Made in Saudi Arabia; What’s in a Slogan?

Islam Zween CEO of Argaam

When I was shopping online earlier this week, I sawa quality wooden recliner, which was advertised as completely manufactured in Saudi Arabia. Impressive, right? But there is a lot more to it than meets the eye.This slogan actually conjures up in my mind the image of Vision 2030.

Decisionmakers in Saudi Arabia bear in mind that sustainable development is a key factor for a competitive economy in the global market. They want to increase the Saudi share of non-oil exports in the non-oil gross domestic product (GDP) to 50% by 2030 from 16% in 2016.

The kingdom has shown greater compatibility with long-term environmental and sustainability goals for the generations to come, one the one hand,and with the intricate dynamics of market investments and global financial ecosystem, on the other. While, at the same time, not losing sight of the current and truly important financial resource of oil. On average, revenues from oil production represented 3% of global gross domestic product (GDP) in recent data by the World Economic Forum (WEF).

The discovery of oil and the realization of its importance and potential for meeting world energy needs not only increased the strategic significance of the Middle East and North Africa, but also helped to integrate their economies into the global economy.

That said, the ongoing economic diversification in Saudi Arabia helps it expand its production and export bases in a way that boosts its economic resilience to face fluctuations and shocks in global markets. It is a known fact that reliance on a single commodity in any economy is a source of high risks.

The Saudi Vision 2030 hence advocates for integrating environmental and sustainable criteria to achieve long-term economic resilience and growth. In 2017, the Saudi Capital Market Authority (CMA) revised the Saudi Corporate Governance Code (SCGC) to underline the importance of Environmental, Social and Governance (ESG) concepts in line with the global trend and given that the kingdom is a substantial G-20 economy and hosting some of the world’s largest international corporations. Big investors dominating the financial markets and holding a significant portion of the shares in major listed companies are increasingly encouraged and show interest recently in actively taking part in ESG practices.

Saudi Arabia is an attractive market for innovation and sustainability investments. Why? It’s simply because the kingdom has one of the largest stock exchanges in the world accounting for more than 50% of overall Arab market capitalisation and is home to a sizable human capital of more than 36 million people with the youth representing about 63% of the population.

The Saudi stock exchange Tadawul is today the 9th largest stock market among the 67 members of the World Federation of Exchanges, which’s the main global trade association for bourses. Tadawul is further the 3rd largest stock market amongst its emerging market peers.

But it’s important to note that decarbonisation isn’t a straightforward process. It’s a labyrinth of innovations that aren’t in the market yet and need appropriate financing from risk-averse investors or even disruptive venture capital fund managers to meet the goals of the subsectors that make the pillars of renewable energy, including solar, wind and hydropower. To sum these branches up in the use of Electric Vehicles (EVs) as some press reports do is oversimplification.

Pragmatically speaking, oil is and will remain for a long period of time an indispensable energy and financial source, not only because it’s well-tested business model but also because of the political geopolitical climate of uncertainty worldwide.

And there’s a correlation between the conventional energy sources and renewables. Take the solar panels we see on the rooftops of houses in several cities around the world and oil, as an example. As they provide a cost-effective source of energy, they also fulfil a more important purpose by preserving natural resources.The Saudi authorities in recent years have given the permission to individuals to install and use small-scale residential solar panels and connect them to the public grid in order to rationalise electricity consumption.

In every major stock exchange, the multiple stakeholders, who have varying priorities and degrees of commitment to sustainability goals, strike the right balance between both the oil and non-oil sectors when they make investment decisions and choices. It’s always a balance between short-term profitability and long-term targets.

Islam Zween, CEO of Argaam