Global Economy Needs to Move to an Architecture of Networked Financial Markets, Says Dr. Nasser Saidi

The global economy needs to design and move to an architecture of networked financial markets, which will create a more stable and sustainable ‘spider-web’ model instead of the ‘hub-and-spoke’ model that has so far dominated the world financial system and led to the creation of systemic risk, according to Dr. Nasser Saidi, Chief Economist of the DIFC Authority.

Speaking at the plenary debate of the MENASA Forum focused on the topic ‘MENASA Capital Markets Going Forward’, Dr. Saidi said: “In 1976, the world's economic centre of gravity was at a point between London and New York. However, in the 30 years since then, that centre of gravity has moved away towards the East and is now located somewhere between Dubai and Shanghai.”

Dr. Saidi said the global economic crisis will contribute to eradicating the hub-and-spoke model centred on London and New York and provide the impetus for a transition to a polycentric, ‘spider web’ model. “In a spider web model, instead of a small number of financial centres intermediating and reallocating the entire world's savings, there will be numerous international financial centres -including the prominent examples of Dubai-Mumbai and Shanghai- across the globe that have the capital market depth and regulatory sophistication to absorb excess capital from their own regions and elsewhere. Such a model will prevent the enormous accumulation of savings in just one or two financial centres. The GCC countries need to invest in financial services capacity in order to locally manage and control their rapidly growing financial wealth. This is happening in DIFC,” he added.

He further said that the world’s new economic geography is reflected in the evolution of capital markets across the world. While the United States accounted for 46 % of global capital markets in 1999, its share dropped to 28 % in 2009. In comparison, Emerging Markets increased their share of global capital markets from 8 % in 1999 to 32 % in 2009 while the BRIC (Brazil, Russia, India and China) economies increased their share from 2 % in 1999 to 19 % in 2009. Meanwhile, the GCC increased its share from 0.3 % to 1.2 % in the same period.

Dr. Saidi also emphasised the vital need to develop local currency debt markets in the GCC region. “Well functioning debt markets will help reduce dependence on bank finance at a time when the banking sector is in a process of de-leveraging as well as provide governments with an alternative source of funding to smooth out volatile revenues will diminish macroeconomic and financial vulnerability from energy price fluctuations,” he said.

Other participants in the plenary debate focused on MENASA Capital Markets included Ivor Dunbar, Co-Head of Global Capital Markets, Deutsche Bank and Sameer Al Ansari, CEO of Shuaa Capital. All the speakers emphasised the importance of further developing the region's market infrastructure in order to promote capital market growth.

Talking about IPOs in the GCC region, Sameer Al Ansari announced that an IPO led by Shuaa Capital will be floated in Abu Dhabi soon. In order to attract more institutional investors who drive capital markets, it is critical to improve regulatory frameworks and other aspects of the market infrastructure that will raise standards of transparency and corporate governance, he said.

Hosted by DIFC, the MENASA Forum is focused on discussing the critical opportunities and challenges confronting the Middle East, North Africa and South Asia (MENASA) region over the next decade. Under the theme of 'Finance for the Next Decade of Growth', the MENASA Forum features over 250 members of the regional and international banking and financial services industry, regulators and senior business executives. The event is being held in association with Abraaj Capital and Deutsche Bank and supported by Barclays, Goldman Sachs and Shuaa Capital. Being held from 23 to 24 May, 2010, the Forum presents a mix of interviews, debates and keynote addresses featuring financial leaders, experts and investors.

The MENASA Forum commenced yesterday with a welcome dinner that featured a high-level keynote address by HH Sheikh Ahmed Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee. This was followed by a keynote dialogue with Arif Masood Naqvi, Founder and Group CEO, Abraaj Capital, and Juergen Fitschen, Member of the Management Board, Head of Regional Management Worldwide and CEO, Germany, Deutsche Bank.