Sultan Al Mansouri, the Minister of Economy, has urged GCC countries to accelerate moves to integrate accounting and auditing regulations to protect regional economies from future financial crisis.
Speaking at a ceremony in Dubai to mark the signing of an agreement to extend ties between the GCC Accounting and Auditing Organisation (AAO) and the Institute of Chartered Accountants of England and Wales (ICAEW), Mr Al Mansouri said: "This initiative is aimed at applying transparent accounting and governance criteria to develop the profession ethically and give the region immunity in any financial crisis in the future."
Under the agreement, the GCC and United Kingdom bodies are to develop an audit quality monitoring programme, and offer advice and support on the creation of a Gulf monitoring unit, to oversee the application of international auditing standards in each of the six GCC countries.
"Economic integration is one of the main goals of GCC countries. We have already achieved a lot. The GCC is a strong body with standards some other countries don't have, and it emerged from the financial crisis with some advantages," Mr Al Mansouri said.
"There should be a recognition by all professionals in these fields that we should implement international accounting standards to provide a just environment for investors," he added.
One aim of common accounting standards would be "to shed light on government budgets in time of crisis", he said.
Abdulkarim Alzarouni, the vice chairman of the AAO, said: "Accounting and auditing had a role in the global financial crisis and we are still suffering. Lots of global companies went bankrupt and they were all audited by the biggest firms who gave them unqualified accounts."
He said that the collapse of Enron, Lehman Brothers, and the Madoff enterprises had shown that there was a problem with conflicts of interests between auditors and accounting firms acting as consultants, and with the use of derivatives.
He said one of the problems of accounting in the GCC region was that there was a lack of awareness of the accounting profession.
"This project seeks to promote the very highest professional and technical standards in audit, and it is a great pleasure to be working with the ICAEW," he said.
Vernon Soare, the ICAEW's executive director, said: "The Middle East is one of the most rapidly developing regions in the world economically, and stands at the centre of global trade and investment. Audit quality has a huge role to play in underpinning market confidence, through vigilance and transparency both within countries and across national borders."
Cooperation between the region's AAO and ICAEW will be in three phases: designing an effective framework and Gulf monitoring unit, development and implementation, and on-going support.
The agreement between the two bodies, which was described as the "first pan-national project of its kind", was welcomed by Peter Benyon, the regional director of ICAEW Middle East. "Ultimately, the ability to do business rests on the confidence placed in the accounting profession," he said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
