Tussle for the top between Gulf centres

Dubai and Qatar compete on many fronts. Emirates and Qatar Airways happily slug it out for the title of the world's fastest growing airline, while Qatar's reclaimed island project 'The Pearl' will go head to head with Dubai's 'Palm Jumeirah' when they come on line later this year.

But it is the battle to be crowned the Gulf's financial hub which is perhaps the most intriguing. With both cities having opened top-notch financial complexes in the last two years, the question is 'who's winning this fight?'

Dubai's bid to become the financial capital of the Middle East began in earnest in September 2004 when the Dubai International Financial Centre (DIFC) opened for business. And after a slow start over 200 companies have now been accepted for membership with the majority having already received full regulatory approval.

The DIFC has, in recent weeks, consigned its stuttering start firmly to the past by welcoming a range of multinational and regional firms to the centre. Saudi telco Oger Telecom, HSBC Bank Middle East, US investment bank JP Morgan and Fortis' merchant banking arm have all set up their regional bases within the complex.

DIFC increased its scope and ambition last September by launching the Dubai International Financial Exchange (DIFX). The bourse, which opened on September 27, 2005, claimed it would have at least 15 share listings by the end of 2006. However, the exchange currently has just five equity listings down from six following the delisting of Investcom (the bourse's first listee) after its takeover by African telco MTN.

Meanwhile, delays have hit some of DIFX's mooted initial public offerings (IPOs), and the market slump in the region has compounded DIFC's woes. As a result of these teething problems, the bourse's recent first anniversary celebrations were somewhat subdued.

Nevertheless, the potential $7 billion public issue of Prince Al Waleed Bin Talal Bin Abdul Aziz's Kingdom Holding Company on DIFX, which is rumoured to take place by the year-end, could really get the ball rolling for the exchange and the DIFC as a whole.

However, the centre's future success will largely depend on how its independent regulator, the Dubai Financial Services Authority (DFSA), enforces the regulations it has drawn up for the centre.

Considering the doubts over governance rules that have historically made many financial institutions reluctant to set up in the Gulf, the regulatory policies Dr. Habib Al Mulla, the chairman of the DFSA and his 80-strong team have drawn up are expected to be key to the centre's credibility and long-term pulling power.

The centre's laws were closely modelled on the regulatory systems used in the global financial centres of London and New York, but it has also drawn from the European Union for laws governing data protection, and from the Organisation for Economic Cooperation and Development (OECD) for money laundering rules.

And while there are still many doubters at home and abroad, Al Mulla claims the strength of the regulations the DFSA have drawn up is a crucial factor behind the growth in interest in Dubai from global firms.

"Good sound international best practice regulation by experienced and adequately resourced regulators is the most important factor in achieving respect and recognition," says Al Mulla. "In this environment and with a self contained regulatory, legal and judicial regime that is fundamentally unique, the DIFC has all the potential to be a leading financial centre."

Bright future

But all has not run smoothly. Before DIFC became operational, it sacked Ian Hay Davison and Phillip Thorpe, two top foreign regulators, as chairman and chief executive of the DFSA respectively.

New Zealander Thorpe is now chairman and CEO of the regulatory body of Qatar's financial centre the QFC, which celebrated its first anniversary this summer.

No longer considered the region's also-ran, the country sits on the third largest gas reserves in the world. With a host of gas-related projects under way and 25-year LNG supply deals secured with many developed countries, Qatar's future looks bright.

Add to that an annual GDP growth of around 10 per cent and a booming economy which has already lined up $130 billion worth of investments during the next decade and it's easy to see why top financial institutions and multinational corporates are making a beeline for the Gulf state.

There is a catch, though. In order to get a piece of the multi-billion dollar action, interested organisations have to set up shop in Doha.

As an incitement, QFC is offering businesses participating in the initiative 100 per cent ownership, full repatriation of profits and a three-year tax holiday, after which a corporate tax rate of 10 per cent will apply a move which Thorpe hopes will bring the big boys to Qatar.

Unsurprisingly Thorpe believes QFC run by former HSBC Holdings executive Stuart Pierce will achieve this goal because of the large volume of banking and financial business to be transacted in Qatar and the security of locating in a jurisdiction with a tough independent regulatory authority operating to the highest international standards.

When the centre opened for business in May last year, many observers claimed it was an attempt to jostle for the position of regional financial hub.

However, Thorpe claims Qatar's primary focus is on developing the project infrastructure and energy financing needs of its own economy rather than going head to head with Dubai and Bahrain's Financial Harbour, which is currently under construction.

- The writer is a Paris-based journalist.