Saudi stock mkt opens directly to big foreigners Monday
Saudi Business Opening Drives Social Changes
JEDDAH, Saudi Arabia --Male and female employees of National Commercial Bank arrive though separate entrances and ride separate elevators. But once inside, they work side-by-side in the coastal headquarters of the country's biggest lender.
The practice is just one sign of how new business is beginning to transform one of the world's most conservative societies, as the kingdom's rulers move to diversify away from oil, create more jobs and integrate their largely insular economy into the global system.
One major step in this direction will come on Monday, when Saudi Arabia opens its $580 billion stock market--the biggest in the Middle East --directly to foreign investors.
The bank's executives and Saudi officials both view the opening as a way to help cautiously liberalize the economy and social policy, with new foreign investors raising corporate standards and broadening the workforce to include more women.
Alaa al-Mizyen , a 25-year-old female investment banker at NCB, is at the vanguard of this change. "Investors tend to be sophisticated, they look for the best," said Ms. Al-Mizyen , who speaks Arabic, English and French and co-founded an environmental group. "They don't care if it is male or female as long as they get what they want."
The shift isn't an easy sell in a desert kingdom that has long prided itself as being the very guardian of tradition (the official title of the Saudi king is "Custodian of the Two Holy Mosques"). Women enjoy few rights here-- even driving is off limits--and make up only about one-fifth of the workforce.
Conflicts between the conservative religious establishment and the Saudi ruling family are also simmering.
A controversy flared last year when the government opted to sell shares in state-owned NCB's initial public offering. Senior clerics, who hold sway over social policy, opposed letting the public buy stock in a company which charges loan interest, a forbidden act in strict Islamic jurisprudence. The clerics eventually were overruled and demand for the IPO was brisk.
And despite the government push to create jobs for locals in recent years, the unemployment rate remains high at 11.7%, according to official figures. Unemployment represents a serious challenge not only to the economy but also to the social and political order in a country where Islamic militants have made inroads in recruiting unemployed and disenfranchised youth.
The extremist group Islamic State has launched several attacks inside the kingdom since last November, targeting places of worship for the Shiite minority and members of the security forces. Saudi authorities arrested dozens of young men in the aftermath of these attacks. They haven't been charged.
After they weathered a stock market crash in 2006, the global financial crisis in 2008 and a wave of Arab uprisings, some Saudis now think this is the right time to open their stock market. Until now, only citizens of Saudi and Gulf countries could invest, with foreigners allowed limited, indirect access.
"The changes needed are very structural and very difficult," said Abdulaziz Aldukheil, who served as deputy minister of finance during the 1970s. They need "a strong political will."
King Salman , who ascended the throne in January after the death of his half-brother Abdullah, hasn't been shy about change. He appointed his 29-year old son Mohammed to lead the Council of Economic and Development Affairs ; he was later picked to be deputy crown prince, making him second in line to the throne.
The king also replaced cabinet ministers with new faces who come from the private sector, and restructured government bodies in charge of policy-making. The government has begun restructuring the national oil giant Aramco, and it is considering the creation of a sovereign-wealth fund to invest their reserves.
Under the terms of Monday's stock market opening, only large global institutional investors, with at least $5 billion in assets under management, will be allowed to buy directly into the market. The requirement is aimed at attracting more stable and experienced investors to a market that remains dominated by individual traders.
The entire market, however, remains limited to a small number of shares since the government controls the largest companies like the petrochemicals giant Sabic and Saudi Telecom Co.
Foreign investors will be restricted from investing in some companies like the ones based in the holy city of Mecca and firms deemed essential to national security. These restrictions are unlikely to curb the appetite of these investors.
For decades, Saudi Arabia has done little to diversify away from the oil sector. Oil revenue's share of the national budget has actually increased, to 93% in 2014 from 80.6% in 1960.
Still, the kingdom's economy has been growing by 4% to 5% a year since 2012 while the rest of the world, especially the developed markets, has been struggling. Saudi Arabia also has around $700 billion in foreign reserves, according to the International Monetary Fund . Saudi officials say they don't need to open the stock market to foreign investors for the money; overseas funds are expected to make up only a fraction of overall market capitalization.
"There are many reasons to open the market and to do it gradually, but liquidity is not one of them," said Mohammed Aljadaan, president of the Capital Market Authority , which regulates the stock market.
A more diversified economy could help address certain challenges. One problem is the country is burning through the reserves fast, as it attempts to maintain public spending on development and military programs as the price of oil declines. Saudi Arabia has drawn down a total of $47 billion of foreign reserves between October and May, central bank figures show. The reserves dropped by $36 billion , or 5%, over March and April.
Another economic issue is rooted in social attitudes. For Ms. al-Mizyen and other young Saudi women, the market opening is part of a new era where companies like hers are trying to fill slots with the most talented employees they can find, whether male or female. The bank's new CEO is the first woman in such position.
"I can honestly say I have a career path where I can advance," Ms. al-Mizyen said.
(END) Dow Jones Newswires
06-12-15 1914ET
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