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Measures to improve family businesses
The US dollar's sustained battering in the wake of the financial turmoil that has currently been sweeping the world is the perfect time for the GCC economies to look much more seriously and take definitive steps towards the Gulf Monetary Union, according to a top official of Hawkamah.
- By Chinmay Chaudhuri, Financial Writer
- Published: 23:47 October 16, 2008
Dubai: The US dollar's sustained battering in the wake of the financial turmoil that has currently been sweeping the world is the perfect time for the GCC economies to look much more seriously and take definitive steps towards the Gulf Monetary Union, according to a top official of Hawkamah.
"This is a perfect occasion to insist we move towards a 'Gulf Central Bank' and have our independent monetary policy. That monetary policy should give us more flexibility on the exchange rate side," Dr Nasser Saidi, executive director of the institute of corporate governance Hawkamah, said yesterday in Dubai.
Stressing Gulf economies have been exposed both to large fluctuations of the dollar and excessive financial turmoil, Saidi said the GCC countries must start protecting their own markets.
"We have to start making sure that we grow our own money markets, inter-bank markets and capital markets and do that in our own currency because you can control your own currency but you cannot somebody else's."
On whether the Gulf economies are strong enough to withstand the devastating effects of the global financial meltdown, Saidi said the underlying drivers of the economies have a lot to do with their banking systems, which at the moment are "very strong".
Referring particularly to the UAE, Saidi said, "Capital adequacy rates here are on an average 13 per cent, and for the big banks, 13 to 18 per cent, so the financial institutions are strongly capitalised. The banks have sound balance sheets and their exposure to the real estate market is limited. The average is 18 per cent of their deposits, which is below the regulatory standard of 20 per cent the Central Bank has imposed. They have high profit rates. They are reinvesting those profits. The economy of the UAE is now much more diversified than ever was. Economic diversification improves resiliency."
The fall in oil prices will have a moderate effect on the economies, said Saidi, adding the decline in global trade volumes due to a worldwide slowdown will play spoilsport. Given the level oil prices are budgeted at by the Gulf economies, they are still on firm ground.
"The reserves accumulated during high oil prices provide a good cushion," he said.
Dubai As about 85 per cent of companies in the Gulf region and in most emerging markets are family-owned, it has become increasingly imperative now for them to introduce corporate governance in their businesses, according to Dr Nasser Saidi, executive director of Hawkamah.
Hawkamah is looking at three major items.
First, separating the business of the family from the family's business by introducing a professional board.
Second, introducing professional management into the companies and separating the role of the board with its family members from and the professional management and executive management of the company.
Third, introducing "family councils" which will take care of the business of the family and have a code of conduct.
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