The Gulf Cooperation Council countries that were once viewed as potential rival banking and investment hubs have each developed individual strengths. They are now carving out specialised niches in the regional and global economy, writes Robert Gray.
Looking at the Gulf's financial centres, we must recognise that as an international centre for listings and trading Dubai is now well established. By contrast, the authorities in Qatar feel that areas like insurance and asset management might provide them with particularly favourable opportunities. In terms of looking outside the region, Qatar and Dubai may be showing the greatest momentum. Bahrain, which is arguably the most longstanding financial centre in the region, sees an opportunity to act as a middle office for other centres. With the exception of the sphere of Islamic finance, Bahrain is less anxious to position itself as a directly competing regional financial centre. Instead, it has decided to take its good infrastructure and well-trained people and to explore how these strengths might be made available to other financial centres in the Gulf Cooperation Council (GCC) countries.
Saudi Arabia also has ambitions to create a financial centre. But this will be different again. As it represents two-thirds of the GCC countries' economy, it may be sufficient for it to establish a financial centre that caters to the growing needs of the Kingdom itself, rather than attempting to look outwards in the same way as smaller neighbours that do not possess the same economic hinterland.The differences:
Observing these various developments in each country raises the question of what kind of financial centre is being created in each case. In Dubai, developments are based to a large degree on the Dubai International Financial Centre (DIFC). One of its main selling points is that it is a physical space where everyone can be together, as well as a regulatory space. Qatar, however does not have any pretensions for creating a physical space for participants in the Qatar Financial Centre (QFC). The authorities are instead focused on creating a well ordered regulatory space. An advantage that Qatar does possess is that it is committed to a single regulatory structure, which would cover both firms operating in the QFC and in the country as a whole. Legislation establishing this is awaiting final approval from the Qatari authorities. In this regard, it is the most advanced GCC country in terms of moving towards a UK-type model with a single regulator. It has also proceeded with a strong regime of enforcement and arbitration on British lines as well; in 2006, Qatar appointed the former Lord Chief Justice for England and Wales, Lord Woolf, as the QFC's senior judge.
The regulatory equation is more complex in the case of Dubai because it has also to work within the UAE regulatory banking framework. Although the DIFC has its own highly regarded regulatory apparatus, the Central Bank of the UAE is in Abu Dhabi, so Dubai as a whole cannot realistically create a wholly independent regulatory structure. Meanwhile, Riyadh is developing towards more of a physical model of a financial hub. Saudi Arabia already has a robust regulatory framework, thanks to its Capital Markets Authority, which regulates and supervises the local capital market.Good neighbours:
In general, the Gulf has been sympathetic to the UK model of financial regulation. Banks in the City of London have encouraged the take-up of UK expertise in other financial centres. The Financial Services Sector Advisory Board (FSSAB), created in 2006, promotes UK financial services around the world. Its dedicated GCC sub-committee has commissioned a specific strategy for the Gulf that has led to a productive engagement between the City and the Middle East. The board, working with the secretariat of UKTI, the Lord Mayor of London, Alderman Ian Luder and the Corporation of London, makes sure that when key Gulf policy-makers visit London or other parts of the UK that the UK financial services proposition is to the fore.
There is an argument that by making GCC markets more efficient we are arguably weakening London, where the business might have gravitated if the region's markets were not growing in stature. At the FSSAB, we believe that the important thing is that the region's financial centres should progress in partnership with the UK. Education and training are highly relevant to the equation. We have an outstanding academic proposition in the UK with institutions such as the LSE and the Cass and London Business Schools enjoying an excellent reputation throughout GCC countries.
The objective is to create efficient predictable markets. If they are structured along lines that we are familiar with in London, it makes it easier for UK firms to succeed. At the same time, London wants to continue to attract Middle East banks, both conventional and Islamic. The City of London is particularly anxious to attract the region's sovereign wealth funds to open offices here, to manage investment portfolios and take advantage of UK asset management expertise. We should remember that this is hardly a new phenomenon, bearing in mind that the Kuwait Investment Office has enjoyed an honoured presence in the City of London for more than fifty years. Long may such relationships between the City of London and the region's esteemed institutions continue and flourish. Global Arab Network
Robert Gray is chairman of debt finance & advisory at HSBC and vice chairman of the UK Financial Services Sector Advisory Board and a member of its GCC sub-committee.This article was first published in Business Focus (Issue 2, 2009), a Middle East Association publication produced by Newsdesk Media Ltd.