As competition between Middle Eastern financial hubs intensifies, Qatar is adopting a novel strategy. Deploying its clout as a key market for project finance, the country has launched a financial centre that aims to attract international players through the value of the local market – rather than joining Bahrain and Dubai in rivalry over regional leadership. With the development of its North Field gas reserves generating huge banking and investment opportunities, and the consequent inflow of wealth into the local economy, the Qataris wanted foreign banks handling this business to set up in Doha, rather than flying in to do deals when needed.
International banks have long been established in Doha, but the government was keen to see local activity in specialist corporate and investment finance areas – hence the new Qatar Financial Centre “was formed because Qatar needed a vibrant financial market in order to support what Qatar wants to do itself,” chief executive Stuart Pearce tells Emerging Markets. The centre will help “to support what’s going to develop in the Qatar economy in the next few years.”
Qatar’s astonishing success in the last decade in developing a global-scale gas industry has also made it a world-scale recipient of project finance. Given its record so far, Pearce’s statement that “$135 billion in investment is expected” in the Arabian peninsula state is not as wild as it might first seem.
This is what distinguishes the Qatari enterprise from Bahrain, the established regional offshore banking hub and specialist Islamic finance centre, and Dubai, whose new Dubai International Financial Centre (DIFC) aims to offer blue chip international institutions a location on the time-zone map that fills the gap between Asia and Europe.
The Qatar Financial Centre is not an offshore scheme: the financial entities it licenses will operate with domestic Qatari status, and with the freedom to do business in all areas of the local market except retail banking. At the same time they will be governed by international rules and standards of regulation.
“There is no room any more for anyone to set up a financial centre that doesn’t meet international standards,” says Phillip Thorpe, the new Qatar Financial Centre Regulatory Authority’s head. Doha has realized that, to be taken seriously and attract quality names, the legal framework must be comparable with that prevailing in other leading financial centres. Like the DIFC, the centre has its own laws, tribunal and international standard employment rules.
Bullish banks
The Doha authorities hope the new centre will generate a productive synergy with the big local banks. Despite its size, Qatar has a competitive domestic financial sector. Under pressure from lively rivals such as Doha Bank and Commercialbank, state-owned domestic giant Qatar National Bank has been sharpening up its approach. According to the bank’s retail banking head Douglas Beckett, “the market has become a lot more competitive and the national bank has recognized the need to respond to the change.”
Long-established foreign banks are also in bullish mood. According to Standard Chartered’s local chief executive Kris Babicci, “we are constantly looking at growing our business organically in line with our strategic plans...we are expanding our distribution channels.”
In this expanding local context, its backers believe the financial centre will give a further increase to business and standards by the indigenous banking community. Qatari banks may increasingly seek a share of the investment and project banking that is transacted by the centre’s institutions, and in doing so they will need to satisfy its high regulatory requirements. As Thorpe explains it, “the centre will thus act as a means of strengthening the Qatari banking industry as a whole.”