On Monday, Saudi Arabia’s stock markets, the biggest in the Middle East, were open to foreign investors for the first time in history.
But, despite the new liberalization, stock prices plummeted. Saudi Arabia has, in the past, been able to thrive off its massive supply of oil. Now, however, as crude oil prices fall, Saudi Arabia is struggling to keep up with a major local spending plan.
Retail makes up the largest sector of the Saudi economy—16 percent. The oil sector is a close second at 15.4 percent.
Because oil is such a large part of the Saudi economy, often times Saudi Arabia can experience major volatility. However, even when there are sharp declines in the economy, recovery tends to take short periods of time as well.
Saudis hope that opening investment to foreigners will help create jobs and diversify the economy of the oil giant.
Previously, the markets were closed to avoid foreign influence on the Islamic kingdom. Five companies remain closed to foreign investment, mostly construction companies operating in Mecca and Medina, two holy cities for Muslims.
“The point of the framework was never about increasing foreign investment flow in the kingdom. It was always about trying to bring foreign investors to enhance our practices and market infrastructure,” Adel al-Ghamdi, a Saudi CEO, told the audience of an economic conference.
Investors were expected to flock to the newly-opened markets, but few actually did. Some are still waiting on receiving licenses to trade due to bureaucratic slowdowns, while others are simply staying clear of the markets altogether.
Only a half-dozen foreign institutions were trading on the markets as of Monday.
Nevertheless, analysts expect $25 to $50 billion in investments over the next few years.
Florida-based investment advisor David Kotok told NPR that eventually Saudi Arabia will do away with the bureaucratic hiccups.
“The Saudi market will have good governance and strong transparency because it has to,” he said.
He also told the media he is confident in the Saudi markets because the officials running them have been carefully selected from the best business schools in the West.
“If something doesn’t get solved by law, it usually gets solved by an open market,” Saudi entrepreneur Abdullah Haman said.