On corporate governance in the GCC and business opportunities in Africa
What are the primary factors shaping the evolution of corporate governance in the GCC’s financial sector?
MARCO DE LEO: Corporate governance as a legal framework has improved significantly in the GCC in recent years, particularly in Saudi Arabia and the UAE. The aim is to motivate and leverage corporate governance regulations and codes in a manner similar to Europe and the US. While the framework for related-party transactions and board accountability is well established in those countries as an integral part of corporate governance principles and rules, regulations on such matters in the GCC are still being implemented.
Despite some gaps compared to Western countries, corporate governance plays a major role in the GCC in comparison to the early 2000s. Today it is possible for the board to vote by proxy in the region, and governments are making an effort to improve the systemic framework. For example, public companies in the UAE must have at least one-third of their board be independent members and the majority be non-executive board members.
To what extent are the current public-private partnership (PPP) frameworks in the GCC well suited to the development of the health care sector?
DE LEO: We have tried several times to conduct transactions in the GCC based on the current PPP framework and government requests. Significant attention is being paid in Oman to the possibility of using PPPs for the health care sector, in particular.
There is a clear benefit in the region from involving the private sector in terms of skills, risk and cost controls, leveraging experience and increasing Western participation, which in turn brings know-how and helps the region increase private funds.
On the other hand, there is a lack of a legal framework, so we face resistance from the private sector in terms of investment and transactions.
Where do you see the most promising opportunities for multinational companies in the GCC to expand in African markets?
DE LEO: Due to its large, young population, Africa is a very promising opportunity for the GCC. In terms of investment, the key sectors are transport infrastructure, health care, agriculture and food security. Saudi Arabia and the UAE have increased their participation in Africa, expanding their involvement and investment in the region ¬– especially in South Africa.
The UAE and Saudi Arabia are also interested in investing in infrastructure and the reconstruction of cities in Libya. The Tripoli-based government has implemented a legal framework that makes the country one of the most promising in terms of investment in the region, especially in the Misurata Free Zone.
From a pragmatic point of view, the percentage of investment by large corporations in Africa is very low compared to the rest of the world, so there is a competitive reason for GCC companies to invest and take advantage of the significant slowdown in Chinese investment in the region.
How may capital markets across the GCC promote the greater participation of non-Arab investors, and what effect could this have on investor relations?
DE LEO: Since 2020 the role of initial public offerings (IPOs) and capital markets in Saudi Arabia and the UAE in promoting foreign investment has been significant. There has been a shift in the percentage of foreign investors in Saudi Arabia, with the proportion of foreign investment in the securities market at 17% today, compared to around 2% in 2020. The Saudi capital market is among the 12 largest in the world, and there were 60 IPOs between 2016 and mid-November 2022.
New markets have opened thanks to the implemented reforms in Saudi Arabia, especially regarding start-ups. The Saudi market has helped to raise debt and equity investment, which is very interesting for foreign investors. Thus, more transparency and stability is likely to help attract foreign investors.
In addition, the environmental, social and governance frameworks widely adopted by the GCC’s stock markets – as well as the private sector – have helped boost foreign participation in their capital markets.