Saudi Arabia wants to modernise its economy

Saudi Arabia has given its final approval for a long awaited stock exchange as part of plans to fund the kingdom's growing economic needs.

The government has also endorsed an end the state monopoly of its airline industry.

The cabinet's approval of the Capital Market Law, after months of heated debate, cleared the final hurdle to setting up a full Saudi Arabian Stock Exchange to replace the current interbank bourse.

A Saudi Securities and Exchange Commission will also be established to protest investors' interests and regulate the market.

'Levelling the playing field'

Until now, electronic trading of shares was controlled by the Saudi Arabian Monetary Agency (SAMA), the Gulf state's central bank.

It came at the most appropriate time, as we need to accelerate the pace of economic reforms Nahed Taher, National Commercial Bank

The SAMA said in a report published last month that the government was considering a number of legislations and regulations to "facilitate and regulate the growth and performance of the financial sector".

The most important of these was the Capital Market Law, which SAMA said would create a legal and regulatory framework for conducting all capital market related activities such as trading in stocks and bonds.

"This law will specify the regulatory structure, define rules for all participants, and level the playing field," said the report.

Creating jobs

Saudi officials hope a more efficient and transparent stock market will encourage more listings and raise funds to finance some major projects in the country.

"It came at the most appropriate time, as we need to accelerate the pace of economic reforms," said Nahed Taher, senior economist at the National Commercial Bank.

The SAMA added that financial changes would create "greater job opportunities in the financial system".

"While Saudi Arabia is by no means overbanked , there is room for new institutions."

Paying down debt

Growing the financial sector is also viewed as a way to help pay down the vast public debt, expected to reach $10.3bn by the end of 2003.

The kingdom currently generates around 80% of its national income from its vast oil reserves.

But economists have suggested it now needs other revenue streams to keep pace with its needs.

The kingdom is keen to embrace e-commerce

"A real stock exchange will attract a large number of small investors," said Abdul Aziz al-Daghestani, head of the independent Economic Studies House.

"It will attract more capital and accelerate economic activity."

He also called for the aviation sector to be opened up to foreign investors.

"Privatisation must be expanded and the state role must be limited to the main sectors only."

Team work

Creating the so-called 'real' stock market is just the first step in growing the kingdom's financial market.

The SAMA said new laws and regulations for electronic or online commerce and e-banking were also under way.

"Financial markets have no choice but to prepare and fully participate in this activity. Internet banking which is currently in vogue is only the tip of the ice-berg," said SAMA.

It added that partnerships with other domestic and foreign companies would boost its growth:

"It is likely that Saudi banks will be joined by some other regional and even international banks for strategic alliance and partnerships in specific areas such as mutual funds, stock brokerage etc

"In addition, under the new laws, there could emerge new niche players, including stock brokers, mortgage companies, trust and custody firms."