Development of the Securities Market in Saudi Arabia - Research Paper Example

An extreme position has even seen it as capable of offsetting the country’s present woes – such as its huge public debt, the Kingdom’s heavy reliance on oil export, the scarce foreign capital that should have been expanding the nation’s economy, the country’s double-digit unemployment that sees no prospect of easing up in the future – among others.

Another view has it that the development of the capital market is a part and parcel of the Saudi Government’s decision to privatize many of its vital economic sectors. The positive outlook on the capital market is, of course, not without bases. For, accordingly, a growing capital market provides the necessary mechanism to tap into the large pool of domestic capital locked away in bank accounts. Too, it will encourage diversity (especially within a country that is heavily dependent on its oil export for revenue) as it results in seeing more public offerings and greater participation by small and medium-sized businesses that otherwise would have trouble approaching banks for finance capital expenditures.

In effect, too, it helps in recycling capital surpluses, especially those held by the private sector, that create a more resilient, complex, and mature national economy. Establishment of the securities market in Saudi ArabiaWhile, just with the establishment of the “Arab Automobile” company as the first joint stock company, Saudi joint stock companies had their inception in the mid-1930s, the capital market in the Kingdom began when shares were first offered to the public in 1954. By 1975, Saudi had fourteen (14) public companies; and, the rapid economic expansion and the Saudisation of part of the foreign bank capital in the 1970s resulted in the establishment of several large corporations and joint stocks.

Notwithstanding, though, the capital market hung about until the middle of the 1980s, when a Ministerial Committee consisting of the Ministers of Finance and Commerce and the Governor of the Saudi Arabian Monetary Agency (SAMA) was formed and tasked to exercise overall responsibility for market regulation and development (SPA, 2003). This is said to be the first evolutionary leap en route to the establishment of the Saudi Arabian Stock Exchange (SASE). In the absence of a formal stock exchange, foreign investments in Saudi Arabia were conceived only in terms of investments held outside the country by Saudi citizens and returned to the Kingdom.

This was the setup until the early 1980s when the government embarked on forming a regulated market for trading together with the required systems. In 1984, a Ministerial Committee composed of the Ministry of Finance and National Economy, the Ministry of Commerce, and the Saudi Arabian Monetary Agency (SAMA) was formed to regulate and develop the market. SAMA was the government body charged with regulating and monitoring market activities.