Alabbar calls for action on capital markets to reverse 20-year slowdown in economic growth

The Director General of the Department of Economic Development, Government of Dubai and Chairman of Emaar Properties called for urgent action to reverse the trend and said this should focus on developing capital markets.

Speaking at the plenary session on The Challenge of Mobilizing Investment, at the 10th Arab Capital Markets Conference in Beirut, Lebanon, Mr. Alabbar said: "We need to reverse the unusually low ratio of private investment to public investment by creating fertile environments for private investment. This is a big challenge and one which calls for a coordinated response if we are to mobilize investment in the region.

"Middle East countries cannot just do the minimum or use standard recipes to attract investment. The region has to make that extra effort, go that step farther, even, if necessary, overcompensate."

He recommended the development of healthy bond and capital markets as the long-term solution to the inadequacies of regional private investment practices. "These are essential for the growth of the region because they can channel capital into its most productive and efficient uses," Mr Alabbar said. "The development of well-functioning stock and bond markets will enable the growth of innovative funding mechanisms, which in turn will translate into efficient investment leading to high rates of economic growth."

Mr Alabbar recommended a shift away from the dominant economic role of the state in much of the region, insisting that public investments tend to be less productive because they are not subject to market disciplines on expected rates of return on investment. He outlined a three-point plan of action to better channel private investment, improve the efficiency of public investment and attract additional foreign direct investment. Highlighting the importance of finance as a driver of economic growth, he said: "Starting the engine involves opening up the banking system, accelerating privatization, fostering independent regulation and assessing other pools of money, including Islamic finance."

"Perception is reality," Mr Alabbar said, drawing attention to a recent survey of international CEOs which showed that while more than three-quarters of them would consider doing business in the region, half also said they would want to know more about regional governance and regulatory frameworks before deciding to invest. Mr Alabbar said this sends an important signal to the region and further confirms the impression that the weak business environment bears some responsible for the low rate of foreign investment.

Smoothly functioning capital markets, he added, would inevitably attract greater regional inflows of foreign investment since the state of development of a region's financial markets is a good indicator for foreign investors of the level of risk they face. Such investors will invariably take into account the amount of local investment in the region before deciding to commit their money.

Insisting it is not all about economics, Mr Alabbar said: "Predictability is as important as stability. For a financial market to function, it needs to operate within a proper regulatory environment in which robust laws help to bolster investor confidence. This implies a need for harmonization of regional laws affecting financial markets and of financial reporting requirements. Government policies must then be directed toward reducing conflict, improving the macroeconomic environment, reinforcing property rights and strengthening the rule of law."

Calling for comprehensive reform and regional integration, Mr Alabbar insisted his was an upbeat, can-do message. He said: "Anything is achievable, as long as there is sufficient will and clarity of vision. The hard part is breaking through the status quo and implementing change."