JEDDAH, 1 May 2006 — The GlobeInvest Banking Forum held in Jeddah on Saturday ended on a successful note with the organizers claiming that the event served the purpose for which it was designed.
With the economies of Saudi Arabia and other Gulf countries booming once again after the unprecedented boom of the 1980s, there was an intense discussion on how their economic growth could be sustained.
The forum was opened by Jeddah Chamber of Commerce and Industry Chairman Abdullah Al-Muallami and organized by the chamber’s international relations committee (IRC) and Saudi German Business Group of Jeddah (SGBG).
Dr. Nahed M. Taher, CEO, GulfOne Investment Bank, gave the keynote address in which she discussed why investment banking was critical today. Amr Khashoggi, chairman of the IRC and SGBG, in his welcome address referred to the role of IRC in connecting Jeddah to the world with the purpose of facilitating economic prosperity, spiritual understanding and multicultural cooperation.
“Wealth management in difficult times” was the subject of a presentation by Dr. Hellmut Kirchner, managing director of Munich-based VCM Capital Management GmbH.
“Capital markets in the Gulf are key to sustainable economic growth,” said Dr. Massimilianio Castelli, director and senior economist at UBS AG, a major bank in the world, in his presentation.
“The challenge is to make the current boom sustainable,” said Castelli who is in charge of the bank for the Middle East region for the last three years.
He presented a positive outlook supported by three key drivers — oil price boom, domestic investments becoming more attractive and prudent macroeconomic management.
He referred to the ambitious goals set out by the Kingdom, whose performance was comparable to some of Asia’s other fast-growing countries, and emphasized that making the current boom sustainable was the challenge.
“The private sector has to become the engine of growth,” Castelli said and stressed that planned investments required massive funding. “The era of lavish commissions on public works is over,” he said, adding that foreign funds are needed despite the recent surge in domestic liquidity.
He laid emphasis on the fact that capital markets needed to growth to support growth and pointed out that traditional banking was still the prevailing funding source.
“The shift from bank lending to capital markets or disintermediation as a major tool to channel funds into the productive sector takes time to develop. The recent stock market boom has created an equity culture in the region. Unlike IPOs, bond issues are relatively new in the region and it will take time for the culture of bank lending to give way to tapping domestic markets,” he said, adding that macroeconomic stability and sound regulations are key to support disintermediation.
The Kingdom is seeing the results of a reform agenda started in 2000, he said and described its WTO entry as a milestone in reforming the country. “The Kingdom’s WTO entry will have a huge impact over the medium term because regulatory standards and the rule of law are upgraded to the standards prevailing in the global economy,” Castelli said. He cited the establishment of Capital Market Authority, promulgation of Foreign Investment Act, strengthening of market mechanism, restructuring of government agencies and further liberalization of trade regime through the GCC Custom Union as some of the positive developments in the Kingdom.
“However, the regulatory framework for capital markets is still developing,” he said and stressed that foreign players are key to raise standards in capital market.
He noted that the IPO market was booming but “heavyweights” were still on hold and the corporate bond market was “still tiny.”
Castelli sounded an alarm that growing equity culture would be at risk if the “meltdown” continued. The ongoing correction in stock prices was the first real test for regulators, he said and wanted the lack of institutional investors to be addressed. “Private pension funds could be set up relatively quickly,” he said. The Gulf region is at a turning point, according to him. The GCC is currently the 8th largest economy within emerging markets. The region can rely on a large pool of accumulated financial assets, he said, adding that the Gulf would remain a net exporter of capital, but deeper capital markets could attract a growing share of capital held offshore.
Gunter W. Propster, partner of Buchanan Industrial Technologies, gave a presentation on “A knowledge based approach to investing in the German Mittelstand.” He discussed Germany as a fertile ground for private equity, Mittelstand as a challenging and lucrative investment sector, and business opportunities and prospects between the GCC and German Mittelstand. “Germany is the strongest economic region in Europe,” he said. Its vast technological lead and high productivity rates have helped selected industries in German speaking Europe to establish themselves as world leaders. These industries are offering tremendous opportunities for investors, as new financing instruments are required and private equity has just barely begun to enrich the region with financial diversity,” he added.
Most of the better performing Mittelstand companies have realized the need to globalize. Many of them are already doing business with their GCC partners. “In many cases, the establishment of an operation in the GCC is imminent, especially in sectors like aluminum and steel, plastics, and construction and logistic products and services. “There is a vast potential to improve or establish further business with German companies and business partners from the GCC,” Propster said.
He said Buchanan, which had an excellent access to the German Mittelstand, was providing tailor made financial products allowing maximum consideration of investors needs from the GCC.
Khaled Bucheeri, CEO of Liquidity Management Center (LMC), Bahrain, and Emad Al-Monayea, head of international investment at Kuwait Finance House, discussed Islamic securities (sukuk) as “the promising” financial instrument. According to them, Islamic securities are already emerging as a significant class of asset for the Islamic banking industry. As at the first quarter of 2006, the size of the sukuk market is about $14 billion — $5 billion issued by sovereign entities and $9 billion by corporate entities. Bucheeri suggested that the development of retail sukuk products should be encouraged in the interest of the growth of sukuk market. He outlined the initiatives taken by the LMC to develop new sukuk financing or structures in support of the industry’s development. “As of today, LMC, which won two Euromoney awards in 2005, has arranged sukuk issues in excess of $1 billion, he added.
Bank Aljazira, GulfOne Investment Bank, Safra Co. Ltd., E.A. Juffali & Brothers, Buchanan Capital Group and Shairco were the sponsors of the event. Its media sponsors were Arab News, Asharq Al-Awsat and Al-Eqtisadiah.
