No room for panic
Far from being cause for disinvestment, the upheavals in the region are an opportunity for investors, argues Arab News in this editorial.
March 2, 2011 1:25 by shafeer
There is no point pretending that Saudi Arabia is unaffected by the upheavals elsewhere in the Arab world. Not politically, but economically. They are hitting business confidence within the country. That is seen in the five percent fall in the Saudi stock market when it reopened on Sunday after the weekend followed by Saturday’s public holiday to celebrate the king’s return. The slide again continued on Monday.
This could be attributed to some sophisticated market activity occurring — savvy investors capitalizing on the nervousness to sell high and then wait for prices to drop before buying back. But that does not fit with what investors are saying. They are apprehensive. They are taking their money out and, if reports are to be believed, transferring it to Europe as a safe haven, at least for the short term.
It is not just in Saudi Arabia this is happening. Across the entire GCC, stock markets have taken a tumble.
The market slide is a reflection of Saudi and Gulf investor nervousness. But if they are nervous, will foreign investors feel any different? Logically, they are going to be even more uncomfortable in the present climate because they do not know the market as well as do insiders. The upheavals are bound to impact on foreign investment into the Kingdom.
That is disappointing. It has been a hard slog attracting investors to the Kingdom — for a variety of reasons. There has been the red tape, the difficulties in getting visas, the lack of a technically skilled work force, not to mention the attractiveness of seemingly more lucrative markets elsewhere such as China and India. But the Kingdom has succeeded in surmounting the hurdles. In 2008, foreign investment totaled a staggering $38 billion. In 2009 (the most recent annual figures available), it was worth only slightly less — SR135 billion. The lion’s share — $12 billion in 2009 — has gone into creating new industries and, with that, new jobs.
There is bound to be a worry that the upheavals could deter investors and perhaps divert their interest to more stable regions, especially those with high growth. In India, it has just been announced that it is nine percent.
But this nervousness is illogical, the panic unnecessary. For Saudi Arabia, the best is yet to come. The economy is moving in the right direction. Jobs are being created. Vast amounts of the country’s boundless oil wealth are being spent on development — infrastructural and economic.
Reform, too, is moving ahead. The announcement that payments are now to go to the unemployed will have major sociopolitical implications. It says that a social security system is being born. Other far-reaching changes are expected in the coming days.
Far from being cause for disinvestment, the upheavals are an opportunity. Economic liberalization is going to be speeded up as a result. New governments across the region are going to be far more investor-friendly. They have to be if they are to create the jobs and prosperity that the protestors demand. This is the time to invest in the region. The shrewd investor will see that opportunity. So we can predict with assurance that in Saudi Arabia and the Gulf, money may be moving out but it will move back in soon enough.