Saudi Arabia’s diplomatic scuffle with Canada risks alienating the kingdom in a time when it is trying to revamp its economy, shaking the outlook for the emerging country-related exchange traded fund
The iShares MSCI Saudi Arabia Capped ETF (NYSEArca: KSA) has been among the better performing emerging markets this year, rising 19.4% year-to-date.
However, the developing market’s outlook may come under pressure as Saudi Arabia’s diplomatic problems with Canada dissuades foreign investors from investing money into the emerging country’s bid to overhaul its economy.
Saudi Arabia declared Canada’s ambassador, Dennis Horak, persona non grata and expelled him after Canada’s Foreign Ministry censured Saudi Arabia for arresting human rights activists, reports Margherita Stancati for the Wall Street Journal.
Saudi Foreign Ministry announced it “will put on hold all new business and investment transactions with Canada” after what it described as an unacceptable attempt by Canada to interfere in domestic affairs.
The immediate strike back with economic consequences may potential dissuade other foreign investors looking into Saudi Arabia.
Saudi Arabia’s Crown Prince Mohammed bin Salman is in the process of realizing a grand reform plan, called Vision 2030, aiming to transform the kingdom to a more socially liberal country less dependent on oil. However, Prince Mohammed he won’t entertain foreign criticism of key decisions, which analysts argue could threaten capital flows that Saudi Arabia needs for its economic reforms.
“Branding Saudi Arabia as an attractive destination for investment and trade is one of the underlying assumptions of Saudi Vision 2030,” Thomas Juneau, an assistant professor and Middle East expert at the University of Ottawa, told the WSJ. “Impulsive foreign-policy decisions like this have the exact opposite effect.”
Saudi Arabia Risk
Saudi Arabia has struggled to entice businesses. Foreign direct investment into Saudi Arabia declined to $1.4 billion in 2017 from $7.4 billion the previous year, marking a 14-year low.
The sudden political risk associated with foreign investments is now seen as a significant concern.
“There is a brashness that reflects quick reactions, rather than thoughtful deliberation,” Karen Young, a political economist at the Arab Gulf States Institute, told the WSJ. “For businesses, these actions underline the risk of offending the ruling family and state on a number of issues where red lines and clear rules are absent.”
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