By Khurram Shehzad, Milltrust SEDCO MENA Fund, 18 October 2017

Concerns on Saudi Arabia are overblown. The political dynamics of Saudi Arabia are somewhat unique as is evident from the fact that many armchair analysts have been forecasting disastrous consequences since late 1990s and the timeline keeps on getting extended.

What we have to bear in mind is the fact that on per capital basis KSA is the 10th richest nation in the world. The economic challenges related to GDP diversification are significant but so are the reserves (c.USD0.5trillion). Recently, IMF has actually asked them to spread out the reform agenda over the next 5 years instead of 3 to maintain balance between reform and growth. FTSE is most likely to include Saudi in their emerging market index by June 2018 and MSCI, in worst case, from June 2019. The ARAMCO news is vehemently denied by government even today as well so assigning too much weight to this rumor is not prudent.

Industries like entertainment are non-existent and with recent initiatives the growth there will see massive boost to GDP and capital markets. Religious tourism is a captive industry for 1.7bn Muslim population across the globe. The foot fall is expected to increase 5 folds over the next decade. The revenue increase over there is sustainable. With the reduction in low-skilled expat workers the outward remittances are already falling; hence, the possibility of SAR devaluation is reducing instead of increasing and CDS movement over the last 6 months is a proof of that.

Demographics are in favor of reforms because younger population (>65%) want openness and the moves in this direction are highly appreciated. The Saudi budget is made with oil price assumption of USD39 while the average is USD53. Therefore, fiscal scenario is going to exceed targets.

We feel that the current scenario is an investment opportunity for long term investors as the economy opens up and opens many sectors for investment.