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French Version

Middle East is not attracting enough overseas capital

Lack of transparency blamed
Governments must end their interference in the affairs of the private sector

Arab governments must end their excessive interference in the affairs of the private sector if they wanted to attract investment into their own counties, the former mayor of London Lord Gavin Arthur said on Thursday.

He was speaking at the opening of a two-day conference on corporate governance at the Movenpick Hotel in Beirut organized by Bank and Investor magazine. "From 1987 to 1998 the region only attracted 1 percent of the total capital transfers in the world. This figure rose to 4 percent recently although the Arab world deserves more than that," Arthur said. He added that capital should be repatriated from abroad through the banking sector which is a driving force. Arthur urged the governments not to intervene in the work of the private sector in general and the banking in particular.

"The petrochemical industry is a promising sector but this needs a lot of investment and also requires a transparent banking system." The issue of transparency and corporate governance was also the main theme of other speakers at the conference.

Central Bank Governor Riad Salameh said he encourages the creation of national rating agencies which would allow local banks to count on national classification of fiduciary operation and investments. "This way local banks will be not be subjected to the credit ratings of foreign companies," Salameh said. Lebanon and most Arab states do not have local credit-rating agencies which forces banks to count on foreign companies for these classifications. "Sound management of companies is the main foundation in any growth policy. Good management will allow the companies to attract more investments in their projects," Salameh said. He added that the main reason behind the collapse of companies around the world is often due to the irresponsible behavior of the human element and shortsightedness of management. Lebanese and Arab banks are coming under increasing pressure to improve supervision and risk management in the private sector and banking. Lebanon is expected to apply the strict measures and guidelines of Basel II in 2006 or 2007. But some analysts feel that some small and medium size banks in Lebanon may not be able to meet the conditions of Basel II which will force them to sell out their businesses or merge with larger banking units.

The general manager of Bank and Investor, Nahla Nimli, said that the small institutions in the Arab countries probably do not meet international criteria on corporate governance and transparency. She added that freedom, democracy and development are the ways to build developed companies. The entire company of Arab central-bank governors who spoke at the conference assured participants that they are committed to the conditions of the Basel II requirements. They added that many banks in the region have already started to raise their capital and allocate more funds for better risk management.

Beirut 17-01-2005
Osama Habib
The Daily Star

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