Dubai World's dramatic - Dubai a wake-up call

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Governance


Dubai a wake-up call
Investors will subject Gulf states to far greater scrutiny
following Dubai World’s debt shock, highlighting more
than ever the need for increased transparency and better
corporate governance in the region’s finance industry


D
         ubai World’s dramatic         by Kristian Coates Ulrichsen
         request for a six-month
                                       thegulf@tradearabia.net
         moratorium on repay-
ment of a $4 billion islamic
bond has shed an unwelcome           provide services as part of the
light on the business culture        social contract between state
and economic prospects of            and society. any breakdown
the emirate. it follows in the       in this ruling bargain threatens
wake of the $20 billion debt         the de-linking of economic
scandal involving the Saudi          and political liberalisation that
groups Saad and algosaibi            hitherto has limited societal        of Gulf markets are




                                                                                                                                                 Illustration: Tim Gravestock
and raises a set of profoundly       demands for greater participa-       sound.
unsettling questions for Dubai’s     tion in decision-making and            One lesson they
neighbours, both in the united       enabled ruling elites to main-       should heed from
arab Emirates and the Gulf           tain control of the processes of     both the Dubai World and the         Nevertheless, Gulf
Co-operation Council (GCC).          change.                              Saudi conglomerates’ cases is      officials need to take
  Global investor concern over         it is in this context that the     the need for transparency and      steps to assuage inter-
issues of transparency, account-     uaE and its GCC neighbours           accountability in the manage-      national concern and
ability and good corporate           must now address the obsta-          ment and release of informa-       demonstrate that their own
governance have not been             cles to good governance and          tion. Policies of economic         business cultures are more
reassured by policymakers’           update business practices and        openness and good governance       robust. They need to embed
response to these develop-           bring them into line with their      are absolutely crucial in the      global best-practices and
ments. This has undermined           ambitions to play a global role.     international, rules-based         promote the concepts of good
international confidence in          This goes beyond the mere            environment in which these         corporate governance at all
the ability of Gulf businesses       repayment of Dubai World’s           companies operate.                 political and economic levels.
to restructure their debts and       outstanding debts, which could         as the GCC states project        This is vital for unravelling the
has caused many observers            easily be settled (at a price) by    themselves as regional financial   tangled web of familial ties that
to wonder just how deep is           abu Dhabi.                           hubs, the danger facing them       have dominated state-business
the extent of the crisis now           at issue is the region’s reputa-   is that their reputation for       relations in the GCC states and
afflicting the region’s financial    tion for good governance and         sound corporate practices may      it is a precursor to harmonising
institutions and investment          the desire to minimise any           become tainted by association      with international standards of
companies.                           perception that the problems         with the emirate-specific flaws    accountability.
  as the Dubai World crisis          encountered in Dubai and             in the Dubai business model.         above all, it is likely that
unfolds, regional policy-            Saudi arabia are symptomatic           With this in mind, the           international investors will
makers have been notably             of a deeper trend. it is this        reasons for the reluctance of      subject the Gulf states to a
reluctant to publicise, let alone    skittishness about the possible      other GCC states to become         far greater level of scrutiny
address, the magnitude of the        overspill of negativity that         visibly involved becomes clear,    than hitherto was the case,
developments taking place.           caused a nine per cent fall in       although for security reasons      and it will be incumbent upon
This cuts to the heart of the        the Qatari stock exchange when       alone it is important that Dubai   officials throughout the GCC to
ambitious plans for economic         trading resumed after the Eid al     be stabilised.                     adopt stricter standards in their
diversification and liberalisation   adha break.                            To this end, Dubai should be     future business dealings. <
that have been integral to the         Following the initial fall-        extended such assistance as it
strategic national visions that      out from the shock of Dubai          requires in order to maintain a          Kristian Coates Ulrichsen
proliferated during the oil-boom     World’s announcement, the            functioning economic system             is a research fellow at the
years.                               attention of Gulf policymakers       while it takes the hard steps        London School of Economics’
  Ruling family legitimacy is        must now turn to reassuring          necessary to restructuring the     Kuwait Research Programme on
intertwined with the abil-           both creditors and potential         bases of its economic develop-      Development, Governance and
ity to redistribute wealth and       investors that the fundamentals      ment.                                    Globalisation in the Gulf


the gulf | December 5-11, 2009                                                                                                             29

				
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