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Qatar Financial Centre Authority CEO & Director General
Stuart Pearce
Chairman QFCA & Minister of Finance HE Yousef Hussain Kamal
Qatar Financial Centre Regulatory Authority Chairman & CEO
Phillip Thorpe
QFCA HEad Of Corporate Communications & Marketing Manager
Steve Martin
By Vani Saraswati
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Over the next few years, Qatar will need financial services support for projects worth over $130 billion, and that is only the tip of the big-bucks’ iceberg – the GCC as a whole will need to manage $1 trillion in investments over the next decade.
That probably makes redundant one question: Why are so many financial centres springing up across the region? From pioneering Bahrain and diversified Dubai to gas-rich Qatar and the largest regional market Saudi Arabia.
Says Qatar Financial Centre Authority (QFCA) CEO & Director General Stuart Pearce, “It is a question we get asked a lot, and it always intrigues me. There is NY, London, Tokyo, Singapore, Shanghai, Frankfurt... they all exist and contribute to the development of the
financial market. London has not made it difficult for Frankfurt or Stockholm to operate. I can’t see why one centre would knock out the rest. There is a need for many centres in the market, and QFC is one of them.”
As the Chairman QFCA and Minister of Finance HE Yousef Hussain Kamal says, “To diversify, you have to create supporting businesses and sectors. One of these is the financial sector – and we thought instead of going out to firms, we would invite them here to enjoy what we enjoy, invest here, support our projects – and that is how the concept of the QFC was born.”
QFC’s rationale is that large scale investment in all social and economic sectors will also lead to the development of a strong financial market. These investments will grow Qatar’s GDP, lay a strong foundation for a regional capital market, develop world class human resources and provide top-tier services to institutions and individuals.
Though QFC has immediate recall now, some months ago, it was not so.
Says Pearce, “When we started promoting the centre, there was not much knowledge about what QFC was about. Why we were being set up. A lot of people thought it was an offshore operation, a free zone, a copy cat idea of Bahrain or Dubai!! So, we spent a lot of time talking to people about why QFC was formed. Why it is a different model, and what its
attractions are.”
But is it a free zone?
Qatar Financial Centre Regulatory Authority Chairman and CEO Phillip Thorpe categorically states that it is not.
“It is very important to understand that the government’s initiative with the QFC is to increase capacity in Qatar. It is not a real estate proposition. It is a legal and regulatory facility, set up to attract high quality businesses to Qatar, to support and enable its growth. The real beneficiaries will be the companies and the region, but more importantly, Qatar,” says
Thorpe.
Though not a free zone, QFC will have some characteristics of one, such as 100 percent ownership, full repatriation of profits, and separate laws and regulations. Firms will enjoy a tax holiday until April 2008, after which a relatively low tax environment applies on profits. Companies established in the QFC will be able to transact in local as well as other currencies and will be able to engage in business with Qatari corporates and individuals, in an onshore
environment.
Says Pearce, “In the last six to seven months, we have met with 300-350 different organisations in the financial sector, around the world – North America, EU, Asia, Indian Sub-Continent. And as we explained the rationale behind setting up QFC, people have begun to share our excitement. Because, Qatar has embarked upon a massive investment programme that will continue over the next five years and beyond, which will bring a startling change to the country. It will transform it to a 21st century country. So that will be interesting, to work from scratch, with people who share the vision.
“The response has been fantastic from a whole range of different countries, different sorts of firms, representing different aspects of the financial services industries, talking to us and expressing interest to come and do business in Qatar.”
The Centre has also had many enquiries and now applications from lawyers, consultants, he says. “So the process of developing the centre and promoting it has been careful thought out. It has been focussed and targeted and it has been successful. And the new building that will be ready by September will be full by the mid of next year, which is a physical demonstration of how successful it has been. We have granted nine licences, and more than double that in the pipeline and more than double again in terms of firms that have expressed a serious interest.”
QFC hopes to provide financial institutions with a world class financial services platform situated in an economy founded on the development of its hydrocarbons resources.
Investors’ Concern
Though investors are showing confidence in Qatar’s governance, there is a concern about the region as a whole.
The recently released Economist Intelligence Unit report says, there is an increased interest among western financial services firms to develop an institutional presence in the Middle East, but indicates that governments in the region must further the trend towards economic reform and a more open business environment.
Just over half of the respondents questioned for the survey indicated that they either have an office in the region already or intend to establish one in the next three years. But while local markets for investment banking, wealth management, securities brokerage and other services are developing, concerns about government policy, the regulatory regime and physical security continue to deter would-be investors.
The survey forms the basis of the report Investment in the Middle East: Opportunities and Challenges for Financial Institutions, sponsored by the Qatar Financial Centre. The report looks at the impact of record oil prices and recent strong economic performance in the Middle East on the market for financial services in the region, and highlights the key challenges and opportunities that face western banks and other financial institutions.
“A combination of growth and gradual economic reform in the Middle East has stimulated interest in the region among many western financial services firms,” says Rob Mitchell, Editor of the report. “But foreign banks and other companies will continue to need reassurance from governments in the Middle East that they can operate in a stable political environment and that there will be a sustained trend towards economic and legislative reform in the years ahead.”
The conclusions of the report are based on a survey of 168 senior executives from financial services firms conducted by the Economist Intelligence Unit and a series of in-depth interviews with representatives from companies that are already investing in the region. The aim of the report was to assess the appetite among western financial services firms for investing in countries of the Middle East, to explore the current risks and opportunities that are available to these firms, and to examine the economic and legislative trends that form the backdrop to their engagement in the region.
Key findings of the report include:
The market for financial services in the Middle East is broadening. In addition to financing hydrocarbon projects and large public infrastructure projects, banks are entering the region to capitalise on demand for a wide range of services.
Wealth management and private banking are seen as important by 57 percent of respondents who are active in the region. With a growing number of companies in the region operating globally and making cross-border acquisitions, investment banking services are also seen as a priority by Western financial institutions.
Although programmes of economic and legislative reform are under way in many Middle East countries, 70 percent of the respondents to this survey cite lack of transparency or poor regulatory standards as deterrents to investing in the region. Physical security is another widely voiced concern, as are the volatility and lack of sophistication in capital markets.
Joint venture remains the most common mode of entry for foreign banks that are investing in the Middle East, 28 percent of the respondents say that they would establish their own offices in the region.
Banks need an office on the ground. The growing importance of the Middle East as a region is leading many financial institutions to consider establishing a permanent office or network of offices there. The “suitcase strategy” – managing operations from overseas and flying in for short visits – is increasingly seen as untenable and is fast becoming a thing of the past.
Seeking Investors’ Confidence
It is the “suitcase strategy” that Qatar wants to get rid of, and to do that it has to provide a regulatory framework international firms are comfortable with.
“The question that needs to be asked is if Qatar wants to invest a $130 billion in the next five to seven years, could it rely on other centres, outside of its borders to deliver what it needs? I would say, no. So the government has decided to design QFC to support the development of Qatar,” says the CEO of QFCA.
While stressing that QFC is an integral part of the economy, Pearce also underlines the importance of having regulations separate from that of the Central Bank. “We are an onshore facilitator of investment and of growth in financial services, primarily for Qatar. Ultimately, however, the impact of what we believe the QFCA can achieve, supported by the QFC Regulatory Authority, can have much wider repercussions for the country and region as a whole.”
But to make the environment as secure as it is profitable, QFC has its own laws and regulations.
Chairman of the London Stock Exchange and Non Executive Director of QFCA Dr Chris Gibson-Smith points out that investors have a huge choice around the world and they are very choosy about where they go. “But if you can offer them a stable government, open liberal government, if you can offer them a constitution which guarantees the independence of the judiciary, if you can offer them international standards of regulation and transparency; all these things are absolutely essential to attract their attention.”
Says Thorpe, “We have done as much as we possible can, to identify the best standards globally and to incorporate those into the QFC environment. That means taking the most modern laws, the most effective regulation, putting in place a regulatory structure which again is first rate, getting the right people in place.”
The Central Bank
vs the QFC
“The firms that are coming to QFC are firms that are used to doing business as per international laws and regulations. The laws in Qatar are based upon civil code, the laws in the QFC are based upon precedence. International firms like to understand the legal and regulatory framework they are operating in. And the law and regulations of QFC are very broad and will allow licensees to do a whole range of businesses; much more than they could if they were not licensed by us,” says Pearce
“And the central bank has not granted a licence to a foreign firm since 1972. So with the development of Qatar and with the growth it expects, and the investments it wants to make, it will need a bigger, deeper and broader financial market. And we are designed to encourage new firms to come in, develop financial and intellectual capital and do new businesses in Qatar to support the investments.”
QFCA Head of Corporate Communications and Marketing Manager Steve Martin states: “It is not QFC that is investing in economy, it is only creating an environment to bring companies in. QCB has been developing regulations over the years to serve the Qatari economy and regulate the Qatari banks, to meet needs of the local market. The local banking sector has developed over the years to meet the local market . What QFC will do is attract banks that are used to the international market. And their requirements are different. Now we are attracting banks with international outlook, so we need regulations for that. In any case there will no competition in retail banking at present.”
Would it have been easier for QFC to revamp itself, instead of setting up a parallel system?
“That’s one way of doing it. But the Government decided to set up QFC as a parallel financial system. It is probably easier and quicker too. And it has proven to be successful. It was a wise and farsighted idea which must have been thought out very carefully by HH the Emir and the council of ministers,” says Pearce.
“The rules and regulations of QFC are much broader than other centres in the region. There is a very real asset – oil & gas – on which to base the development of the economy; we have a set of laws and regulations that are allowing broader range of businesses to be conducted in and from Qatar. So you can use Qatar as a base to do your regional business, as well. It is a much broader offering and it is a model built for the needs of the country.”
Looking ahead, the role played by the QFC Authority and of the QFC Authority Board is set to expand, he says.
“There will continue to be a need for further development and growth in the capabilities of the QFC Authority, and its work to attract new participants into the market will intensify. But the benefits we can provide to licensed companies operating in the market through the QFC will need to reflect and respond to their appetite for business opportunities in specific sectors of the Qatari market, and further afield. The potential for new partnerships with Qatari companies, and with QFC based companies, will be fully explored. ”
Qatar Investment Authority (QIA) Executive Board Member Dr Hussain Al Abdullah, however, is confident that the parallel financial systems will in due course integrate.
“The local financial sector will benefit from this (the QFC rules and regulations) as well. The local market will learn to compete with the international firms that are coming in. Because at the end of the day, the way I see it, we will have one financial sector in Qatar... and we will have one integrated financial sector within the GCC. Within the MENA we need to develop the financial sector more.
“Without a well developed financial sector, it will be very difficult for other sectors to grow. Qatar is a part of the WTO, and with that becoming effective within the next decade, we have to prepare for a freer market, and adopt international standards. It is crucial we do that now.”
Pearce adds, “The fact that QFC has been set up has been received very positively by the Qatari market. And a number of firms are talking about how they could take advantage of the regulatory and legal structure.
“In talking to these firms, they are very enthusiastic about QFC, as they see it as a vehicle to bring in new ideas, new products; to bring in additional intellectual capital. And that must be good for the market. We have spoken to no one who sees it as a threat, they see it as an opportunity to grow their own business and the market. And that is the objective of QFC, to increase capacity in the local market, which is different again to other centres.”
Dr Abdullah, whose various roles include that of Deputy Chairman (Non Executive), QFCA, has been the Head of Economic Department at HH The Emir’s Office and prior to that an Economic Researcher at HH The Emir’s Office. At the QIA, he oversees the management and evaluation of the Government’s Investment Fund in the international and local markets. He is excited about the opportunity QFC presents in this regard. “Having professionals on the ground in Qatar, who will communicate with people and corporates here will be fantastic. It will result in exchange of knowledge. And definitely, QIA will work with them and communicate with them on a daily basis. They will be given an opportunity to present their ideas.”
Project Finance – A Big Draw
One of the vital services required is that of Project Finance.
Current and upcoming liquefied natural gas projects in the Gulf are soaking up huge amounts of available global project finance liquidity. Last year’s Qatargas 2 deal broke all project financing records. The overall deal, totalling $10.65 billion, involved 57 major lenders an unprecedented number. Qatar and Oman have tapped most of the gas project finance available thus far but other parts of the region, in particular Saudi Arabia, are likely to be more prominent in future. Yemen is developing a $3 billion LNG project. Iran’s Pars gas field LNG project is expected to involve work amounting to
$4 billion.
Though LNG projects present much bigger risks than other industrial or infrastructure projects, GCC gas projects are seen as having investment grade potential compared to more problematic areas in West Africa, South America and others. The attraction of Gulf-based LNG projects is illustrated by the large percentage of LNG financing and debt coming from or being guaranteed by international export credit agencies.
Middle East has the second largest share of project finance in the world – an industry worth $100 to $150 billion globally – with the region achieving critical mass, especially in the fields of power and water, and oil and gas. With exceptionally high levels of liquidity being poured into new investment into infrastructure is Qatar, which is leveraging its wealth through high levels of natural gas into non-energy projects as well.
MEED’s conference – Middle East Project Finance – held in Doha this year, discussed the massive growth and needs of the GCC states.
In Qatar alone, oil and gas projects amount to more than $60 billion.
In the UAE, Abu Dhabi leads with the mobilisation of the private sector – which currently contributes 40 percent of Abu Dhabi’s economy. Abu Dhabi contributes 60 percent of the UAE’s GDP (major projects in UAE amounting to a total value of well over $200 billion across industries).
According to MEED Conference Chairman Edmund O’Sullivan the value of projects currently on stream in Oman is estimated at $30 billion. “Oman is really forging ahead in project finance and privatisation, largely funded by commercial loans, which represent 70 percent of total commitments. Tenures have lengthened, there are more banks involved, and pricing is very competitive,” he had said at the conference.
Though it is expected that project finance in the region would more than double to around $70 billion this year, experts at the conference pointed out that, increasingly this financing is going to international rather than local banks.
And a significant percentage of these banks are not based in the region. Five years ago the Middle East was hardly on the radar screens for most international banks but this situation has changed dramatically and in 2006 the sector is worth more than $70 billion.
Dr Al Abdullah explains, “If you take the economy of Qatar in the last 10 years, in ‘95 it was $8 billion in size, in 2000 $17 billion, in 2005 it was $34 billion and in 2011 it is expected to touch $62 billion. You see, our economy is growing at a rate not less than 15 percent per annum. Growth is coming from basically oil and gas and related projects. By the most modest estimates we require investments to the tune of $100 billion in the next few years. And if you take an equity ration of 30:70, that means we need $70 billion finance. The government also requires funding – not less than $20 billion will be spent on infrastructure in the next few years. There are plenty of opportunities. Whether in banking or insurance or construction.”
He is confident that any financial institution that comes here will do good business as there is a pressing need for more activity in the financial sector.
“And their (licensees) activity will extend beyond Qatar, to the rest of GCC, MENA region, Asia... the reach is wide. Over the next five years, these countries together are expected to outperform the US/Euro economies. And there will be a need for not only financing but also for
advisory services.”
However, it is not only project finance opportunities that hope to attract player, but also the associated banking requirements that an affluent population will need.
Insurance and Islamic Finance have also met with great response.
“There will be centres of excellence for different things in different centres. We believe that there will be centres emerging from Qatar too, one of which could well be the insurance sector. We have a Managing Director for business development in insurance. The opportunities available for the insurance industry is great – and we could build the right environment to attract the insurance industry, who will not only meet Qatar’s needs, but much more,” says Steve Martin.
Scope for Start-Ups
Though most of the companies that QFC is dealing with are internationally known brands and firms with well established track records, there has been interest from new companies as well. “QFC is unique in that it will allow start-ups in the centre, and as you would expect, there are not many new start-up financial institutions at any one time. But we have talked to quite a few people who want to start new financial centres, and want to use QFC for that,” says Pearce.
The start-ups will have to raise their own capital.However, the Qatar Science and Technology Park is considering setting up seed fund, which is to be licensed by QFC.
“Whoever manages the fund, they may wish to have those managers licensed from here. We are not asked to provide the seed capital,” he adds.On the concerns raised by tenants and interested firms, Pearce says that none of them is insurmountable. However, free flow of labour is something that needs to be looked at.
“If you have a developing market, you have got to allow labour to move where it believes its future lies. Bahrain, I read, is planning to relax its laws to allow expatriates to move between jobs.”
The QFC again has its own employment and immigration law n...if Qatar wants to invest a $130 billion in the next five to seven years, could it rely on other centres, outside of its borders to deliver what it needs?” – Stuart Pearce, CEO and Director General, QFCA
The start of a long-term vision...we need to look at re-allocation of assets. We have oil & gas underground. It is not gold, bonds, shares or technology... we have to create a different type of commodity and asset”
QFCA Chairman HE Yousef Hussain Kamal, in an exclusive
interview to Qatar Today, talks about the role QFC will play in meeting the needs of a fast-growing economy.
On the rationale behind setting up the Centre, he says, “It is not one person’s vision, but that of the country led by HH the Emir. Of course we depend heavily on oil and gas.
But to develop the oil and gas sector you need a lot of financial support, and in the last five-six years we have had to go outside to source finance for these projects.”
While he stresses the importance of the energy sector as the catalyst of the economy, equally, he underlines the emphasis placed on
diversification.
“To diversify, you have to create supporting businesses and sectors. One of these is the financial sector – and we thought instead of going out to firms, we would invite them here to enjoy what we enjoy, invest here, support our projects – and that is how the concept of the QFC was born.”
The Chairman, who is now also Acting Minister of Economy and Commerce, in addition to the portfolio he has held for 15 years as Minister of Finance and his wide range of corporate and other positions, has a wealth of experience that is unmatched, and his insights are telling.
“While conceiving the idea of QFC, we asked ourselves, ‘who will the Centre host?’
It will host the firms we think will help to upgrade the financial standards of the entire state. Moreover, to help us to diversify, we have to tap into the expertise of these global companies, and strive for healthy interactions between the local players and the QFC licensed companies. There will be, we hope, an exchange of knowledge, best practice and
expertise.”
He adds, “Economic and business dynamics change dramatically every few years. Just as seven years ago things were very different here in Qatar and around the world, seven years from now it will again be totally different from what it is now. Qatar’s GDP will double (from where it is today) by the year 2011. Incidentally, this year, the IMF estimated the growth of Qatar for 2006 to be almost 18.7 percent. We know there are good opportunities for these financial institutions to be located here in Qatar – to serve us, but also to serve the region, and in due course cater internationally. Because we will provide the same environment as in say London, New York or Hong Kong, but at less cost. Our cost of living, our quality of life, and the overall atmosphere here – all of these are crucial factors in creating a financial centre.”
Though diversification has been the slogan for a while, there are still no visible developments. We ask him how QFC will facilitate this.
“We have to take into consideration three elements. We have oil and gas readily available to facilitate diversification – what do we do with that? We have revenues and we need to utilise them well.
“Part of our vision is to create a good educational hub here, to set high standards. So we have five top US universities in Education City, as well as the College of the North Atlantic. That is one key investment the country has made – itself a form of diversification – investment in brains. That’s the first element.
“However, in three or four years we will have graduates from these universities and we have to create for them job opportunities that will meet the standards they have achieved. And for that, you need to diversify the economy; to nurture and give scope to their ambitions.”
One of the sectors is the finance sector, and another other is industries related to the oil and gas sector, he says. “The thobe I am wearing for instance, the origin of the textile is petrochemical. The chair we are sitting on – that is 100 percent petrochemical, it is not pure leather. And this is what we will do in the coming years – set up industries that use petrochemical by-products. To go to the downstream end of the industry. If you are doubling your economy and diversifying, you need to have this range of industries. And for that again you need to have a sound financial sector. That’s the second element.
“And thirdly, we need to look at re-allocation of assets. We have oil & gas underground. It is not gold, bonds, shares or technology. It is just oil & gas located in one area. Now we have to convert the asset (oil & gas) we have to create a different type of commodity and asset. We have to invest some of these revenues outside: geographically, we have to take it out of this region; sector-wise, we have to invest outside of oil & gas, whether in technology or bio-tech, or other emerging areas of investment.
“Again, for this, you need someone to take care of these investments. If you have a huge amount of money that you want invested outside the country, then you need to have someone located close to you, who is equipped to do this.”
He stresses that there is no limit to the kinds of roles that QFC and its tenants will be playing. “Most importantly, even while investing abroad, the investments should still be linked to the nation’s strategy and vision. Our investments are diversified – in sectors outside of oil & gas. We have the research centre, the science and technology park, and investments abroad will be linked to these two. That means we are putting money into sectors that we feel we can have control over, and bring the benefits back to the country.”
On how they hope to achieve that, the Minister is willing to give us a peek into the strategy.
“Let’s take engineering or biotech as an example. There are lots of small companies, and we go and buy stakes in these companies, then you are part of the board of directors, and have a more significant role to play. When an opportunity for expansion arises, we can link what we have in Qatar to what we have there, and then we branch out in other places, according to what suits us. And the financial centre will be there to help us.”
On QFC Regulatory Authority and Qatar Central Bank regulations being different, he points out, “A regulation is a regulation. Both of them have to be regulated according to international standards. The only difference is that QFC firms are not controlled by the laws or by-laws of the Central Bank. We have our own laws, licensing system which are separate to those of the Central Bank. But the important thing is that they are both of international standards.”
Like most well thought out plans or projects, the vision is long-term.
“We are WTO signatories, and that means by 2015 we will have a fully liberalised financial sector in any case. I have to prepare myself for that. And I want to start now, not later.”
HE Yousef Kamal has been Minister of Finance of the State of Qatar since January 2002. He became Acting Minister of Economy and Commerce, and Chairman of the Qatar Financial Centre Authority, in March 2006. He was Minister of Finance, Economy and Commerce from January 1998 until the Ministry of Economy and Commerce was established in 2002. He is the Chairman of the Doha Securities Market, Chairman of Ras Laffan Liquefied Natural Gas, Deputy Chairman of Qatar Petroleum, a Director of Qatar Telecommunications, and a Director of Qatar Central Bank. He heads several local, regional and Arab committees. He was Under-Secretary at the Ministry of Finance, Economy and Commerce from 1993-98, and Director of Financial Affairs in the Ministry of Finance and Petroleum from 1988-93.
We will provide the same environment as in say London, New York or Hong Kong, but at less cost”
QFCRA Chairman and CEO Phillip Thorpe in an interview to Qatar Today speaks on the progress made last year and the interest the centre has generated.
We met him a year ago, when things were still fluid and work on the regulatory framework was just beginning.
A year later, some things remain the same: there has been no compromise in terms of regulations, it is as stringent as promised. But a lot has changed: there are more areas of regulations than originally anticipated, and interest from a more diverse range of financial services than expected.
“Not a free zone”
And there has been a certain degree of ambiguity in the way people perceive the QFC.
Is it or is it not a free zone?
The regulatory authority chairman categorically states that it isn’t.
“It is very important to understand that the government’s initiative with the QFC is to increase capacity in Qatar. It is not a real estate proposition. It is a legal and regulatory facility, set up to attract high quality businesses to Qatar, to support and enable its growth. The real beneficiaries will be the companies and the region, but more importantly, Qatar.”
“The trend is towards global
standards”
Moreover, the fact that QFC will have its own regulatory framework, not falling under the purview of the QCB, has sent out conflicting messages to the local players.
While the QFC may have an impact on the local players, he points out that the establishment of the Centre doesn’t mean doing away with the existing QCB jurisdiction; quite the contrary, as new opportunities are now available to those local firms.
He says that regardless of the QFC’s initiatives, there is a trend towards global standards, for instance, banks are moving towards compliance with the Basel II Accord.
“The general direction is towards adopting modern standards. We accept that the QFC accelerates that process and also that our presence is likely to have an impact on local enterprises in that there will be new entrants to the markets and competitiveness will increase. We hope to be a catalyst for change by showing that high standards can be attained and businesses meeting those standards can prosper.”
And over the last year, QFCRA has been framing regulations that will ensure best practices.
“A year ago, it was all prospective. In the intervening period, we have put together a sizeable number of laws and rules. On the regulatory side we have in place 90 percent of what we anticipated is needed, however we recognise there will always be more work needed as the demand grows.
“Recently, we have seen an emphasis on insurance business and on the potential for mutual funds. We hadn’t drafted specific rules for these activities in the first instance as we didn’t know if there would be interest. As this interest has now materialised, drafting of the appropriate rules is needed, and we have that task well under way.
On how he would define the growth of QFCRA, he says, “In practical terms, we have been receiving applications from the time we opened last year. It has been very encouraging – the response has been strong, and from the kind of institutions we wanted to attract.
One way to quantify growth for the QFCRA is to look at our team strength. We started with two staff in May last year. Now we have over 30, and we expect that to rise to 60 or more by the end of 2006, in order to meet the demand we are now
experiencing.”
He stresses that while the response to date has been very good, there is always a need to get the message out. “While there is a lot of interest in Qatar and a good understanding of the financial possibilities, there is also a need to explain the specific advantages of the QFC. Financial firms are very interested and positive, particularly when they see the possibility the Government has offered through the QFC.
Apparently, geo-politics has not adversely influenced investors’
opinion.
Thorpe points out that the view of those sitting in Qatar is different from those sitting in, say, London.
A good track record
“The good news is that the people we talk to are aware of the situation in the region, that there is some instability, but that there is also wealth creation. In particular, Qatar is viewed as providing a very stable environment. The government is respected and it has a good track record with its policies, ratings and approach to business, and that has a positive impact on people’s views of the QFC.
“We have found a lot of interest from regional and international players, and they are also looking at what new opportunities the QFC has to provide.
“At the very outset, we realised there was a huge amount of project finance work to be done in Qatar and expected that would generate enquiries from investment banks. This proved to be the case; we have also seen increasing interest from private banks, asset managers, commercial banks, insurance and also Islamic institutions.”
Calculating the risks
How start-up friendly is the QFCRA?
He says while they do look at every business on its merit, it is certainly easier to authorise someone who has a good history. “If it is a new business, it makes it more difficult to assess the risks, business plans and capabilities of the business. We look at each application on a case by case basis, and we are certainly receiving interest from start-ups and expect to licence one or two in the near future, including firms focussing on Islamic banking business.
“We are a risk-based organisation, so we look at the risks a particular business may generate. If a start-up is expected to be low risk because of the type of product, service or client involved, it may be easier to accommodate or we may be able to license it subject to restrictions that mitigate the risks involved.”
And talking of risks, one of the most important tasks of the Regulatory Authority is tackling the problem of money laundering.
It’s a problem faced in this region, Thorpe says, and QFCRA has put in place very strong provisions to
tackle it.
“And in addition, Qatar’s criminal law applies too. Qatar has its reputation to maintain. It doesn’t at present have a problem with money laundering, and we want to make sure that it stays that way. In this day and age money laundering is a global
problem.
“Money launderers look for the weakest link and we are determined to ensure Qatar remains unattractive to those who would abuse the financial system.”
Building a Brand
As rosy as the economic picture seems, Qatar seems to have underplayed its marketing. And many see Qatar lacking in image building and in marketing itself. What is Thorpe’s take on that?
“Well, Qatar doesn’t advertise what it doesn’t have. Qatar’s approach is to get on and do things and then let the world know about it. We are happy with that approach. Events like the Asian Games and companies like Qatar Airways will help the process of establishing the Qatar ‘brand’ and we look forward to leveraging off this greater awareness of the country as a whole. The QFC is also undertaking its own advertising to develop specific awareness of the Centre.”
However, one of the best commendations for the country and its initiatives is the endorsement it receives by way of the people it attracts.
“To have people like Lord Woolf (formerly Lord Chief Justice of England and Wales) appointed as President of the QFC Tribunal by Qatar’s Council of Ministers, further reinforces Qatar’s international credibility (see box on other appointments). We have been recruiting people of the highest quality for board appointments. There is a reason they are agreeing to take on these roles. They are impressed with Qatar’s track record, with its economic management, and with the prospects for change that initiatives like the QFC can bring.”
As he has often stated, the QFC not be a numbers’ game. But how will the Regulatory Authority quantify its targets or goals?
“From a regulatory perspective, our primary target is probably best described as ensuring ‘nothing goes wrong’. We are creating a financial centre and a critical measure of our success is in creating confidence.
“Financial markets will only thrive where there is confidence in the legal and regulatory environment, and where the firms establishing in the market, and their customers, believe they will be dealt with fairly, efficiently and reliably. That’s what the QFC must deliver – and we’re determined that it will.”
High Profile Endorsements
Lord Woolf, formerly Lord Chief Justice, is to be the senior judge for Qatar’s new Financial Centre.
Lord Harry Kenneth Woolf of Barnes joined Blackstone Chambers in October 2005 to practice as a mediator and arbitrator. Lord of Appeal in Ordinary in 1992. He held the positions of Master of the Rolls and Lord Chief Justice of England and Wales before retiring in September 2005.
The two other senior legal appointments include William Blair QC, as Chairman of the Appeals Body and Michael Thomas, QC, as a Member and Alternate Chairman of the Appeals Body.
William Blair is a leading QC in the field of banking and finance. He is a visiting Professor of Law at the London School of Economics, and a part-time Chairman of the Financial Services and Markets Tribunal set up to consider regulatory appeals under the UK’s regulatory reforms.
Michael Thomas is a former Attorney General of Hong Kong. He specialises in commercial and maritime law.
The Islamic Opportunity
Islamic finance is finding more takers than even before, with retailers now reaching even non-Muslims.
QFCA Deputy Chairman and Qatar Investment Authority Executive Board Member Dr Hussain Al Abdulla says, “Islamic Finance will grow depending on the efficiency and quality of service those banks will provide. Eventually, Islamic banks should not only compete with other Islamic institutions but also with the conventional banks.”
He says, “Standardisation is of particular importance but is currently not in place. The compelling need, and therefore the natural move is towards standardised Islamic boards, so they can all work together. At present each bank, be it within or outside the country, has its own set of rules and regulations. Standardisation will help Islamic finance to grow much faster. If you want to finance a huge project, worth a billion or so, it will be very difficult for Islamic financial institutions to bid for it together, as it will be difficult to syndicate, given the lack of standardisation. The Malaysians have gone ahead of everyone in standardisation. Going forward, I think we can achieve that. We are losing out on project finance opportunities.”
However, there have been a few forays into those areas as well. Financing for the massive Qatargas 2 project also involved an Islamic tranche reflecting a growing use of Islamic debt instruments in the region’s LNG project finance. While Islamic funding remains smaller than commercial debt it is beginning to play a significant role with $1 billion of Dolphin Energy’s financial facility, for example, structured in an Islamic way. A massive boost for Islamic finance was the first Islamic bond issue (Sukuk) of $375 million for the Qatar Real Estate Investment Company (QRIEC). QNB and QNB Al Islamic, a QNB subsidiary, were jointly mandated to lead the arrangement of Islamic financing to fund some of its real estate projects in Doha.
The sukuk issue is a corporate bond that pays a profit return to bond holders in place of fixed interest.
Although formally led by QNB and QNB Al Islami, the Shariah compliant facility was jointly arranged by Dubai Islamic Bank, Gulf International Bank and Standard Chartered Bank. QNB, Acting Chief Executive Ali Shareef Al Emadi said the sukuk was a testimony of the market’s readiness for more sophisticated products that address the evolving financing needs of companies and it also provides a new dimension to the Islamic banking sector in the region that holds much promise and growth for the future.”
For this trend to get stronger, and go ahead successfully, Dr Al Abdulla says, “Shariah boards have to communicate with each other and come together. At the end of the day we need to manage money and manage risks. Without standardisation it will be difficult to do this, and you will see Islamic banking going up and down.”
QFCA CEO Stuart Pearce says QFC has been attracting a lot of interest from Islamic Financial Firms.
“We have been approached by a number of them – both established businesses and those that want to start one, and the interest is not only from banking but also from insurance and investment management,” he says. QFC, however, will not have its own Shariah board.
“Islamic institutions at QFC will each have their own board. If we set up our board, we will simply be supervising a supervisory board, and that doesn’t make sense. In any case the Islamic scholars will be on more than one board,” says Steve Martin, Head of Corporate Communications, QFCA.
Where is the $130 billion?
Energy is the biggest ticket spender with $15 billion allocated for LNG expansions by 2010, and $60 billion for the North Field Development project up to 2012. There is a further $15 billion for LNG tankers by 2010.
General infrastructure projects total $13 billion with $5.5 billion for the new airport, and $1.8 billion for the Qatar-Bahrain causeway, as well as $3.8 billion for a five-year programme of public works that ends by 2009. Electricity and water projects will total $3 billion: $1.6 billion for the Energy City and the balance for major projects.
Qatar has also put aside $12 billion for public, tourism and cultural projects; $2.8 billion is being spent on Asian Games related projects; the Pearl-Qatar is a $2.5 billion reclaimed island property project; there are to be 10 new hotels on the North Beach; a whole host of museums and a national library; and in addition more than 80 high-rise towers are under construction at present in Doha.
Coming Home
The GCC is now home for Ansbacher, QNB’s recently acquired subsidiary, and the MENA region has now become one of its natural arenas. Eric Lorentz, Regional Director, Ansbacher, says it is a mix of local and European expertise within a booming country under a progressive leadership, that makes the whole proposition attractive.
|q|What kind of reach do you hope to have in the region and what will your Qatar operations entail?
|a|We have been headquartered in London and our parent is Qatar’s leading bank. We, therefore, have a complementary dual personality and, if you will, a dual home base.
QNB is a strong and profitable A1-rated GCC parent. Combine that with Ansbacher’s 112 year history in London and you have a formidable engine for investing in the development and the delivery of top quality local service to the residents of the GCC and MENA regions. The real story is ahead of us. 2006 is a year for investing and building for the long-term, and we will then have a lot to look forward to.
Ansbacher is here to stay. We cannot decide one day to pick up and leave because of the vagaries of the price of oil or world politics. Our parent is here. We want to become a local window onto the international investing world for the residents of Qatar and eventually a window for foreigners who wish to participate with us in the development of Qatar. We will adapt the international offer to local needs while assuring clients that they are dealing with a name they know, whose interests are exactly the same as those of the region and its residents, and whose independent international operations are controlled in the same way as those of any other international bank.
While our immediate focus in Doha is our Qatar resident client base, this is also the main office for the MENA region, and we already have an office in the UAE.
|q|What kind of co-operation/collaboration will there be between you and your parent company QNB?
|a|We remain two distinct banks to a large extent. Our clients determine what our collaboration must be. In some cases, our clients have asked us to do deals that are best delivered using a QNB channel. Sometimes, it is QNB clients who have asked about international investing. We collaborate closely with QNB, and we are an integral and active part of the international development of the QNB group.
|q|What do you expect from QFC and Qatar?
|a|Of QFC, promotion of the QFC and Qatar as a competitive centre for professionalism, quality, and security for the customer, pro-active and imaginative regulation that permits us to deliver the highest international standards to our clients without needless conflict with local customs.
Also a good working environment that fosters excellence and is a magnet for recruiting top talent to Doha so that our clients may deal with top international professionals.
|q|Please give a brief overview of your activities, with particular emphasis on the region?
|a|Ansbacher joined QNB only recently so there are two stories here. Today, Ansbacher has four main activities. It has a wealth management service that has clocked impressive performances and been recognised with awards by the industry. It also has a strong team that helps families structure their assets worldwide, something more and more families in the region must attend to. Finally, the bank has always been involved in the European property market where we act as a financier. Now that Ansbacher belongs to the rapidly expanding QNB group, a new era is dawning for the bank. Our main activities in the region have been focused on hiring a group of top quality relationship managers so as to start delivering the best to Qatar and the region. The bank’s activities will soon include more and more services that are specifically tailored to our Qatari and regional client base. There is a lot more coming within the next few months.
Eye on Expansion
To enhance its status as a world leader in Financial Protection and wealth management, the AXA Group decided to separate its asset management and insurance activities in 1994, thereby giving birth to AXA Asset Management, which is now the AXA Investment Managers. AXA IM is multi-expert investment manager, with a network of offices in 20 locations. AXA Investment Managers, Director, Middle East, Scott Callander talks about building on the interests his firm already has in the region.
|q|What were your activities in Qatar and the region, before obtaining QFC licence?
|a|We have had well-established relationships with both investors and prospective clients for several years in Qatar. AXA Investment Managers and its subsidiaries have been active in the MENA region and GCC for more than 10 years. For example AXA Rosenberg, our technology driven equity franchise, has represented and generated very rewarding returns to a number of clients for more than 10 years. Today AXA IM has over $9 billion under management originating from the region. These factors were integral in our decision to open an office in MENA/GCC.
Our decision to open an office at the QFC was very much driven by our desire to be closer to our existing clients in the region and to better respond to their growing needs. It was very important for AXA IM to commit to the region given its importance in our future growth objectives.
Having an office here means we will naturally be able to work closer with the local institutions here in Qatar. We are ideally located in the heart of the region, allowing us the flexibility to respond quickly to our clients throughout the Middle East.
|q|Of your main areas of business (Investments & Insurance), what will you focus be locally?
|a|Our focus is predominantly on providing asset management advice and expertise to the region’s governmental, financial and corporate institutions. While we do not have any direct retail banking products, we are working with regional banks to develop and package structured products for their clients, although our focus at this stage remains on our institutional clients.
|q|With Insurance, Healthcare and Pension schemes, you will be bringing in expertise not available currently in the country. How soon can we expect to see operations in this segment?
|a|AXA Investment Managers is a global asset manager that works with many insurance companies and pension schemes around the world. We are able to readily and easily access the skills and expertise of our specialist teams based mainly in the UK and Europe who have a strong understanding of the specific demands of insurance based institutions. For pension plans our liability driven solutions capability is gaining a strong reputation amongst pension schemes. The pension schemes we work with in the region get the best of both worlds; they are able to benefit from this global expertise, but with a local focus and service.
|q|What do you expect from QFC and Qatar?
|a|The purpose of our Qatar operations is two-fold; to have access to the high quality infrastructure and facilities that Qatar and the QFC has to offer. What is crucial to the long-term success of any business within such a framework is very high levels of confidence in the regulatory infrastructure.
We are delighted to be here. Our establishment here gives us great access to our clients in the region and Qatar’s transport links, and the QFC framework offer us the ideal infrastructure for AXA IM to operate in.
We’re here for the long run and look forward to building our
business in the coming years.
Building Deeper Bonds
Credit Suisse Group is one of the leading global financial services provider with operations spanning every continent and in all of the world’s major financial centres. Credit Suisse Senior Executive Officer Izzat A Nusseibeh speaks about his company’s plans to entrench itself deeper into what it considers to be an important market.
|q|Of your three main areas of business – Investment Banking/Private Banking/Asset Management – which will be your focal area of interest here?
|a|Credit Suisse considers the Middle East to be one of its most important markets for Private Banking and offers its clients tailor-made solutions, including offerings in accordance with Islamic principles. Credit Suisse has traditionally been strong in private banking in the region and is building our investment banking and asset management businesses. It is our ambition to achieve a market leading position in the region across all businesses. One main objective of Credit Suisse is to grow stronger than the market in Middle East; in 2005 we achieved this goal.
Credit Suisse has had a long-standing relationship with Qatar. We have been building our presence in the region for almost 30 years. Opening a subsidiary on the ground underlines our commitment to Qatar, strengthens our overall Middle East strategy and will enable us to further increase our client base.
Our QFC licence enables us to advice on investments, arrange deals in investments, arrange credit facilities and arrange custody for investments. Moreover, we are able to cater for both high net worth individuals and institutional clients, taking an integrated approach.
|q|Could you elaborate on your activities in the region?
|a|In the UAE, Credit Suisse is present with a Representative Office in Abu Dhabi (since 1977) and in Dubai (since 1993). Credit Suisse was the first bank to be granted a full-service bank license at the Dubai International Financial Center in December 2004 and opened a full-fledged branch in April 2005. Through its investment-banking arm, Credit Suisse is also a founding member of the Dubai International Financial Exchange Ltd., which we believe will play an important role attracting international and regional capital.
In November 2005, Credit Suisse became one of the first global financial services providers to establish a presence in Saudi Arabia through its joint venture with experienced local partners in the Saudi Swiss Securities consortium, which is licensed to deal in the local securities market.
In March 2006, Credit Suisse received a licence to provide customers in Lebanon with financial services and comprehensive advice. During the same month, Credit Suisse became one of the first major global financial institutions to be awarded a license to establish operations in the Qatar Financial Centre.
Through its Doha-based subsidiary, Credit Suisse focuses entirely on the Qatar market requirements, on wealth management, investment banking and asset management. Credit Suisse covers the other GCC countries through its Dubai branch and its recently authorized Saudi Swiss securities.
|q|What are your expectations of QFC and Qatar?
|a|The QFC will operate to international standards and provide a first class legal and business infrastructure for those doing business within the QFC. Qatar provides attractive long-term market opportunities based on a stable political and favourable economic outlook. Through our office in Doha, we will be closer to our clients allowing us to develop an even better understanding of their needs and serve them with even better, tailor-made comprehensive solutions.
Leveraging regional link
United Gulf Financial Services Company (UGFS) venturing into the Qatari market for the first time, hopes to leverage its local knowledge to meet Qatar’s financial needs. UGFS capitalised at QR20 million is a limited liability company licensed and regulated by QFRCA. It is 60 percent owned by Bahrain-based United Gulf Bank and 40 percent by its subsidiary, Kuwait-based KIPCO Asset Management Company, (KAMCO). UGFS General Manager, Qasim M Qasim elaborates the company’s plan in Qatar.
|q|Outside of Bahrain and Kuwait, what are your activities?
|a|Our partners are extensively involved in different projects in the GCC. UGB, the investment banking arm of the KIPCO group, operates as a Pan Arab universal bank. It offers investment banking services from its head office in Bahrain and through its wealth management and advisory subsidiary in Kuwait, its brokerage/investment company United Gulf Bank Securities Company, in Bahrain. UGB offers commercial banking facilities from Bahrain and through its commercial banking network in Jordan, Tunisia, Algeria and Iraq. We have an established track record of successful investment banking transactions including corporate finance, advisory, etc. Assets under management exceeded $5.6 billion at the year end.
|q|What purpose will your
Qatar operations serve? Will it be predominantly Qatar related activities since you have a PanArab
reach already?
|a|We will focus mainly on asset or wealth management by offering corporate finance and asset management services in Qatar. Yes, our activities will be mainly Qatar-centric.
To begin with, we will concentrate on our operations here, later we might be able to have a wider reach. Our topmost priority is to consolidate in Qatar first, and then look at other options.
|q|Why did you choose to set up at QFC, especially since Bahrain provides financial centre, and the geographical/administrative proximity would still have allowed you to participate in Qatar’s economy?
|a|We have a lot of faith in the vision and wisdom of Qatar’s political leadership.
The QFC will be truly world-class. It has been designed to attract international financial services institutions and major multi-national corporations and encourage participation in the growing market for financial services in Qatar and elsewhere in the region. It will provide a first class legal and business infrastructure for those operating here.It has a broad range of regulatory powers to authorise, supervise and, when necessary discipline firms and individuals. In short, it will provide the right environment to function.
The fact that there will be a regulatory framework will increase investor confidence. We look forward to contributing in a meaningful way to building QFC as a regional financial centre. It is boom time for Qatar’s economy, and there are exciting opportunities opening up here.
|q|Are there any particular areas of concerns in doing business in Qatar?
|a|No, if we did have misgivings we wouldn’t be here in the first place. On the contrary, we view this as a great opportunity.
|q|How soon will your operations begin? Which sectors are you aiming at?
|a|We are looking at a soft opening in July, and we hope to start full- fledged operations by September. We will not focus on any particular sector; we will look at opportunities in all sectors.
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