Corporate governance to attract Dh1 trillion

DUBAI— Investors are willing to pay an additional premium of 15-30 per cent for shares in well-governed companies across the Gulf region which could translate to between Dh734.6 billion and Dh1.1 trillion ($200-$300 billion) in fresh investments.

By Jose Franco

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Published: Tue 15 Jul 2008, 11:52 PM

Last updated: Sun 5 Apr 2015, 12:49 PM

Dr Nasser Saidi, executive-director of the Hawkamah Institute for Corporate Governance, stated this yesterday saying the UAE and other Gulf countries may attract such investments by embracing best practices in corporate governance, or a system by which companies are directed and controlled.

"We really need to grow the capital market this time because we have this historic liquidity," he said in a Press conference. "We could even well be financing the global capital markets."

According to a new report by Merrill Lynch, a global financial management and advisory company, the six countries belonging to the Gulf Co-operation Council bloc have amassed some Dh2.8 trillion ($750 billion) over the last five years in current account surpluses.

Saudi Arabia, Bahrain, Kuwait, the UAE, Oman and Qatar will also likely receive Dh1.32 trillion ($360 billion) more this year in external surpluses with oil prices at around $140 a barrel, the report said. This translates to almost Dh3.67 billion ($1 billion) a day throughout the year.

Saidi said that 60-65 per cent of the region's liquidity be invested abroad in line with the policy of reducing market risks through international diversification while 30-35 per cent of the fund should be used to increase the local capital markets.

He and Martin Steindl, the programme manager for corporate governance at International Finance Corporation (IFC), presented a report highlighting that majority of respondents acknowledged the importance of corporate governance in their operations.

But the 85-page report, based on a survey of 1,044 banks and listed companies in 11 countries across the Middle East and North Africa (MENA), also shows that many respondents lack the understanding on how to implement the necessary reforms.

"Hawkamah is committed to promote good corporate governance across the region, and the encouraging findings of this report offer a valuable insight into what needs to be done to assist regional companies to implement sound corporate governance frameworks," Saidi said in a statement.

Having a company-level code of ethics is an important step in setting the stage for corporate governance reforms, the report stressed. It said, however, that only 36.5 per cent of respondents have implemented such codes.

It added that policymakers and regulators should encourage, or even mandate, directors and senior managers to undergo training on corporate governance, which also calls for listed companies to disclose non-financial information particularly on ethical practices.

The report by Hawkamah and IFC, a World Bank Group-member fostering economic growth in developing countries through financing, has identified a set of 32 indicators that qualify a bank or a listed company for a holistic application of various reforms.

These indicators also include the need to create board-level committees to develop remuneration policies that would attract, motivate and retain talent; the adoption of internationally recognised financial reporting standards and the need for family-owned enterprises and banks to form councils or assemblies to separate the family interests from those of the company.

Saidi said the banks formed an important role in the report because the execution of good management risk functions in the banking sector will trickle down to its clients.

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