Political and economic reforms resulting from the Arab Spring may pave the way for better corporate governance in its quest for transparency and accountability, a top governance expert said.
The need for jobs and state accountability — two main demands emerging from the uprisings in the Middle East — directly relate to the need for private sector growth and reform of state-owned companies, said Dr. Nasser Saeedi, executive director of the Hawkamah Institute for Corporate Governance and chief economist at the Dubai International Financial Centre in a recent paper entitled Mena Corporate governance and the Arab Firestorm.
There have been significant improvements in corporate governance of listed companies in Mena but the next challenges are even greater: The governance of state-owned enterprises and instilling a culture of governance to family businesses and small and medium-sized enterprises (SMEs), he said. Private and family-owned companies, which are the backbone business in the region and a major employer, need to grow if the region is to tackle the unemployment crisis and create jobs.
Second-tier equity market
To accelerate this growth, a second-tier stock exchange should be created for these companies to tap into equity markets and private equity should be encouraged for SMEs, said Saeedi.
“A second-tier equity market for young and growing companies might become a key driver in the development of a liquid capital market, the diversification of economic activities and provide long term capital for the growth of the dynamic entrepreneurial segment of the region’s economies,” he noted. These measures would help introduce corporate governance in this critical segment of the economy, he said. Changes to state-controlled companies will also drive corporate governance forward. The state has been at the heart of the Arab unrest, with the public sector accused of weak governance, cronyism, failure to serve the people and creating policies based on personal interests of leaders.
Underperforming state-owned enterprises often undermine competition and weigh down growth, resulting in corruption, a waste of plentiful natural resources and dismal development. “The core issue is clearly that of governance and accountability,” Saeedi said.
The challenge now for many Arab countries is to develop clear state-ownership guidelines, mandates for state-owned enterprises (SOEs) and market-oriented management devoid of bureaucracy, he suggested.
“There should also be a clear separation of ownership from regulation, policymaking and other state-related functions of SOEs, including industrial policy. The separation of the ownership function ensures a level playing field with the private sector and provides for a healthy environment for competition,” Saeedi said.