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Saudi Arabia has announced a landmark decision to permit foreign investment in listed companies owning real estate within Mecca and Medina, the two holiest sites in Islam. This move, revealed by the Saudi Capital Market Authority (CMA) last week, is part of the kingdom's broader effort to attract foreign capital and enhance liquidity for existing and future projects in these cities. Allowing foreigners to invest in firms whose revenues are tied to Islamic pilgrimages, such as Haj and Umrah, is expected to bolster one of Saudi Arabia's key economic sectors.
Pilgrimage is a major revenue source for the country, which generated approximately USD 12 billion from these religious activities in 2019, according to official data. The announcement has already impacted the stock market, with Saudi Arabia's benchmark index rising by 0.2 percent. Shares of key companies, such as Jabal Omar Development Company and Makkah Construction and Development Company, saw increases of 10 percent each. Both firms own significant real estate in Mecca and stand to benefit directly from this policy change. Advertisement
However, foreign investment will be limited to specific instruments, such as shares and convertible debt, excluding "strategic foreign investors." Additionally, non-Saudi individuals and entities will not be permitted to own more than 49 percent of shares in these firms. These restrictions ensure that local control is maintained while still encouraging foreign participation in the market.
This policy builds on previous efforts by Saudi Arabia to open its markets to international investors. In 2015, the kingdom opened its stock market to foreign investors, making the Saudi bourse the largest in the Gulf region, with a market capitalization of USD 2.72 trillion.
In 2021, Saudi authorities allowed non-Saudis to subscribe to real estate funds that invest within the boundaries of Mecca and Medina. Monday's announcement expands on this initiative by permitting direct investment in firms tied to real estate in these cities, further broadening opportunities for foreign investors.
The move is a significant step in Saudi Arabia's strategy to diversify its economy. The kingdom recognises the importance of maximising revenues from its unique position as the centre of the Islamic world. By inviting foreign investment into pilgrimage-related real estate, Saudi Arabia hopes to fund the expansion of infrastructure and services necessary to accommodate the growing number of visitors. Sridhar Pinnapureddy, Chairman of CtrlS Datacenters Ltd, highlighted Saudi Arabia's emphasis on increasing foreign investment as a crucial aspect of its economic diversification strategy. He noted that opening Mecca and Medina to international investors reflects a bold vision to leverage their unique position as global religious destinations.
The CMA emphasised that the decision aims to provide liquidity for ongoing and future projects in Mecca and Medina. This financial inflow is expected to enable faster development of facilities and infrastructure to cater to the rising demand for pilgrimage services.
By balancing the need for foreign investment with safeguards to maintain local control, Saudi Arabia is paving the way for sustainable economic growth while preserving the cultural and religious significance of Mecca and Medina.
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