Riyadh, Asharq Al-Awsat- If the last time you visited the city of Riyadh was five years ago, then you are in for a surprise if you visit it again today. The city is like a huge construction site, with cranes dominating the skyline; the streets are crowded with trucks, and giant high-rise towers are encased in scaffolding. It is as if this is part of a fierce race against time to complete development projects; as if the city is trying to make up for lost time. Perhaps the most notable or prominent of these development projects is the King Abdullah Financial District, which will become the financial center for the city of Riyadh, in the same manner as New York’s Wall Street or London’s Canary Wharf. The King Abdullah Financial District encompasses an area of approximately 1.6 million square meters, and when completed will house the Saudi Arabian Capital Market Authority and the Stock Exchange, in addition to the country’s largest banks and companies, as well as an academy for studying financing and banking.
Due to Saudi Arabia’s enormous liquidity, its economic and political stability, and the strategic location of the country; the King Abdullah Financial District is expected to attract a number of international financial institutions, especially after Saudi Arabia recently joined the World Trade Organization [in 2005], which opened up the country to the financial services industry. In light of the fact that the Islamic banking industry [in compliance with Islamic Shariaa law] currently dominates the Saudi financial industry in general, and that Saudi Arabia’s Islamic financial assets currently stand at somewhere between $91 billion and $120 billion, Saudi Arabia is now the world’s second largest economy – after Iran – in terms of Islamic assets. In Saudi Arabia today approximately 98 percent of personal financing occurs via Islamic Shariaa compliant methods, in addition to 67 percent of corporate financing.
As for the stock markets, the bulk of Saudi shares are also Shariaa-complaint. Furthermore, the sukuk market only trades in Islamic Shariaa compliant sukuk’s and bonds. Therefore the King Abdullah Financial District has the potential to be the world’s number one center for Islamic finance, especially after officials realize that this is an achievable goal. This objective is not difficult to achieve if we have the will and strength to see this through, and if we draw up goals and make sure that they are implemented.
Perhaps one of the most important factors that will ensure that the King Abdullah Financial District will become a center for Islamic finance is the government enacting legislation and establishing specific regulations for this industry, as well as establishing special courts to deal with financial disputes arising from this industry, under the umbrella of the Ministry of Justice, away from the judicial and semi-judicial committees that misrepresent the Saudi Arabian legal system today. This is in order for potential investors to have confidence in the investment climate in Saudi Arabia. The other important factor is governmental support for this industry by providing it with the required infrastructure, such as ensuring that staff has proper vocational training through the establishment of academies and university departments devoted to teaching finance and Islamic banking. Research centres should also be established, and independent professional organisations encouraged, to work alongside the government’s already tireless efforts to operate in line with the mechanisms of the Islamic finance industry: For example, issuing sovereign sukuk instead of [conventional financial] bonds, and encouraging government and quasi-government treasuries to use Islamic financial products, particularly as this is one of the demands put forward by those who benefit from the services of these treasuries. It is also important to work towards convincing international bodies to recognize the special standards that come with this industry. Saudi Arabia is capable of demanding such conditions, in view of its economic, financial and political strength in the international community, and because the Islamic financial industry has already proven itself.
Saudi Arabia’s efforts to make the King Abdullah Financial District a hub for the Islamic financial industry will have a positive impact on the country, for it will return financial capital to the country, and attract international financial corporations that seek to derive benefits from the liquidity of this industry. The King Abdullah Financial District will also ensure that Saudi Arabia has a leading role and huge influence in the Islamic financial industry. This will ensure that Saudi Arabia is the most important player in this industry, and will enable Riyadh to decide the industry’s principles and criteria. Looking at the tremendous growth rate of this industry – which achieves growth rates that exceed 20 percent annually – we can only estimate the economic influence that Saudi Arabia will enjoy in the near future.