The rapid expansion and diversification of the financial sector must, despite the resulting occasional excesses, count as one of the great recent successes of the Gulf nations.

The past decade has seen the emergence of leading stock exchanges, non-bank financial institutions, and a steadily growing range of products. Much of this process has been sustainable and an important driver of economic growth.

Yet the financial sector remains a work in progress. The gains have been uneven and the current crisis, in addition to underscoring the value of conservative regulation, has emphasised the importance of addressing remaining anomalies. The most important fall under five headings:

● Debt capital. The development of debt capital markets in the region has been much more uneven than that of stock markets.

While the emergence of sharia alternatives to bonds laid the foundation for corporate sukuk – Islamic bonds – a lack of benchmarks and credit ratings complicated the situation. As a result, debt capital has remained a marginal presence. The current crisis quickly revealed this to be a vulnerability as bank lending and the initial public offerings dried up.

Positive developments are under way, however. Regulatory and institutional frameworks are emerging, along with a growing number of benchmark issues by sovereigns such as Qatar and Abu Dhabi, and companies such as Sabic and Saudi Electricity. Corporate restructuring and infrastructure projects create strong structural demand for debt capital.

● Building a solid foundation for housing. A property boom has made glass and concrete the public face of the Gulf economy. Yet the sector has an imperfectly regulated environment in which many ventures have focused on quick cash sales. As a result, the boom created a paradox: the rise of expensive office space and homes has been accompanied by acute shortages in many residential segments and a growing number of buyers priced out of the market.

The challenge is to foster a long-term investment culture, in which, for example, Saudi Arabia’s mortgage law promises to become a landmark. Regulation must also curb openly speculative behaviour and ensure that the quality of buildings produces a vibrant secondary market.

● Institutions. The importance of institutional investors remains marginal in the Gulf. The contrast with elsewhere is particularly pronounced in the case of collective savings vehicles. While pension, insurance and mutual funds dominate developed stock exchanges, they have a limited role in the region.

Mutual funds, however, have been increasing, while insurance has gained impetus from regulatory reform and the rise of compulsory policies. A growth opportunity would be the conversion of mandatory end-of-service benefits into funded schemes.

● Small is beautiful. Rapid population growth – in excess of 2.5 per cent a year – makes job creation a priority. Global evidence has demonstrated that small and medium-size enterprises are a leading source of jobs, ideas and entrepreneurial skills.

But SMEs in the region suffer from a lack of access to capital and advice. Fostering regional venture capital and private equity, along with low-cost government consultancy and start-up grants, remain priorities.

● Learning to look forward. The narrowness of the investable universe has hitherto left Gulf investors with a choice between volatile assets, such as equities and property, or cash as the default response to risk. The gradual transition towards more balanced long-term portfolios, a greater reliance on professionally managed collective investment schemes, and a culture of financial advice would mark a convergence with mature capital markets.

The financial sector is the bridge between the region’s large but fragmented pools of capital and its long-term economic needs, and efforts are under way to link the two. Progress will be an important element in maximising the broader economic impact of the financial sector and bolstering the growing international stature of the Gulf region.

Jarmo Kotilaine is chief economist at NCB Capital

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