Wednesday, April 20, 2005

Where Does All This Money Go?

Tens of billions of hard currency returned to Saudi Arabia after Sept. 11. Higher oil prices brought more cash. This is a big plus in any economy. But like when it rains on our cities, we are caught unprepared.
While hundreds of thousands are out of work, especially women and the young, and many investment opportunities go unutilized, it seems so odd that all this cash is not making much difference. Lack of investment avenues is sending much of Saudi capital to other investor-friendly places, such as Dubai, Jordan, Qatar, Tunis and Bahrain. Laws and regulations in more welcoming and encouraging environments as those areas are making it harder for Saudi investors to resist.
Yes, you want to be patriotic and invest in your motherland, but you cannot be the only one who cares. You are ready to sacrifice and go the extra mile to build that factory. But if you can’t cut all the red tape in a reasonable time, acquire the license, get a piece of land in the industrial area, or the necessary infrastructure and services outside that area, then no one blames you if you cut your losses and run.
You call on Jabel Ali industrial authorities in Dubai and a jinni comes out of the lamp to grant you all your requests. Your dream project can be rolling in no time, and all facilities and support for establishment, production and export are provided as part of the package.
In short, you feel that your success is everyone’s concern from the governor to the cargo handler. And if you need the law, the law is fair and square. No one is above the law and no case takes longer than needed. More important, everyone understands the difference between business and marriage contracts, dispute settlement and religious fatwa, 21st century commerce and medieval trade.
The money that stayed home went mostly three ways: The inflated Saudi stock market, real estate and money investment funds. Some, especially smaller capitals, were wasted on hasty, badly studied projects and fraudulent schemes.
Many unneeded shops were opened everywhere, especially in the communication and food sectors.
Today, there are more mobile phone malls and stores in Jeddah’s Palestine Street than the whole city of three million inhabitants needs. Billions of riyals are given to shadowy traders in mobile phone charge cards SAWA who promise astronomical profits only to run away with the spoils.
Real estate prices are skyrocketing. Many projects, as Bani Alnajjar Market in Madinah, promised up to 70 percent profits, millions of shares, and took billions of riyals for them, then went bankrupt. Investors in similar projects are crowding courts and police stations with little hope of getting their money back.
They joined thousands who have been waiting for settlement of similar cases for over twenty years, like that of Al-Ajhori investment fund.
The stock market broke the 10,000-point mark. When the newly established Al-Bilad Bank and communication giant Etihad Etisalat went public, people rushed to buy twenty times the offered shares. That is great, except that you try to buy ten thousand shares and get only three. Besides, many believe the market cannot sustain this boom. The bubbles eventually will burst as the American Internet startups did in the late nineties.
What can we do to absorb the flood of money and make the most of it? I am not an economist, but it does not need an expert to see that we are not doing enough on most fronts. We started privatization long ago when we sold 30 percent of state-owned Saudi Arabian Basic Industries Corporation (SABIC). Twenty years later, the rest of the giant petrochemical is still owned by the government.
The Saudi Telecom Company sold a similar percentage, and we still wait for the rest to be sold. Saudi Airlines announced their privatization plan many years ago. Today, they are still planning! The National Commercial Bank, our biggest, is not even planning. Same is the case with Petromin, Riyad Bank, and many others. How can we hope to absorb the extra capital without expanding the limited market?
We also need to protect people’s investments. Huge real estate development projects are eating up billions, and then go bankrupt. All an investor needs to sell shares in a multibillion-riyal project is to get a license from the Commerce Ministry after proving his land ownership. Having done that, it is a no-rule game. He could buy a palace and private jet, or invest the money in other projects and countries.
When all is lost, there is no one authority to turn to. Courts are overwhelmed and cases lurch for ages.
We badly need new investment openings for our money. But first, let us set up the right systems that encourage, protect and secure investors’ rights and riyals. Without that, the flow will keep moving on... elsewhere.

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