The U.S.-Saudi Business Opportunities Forum in Chicago featured a panel discussing finance and investment in the Kingdom that provided an overview of the development of Saudi Arabia’s banking sector since the 1970s. The challenges associated with furthering the development of the Saudi financial market create opportunities for foreign investors to affect positive growth both in the country and their portfolios. Investment bankers, economists, and former U.S. government officials appreciated the work of Saudi regulatory agencies and encouraged American investors to overcome their preconceptions of Saudi Arabia by visiting the Kingdom.

 

Secretary William Cohen, Chairman and Chief Executive Officer of The Cohen Group, moderated the discussion. Panelists included Ahmed Sulaiman Banaja, Chief Executive Officer of Saudi Economic and Development Company; Kholood Al Dukheil, Founding Share Holder, Board Member, and Executive Vice President of Al Dukheil Financial Group; Ambassador Ford M. Fraker, Senior Advisor and Chairman of KKR Middle East and North Africa; and Dr. John Sfakianakis, Group General Manager and Chief Economist of Banque Saudi Fransi.

Mr. Banaja presented an overview of the Saudi banking system since 1940, which in its beginning was composed of only two foreign banks. Local banks developed in the early 1950s, followed by the establishment of the Saudi Arabian Monetary Agency (SAMA) in 1952. In response to high oil prices in the 1970s, SAMA required foreign banks in the Kingdom to go public, encouraging Saudi involvement in the sector. Increased capital made it possible for Saudi Arabia to create an information technology infrastructure for its banking sector, now considered one of the most advanced in the world.

Mr. Banaja described the current Saudi banking system as conservative and highly liquid, and expressed hope in its potential. In his opinion, the Kingdom’s low loan-to-deposit ratio of 75 percent represents additional, untapped loan capacity. Mr. Banaja recognized new infrastructure megaprojects as an impending challenge for banking; he advised foreign partners to take risks and finance these developments in order to spur further economic growth.

The theme of forthcoming opportunities was echoed by Ms. Al Dukheil. She explained that finance in the Kingdom has reached a unique moment. “The financial sector in Saudi Arabia has been going through nothing short of a silent revolution in the past five years, which has yielded today significantly different structure[s], players, products, and opportunities,” she said, calling banking the “true fuel of every economy.”

In Ms. Al Dukheil’s opinion, important structural changes are shifting market realities. The creation of licenses for foreign banks, the establishment of the Capital Market Authority, the Kingdom’s stock market regulator, and Saudi Arabia’s accession to the World Trade Organization in 2005 all demonstrate that Saudi finance is maturing and flourishing. At the same time, she recognized that Saudi Arabia’s market has areas to improve, citing problems such as limited qualified human capital and the lack of technical expertise necessary to fulfill lofty goals. However, Ms. Al Dukheil views these market challenges as opportunities for successful investment by foreign financiers. Limited qualified human capital creates demand for education and training, while investors willing to assume risk could expect big dividends from megaprojects.

Saudi panelists’ enthusiasm for the finance sector was matched by their U.S. colleagues. Ambassador Fraker advised businesses expanding their operations oversees that overlooking Saudi Arabia would be a mistake. “To fully understand what these opportunities are,” he said, “you have to get on an airplane and see them for yourself.” Asked about methods for doing business in the Kingdom, Ambassador Fraker extolled the value of cultivating personal relationships between partners.

Secretary Cohen reaffirmed these principles and attempted to dispel the false perceptions that hamper business relations between the two countries. He stressed that businessmen, not politicians, hold the power to overcome these barriers by demonstrating positive and sustainable interactions with their associates abroad.

Dr. Sfakianakis offered economic predictions for Saudi finance and investment. Saudi Arabia weathered the global economic crisis better than many other countries, including fellow G20 members. He attributed this success to responsible government policies, regulatory institutions, and innovative business leaders. Government debt is only 13 percent of GDP, all of which is held domestically, according to Dr. Sfakianakis. In 2008, the Kingdom launched the largest fiscal stimulus plan among members of the International Monetary Fund. He pointed to the stability of the Saudi financial market, noting that no bank has failed in Saudi Arabia.

Panel 6: Finance and Investment
Kholood Al-Dukheil, Founding Share Holder, Board Member and Executive Vice President, Al Dukheil Financial Group
“Financial Sector Overview”