As regional bourses aim to compete with developed markets, questions are being raised over the state of reforms and how structural reforms could attract FDIs.
Foreign investors have been putting their money into the GCC region for many years. However, in recent times, the European crisis, the U.S. government shutdown, the Brexit, the U.S. China trade war, the volatility in oil prices, and uncertainty in the regional political sphere have caused concern. As regional bourses aim to compete with developed markets, questions are also being raised over the state of reforms, the future of regulation in the region, and how structural reforms could attract direct investments into the GCC and MENA regions.
The Top CEO Conference & Awards 2019, organized by Mediaquest and the INSEAD Business School, addressed these concerns at a panel discussion comprising Ashraf Gamal El-Din, CEO, Hawkamah Institute for Corporate Governance; Yasser Al-Sharif, CEO, Jabal Omar Development Company; Ashraf Bseisu, Group CEO, Solidarity Group Holding Company; Simon Galpin, Managing Director, Bahrain Economic Development Board; and Walid Daoud, Director, KPMG Lower Gulf at the Al Areen Palace and Spa in Bahrain on April 11.
“If you look at big investment firms and how they select where to invest their money – they have two sets of criteria. One of them is at the macro-level. They look at the macro-governance of the country in itself – how the government is being run, stability in the country ... and, then, they look at the micro-level as well, where they select the best sectors and companies that they can invest money in. This tells us that if we need to attract FDI, we need to focus on these two things. This means that I have to ensure that I have a good pool of listed companies which have good governance structures and transparent systems ...” said Ashraf Gamal El-Din, CEO, Hawkamah Institute for Corporate Governance.
Right investments in right infrastructure
When infrastructure and structural reforms are considered, it is important to differentiate hard infrastructures such as physical buildings, roads, offices, and bridges from soft infrastructure such as regulatory bodies and the legal background. Governments and companies tend to focus on building the hard infrastructure such as new airports in Bahrain or Amazon Web Services (AWS) investing in data centers in Bahrain, which will then cover the Middle East and Africa.
“Actually, what increasingly motivates investors is soft infrastructure. This means putting in place not just regulations, but the right regulations that are attractive; that open up new sectors of the economy; that allows them to be successful and thrive from a base in the economy. Here in Bahrain, we have a long list of regulatory and legal reform that has been implemented through the last 18 months that have attracted investment. But we are not unique in this. Almost every country in the GCC has embarked upon a tremendous raft of regulatory improvements. I can’t think of any other part of the world that has such an ambitious plan of regulatory reform. This creates tremendous opportunities both for investors here and investors coming in,” said Simon Galpin, Managing Director, Bahrain Economic Development Board.
“We believe that any changes and any improvements in regulations in Saudi Arabia will have a huge impact on the business environment on FDI as we have in the past two years, where the percentage of FDI has doubled in Saudi Arabia. The country has attracted the eyeballs of the world economies,” said Yasser Al-Sharif, CEO, Jabal Omar Development Company.
Another key factor of reform and regulation and attracting foreign direct investments into the region is investor confidence. There are a host of factors that play into investor confidence such as enabling regulation, infrastructure, and even the judicial system. There has been a tremendous paradigm shift across the Middle East, specifically in Bahrain and Saudi Arabia, where a host of changes are being introduced to gain investor confidence.
“At the end of the day, we have a saying in Arabic that ‘Capital is Coward’. Nobody will put their money where there is even a slight element of uncertainty. They may be willing to take a discount of 50 to 100 basis points to put their money where it’s safer. There are two main factors that we need to consider – corporate governance and risk management. While there have been good developments on the corporate governance side, there is still a need in bourses and capital markets for more transparency ... and also, risk management. Enterprise risk management is key. Some of the regulators are beginning to impose a certain level of regimen and framework, but a lot more needs to be done. At the end of the day, an investor needs to see his investment from beginning to end through the chain,” said Ashraf Bseisu, Group CEO, Solidarity Group Holding Company.