Financial Times “Rethinking the Future of Finance” Conference, Doha, 30 September 2009, Ritz Carlton Hotel

Speech by Mr Abdulrahman Ahmed Al Shaibi, Director of Finance, Qatar Petroleum and Director and Delegated Member, QFC Authority.

We may be seeing the first signs of recovery as the world’s leading economies start to move out of recession. Or it may just be wishful thinking. But the damage done to the financial and corporate sector has undeniably been deep and widespread, which will take many years to repair - with or without government help.

The numbers are big, and getting bigger. According to the IMF the global financial sector faces write-downs of $4.1tn (£2.8tn) from the so-called toxic assets that have crashed in value since the start of the credit crunch.

The governments of the US, the UK, Germany, China and India have between them pumped almost $1.7 trillion into their economies to stimulate a recovery. Big corporate names like Chrysler, General Motors, Lehman Brothers and Bear Sterns have gone to the wall. Merrill Lynch has been taken over.

The Gulf has to some extent been protected from the worst effects of this financial tsunami. It has of course not avoided the crisis altogether but the impact in macro-economic terms has been manageable.

Revenue from oil and gas in the five years before the crash enabled Gulf states to invest and deliver trade and budget surpluses. Today, hydrocarbon prices remain relatively strong – if not at the levels of two years ago – and governments can support their economies without going into massive deficits.

But the financial and corporate sectors have inevitably been affected. Arab banks – like their western counterparts - suffered when their lines of credit were cut. Gulf central banks and other funding institutions have had to intervene to support their financial sectors.

The reluctance of both local and international banks to lend, combined with a tightening of government budgets, has had a significant impact in project financing and other lending. According to Dealogic, in the year to August, only $22.8 billion of syndicated loans, project finance and bonds have been issued in the Middle East, compared with $85.5 billion last year and a peak of $126.9 billion in 2007.

This sharp downturn is having a significant impact on all those businesses which depend on the public and private infrastructure projects.

Arab stock markets too - like those in the west - have been extremely volatile. Local investors have learned the painful lesson that markets are not a one-way ticket to wealth generation. But the global recession has had another effect on this region. Middle East individuals, institutions and governments now have a greater stake in the global economy than before.

They have, of course, always been investors in western capital markets. But today Gulf companies and financial institutions operate globally – and many now own some of the world’s leading companies – from leisure to shipping, property to banking.

Whatever happens in global markets – positive or negative – has a resonance in board rooms across the region.

There is still some way to go in the Gulf – as there is in the West - before economies recover fully. Lending to the private sector in Saudi Arabia rose by just 4 per cent in the year to June compared to 35 per cent in the previous twelve months for example. Across the region companies are still heavily indebted to their bankers.

But there is at last a breathing space in for the global economy to start to take stock of what has happened. Two points about all this strike me as being crucial. The first is that no country or region can immunize itself against a recession. Economies – whether they have hydrocarbon reserves or not – are affected by what may appear to be a localized problem.

And secondly, we all need to question the easy assumptions we have tended to make about how we do business. In the early part of this decade, investors did not think hard enough before buying packages of what turned out to be toxic debt. And it was too easy for corporate and retail borrowers to raise money from their bankers.

The challenge for bankers and investors is not just to challenge what sort of business they do, but to ask where they operate from and which financial centres offer the best balance of opportunity and security.

I would contend that increasingly the financial centres in the Gulf will offer a range of services, regulation, financial institutions and pools of liquidity that will have the potential to match their rivals in the West over time.

The foundation stones are there. The Gulf is politically stable and the case for market-based, private-sector driven economies has been won. Across the region, states that once relied on governments to finance development are being transformed into market economies. They have also diversified their sources of revenue away from oil in to areas including financial services.

Governments have accepted the need to invest in developing capital markets and the institutions to run them. The political commitment in Doha, Riyadh and Abu Dhabi is unquestioned - as is the readiness of governments to act by investing in both the companies to run the financial sector such as the Qatar Exchange and Qatar Insurance Services - or in major physical construction such as the new Doha airport, the Doha-Bahrain causeway, the Dubai monorail or new cities in Saudi Arabia.

Qatar, Dubai, Saudi Arabia and Bahrain are developing professionally run and independently regulated debt and equity markets. These markets are starting to build a track record that will attract both issuers and investors.

That process has been given greater credibility by the involvement of international stock exchanges, which are able to launch more complex financial instruments. Qatar Exchange is a good example of this. Earlier this year it was launched partnership with NYSE Euronext .

Qatar Exchange replaces the Doha Securities Market and plans to provide derivatives and commodities products as well as the cash equities business offered by its predecessor. The new exchange will also adopt NYSE Euronext’s technology and has the backing of the Qatar government.

Abu Dhabi Exchange, which also plans to launch derivatives, has an agreement with NYSE Euronext to help develop its exchange. And Nasdaq has an involvement in the Dubai International Financial Centre’s bourse which is now called NasdaqDubai.

There are inevitable challenges. There are too many small markets and the chances of real long term success will depend in part on the ability of different markets to work together. But the building blocks to make this possible are certainly in place - there is no doubt that market forces will ensure that these markets will have no alternative but to work together.

The region has also a particular expertise in Islamic financial instruments, with Dubai, Qatar, Saudi Arabia and Bahrain all competing to offer platforms for issuing and trading sukuks. This is a global market which has grown dramatically from $8 billion in 2003 to more than $100 billion last year. There is therefore no doubt that this market is ripe for further development. With conventional banks still reluctant to lend, particularly for long-term projects, sukuks are a viable and attractive alternative. For some investors, sukuks are a more predictable asset than conventional equity markets.

Another market that is growing at an extraordinary rate is that for insurance – with $1.1 trillion being invested in high value projects across the region, the amount of insurable assets is rising exponentially. Insurance companies are predicting a double digit annual growth which could mean a doubling of the Gulf market in the next three years.

A critical factor in the region’s ability to attract insurance and other parts of the financial sector is the quality of regulation. In the last decade the leading markets have set up independent regulators. In Qatar and Dubai, the regulatory systems are based on best practice and are enforced by courts operating to western legal standards. In Saudi Arabia there has been a real readiness by the Capital Markets Authority to clamp down on insider dealing.

However, markets remain thin and volatile and vulnerable to some insider dealing. But there is no doubt that regulators are committed to eradicating bad practices and that western institutions can feel increasingly confident about the local banks they deal with and markets in which they operate. The result is clear for all to see. Blue chip western banks and institutions are establishing themselves in greater numbers in the Gulf and they have a real rather than just a name plate presence. They are adding credibility and authority to all the financial centres in the region.

The support services, including lawyers, accountants, analysts and management consultants, are also here in ever greater numbers, bringing global best practice with them. Significantly leading global practitioners are sending some of their best talent to the region.

Equally important is the growth of quality regional financial institutions which can now provide the expertise to lead manage IPOs and bond issues – and should no longer be regarded as just providers of finance to deals arranged by western institutions. Indeed it could be argued that since they do not have the legacy infrastructure of western banks, they are better placed to seize new markets opportunities.

As these banks are able to play a more significant role, they are able to attract the top quality professionals who until now have tended to be attracted to western banks in other regions. And skill levels will improve still further because of the commitment of the governments in Bahrain and Qatar to create a future generation of financiers by setting up specialist financial educational establishments, such as the Qatar Finance and Business Academy. The QFBA aims to become a centre for the provision of international-standard qualifications for the entire region and further afield. It will work with institutions in the local, regional and international financial sector to identify ways in which to develop the skills and talents of middle and senior ranking executives in the financial services industry; and it will establish close working relations with educational institutions round the world which provide training and qualifications for the financial sector.

Gulf finance has come a long way in a very short period of time. Only three decades ago there was little more than a handful of local commercial banks and international institutions recycling petrodollars. How things have changed over the past few years.

By investing in creating the right conditions for banking to prosper, governments are now reaping rewards and the region is now home to international and local institutions which offer everything from retail to the most sophisticated financial services.

We are confident that Gulf markets can compete with western financial centres and can offer a stability and opportunity that will both match and complement them.

The dawn of a new era in financial services is upon us.

Thank you.