The two countries account for an enormous percentage of Gross Domestic Product in the Middle East and East Africa respectively.
Coincidentally, the two countries have economic blueprints with a similar name and completion period; The Vision 2030.
Saudi Arabia foresees potential exits in multiple state-owned assets within the next few years in excess of $ 9 billion of non-oil state revenues from its privatisation programme.
Kenya and Saudi Arabia are some of the most prominent economies in their respective regions. The two countries account for an enormous percentage of Gross Domestic Product in the Middle East and East Africa respectively.
Coincidentally, the two countries have economic blueprints with a similar name and completion period; The Vision 2030. Although materially different on account of economic size, the blueprints seek to create globally competitive economies leveraging on the respective country’s investment capabilities, strategic locations, natural resources and a youth demographic to spur economic growth and enhance quality of life.
Guided by its economic blueprint, Saudi Arabia has implemented strategic financial market developments that have enhanced the country’s attractiveness to foreign investors providing a sturdy boost to the country’s equity and bond markets.
To put this into better perspective, the Tadawul Stock Exchange, Saudi Arabia’s sole stock market has seen its market capitalisation as a percentage of nominal GDP grow from approximately 64.35percent in 2015 to 346.7percent as at the end of 2020. Similarly, the country has been able to attract significant equities investment through the Tadawul Stock Exchange over the last few years.
Saudi Arabia’s growth in attracting foreign direct investments through financial markets is a masterclass on how domestic financial markets can play a significant role in promoting economic development through facilitating cross-border capital inflows.
Below are key the lessons from Saudi Arabia that can enhance increase direct foreign investments in Kenya through the Nairobi Securities Exchange (NSE).
PRIVATISATION OF STATE ASSETS
Saudi Arabia has adopted a structured, time sensitive privatisation programme for its state-owned assets. To support its privatisation objectives, the country set up the National Centre for Privatization (NCP) in 2017. The NCP identifies and prepares Government assets for privatisation developing a robust pipeline of state enterprises which could be privatised or improved through private sector participation.
The results have been evident. The privatisation of state assets such as Aramco (world’s largest oil producer), have marked a decisive point in broadening Saudi Arabia’s appeal to foreign investors. It has equally enhanced the depth and sophistication of Saudi’s equity market with positive spillover effects in the country’s financial services sector. Other notable privatisations include the privatisation of the country’s milling sector with consortiums to bid for stakes in other state-owned assets sent out.
Saudi Arabia foresees potential exits in multiple state-owned assets within the next few years with the Government targeting to raise in excess of $ 9 billion of non-oil state revenues from its privatisation programme.
Kenya, like Saudi Arabia owns strategic assets across various sectors of the economy. Potential exits can promote growth and efficiencies in the assets as witnessed in previous Government exits in Safaricom, Kenya Commercial Bank, KenGen as well as Kenya Reinsurance.
Equally, privatisations will enhance Kenya’s investment outlook while enabling Government to raise significant capital to fund the national budget as well as other development agendas by the Government.A review of sample trade type state-owned assets indicate that the Government can make over Sh260 billion through partial exits and further sell-downs.
RE-EMERGING MARKET IN KEY GLOBAL EQUITY INDICES
Saudi Arabia’s wide ranging developments and increased investment opportunities promoted the country’s upgrade to an emerging market status in key global equity indexes. The reclassification exposed the country to investable capital passively tracking the indexes as well as investments from emerging markets .
The Morgan Stanley Capital Index (MSCI) and the FTSE Russell, global equity indexes providers, completed Saudi Arabia’s upgrade and inclusion in the MSCI Emerging Market Index and the FTSE Emerging Index in August 2019 and July 2020 the respectively.
The decision to upgrade Saudi Arabia to an emerging market status was made in consultation with global institutional investors and has enabled Saudi Arabia attract increased foreign capital as well as increase amount of capital actively and passively tracking its financial market.
KENYA PROSPECTS
Like Saudi Arabia, Kenya’s financial market can experience similar increase in foreign direct investments through the securities market. Growth in foreign inflows portend positive spillover effects to the country’s economy such as employment opportunities as new economic opportunities for businesses are increased.
The Nairobi Securities Exchange (NSE) has developed one of the most advanced financial market infrastructures in Africa which has enabled it to connect global capital to opportunities in Kenya.
As the country seeks to be upgraded to an emerging market status in order to attract more investments in our markets, there is need to enhance privatiSation of both state and private enterprises through the Nairobi Securities Exchange.
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