26 | August 2010 | A Middle East Point of View

Perhaps one of the most discussed topics in corporatefinance is Efficient Market Hypothesis. In a developedmarket such as the United States, that discussion centerson the strength of market efficiency. But in emergingmarkets such as the Middle East, and the GulfCooperation Council (GCC) countries in particular, wherethe securities markets have not kept pace with thespectacular growth witnessed in the last few years, thequestion is more whether Efficient Market Hypothesisholds at all in the region.

Impeding factorsA major factor that impacts market efficiency in the GCCis ownership restrictions. All public joint stockcompanies listed on the Dubai Financial Market (DFM)and the Abu Dhabi Securities Exchange (ADX) forexample, have to be 51% owned by UAE nationals. Theremaining 49% are further subdivided among non-GCCArabs and non-Arabs. Of the total 69 companies listedon the ADX, 53 have an average foreign ownership(primarily Arab) of only 14%. The remaining 16companies do not have any foreign ownership at all.Considering that foreigners make up over 80% of theUnited Arab Emirate’s population of around 6.9 million,the prices quoted for a sizeable percentage of the stocksonly reflect the views of a small minority of thepopulation. Albeit, this may well be consistent withwhere the local wealth lies.

Another important factor prevalent in the GCC marketsand that is common to emerging markets, has to dowith the availability of financial and other relevantinformation. Pertinent information that is available in an efficient and timely manner is essential to the properfunctioning of the market as it provides investors withthe basis with which to form their decisions. An April2010 study by The National Investor (TNI), a UAE-basedinvestment bank, mentions that the majority ofcompanies in the GCC do not announce the releasedate of annual reports in advance. Furthermore, manyof them do not publish annual reports in English, often

How do the GCCmarkets compare withmore developedeconomies in terms ofmarket efficiency? Nottoo well, according tothis author, thoughrecent developments have been encouraging.

Market effic in the Gulf

A Middle East Point of View | August 2010 | 27

Valuation

the functional business language of most of the region.Another factor that impacts decision-making is the levelof analyst coverage and in the GCC, only 26% of listedcompanies have analyst coverage.

Impact on the marketsA direct consequence of these impeding factors couldbe the low trading volumes observed in a majority ofthe listed securities. Many companies trade only a fewdays a year, which can result in stale prices. Most majorexchanges have witnessed an increase in volumes overthe last few years, however exchanges in the MiddleEast have not, except in a limited number of stocks. Onthe DFM, by way of example, three stocks onlyaccounted for almost 53% of the total volume traded inQ1 2010, to which the real estate company Emaarcontributed 43% of the total traded value.

The volume of trade on the regional exchanges isfurther affected by the lack of short selling and equityderivative products. The use of such products has beenlimited to Kuwait, which has offered some derivativesfor years, and more recently in the UAE (2005) with theDubai Gold and Commodities Exchange, which offeredmetals and currency futures and options. The use ofshort selling and derivative products further incorporatesthe market’s view, thus leading to better pricing of thesecurities. The UAE regulators were consideringintroducing these features a couple of years backthough the global financial crisis put a hold on suchplans. There are now reports suggesting that theSecurities and Commodity Authority is considering these once again.

In addition to structural factors, a distinct characteristicof the GCC market is the demography with a significantproportion of the population made up of expatriates.Their “temporary” stay in the country leads to whatbehavioural finance terms as “home country bias”,wherein people are more comfortable investing insecurities with which they are familiar and comfortablei.e. those in their “home country”. This of course furtherimpacts demand and consequently, pricing.

If the basic tenet of efficient markets is that prices arethe result of the market’s view of a company’s risk andprospects based on all publicly available information,then there are several factors that lead one to suggest

that the Middle East markets have some way to gobefore they come into line with more developedmarkets around the world. However, the Middle Eastmarkets have already come a long way and with furtherdevelopments such as the recent announcement thatMubadala will look to IPO investments, albeit in 5 to 8years’ time, and with the continued focus on the development of transparency levels and the adoption ofIFRS, interesting times lie ahead for exchange markets as the Middle East continues to close the gap. In themeantime, from a valuation perspective, speculatorsneed to be as ever aware of these factors and apply agreater degree of subjectivity when dealing with thevaluation of regional companies.

by Ben Moore, managing director, Valuation services,Deloitte Corporate Finance Limited

ciency

A not too efficient market, but the Middle East

continues to close the gap.

28 | August 2010 | A Middle East Point of View

Have governmentsbeen quicker thancorporations to advancetalented women? Yes, but the Middle East stillhas a long way to go

A Middle East Point of View | August 2010 | 29

Debates on the value of diversity and the empowermentand advancement of women have raged for centuries,but when it comes to gender equality, few achievementscan compare with the rising role of women ingovernment worldwide.

Paths To Power, a March 2010 report by Deloitte andForbes Insights, reveals that women worldwide arerapidly advancing in the public sector, makinggovernment a leading example for businesses. The studyreported that women hold chief executive andpresidential positions in only 3% of the world's top1,000 companies, yet almost 10% of United Nationscountries now have women heads of state, a hugeincrease from the three female heads of state in 1975.Women also hold about 20% of parliamentary seatsworldwide, nearly double that of 1995's 11.3%.However, only 9.4% of all jobs than higher VicePresident at Fortune Global 500 companies are women.

Women are advancing faster in government than inbusiness, but some countries are advancing faster thanothers and the report makes clear that women continueto have a low political impact in most parts of the world.

A Middle East snapshotIn the Middle East, women’s gains and their leadershipon public sector platforms remain unrecognized anduneven although they are entering politics andgovernment in growing numbers. Despite their increasedrepresentation, they continue to be significantly under-represented in senior positions in politics as well as inthe private sector.

Women in the Middle East have been at the core ofgovernments’ development work for a number of years,a very needed focus as on average, only 28% of theadult female population in the Middle East is

economically active, the lowest rate in the world. Whilethis statistic is consternating, in nearly all Middle Easterncountries, women today are better represented and arebeginning to play a more prominent role in theworkplace than was the case in the year 2000. Thisappears to be the result of increased literacy andeducational opportunities, slowly changing culturalattitudes and in some countries, government policiesaimed at reducing dependence on foreign labor.

An 18-nation study, Women's Rights in the Middle Eastand North Africa, 2010, led by Freedom House, foundthat while on the whole, Middle Eastern women stillsuffer from a “substantial deficit in women’s rights”, 15of 18 Arab countries have seen increases in women’sliteracy rates and suffrage over the past five years. Thestudy noted that GCC countries have demonstrated thegreatest degree of improvement, shrinking the gapbetween them and the rest of the region on someissues. The most significant achievement occurred inKuwait, where women received the same political rightsas men in 2005, enabling them to vote and run foroffice and paving the way for the election of thecountry’s first female members of parliament in 2009. Inthe United Arab Emirates (UAE), eight women wereappointed and one secured election to the 40-memberFederal National Council (FNC), an advisory body to therulers of the seven emirates. In Bahrain and the UAE, thefirst women judges were appointed in 2006 and 2008,respectively. In other countries, such as Oman andBahrain, the government has appointed an increasingnumber of women to unelected positions, includingcabinet and diplomatic posts. In Egypt, to increasewomen’s representation in the legislature, a gender-based quota system for the lower house of parliamentwas passed in 2009 and is scheduled for implementationin 2010. A quota for women was introduced formunicipal elections in Jordan and Lebanon among other

Women in the public sector

“The best clue to a nation’sgrowth and developmentpotential is the status androle of women.”(i)David S. Landes

countries in the region. In general, women have becomemore visible participants in public life, education andbusiness throughout the region, including Saudi Arabia.

Progress is occurring, but at a pace that is still too slowand what looks like progress may actually be deceptiveas increased female participation in Middle Eastgovernments does not necessarily translate into more women in decision-making roles, where they have opportunity to advance, affect change andinfluence policy.

More progress in the public sector in the MiddleEast will serve as a model for the private sectorA critical mass of women in leadership begets morewomen in leadership. Evidence suggests that oncefemale representation reaches critical mass – commonlycited figures hover around one-third as the tipping point– their shared interests as women emerge. Countrieswhere efforts to include women at the highest levels ofgovernment have been most successful have reapedrewards in the private sector as well. The increasingnumber of women in public service creates a criticalmass essential to the continual empowerment andadvancement of women in their societies: simply put,women in power begets more women in power.

There is a need to harness and continue to minethe wealth of female talent to improve thecompetitiveness of Middle Eastern countriesTalent is the most important natural resource a nationcan possess and knowledge is the most valuablecurrency in the 21st century economy. Therefore, it iskey to continue to advance the most talented women todecision-making levels as women are rapidly matching,or overtaking, men in terms of education in many partsof the world. More women than men in many countriesin the Middle East are now likely to attend university, insome countries, by a wide margin. There are morewomen entrepreneurs, more women doctors, morewomen PhDs, and more women in universities than everbefore. However, substantial roadblocks remain forwomen pursuing careers. Participation by women insenior roles translates to greater financial rewards inboth public and private sectors: the top 500multinational firms, which had at least three women ontheir boards, saw a 16.7% return on equity whileaverage companies just saw an 11.5% return. Thegreater the number of women, the greater thedifference -- those with the greatest number of womenon their boards had 53 percent greater return on equitythan those with the fewest.

Organizations in the public sector in the MiddleEast can address gender disparity throughdifferent tools Recruitment rates, promotion rates, turnover rates,assignment and leadership appointments, are some ofthe critical metrics that can be adopted. Organizations inthe public and private sectors have to establish aninstitutional approach to the advancement and retentionof women. They can raise the profile of women throughestablished networks, where women get to meet andbe mentored by other women through organizednetworking and mentoring events. They can alsopromote work-life integration by helping women

Only 28% of the adult femalepopulation in the Middle East iseconomically active, the lowest rate in the world. While this statistic isconsternating, in nearly all MiddleEastern countries, women today arebetter represented and are beginningto play a more prominent role in theworkplace than was the case in theyear 2000.

Only 9.4% of alljobs higher thanVice-President at

Fortune 500companiesare women.

30 | August 2010 | A Middle East Point of View

A Middle East Point of View | August 2010 | 31

accommodate their public role with their demands athome by providing accessible childcare and othersupport networks.

Numbers are also crucial for the inclusion of women inthe public and private spheres. Introducing quotas forfemale representation has been often used as one of themost effective methods for increasing femalerepresentation in the public sector.

It is not enough to hold public officeCapacity-building for governance is essential not only forwomen but for men as well. It is not enough to beelected or to be appointed to government servicewithout the ability to exercise that responsibilityeffectively. To address this need, Middle Eastgovernments need to invest in programs to strengthenthe skills and leadership abilities of women and menparliamentarians and other elected officials.

Middle East governments as leading example forbusinessesWomen’s progress has vital implications for the healthand growth of companies, governments and nations.On the frontlines of moderation, women are often thestrongest advocates for positive political, economic,educational, legal and social reform. There are still fewfemale role models in our region to encourage youngergenerations and entry barriers like gender prejudice,cultural pressures and a lack of resources often stand inthe way.

In the final analysis, the struggle of women to reachsenior levels cannot be seen as simply a “women’sissue,” but rather one of talent and economicdevelopment: women’s progress has vital implicationsfor the health and growth of Middle East governments,companies, and countries.

Deloitte is not only a signatory of the UN GlobalCompact, the corporate code of conduct focusedexclusively on empowering, advancing and investing inwomen worldwide, but was also involved in aninternational multi-stakeholder consultation process forcrafting the UNIFEM’s and the UN Global Compact’s“Women’s Empowerment Principles - Equality Means

Business.”Organizations in both the public and privatesectors in the Middle East should review its principlesand recommendations in adopting appropriatestrategies to address gender disparity.

By Rana Ghandour Salhab, ME Talent partner, Deloitte in the Middle East

(i) Landes, David, The Wealth and Poverty of Nations: Why Some areSo Rich and Some So Poor. New York: W. W. Norton & CompanyInc., 1998.

Sources

• Paths to Power: Advancing Women in Government, published byForbes Insights and Deloitte, March 2010. Available at:www.deloitte.com/pathstopower.

• Freedom House, Women's Rights in the Middle East and NorthAfrica 2010 - March 2010, available at: http://www.unhcr.org.

• The Women's Empowerment Principles are a set of Principles forbusiness offering guidance on how to empower women in theworkplace, marketplace and community. They are the result of acollaboration between the United Nations Development Fund forWomen (UNIFEM) and the United Nations Global Compact. Thedevelopment of the Principles included an international multi-stakeholder consultation process, which was launched in March2009:http://www.unglobalcompact.org/Issues/human_rights/equality_means_business.html.

Women in the public sector

11%

3%of the 195 nations have female heads of state

of CEOs of top 1000 multinational companies are women

40% of the workforce is women

• Establish high-level corporate leadershipfor gender quality

• Treat all women and men fairly at work-respect and support human rights andnondiscrimination

• Ensure the health, safety and well-beingof all women and men workers

• Promote education, training andprofessional development for women

• Implement enterprise development,supply chain and marketing practicesthat empower women

• Promote equality through communityinitiatives and advocacy

• Measure and publicly report on progressto achieve gender equality

Women’s Empowerment Principles