Corporate governance the key to unlocking Capital Markets in the GCC

It has been over five years since the collapse of Lehman Brothers, but the financial crisis continues to cast a long shadow over the global economy. In a stubbornly weak global economic environment, the development of Capital Markets in the GCC remains vital for catalysing future growth.

In turn, more robust corporate governance in the region holds the key to unlocking the development of Capital Markets. So in effect, it is lagging corporate governance that is holding back economic growth.

Many believe that Capital Markets can create a virtuous circle of sustainable economic growth.

Deeper and more liquid Capital Markets with regular bond issuances and benchmark sovereign yield curves facilitate capital market access for corporate borrowers and enable corporates to confidently access the bond and Sukuk markets, diversifying their funding sources and attracting foreign investment.

In addition, the bond markets increasingly satisfy corporate funding requirements, enabling banks to target new business opportunities and reopen conventional funding channels, financing enhanced corporate growth as a result.

The Asian Financial Crisis of the late 1990s precipitated the strengthening of local Asian bond markets, leading to more resilient and more stable financial sectors across South East Asia.

The strengthening of corporate governance was a central pillar in this strategy, providing foreign investors with enhanced transparency, thereby improving access to capital markets and cutting the cost of raising debt.

This model has not been followed in the GCC however, despite the severity of the global economic crisis. Instead, the continuing relative weakness of corporate governance in the GCC — combined with the traditional reliance on uncommitted short term funding — remains a significant drag on the development of Capital Markets in the region and, in turn, continues to slow economic growth.