Understanding the GCC Market Structure

Understanding the GCC Market Structure

What is a financial marketplace?

A financial market can be described as a spectrum term that refers to a place where buyers and sellers trade assets such as stock, currencies, and derivatives. These assets are priced according to their demand and supply.

There are two main types of financial markets depending on the kind of trade:

1. Capital market – Where securities such as stocks, bonds, and so on are traded. They can be traded. They can be traded for long-term investments.

2. Money market – High-liquidity items such as US Treasury bills, currencies, and others are traded in this market. They can be sold. These are short-term investments with equal odds of significant gains or big losses.

Why is the financial market so important?

Financial markets are a way to mobilize savings domestically and foreign capital for productive investment. The efficiency of a country’s financial markets is crucial for its economic growth. Inefficient financial markets will not allow you to compete globally and make you less competitive.

Its sophistication is unmatched.

* Encourages Foreign Direct Investment (FDI)

* Allows domestic companies to raise funds for expansion and growth

GCC Market Structure Overview

Since 2002, GCC has made it a priority to develop its financial markets. Their main goal has been to create local markets like the UAE market structure or the Kuwait market structure. They also want to make the GCC countries the financial center of the region. The GCC region cannot afford to lose oil prices and deplete its oil reserves. It must diversify its economy in order to achieve sustainable growth.

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Current GCC Market Structure

Although the Saudi Arabia market structure is solid (none collapsed after the Global Financial Crisis of 2008-09), it still lacks sophistication. Many domestic companies use retained earnings and traditional bank loans to fund their growth. According to a Deutsch Bank report, only 0.8% of the global capital volume is accounted for by the region, compared with their Asian and Latin American counterparts.

An IMF report states that only 1% of GCC countries make up the remaining share. Due to government involvement in economic activities and the weak private sector, the UAE market structure has a low percentage.

The ratio of financial assets to GDP is used to measure the development in the financial market. A distorted size of the financial industry is evident in the GCC’s 0.8% market share and its 1.7% global GDP.

However, the Kuwait market structure shows that the financial sector has a much higher share of GDP, at 14%. GCC’s total GDP includes only 6% finance chips.

The GCC capital structure presently shows that the countries are not only behind internationally in terms of economic potential but also in terms of development in the region.

Problems with the GCC’s Market Structure

* High concentration of banks, particularly in Saudi Arabia’s market structure. This is due to restricted access for private players. Public and domestic monopolies have created a poor investment environment and regional policies. Slowly, however, these policies are being removed to promote liberalization.

* Low competition has resulted in high prices, fewer financial instruments, and poor services.

* The GCC stock markets have fallen behind international standards due to a focus on Saudi Arabia’s largest sector. Saudi Arabia’s stock market contributes 61% to its total financial assets.

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* It is straightforward to make money through government projects. Financial institutions don’t play a role in allocating venture capital or risk.

The final word

Although the GCC region has already begun to liberalize and privatize the GCC market structure, there is still much work to be done. According to an IMF report, they should concentrate on the following reforms in the financial sector:

* Increase demand and supply
* Reducing government participation and opening up to foreign competition
* Improve the supervision and regulatory framework for banks
* Create efficient and effective capital tools for financing