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the local work force, and above all, lack of knowledge and skills. Investment in Saudi Arabia is characterised by well-developed business clusters and value chains, which set the nation apart from its neighbours and other emerging Asian economies. The World Economic Forum ranked the Kingdom 39th in the world for Local Supplier Quantity, and 35th for both Value Chain Breadth and Production Process Sophistication. Saudi Arabia’s domestic industries, including energy, chemicals and a strong transportation sector, provide industrial project developers with exceptional opportunities for cost savings and value chain ef- ficiency.


The Saudi kingdom realizes that in order to attain a global com- petitive advantage, it will be necessary to maintain a balance between conventional and Islamic investments. Foreign partici- pation has long been limited, due to the governance of strict Islamic doctrines; for instance, the categorisation of the charg- ing of interest on loans as a sinful activity. The development of Islamic banking conventions, however, has lead to the develop- ment of effective solutions which circumvent difficulties while complying with Shariah limitations.


Saudi Arabia is rapidly becoming the biggest Islamic investment hub in the Middle East. While its market is currently almost en- tirely domestic, the country is working towards becoming a glo- bal presence. Saudi Arabia has one of the largest Islamic funds markets in the world: according to data from the Capital Mar- ket Authority (CMA), the country has 147 Islamic mutual funds which comprise a total volume of just under US $30 billion. NCB Capital is the largest of these, holding 24 funds under the Al-Ahli label.


Over the last decade, the country has undergone a major trend toward Islamic banking, previously unheard-of in Saudi Arabia. Paul Gamble, Head of Research at Jadwa Investment in Riyadh, has noted that “The new banks launched in recent years are 100 per cent Islamic, as are virtually all the local investment com- panies”. Saudi companies are also investing in Islamic bonds (Sukuk) - this is a potentially significant development for the Gulf market. A prime example is that of Saudi Electricity Co., who have raised US $1.9 billion with a sukuk priced to yield 95 ba- sis points over the Saudi inter-bank offered rate. On the whole, Saudi Arabia provides a unique mix of conventional and Islamic investment prospects, together with a key geographic location, a low cost of capital, and an investment-friendly macro-economic environment.


Establishing Business in Saudi Arabia


Saudi Arabia offers a diverse marketplace with abundant skilled labour and a highly competitive business environment. The pro- cedure for establishing a business varies for each type of busi- ness, depending on whether the business is an individual es- tablishment, a limited liability company (individuals), a limited liability company (companies), the branch office of a foreign company, or a technical and scientific office. The structure of the Limited Liability Company (LLC) is the most common busi- ness structure in Saudi Arabia. To initiate a business under this structure, the following steps must be taken:


Initial Legal Check: Must assure that the core area of business is permitted under Saudi Arabian law. Company Licence: Must ap- ply for a company licence by filling out the application form avail- able online at the SAGIA website. The application can be submit- ted personally, or a power of attorney may be appointed - a law firm, consultation office, service office or an appointed employee from the firm. Once SAGIA approves the application, the investor


Mohamed Ghozeil, CEO, Oram Daniel & Associates Communications


What are your views on Islamic finance progression in Saudi Arabia?


We have experienced huge con- sumer operations in the previous


year’s being consulting the largest and biggest financial and banking insti- tutions since 1997. Banks were not taking other consumer products and services such as branch banking, corporate investment and brokerage into consideration compared with the direct consumer products.


Consumer Islamic Finance started picking up aggressively since 1995. Banks in the Kingdom of Saudi Arabia developed and promoted their Is- lamic Consumer products “credit cards, personal financing and consumer investments” as their core business backbone, which resulted around 25% of their total revenue. In few years later, real estate market and the related investment development booming took over the previous offerings into corporate and large regional and global partnerships, where interest in Consumer products, which meant to be considered the most ongoing revenue generation declined for almost 4 years.


Now post crisis it seems banks and financial institutions are back to concentrate on consumers. For the past 1 year, it has been noticed that consumer finances and Islamic credit cards are back on track. And competition in these areas is fiercely growing, especially the ongoing exploration of new Islamic products such “School fees – Car leasing – Housing”. 2010 was a very successful year in this domain and will keep on increasing extensively in 2011 and beyond.


Which sectors of the Islamic Finance in Saudi Arabia do you personally feel will be successful in the upcoming years?


Saudi Arabia, in terms of Islamic finance funds, is the largest market in the International Islamic finance market, although its industry, like elsewhere, is subject to traditional bottlenecks, scarcity of human capital resources and underdeveloped market awareness. In addition, while the official foreign reserves held by the Saudi Arabian Monetary Agency (SAMA) are just under half a trillion US dollars, private liquidity in the Kingdom is estimated at $1.2 trillion. Islamic finance sector is underlined by a number of ongoing develop- ments. Bank AlJazira, which has converted all its activities to Islamic banking, has recently have set up a Takaful (Islamic insurance) company. And many banks have done the same such as Al Rajhi Bank, Saudi French Bank and SABB, which prove that the second growing areas in this industry are the Islamic Takaful “insurance”. This is besides the establish- ment of financial subsidiaries like Al Rajhi Capital and NCB capital. Also the launch of Deutsche Gulf Finance comes at the right time for home consumer finance in Saudi Arabia. According to credible studies, the total outstanding home finance provided by the private sector in Saudi Arabia aggregates to less than 1 percent of GDP compared with well over 50 percent in most developed countries. Other recent Islamic finance market developments include the $500 million (SR1.875 billion) ARC Real Estate Income Fund launched by Al-Rajhi Capital, the investment banking subsidiary of Saudi Arabia’s Al-Rajhi Bank.


2011 February Global Islamic Finance 45


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