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1.81 MB
Extraction Summary
0
People
10
Organizations
3
Locations
1
Events
1
Relationships
4
Quotes
Document Information
Type:
Financial research report / market analysis
File Size:
1.81 MB
Summary
This document is page 61 of a Merrill Lynch financial report titled "GEMs Paper #26," dated June 30, 2016. It analyzes the economic impact of Saudi Arabia's decision to allow 100% foreign ownership of retail and wholesale businesses (up from 75%). The report assesses the impact on local companies like Al Hokair, Jarir, and Extra, while noting opportunities for international brands like Apple, Six Flags, and Sea World. The document bears the Bates stamp HOUSE_OVERSIGHT_016171.
Organizations (10)
| Name | Type | Context |
|---|---|---|
| Merrill Lynch | ||
| Saudi Arabia Cabinet | ||
| Al Hokair | ||
| Al Hokair Group | ||
| Inditex | ||
| Jarir | ||
| Extra | ||
| Apple | ||
| Six Flags | ||
| Sea World |
Timeline (1 events)
2016-06
Saudi Arabia's cabinet approved rules governing foreign ownership of retail and wholesale businesses.
Saudi Arabia
Locations (3)
| Location | Context |
|---|---|
Relationships (1)
Al Hokair enjoys favourable access to prime locations in well-located shopping malls owned by its parent shareholder, Al Hokair Group.
Key Quotes (4)
"Saudi Arabia’s cabinet has approved rules governing foreign ownership of retail and wholesale businesses in the Kingdom."Source
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Quote #1
"Real estate is key to entering a market: unlike its peers, Al Hokair enjoys favourable access to prime locations in well-located shopping malls owned by its parent shareholder, Al Hokair Group."Source
HOUSE_OVERSIGHT_016171.jpg
Quote #2
"Jarir and Extra are more vulnerable to the entry of international retailers such as Apple"Source
HOUSE_OVERSIGHT_016171.jpg
Quote #3
"Typically, global retailers follow a 100%-ownership business model, which explains their reluctance to establish their presence in Saudi Arabia because of the restrictive policy environment."Source
HOUSE_OVERSIGHT_016171.jpg
Quote #4
Full Extracted Text
Complete text extracted from the document (3,514 characters)
Saudi Arabia approves 100% foreign ownership rules
• Saudi Arabia’s cabinet has approved rules governing foreign ownership of retail and
wholesale businesses in the Kingdom. The regulations, which were first discussed
last year, allow foreign investors to own 100% of retail and wholesale businesses in
the country. Earlier, the ownership ceiling for foreigners was set at 75%. This
initiative is aimed at attracting more regional and international brands to Saudi
Arabia, creating more jobs, and boosting non-oil revenue. This has raised concerns
regarding the sustainability of the business model of Saudi retailers.
• Saudi Arabia’s cabinet has approved rules governing foreign ownership of retail and
wholesale businesses in the Kingdom. The regulations, which were first discussed
last year, allow foreign investors to own 100% of retail and wholesale businesses in
the country. Earlier, the ownership ceiling for foreigners was set at 75%. This
initiative is aimed at attracting more regional and international brands to Saudi
Arabia, creating more jobs, and boosting non-oil revenue. This has raised concerns
regarding the sustainability of the business model of Saudi retailers.
• Real estate is key to entering a market: unlike its peers, Al Hokair enjoys favourable
access to prime locations in well-located shopping malls owned by its parent
shareholder, Al Hokair Group. Fashion retailers such as Inditex continue to compete
for good-quality real estate in shopping centres and on high streets.
access to prime locations in well-located shopping malls owned by its parent
shareholder, Al Hokair Group. Fashion retailers such as Inditex continue to compete
for good-quality real estate in shopping centres and on high streets.
• Jarir and Extra are more vulnerable to the entry of international retailers such as
Apple as barriers of entry are very low for consumer electronics and appliances.
Furthermore, the government emphasis on developing tourism and family
entertainments (Six Flags, Sea World) represents a potential threat to Jarir and
Extra’s business models which still play an ‘entertaining’ role in Saudi Arabia.
Apple as barriers of entry are very low for consumer electronics and appliances.
Furthermore, the government emphasis on developing tourism and family
entertainments (Six Flags, Sea World) represents a potential threat to Jarir and
Extra’s business models which still play an ‘entertaining’ role in Saudi Arabia.
• Such initiatives would result in (1) reducing the number of stores; (2) a rapid
modernization of the sector; and, (3) a significant increase in labor productivity by
adopting merchandising best practices.
modernization of the sector; and, (3) a significant increase in labor productivity by
adopting merchandising best practices.
Rationale for liberalization
The rationale for permitting FDI in retail trading is (1) attracting investments in
production and marketing; (2) improving the availability of such goods for the consumer;
(3) encouraging increased sourcing of goods from Saudi Arabia; and, (4) enhancing
competitiveness of Saudi enterprises through access to global designs, technologies and
management practices.
The rationale for permitting FDI in retail trading is (1) attracting investments in
production and marketing; (2) improving the availability of such goods for the consumer;
(3) encouraging increased sourcing of goods from Saudi Arabia; and, (4) enhancing
competitiveness of Saudi enterprises through access to global designs, technologies and
management practices.
Typically, global retailers follow a 100%-ownership business model, which explains their
reluctance to establish their presence in Saudi Arabia because of the restrictive policy
environment. This has been reflected in the little amount of FDI received in the Saudi
retail sector.
reluctance to establish their presence in Saudi Arabia because of the restrictive policy
environment. This has been reflected in the little amount of FDI received in the Saudi
retail sector.
However, we do not believe that such decision will provide foreign investors more ability
to have control of a company as the current ownership ceiling of 75% already allows
them to pass both ordinary and special resolutions.
to have control of a company as the current ownership ceiling of 75% already allows
them to pass both ordinary and special resolutions.
Key opportunities of 100% foreign ownership initiative:
We perceive several opportunities emerging from such an initiative:
We perceive several opportunities emerging from such an initiative:
1) Capital infusion: FDI is one of the major sources of investments for a
developing country like Saudi Arabia wherein it expects investments from
multinational companies to improve economic activity, create jobs, share their
expertise, back-end infrastructure and research and development in the host
country.
developing country like Saudi Arabia wherein it expects investments from
multinational companies to improve economic activity, create jobs, share their
expertise, back-end infrastructure and research and development in the host
country.
2) Boost competition and dampen inflation: the entry of the many multinational
corporations will promise intense competition between the different
companies offering their brands in a particular product market. This will result
in availability of many varieties, reduced prices, and convenient distribution of
the marketing offers.
corporations will promise intense competition between the different
companies offering their brands in a particular product market. This will result
in availability of many varieties, reduced prices, and convenient distribution of
the marketing offers.
3) Improvement of supply chain: Improvement of supply chain/distribution
efficiencies, coupled with capacity building and introduction of modern
technology will help arrest wastages, particularly in the food supply chain.
efficiencies, coupled with capacity building and introduction of modern
technology will help arrest wastages, particularly in the food supply chain.
Merrill Lynch
GEMs Paper #26 | 30 June 2016 61
HOUSE_OVERSIGHT_016171
GEMs Paper #26 | 30 June 2016 61
HOUSE_OVERSIGHT_016171
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