When investment banks decide they want to build operations in the Gulf, their first stop is often Dubai. Yet for all its benefits – not least of which is that it is fairly easy to persuade bankers to go and work there – an office in Dubai doesn’t always crack the problem. In particular, it doesn’t much help win business in Saudi Arabia, the region’s largest economy.
Next stop: the highly protected Saudi market, which has opened a crack. A dozen or so foreign banks now have investment banking licences and some early birds, notably HSBC, are doing a substantial amount of business. The latest entrants are Goldman Sachs and Morgan Stanley, with local partners National Commercial Bank and Capital Group respectively. At the current rate, most of the world’s leading banks seem likely to have set up shop in Saudi by the end of the year.
Will all the cost and bureaucracy be worthwhile? Since Saudi is expected to account for more than half the region’s investment banking revenues, the answer is yes – for some. The Saudis are investing heavily to try to diversify the economy away from oil. Infrastructure investment of an estimated $650bn is planned for the next five to 10 years. Financial services, telecommunications and basic industries are developing. Foreigners cannot currently buy Saudi stocks, but there are hopes of regulatory softening.
Still, things can always go wrong for new arrivals. The ability to find a local partner with strong relationships is likely to prove a determining factor. Foreign banks, such as Credit Suisse, with longstanding private banking client bases, have an advantage in a country where private wealth, business and political power tend to be concentrated in the same hands. In Saudi, who you know is at least as important as what you know – as if investment bankers needed reminding.
