Supercharging a New Finance Hub in the Middle East

Supercharging a New Finance Hub in the Middle East

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Your Excellency, if I may start with you. What are the key elements of Saudi Arabia's reform agenda, and how have these initiatives positioned the kingdom as a leading financial hub in the context of global economy? Well, thank you very much, Sepp, and thanks to Bloomberg for hosting this early morning session. I'm glad we have so many people up early. Thank the audience for getting up there. And thank you again for not only joining

me today in the session, but for your belief in the kingdom. Franklin Templeton has been a pillar in our financial markets, and Jenny personally has not only been focused on the financial market, Vision 2030 and the Saudi economy, but she has also been leading in the talent development, especially passionate about human. Participation, which is something we're extremely proud of, the contribution of our young females in our financial markets. So you ask about reforms and regulations. Vision 2030, of course, is underpinned

by diversification of the economy, building sectors that the kingdom has not been known for. I think everybody knows that the Kingdom has been over many decades known as a globally leading energy economy, oil and gas. In particular, an economy where we're being comfortable being cash surplus, capital exporting economy. The vision has turned that upside down by putting diversification, building sectors that have not been part of the Saudi economy over the last few decades at the forefront. The other pillar of Vision 2030, of

course, is transparency and inclusion of financial markets to provide capital to these growing sectors and to ensure that all the elements. Of capital markets are existing in terms of the foundational bedrock of any thriving global economy. So transparency, stability, predictability of regulations was key in Vision 2030. As a result, we have introduced and been praised for having best in class regulation the Civil Transactions Law, PGP Law. We just introduced an overarching investment law in the Kingdom last year, which will go into effect next month. And on top of this, of course, is the financial sector.

So the financial sector. A few years ago was a local capital markets tadawul that was serving a limited number of companies. And since 2015 and the announcement by His Royal Highness the Crown Prince that we are going to grow our capital markets, diversify it and bring all other sectors of the economy to play a leading part in the exchange as well as different asset classes. We have seen the growth of the financial sector by an order of magnitude. Of course, that has included and that has been underpinned by inclusion. So we have worked with all of the global indices MSCI Footsie, S&P, Global Emerging Markets, which have included Saudi Arabia.

We have reached 4% of MSCI. As as an example, different asset classes have been introduced, including credit and debt instruments, not just equities where it used to be. And of course, the listing of Saudi Aramco a few years ago has leapfrogged. The capital markets of Saudi Arabia from 25 globally to being a top ten. Having said this, I think we're still in the beginning. And one reason

we're having the session and other sessions here in Davos and elsewhere is to encourage other people to follow in the footsteps of many global players who have been actively participating in the Saudi market. Today, Foreign ownership in the Saudi exchange has reached 100 billion. That's 25 X of what it used to be four five years ago. And people like Franklin Templeton and Journey will speak to them about what they're seeing in terms of the governance, uh, the, the, the administrative role that the CMA plays and the exchange.

Thank you. On double clicking on the financial sector. Jenny, how would you evaluate the transformation? Well.

So first of all, I think one of the things that I found unique and we've been in the region for about 27 years, but is this mentality of generations right? It's thinking about generations. And so this view of oil won't last forever. And so we need to be deliberate with a plan to diversify the economy. And obviously, that's what 2030 is about. I'm not sure there's another place in

the world where people it's almost like that family kind of feel and how you think about it. And so when you build up that plan and obviously 2030 is the plan. And I remember speaking to a very high U.S. government official who talked about

when they first heard about it, they were like, yeah, right, you're going to get 33% of the women in the workforce or, you know, by 2035 or point two. And they, by the way, have already achieved that. It has been astonishing. And I brought my executive committee to

Riyadh in 2023, and most of them are global investors, but hadn't been to the kingdom since prior to COVID. So usually like 2019, 2018. They were astonished. There comment was, I've never seen a country change so quickly culturally as far as just opening up. And so that brings investment opportunity.

And we decided to open an office. We worked. And, you know, the the what surprised us one thing was the actual talent that we were there already who had our CEO is a woman and just the capability and the talent. And so for us, you know, investors want to invest where there's opportunity and growth. And if you look at is, as His Excellency

mentioned, you know, the they're 4% of the MSCI Emerging Market index. That's up from 2%, 2.7% in 2019. The ability to move over 1% in an index like that when your competitors are also your you know, the other folks are moving is pretty astonishing. And the view is it'll be within five

years 6% of that. And so that means that there are investment opportunities. And so we looked at it as Franklin Templeton is an global investor and said, we need to be here, we need to be participating in this. And we were the regulators were extremely accessible. You know, there were they were learning

in parts of that. And so they were open to saying, how can we be better at some of this? There were some things that were a little bit cumbersome, but they were committed to text, you know, making it streamlined to be able to attract capital. And so, you know, you look at it today with over 50% of the GDP in non-oil businesses, it's tourism, entertainment, technology, fintech, that's opportunity for investors. So that's what was attractive to us. So the journey was a big year for Franklin Templeton. Last year you opened an office and we are.

Then you were launched products like Franklin Saudi Bond Fund. And what is driving the interest? Well, again, anywhere where there's growth, you know, I always say capital goes where capital is treated well. So one is you have to have growth opportunities. Right. And and that means transparency, good

legal framework. And that's what we're finding. Right. And so for us, I think the you know, if you looked at like the GCC bond index, I think Saudi used to be 18%. They're not 26%. Well, why is that? Is because it's good investment opportunity. So we looked at that and said, look, the rest of the world is going to want to participate in this vision of investment. And so being able to provide we did an ETF that's a Saudi Arabia equity ETF and then also a bond fund so that global investors can participate in the growth.

And so that was, you know, that's what our clients want. Excellent. Your Excellency, you've launched a national investment strategy, and I'm just wondering, how has that created immediate opportunities for investors? Well in the base economy. I mean, Saudi Arabia is doing quite well. Lower GDP despite fluctuations in the oil market, The constant has been this very healthy growth of the non-oil economy, 4 to 5% here and we're out no matter what's happening. Globally.

And that, I think, is based on what Jenny said, is we had many sectors in Saudi Arabia that had been underdeveloped. And quite frankly, some of them are not even open to private sector. Health care was all government tourism was simply religious tourism to to to Mecca and Medina over the past many decades. So as Vision 2030 opened all of these sectors with great global interest by companies that wanted to invest and the best economy. We've seen this flow of FDI, as well as local investors who have been exporting capital, as I mentioned in the beginning, starting to deploy capital into the economy. When we did Vision 2030 and 21, we had estimated that by 2030 we would deploy the equivalent of $3.3 trillion in the base economy.

And of course we were estimating and still expect the financial markets to contribute significantly because we want it to be a private sector led economy in Saudi Arabia. I'm glad to report, as we started 25, that although many people, many people thought you must be crazy, you're not going to be able to get that much capital formation in an economy that is not primed and ready to to grow these nascent sectors. I have to say that despite the government slowing down government spending, because we want the private sector to be really the driver of economic growth and the payoff, important and strong as it is, has been doing less than 15, 20% of the investment. But we have exceeded our targets for capital formation up to now, and significant amount of that 3.3 capital has already been deployed. And in the base economy, that of course requires that the sectors themselves are reform that regulated and opened up and that investors see that and and invest. That has resulted also in many companies

being listed in the capital markets. We have been averaging 40 to 50 IPOs within TADAWUL. We started four or five years ago, a small cap market more and we have over 100 companies already listed. It's the fastest growing market today in the Middle East. Our venture capital is is the fastest growing in the region for sure and probably one of the fastest in the world. We used to be about 10% of the Middle East venture capital today with almost 50% of the Middle East in venture capital. And we've exceeded

we've exceeded all, all surrounding countries with significant amount of VC capital being deployed. Many of our startups have started listing in normal because of their fast growth and need for capital flows. So I think the interlink between the basic economy in Saudi Arabia and the capital markets is getting stronger. I think one area that I would like to point out is as great as we are doing on equity. One area where we could do more and then you referred to it is the debt capital market today because our economy and our companies have been conditioned over the last many decades to get the credit from the banks by direct lending, syndicated loans and the like. And they did not go to the bond market often enough.

Today, our debt capital market is less than 4% of GDP globally, and for the G20 countries it's more than 40. So we have a great potential to grow our debt capital market, at least by a factor of ten, because our GDP, which is today over $1,000,000,000,000, is targeted to be 1.7 as we. In the next decade so that GDP will

grow. Private sector participation will grow significantly from where it is today, and we want it to be fueled by the capital markets, including credit coming from issuances of bonds and so primarily in the federal exchange. And with that, the question of regulation comes up. You've talked about Saudi regulators

being among the most accessible. What more could be done to make the regulatory landscape even more appealing for FDI and positioning Riyadh as a leading international hub? I want to just comment on one thing His Excellency said, which is just I have to say, sort of early on, when everybody all of these asset managers came, right, everybody is looking like, okay, Piff sama, we can we can raise money here. And then the awakening happened, which is, wait a second, this is a great place to deploy money. So it's been an interesting sort of evolution that's happened.

You're always looking for great investment opportunities. And again, where you have growth, you have great investment opportunity. But it was like a shift in mindset. So, you know.

I have found Franklin Templeton has found any time we have asked to meet with a regulator on whatever topic, they are curious. They want to understand what other markets are doing. They want to understand is there anything that they're doing that isn't effective to being able to, you know, really be a financial hub? And that's a good thing. That's not always the case in in every country. And it's really important as you're trying to get comfort in making investments.

And so, you know, like I said, there were there were a couple of things that which we've given feedback on. I mean, for example, we had to hire our team and the board of directors before we had the final approval. And I was like, wait a second, what if they don't give us approval? We're going to have this whole staff of people. You know, so there were just some little

things. In the end, the feedback was always appreciated and and very open, so. Incredible. Well, as innovation in the sector expands, I mean, the topic of talent comes up. And Your Excellency, I was wondering, how are you thinking about talent development, given that you have such a young population and how how X factor factor into that? Well, let's start with the last part, because many people don't realize that Saudi Arabia, with a population of about 33 million, about a third of them, 11 million, if my memory serves me correctly, are expats.

They are. People that we consider friends and family living amongst us and Saudi Arabia contributing to our economy. Many of them raised their families in Saudi Arabia. The financial sector in particular has been built over the last 40, 50 years in Saudi Arabia with the great contribution of expatriates from Europe, from the US, from South Asia. Many institutions came and built the Saudi banks today that are leading in the Middle East and beyond, and many of them are global leaders in certain categories of their performance. But I think we're blessed also, we're

blessed in Saudi Arabia with a young population, with a very highly educated population, Saudi Arabia in the seventies and eighties, with the wise leadership of of the government, kings of the past, and currently King Salman and Prince Mohammed bin Salman has been focused on developing the talent of the kingdom, men and women. We had the scholarship program. We had tens of thousands of people in the 1970s and eighties that are today running many of these institutions, and many of them are in government. I am one of them pleased that I have been given that privilege of the government supported. But today I think we are also blessed that we have tens of universities, public and private, and almost every universities has a business program. Almost every company of significance, like the Sabic and Aramco's has an academy and the banks and that that that has academies and host also global, uh, MBAs and specialized programs.

We have the Financial Academy, which is one of the world's largest and has already graduated 70, 80,000 professionals in some of their specialized programs. You look at the banks today in Saudi Arabia, they don't have to localize their workforce, but they're about 95% Saudis. 40% of them are women. So you talked about the global economy overall doubling women participation in the workforce.

So talent is abundant in Saudi Arabia, but the door is wide to open for global talent to come. Institutions are welcome to bring their global leaders. We have a premium residency program that in two years have issued 78,000 premium residencies. A significant amount of them are not foreign investors or people of high net worth, but targeting professionals who want to come to Saudi Arabia and consider Saudi Arabia their long term residence and raise their family and improve their career by accessing these continuous learning opportunities through the academic institutions and the professional development programs that are available in the ecosystem.

Amazing. And Jenny, how are you thinking about talent development? Well, so one thing and I have to give His Excellency credit for this, because we were at a Milken conference and I had attended FII and I had this passion. My personal passion is how do we get more women in the investment business, Right? This is a problem globally. And and one of the things they look at

is that actually girls lose interest in the financial services in high school and college. So if you don't get them by then, chances are it's going to be really hard to attract them. And so I said to His Excellency, I'd really like to do like a women's event there. And, you know, I don't know if the school and I will get a panel of women or whatever, and you took it and ran with it with my team. And so we ended up at Princess Noor University. At the time, it was just a dinner.

We had a great panel of female CEOs, and while I was there, some of the students came up and they were, you know, it's a women's university. So these were girls there, and they were like, how do we get an internship? But frankly, I'd love to get what do we do? I'm an engineer, and at that point I was like this This is a great opportunity to attract women, talented women into the industry. We should create a program. So we actually launched a program and Visa was helpful with but was with Princess Noor University, where for seniors they do an eight week course, which we developed through our academy, that by the end of it, they're actually pretty savvy from investors, right? And so and then we take a subset to be interns, and we're working with other organizations to take some of the. These women as interns with the hope

that they want to stay in the industry. And it is. We've just done our first class of 150. We're really excited. We've taken four interns and, you know, we think that it's the kind of program that you could actually take globally. So we're now talking to other markets about, hey, this is a great opportunity. Again, it serves all of us well to have more women in the financial services sector globally. So anyway, leading from from Saudi. Thank you for that.

But I would I would say that it's not just in Princess Nora, Princess who Nora is leading in terms of women because it's an old woman university. But every university in Saudi Arabia is co-ed. And it's not just in financial services, which of course, is key to this discussion today. But I'm happy that you will find more women than men in tech. You know, King Abdullah, University of Science and Technology is our globally leading research university. And there are more women Saudis there than men. King Fahd University, which used to be

all men, is now open, both undergraduate and graduate to to female. And as is typical, they are doing extremely well and outperforming than their male colleagues and in classes and they're participating. I'm happy that the lead financial sector in our ministry is where the Silver Energy Report is, is one of them. She she's a great leader and we have many like her and not just in the ministry, but across government.

2025-01-29 05:23

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