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Emerging status is just the start - opinion

02 January 2017

Middle Eastern counties that have gained emerging market status must continue reforms including improving investor relations, says MEIRA's Alex MacDonald Vitale

Read more: MENA investor relations Saudi Arabia UAE Qatar

In recent years we have seen the Middle East and North Africa (MENA) region experience a number of historic challenges; from the impact of the crisis when foreign direct investment vanished overnight to the complexities of the Arab Spring and, most recently, oil prices falling to their lowest levels in over a decade. 

It is testament to the region’s resilience that despite these many setbacks, and continued uncertainty, MENA economies continue to forge ahead. Albeit at a slightly diminished pace, given the current fiscal shortfall, GCC countries in particular are maintaining their commitment to the core infrastructure projects required to sustain a growing demographic with over 60% of the population under the age of 25.

Given the rapid rate of development underway it is easy to forget that these are still frontier-to-emerging markets, and while it is true to say the economies of the MENA region continue to progress at differing speeds, one consistent theme emerges – they have made tremendous strides in a very short period of time.  

The most prominent centres have moved from theoretical aspirations, to practical application of increasingly international standards, with the UAE and Qatar acceding to MSCI and FTSE Emerging Market status in 2015 and now Saudi Arabia expected to reclassify by 2018.

Even the smaller centres have kept pace, with Kuwait relaunching an entirely new Bourse this year, Oman updating its corporate governance legislation and Bahrain adjusting its capabilities as a financial hub.  

Markets across the Levant and North Africa continue to maintain strong connectivity with international counterparts and exceptional examples such as the Palestine Exchange stand out as a model for dynamic investor engagement. 

In several respects there is still a long way to go for these markets to achieve the momentum needed to secure upper emerging classification and gain access to the broader capital flows they aspire to, but recent efforts prove intent and determination to secure buy-in.

Of particular note are some of the more innovative solutions being deployed to ensure regional markets become more attractive to international professional investor networks. From 2016 new regulations in the UAE made it mandatory for listed companies to establish an investor relations function and develop proactive shareholder communications. 

Qatar is exploring similar solutions and remains one of the most active markets to drive best practice. Most recently Saudi Arabia’s market authorities have launched a combination of revised corporate governance standards and a qualified foreign investor scheme that provides professional investors with direct access to the Tadawul. So while still relatively untested, these are important steps to establishing the market infrastructure requirements expected by both retail and institutional investors

Now is not the time for complacency however. The international indices demand high standards of transparency and engagement, especially given the massive increase in regulations and scrutiny among developed markets. Moving from frontier to emerging status requires real commitment, and this is only the start. In order to retain these classifications, more work is needed to develop a predictable culture of open accountability and access, building trust over time. This is especially true where aspirations might lead to bids for developed market status.

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