The flow of capital has traditionally been from the Gulf to the west, predominantly the reinvestment of Gulf current account surpluses in mature economies. This was seen in the form of investments into public and private capital markets as well as real estate. The axis now, however, is increasingly tilting towards a capital flow from the Gulf to the east.
In many ways, the GCC economies have more in common with those of Asia than those of the west – rapid growth rates, low sovereign debt and favourable demographics. Moreover, some Asian countries are capital exporters – a major change from the old Gulf-west relationship in which few if any western countries were capital exporters. Yet the Gulf and Asia remain different enough for both capital exporting regions to diversify into the other without sacrificing decent returns.
China, of course, is the most important country in Asia measured by economic size, trade – including in hydrocarbons – a burgeoning middle class propelling consumer demand and the potential of its capital markets. Given the Gulf’s strategic location as well, it is quite natural that economic relations between GCC countries and China are strengthening. The Qatar Financial Centre (QFC) Authority, for example, is exploring how Qatar can work more closely with China – and China also seeks to step up cooperation with Qatar. If this mutual interest leads to specific ways of collaborating, the QFC Authority will pursue them eagerly.
The QFC Authority has already signed a Memorandum of Understanding with the Pudong New Area Financial Services Bureau (PSFB) and it is keen to explore other ways to cooperate. The same applies to other Asian countries, such as Singapore and Malaysia.
The important point here is that greater cooperation between the Gulf and Asia partly springs from, and results in, a two-way flow of capital and investment. The Gulf is no longer viewed as mainly a capital exporter. Today countries such as Qatar are also viewed as destinations for investment. The QFC Authority therefore regards Asian markets as a natural fit for Qatar and the Middle East, and is looking closely, for example, at the asset management industry in Asia to assess and encourage potential partnerships with Gulf and Middle East investors.
In recent years, as a natural consequence of events in western markets and the growing attractiveness of Qatar’s financial markets, Asian asset managers have become increasingly interested in what the QFC has to offer as a base from which to operate not just in Qatar but in the Gulf region and further afield in the Middle East and Africa as well.
The QFC Authority has issued licences to several Japanese and Chinese banks – including ICBC – which subsequently set up operations in Doha. Last year, Barclays Natural Resource Investments decided to move its global headquarters to Doha and Credit Suisse announced it would establish an asset management operation there, evidence that Asian firms that set up in Qatar will be in the very best company.
To this end, the QFC Authority has created a legal, tax and regulatory environment in which foreign firms can have confidence. The QFC is neither a free trade zone nor an offshore centre but an integral part of Qatar’s financial sector. With a legal system based on English common law, a principles- based regulatory system and a highly competitive tax regime, the QFC Authority offers an environment which is familiar to many firms, world class and underpinned by Qatar’s economic and political stability and business-friendly climate.
The QFC’s legal and regulatory systems and tax regime are continuously reviewed to reflect best practice and the needs of firms. There is also expanding scope for investing either directly or through investment vehicles in Qatar and other Gulf countries. Asian investors are showing interest in sectors such as infrastructure, real estate, science, technology, education and health. Correspondingly, GCC investors are looking at opportunities in similar sectors in Asia.
It is all but certain that the two-way flows of capital between the Gulf and Asia will become larger and alter in character. Financial centres will have to adapt to the changing landscape if they are to bridge the markets of the Gulf and Asia successfully. The potential returns to all parties are a powerful inducement to do so.
Contact the QFC Authority
Qatar Financial Centre Authority, QFC Tower 1, West Bay, 23245 Doha, Qatar
Tel: +974 4496 7777 Fax: +974 4496 7676