MbS has huge plans for the stock market – best take him seriously

Reuters/Andrej Isakovic

When Saudi Crown Prince Mohammed bin Salman announced a plan to put aside 300 billion riyals ($80 billion) to fund companies that agree to invest in his NEOM megacity, major investors such as Bridgewater Associates’ Ray Dalio and Ripplewood’s Tim Collins took note. As they should have. It’s a big, bold and beneficial initiative.

The crown prince aims to turn the Saudi stock market, the Tadawul, into one of the top three bourses in the world. The NEOM initial public offering scheduled for 2024 is an integral part of that plan.

Yes, there is the matter of the Tadawul’s small size, but that has to be seen in the context of the GCC’s growing importance to the global economy.

The GCC is awash with cash, fuelled by the world’s hunger for energy. But MbS’s Vision 2030 does not rely on revenues from hydrocarbons. Quite the contrary – it is all about weaning the kingdom off its dependence on oil and creating jobs for the country’s youth. Around 70 percent of the country’s population are below the age of 30.

The kingdom is one of the biggest investors in solar energy and NEOM is poised to become the world’s largest manufacturer of green hydrogen. 

The numbers mentioned by the crown prince are mind-boggling, but have to be taken seriously.

The kingdom’s economy and society have developed at breakneck speed over the past five years, ever since Vision 2030 was announced. The share of the economy that is not related to oil has also grown considerably. In the month of May, non-oil related exports grew by 26.7 percent year-on-year.

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Saudi Arabia’s plan also has to be seen in the broader context of the region, where high oil and gas revenues have boosted the coffers of governments and sovereign wealth funds. One example: in 2022 Saudi is forecast to run its first budget surplus in 10 years. 

The GCC sovereign wealth funds – cumulatively worth more than $3 trillion, according to Bloomberg – have re-emerged as major investors in global deals as liquidity is drying up elsewhere amid quantitative tightening, rising interest rates, inflation and fears of recession.

The money flows go both ways: UBS Global Wealth Management has told AGBI that its clients are looking to increase their asset allocation to the region by at least 50 percent over the coming decade, driven by the exciting economic developments. 

Saudi Arabia is the GCC’s largest economy, with the region’s largest young population. This explains why MbS is on to something when he banks on foreign investors, their vision and their technologies to contribute to NEOM as well as to Vision 2030 as a whole.

Are the plans audacious? Yes. Could there be setbacks along the way? There may well be. Will there be a need to adjust regulatory frameworks to the ambitious goals? Almost certainly. However, you only move a behemoth like the Saudi economy and its society by stretching your goals.

The world economy has changed since the outbreak of the Covid pandemic. There are many clouds on the horizon of globalisation and international economic prosperity.  So, it is all the more important to watch closely what the new growth engine of the GCC – led by its largest economy – is up to. The Tadawul is doubtless set to grow in importance. 

Cornelia Meyer is a business consultant and macro-economist, CEO of Meyer Resources and chief economist at the European Family Office Alliance