The Saudi government approved regulations for the creation of a Saudi Export-Import Bank (Saudi Exim) last week, as the export credit agency (ECA) readies to open its doors to Saudi exporters, despite concerns remaining around the transparency of the kingdom’s finances.
Since it was first announced by the Saudi Export Development Authority (Seda) in 2017, Saudi Exim has been pegged as the catalyst for developing the kingdom’s non-oil exports, an objective which closely aligns with the country’s Saudi Vision 2030 initiative – a comprehensive plan to reduce its dependence on oil, diversify its economy, and develop public service sectors such as health, education, infrastructure and tourism.
Seda secretary-general, Saleh Al-Solami, previously said in a statement that Saudi Exim “will help boost the development of exports through the financing of both foreign and local exporters and importers”.
According to the Organisation of Petroleum Exporting Countries (Opec), Saudi Arabia has approximately 18% of the world’s proven petroleum reserves, while its oil and gas sector accounts for roughly half of its GDP and about 70% of export earnings. Aside from petroleum, Opec says the kingdom’s other resources include natural gas, iron ore, gold and copper.
“Saudi is looking to support its exports and it is important to have a robust strategy in order to do that – and Saudi Exim will be a critical part of that,” Sean Bowey, head of global trade and receivables finance products at SABB told GTR in Dubai at the GTR Mena conference last week. “The launch date was originally slated for the end of 2019 or early 2020 as its systems and bylaws were being approved.”
Al-Solami stresses that Saudi Exim will not compete with commercial banks, as it will look to offer support in high-risk markets, or in markets that are not backed by some commercial banks, as reported by international Arab newspaper Asharq al-Awsat last August.
Bowey agrees that there has been no friction so far between the new ECA and commercial banks in the kingdom: “Not that I’m aware of and, typically, there’s room for banks and ECAs to work together, it should be complimentary. We’re engaged and we’ll be working together I imagine.”
The rollout of a Saudi ECA follows that of Etihad Credit Insurance (ECI), the UAE’s export credit agency, which was launched at the start of 2018 with similar aims to diversify the UAE’s export basket away from oil.
Speaking on a panel at the event, Bowey said that Saudi Exim has been co-ordinating with ECI as it sets up.
Given Saudi Vision 2030, which could be compared with other national development programmes in the region, such as Kuwait Vision 2035, UAE Vision 2021 and Qatar National Vision 2030, Bowey says it comes as no surprise that the kingdom has taken the step to launch its own ECA. “It’s part of an overall strategy and if you look at the individual initiatives, they all weave together. A lot of thought has gone into how all of these things fit together and so it doesn’t surprise me because the government has considered the many different facets for the development of trade and the broader society,” he says.
HSBC’s head of export finance for Mena, Manav Futnani agrees, telling GTR “it’s a really good thing”. “If you’re not familiar with the region, then some take the view of why do you need export finance? Why do you need an export credit agency when you export oil, which the region does in large, but if you look at countries, for example the UAE and particularly Dubai, there’s a massive amount of non-oil export happening. If the government is putting in place institutions and organisations that can help facilitate that export, and level the playing field with OECD countries that have their own ECAs, it can only be a good thing.”
Concerns over state finances
Bowey explains that Saudi Vision 2030 is enabling a more transparent kingdom in terms of processes linked to financing trade. “It is getting much more so [transparent] across trade finance. With the government introducing an e-platform for guarantees, an electronic marketplace for receivables for government contracts and a digital marketplace for payables, all of which are visible online and backed by changes in the legal process, it makes things more transparent and provides more opportunities for banks to finance with confidence.”
While trade finance activity is becoming more transparent, thus making it trickier for companies in the region to engage in trade finance-related fraud and easier for commercial banks to finance with confidence, broader concerns remain around how transparent Saudi is about its state finances.
German-based NGO, Transparency International says, in a blog post based on its 2019 corruption report published last month, that countries like Saudi that have rich resources and which rely on the sale of those assets rather than tax revenue are less likely to act in accountable ways.
It adds that Saudi’s general auditing bureau is not answerable to any elected body, meaning outsiders and citizens don’t know “how much of the state budget ends up in the pockets of the ruling family”.
According to the Financial Times last June, state-owned oil giant Saudi Aramco was reported to be clarifying the amount of ministerial expenses paid by the company ahead of its IPO, which took place in December on the Tadawul (the Saudi stock market) and saw it sell 1.5% of its shares, which made it the world’s most valuable listed company. “These expenses have been effectively hidden for years by Aramco,” one source said in the report prior to the IPO. “In the event of an initial public offering, do you want any of this stuff out there? The answer is no.”
Transparency International’s Corruption Perceptions Index 2019, a measure of perceived levels of public sector corruption by experts, shows that the kingdom has marginally improved in the index from 49 to 53 – 0 being highly corrupt and 100 labelled “very clean”. But it adds that Saudi’s score “does not reflect the myriad problems in the country, including a dismal human rights record and severe restrictions on journalists, political activists and other citizens”.
Saudi Arabia’s Crown Prince Mohammed bin Salman has pushed through social and economic reforms as part of plans to update the kingdom and attract foreign investment since he was appointed de facto leader in June 2017. Later that year, in December, the government revealed it was lifting a 35-year ban on cinemas, with plans to open more than 300 movie theatres by 2030. The following June, the kingdom ended a ban on women driving cars, resulting in a sharp increase in the country’s automotive imports. However, the murder of journalist Jamal Khashoggi in October 2018 at the Saudi consulate in Istanbul by Saudi agents came as a major setback to progress made, raising serious questions over the conduct of the Saudi government.