MANAMA, 18 October 2004 — Family businesses, which account for the lion’s share of firms in the Gulf region, must sell shares to investors and become transparently run if they are to survive in the long term, analysts say.

“One wonders what would happen to the regional economy if family businesses got into trouble, given that they control 95 percent of trade in Gulf states,” said Salman Deghaithar, a senior executive at Gulf International Bank.

Deghaithar, who presented a paper on family businesses at a seminar on capital markets in Bahrain this week, said such businesses should start considering this option sooner rather than later. “If they wait for problems to happen and make the transition under pressure, they will lose the confidence of banks and financial markets,” he told AFP.

On the other hand, family businesses “will grow and be able to obtain bank loans to finance their expansion” if they turn into publicly traded companies, Deghaithar said. They can also increase their capital by issuing more shares.

“Banks and financial markets have more confidence in companies trading on the stock market than in family businesses, whose decisions are made by a few individuals ... Publishing the budget also enhances confidence in a company,” he said. Deghaithar said that some Gulf businessmen who long resisted floating their family outfits were now seriously considering this option, increasingly popular with the younger generation.

The head of the Bahrain Chamber of Commerce and Industry, Khaled Kanoo, agreed that family businesses would grow if they sold shares but added that “they do not feel the need to do so.” Only a small number of family businesses are opting for the share-issuing formula.

“They feel that as long as the company is doing well there’s no need to distribute assets,” said Kanoo, who is also part of the Yussef bin Ahmad Kanoo Group, one of the biggest family concerns in the Gulf with operations in Bahrain, Saudi Arabia and the United Arab Emirates (UAE).

Kanoo said problems are easier to resolve in companies with shareholders because they are free of “the complexities of family relationships.” He said family businesses could start by “turning part of their operations into traded companies”, but added that the Kanoo group had no intention of going down this road at the moment “because it is powerful and doing very well.”

An official at the Bahrain Monetary Agency, the country’s central bank, said family businesses were being encouraged to go public because this was in their own interest.

“Local and international laws now require transparency,” the official said.

Representatives of Gulf family concerns agreed at a conference held in Qatar in January that their businesses must merge if they are to survive globalization.

Abdulrahman Al-Attiya, secretary general of the Gulf Cooperation Council (GCC) that groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE, noted at the time that family businesses control 98 percent of commercial activity in the Gulf region compared to rates of 65 to 80 percent elsewhere.

Such businesses, which have a turnover of billions of dollars, also dominate the region’s services sector.

A similar meeting held in Dubai at the end of 2003 also concluded that small businesses in the Middle East would have a particularly hard time surviving tougher competition in the era of globalization.