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. [1]

Speaking at the plenary debate of the MENASA Forum focused on the topic ‘MENASA [Middle East, North Africa and South Asia] Capital Markets Going Forward’, Dr. Saidi said: “In 1976, the world’s economic center of gravity was at a point between London and New York. However, in the 30 years since then, that center 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 centered 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 centers intermediating and reallocating the entire world’s savings, there will be numerous international financial centers -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 [Gulf Cooperation Council] 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..

Talking about IPOs in the GCC region, Sameer Al Ansari [CEO of Suaa Capital] 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 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 Forum which took place from 23- 24 May, presented a mix of interviews, debates and keynote addresses featuring financial leaders, experts and investors. All the speakers emphasized the importance of further developing the region’s market infrastructure in order to promote capital market growth.

Source: BusinessIntelligence Middle East, UAE, May 25, 2010. Changes were made in keeping with the editorial policy of www.memrieconomicblog.org.

[1] Dubai International Financial Centre (DIFC)

“The DIFC is the world's fastest growing international financial centre. It aims to develop the same stature as New York, London and Hong Kong.

It primarily serves the vast region between Western Europe and East Asia” (DIFC Website)