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Business Intelligence Middle East - bi-me.com - Gulf as a global financial centre sees opportunities and influence growing, says new report - News, analysis, reports

INTERNATIONAL. A new report from Chatham House examines the prospects for the GCC economies and the potential development of the region as a global financial centre (GFC) over the next decade.

‘The Gulf as a Global Financial Centre: Growing Opportunities and International Influence’ report concludes that the Gulf’s global economic status is impressive, underpinning significant growth in the financial sector and potentially the rise of the GCC as a top rank global financial centre. In principle, the GCC could overtake both Australia and a weakened Japan in the IFC rankings over the next decade.

Economic growth and wealth creation will continue to provide the big punch behind the GCC ‘brand’. Regional GDP will comfortably exceed the US$1 trillion mark in 2008, moving the GCC further up the top ten in terms global GDP rankings. However, appropriate recognition of this status is needed in order to support the GCC’s aspirations in global finance: remarkably for economies of such high standing, they are typically still treated as ‘developing countries’ in spite of GDP per capita being well above emerging market levels, even excluding the energy sector.

None of these countries has joined the OECD and there is notably no representation at the world’s top table, the G8 summits, Chatham House pointed out.

However, the continued development of the region’s economic and financial power suggests an urgent need for the GCC’s position to be reviewed by all parties and new channels of communications, discussion and influence to be opened up. This review should also acknowledge the importance of Gulf finance and the aspirations for development of the region’s financial sectors.

The GCC is well positioned to act as a key hub in global financial markets, serving the wider Asia-MENA region. To enable the GCC to leverage its position, an important development would be the creation of a larger, deeper debt market, whether based on Western-style bonds or the Sharia model, building on the region’s strength in Islamic finance.

This implies a radical departure for the GCC in terms of the role played by government debt and project finance, its potential in promulgating local market activity and broadening the base of the financial sector. If successful, this move could open up a much larger role for the GCC in global debt markets, especially across the Middle East and Asia. This would provide a massive ‘hinterland’ within which the GCC’s financial sector could expand and fulfil the target of becoming a GFC. It would also help the global community to meet the task of coping with the surge in 'new wealth', reducing global asset imbalances.

GCC cooperation will be essential in achieving these goals and a positive step in this direction is the recently confirmed plan to set up a common Monetary Council by next year, another step towards a common currency.

Chatham House undertook this study in conjunction with the leading financial centres in the Gulf region, namely Bahrain, Dubai and Qatar. The project forms part of the cooperation effort across these centres and reflects their joint efforts to foster further progress in the area of finance and development. The author of the report is Vanessa Rossi, Senior Research Fellow, Chatham House.