Saudi Arabia is looking for greater foreign investment.
In an effort to attract international investment, Saudi Arabia’s Capital Market Authority (CMA) has removed restrictions on foreign ownership of listed companies. The purchase of stocks by non-Saudi nationals was previously limited to financial firms with at least $500 million under management; single investors could own up to 10% of a company and up to 49% collectively.
With the decision in June to scrap the restrictions, the regulator is “opening up the capital market and the Saudi economy to the outside world,” CMA Chair Mohammed bin Abdullah El-Kuwaiz says in a press release.
The new rules will include no purchase maximum or minimum; but to ensure long-term commitment and knowledge transfer, investors must hold their shares for 24 months before they sell. In some cases, internal company rules or other regulations, such as the ban on foreign real estate investments near the kingdom’s religious sanctuaries, may still apply.
These exceptions aside, however, for the first time in decades, international investors will be able to acquire majority shares in key sectors of the economy, such as telecommunications, insurance and banking. The Saudi Arabian Monetary Authority, the kingdom’s central bank, has reported receiving several license applications from foreign banks.
It’s hoped that foreign lenders will promote competition, strengthen the Saudi banking system, develop funding mechanisms, diversify services and promote the overall openness of the market. That makes the liberalization a win-win situation for the kingdom and foreign banks, comments Wissam Fattouh, secretary general of the Union of Arab Banks.
Saudi Arabia is the largest Arab economy, with a GDP expected to reach $962 billion by the end of 2019. Since the fall of oil prices, it has pursued a path to diversify its economy and attract international investment. The Tadawul, or stock exchange, opened to foreigners in 2015 and was added to the FTSE and MSCI emerging markets list earlier this year.