Family companies in Gulf oil producers control more than $2 trillion in assets but they face the spectre of collapse in the absence of transparency and measures to end corruption, their spokesman was quoted on Sunday as saying.
Majid Al Qaroob, Chairman of the second Gulf family firms’ forum to be held in Qatar in December, estimated the investments of family business companies in the six-nation Gulf Co-operation Council (GCC) at more than $750 billion but said their combined wealth worldwide could now be worth above $2trn.
In comments published in the Saudi Arabic language daily Al Riyadh, Qaroob said family firms in the GCC, which control nearly 45 per cent of the world’s proven oil deposits, are facing challenges following the eruption of the 2008 global fiscal distress and the 2009 severe debt default problem caused by two financially-troubled Saudi business conglomerates -- Saad and Algosaibi.
He told the daily that nearly 70 per cent of the GCC’s nearly 20,000 family companies are still dominated by the old founding members, who “control these firms with traditional methods and attitudes”.
“Only around 30 per cent of them are controlled by the second or third founding generation… these companies are now facing the spectre of disintegration, collapse and coming under the pressure of being curtailed,” he said.
“Globalisation should prompt these companies and local governments to ensure transparency and curb the domination of social habits and traditions which influence their activities and obstruct their development….efforts are needed to overcome bureaucracy and corruption in all its sorts and forms.”
The defaulting by those two Saudi conglomerates have given rise to calls for measures to reform family companies in the region by forcing them to comply with local laws regarding disclosure and transparency.
Most banks in the GCC states have become reluctant to provide credit to family firms after many of them reported heavy exposure to Saad and Algosaibi.
The global crisis and the default problem have forced regional banks to build up massive loan loss provisions, which have put pressure on their net profits.
In a recent study, a Saudi investment company said the debt default crisis underscored poor transparency and outdated credit practices in the region.
NCB Capital, owned by Saudi Arabia’s largest bank, National Commercial Bank, said the crisis that involved $billions in bad debt was the main factor in dampening investor confidence and obstructing economic recovery in the region following a sharp slowdown in bank lending after years of credit boom.
“Even as the regional corporate sector has generally performed well in the face of the crisis, the scandals have offered evidence of over-extension and poor risk management at some companies…..the impact of the crises has been amplified by poor transparency and the relative lack of well-defined and broadly accepted mechanisms for dealing with situations of distress,” it said.
“From the regulatory perspective, the crisis has highlighted the risks and limitations of many outdated credit practices but new standards have yet to fully replace them….the poor sentiment in the corporate sector has gone hand in hand with highly restrictive lending practices by regional banks.”
Besides the credit squeeze, the default problems have sparked calls for reforms within local family businesses, including their management and practices.
A group representing the GCC’s private sector also said early this year it is planning to issue the region’s first directory of family businesses recounting their foundation and providing information on their activities.
The Dammam-based Federation of GCC Chambers of Commerce and Industry is undertaking the project to release the region’s first such encyclopedia entitled “Family Companies in the Gulf.”
“It is the first of its kind in the region…it will include a documented work on the history of Gulf family firms and provide comprehensive data on these companies…the encyclopedia will be in Arabic and English and it will also be included in a CD and in a website to be set up for this purpose.”
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