More reforms needed in GCC corporate governance (page 1 of 2)

Record high inflows of oil and gas revenues in the years before the financial crisis did not trigger structural reforms in the GCC, says Ali Al Shihabi. The founder and chairman of Dubai-based Rasmala Investment identifies two main issues in the region.

'High revenues from oil and gas export cannot cover two deficits in the Gulf region: missing talents and the lack of transparency,' Al Shihabi told AMEInfo.com at the sidelines of a lecture he recently gave at the Dubai School of Government.

As in Davos, discussions on regulation and transparency have picked up in the Middle East just as they did during the financial crisis. 'But we hesitate too much: we walk the talk, but we do not talk the walk,' Al Shihabi says with an audible sound of regret in his voice.

Referring to 'missing talents', Al Shihabi said his bank is one of many companies in the region struggling to find highly-skilled staff. 'We are currently looking for a number of candidates with a PhD in economics, but in the GCC we cannot find them', the Saudi national complains, who himself holds a BA from Princeton University and an MBA from Harvard Business School. The lack of talent goes hand in hand with missing corporate communication skills, according to Shihabi.

Vigilance is key

GCC budget surpluses climbed to $1 trillion at the end of 2008, with public debt to GDP ratios standing at 5% in Kuwait and 40% in the UAE, compared to 70% in the US and Germany and a whopping 200% in Japan. 'But in the Gulf there is no room for complacency,' Rasheed Al-Maraj, Governor at the Central Bank of Bahrain says.

In Bahrain, the fall of two banks owned by Saudi tycoons Saad and Ahmad Hamad Al Algosaibi and Brothers (AHAB) in late spring 2009 demonstrated that the region was not immune to the impact of the global financial crisis.

Both banks left unpaid loans conservatively estimated at $15bn to some 100 institutions worldwide, among them leading banks such as Abu Dhabi Commercial Bank, BNP Paribas and Citigroup.

Al Shihabi is convinced that the tradeoff between tangible and intangible assets is nowhere bigger than in the GCC. Tangible assets are cash, factories, infrastructure projects, airline fleets, and so on. Intangible assets are off-balance sheet values such as talent, knowhow, language and networking skills, and the level of female integration in work, among other factors.

In relation to the lack of transparency and poor communication with the public, the damage has already been done, according to Shihabi.

'Take the fall of Lehman Brothers for example,' Shihabi explains. 'Banks in the UAE have never been in danger of defaulting. But because officials did not communicate publicly that there was a gentleman's agreement among GCC governments to guarantee the banks' liquidity, people in the UAE started worrying and extrapolated the turmoil that happened in the West to a regional scale in the Middle East.'

Future looks bright

Nevertheless, efforts to improve the corporate culture are on the way. The DIFC-based institute for corporate governance (Hawkamah), founded in 2005 by DIFC Authority's Chief Economist Dr.