Capital markets and corporate governance in post-pandemic MENA

Bahia Palace in Marrakech, Morocco, 11 May, 2014. Banner image: Shutterstock/The Visual Explorer

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This article is part of a series in which OECD experts and thought leaders —from around the world and all parts of society— address the COVID-19 crisis, discussing and developing solutions now and for the future. Aiming to foster the fruitful exchange of expertise and perspectives across fields to help us rise to this critical challenge, opinions expressed do not necessarily represent the views of the OECD.

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As countries worldwide prioritise policies for post-pandemic recovery plans, the role that strong corporate governance can play in revitalising business environments, driving prosperity and creating jobs should not be overlooked. This is especially true in the Middle East and North Africa (MENA), where improvements in corporate governance practices have unleashed the private sector’s capacity to drive growth in the post-crisis period.

OECD analysis confirms that strong corporate governance is critical to create an environment of market confidence and business integrity that supports capital market development, in turn enabling companies to access equity capital to finance long-term productive investments. In the MENA region, these types of investments have shown to spur the competitiveness of countries’ business sectors and to generate jobs.

Corporations that prioritise good corporate governance are also able to attract cheaper capital, safeguard their shareholders’ rights and create a culture of transparency that helps attract and retain top talent. For controlling shareholders (often founding families in the MENA region), corporate governance has shown to clarify roles, contributes to the professionalisation of board members and grows the value of the firm. Lastly, good corporate governance has concrete social benefits: it contributes to business integrity through checks and balances and transparency, as well as increases productivity. While corporate governance is often seen as a tool mainly for large companies listed on stock exchanges, it is also a valuable framework to address issues of sustainability and succession for small and medium-sized enterprises as well as for family-owned businesses. This is also critical in MENA, where MSMEs make up 80-90% of total firms, and such firms that have adopted adequate corporate governance have positively benefited from such structural and governance changes.

Read more on the Forum Network: "Time to reset the clock for trade reform and recovery in MENA" by Hichem Elloumi, Co-Chair, MENA-OECD Business Advisory Board

Read more on the Forum Network: "Time to reset the clock for trade reform and recovery in MENA" by Hichem Elloumi, Co-Chair, MENA-OECD Business Advisory BoardRead more on the Forum Network: "Time to reset the clock for trade reform and recovery in MENA" by Hichem Elloumi, Co-Chair, MENA-OECD Business Advisory Board

Since the onset of COVID-19, MENA boards have been overwhelmed with a barrage of decisions and faced mounting pressure to reform their practices. They have had to take a stronger role in crisis and risk management than ever before. And in a context of rising unemployment and social instability in the region, stakeholders are increasingly demanding corporations to become more inclusive and more responsive to citizens’ needs. As corporate boards look to the post-COVID era, they must not forget the lessons learned over the past year, as the new demands on companies are likely to remain. Boards will need to identify gaps in their approaches, and make plans to address them.

Since the COVID-19 crisis in the Gulf Cooperation Council countries, and despite a promising wave of IPOs in 2020—seven IPOs totalling USD 1.6bn in proceeds—dropping economic growth rates and oil prices have forced a number of governments to issue billions in sovereign debt, which could have long-term consequences on economic growth.

Find more about the MENA-OECD Ministerial Conference “Designing a Roadmap to Recovery in MENA”, taking place on 1 April 2021

Find more about the MENA-OECD Ministerial Conference “Designing a Roadmap to Recovery in MENA”, taking place on 1 April 2021

On the positive side, the pandemic has accelerated momentum for reform in the region, and there have been reassuring signs of a growing realisation amongst the private sector and governments that good corporate governance will be a cornerstone for recovery in MENA. Recent regulations have already underscored the responsibility of corporate leadership and the importance of Environmental and Social Governance (ESG). New “sustainable” stock market requirements would also facilitate ESG investment in MENA by promoting the social and environmental benefits and externalities of publicly listed companies in the region and beyond.

To support these reforms moving forward, MENA can rely on internationally recognised standards, such as the G20/OECD Principles of Corporate Governance and OECD Guidelines on Corporate Governance of State-Owned Enterprises, which can be used in designing national reforms. In this regard, the MENA-OECD Working Group on Corporate Governance provides an important regional knowledge platform. Its work over the past few years to promote equity market development for growth companies, enhance transparency and disclosure, improve the corporate governance of state-owned enterprises and support women’s participation in corporate leadership has provided valuable policy options for reform. As a co-chair of this Working Group, I’m proud of what has been accomplished and eager to start our few phase of work which will provide more concrete analysis and guidance in critical areas. Decision-makers in the MENA region can rely on committed partners such as the OECD to help transform economic recovery into a new golden era for MENA jurisdictions.

Read the Corporate Governance in MENA report and find out more about the G20/OECD Principles of Corporate Governance

Read the Corporate Governance in MENA report and find out more about the G20/OECD Principles of Corporate Governance

Find more about the work of the OECD in the Middle East and North Africa

Savoir en plus sur l'OCDE et la région MENA

References:

  1. https://hbr.org/2020/10/covid-19-is-rewriting-the-rules-of-corporate-governance
  2. https://www.researchgate.net/publication/311625638_Corporate_governance_in_the_Middle_East_-_Which_way_to_go/link/5a5d5075aca272d4a3dd9531/download
  3. https://diligent.com/en-gb/blog/the-corporate-governance-outlook-in-the-middle-east-for-2020/
  4. https://www.ifc.org/wps/wcm/connect/26bcd4db-206d-435b-b7d2-9ef38d9af633/MENA_CaseStudies_web.pdf?MOD=AJPERES&CVID=jIZiAUy
  5. http://www.meed.com/mena-capital-markets-hit-by-coronavirus-slump
  6. https://www.ey.com/en_ae/news/2020/06/mena-region-sees-four-ipos-raise-us-814-2m-in-q1-2020
  7. https://www.lazardassetmanagement.com/docs/-m0-/98798/LazardOnMENA_2021_en.pdf
  8. https://www.pwc.com/m1/en/publications/capital-markets-watch.html

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Obaid Saif Hamad Al Zaabi

Co-Chair, MENA-OECD Working Group on Corporate Governance

Dr. Obaid Saif Hamad Al Zaabi, Chief Executive Officer, Securities and Commodities Authority (SCA), United Arab Emirates, has wide-ranging practical experience in financial legislation, accounting, banking, and finance and investment gained from working with many leading financial institutions across the UAE, the US, the UK, and Malaysia. He served as Deputy Chief Executive Officer for Issuance and Legal Affairs and as SCA’s Dubai Office Manager. Prior to that, he worked as Advisor of Research and Studies and as Director of the Research and Awareness Department. He also worked as Senior Manager for International Business at a real estate finance companies and has distinctive experience in managing the operations of bank branches. He also worked in accounting and auditing for a number of institutions, including the UAE Central Bank. After SCA became a member of the International Organization of Securities Commissions (IOSCO) (2020-2018), Dr. Al Zaabi was named Vice Chair of the IOSCO Board and Chair of the Growth and Emerging Markets Committee (GEMC), IOSCO’s largest committee, which includes 90 ordinary members and 20 affiliate members. He also served as Co-Chair of the MENA-OECD Working Group on Corporate Governance. Dr. Al Zaabi was appointed as a Vice Chairman of the UAE Financial Restructuring Committee.