Banking on Saudi Arabia’s ‘very realistic’ privatization plan

What is your first impression of a typical senior executive from Deutsche Bank?
A thrusting Frankfurter perhaps, or a blue-blood New Yorker? Maybe a sleek rising star from the Indian subcontinent, or an ambitious Asian? The German financial powerhouse is a global institution, of course, so any of these is a distinct possibility.
What is refreshing about Jamal Al-Kishi is that he fits none of these stereotypes. He is chief executive of Deutsche’s Middle East and Africa operations, and is, in the words of a colleague, “a proud son of the region.”
From the city of Al-Hasa in the Kingdom’s Eastern Province, he looks more comfortable in the thobe he wore when we had lunch recently in the Dubai International Financial Center — where the bank’s regional business is based — than in the sharp Western business suit he sometimes wears to bank meetings.
Al-Kishi spent a decade in regional banking with Arab National Bank and Samba, formerly known as the Saudi American Bank, before becoming head of corporate banking in Saudi Arabia and chief executive of Deutsche Securities, the investment banking business based in Riyadh.
In February 2016, at a time of some change among the bank’s senior executive echelons, Al-Kishi became chief executive of Deutsche Bank’s regional business.
That background gives him global and regional expertise, and also makes him an invaluable asset for the German bank as the Kingdom undergoes its most profound economic and financial transformation, arguably, since the discovery of the first significant oil resources in the 1930s.
With the elite of the global banking community in the Kingdom competing for the business to come out of the $300 billion privatization program about to come — including the initial public offering (IPO) of Saudi Aramco, the biggest IPO in history — Al-Kishi’s expertise could be a decisive advantage.
He wants time to think about the questions we discuss over lunch, but when the answers arrive they are carefully worded and crystal clear. What is his broad overview of the changes taking place within the Saudi economy?
“We are broadly positive and supportive of the reforms that both the National Transformation Plan (NTP) and Vision 2030 advocate. More importantly we are delighted to see the government and its various institutions coalescing around a singular vision and direction for the country; not just in terms of economics, but from a broader developmental perspective,” he said.
“It is perhaps the most profound program to be put forth in Saudi Arabia’s young history and from that perspective the ramifications associated with implementing them, and even the pursuit to implement them, are likely to be very profound,” he added.
The Aramco IPO has been considered as essential to the whole program, but Al-Kishi’s view is subtly different. “In financial terms the IPO is absolutely significant to Saudi Arabia’s transformation program, but I don’t think that this IPO is the only predicate for a successful implementation of the Kingdom’s transformation program.
“The reform agendas embedded in the NTP and the Vision 2030 are very broad, multifaceted and touch upon several aspects of life — economic and otherwise — and even without the Aramco IPO, to the extent progress is achieved on the various elements of the strategy, Saudi Arabia would be transformed in a positive way,” he said.
Saudi authorities recently put a value of $200 billion on the non-Aramco part of the privatization plan, which some observers thought was too ambitious a target. Al-Kishi does not agree: “At Deutsche Bank we do not see this as an overly optimistic figure. As a matter of fact it is very realistic. Of course, privatizing assets to the extent of $200 billion will require a bit of time, but in terms of assets available for privatization, Saudi Arabia has that quantum and then some. But this will take time. My advice to the authorities is to make sure that the timeline for doing so is designed in a realistic way,” he said.
He reeled off a list of the assets and sectors that could help make up the bonanza. “Anything that is commercial or close to achieving commercial viability, in my view, should be looked at. For example, utilities, be it water or power. The health care sector — the government runs a massive health care system made up of hospitals and other health care facilities which definitely qualify as good candidates for privatization. Other potential candidates include transportation assets, aviation assets and infrastructure assets such as airports, seaports and the like,” he said.
Much of the appetite for such a big sell-off will depend on the overall economic health of the Kingdom and on the state of the oil market. As a graduate from the King Fahd University of Petroleum and Minerals in Dhahran, how does Al-Kishi see that?
“The Saudi economy is tethered at the moment, in a very close way, to the performance of the oil market. Oil prices at the level we’ve been witnessing of late are necessitating certain measures by the government, including rationalizing investment and watching expenditure on various programs and projects. These are steps the government is taking with an obvious level of effectiveness. If oil prices remain suppressed, more measures will be required in terms of rationalizing spending as well as finding revenues for the state,” he said. Deutsche’s analysts expect Brent crude to average at $56 this year.
The other factor that will determine global investor demand for the privatization plan is the geopolitical situation in the region. We were speaking before the visit of US President Donald Trump to Riyadh, but Al-Kishi’s view is relatively sanguine.
“Saudi Arabia’s march forward has not been derailed by political developments in the Middle East and we see no reason to believe that that will be the case going forward. Against a backdrop of geopolitical uncertainty across many parts of the region over a number of decades, Saudi Arabia has managed to continue to build and expand its infrastructure and industrial base in oil and gas, petrochemicals as well as a host of other industries. With Vision 2030 the Kingdom aspires to take such investments to a much higher level,” he said.
His remit is, however, much broader than Saudi Arabia, and he ran through the prospects in the different geographies for which he is responsible. “Our business in the region is growing and on a relative basis the region has fared extremely well in so far as the broader group’s global business is concerned. Last year was a very decent year for the bank here, despite a number of challenges. We are optimistic that this year and next are shaping up even better.
“We care deeply about the clients we serve in all the geographies within which we have a presence. In terms of revenues, Saudi Arabia, South Africa and the UAE stand out but our business is growing robustly across the region in the GCC (Gulf Cooperation Council) countries, Egypt and across the rest of North Africa as well as Sub-Saharan Africa,” he said.
Some economists expect the changes taking place in Saudi Arabia to kick-start a round of corporate activity in other parts if the region, and Al-Kishi believes that could happen.
“We think there will be a positive collateral impact on the GCC out of what’s going on in Saudi Arabia. Part of this is perhaps driven by the desire to keep up, and part of it will be driven by the desire of some corporates in the GCC to take advantage of the developments within Saudi Arabia that might galvanize corporates to take action to broaden, deepen or extend what they do,” he said.
Whatever the long-term outcome, he believes Deutsche — which is emerging from a period in which it suffered from high US regulatory fines and post-Brexit worries in its European heartland — to be at the forefront of the Saudi transformation.
“We compare ourselves to our bulge bracket peers in KSA and from that perspective our business is one of the largest both in terms of number of employees, revenues generated and the number of client relationships that we hold. We are committed to the Saudi presence. It is a country where investments are being made by Deutsche Bank for a host of obvious reasons.
It is the largest economy in the region and the economy that is showing a great deal of dynamism at this stage and change which of course presents opportunities for established international banks like ours to continue to reassess the amount of resources in the country with an eye to deploying more, to take advantage of opportunities as they may arise,” he said.
Deutsche, which has done business in the region since the 1880s, was one of the first global banks to get a full license in Saudi Arabia, and is committed to the Kingdom.
“We have the footprint, balance sheet, people on the ground and global commitment from the Deutsche Bank Group to serve Saudi Arabia and our clients in the country to the full extent we can,” Al-Kishi said.
Deutsche will provide high quality financial advice and sector expertise, and help develop the Kingdom’s capital markets and financial services sector via regulatory and other official channels.
It will also continue to direct its global clients toward opportunities in Saudi Arabia, and offer Saudi clients help in identifying opportunities to do business and expand outside the country.
But, crucially, Al-Kishi also sees the bank as part of the broader social and economic changes taking place in modern Saudi Arabia.
“We are determined to invest in and develop local financial talent. This is a very critical objective of ours in the Kingdom and in this regard we take pride in noting the progress achieved in recruiting and developing young Saudi men and women, and especially women. They have performed extremely well for Deutsche Bank,” he said.