LONDON, 11 April 2005 — The appointment of Phillip Thorpe as the regulator of the Middle East’s latest fledgling financial center, the Qatar Financial Center (QFC) in Doha in March 2005, is either a brave move on the part of the government or highlights a folly to which the Gulf states seem to be oblivious of.
Thorpe is an accomplished regulator having served in Hong Kong during the British rule and at the Financial Services Authority (FSA) in London. More recently he served as chairman of the very regulatory board of neighboring Dubai International Financial Center (DIFC) until he was unceremoniously sacked in August 2004. Apparently, Thorpe had serious reservations about regulatory independence; and about the shenanigans concerning some of the transactions relating to DIFC, which is in essence the premier real estate development in the emirate.
He was replaced by a local man, who in turn has since then been replaced by a former Australian banker-cum-regulator. The sheer percentage of senior staff turnover and policy changes over the last year or so has given the perception in the market of a financial center “almost in perpetual limbo. They don’t seem to know what they want.” Yes, UAE bankers, especially those in Dubai, are perpetuating the hype by talking up the DIFC at seemingly endless conferences and the like. Even some Western banks concede that despite the regulatory confusion, some progress has been made relative to a few months ago.
Thorpe’s appointment by QFC is brave because it could be perceived by the UAE as a slap in the face by the Qataris. So much so for Gulf Cooperation Council (GCC) unity. At the same time it could cast aspersions on the very DIFC proposition, that Dubai Inc. is more interested in quantity (in terms of attracting pools of funds, players and business) than in quality and transparency — two vital requisites in an increasingly compliance-conscious international financial regulatory environment.
Given the developments in neighboring Doha, it would seem that the Qataris too are bent to adopting the “Dubai Model”. For Thorpe this is a risk, unless of course he has been given assurances that what happened in Dubai will not happen in Doha. Given the similarities between the two emirates — lack of accountability and transparency in decision-making; lack of regulatory and legal infrastructure in some key areas in financial services — there are no guarantees that the Dubai situation will not be repeated.
Of course, Thorpe’s appointment as the QFC regulator per se is not a folly nor in question. Although there are those (including Qataris) who question the appointment of a foreigner as a regulator. After all, financial sector regulation in any market is an act of national sovereignty. What next? Will Khalid Al-Attiyah make way to a foreigner as the governor of the Central Bank of Qatar?
The more pertinent question is why is Qatar pursing a policy of turning Doha into a regional financial center to compete with Bahrain and Dubai? This in an area smaller than England, and with combined population smaller than some of the medium-sized English cities.
No doubt Qatari Economy and Commerce Minister Mohamed Al-Thani, a strong supporter of QFC, will point to the success of midget-sized Singapore and Hong Kong as major financial centers. In the case of both size indeed did not matter, but substance very much did. Singapore is a working democracy, albeit authoritarian, with an advanced financial services sector; a top regional futures and commodities exchange; a major freeport; indigenous human resources; and a major regional refinery hub at Jurong Town; but above all with the dogged political and organizational will.
Substance is very much lacking in Doha, Dubai, and for that matter in Manama — and no amount of petrodollar liquidity can buy substance — pool of quality players; product innovation; research and development culture; world-class regulation and legal infrastructure; a vibrant enforcement regime; a culture of transparency; and so on. Substance, in other words has to be earned and evolved; and not acquired through outsourcing like a merger or an acquisition.
The economic argument for QFC is even weaker. Doha lacks the investment gravitas of even a Dubai. Its economy is essentially a single commodity one — based on oil and gas. The Doha Securities Market (DSM) is miniscule — total market capitalization is less than $50 billion and daily trading is hardly much more than QR3 billion. There are still serious restrictions to foreigners investing in the local stock market. Qatar seriously lacks an indigenous human resources capability.
So why, once again, is Qatar pursuing this regional financial center folly? Perhaps it is a timely reminder that petty nationalism between the GCC emirates is alive and well. It is also a manifestation of the painfully slow progress of the unified GCC market proposition.
