When Saad Iqbal left Deutsche Bank AG in Dubai two years ago as European banks scaled back amid the debt crisis, he turned to Riyadh as a construction boom makes Saudi Arabia a hub for project finance.
“Saudi Arabia was not initially my first choice, but I found Dubai had contracted,” said Iqbal, a director of project finance at Riyad Bank, the nation’s third-biggest lender. Saudi Arabia and Qatar are “where the deals are,” he said.
Riyadh climbed 32 places to 33rd in the Global Financial Centers Index published March 25 by London-based consulting firm Z/Yen. That made the Saudi capital the biggest gainer on an index led by London and New York. Dubai dropped one position to No. 23, with Qatar advancing five places to 30th on the list.
While Dubai is the Middle East base for banks including HSBC Holdings Plc, Deutsche Bank and Standard Chartered Plc, Riyadh is mobilizing the region’s biggest stock market and a $500 billion Saudi government spending spree to bolster its credentials as a financial hub. Bankers in Riyadh and the Qatari capital, Doha, can also tap some of the greatest concentrations of the world’s super-rich, according to Boston Consulting Group.
“Dubai’s main disadvantage is that the big money clients and markets are elsewhere,” said Farouk Soussa, chief economist for the Middle East at Citigroup Inc. in Dubai. “Clients want their bankers close. That creates a gravitational force that pulls bankers close into places like Doha, Riyadh and Abu Dhabi, despite them being otherwise less competitive than Dubai.”
Morgan Stanley and Credit Suisse Group AG are among the banks shifting regional equities teams to Riyadh as trading volumes on Saudi Arabia’s stock market surge. The nation’s capital, a congested metropolis of more than 5 million, is developing the King Abdullah Financial District to the north of the city as it seeks to attract more financial services firms.
Qatar, ranked third behind Singapore and Switzerland for the proportion of millionaire households, according to Boston Consulting, is also working to capture business from Dubai.
It’s offering cash from its sovereign wealth fund to asset managers setting up in the country, Qatar Financial Centre Authority Managing Director Abdulrahman Al Shaibi said on March 11. The nation, with a population of 1.76 million, may also set up a reinsurer and sell shares to the public as part of its bid to become a regional financial hub, he said.
Oil and Gas
Lacking the oil and gas of its neighbors, Dubai can’t afford to give up its lead in financial services, which accounted for 11.3 percent of gross domestic product in 2011. Finance, insurance and real estate contributed only 3 percent of Saudi Arabia’s GDP and 4.7 percent of Qatar’s in the third quarter of 2012, data compiled by Bloomberg shows.
The city of 2.1 million people became a regional banking hub after opening the Dubai International Financial Centre in 2004 to attract international banks, asset managers and insurers with promises of zero taxes for 50 years. The DIFC, as it’s known, is targeting financial institutions from Asia and reported a 16 percent increase in registered employees in 2012. Agricultural Bank of China opened a branch last month.
“Dubai is extremely competitive,” DIFC Chief Executive Officer Jeffrey Singer said in an interview yesterday. “If you’re coming new to the region, you have to justify why you wouldn’t come to Dubai.”
Dubai said in January it would create an Islamic finance council to regulate equity and fixed-income products to boost the industry’s role in the economy. Sales of Islamic bonds in the emirate have jumped almost 50 percent this year.
The emirate’s bond underwriting still exceeds Saudi Arabia and Qatar, with about $6 billion of issues by the Dubai government and related companies in the first quarter. Saudi issuers have raised $4.9 billion in bond sales this year, while Qatari issuance totals about $1.3 billion. Dubai accumulated about $113 billion of debt to develop finance and tourism.
While Boston Consulting figures show Riyadh’s bankers can tap the world’s highest concentration of households worth more than $100 million, constraints on women stemming from the Wahhabi version of Sunni Islam may make it difficult to persuade expatriates to work in Saudi Arabia’s financial center.
Men and women are segregated in public, including at schools, restaurants and lines at fast-food take outs. Women also need permission from a male guardian to go to school or get married, and are barred from driving. Dubai has no such restrictions and tolerates alcohol.
“For a financial center to flourish you need human capital, which will be a challenge for Riyadh given its various restrictions,” said Emad Mostaque, a London-based strategist at Noah Capital Markets. “Dubai has the best infrastructure to attract human capital: schools, good housing, recreational activities.”
The second largest of seven sheikhdoms in the U.A.E., Dubai was the region’s top placed city for infrastructure, ranking 34th, according to a 2012 survey by New York-based consultancy Mercer. Abu Dhabi came 72nd and Doha 102nd.
It also has the highest quality of life ranking in the Middle East, according to Mercer. The city-state ranked 73rd in the world with Abu Dhabi at No. 78, while Doha and Riyadh were ranked 106 and 157 out of 221 cities surveyed. Vienna and Zurich topped the index.
“In terms of development, in terms of infrastructure, the openness and ease of business, there’s nothing like Dubai in the region,” said Khaled Sifri, chief executive officer of Emirates Investment Bank PJSC. “It’s way ahead and it will take a long time for anyone else to try and catch up.”
That isn’t stopping other regional centers from trying. Apart from Saudi Arabia and Qatar, Turkey is building the Istanbul International Financial Center as part of Prime Minister Recep Tayyip Erdogan’s strategy to boost the country’s regional status and make the economy one of the world’s 10 biggest by 2023. Istanbul is No. 57 on the Z/Yen index.
While Abu Dhabi is constructing a financial center called Sowwah Square, the largest emirate in the U.A.E. fell one place in the Z/Yen ranking to No. 39. Bahrain, which crushed a Shiite Muslim revolt against its Sunni rulers in 2011, fell three places to 64th and is 23 positions below its 2010 ranking.
Qatar and Credit Suisse are strengthening ties after the holder of the world’s third-largest gas reserves took a 6 percent stake in the second-biggest Swiss bank, bought its London headquarters and formed asset manager Aventicum Capital Management.
Credit Suisse is shifting its regional investment banking headquarters to Doha, a person with knowledge of the matter said in December. It has also cut three equity positions in Dubai and transferring another to Riyadh, the person said.
“The financial services sector in Qatar is expanding aggressively and is hiring more than we’re seeing in the U.A.E. at the moment,” said Matthew Gribble, Dubai-based managing director of Michael Page International Plc, a recruiter that operates in 32 countries. “It’s never easy getting people to Qatar compared to many markets, but it’s attracting people who are coming out of stressed markets in Europe and the U.K.”
Morgan Stanley has moved part of its Middle East equities business to Saudi Arabia and cut three positions in Dubai, according to a banker with knowledge of the matter. A spokesman for the New York-based bank declined to comment. Russia’s VTB Capital is also considering an equities business in Saudi, Makram Abboud, CEO in the Middle East and Africa, said Jan. 15.
Saudi Arabia’s $393 billion stock market is the Arab world’s largest bourse and three times the size of those in the United Arab Emirates and Qatar. While non-resident foreigners are only permitted to trade through share-swap transactions and exchange-traded funds, the country may soon allow overseas money managers to invest directly in shares of local companies, Deutsche Bank said in February.
The Kingdom may attract as much as $30 billion of inflows once it opens the market, John Burbank, founder of San Francisco-based hedge fund Passport Capital, said in February.
With Qatar’s plans to invest $140 billion in infrastructure before hosting the soccer World Cup in 2022, Doha shares Riyadh’s edge in project finance over Dubai, which was on the brink of default in 2009 after racking up debt to transform itself into a banking and tourism hub. Qatar is planning to build a metro network, roads, hotels and stadiums.
“Dubai will still be the preferred destination for companies and individuals in the short term,” said Angus Blair, Chairman of the Signet Institute, a Cairo-based regional research group. “As Doha and Riyadh develop and deepen their capital markets and financial services, it’s clear that this increased competition is a sign of the evolution of financial services in the region.”