Saudi's poor investment climate leads to capital outflow to other Gulf states
JEDDAH —The Saudi stock market is too small to accommodate the amounts of cash the country's citizens have on hand. The end result is that joint stock companies in the Gulf grow at a fantastic rate due in part to Saudi capital, according to Ghazi Al-Maghlouth.
Writing in a recent issue of the Arabic daily Al-Watan, he says: "Saudi money is used for economic development in the UAE instead of investing it at home. One cannot help but wonder who is to blame for such a deplorable state of affairs."
He recounts that a few days ago the UAE police apparently had to use force to keep order because thousands of Saudis were impatiently waiting to open bank accounts in that Emirate in order to buy shares in Dana Gas. The banks had to work overtime to serve all the subscribers. On the black market, some Saudi subscribers had to pay up to Dh50 for an application form and some paid as much as Dh 700 for a single UAE family card.
"Saudis desperately need a sufficient number of legitimate outlets to invest their savings in; the country's markets simply do not have the capacity to absorb all the money that is available. Ironically, while the country has been making all-out efforts to attract foreign investors, local liquidity is flowing to Egypt, Dubai, Doha, Kuwait and other attractive investment destinations," he stated.
"In other words, we seek foreign investment and fail to attract local investment. No one has been able to explain why several new Saudi companies have been kept waiting for the necessary approval by the country's Capital Market Authority (CMA) while millions of riyals are flowing out of the country," he said. "This happens in spite of the fact that the Saudi market is the biggest in the region in terms of numbers of consumers, commodities and service markets in which demand and supply are high and there is plenty of liquidity. The fast growing markets are capable of accommodating more joint stock companies with huge capitalisations. Still the flow of capital to neighbouring countries continues without letup," he added.
According to Al-Maghlouth, one need not look very deep to find out the obvious: That the investment climate and the accompanying infrastructure (in Saudi Arabia) do not inspire confidence among local investors. Most companies are run either by individuals or families. Their combined capacity will only absorb 50 per cent of the available liquidity and the remaining 50 per cent is taken to markets in the neighbouring countries where they have been exposed to all sorts of exploitations and indignities.
"Is it not strange that a country such as ours with large tracts of land, a large population, rich mineral resources and a rapid growth rate does not have sufficient capitalisation channels while the tiny emirates surrounding us offer a congenial investment climate?" he queries.
"The long and short of it is that the regulations governing our capital market do not reflect the huge investment potential. This situation has created a glaring imbalance between available liquidity and the investment facilities. It is, however, within the power of the government to rectify the imbalance and provide a favourable investment climate with priority to private companies and a significant reduction in bureaucratic and administrative bottlenecks," he asserted.
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