Page 86 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

70 PART I Background and Context

those of Bahrain, Dubai, and Qatar, it remains the single most impor-
tant destination for marketing to Gulf investors. Bahrain’s appeal as
an offshore banking center, for example, can largely be traced to its
role as a hub for serving Saudi capital and investors.

“Conglomerate Culture”
Most owners of private wealth in the Gulf today trace their fortunes
to family business enterprises that have prospered since the 1970s.
The process of nation building that occurred in the region as a result
of its increased prosperity and resources included a process of “enter-
prise building” by businessmen who were well placed and able to
deliver on their countries’ needs. As each country developed its eco-
nomic infrastructure across key sectors, business families served as
key partners of the state in bringing about development. This phe-
nomenon, which is by no means unique to the Gulf, has generated
companies and business groups that prosper to this day.
The relatively fragmented nature of the Gulf economies, the
(generally) protectionist economic policies of the time, and the basic
spirit of economic nationalism created an environment in which
business conglomerates could flourish in each country. Families that
built a successful enterprise in one industry were well positioned to
branch out into other industries, using their access to capital, rela-
tionships with decision makers, ability to execute, and credibility in
the marketplace. The banking sector is a prime example; each coun-
try needed its own set of banks, and merchant families were well
suited to start or invest in such banks. Competition was relatively
limited, since foreign financial institutions had highly limited access
to the local banking market. Similarly, lucrative distributorship and
franchise opportunities helped build merchant families’ enterprises.
Leading Gulf business families secured the rights to act as local dis-
tributors for top global firms (selling, for example, consumer goods
from the United States, automobiles from Europe, and electronics
from Japan) and were able to generate revenues based on the
brands, reputations, and business models of international firms. At
the same time, regulations that made it impossible for global busi-
nesses to enter GCC markets directly created a substantial opportu-
nity for local businessmen to strike partnerships. Even after the entry
of all GCC member countries into the WTO, key sectors are often
heavily regulated, and partnerships with local companies remain the
norm. 36