Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
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occur on an ad hoc basis, creating a climate of uncertainty that is of significant concern for
investors. Similarly, the introduction of policies that favour national suppliers and heavily
restrict foreign ownership of local businesses can also serve to deter investors from otherwise
promising locations.
Upper Middle Income Group
Dealing with the effects of political transition is also an issue for some of the countries in this
group. However, many of the countries in this group – such as Lebanon, Tunisia and to some
degree Jordan – have both relative macroeconomic stability and a young and educated
workforce, and there is much potential for attracting capital flows when assessing
fundamentals such as these.
In most cases, improving governance and aspects of the business environment to ensure the
simple, transparent and even-handed treatment of companies is an important priority, as well
as ensuring that adequate regulation is both developed and implemented properly to allow for
the smooth functioning of the private sector. Alongside this, the reform of the financial sector
is also required to further enhance capital flows. Malaysia and Turkey have been notably
successful in achieving such goals, and other countries within this group could learn some
valuable lessons in this respect. It is also likely that driving forward a shift in culture and
attitude towards the use of the stock market as a means for raising capital will have a positive
impact on attracting portfolio capital. Countries such as Lebanon, for example, have a strong,
highly liquid conservative banking system that plays a major role in providing funding to the
private sector and although positive in some respects, this has weakened the appeal of the
stock market, which remains under developed and with low levels of market capitalisation.
High Income Group
Countries within this group typically have significant hydrocarbon wealth combined with
relatively small populations (with the exception of the UAE), which are advantageous
characteristics in terms of limiting demands on government spending. Most of them have put
in place impressive reforms to establish effective financial market regulation and oversight
and have a raft of measures to ensure a pro-business environment such as the establishment of
free trade zones that offer plentiful investment incentives. They also tend to have well-
regarded legal systems, which reinforce the confidence of foreign firms in being assured that
business disputes will be handled transparently and without a hitch. The challenges faced by
this group are perhaps less onerous than those confronting the other income groups, but there
is a still a need to relax the constraints that require domestic participation and to address
bureaucratic inefficiencies such as the visa requirements for those wishing to work in the
country, which is particularly important for Saudi Arabia, for example, where a home-grown
well-qualified workforce is somewhat limited.
Putting Into Practice
The following table summarises the various policy factors which countries may seek to
address in order to enhance financial capital flows. The framework is based on satisfying