Saudi Arabia reaps $53bn dividend from emerging market status

Saudi Arabia and the broader GCC region are tapping into emerging markets in more ways than one. (Shutterstock)
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Updated 21 February 2020

Saudi Arabia reaps $53bn dividend from emerging market status

  • The country finalized its entry into the JP Morgan suite of emerging market (EM) indices

In September 2019, Saudi Arabia reached an important milestone in its Saudi Vision 2030 reform plan, which aims to diversify the Kingdom’s economy away from its petrochemical revenue base.
The country finalized its entry into the JP Morgan suite of emerging market (EM) indices. It was the finale in a series of announcements by the major indexes, including MSCI, S&P and FTSE, confirming that Saudi Arabia met their inclusion criteria.
This is a testimony to the work of The Capital Markets Authority and Saudi Arabia’s stock exchange, Tadawul, which have driven the effort to modernize the Kingdom’s capital markets infrastructure and make it more investor friendly.
Saudi’s inclusion as an EM allows its entry to ETF’s, opening the country to billions of dollars-worth of outside investment, which would be otherwise closed to it.
An example, $1.9 trillion tracks the MSCI EM Index alone of which 80 percent is active and 20 percent passive. Given this, Saudi Arabia’s 2.8 percent country weighting represents an additional $53 billion in foreign capital flows to the country.
Looking into 2020, there are several considerations investors should bear in mind. Foremost among these are oil prices and a concurrent slowdown in growth, regional geopolitical tensions and — a potential boon for investors — the rise of fintech in the region.
Oil prices have swung between $55 and $75 a barrel this year against a backdrop of slowing global growth, trade tensions and geopolitical risks. Steep oil production cuts — undertaken in a bid to push up prices — have acted as a further drag on growth, in addition to weak external demand.
As a result, Saudi gross domestic product (GDP) growth is forecast to slow from 2.4% percent in 2018 to 0.2 percent this year. Across the GCC as a whole, GDP is expected to decelerate to 0.7 percent from 2 percent in 2018.
The region’s volatile geopolitics was highlighted in September when drone attacks targeted Saudi Arabia’s oil industry. Indeed, a recent “Future of Wealth” report by UBS, which canvassed investor opinion from around the world found that 83 percent of investors in the UAE), one of the GCC’s six members, think geopolitics is driving markets more than business fundamentals.
Despite the challenging geopolitical backdrop, globally, investors in the UAE are most optimistic about returns in the next decade: 85 percent versus 69 percent in the US, 65 percent in Asia and 72 percent in EMEA.
A potential bright spot for GCC investors heading into 2020 is the rise of the technology sector. Global groups, including Amazon, which chose Bahrain to launch its first data hub in the region, are flocking to service the region’s youthful, tech-savvy populations.
The development of a financial technology ecosystem is also a significant component of Saudi Arabia’s Vision 2030 economic diversification strategy. It is seen as essential for broadening the country’s investment base and a transition toward a cashless digital economy. To this end, the Saudi Arabian Monetary Authority launched Fintech Saudi in April 2018 to catalyze the development of the industry.
The GCC is also at the forefront of innovation in the digital assets space. Earlier this year, the Abu Dhabi Securities Exchange approved a digital currency trading platform, and the country’s sovereign wealth fund has invested in the venture.
Saudi Arabia and the broader GCC region are tapping into emerging markets in more ways than one. The Kingdom has a very ancient past — the prehistory of the country shows some of the earliest traces of human activity in the world — but its society and business infrastructure are undergoing rapid transformation. From welcoming in outside capital to being an eager adopter in the digital assets and fintech space, whatever lies beyond 2020 for the Kingdom and the region, it promises to be innovative, fast-moving and creative. However, it is vital for the long-term
health of the profession that the innovation and transformative energy in such obvious evidence are underpinned by sound professional standards.
We have a vital role to play in the development of the region’s capital markets via the provision of such standards, and crucially, education. The Kingdom is one of the fastest growing markets in MENA and we welcome its commitment to greater transparency and putting the interests of investors first. We also encourage more countries in the region to promote fairness, transparency and ethics in the investment profession.


Bayut and Dubizzle merge to create a Dubai-based unicorn company

Updated 19 min 27 sec ago

Bayut and Dubizzle merge to create a Dubai-based unicorn company

  • The two owner companies will also run a $150 million investment round
  • EMGP will continue operating both Bayut and Dubizzle in the UAE

DUBAI: The owners of UAE technology firms Bayut and Dubizzle have announced a merger which will form a $1 billion Dubai-based unicorn company, state news agency WAM reported on Tuesday.
Emerging Markets Property Group, EMPG, and OLX Group will also run a $150 million investment round as part of the agreement to merge their MENA and South Asia operations.
Unicorn companies are privately held startups valued at over $1 billion.
The merger makes OLX, EMGS’s largest single holder with 39 percent of shares. EMGP will continue operating both Bayut and Dubizzle in the UAE, and the merger will bring OLX entities in Egypt, Lebanon, Pakistan and several GCC countries into the company’s reach.
“This merger of EMPG and OLX will allow us to better serve our customers, given that both operate brands with a strong following and will allow us to leverage existing tech and data to paint a more accurate picture of the state of affairs in the real estate industry across the region. At the same time, we will be making significant technology investments to provide more value to all users of property, automotive and other segments of the Dubizzle and OLX platform,” Head of EMGP MENA Haider Ali Khan said.
The cumulative value of properties sold in the UAE, Egypt, Lebanon and Pakistan through the websites is estimated at $8.984 billion, offering a possible commission pool of above $1.9 billion for real estate agents.
Meanwhile, Ali Maabereh, head of mergers and acquisition (M&A) at KMPG in Saudi Arabia said M&A activity will increase in GCC countries amid the coronavirus pandemic as SMEs and several large corporates will look for capital injections to satisfy working capital needs.
“The current pandemic is creating a lot of uncertainties and contradictions in what to expect after the dust settles. The expected key impacts on companies are shortages of liquidity and working capital requirements. Though companies might be running a healthy P&L, there will be significant pressure on working capital requirements,” he said.