When Saad Iqbal left Deutsche Bank AG in Dubai two years ago as European banks scaled back amid the debt crisis, he turned to Riyadh, where a construction boom was making Saudi Arabia a hub for project finance.
“ Saudi Arabia was not initially my first choice, but I found Dubai had contracted,” said Iqbal, a director of project finance at Riyad Bank, the nation’s third-biggest lender. S
audi Arabia and Qatar are “where the deals are,” he said.
Riyadh climbed 32 places to 33rd in the Global Financial Centers Index published March 25 by London-based consulting firm Z/Yen. That made the Saudi capital the biggest gainer on an index led by London and New York. Dubai dropped one position to No. 23, with Qatar advancing five places to 30th on the list.
While Dubai is the Middle East base for banks including HSBC Holdings PLC, Deutsche Bank and Standard Chartered PLC, Riyadh is mobilizing the region’s biggest stock market and a $500 billion Saudi government spending spree to bolster its credentials as a financial hub. Bankers in Riyadh and the Qatari capital, Doha, can also tap some of the greatest concentrations of the world’s super-rich, according to Boston Consulting Group.
“Dubai’s main disadvantage is that the big money clients and markets are elsewhere,” said Farouk Soussa, chief economist for the Middle East at Citigroup Inc. in Dubai. “Clients want their bankers close. That creates a gravitational force that pulls bankers close into places like Doha, Riyadh and Abu Dhabi, despite them being otherwise less competitive than Dubai.”
Morgan Stanley and Credit Suisse Group AG are among the banks shifting regional equities teams to Riyadh as trading volumes on Saudi Arabia’s stock market surge. The nation’s capital, a congested metropolis of more than 5 million, is developing the King Abdullah Financial District to the north of the city as it seeks to attract more financial services firms.
Qatar, ranked third behind Singapore and Switzerland for the proportion of millionaire households, according to Boston Consulting, is also working to capture business from Dubai.
It’s offering cash from its sovereign wealth fund to asset managers setting up in the country, Qatar Financial Center Authority Managing Director Abdel-Rahman Al-Shaibi said March 11. The nation, with a population of 1.76 million, may also set up a reinsurer and sell shares to the public as part of its bid to become a regional financial hub, he said.
Lacking the oil and gas of its neighbors, Dubai can’t afford to give up its lead in financial services, which accounted for 11.3 percent of gross domestic product in 2011. Finance, insurance and real estate contributed only 3 percent of Saudi Arabia’s GDP and 4.7 percent of Qatar’s in the third quarter of 2012, Bloomberg data shows.
The city of 2.1 million people became a regional banking hub after opening the Dubai International Financial Center in 2004 to attract international banks, asset managers and insurers with promises of zero taxes for 50 years. The DIFC is targeting financial institutions from Asia and reported a 16 percent increase in registered employees in 2012. Agricultural Bank of China opened a branch last month.
“ Dubai is extremely competitive,” DIFC CEO Jeffrey Singer said in an interview Monday. “If you’re coming new to the region, you have to justify why you wouldn’t come to Dubai.”
Dubai said in January it would create an Islamic finance council to regulate equity and fixed-income products to boost the industry’s role in the economy. Islamic bonds sales in the emirate have jumped almost 50 percent this year.
The emirate’s bond underwriting still exceeds Saudi Arabia and Qatar, with about $6 billion of issues by the Dubai government and related companies in the first quarter. Saudi issuers have raised $4.9 billion in bond sales this year, while Qatari issuance totals about $1.3 billion. Dubai accumulated about $113 billion of debt to develop finance and tourism.
While Boston Consulting figures show Riyadh’s bankers can tap the world’s highest concentration of households worth more than $100 million, constraints on women stemming from the Wahhabi version of Sunni Islam may make it difficult to persuade expatriates to work there.
“For a financial center to flourish you need human capital, which will be a challenge for Riyadh given its various restrictions,” said Emad Mostaque, a London-based strategist at Noah Capital Markets. “ Dubai has the best infrastructure to attract human capital: schools, good housing, recreational activities.”