 and runs till May 19. The results will be out on May 23.