Doing Business in Saudi Arabia - International Franchise Association

licenses were also granted to Deutsche Bank, BNP-Paribas, State Bank of India, National Bank
of Pakistan, and J.P. Morgan Chase.
Foreign banks are permitted to enter joint venture companies in Saudi Arabia with a previous
foreign equity cap of 40% raised to 60%. Now, they can also open direct branches.
As of the date of this report, the Capital Market Authority has licensed 108 foreign and local
companies to provide financial services and brokerage services from dealing and managing
portfolios to arranging and advisory services, including Morgan Stanley, KPMG, Ernst & Young,
Merrill Lynch, J.P. Morgan, Credit Suisse, HSBC, and Goldman Sachs, among others. The
Saudi Government has also opened up asset management, advisory and brokerage services to
foreign institutions.
After suffering a major crash in 2008, the Kingdom’s stock market leveled out in 2009 and the
Tadawul All-Share Index (TASI) closed at 6,121.76 compared to 4,802.99 in 2008. The total
value of traded shares plummeted by more than 35% reaching $337 billion in 2009. Overall
market capitalization, however, improved more than 29%, reaching $318.8 billion in 2009
compared to $246.5 billion in 2008. The total number of traded companies was 135 compared
to 127 in 2008. The Kingdom’s stock market is the largest and the most attractive in the region;
it is still larger than the combined worth of companies listed in Kuwait, UAE, and Qatar and
many international bankers and asset managers have re-focused their advisory and research
services on the Saudi market.
There were 244 operating funds with total assets at $23.88 billion, growing more than 19% in
2009. Foreign assets represented more than 17% of the funds’ assets composition.
In an attempt to prevent the economy from sliding into recession, the Saudi Government
estimates spending to reach $144 billion, the highest projected expenditure ever, with a
projected deficit of $18.7 billion. The actual deficit in 2008 stood at $12 billion lower than the
projected $17 billion due to higher oil prices.
The earlier projections of tighter bank financing in 2009 were stamped out by exorbitant liquidity,
which crossed the $274 billion mark, reflecting the prudent monetary policy of the Saudi Arabian
Monetary Agency (SAMA). The excess liquidity helped to enhance consumer lending and to
stabilize aggregate borrowing by the private sector.
The current state of equity markets will likely allow more initial public offerings in 2010 as
opposed to the number of IPOs in 2009, which was a busy year and saw the floatation of 11
new companies, with a combined total share capital of $2.08 billion. Saudi Arabia remained the
driving force behind the region’s IPO market. Some of the heavyweight companies included
National Petrochemical Company raised almost $640 million, Saudi Steel Pipe Company, which
raised $107 million, Mouwasat Medical Services Company $880 million, and Etihad Atheeb
Telecommunications Company $80 million.
The Saudi Arabian Monetary Agency (SAMA), the Saudi central bank, regulates the Saudi
banking sector. Offshore banking and trust operations do not exist in Saudi Arabia, and there is
no legislation to permit the establishment of these operations.
On October 11, 2005, the Council of Ministers instructed the CMA, the Capital Market Authority
and SAMA to establish a secondary market for Government bonds. Banking sources expect
that a secondary market will be also created for bank and corporate bonds.