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09 December 2023

‘Bourses too need to be part of GCC Market’

By Parag Deulgaonkar, VM Sathish and Joseph George



Analysts in the UAE have welcomed the creation of the GCC Common Market but noted there is still work to be done to realise its full potential, specifically, there is uncertainty about whether the move will include the integration of stock markets.

While the new year rings in the launch of the common market, which observers note may create one of the strongest regional economic blocs in the world, comparable in size to the European Union and the North American Free Trade Agreement, currently there are no common regulatory frameworks for stock markets and settlement mechanisms in place between member states.

A senior UAE stock exchange official said yesterday the issue of integrating stock markets is not even on the table. “We haven’t heard of any such stock market integration. The common market is more to do with other major issues such as monetary union, trade and customs,” he told Emirates Business on condition of anonymity.

However, analysts feel the GCC can adopt the European Central Bank model to successfully integrate various stock exchanges, according to an expert. “A common GCC stock market will help in harmonising rules and regulation, leading to an increase in cross-border listing and an increase in trading volume,” said Suresh Kumar, Chief Executive Officer, Emirates Financial Services.

Stock markets in the GCC are governed by separate market regulators. In the absence of a common electronic trading platform, a common regulator and settlement mechanism, brokers or an investors from one GCC country dealing in another exchange will have to incur more transaction costs and lack sufficient market intelligence to take prompt decisions.

Only four stock exchanges have allowed cross listing of shares – Bahrain Stock Exchange, Abu Dhabi Securities Market, Dubai Financial Market and Kuwait Stock Exchange. Saudi Arabia does not allow expatriates to buy or sell shares. The listing and trading norms are also stricter in some markets and if brokers get some orders to buy from overseas GCC markets, they carry out the order through another company operating near the market where the share is listed.

Creation of a common stock market regulator for the GCC, a common settlement mechanism and an integrated electronic trading platform will boost the flow of investments within the GCC, analysts said.

R Malcom Richards, dean of the School of Business and Management, American University of Sharjah, and an expert on GCC markets, said: “Integration of GCC markets makes a strong economic sense. Integration of small markets is a crucial step for completing the common market initiative. As a first step to create an integrated GCC stock market, the financial markets in Dubai and Abu Dhabi need to be integrated with a common settlement mechanism.

“It can then be extended to other GCC stock markets. The stock market integration will increase the market size and allow cross-boarder listing of GCC companies.”

Abdulwahed Al Murshdi, manager, investment banking division of BankMuscat, which operates in the UAE and Omani stock markets, said GCC stock market integration has been delayed because of a lack of co-ordination. “All the GCC stock exchanges have different regulatory and settlement mechanisms.
If we have to trade in each stock market, our company needs to establish offices or business alliances in each market. Unless and until the GCC countries agree on a common stock market regulation, the stock market integration and the full-fledged common market dream will not be complete.”

He said there was also a need to increase the number of GCC banks with branches in other member countries to assist businesses.

The common market is widely seen as a critical step in the GCC’s long-term economic integration plan and a prelude to the establishment of a monetary union in 2010. With more than 30 million consumers, the GCC common market may also be the first step towards a broader Arab common market.

On their part, UAE businesspeople welcomed the move and noted that a common market would allow for more trade among member states and help GCC companies capitalise on the region’s oil boom.
Yahya Lootah, vice-chairman, SSLootah Group, said: “The UAE stands to benefit from this common market and in turn will contribute to its exponential growth in infrastructure over the past few years.
With unprecedented trends in oil and currency markets, a single economic entity will open wide avenues for inter-GCC activities and enhance collective competitiveness in world markets.”

According to GCC Secretary-General Abdulrahman bin Hamed Al Attiya, since the original agreement for GCC economic integration was signed in 1981, multiple moves have been taken to ensure GCC citizens are treated equally in all member countries. According to Al Attiya, the total GDP of the GCC is estimated to be around $800 billion (Dh2.9 trillion), with a total investment capability of more than $4trn.

The number of GCC citizens owning real estate in other member countries went up from 5,775 in 1989 to 33,146 in 2006, and the figure is growing every month due to the ongoing construction boom in the region.

Similarly, there has been a considerable increase in the number of business licenses granted to nationals from other member countries. Up to December 2006, 14,655 licences were issued to GCC nationals to practice economic activities in other member countries and the amount of intra-GCC trade rose from $7.7bn in 2000 to $21.6bn in 2005.

-GCC citizens can move/reside without restrictions in any of the GCC countries

- Citizens have employment rights in either private or government organisations anywhere in the GCC

- Citizens can engage in all professions and crafts; economic, investment and service activities; and buy and sell real estate in all GCC states

- Free movement of capital between all GCC countries

- Citizens enjoy preferential taxation deals

- Citizens can own stocks and form corporations in any member state

- Education, health and social services will be available to all citizens across the six GCC countries