Financial sector boom set to pull region out of economic crisis
Balancing growth with risk management and governance is vital for driving investment in today’s increasingly regulated and challenging markets, Stuart Anderson, Managing Director and Regional Head Middle East at Standard and Poor’s (S&P) says.
“The region’s financial community will play a substantial role in achieving this essential balance. The S&P Leaders’ Forum offers a platform for leading issuers, asset managers, economists, investors and business and policy leaders, to collectively discuss and share knowledge on how they can enhance sustainable growth post financial crisis,” Anderson said at the Standards and Poor’s Leaders’ Forum in Abu Dhabi.
He highlighted the role being played by the region’s financial sector. “The financial community is playing an increasingly active part in economic development in the region with their role evolving toward sustainable wealth creation.”
An S&P report shows that The financial sector is currently estimated to generate over 7 per cent of the Middle East and North Africa (Mena) region’s gross domestic product (GDP). “In the GCC [Gulf Cooperation Council] alone, the sector is estimated to contribute Dh368 billion [$100 billion] to the economy. With financial services accounting for roughly 40 per cent of market capitalisation and employing over 200,000 people in the region, it is a powerful engine for economic growth,” the report revealed.
More than 300 participants from leading regional and international businesses, financial services providers, banks, family businesses, sovereign wealth funds, regulatory bodies and governments are taking part in the event.
Shaikh Nahyan Bin Mubarak Al Nahyan, UAE Minister of Higher Education and Scientific Research, urged financial leaders to consider the most urgent economic and financial issues that may affect the region in the coming year. “You are custodians of public and private assets. Globalisation represents both opportunities and challenges. It offers great promise for improving the quality of life in all regions of the globe,” Shaikh Nahyan said in his opening speech. He added that the gathering of financial leaders aims to probe into initiatives and practices to produce equitable benefits of globalisation for all regions of the world.
Shaikh Nahyan highlighted the issues of inadequate education in the Arab world that leads to high rates of unemployment. “Inadequate education largely accounts for the alarming unemployment problem in the Arab world, where half of the people are under 25 years of age and in that group over 26 per cent are unemployed,” said Shaikh Nahyan.
Mohammad Al Shehi, undersecretary of the Ministry of Economy, said that the UAE has continued to be a key player in the regional market. “The UAE has continued to demonstrate its strength in dealing with the aftermath of the financial crisis, factors which have put us on track for further strong growth in the years ahead,” said Al Shehi. He added: “We have put the crisis behind us, preparing for the next phase of development. We have managed to successfully forge ahead with new plans and strategies.”
Al Shehi referred to the IMF forecasts for global output in 2012 that it would grow 3.3 per cent down from earlier estimates of 3.5 per cent.
“This would be the slowest year of growth since 3009 when the world was struggling to come out of the global financial crisis. It predicted only a modest pickup next year to 3.6 per cent which is below IMF’s July estimates of 3.9 per cent,” said Al Shehi.
He warned that even with painful austere measures, the Eurozone crisis remains enormous. “The Mena region’s reliance on Europe for exports means that it can be impacted by Eurozone weakness,” said Al Shehi.
He said that the UAE attracted in 2011 more than Dh36.73 billion in foreign investment across 328 projects, up by 13 per cent from 2010. “The UAE’s economy has achieved a real growth up to 4.2 per cent in 2011 compared to 1.3 per cent in 2010, its exports and re-exports grew by 31.9 per cent in 2011 and it non-oil sector performed well recording growth of 3.1 per cent in 2011 compared to 2010.
According to the Undersecretary, the UAE was one of the first countries to successfully take on the global financial crisis head on by undertaking a series of measures such as increased public spending on infrastructure, developing the private sector and supporting investments in both local and overseas projects.
“Our GDP is expected to grow by 3 per cent in 2012 despite global economic uncertainty and a recent dip in oil prices. The UAE’s banking system continues to be more resilient to withstand external pressures and any potential deterioration in economic growth.”
Yann Le Pallec, executive managing director for EMEA, S&P’s Ratings Services, told Gulf News that the GCC is preparing large capital expenditure programmes bolstered by high oil prices and healthier fiscal positions.
“Abu Dhabi is rated as stable AA and that the UAE is marked by high levels of capital and high levels of liquidity which helped overcome the effects of the financial crisis and the Eurozone issue, which is expected to take no less than three years to solve,” said Pallec. “In the region, particularly Saudi Arabia and the UAE, there are huge infrastructure projects that attract foreign investors,” said Pallec.
Robert Baur, Managing Director and Chief Economist at Principal Global Investors, said: “The US economy is emerging slowly from the after effects of its financial crisis, Europe is mired in a recession and growth in China is much slower than the country’s two decade average.”
Baur added: “Under these circumstances, the GCC investors should question who and what will drive global economic growth and when will business return to normal? There should be a focus on the future of the global economy and its potential for acceleration.”
For his part, Hasan Al Jabri, Chief Executive Officer at SEDCO Capital, said: “We believe a combination of innovation and relationship depth is crucial to ride these turbulent times and inconsistent market conditions.”
Marwan Al Turki, Partner at Debevoise and Plimpton LLP, said that the field of private equity still remains a thorny issue. “The fundraising environment for private equity remains challenging. Amongst the developed markets, the environment in Europe is tough and this, coupled with increased scrutiny by LPs of fund terms from a position of strength, has increased the length of fund raising cycles and led many sponsors to reconsider their plans,” said Al Turki.
He added that the position in emerging markets is mixed, with some regions such as Mena, effectively closed for business.
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