RIYADH, 19 February 2005 — The flight of capital from the Kingdom to Dubai last year was as high as SR26 billion in terms of real estate investment in addition to SR1.8 billion that was diverted to the UAE stock market during the last six months.
This was disclosed to Arab News by Motasher Al-Murshed, a veteran financial consultant, who said limited investment outlets, lack of professionalism in the financial market and ineffective implementation of the Capital Market Law passed 18 months ago have contributed to the situation characterized by too many investors chasing too few outlets.
“We have huge liquidity in the market. Yet, these investments went to Dubai due to the numerous incentives granted to Saudi investors in that Emirate. It is estimated that Saudi real estate investments in Dubai account for 40 percent of the overall real estate investments in the Emirate. This ratio is expected to grow in the next few years,” Motasher observed.
He was speaking in the context of the three-day Jeddah Economic Forum that opens today with its theme, “Capacity building: Developing people for sustainable growth.”
Motasher said the Saudi stock market has been growing so fast that the number of shareholders is increasing 10,000 every month. “Today we have 800,000 men operating in the share market which, unfortunately, is not being managed professionally. As a result, only 20-25 percent of the shares are available for transactions benefiting mostly the majority shareholders. Moreover, the high face value of blue chip shares has put them beyond the reach of small investors.”
Noting that only 73 companies have been listed on the Saudi stock market, he said the potential is enormous for a market worth over SR1.3 trillion in capitalization. Yet, 75 percent of the shares are owned by the government leaving only 25 percent for investors.
“If the financial market is diversified and new products like Islamic bonds and oil futures added to the investment portfolio, the Kingdom can easily finance infrastructural projects like railroad, power generation and water production on its own instead of scouting for overseas investors. This will also create employment opportunities for Saudis, since many projects could come on stream once the stock market is diversified.”
Motasher said that another major impact of the stock market diversification, especially with the trading in oil futures, would be the stabilization of oil prices whose volatility has played havoc with the international economy.
He pointed out that in the absence of ‘structured finance products’ like Islamic sukook (bonds) and commodity trading like oil futures, the Saudi financial market has become distorted with over 65 percent invested in real estate, while the stock value of even losing companies has been escalating. “This clearly calls for market diversification given the fact that transaction of shares has increased from SR1 billion a day three or four years ago to SR4-5 billion a day at present.”