Dubai forum looks east and west to the future

DIFC Week has been transformed into an event to focus on the emirate's role in the region and the world, and how it can help reshape the financial landscape

Sultan al Suwaidi called for common banking regulations across MENASA. Stephen Lock / The National

The Dubai International Financial Centre scored a marketing coup with the MENASA Forum this week. It transformed DIFC Week, the equivalent event of past years - a bells-and-whistles celebration of Dubai's financial sector - into a concentrated day-and-a-half of focus on the emirate's role in the region and the world.

It was a stepping stone to globalisation, seen through the prism of the Middle East, North Africa and South Asia (MENASA). Sheikh Ahmed bin Saeed Al Maktoum set the tone at the opening dinner with an address in which he spoke of the need to "reshape the global financial landscape" and how Dubai could play a role in that process. The cosmopolitan nature of the event was underlined by the international variety of the speakers who followed. Daniel Doctoroff, the president of Bloomberg, gave a New York perspective on how to deal with the aftermath of a financial crisis; Ivor Dunbar, the head of Deutsche Bank's global capital markets, interpreted events in Dubai and MENASA through European eyes; speakers from India put forward the claims of south Asia to be included in the new geo-economic grouping, MENASA.

There was lively debate about the boundaries of MENASA: should it encompass Singapore to the east, for example, or Turkey to the north? And how far south should it extend into Africa? Were the Asian-dominated trading centres of east Africa to be included? All this made for lively and informative debate, but there was one area where, both from the audience and the podium, there seemed to be a niggling doubt about the globalising tendency.

In debates on capital markets and regulation, there was scepticism that "international best practice" was still the appropriate guiding principle for the development of the financial industry in Dubai and MENASA. For many, "international best practice" is simply another way of saying western - North American and European practice - and that system was found wanting in the course of the US-inspired subprime crisis; it is still being tested, severely, by the sovereign debt-inspired crisis in the euro zone.

Mohammed Yasin, the chief executive of Shuaa Securities in Dubai, pointedly asked: "What model of transparency should we use here in MENASA? The one that produced Lehman Brothers?" It was a valid point, which Kito de Boer, the Middle East director of McKinsey and Company, answered with a heart-felt plea for the adoption of good standards of transparency because they are "intrinsically desirable". They provide a framework by which stakeholders can scrutinise the activities of corporations and government-related entities, which is in the interest of good business practice worldwide, he said.

The Middle East and China have a lot to learn from India in this respect, he suggested, especially in the development of a probing business media, which can help stakeholders see through official opacity. The undertone of hostility to conventional western ways of organising governance and transparency was muted but bubbled beneath the surface of much of the debate until, in the final speech of the conference, the Governor of the UAE Central Bank, Sultan al Suwaidi, gave the sentiment its clearest expression from the lectern.

Most observers at the event were focusing on other aspects of Central Bank policy, such as how banks might account for write-offs resulting from the Dubai World debt settlement, but the Governor's speech was an important elaboration of how the region's financial authorities saw the world amid the continuing upheavals in global financial markets, and it deserved a wider airing. Mr al Suwaidi, speaking on the theme of "regulatory partnerships for sustained growth in the MENASA region", began with a call for common banking regulations to be adopted across MENASA. You might see some practical differences in applying common banking regimes from Mumbai to Marrakech, but it is a valid aim.

However, it was when the Governor began to talk about the response to the global financial crisis that a more inward-looking tone emerged. The region might adopt measures "which might cause slight ring-fencing or insulating of national financial systems from direct competition", he said. The effect on the regional system might be good, he said, if it promoted trade-related transfers and foreign exchange transactions.

"However, there will be some restrictions on investment flows both inward and outward, because risks have been clearly identified in investment transactions. Outward flows will be scrutinised by regulators for type of investment and whether direct or passive. "Also the complexity of investment products will draw special attention. As for inward investment flows, regulators will put some type of filters to prevent hot money, or huge inflows followed by quick outflow of funds ? The investment banking business on the other hand will be subjected to a great deal more regulation than in the past."

A senior banking executive, who wished to remain anonymous, commented on the speech: "The Governor seems to be drawing a picture of a region which is more self-contained and insulated from the kind of practices which sparked the financial crisis in the first place. That is commendable, but there is a risk it might turn into a more protectionist stance." Mr al Suwaidi also warned that the financial crisis had shown that "investments through industrialised advanced countries' investment banks are not totally risk-free" and that there might have to be a "gradual tightening" on capital flows from countries with sovereign wealth funds (SWFs).

"More questions will be asked and more forms will become necessary to fill [in] and more disclosure and transparency will be needed," he added. "Faced with all this nonsense," he explained, "SWFs will certainly come to the conclusion that it is time to change strategy." The new direction of SWF is likely to be the MENASA region itself, which could lead to a "new regional developmental cycle". In a nutshell, the Central Bank Governor thinks that the fallout from the global crisis will lead to tighter restrictions on investment banking activities, while western suspicion of sovereign wealth funds will redirect their activities to a more inward direction.

The forum set the terms for the policy direction that Dubai, the UAE and the region will have to take: whether to continue looking westwards despite the financial crisis, or turn eastwards, or even inwards, to avoid a repetition. It will be a hot debate. [e-mail]