Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
75
 Limited access for foreign investors. Although GCC states promote foreign
investment through pro-business policies – particularly in the free zones that are
focussed on attracting foreign investment – a number of countries in this group have
limits on foreign ownership. Numerous restrictions apply to foreign investments in
listed securities via the Abu Dhabi Securities Market (ADX) and Dubai Financial Market
(DFM), and also to direct foreign ownership of local businesses. In some cases,
company by-laws prohibit foreign ownership entirely.83
 Small size and high concentration limits choice. GCC stock markets remain relatively
modest by international standards, with potentially ‘concrete ramifications’, as
Deutsche Bank states. 84 Firstly, it clearly limits the choice at the disposal of investors:
with a total of 660 listed companies, the GCC bloc is on a par with modest national
stock markets such as Poland’s. Investor choice is further limited by the fact that
trading in shares is often illiquid.
 Governments and families in control. The state plays an active role in business in the
GCC region. Governments and government-affiliated vehicles hold more than one-third
of all company equity in the bloc. Much of the remainder is in the hands of large,
powerful, family-owned conglomerates. This concentration of economic power may
breed perceptions of nepotism and vested interests which could be viewed as a
significant disadvantage by foreign investors operating in the region.
Opportunities
General opportunities
 Legal systems are well regarded. Most legal and regulatory frameworks in GCC
countries have a solid reputation, with foreign firms able to settle disputes
satisfactorily through local courts, and foreign rulings being upheld without a hitch.
Furthermore, the countries in this high-income group impose no restrictions on using
international arbitration bodies.
 Abundance of hydrocarbons. Oil and gas remain a key stabilising factor for the GCC’s
financial markets. In the past decade, the region has focussed on economic
diversification away from hydrocarbons, however oil and gas income has proved
valuable, especially amid turbulent economic conditions.85 Some GCC states have been
able to accumulate vast wealth and governments have been able to cushion the impact
of the global economic downturn somewhat, bolstering the region’s reputation as a
stable investment destination.
 Progress on reform has been significant. The GCC economies have made solid
progress in establishing effective financial market regulation and oversight as well as
83 M. Bossdorf, C. Engels and S. Weiler, EU GCC Invest Report 2013
84 “GCC financial markets: long-term prospects for finance in the Gulf region” Deutsche Bank, November
14th, 2012
85 Ibid.