Qatar & the GCC: A shift in investment strategy

The Euromoney Egypt conference in Cairo held in October 2012 opened with the news that Qatar had deposited a second tranche of US$500 million (QR1.9 billion) to the Central Bank of Egypt. This is a signifier of a clear trend: the increase in investment by Gulf Cooperation Council(GCC) states in North African countries instead of from Europe. Qatari institutions are leading the Gulf, with its banks and companies increasing their cross-border activities in North Africa. Qatar National Bank, for example has invested in Egypt, and Qatar recently announced a partnership with Algeria to develop a steel mill.

Shifting reasons

There are four main reasons why this has changed: capital, compliance, confidence and culture.

Capital: The GCC is a capital-exporting region and is looking for strong, long-term returns based on demographic and economic growth. In a globally low-return investment environment, the markets of North Africa offer these fundamentals at very attractive prices and high rates of return. Many institutions in developed nations are withdrawing from the investment and financing markets and facing difficulties in their markets, reducing credit lines and selling their regional financing businesses, creating a capital vacuum for GCC institutions.

Compliance: Global financial institutions face many regulations, reducing their ability to finance and invest in growth markets. But in developing markets, in which legislative infrastructure is a work in progress, GCC institutions have more flexibility and pragmatism in their decisions, giving them a strong competitive advantage.

Confidence: The GCC is confident in its own capital resources and in the future of the markets in which it is investing. The financing institutions in the region are developing long-term strategies, and are upgrading their teams and skills to leverage these opportunities.

Culture: The GCC is intelligent and experienced, and will invest in growth markets such as North Africa. The shared language of Arabic and historical ties also ease the process of investment.

As Gulf countries continue to invest in North Africa, this will bring more than just financial returns. These investments will consolidate the nations in economic development and cooperation in trade, education and the free movement of people.

AN UNCERTAIN ENVIRONMENT

This opportunity has come at a time of profound uncertainty in the wider global economy. The forthcoming Euromoney Qatar Conference in Doha hosted by Qatar Central Bank will examine how global trends are being influcenced by the rise of GCC-based financial institutions.

The predominant financial and economic paradigm of developed nations in the past decades has not been, as some believe, capitalism. The best word to describe what it has been is, perhaps, ‘creditism’. Governments, banks and individuals have ramped up their debt – using it to fuel public spending, lending and private consumption. Corporations – the engines of capitalism – are by contrast often criticised for sitting on cash piles or returning capital to shareholders.

Governments have reacted to the credit crisis by increasing regulations on banks, upping capital requirements and restricting banks’ ability to take on risk. Banks and markets have reacted to the government debt crisis and the regulatory changes by reducing lending across the board and viewing sovereign debt as a credit product.

No longer a uniform safe-haven securities market, the sovereign debt market is now nuanced by the individual credit characteristics of nations. Many nations, who in the past were frequent borrowers on the back of implied safety, are now unable to access the private credit markets except at a significant or even punitive cost, and sovereign bond yields regularly make the evening news.

All of this is a good thing and long overdue. It may be painful but at least it is realistic – which sets the tone for a more secure medium- term financial future. It also opens important opportunities for Gulf institutions, particularly in Qatar, because of their legacy of prudent management and solid financial foundations.

Indeed, for Qatar’s forward-looking financial institutions, banks and government entities, this new age of uncertainty is increasingly looking like an age of opportunity.

Richard Banks is the director of Euromoney Conferences. The inaugural Euromoney Qatar Conference ‘Global Finance: Re-Designed’ will take place in Doha from 11 to 12 December.