Saudi Arabia’s economic reforms are boosting M&A activity

A global economic slowdown, high interest rates, geopolitical tensions, and inflationary pressures in many parts of the world have forced central banks to tighten monetary lending, in turn compelling investors to stay cautious. But as global headwinds subside and the Gulf Cooperation Council nations make economic reforms, mergers and acquisitions in Saudi Arabia are expected to accelerate.

The economic backdrop to the Kingdom’s growing M&A activity includes the replenishment of reserves thanks to higher oil and gas receipts and revenues. Saudi Arabia also remains the region’s largest economy and is still among the fastest-growing economies in the world. The country’s gross domestic product grew by more than 8 percent in 2022.

Even though the latest global forecasts from Standard Chartered suggest that GCC growth is likely to slow in 2023 because of declining contributions from hydrocarbons, momentum in non-hydrocarbon sectors is likely to continue. Within the Middle East and North Africa region, the industrial sector was the most active in 2022, accounting for 23 percent of all deals. The number of deals shot up to a record 1,200, compared to 1,141 in 2021, while the value of M&A transactions reached $85.2 billion compared to a record $109.10 billion the previous year.

So far, 2023 looks good for Saudi Arabia, with the Kingdom’s outbound investment set to total $10.9 billion when the first half figures are confirmed — more than a third of an anticipated MENA total of $31.9 billion, according to data firm Refinitiv.

Across the region, MENA-based companies — including sovereign wealth funds and non-government institutions — are picking up bargains and diversifying their revenue streams, taking outbound M&A to $31.9 billion. This is up 6 percent compared to the value recorded during 2021 — and a seven-year high.

M&A activity continues to come from an increasingly diverse investor base with MENA-based companies, sovereigns and non-government institutions actively hunting for opportunities. At the start of the second quarter of 2023, Saudi Arabian Oil Co. acquired a 10 percent stake in China’s Rongsheng Petrochemical Co. Ltd. — a deal valued at $3.58 billion.

Standard Chartered has been involved in a number of major M&A deals in the MENA region, including DP World’s $7.4 billion sale of a minority stake to Caisse de Dépôt et Placement du Québec. The bank also advised Saudi Arabia’s Hassana Investment Coy.

Analysis shows that the Kingdom is not only an attractive place to invest capital but also one to source capital from. Diversification reforms, large investments in building out new sectors such as technology, renewable energy, e-commerce, and the upgrade of ports and logistics, healthcare, education, and infrastructure have led to all-round economic growth in the country.

Last year, the Saudi Public Investment Fund’s subsidiary Saudi Agriculture and Livestock Co. acquired a 35.3 percent stake in Nigeria-based Olam Agri Holdings for $1.24 billion. PIF also has an 8.3 percent stake in Nintendo, making it the Japanese gaming giant’s largest foreign investor.

Strong fiscal discipline from the Saudi government and its work in supporting businesses and consumers has also created a fertile ground for domestic, regional and international companies to seek acquisitions. Looking ahead the positive picture looks set to continue.

Saudi Arabia’s economy grew 1.1 percent in the second quarter of 2023, boosted by non-oil activities. The Kingdom has also offered 140 projects for private-sector investment, alongside sales of assets and partnerships, across 17 sectors including healthcare and aviation. A further 300 projects are under evaluation. Economic reform programs and investment vehicles — including Saudi Arabia’s Vision 2030 and PIF — are powerful signals to global investors.

Right across the region, sovereign wealth funds are mandated to fulfill key targets set out in major diversification projects. The Saudi government continues to unlock efficiencies and investments by privatizing key state-owned enterprises and, in some cases, entire sectors.

What this tells us is that when it comes to M&A activity and economic diversification, Saudi Arabia and its neighbors are just getting started.

• Mazen Al-Bunyan is CEO of Standard Chartered in Saudi Arabia.