Trust in the kingdom: The key to success in Saudi Arabia (and elsewhere)
‘Trust is about establishing the momentum and the direction [Saudi Arabia] has taken. If this is reversed, it will destroy trust.’
These words were spoken by a senior international banker at the Financial Sector Conference (FSC), the biggest-ever event for the financial services industry in the region, which took place this week in Riyadh.
Attended by more than 3,000 delegates, the speaker list was a roll-call of the most senior leaders in finance from Saudi Arabia, the Arabian Gulf region and globally. And this notion of trust, and its centrality to capital markets, was a key theme.
Organized by the Saudi Arabian Ministry of Finance, the event was more than an ordinary conference: it was a marker put down by the authorities to signal the very public kick-off of one of the pillars of Vision 2030 – the Financial Sector Development Program (FSDP). And the fact that the leaders of the world’s most important institutions chose to attend in person was highly significant.
The FSDP is the cornerstone of Vision 2030: without the wholehearted and committed participation of the financial sector, many of the other initiatives that make up the strategy of the nation will not get off the ground. Whether that is technology, housing, infrastructure or reform of the labor market, the bold program embarked on by Saudi Arabia requires a financial sector that can facilitate the huge investment required to reform a nation’s economy.
The program has three objectives:
– Enabling financial institutions to support private sector growth
– Developing an advanced capital market
– Promoting and enabling financial planning.
Each of these was covered in depth at the conference but, in addition to being talked about in the opulent surroundings of the Ritz Carlton, Saudi Arabia has taken very real steps in 2019 to realize these objectives.
The machinery of the state has been employed to kick-start some of the developments necessary to achieve these objectives: Saudi Arabia issued 30-year sovereign bonds, the longest-ever tenor issued by the state, in March. Then two weeks ago, Saudi Aramco, the state energy champion, followed up with its inaugural bond issue, which smashed all records for an emerging market issuer.
The importance of IR
With these capital market credentials in the bag, Saudi Arabia has now opened its doors to the world’s financial institutions, and invited them to partner with the country in building its future.
In a highly significant symbol of that future, one session on the first day was given over to trust in capital markets. And central to the establishment of trust is investor relations.
IR has come a long way in a very short time in Saudi Arabia. It is unlikely it would have featured so prominently in this event even a year ago. But things move very fast now in the kingdom and, following a rapid adoption of IR practices by many listed firms (not least banks), the Saudi stock exchange issued an ‘investor relations toolkit’ in October last year, which also put down a marker: a call to action for the minimum standards the market expects from its issuers in terms of IR.
The toolkit is not mandatory. Firms can use its guidance, or ignore it. But the fact that it is there, with the stamp of approval of the stock exchange, surely means more and more Saudi listed firms will pay attention, understand that IR is not optional for issuers of equity and debt, and start to adopt the disclosure levels that will generate trust and thereby facilitate efficient markets.
The trend toward better disclosure and higher standards was made clear by a simple fact cited by Sarah Al-Suhaimi, chairwoman of the Tadawul: an increasing number of Saudi financial reports and stock market disclosures are now made in English as well as Arabic. Why is this significant? Because it acknowledges and, importantly, adopts international best practice for the benefit of investors, seeking to build trust and understanding.
Other sessions at the FSC covered this ground, too. A panel comprising the chairs of the Tadawul and Standard Life Aberdeen, along with the CEOs of the London Stock Exchange, Standard Chartered and Al Ra’idah Investment Company engaged in a fascinating debate on the nature of investor trust, how to win it – and how easily it can be lost.
‘Trust is central to any investment decision,’ explained one of the speakers. ‘If you don’t trust the company, you can’t trust the numbers it publishes.’
This fundamental truth – that trust is at the heart of the investment process – is a notion Saudi Arabia has embraced. Its capital markets, and the investors that trust them with their money, will be the beneficiaries.
Oliver Schutzmann is CEO of Iridium Advisors