Bader Al Sayari, CEO of Saudi Venture Capital, explains how his company has established “a wide network with businesses, government agencies, and investors which enables us to identify the right partners and optimal form of investment for UK investors,” as well as the significant added value it can provide.
In a recently published paper the International Monetary Fund said liquidity positions in the Saudi banking system are well managed. Banks hold sufficient high-quality liquid assets to already bring both the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) above the regulatory minimum requirements proposed by Basel III. How would you personally evaluate the impact of oil prices on Saudi’s financial sector?
Oil is a very important element of our economy, and a decline in oil prices will have an impact on the country’s entire economic activities, but the magnitude of such impact will vary from one sector to another. Our financial sector is governed by the Basel III requirements and is highly regulated by Saudi Arabia Monetary Agency (SAMA). Saudi Banks have solid balance sheets, and benefited from the accumulated wealth over the last two decades (excessive liquidity), which enabled them to grow consistently over the past years. Moreover, banks have been investing prudently and enhanced their risk management tools under the supervision of SAMA.
However, there are two important structural factors that affect the available liquidity in the banking sector. Firstly, Saudi remains an importing country, which results in significant liquidity outflows from the system. Secondly, expatriation of money by foreigners working in Saudi also represents an important dragger to liquidity. Therefore, it is worth considering addressing these structural issues in light of the declining oil prices.
Do you believe then that SME segment will be the main driver for the banking industry in the near future?
Yes, not only for the industry but also for the economy as a whole. SMEs play a critical role in job creation and foster innovation, which in turn enhances economic productivity. Unlike mega industries (oil and oil related), which require significant investment, SMEs require less capital. However, one of the key challenges for SMEs and entrepreneurs in Saudi remains financing and this creates a great opportunity for banks to capitalize on the segment’s needs.
There have been various government initiatives to encourage and support these institutions (logistically and financially), but I think that the banking sector should also play a bigger role by being more supportive to small and medium businesses through creative financial solutions and easing of some lending criteria. There have been some fragmented efforts to incubate a vigorous environment with the necessary ingredients to support SMEs and venture capitalists, but there remains a huge potential for banks and financial institutions (like SVC).
SMEs are very linked to innovation since they foster new technologies and new ways of doing business. How would you evaluate the level of innovation in Saudi compared to other countries in the region?
I believe that innovation in Saudi is relatively in line with its regional peers, however, given the country’s potentials and resources we should benchmark ourselves against other G20 countries (which Saudi is part of) and here I think we lag behind significantly. Different factors – such as bureaucracy and fragmented efforts between government and private sector (lack of proper collaboration) – remain key draggers to the industry, therefore we need to re-organize ourselves and aim in the same direction. Young entrepreneurs need to get timely access to the right support to develop their new ideas. Common vision/direction and organized collaborative efforts between the public and private sector will boost the growth of business innovation and support the development of Venture Capital.
Prince Turki bin Saud bin Mohammed said during the MENA private equity and venture capital summit October in Riyadh that Saudi Arabia’s venture capital industry has a sizable potential and that accelerators and incubators are critical for the future growth of the industry. How would you evaluate them as a tool for growth?
Incubators and accelerators remain key tools that provide the proper background and base for solid venture capital industry foundations. As mentioned before, there are fragmented efforts that need more alliance and guidance. Some of the critical venture capital incubators include: access to experienced service providers, shared administrative services, mentor and advisory board guidance programs, human resources centers’ support, communication and telecommunication centers, marketing assistance, etc…
The above and other incubators intend to support businesses through:
• Links to strategic partners
• Links to higher education resources
• Business training programs
• Technology assistance
• High-speed internet access
• Marketing assistance
• Access to bank loans, angel investing, venture capital, and guarantee programs.
Incubators are crucial to support successful ideas. It is very important to educate the people about our industry as the market remains thin and incubators are an effective tool for that. (For both entrepreneurs and investors.)
What is your investment profile and current portfolio?
As I said this is a very thin market. If we limit ourselves to a specific sector, we will not do business. Therefore, we are diversifying our portfolio.
Therefore you are also looking abroad for business opportunities, for instance the Park Crescent West (UK) real estate development.
Yes correct as part of our diversification efforts we executed this transaction in the United Kingdom. Real estate in London is one of the most attractive markets in the world and we wanted to be present there as well. We identified this distinct opportunity in central London where we plan to offer high quality apartments in an attractive historical site in central London. This investment was fully subscribed for and attracted significant investors’ interest from most of our clients.
Your mission is to create a world-class investment company and to be a key player in the Saudi and regional financial markets. What measures is SVC putting in place to create a brand name and a high-profile reputation? Could you share with us your strategy?
I believe that a clear, realistic, comprehensive, and implementable strategy is extremely important to the success of any business. There are high potential returns for our shareholders, but in the long-term, and patience is needed at this stage. The reason for that lies in the fact that this segment of the market is still under development and we need to give the time and the opportunity for the market to grow. Moreover, we are going through many global macroeconomic and regional geopolitical challenges which have an impact on our industry and inventors’ risk appetite. However, we are trying to diversify our business model without losing focus on our core and we are also trying to be creative in product offerings and financial solutions we bring to the market. Although it might be a bit time consuming, I know for a fact that in time we’ll build the infrastructure and reputation needed to become one of the main players in this market.
Which sectors would you identify as very attractive for UK investors in Saudi and how can they benefit from SVC’s advisory’s services?
There are various attractive opportunities for UK investors who are interested to grasp the opportunity of a fast-growing market, especially in the technology and ICT-related sectors. UK investors can enter the market through joint ventures with local partners along with other forms of investments. In addition, they need to keep in mind that know-how transfer and human capital development remains an important objective of any Saudi-foreign partnership.
In order to advise UK investors properly, we need first to understand their investment profile and identify their investment objectives (strategy for investment, risk/return, time horizon, etc…) SVC has built a wide network with businesses, government agencies, and investors which enables us to identify the right partners and optimal form of investment for UK investors. Moreover, we will have a significant added value in providing them with the ideal financial and legal structure of their investments and help them raise capital if need be.
Where would you like to see SVC in the near future? What is your vision for the company or what would you like to achieve while managing and leading this company?
We are doing our best to grow and to capitalize on the opportunities present in Saudi’s venture capital sector. We are thinking constantly out of the box and our operations are intended to be global. We will widen our scope and will partner with global players interested in the region’s growth. We will keep an eye on international models and global trends and we’ll be ready to adopt those initiatives within the kingdom. Taking SVC to the next level is a real challenge but it is very exciting as well and I want to be able to lead this journey of growth.