Editor’s Note:
The Opportunity Arabia 8 conference, organised by the Middle East Association, provided an excellent forum for business people to learn about Saudi Arabia’s robust trade and investment prospects and to network with commercial contacts. The conference was held in London on September 22, 2011 and gave the 200 or so attendees a day-long assembly of keynote speakers and market specialists. They provided the background, details and “how to” for seizing the commercial opportunities in Saudi Arabia.
Today we provide for your consideration the final presentation from the opening panel at the conference, a thorough review of the “Saudi Economy, Opportunities and Challenges in 2011 and Beyond,” by Mr. Thamer A. Jan, General Manager of SABB Commercial Banking. SABB is a Saudi Joint Stock Company with a strong track record extending more than 30 years. It formally commenced activities in July 1978 when it took over the operations of the British Bank of the Middle East in the Kingdom of Saudi Arabia. Mr. Jan is responsible for the entire Commercial Banking business in SABB across the Kingdom, a position he assumed in March 2011. Before starting his banking career in 1996 he served for five years with the Saudi Ministry of Foreign Affairs as an “Economics” lecturer in the Diplomatic Institute.
Mr. Jan’s presentation on the Saudi economy included a series of detailed, insightful slides that can be reviewed as you read the transcript at the link. Additional presentations from the Opportunity Arabia 8 conference will be provided in the coming days. You can review the conference agenda and the remarks that have already been published on SBRIS by visiting the Special Section called “Opportunity Arabia 8.”
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[Refer to slides alongside transcript]
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Opportunity Arabia 8 Conference
London, UK
September 22, 2011
The Saudi Economy: Opportunities and Challenges in 2011 and Beyond
Mr. Thamer Jan, General Manager, SABB Commercial Banking
[Sir Alan Munro - Conference Chairman] We now move on, of course, to the financial sector, without the support of which there would be no trade between us, and no investment. So it’s a pleasure to welcome Thamer Jan, from the Saudi-British Bank, which is the oldest British investor in Saudi Arabia, a partnership that continues to flourish and grow. We are very fortunate to have him among our Saudi speakers here today.
Click on slide for complete presentation (PDF)
[Thamer Jan] Hello. Good morning, ladies and gentlemen. I would like to start by thanking the Middle East Association for the invitation to be part of this forum on behalf of the Saudi-British Bank. I will be talking to you today about some of the key opportunities and challenges that the Saudi economy faces. I will touch on how that impacts on the banking industry. You have already hard about some of these issues from the keynote speakers, so I may go though it quickly.
These are the facts. The Saudi Arabian economy is a strong economy that has weathered the storm. The last three years have seen a lot of turbulence in terms of economic downturns, and it has affected a number of key economies across the world. However, Saudi Arabia has really weathered the storm.
It is a G-20 member and a key emerging market. The growth rate has been revised during the second quarter by SAMA to roughly around 4-5 percent per anum. The economy is dependent on government spending to a great extent. However, strides are being made to encourage the private sector to play a more active role. There is a strong level of connectivity with the global markets, with key exporting and importing countries.
What’s interesting here is that we start to see certain countries where involvement over the last twenty years was negligible. China is a country worth looking at. And the Chinese have actually stepped up their involvement with the Saudi economy significantly over the last three years, with companies taking a very courageous step in setting up shop with a strong commitment in Saudi Arabia.
A key factor to consider is the sovereign wealth fund, which is also a substantial amount. The major FDI flows have grown to $36 billion from roughly $138 million ten years ago. Saudi Arabia ranks second globally behind India on the trade confidence index for HSBC, and that speaks volumes.
Having said that, we do have challenges. The key challenge – I will be reiterating what some of the keynote speakers mentioned – is unemployment. It is a key challenge for us. We have a relatively young population, 35 percent of our population is under 15 years old. It is a concern because it has an effect from a political point of view as well. As such, the government has taken steps to tighten restrictions on employment of ex-patriots towards improving the Saudization ratios.
The Opportunity Arabia 8 Conference provided insight and "know how" on getting into the Saudi commercial market. L-R Sir Alan Munro, conference chairman; Omar Bahlaiwa, Secretary General of the Committee for International Trade and Thamer Jan, General Manager SABB Commercial Banking
Long-term plans to “upskill” the Saudi workforce through improvement in the technical and vocational education facilities, and the provision of scholarships to Saudis as part of the country’s long-term solution to provide the appropriate workforce for the more challenging jobs coming out. However, the transition to a workforce with a greater proportion of local staff may be disruptive in the short-term given the limited skill mix and the demands of the private sector.
A second challenge is the shortage in the supply of affordable housing. In Saudi Arabia 30 percent of the population actually owns their homes. There is a significant demand expected, up to two million units by 2015. A comprehensive legal framework has been undertaken at the moment to issue a mortgage law, which should assist people in owning their own homes. That is still a work in progress, however. Having said that, also building that number of units will definitely have an impact on raw material prices, and we’ll have some inflationary pressures.
A challenge on that front is actually having the contractors who can produce that number of housing units, knowing that the government is also undertaking a significant amount of infrastructure construction at the moment.
The final challenge in my opinion is the state of the current global economy. We’ve seen some woes in Europe. We’ve seen issues in the U.S., and issues in Japan. All of that will definitely have an impact on the demand for oil and petrochemicals, and could impact Saudi Arabia. That is something we have to consider.
Moving on. [Slides] Just to share with you some of the fiscal policies the country has undertaken. The King earlier in the year announced, shortly after his return from the U.S., a $130 billion specific stimulus package, which cost close to 30 percent of the government’s GDP, with a lot of benefits and infrastructure projects. Part of the benefits was a complete review of the wages and salaries of government employees, and it was very much appreciated. It has actually had a strong impact on the economy by uplifting sentiments at both the individual level and the private sector level.
Although the spending will take some time, because it will span the short to the medium term, we have seen evidence that that has had an impact, positively impacted the economic indicators. Even if we allow for some delays or some reduction in the price of oil, we expect 2011 to be a strong year where Saudi Arabia will have a significant surplus.
One point to make, the conservative monetary policies applied by SAMA to the banking sector has also played a major role in allowing the banks to weather the storm, and none of the Saudi banks have been affected over the last three years. We’ve had no issues or cases of bankruptcies or banks having to resort to government support. That is something to be applauded.
The recent political unrest surrounding Saudi Arabia has had an impact. But looking at the impact it’s not as significant as what some of the Arab neighboring countries have had, and the confidence remains relatively strong in the economy and in the outlook for the country.
On the global scene Saudi Arabia has had significant in trade flow growth year after year, and even the volume of business being undertaken with the key partners, both on the import and export side, has been on an upward trend. This is further fueled by a significant amount of infrastructure projects planned over the next five years.
Of particular mention is, of course, the trade flows with Asian, Middle Eastern and North African countries. As you can see from the graph, it shows a strong level of connectivity and trade flows. We have also seen a significant amount of foreign direct investment coming into the country. This further supports the positive sentiments that the country is having.
SAGIA has also played a big role in improving our FDI flows into the country and as my colleague, Omar, mentioned earlier, Saudi Arabia has actually stepped up significantly in terms of the ease of doing business for foreign companies.
The stimulus package, and I refer to this, which is the $130 billion package I mentioned earlier. This [slide] is just a brief breakup of the key spending areas. So you have $67 billion planned for half a million affordable homes, $11 billion earmarked for the Real Estate Development Fund, and $5.5 billion earmarked to the Saudi Credit Bank. That last is a bank specifically aimed at providing facilities to the SME sector, the micro and the SME sector. And with that hopefully — with an increase in the paid up capital — that will allow them to go to the market and actually provide further facilities to facility-seekers. $4.3 billion going into the Ministry of Health, and $4 billion to the General Housing Authority, and 60,000 new jobs for the Ministry of Interior. That’s only a glimpse of what the stimulus contained. There were other components, but this is just the key parts that I wanted to share with you.
Another aspect is that there is a significant focus on education. There are 120,000 vacancies for the scholarship program initiated by King Abdullah, out of which about 52,000 have already gone. The remaining numbers are out there. And this is actually a fantastic way of bringing expertise and skills into the Kingdom and also allowing the Saudis that experience the West to come back with a level of moderation to balance thinking within the country. It has actually had a very positive impact on the country.
I have a final note for all of that spending. Aramco is also gearing up its capability by building production capacity to twelve million barrels per day. That will also have a pent up demand in terms of all the ancillary companies that were operating in the oil and gas exploration and related fields. So all in all, it’s actually a very positive outlook for the country.
What does it mean for the banking industry? The government initiatives actually all are very good for Saudi Arabia and for the banks in particular. When you talk about home financing, the amount of loans that the banks have out are actually considerably low compared to their deposits. The market continues to have attractive returns and a limited number of banks operating. Eight Saudi banks are actually among the top twenty-five banks in the six nation Gulf Cooperation Council.
There’s an increased amount of business referral across the border in terms of payments and cash management, treasury and trade finance. With that there’s an expected strong infrastructure growth that has actually driven the credit growth to ten percent per anum for 2011 from five percent in 2010. The challenges for the banks are primarily that we are at the moment running an ample liquidity which has driven or tempted some of the larger banks to actually misprice or price the risk cheaply. That has a lot of ramifications and the banks have actually expressed that opinion to the regulator because it will actually spoil the market. And the second challenge would be the increased regulatory requirement of KYC [Know Your Customer] and Basel III, which the banks will be required to adopt, and to adopt very quickly.
With that, actually I wrap up my presentation, and I’ll be happy to answer any questions you might have, now or during the break-up sessions as you wish. Thank you.
[Sir Alan Munro] Thank you, Thamer, for giving us those details about a thriving economy. This underpins, very essentially, some of the earlier but more general comments, which our speakers have made. And I think from this first session, you now have, or should have acquired, a very full picture and a very positive one of the Saudi economy and market and where its opportunities lie.
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About Thamer A. Jan
General Manager, SABB Commercial Banking
Thamer A. Jan was appointed as General Manager – Commercial Banking in March 2011. Thamer has taken up his position assuming full responsibility for the entire Commercial Banking business in SABB on a Kingdom wide basis.
Thamer started his banking career in 1996 following 5 years of service with the Saudi Ministry of Foreign Affairs as an “Economics” lecturer in the Diplomatic Institute. He joined SABB under the JOD Programme, and has served his bank until November 2007 in various managerial roles in Corporate Banking, Credit & Risk, and as Head of Commercial Banking.
Between 2008-2010, Thamer served in the Banking sector as the Regional General Manager for the Western Province for another financial institution.
Source: Middle East Association
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Related Material:
- Opportunity Arabia Conference Opening – SBRIS – October 10, 2011
- Opportunity Arabia Conference Keynote: Baroness Symons of Vernham Dean – SBRIS – October 10, 2011
- Opportunity Arabia Conference Keynote: Omar Bahlaiwa – SBRIS – Oct 11, 2011
- Opportunity Arabia 8 Conference: Sir Sherard Cowper-Coles – Responding to the Challenge – SBRIS – Oct 16, 2011
- The “Robust” Saudi Banking Sector: A Conversation with Khaled AlKhattaf – SBRIS – Oct 20, 2011
- A Custodian of the Saudi-British Relationship: A Conversation with Sir Sherard Cowper-Coles – SBRIS Exclusive – Oct 6, 2011
- The Middle East Association Home Page
- The Middle East Association – Opportunity Arabia 8
- Opportunity Arabia 8 – SBRIS Special Section
- Opportunity Arabia 7 – SBRIS Special Section
- Opportunity Arabia 8 – Pamphlet and Agenda
