Fireside Chat, Panel, Conference Presentation
FDI in MENA: The Role of Capital Markets and Financial Infrastructure
Milken InstituteJohn Burbank, Sarah Al Suhaimi, Miguel Azevedo, Rayan Fayez, Rishi Kapoor, Frank Kane
- Foreign investor participation is projected to grow significantly, with Qualified Investor Program (QFI) participants expected to reach thousands from a current baseline of 120, driven by the listing of Aramco and increasing market familiarity.
- The Saudi market is anticipated to achieve index inclusion readiness by the end of this year, potentially unlocking approximately $25 billion in passive investment flows and raising Saudi weights to roughly 2.5% in emerging market indices.
- Foreign ownership levels are forecast to enter the double digits within a few years, ranging from 5% to 40% for specific entities, a shift expected to double the market's efficiency and drive competition against global peers.
- Structural reforms include the completion of a clearing house by year-end and the adoption of insolvency resolutions similar to the UAE, alongside regulatory telegraphing ideally three years in advance to mitigate uncertainty.
- Capital markets are expected to become a primary funding source, capable of raising 5% of total foreign inflow in days, with healthcare, education, and industrial infrastructure prioritized due to government privatization plans.
- The Saudi Stock Exchange aims to consolidate the region into a single main market to facilitate dual listings and capture foreign company interest, potentially positioning it as the dominant regional exchange.
- Corporate governance is set to align with global standards, with the government remaining the largest market player post-Aramco listing while foreign investment rises to the second-largest position.
- Short-term economic adjustments, including temporary cost escalations on labor or fuel, are expected before gains are realized, while the rapid aging and wealth accumulation of the millennial generation will drive technology adoption and family wealth transitions.
- Legal and social environments are predicted to evolve rapidly, with the 2016-established Commercial Center for Arbitration enhancing dispute resolution speed and societal acceptance of reforms occurring almost immediately.
- Long-term market transformation includes a quadrupling or greater increase in transparency over the next five years, driven by a consistent regional economic model and the realization that existing fixes for current issues are already in place.
- Risks include potential "stop-and-go" reform approaches that could lower investor confidence and increase risk premiums, requiring sustained consistency to maintain momentum.