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Its own kind of Capital
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atar is many things to many people. To culture vultures, it is a place of cutting-edge design and innovation in the field of Islamic art and the base of one of the Middle East's most distinguished orchestras. To expatriate workers, it can be a breath of fresh air after growing up in London, New York, or Mumbai. And to those in the financial world, Doha shows promising signs of becoming a global capital of banking. Those who champion Qatar as a banking power – even, some say, the next financial centre of the Middle East – point to two things to explain why Doha deserves capital status. First, they see Islamic banking as a rising force in the global financial industry, an area where Qatar has taken a lead, and see an Arab country as the obvious centre of that kind of business. Secondly, they point to Doha, with its blend of traditional and modern luxury, as the type of place an international professional would choose to live. Each of these reasons is at least partly flawed. Qatar is, undeniably, on the rise, and Doha is well on its way to becoming a cultural and economic centre for the Middle East region. But if it wishes to reach the top – to become the centre – it will have to beat quite a string of contenders for the crown. First, consider Islamic banking. Doha is home to Qatar Islamic Bank (QIB), which was established in 1982 and as of end-2009 could lay stake to the title of the fourth-largest Islamic bank in the world. In addition, there are three other Islamic banks in Qatar and nearly every domestic bank offers Islamic products. But despite this activity, Qatari banks are not yet able to compete with more established Islamic
banking hubs in terms of sophistication or market share. Islamic banking is offered worldwide, with the major markets based, naturally, in the prime Muslim population centres of the Middle East and Southeast Asia. There is, as of yet, no definitive global governing body for Islamic financial products, and differences in legal concepts mean that Islamic finance is practiced in a slightly different way in the Middle Eastern and Southeast Asian markets. In addition, transactions tend to be large-scale and, correspondingly, infrequent. This means that sophistication of the kind seen in conventional banking – futures trading, hedging, derivatives, etc – is very hard to coordinate, as most of these instruments rely on frequent public transactions. At present, Kuala Lumpur is the only place in Southeast Asia – and, for that matter, in the world – where sukuks are traded at a volume sufficient to allow swaps. The Bahrain Financial Exchange (BFX), scheduled to open later this year, aims to bring that kind of activity to the Middle East, but it remains to be seen if it will be able to attract enough business from other regional exchanges to be able to achieve the levels of action it aspires to. In addition, there are a number of developments outside these geographical regions – from the US's General Electric offering a sukuk in 2009 to rumours of Paris setting up its own Islamic banking apparatus, similar to the one established in London. Then there is the question of Doha as a cultural centre. Until recently, for better or worse, it was a stretch to give this title to any city other than Dubai. Dubai International Airport was the port of entry for the region, and its extravagant proj-
ects and events dominated the headlines. Yet over the last few years, a number of other cities have gained market share, so to speak, in the cultural sphere, with Doha being one of the top contenders. To do this, each city has had to pursue niche markets where Dubai wasn't as strong. For example, Muscat championed itself as a peaceful, laid-back destination, Bahrain drew Formula 1 fans with its International Circuit, Abu Dhabi followed suit with its own F1 circuit and is setting up branches of the Louvre and Guggenheim museums. For its part, Doha has sought to court the cultural elite too, with its own museums and architectural monuments, plus intellectuals with excellent higher education opportunities, sports enthusiasts with world-class stadia and events, and, not least, investors with the country's solid balance sheets. In effect, these niche developments have all but ensured that no city is likely to end up being the capital of the GCC, just as there is no true capital of Europe. But this is not a negative: no country can be all things to all people (and bankers). Each has its strengths and attracts a certain type of investor, resident, and tourist. Until a set of international standards for Islamic banking is decided upon, the prospect of being ‘capital’ in that respect will be difficult as well. Qatar's strengths are many and all signs indicate there is plenty of business to go around in this region. Trying to please too many people at once can lead to conflicts of interest and a lack of identity. Doha has already distinguished itself as a cultured, dynamic, forward-thinking city. It may well do best if it maintains its already high standards rather than trying to become everyone's standard n
By Oliver Cornock The author is the Regional Editor of Oxford Business Group
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Qatar Today AUGUST 10