GCC Countries a Step Nearer to Recognising the Realities of of the Global Market Place

In a recent edition of the Al Kheeji newspaper, it was reported that at the meeting of GCC Finance and Economic Ministers held recently in Jeddah new customs tariffs of between 6-9% were agreed upon, subject to ratification by the Governments of the member states. If true, then this along with the waiving of the 51% local ownership requirement for manufacturing units, must be seen as the first steps towards a recognition by the Gulf States that they must provide local companies within their boarders with the environment and the tool with which they can create a sustainable competitive position within the global market place.

What is needed is a radical rethink of almost every aspect of governmental economic law relating to company and property ownership, for, without a major restructuring, most of the Gulf economies with their heavy dependence on one resource, oil, will not be able to support economic growth into the new millennium.

Implicit in the outlined recommendations drawn up by the Ministers in Jeddah, is the need to attract large amounts of foreign investment to the Gulf to develop new industries which will provide the economic motor to drive regional economies forward when the oil runs out.

Already here in the United Arab Emirates we are seeing applications from local economic departments to the Federal Government seeking permission from the Economic and Commerce Ministry to allow 100% foreign ownership of businesses, The reasons behind these application is not hard to see as most emirates need to attract investment which will enable them to grow economically.

Granting such permissions, while welcome by many, would be a dramatic departure from current practise and would require careful planning and open debate touching as it does on a large nerve in the national economy.

But it is an issue that has to faced and changes do need to be made, simply because if we do not we will become a stagnating backwater of the global economy watching investors, invest their money in regions and countries where they can control their investment and obtain goods returns. The government must give this issue priority and draw up a strategy that will meet the country's need for economic growth in the new millennium for no individual in the world will invest substantial amounts of capital in a business that he cannot own or control.

Perhaps the way forward is for the federal government to talk to the countries leading businessmen who are already doing business within the framework of the world Economy and are aware of the implications of the global trading system for the future. Possibly setting us a consultative committee comprised of prominent businessmen and federal policy-makers for the purpose of drawing on the experience of the the private sector to help shape amendments to the federal laws in ways that will benefit all sectors of the economy.

But this is not the only issue to be faced, another is the setting up of well regulated stock markets throughout the region, for they are the pillar of a free market economy, which allow suppliers of money (investors) to offer their capital to buy financial assets (company shares) from suppliers (companies) through mediators (investment banks or brokers) so that the capital raised can be used to start new companies for the benefit of national economies

Unusually in this one important aspect of economic activity the UAE lags behind most of the other GCC states, it so much that it has no official stock exchange, this will act as a major constraint on business, hinder plans to develop a manufacturing base and hold back ambitions to develop the emirates as a regional financial centre which will free it from dependence on the price of oil and its production.

Unlike other important stock exchanges which are run entirely by the private sector but regulated by commercial and criminal law the exchanges in the GCC states are either government-run or semi government-run but for security exchanges to flourish the private sector should be given the major role in running them.

The Israeli bourse, the TASE, or example is owned by its member firms which include 13 banks and 14 brokerage firms. There are over 650 companies quoted on the exchange, with 98 of them also quoted on the American Stock Exchange, the market is valued at US$45.6 billion, with daily trading volumes of US$ 61 million. it is open to all regardless of nationality.

Here,the unofficial UAE stock exchange has 88 companies registered of which only 34 are actively traded none are listed on any other exchange. Although the market is worth US$ 21.3 billion there is very little liquidity due to the low amount of stock in daily trade. The difference is striking.

With the implementation of all the WTO accords just around the corner, the UAE needs to set up an open stock market to at least match the sophistication of the Israeli bourse it should be independent, free from government control, be well regulated, allow anyone not just nationals to buy and trade shares, have securities laws, transparent trading procedures and have a watchdog body like the American Securities Exchange Commission. This will give investors large and small the confidence to enter the market and go a long way towards attracting the estimated US$160 billion that UAE citizens have invested outside the country.

This would be a major step forward as the UAE has signed up to join the WTO and as a consequence, must eventually open up local financial markets to foreign financial institutions. so Before full implementation of the accords, we must develop our local financial institutions particularly in insurance, investment banking and financial services to meet the challenges that this type of free market liberalisation will bring. It is time for the Federal Government to take action on market regulation for continued delays in setting out the regulatory framework for the new stock market will only constrain economic growth

If we accept that a strong and sustained commitment to investment is a desirable economic objective, then the UAE must move quickly to dismantle the barriers that stand in the way of achieving that objective, for in the coming years there will be increasing competition around the Gulf region and other business centre to attract investment. The country needs to devote more of its resources to investment, of all kinds. Foreign investment should be welcomed on equal terms with local investors as both have much to offer the country and will enable it to continue to follow its path of sustainable growth.