“The creation of a single regulatory authority in Qatar by 2010, announced recently by finance minister Yousef Kamal, will mean extending international standards of reporting and compliance to the whole country. This will end the “ring-fencing” of the Qatar Financial Centre Authority (QFC), its CEO Stuart Pearce has told Emerging Markets, increasing its appeal as a base for foreign investors in the Gulf Cooperation Council (GCC).
“With other Gulf financial centres, it is not clear how much licensed firms can do outside the financial centre itself. Qatar will become the only GCC state with an independent regulatory authority like the FSA in the UK, which will make the regime totally transparent. Licensed entities can do business onshore, and also treat it as a regional play, which is enticing.”
Pearce has held his current post for two years, after experience across the region spanning 30 years. In his latest role, he has been struck by one substantial change: the new-found confidence that Qatar is displaying in the strength of its own institutions.
In particular, Pearce flagged the significance of requiring all companies operating on the Doha Stock Exchange and in the Qatari financial services sector to comply with international standards once the single regulator is in place. He emphasized that this would oblige local players to upgrade their own performance, and noted that a number of leading Qatari companies in the sector, such as Qatar Insurance and QInvest, had already demonstrated their commitment to international standards by applying for QFC operating licences.
“I think that speaks volumes. Qatari businesses want to diversify their activities outside Qatar, and are prepared to make the changes necessary to achieve that. And we are seeing financial institutions from elsewhere in the Gulf who want to branch into QFC. So this is helping to upgrade the skill sets and pool of talent, as well as the legal and regulatory regimes, across the region,” Pearce added.
Mention of skill sets serves as a reminder of one of the growing constraints on the GCC financial sector, namely intensifying competition for qualified staff. This point was a focus for Brad Bourland at the recent "City and GCC" conference in London. He has personal experience of the issue, having moved with his team to become the head of research at newly-established Jadwa Investment Company in Saudi Arabia in 2007, after eight years as chief economist at Samba Financial Group
At the same conference, Thomas Kelly, head of asset management at TAIB Bank in Manama, said the difficulties in Bahrain were even more acute, because of the local perception that salaries were higher in other GCC financial sectors.
“In reality, salaries have grown more slowly in Bahrain because inflation is lower, so real incomes are competitive. But we are losing staff to other Gulf financial centres, with the result that the average stay at our bank is only about nine months, and the average age is only 23,” said Kelly.
Equally significant, Bourland underlined, was finding suitable investment destinations for the wall of money in the region generated by high oil and gas prices. The stock market bubble that burst in 2006 was one example of this problem, and Rehan Atiq, co-founder of QFC-based private equity firm MXV Capital, identified another example.
“If you take the region from Morocco to Iran, you have a population the same size as the US, but around 15 different business jurisdictions and shortages of cross-border infrastructure. This means that most companies have a single-base, capital-intensive structure, with hardly any pan-regional brands, so it is difficult to find opportunities for buy-outs among providers of products and services,” Atiq said.
For Pearce at the QFC, the right response to this challenge is to continue enhancing cooperation with other financial centres, such as the recent memorandum of understanding with Bank Negara Malaysia on Islamic finance, to improve the enabling environment for new investment vehicles (see "Standard setters" for more on international Islamic finance cooperation).
“As more institutions become aware of the opportunities in the Middle East, and more comfortable with the regulatory structures available for them to do business here, more products and asset classes will come into the market,” argued Pearce.
This was echoed by Florence Eid, head of Middle East and North Africa investment at US hedge fund Pantera, who forecast the regional private equity market to grow to $25 billion by 2010, from just $400 million in 2003. In the meantime, Pearce observed, QFC will also play a significant role facilitating outward investment of local funds, especially to emerging markets in Asia and Africa.
“We have now granted a licence to ICICI Bank in India, several firms from South Africa are in discussion, and most recently one Chinese entity declared its intention to ask for a full branch licence exclusively in Qatar. Where one player from these countries takes the lead, others will follow,” Pearce concluded.