‘The numbers are not the same as they were 3 or 4 years ago’

Husam Kutaifan, head of investment banking at Emirates Investment Bank, is all too aware of the myriad challenges in the Gulf region, from low oil prices to wider geopolitics. There is however a big plus: Asset valuations have got much more realistic

He has experience of privatization — an essential part of Saudi Arabia’s transformation plans — from his early banking days in his native Jordan; and he worked in the Kingdom for the investment banking arm of financial services group Samba during the boom years ahead of the global financial crisis.

With EIB, he has direct access to the clients who will be key players in helping the Saudi plans work, as well as getting involved in the other ambitious initial public offerings (IPOs) in the region: Big investing institutions, family groups and high net worth individuals (HNWIs) that will be looking to take up the shares in any state sell-offs in the region.

I met Kutaifan on the day that news broke that a strategically repositioned version of Saudi Arabia’s National Transformation Program (NTP) 2020 was being issued by the government to recalibrate the plan for diversification away from oil dependency and public spending.

“I think flexibility is a good thing. It would be the first time Saudi Arabia has amended such a long-term plan, but if it helps manage expectations in the markets and in the country, that’s not a bad thing,” said Kutaifan.

“Our clients are saying ‘finally we can plan with some certainty.’ It’s good to have a dose of reality in the plan, that definitely helps. We’ll have to see how much of an adjustment takes place, but I think all the main elements will remain as part of the Vision 2030 strategy.”

The view of Saudi Arabia from the sharp end of the investment banking business is that circumstances have changed significantly since the transformation program was first announced in May 2016. Lower oil prices have persisted, and growth prospects have not lived up to the most optimistic expectations. The International Monetary Fund said recently that economic growth would be close to zero this year.

Flat energy revenue was the main factor, but Kutaifan said there was another reason: The higher fees imposed on expatriate workers in the Kingdom. “These affect family members and this in turn affects consumer spending and sectors like education. These fees were introduced to boost government revenues, but they could turn out to be somewhat counter-productive,” he said.

He said that the introduction of valueadded tax (VAT) early next year could also also affect spending.

But flexibility was the key to making the Vision 2030 strategy a success, just as it has been key to Kutaifan’s investment strategy throughout his career. Since the hectic mergers and acquisitions (M&A) and IPO activity of the Samba years, followed by the turbulence of the global financial crisis, Kutaifan’s global overview has changed.

“There are some challenging areas. The oil price, geopolitics, and the broader macro picture have all become more complicated. So the momentum for investment has slowed down a bit,” he said.

It is not all bad news, however. “It has also got more focused over the last three

It is not all in the demographic-related sectors of health and education, nor necessarily in privatization. Kutaifan described how EIB recently advised on the acquisition by Saudi investors of a controlling stake in a chain of sweetshops run by an expatriate businessman in Riyadh, which he regards as a typical kind of deal that will continue regardless of the privatization program.

There are other incentives to get involved in Saudi Arabian investment, he believes, including upgrades to the international market status of the Kingdom. By the end of this month a decision is expected on whether to include Saudi Arabia in the FTSE Russell Emerging Market (EM) Index, which would be a boost for the Riyadh market and also a possible precursor to eventual inclusion in the MSCI Emerging Market Index, which some observers expect to happen as early as next year.

“It will be interesting to see how much money goes into the FTSE EM index if that happens. It will enable us to judge the appetite among global investors for the Saudi privatization program,” he said.

The program of state sell-offs will bring other benefits too, he believes. “For Saudis, there will be benefits from privatization from efficiency and productivity, but I think it’s essential that citizens are offered some kind of incentive to get involved in the privatization program.

“I worked on the sale of Jordanian assets between 2000 and 2006, when key parts of the economy were privatized, like telecoms, electricity, refining and minerals. A key element was the fact that there, shares were sold at a discount to the public. It worked there, and I’m pretty sure that will be the strategy in Saudi Arabia, to offer preferential terms to Saudi citizens wanting to buy shares,” he added.

The big one, of course, is the forthcoming IPO of Saudi Aramco, going ahead as planned under the Kingdom’s reform plans. “It’s too early to talk about valuations, I believe, but the IPO will be a

As head of investment banking at Emirates Investment Bank (EIB), one of the UAE’s bestknown financial services groups, Husam Kutaifan’s resume ticks most of the appropriate boxes in the current Middle East investment scene.