Corporate Governance

Corporate Governance
in MENA
BUILDING A FRAMEWORK FOR COMPETITIVENESS
AND GROWTH
Corporate Governance
in MENA

BUILDING A FRAMEWORK
FOR COMPETITIVENESS AND GROWTH
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Please cite this publication as:

OECD (2019), Corporate Governance in MENA: Building a Framework for Competitiveness and Growth,
Corporate Governance, OECD Publishing, Paris.
https://doi.org/10.1787/2a6992c2-en

ISBN 978-92-64-78979-1 (print)

ISBN 978-92-64-39202-1 (pdf)

Corporate Governance
ISSN 2077-6527 (print)
ISSN 2077-6535 (online)

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 PREFACE │3

Preface

Sound corporate governance is a means of supporting the drivers of economic growth:

efficient capital markets, quality investment and a favourable business climate. Achieving
the economic ambitions of Middle East-North Africa (MENA) economies can be
supported by ongoing improvements in corporate governance policies and practices and
an alignment with international standards.
Ensuring a sound corporate governance framework goes beyond enhancing company
performance and access to capital. Fostering an environment of trust, transparency and
accountability is integral to boosting capital market development and competitiveness. In
the context of increasingly integrated global capital markets, where institutional investors
are more present,, it is essential to improve overall governance, transparency and
disclosure, to facilitate access to capital and to increase gender balance on boards.
MENA economies have undertaken reforms to encourage sound corporate governance
practices. However, progress takes time. The number of women on corporate boards
remains low. Other challenges include the reporting and disclosure of board information
(remuneration, qualifications, etc.); the protection of minority investors; related party
transactions; and beneficial ownership structures. Access to corporate finance also
remains limited in some economies, and improvements in the governance of state-owned
enterprises (SOEs) are needed. Targeted reforms in these areas will contribute both to
enhancing company performance and to boosting the region’s potential for inclusive
growth and competitiveness.
This publication presents the recent evolution of MENA corporate governance
frameworks and practices in four thematic areas: access to capital; transparency and
disclosure; gender balance in corporate leadership; and governance of SOEs. These topics
are addressed in reference to the G20/OECD Principles of Corporate Governance and the
OECD Guidelines on Corporate Governance of SOEs. Each chapter identifies common
challenges and proposes policy reforms. The experiences and practices of OECD
countries are also presented throughout the report to enrich the analysis, and each chapter
identifies key opportunities for increasing the capacities of relevant authorities and
institutions overseeing corporate governance policies.

CORPORATE GOVERNANCE IN MENA © OECD 2019

4 │ PREFACE

The report draws upon extensive research, policy discussions at the international and
regional levels, and insights from national experts through focus groups. It contributes to
a growing body of OECD work aimed at fostering sound corporate governance in MENA
economies with the aim of furthering the region’s development and prosperity.

Dr. Obaid Saif Al Zaabi Ms. Gabriela Figueiredo Dias

Chief Executive Officer Chairperson
Securities & Commodities Authority Comissão do Mercado de Valores Mobiliários
United Arab Emirates (CMVM)
Portugal

CORPORATE GOVERNANCE IN MENA © OECD 2019

 FOREWORD │5

Foreword

The MENA-OECD Competitiveness Programme was launched in 2016 at the request of

MENA governments. It covers the following jurisdictions: Algeria, Bahrain, Djibouti,
Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Palestinian
Authority, Qatar, Saudi Arabia, Tunisia, United Arab Emirates and Yemen.
The programme’s objective is to mobilise investment, private-sector development and
entrepreneurship in order to support economic growth and employment in the Middle
East-North Africa region. To achieve this objective, the programme adopts a horizontal
approach of policy dialogue and consensus building through the exchange of experiences
and good practices, as well as capacity building, to identify, implement and monitor
business climate reforms. It provides a platform for OECD and MENA economies to
discuss strategic responses to common challenges in the region, to explore ways to boost
inclusive growth and employment, and to foster regional and international integration.
The MENA-OECD Competitiveness Programme builds on work conducted under the
2005 MENA-OECD Investment Programme, and includes activities by the MENA-
OECD Working Group on Corporate Governance. The Working Group supports the
development of sound corporate governance frameworks and policies, which are essential
building blocks for boosting competitiveness, promoting private-sector development and
attracting capital. The Working Group supports reform efforts in MENA, using the
G20/OECD Principles of Corporate Governance and OECD Guidelines on Corporate
Governance of State-Owned Enterprises as a benchmark to enhance implementation of
the region’s policy priorities. The work on corporate governance feeds into and draws on
other work streams under the Competitiveness Programme.
Through the MENA-OECD Competitiveness Programme, the OECD provides policy
advice underpinned by comparative analytical work with a view to support policy
formation and implementation at the national and regional levels in MENA economies.
Building on a decade of experience, this approach promotes co-operation and mutual
learning among relevant players, including regional and international public institutions
and the private sector.
This publication, Corporate Governance in MENA: Building a Framework for
Competitiveness and Growth, is the fruit of a partnership among MENA policy makers
and the OECD. It aims to identify the main policy options for improving corporate
governance in the MENA region in four thematic areas: access to capital; transparency
and disclosure; gender balance in corporate leadership; and the governance of state-
owned enterprises.
A draft of each of this report’s four main chapters was discussed at a meeting of the
Working Group on Corporate Governance held in Rabat in December 2017. Building on
this discussion, thematic focus groups with representatives from MENA economies were
established to develop the chapters. Revised versions with policy recommendations were

CORPORATE GOVERNANCE IN MENA © OECD 2019

6 │ FOREWORD

discussed at a meeting of the Working Group held in Lisbon in July 2018. Each chapter
has since been revised based on feedback from regional experts.
The objective of this report is to share the rich reform experience emerging from the
MENA region and to serve as a useful tool for policy makers as well as other
stakeholders in search of good practice and effective policy instruments for implementing
their own national corporate governance reform efforts.

CORPORATE GOVERNANCE IN MENA © OECD 2019

 ACKNOWLEDGEMENTS │7

Acknowledgements

Corporate governance in MENA: Building a framework for competitiveness and growth is the
outcome of work conducted by the MENA-OECD Working Group on Corporate Governance,
under the auspices of the MENA-OECD Competitiveness Programme. The OECD is most
grateful to the Swedish International Development Co-operation Agency for their continued
support of this work.
The report was written under the guidance of Fianna Jurdant, Programme Leader, OECD.
The OECD would like to acknowledge the contributions of the following individuals and
organisations:
Chapter 2, “Facilitating access to finance and capital markets”, was developed by Aysegul Eksit.
The chapter benefits from the input of an expert thematic focus group composed of Khalid Al
Zaabi (Securities and Commodities Authority, UAE), Fadi Khalaf (Arab Federation of
Exchanges), Hamed Al Busaidi (Capital Market Authority of Oman), Nick Nadal (Hawkamah,
The Institute for Corporate Governance) and Hawkama El Djazair, Algeria.
Chapter 3, “Improving transparency and disclosure in MENA”, was developed by Aysegul Eksit.
The chapter benefits from the input of an expert focus group composed of Rainer Geiger (Finance
Watch), Shahad Abdulaziz Alissa (Capital Market Authority of Saudi Arabia), Bouchara El Falaki
(Autorité Marocaine du Marché des Capitaux) and Mohsen Adel (Egyptian Exchange).
Chapter 4, “Achieving gender balance in corporate leadership”, builds on desk research by Addie
Erwin. OECD research, drafting and editorial contributions were provided by Carla Meza and
Catriona Marshall, under the guidance of Fianna Jurdant (OECD, Directorate for Financial and
Enterprise Affairs). Valuable comments were provided by Nicola Ehlermann and Charlotte
Goemans (OECD Global Relations Secretariat), and the UAE Securities and Commodities
Authority. Policy options benefited from the input of an expert focus group composed of Lamia El
Bouanani (Moroccan Institute of Directors), Iman Al Damen (Jordan Forum for Business and
Professional Women), Yehia El Husseiny (International Finance Corporation) and Rasha El
Hassan (Rami Makhzoumi Corporate Governance Initiative), led by Catriona Marshall (OECD).
Chapter 5, “Enhancing governance of state-owned enterprises”, was prepared by Korin Kane
(OECD, Directorate for Financial and Enterprise Affairs), with oversight by Fianna Jurdant and
Hans Christiansen. Valuable comments were provided by Nicola Ehlermann (OECD Global
Relations Secretariat) and the UAE Securities and Commodities Authority. The chapter benefited
from contributions from an expert focus group composed of Samih Abdelaziz, Fatima Barnoussi,
Ahmed Belfahmi and Mustapha Boukhou (Ministry of Economy and Finance, Morocco);
Munqith Al Baker (Iraqi Institute for Economic Reform); Ali Harbi (Hawkamah El Djazair,
Algeria); Mohamed Hassouna (Ministry of Public Business Sector, Egypt); Nick Nadal and
Ashraf Gamal (Hawkamah Institute for Corporate Governance, UAE); and Shahzad Khan
(Mubadala, UAE).
The report was edited by Mary Bortin, and project co-ordination was provided by Katrina Baker
(OECD).

CORPORATE GOVERNANCE IN MENA © OECD 2019

 TABLE OF CONTENTS │9

Table of contents

Preface .................................................................................................................................................... 3
Foreword ................................................................................................................................................ 5
Acknowledgements ................................................................................................................................ 7
Abbreviations and acronyms .............................................................................................................. 13
Executive Summary ............................................................................................................................ 15
Chapter 1. Overview of corporate governance in MENA ............................................................... 17
1.1. Introduction................................................................................................................................. 18
1.2. Overall economic situation in MENA ........................................................................................ 18
1.3. Facilitating access to finance and capital markets ...................................................................... 20
1.4. Improving transparency and disclosure in MENA ..................................................................... 21
1.5. Achieving gender balance in corporate leadership ..................................................................... 22
1.6. Enhancing governance of state-owned enterprises ..................................................................... 23
Notes .................................................................................................................................................. 24
References.......................................................................................................................................... 24
Chapter 2. Access to finance and capital markets ............................................................................ 27
2.1. Introduction................................................................................................................................. 28
2.2. Why capital market development is vital in MENA ................................................................... 28
2.3. Corporate use of public equity markets ...................................................................................... 33
2.4. Stock exchanges in the region..................................................................................................... 37
2.5. Corporate use of bond markets ................................................................................................... 41
2.6. Corporate ownership structure .................................................................................................... 44
2.7. The way forward ......................................................................................................................... 46
Notes .................................................................................................................................................. 59
References.......................................................................................................................................... 60
Chapter 3. Improving transparency and disclosure in MENA ....................................................... 65
3.1. Introduction................................................................................................................................. 66
3.2. Corporate governance landscape in the MENA region .............................................................. 66
3.3. Transparency and disclosure: Key issues ................................................................................... 70
3.4. Disclosure of ownership ............................................................................................................. 79
3.5. Disclosure of related party transactions ...................................................................................... 83
3.6. Monitoring and enforcement of standards .................................................................................. 86
3.7. The way forward ......................................................................................................................... 87
Notes .................................................................................................................................................. 96
References.......................................................................................................................................... 96
Annex 3.A. Companies covered in the review of disclosure practices ............................................ 100
Annex 3.B. Definition of related party transactions in selected MENA economies ........................ 101

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Chapter 4. Achieving gender balance in corporate leadership ..................................................... 105

4.1. Introduction............................................................................................................................... 106
4.2. The case for gender balance in economic and corporate life .................................................... 106
4.3. Women in the workforce and in corporate leadership .............................................................. 110
4.4. Challenges faced by women in accessing corporate leadership positions ................................ 117
4.5. Good practices for increasing gender balance in corporate leadership ..................................... 120
4.6. The way forward ....................................................................................................................... 126
Notes ................................................................................................................................................ 131
References........................................................................................................................................ 132
Annex 4.A. OECD gender recommendations .................................................................................. 137
Annex 4.B. Policies and good practices in OECD countries ........................................................... 138
Chapter 5. State ownership in MENA ............................................................................................. 141
5.1. Introduction............................................................................................................................... 142
5.2. Corporate governance standards for state-owned enterprises ................................................... 142
5.3. The state ownership landscape in the MENA region ................................................................ 144
5.4. Sectoral distribution of state-owned enterprises in MENA ...................................................... 157
5.5. Collection and publication of data on state-owned enterprises ................................................. 162
5.6. The way forward ....................................................................................................................... 167
Notes ................................................................................................................................................ 172
References........................................................................................................................................ 172
Annex 5.A. Listing of strategic SOEs in the MENA region ............................................................ 175

Tables

Table 1.1. Key economic indicators for the MENA region, 2000-2017 ............................................... 19
Table 2.1. Main characteristics of MENA stock exchanges, 2017 ........................................................ 38
Table 2.2. Market capitalisation by sector in selected MENA exchanges, 2016 (%) ........................... 40
Table 2.3. MENA corporate bond markets, 2014.................................................................................. 42
Table 2.4. Corporate bond market development in MENA .................................................................. 43
Table 2.5. Policy options for improving access to capital markets ....................................................... 48
Table 3.1. Corporate governance codes in MENA ................................................................................ 67
Table 3.2. Strength of auditing and accounting standards, 2018 (1-7) .................................................. 74
Table 3.3. Extent of corporate transparency index, 2019 ...................................................................... 74
Table 3.4. Information disclosed by 15 of the largest MENA companies ............................................ 76
Table 3.5. Information least disclosed by 15 of the largest MENA companies .................................... 78
Table 3.6. Disclosure obligations of substantial shareholders ............................................................... 81
Table 3.7. Disclosure obligations of directors ....................................................................................... 82
Table 3.8. Policy options for improving transparency and disclosure .................................................. 90
Table 4.1. MENA constitutional provisions on equality and non-discrimination ............................... 110
Table 4.2. National vs. non-national women working in selected GCC countries .............................. 113
Table 4.3. Market capitalisation and voting women board members by MENA exchange ................ 116
Table 4.4. Women on MENA audit, nomination and remuneration committees (%) ......................... 117
Table 4.5. Selected MENA initiatives to increase gender balance in corporate leadership ................ 125
Table 4.6. Policy options for promoting gender balance in corporate leadership ............................... 127
Table 5.1. Overview of state ownership arrangements in MENA....................................................... 145
Table 5.2. Decentralised state ownership arrangements in Iraq .......................................................... 146
Table 5.3. State-owned companies among MENA’s 100 largest listed companies, 2017 .................. 154
Table 5.4. Saudi Public Investment Fund listed shareholdings ........................................................... 160

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 TABLE OF CONTENTS │ 11

Table 5.5. Publicly available data on state-owned enterprises in MENA ........................................... 163
Table 5.6. Aggregate value and performance of SOEs in Sweden ...................................................... 165
Table 5.7. Example of company-specific reporting: Sweden’s postal service .................................... 166
Table 5.8. Policy options to inform effective state ownership reforms ............................................... 169

Figures

Figure 1.1. The size of MENA economies, 2017 .................................................................................. 19

Figure 2.1. Firms identifying access to finance as a major constraint, 2011-17 (%) ............................ 29
Figure 2.2. Bank concentration ratios, 2015 (%) ................................................................................... 29
Figure 2.3. Stock market capitalisation to GDP, 2016 (%) ................................................................... 30
Figure 2.4. Value of collateral required for a loan (% of loan amount) ................................................ 31
Figure 2.5. Initial public offerings in the MENA region, 2008-17........................................................ 34
Figure 2.6. Number of IPOs per country, 2014-17 ................................................................................ 34
Figure 2.7. Total value of MENA IPOs, 2014-17 (USD billion) .......................................................... 35
Figure 2.8. Non-financial IPOs in the MENA region............................................................................ 35
Figure 2.9. Sectoral breakdown of small IPOs in MENA, 2014-17 ...................................................... 36
Figure 2.10. Ownership structure of MENA stock exchanges .............................................................. 37
Figure 2.11. Market capitalisation as a percentage of GDP .................................................................. 39
Figure 2.12. Number of listed companies on MENA exchanges .......................................................... 39
Figure 2.13. Corporate bond issuances as a percentage of GDP (average) ........................................... 42
Figure 2.14. Main policy areas for better access to capital markets ...................................................... 48
Figure 3.1. Extent of conflict of interest regulation index (0-10).......................................................... 72
Figure 3.2. Extent of shareholder governance index (0-10) .................................................................. 73
Figure 3.3. Main policy areas for improving transparency and disclosure ........................................... 89
Figure 4.1. The global gender income gap has widened ..................................................................... 107
Figure 4.2. Women in management and the labour force in OECD countries (%) ............................. 111
Figure 4.3. MENA labour force participation rates by gender (2017) ................................................ 112
Figure 4.4. MENA listed companies with women on the board of directors (%) ............................... 114
Figure 4.5. Voting women board members by MENA exchange (%) ................................................ 115
Figure 4.6. Voting women board members in MENA listed companies by sector (%) ...................... 116
Figure 4.7. Main policy areas to promote gender balance in corporate leadership ............................. 127
Figure 5.1. Spectrum of state ownership models................................................................................. 155
Figure 5.2. Sectoral distribution of strategic SOEs in 16 MENA economies, 2013 ........................... 158
Figure 5.3. Sectoral distribution of SOEs in Morocco, 2017 .............................................................. 159
Figure 5.4. Sectoral distribution of SOEs in the OECD area, 2015 (by value) ................................... 161
Figure 5.5. Sectoral distribution of SOEs held by the Saudi investment fund, 2015 (by value) ......... 162
Figure 5.6. SOE aggregate reporting practices globally ...................................................................... 164
Figure 5.7. Main policy areas for informed state ownership practices ................................................ 168

Boxes

Box 2.1. Saudi Arabia’s Financial Sector Development Programme ................................................... 50

Box 2.2. SME markets around the world .............................................................................................. 54
Box 3.1. Promotion of disclosure by Egypt’s stock exchange .............................................................. 68
Box 3.2. Recent improvements in Saudi Arabia’s corporate governance framework ........................... 73
Box 3.3. Initiatives for effective investor relations ............................................................................... 93
Box 3.4. The Omani regime for disclosure of related party transactions .............................................. 95
Box 4.1. Impact of gender diversity on company performance in Jordan ........................................... 109
Box 4.2. Global gender trends in corporate leadership ....................................................................... 112

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Box 4.3. The economic cost of gender-based discrimination.............................................................. 118

Box 4.4. Dell EMEA’s Men Advocating for Real Change campaign ................................................. 123
Box 5.1. OECD Guidelines on the corporate governance of SOEs..................................................... 143
Box 5.2. Co-ordinated state ownership in Morocco ............................................................................ 147
Box 5.3. The state holding company approach in Abu Dhabi ............................................................. 149
Box 5.4. State ownership reforms in Morocco .................................................................................... 151
Box 5.5. State ownership reforms in Tunisia ...................................................................................... 152
Box 5.6. Lithuania’s state ownership co-ordination body ................................................................... 157
Box 5.7. Good practice on the publication of SOE aggregate reports ................................................. 165
Box 5.8. Avenues for future work on state ownership ........................................................................ 170

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 ABBREVIATIONS AND ACRONYMS │ 13

Abbreviations and acronyms

CEDAW Convention on the Elimination of Discrimination against Women

EBRD European Bank for Reconstruction and Development
EEA European Economic Area
ESG Environmental, Social and Governance criteria
EU European Union
FATF Financial Action Task Force
GCC Gulf Co-operation Council
GDP Gross Domestic Product
GFDD Global Financial Development Database (World Bank)
IAS International Accounting Standards
IFC International Finance Corporation
IFIAR International Forum of Independent Audit Regulators
IFRS International Financial Reporting Standards
ILO International Labour Organisation
IOSCO International Organization of Securities Commissions
IPO Initial Public Offering
ISA International Standards on Auditing
MSCI ESG Morgan Stanley Capital International ESG indexes
NAICS North American Industry Classification System
OECD Organisation for Economic Co-operation and Development
RPT Related Party Transactions
SEC Securities and Exchange Commission
SME Small and Medium-Sized Enterprise
SOE State-owned Enterprise
SPO Secondary Public Offerings
SSE Sustainable Stock Exchanges initiative
UAE DIFC United Arab Emirates Dubai International Financial Centre
UASA Union of Arab Securities Authorities
UNDP United Nations Development Programme
UNIDO United Nations Industrial Development Organization
WFE World Federation of Exchanges

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 EXECUTIVE SUMMARY │ 15

Executive Summary

Corporate governance as a means of building competitiveness and growth is an increasing

priority for policy makers and the private sector across the Middle East and North Africa
(MENA) region. During the last decade, MENA economies have responded to a shifting
global and regional landscape by embarking on an era of transformation characterised by
economic diversification and reform. In particular, citizens have called for governance
reforms and an inclusive society with social and economic opportunities for all.
This report looks at the corporate governance landscape in the MENA region in order to
identify challenges and propose recommendations going forward. It is based on the
analysis of policies and practices in four thematic areas.
The first area explores how strengthened corporate governance policies can facilitate
access to corporate finance and capital markets, particularly for the growth companies
that contribute to building the economic prosperity of tomorrow. It examines the region’s
corporate landscape, including ownership structures, limits on foreign ownership, and the
role of key institutions such as securities regulators.
The second area considers the role of transparency and disclosure in providing the
information necessary for investors to evaluate opportunities and risks. Transparency also
helps companies make sound business decisions and improve their performance. It
reviews the corporate governance framework in MENA and looks at international efforts
to enhance investor protection via a fair, efficient and transparent market.
The third area examines the importance of increasing women’s participation in corporate
leadership as a means to achieve the inclusive economic growth needed to boost the
region’s competitiveness. It highlights the positive impact on company performance of
women’s participation in corporate decision-making, investigates the career barriers faced
by women in MENA and stresses the need for better data to inform policy design.
The fourth area examines how improved corporate governance can help state-owned
enterprises (SOEs) operate efficiently, transparently and on a level playing field with
private companies. It notes that a lack of data hinders evaluation of state ownership in
MENA and that professional ownership and governance practices are needed to maximise
SOEs’ contributions to the economy and society.
Overall, the report finds that MENA economies have made progress in strengthening
corporate governance frameworks in recent years, but that the region still faces challenges
in adopting and implementing measures that support the economic efficiency, sustainable
growth and financial stability needed to foster development.
Based on these findings, the report makes the following key recommendations:
 Develop strategies for capital market development, based on strengthened
corporate governance policies, increase opportunities for growth companies to
access finance and contribute to the region’s overall economic development.
Analysis of MENA’s capital markets indicates that they do not reflect the

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16 │ EXECUTIVE SUMMARY

potential of the region’s economies. Steps that can help build capital market
growth include: preparing a national action plan; enhancing the monitoring
capacity and accountability of securities regulators; improving market based
financing alternatives; and developing the investor base, including by relaxing
foreign ownership limits.
 Benefit from international good practices on transparency and disclosure to
improve the effectiveness of the region’s corporate governance frameworks.
Analysis of MENA’s corporate transparency practices highlights two areas of
concern: disclosure of beneficial ownership and of related party transactions.
Steps that can boost investor confidence include: strengthened disclosure rules on
ultimate beneficial ownership, related party transactions and remuneration of
board members; effective supervision and enforcement of corporate disclosure
rules; inclusion of corporate governance reporting in annual reports; and
promotion of shareholder engagement.
 Emphasise the importance of including gender diversity in policy frameworks
as a first step towards facilitating gender balance in corporate leadership. Analysis
of the participation of women in corporate decision-making roles in MENA
shows that constitutional measures on non-discrimination against women have not
yet translated into company practices. Steps that can promote women’s
participation in corporate leadership roles include: introducing targeted measures
to encourage gender balance; combining national goals with company strategies;
and providing training and mentoring to shift values.
 Gather and disclose information on state-owned enterprises to strengthen
accountability and help improve their performance. Analysis shows that the
exercise of state ownership in most MENA economies remains dispersed across
the public administration, with ministries often simultaneously holding ownership
and regulatory roles. Steps that can enhance the contribution of SOEs to economic
development include: harmonising their corporate governance and disclosure
standards; clearly defining their financial and non-financial objectives; collecting
data on their performance; and preparing aggregate reports on their operations to
strengthen accountability.

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 1. OVERVIEW OF CORPORATE GOVERNANCE IN MENA │ 17

Chapter 1. Overview of corporate governance in MENA

A strong corporate governance framework is essential for MENA economies as they

strive to promote growth and build prosperous societies. The G20/OECD Principles of
Corporate Governance, the OECD Guidelines on Corporate Governance of State-Owned
Enterprises and OECD Gender Recommendation are important references for building
such a framework. This chapter provides an overview of the main findings and policy
options in the successive chapters. It first gives a snapshot of the overall economic
situation in MENA, then addresses each of the chapters on access to finance and capital
markets, improving transparency and disclosure, achieving gender balance in corporate
leadership and state ownership in MENA.

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18 │ 1. OVERVIEW OF CORPORATE GOVERNANCE IN MENA

1.1. Introduction

A strong corporate governance framework is essential for MENA economies as they

strive to promote growth and build prosperous societies. The G20/OECD Principles of
Corporate Governance stress that sound corporate governance supports economic
efficiency, sustainable growth and financial stability (OECD, 2015a).
At present, MENA corporate governance policies and practices could be further aligned
with international standards to attract investors and contribute to economic development.
Corporate governance challenges in the region include: concentrated ownership
dominated by families and the state, underdeveloped capital markets, the need for a more
transparent business culture and modest participation by women in corporate leadership.
This report reviews the corporate governance landscape across the Middle East and North
Africa region and proposes pathways for decision makers to build a stronger corporate
governance framework to support competitiveness and growth.
It examines why corporate governance matters for the region and why it is important to
build a framework that: promotes capital market development for growth companies,
enhances transparency and disclosure, supports women’s participation in corporate
leadership and improves the corporate governance of state-owned enterprises.
This report was prepared by the MENA-OECD Working Group on Corporate
Governance in co-operation with representatives from the MENA jurisdictions under
review: Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya,
Mauritania, Morocco, Oman, Palestinian Authority, Qatar, Saudi Arabia, Tunisia, UAE
and Yemen.
International experiences in developing sound corporate governance policies and
examples of good practices are presented to highlight possible avenues for reform that
could be considered by MENA policy makers and practitioners. Three internationally
recognised standards provide a benchmark: the G20/OECD Principles of Corporate
Governance (OECD, 2015a), the OECD Guidelines on Corporate Governance of State-
Owned Enterprises (OECD, 2015b), and OECD Gender Recommendation
(OECD, 2017a).

1.2. Overall economic situation in MENA

The MENA region is economically diverse despite its common language and shared
history. Gross domestic product (GDP) per capita varies widely, from high levels in the
Gulf countries, with their wealth of natural resources and relatively small populations, to
lower levels in other areas of the region. In 2017, for example, Qatar’s GDP per capita
was 110 times that of Yemen.
The region’s overall GDP was USD 2.37 trillion in 2017, representing only 3% of global
GDP (Figure 1.1) (IMF, 2018). The total population stood at 353 million in 2017, ranging
from under 1 million in Djibouti to 97 million in Egypt (World Bank, 2018).

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 1. OVERVIEW OF CORPORATE GOVERNANCE IN MENA │ 19

Figure 1.1. The size of MENA economies, 2017

(GDP, current prices, USD billion)

Djibouti
Yemen
Bahrain
Tunisia
Jordan
Lebanon
Oman
Morocco
Kuwait
Qatar
Algeria
Iraq
Egypt
United Arab Emirates
Saudi Arabia
0 100 200 300 400 500 600 700 800

Note: The Palestinian Authority is excluded due to a lack of comparable data.

Source: IMF World Economic Outlook Database (April 2018).

Over the past decade, oil exporters have benefitted from high oil prices and used the
proceeds to modernise infrastructure and create employment (Fasano-Filho and
Iqbal, 2003). In 2014, oil accounted for more than 60% of total exports in oil-exporting
MENA economies, with the exception of UAE (IMF, 2016a). As a result, economic
linkages among countries in the region mean that non-oil-exporting MENA economies
also benefitted from oil revenues. This benefit came in the form of investments from oil-
exporting economies and had knock on effects on a range of activities including tourism,
which in turn bolstered the labour market.
However, the sharp fall in oil prices in late 2014 resulted in deteriorated economic
conditions, leading to higher fiscal deficits (Table 1.1).

Table 1.1. Key economic indicators for the MENA region, 2000-2017

Average 2000-2014 2015 2016 2017

Real GDP (annual growth, %) 5.1 3.2 3.1 1.7
Current account balance (%) 10.6 -5.1 -6.1 -1.4
Overall fiscal balance 4.7 -10.1 -11.3 -6.2
Inflation p.a. (annual growth, %) 4.7 4.6 4.0 5.8

Note: The indicators group Algeria, Bahrain, Djibouti, Egypt, Iraq, Kuwait, Lebanon, Libya, Mauritania,
Morocco, Oman, Palestinian Authority, Qatar, Saudi Arabia, Syria, Tunisia, UAE and Yemen, as well as
Somalia and Sudan.
Source: IMF Middle East and Central Asia Regional Economic Outlook.

In addition to difficult economic conditions, ongoing political conflicts have led to

weaker investor confidence in the region. Foreign direct investment has also declined
since the 2008 global financial crises and the 2011 Arab Spring (UnctadStat, 2017).

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1.3. Facilitating access to finance and capital markets

Good corporate governance helps decrease capital costs and supports access to capital for
corporations (OECD, 2015a). Although MENA economies are at different stages of
capital market development, common features can be identified in the region.
Access to finance is a constraint on the development of the private sector, especially for
small and medium-sized enterprises (SMEs) and growth companies1, due to the region’s
high concentration of banking intermediation, high collateral requirements, limited
sectoral diversification and high share of big companies in capital markets.
MENA banking systems dominate the region’s economic landscape, with bank deposits
in 2015 accounting for 80% of GDP in the region, compared with a global average of
50% (World Bank GFDD, 2018).
The average private sector credit-to-GDP ratio in the region is comparable with peer
economies, with the exception of the Gulf Co-operation Council (GCC) economies. In
those economies, average banking intermediation, as measured by private sector credit to
GDP, was 54% for 2011-2015, substantially below peer countries (78% for high-income
economies).
The size of MENA stock markets, at 1.42% of world market capitalisation in 2017, is
very low considering that the region contributes 3% to global GDP. However, stock
market capitalisation varies widely among MENA economies, from 78% of GDP in Qatar
and 66% in Saudi Arabia to 22% in Tunisia and 19% in Egypt. As of 2017, equity
markets in MENA (excluding Djibouti, Libya, Mauritania and Yemen) had 1 456 listed
companies, with a market capitalisation of USD 1 128 billion.
Deep and efficient capital markets could help to improve access to corporate finance.
Studies suggest that there is a positive link between strong corporate governance and
capital market development. A better corporate governance framework promotes deeper,
more liquid and more efficient capital markets (IMF, 2016b).
There is also evidence that company-level corporate governance quality can enhance both
a company’s ability to access finance and its financial performance (Haque et al., 2008;
IMF, 2016b), and that companies with better governance have higher market valuation
(Cheung et al., 2014).
The Hawkamah/S&P Pan Arab ESG Index, which tracks the top 50 listed companies in
11 MENA markets that have superior performance according to environmental, social
and governance (ESG) factors, has outperformed the pan Arab S&P Index since its
launch in 2011. This result suggests that investors have taken corporate governance
practices into account when deciding where to invest. A large number of MENA
companies are also listed abroad, where they are generally subject to higher disclosure
standards (GOVERN, 2016).
A sound corporate governance framework facilitates capital market development over
time. Investors need assurance that their rights will be protected when they invest in
capital markets. Similarly, companies will not be willing to use capital markets without
clear responsibilities defined by the rule of law (OECD, 2015c).
This report finds that MENA’s capital markets do not reflect the potential of the region’s
economies. In addition to the factors noted above, the total value of growth company
initial public offerings (IPOs) and low sectoral diversification in equity markets suggest
that a limited number of companies have access to capital markets.

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Bank lending in the region is channelled to large companies, particularly state-owned

enterprises (SOEs) and large industrial firms, leaving SMEs and growth companies
deprived of bank credit.
The reluctance of family-owned companies to disclose information or dilute their shares
by going public affects capital market development in the region. Restrictions on foreign
ownership are also a key obstacle to greater foreign investment in the region.
Capital market development would increase opportunities for growth companies to access
finance and contribute to the region’s overall economic development. Better corporate
governance is crucial in this regard.
Sound corporate governance can positively impact company performance, access to
finance, cost of capital, company valuation and the performance of capital markets.
Consequently, it promotes the development of deep and broad capital markets, which are
essential for growth companies, and this in turn fosters economic development.

1.4. Improving transparency and disclosure in MENA

Transparency and disclosure in listed companies is a key component of the framework

needed to promote private sector development in the MENA region and therefore a
crucial issue.
Transparency and the disclosure of accurate, timely and relevant information form the
basis for efficient capital allocation and a sound capital market. Assuring that investor
rights are protected attracts domestic and foreign investors to participate in the capital
market by creating an environment of trust, transparency and accountability.
Better disclosure lowers the cost of capital (Barth et al., 2013), reduces monitoring costs,
heightens investor confidence and strengthens market competitiveness (Leuz and
Wysocki, 2016). To attract equity investment, economies need a sound corporate
governance framework that requires credible disclosure.
The G20/OECD Principles of Corporate Governance call for a country’s corporate
governance framework to ensure timely and accurate disclosure on all material matters
regarding the corporation, including its financial situation, performance, ownership and
governance.
This report finds that although MENA economies have taken steps to improve corporate
transparency and disclosure, challenges persist in the region.
The majority of listed MENA companies have concentrated shareholders in the form of
sovereign investors or founding owners, such as families (Amico, 2014). Ownership
structures can affect transparency and disclosure, with the quality of voluntary disclosure
often decreasing when ownership is more concentrated.
Two areas are particularly challenging for MENA economies: disclosure of beneficial
ownership and disclosure of related party transactions and their terms.
Regulations on beneficial ownership in the region generally require major shareholders
and directors of listed companies to disclose their ownership, in line with global good
practice. However, despite improvements in regulation, challenges persist, especially in
relation to the identification and disclosure of ultimate beneficial owners.

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Definitions of related party transactions have improved, but requirements on the method
and timing of disclosure vary across the region, and many MENA economies have not
adopted thresholds for disclosure and shareholder approval.
In order to strengthen the effectiveness of their corporate governance frameworks,
MENA economies should continue their reform efforts with respect to transparency and
disclosure based on international standards and good practices.
Policy makers and companies should strive to ensure full and proper disclosure of
ownership and related party transactions, effective supervision and enforcement of
disclosure regulations, and greater shareholder engagement through stronger protection of
minority investors’ rights. The desirable mix of legislation and voluntary codes should be
defined according to each economy’s distinctive features.
Complementing the efforts of policy makers, companies can take immediate action to
improve their disclosure practices. In order to attract investors to the region, company
websites need to be updated regularly, with more reports made available online in
English, including corporate governance reports.
Such efforts can lead to greater investor confidence, stronger market reputation and fluid
access to finance, thus contributing to the overall growth and development of the region’s
economies and companies.

1.5. Achieving gender balance in corporate leadership

Advancing gender balance at corporate decision-making levels has become a goal for
companies around the world. Increasing gender balance in corporate leadership roles is a
priority for OECD countries, and most have initiated policies to promote gender balance
on company boards and in senior management.
There is strong impetus for MENA economies to embrace initiatives that empower and
promote women in the corporate sphere. Women’s leadership is increasingly seen as a
cornerstone for building competitive, value-creating companies and, by extension,
resilient, inclusive economies.
The introduction of measures that aim to promote greater gender balance has helped
MENA economies to align constitutional guarantees of equality and equal opportunity
with international commitments. However, not all MENA economies have seen results in
corporate practice, and closing the gender gap in corporate decision-making roles remains
a challenge in the region.
This report finds that corporate governance codes in MENA economies rarely include
gender diversity; that the region lacks targeted measures to encourage gender balance in
corporate leadership; and that company and securities laws generally do not mandate the
disclosure of board composition and senior management by gender.
Moreover, MENA legal frameworks and social norms, including family codes, play a role
in driving gender gaps in the labour market, including at the corporate leadership level.
Galvanising change will require increased engagement between MENA governments and
the private sector to develop an environment conducive to greater gender balance on
boards and in top-level executive positions.
The G20/OECD Principles of Corporate Governance encourage countries to pursue a
range of policies and initiatives to enhance gender diversity on boards and in senior

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management. Policies can include quotas or targets, reporting requirements, voluntary

disclosure by companies of gender composition, increasing board size and actively
recruiting qualified women to replace outgoing male board members. These policies can
be driven by governments, regulators and companies with measures adapted to specific
contexts.
Goals and policies can be underpinned by strategies aimed at fostering gender balance
throughout the company and the career cycle of women. Good practice examples that
have been used in the region include leadership training and mentoring programmes.
A key challenge in MENA is the difficulty of assessing women’s participation in
corporate leadership due to limited disclosure and a lack of reliable data. In order to
design appropriate policies, more and better-quality data are needed at the national and
regional levels and from companies.
Sustainable measures are required to shift negative attitudes surrounding the ability of
women to lead and to accelerate their path to leadership. A “whole of company” diversity
framework and conducive human resource policies in areas such as recruitment are
needed to create an ecosystem that facilitates women’s corporate leadership in the region.

1.6. Enhancing governance of state-owned enterprises

State-owned enterprises are fundamental elements of the MENA region’s economic

architecture. They operate across a wide range of sectors, are strategically important and
often provide public services to citizens.
SOEs can contribute alongside private enterprises to well-functioning economies and
societies if they are well governed and efficient. Transparency on their operations and
objectives is crucial for maximising their economic and societal contributions.
State ownership gives rise to unique governance and regulatory risks that can prevent
SOEs from creating optimal value for the economy and society. For example, if a state
body is simultaneously responsible for exercising ownership rights in an SOE and
regulating the competitive market in which it operates, this can lead to decisions being
taken in the interest of a single enterprise at the expense of market efficiency and
competitiveness.
This report finds that the exercise of state ownership remains dispersed across the public
administration in the majority of MENA economies. Ministries in many cases
simultaneously exercise ownership and regulatory roles, which can lead to conflicting
objectives.
As markets liberalise and are opened to greater competition with private companies, and
as the region’s SOEs become increasingly active in trade and investment abroad,
concerns may arise about how their competitive conditions at home impact the global
level playing field.
Moreover, information on SOEs is limited in the region. The scarcity of data on their
objectives and performance limits MENA governments’ ability to implement informed
ownership policy reforms. Without transparency on SOE operations, it is difficult to
make the state and corporate boards accountable for their performance.
The lack of available information on SOEs extends to their identity: information on which
companies are state-owned is often not available to the general public, who are the
ultimate “shareholders” of SOEs. Elucidating MENA’s state ownership landscape

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through greater transparency could inform improvements in state ownership practices and
ultimately help to ensure that SOEs operate efficiently, transparently and on a level
playing field with private companies. Furthermore, and although many MENA
governments have taken measures in recent years to improve state ownership and
governance practices, the report finds that there is scope for further professionalisation of
state ownership practices. This could be supported by the development of harmonised
corporate governance standards applicable to all SOEs.
The OECD Guidelines on Corporate Governance of State-Owned Enterprises, presented
in Chapter 5, provide a blueprint for ensuring that SOEs operate efficiently, transparently
and on a level playing field with private enterprises. As MENA governments consider
undertaking policy and legislative reforms to improve the corporate governance of SOEs,
this document can serve as a guidepost.

Notes

1
In the OECD capital market series work, ‘growth companies’ are classified as those with an IPO
size of less than USD 100 million, combined with the Eurostat-OECD (2007) definition which
describes growth companies as those with an average turnover or employee growth greater than
20% per annum over a period of three years.
References

Amico, A. (2014), "Corporate Governance Enforcement in the Middle East and North Africa: Evidence
and Priorities", OECD Corporate Governance Working Papers, No. 15, OECD Publishing, Paris,
https://doi.org/10.1787/5jxws6scxg7c-en.
Barth, M.E., Y. Konchitchki and W.R. Landsman (2013), “Cost of Capital and Earnings Transparency”,
Journal of Accounting & Economics, Vol. 55/2-3, pp. 206-224, Rochester, NY.
Cheung, Y-L. et al. (2014), “Corporate Governance and Firm Valuation in Asian Emerging Markets”, in
Boubaker S. and D. Nguyen (eds.), Corporate Governance in Emerging Markets: Theories, Practices
and Cases, Springer Verlag, Berlin Heidelberg.
Fasano-Filho, U. and Z. Iqbal (2003), “GCC Countries: From Oil Dependence to Diversification”, IMF
Working Papers, International Monetary Fund, Washington, DC.
GOVERN (2016), What Role for Institutional Investors in Corporate Governance in the Middle East and
North Africa?, The Economic and Corporate Governance Centre, Paris.
Haque, F., T.G. Arun and C. Kirkpatrick (2008), “Corporate Governance and Capital Markets: A
Conceptual Framework”, Corporate Ownership and Control, Vol. 5/2, pp. 264-276, Virtus Interpress,
Sumy, Ukraine.
IMF (2018), IMF World Economic Outlook Database (accessed April 2018).
IMF (2016a), “Economic Diversification in Oil-Exporting Arab Countries”, Report to Annual Meeting of
Arab Ministers of Finance, International Monetary Fund, Washington, DC.
IMF (2016b), “Corporate Governance, Investor Protection, and Financial Stability in Emerging
Markets”, IMF Global Financial Stability Report, International Monetary Fund, Washington, DC.
Leuz, C. and P.D. Wysocki (2016), “The Economics of Disclosure and Financial Reporting Regulation:
Evidence and Suggestions for Future Research”, ECGI Working Paper Series in Law, European
Corporate Governance Institute, Brussels.

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 1. OVERVIEW OF CORPORATE GOVERNANCE IN MENA │ 25

OECD (2017a), 2013 OECD Recommendation of the Council on Gender Equality in Education,
Employment and Entrepreneurship, OECD Publishing, Paris,
https://doi.org/10.1787/9789264279391-en.
OECD (2017b), Report on the Implementation of the OECD Gender Recommendations, Prepared for the
Meeting of the OECD Council at Ministerial Level, Paris, www.oecd.org/mcm/documents/C-MIN-
2017-7-EN.pdf.
OECD (2015a), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris,
https://doi.org/10.1787/9789264236882-en.
OECD (2015b), OECD Guidelines on Corporate Governance of State-Owned Enterprises, OECD
Publishing, Paris, https://doi.org/10.1787/9789264244160-en.
OECD (2015c), Growth Companies, Access to Capital Markets and Corporate Governance, OECD
report to G20 finance ministers and Central Bank governors, September 2015,
www.oecd.org/g20/topics/framework-strong-sustainable-balanced-growth/OECD-Growth-
Companies-Access-to-Capital-Markets-and-Corporate-Governance.pdf.
UnctadStat (2017), Foreign Direct Investment: Inward and Outward Flows and Stocks, annual, 1970-
2016 (database), United Nations Conference on Trade and Development, Geneva.
World Bank (2018), World Bank Open Data (database, accessed on 28 November 2018).
World Bank GFDD (2018), World Bank Global Financial Development Database.

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Chapter 2. Access to finance and capital markets

Access to finance and capital markets is essential for growth and economic
competitiveness. This chapter investigates MENA capital markets in order to identify
common priorities for achieving progress, consistent with the G20/OECD Principles of
Corporate Governance. It provides an overview of MENA’s capital markets and goes on
to explore factors limiting access to finance, comparing the situation in the region with
global trends when possible. The chapter explores how MENA’s companies use public
equity financing and corporate bond markets, reviews the structure of its stock exchanges
and examines the region’s corporate ownership structure, including concentrated
ownership and limits on foreign investors. It concludes with a summary of key challenges
to growth in the region, followed by policy options for deepening capital markets and
enabling growth companies to obtain finance from them.

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2.1. Introduction

MENA economies face the challenges of sometimes sluggish economic growth, limited
economic diversification and high unemployment, especially among youth and women. A
major issue in attempting to address these challenges is limited access to finance.
Restricted access to capital markets hampers the development of growth companies, the
main drivers of job creation, innovation and productivity.
The region’s share of new entrepreneurs and high-performance enterprises is comparable
to that of other emerging economies (OECD/IDRC, 2013). But MENA’s growth
companies seem to face higher barriers in their quest for financial resources than larger
companies able to offer physical assets as collateral. In an environment constrained by the
funding capacity of banks and higher government budget deficits, capital market
development and market-based finance can be a viable alternative for growth companies.
Better corporate governance is essential in this regard.
This chapter aims to identify the key challenges faced by MENA companies with respect
to access to capital markets. Where possible, developments in MENA’s capital markets
are compared with global trends. The chapter begins with an overview of financial market
developments in the region. It moves on to explore the use of public equity financing and
bond markets by MENA companies, initial public offerings (IPOs) by growth companies,
and the region’s stock exchanges. It examines the region’s corporate ownership structure,
including concentrated ownership and limits on foreign investors. It also touches on
banking sector development, which is critical to improving the financial infrastructure of
MENA companies. The chapter concludes by offering policy options for improving
access to finance.
While the chapter covers all 18 MENA economies under review in this report,
insufficient data has led to the assessment of fewer issues in some of them.

2.2. Why capital market development is vital in MENA

Despite considerable diversity in MENA economies, access to finance is restricted in the

region. Private credit and stock market capitalisation are low relative to GDP compared
with some Southeast Asian countries, for example. Although the MENA financial system
is dominated by banks, the high concentration of financial intermediation in the banking
sector and high collateral requirements mean that credit is channelled to a small number
of large companies. In addition, ongoing economic and political conflicts pose major
challenges, including restrictions on access to finance.

2.2.1. Factors affecting access to finance in MENA

There are several ways for companies to access finance in a market economy. Although
banks are at the core of financial systems for most countries, in developed and emerging
markets supply and demand for finance is not being matched, which has encouraged
companies to search for alternative sources. Equity financing has a number of distinct
characteristics that give it an advantage over other external sources of capital. Equity
finance is permanent and patient, which allows companies to take risks over the medium
term. On the other hand, debt financing in the form of bank loans can hold a high cost for
some firms. For example, the price of debt financing for smaller firms, who do not always
have access to equity financing, can be high due to the default rate of these firms.

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While founders, family and friends are generally the leading funding channel at the start-
up stage of a company, the funding alternatives should be broadened along the business
lifecycle. In particular for growth companies, which are defined as companies with an
average turnover or employee growth greater than 20% per annum over a period of three
years (Eurostat-OECD, 2007), financing is crucial to transition from a small/medium to a
large company. However, entrepreneurs in MENA identify lack of access to sources of
capital funding as a major constraint (Figure 2.1).

Figure 2.1. Firms identifying access to finance as a major constraint, 2011-17 (%)

60%
53.3

50% 46.2 45.5

42.8 41.5
40%

30% 27.7
25.95
23.9

20%

10%

0%
Palestinian Iraq Yemen Jordan Lebanon Morocco Egypt Tunisia
Authority

Note: Average percent, 2011-17.

Source: World Bank Enterprise Survey Database (2017).

The region’s financial intermediation is dominated by banks. In 2015, bank deposits

accounted for 80% of GDP in the region, compared with a world average of 49% (World
Bank GFDD, 2018).1 Banking sector competition in the MENA region is also lower than
in most regions of the developing world (Anzoategui et al., 2010), and banking
concentration ratios are quite high in MENA economies compared to other selected
developing countries (Figure 2.2).

Figure 2.2. Bank concentration ratios, 2015 (%)

120%

100%

80%

60%

40%

20%

0%

Note: Bank concentration ratio measures the assets of the three largest commercial banks as a share of total
commercial banking assets.
Source: WB Global Financial Development Database (2017).

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30 │ 2. ACCESS TO FINANCE AND CAPITAL MARKETS

Increased competition in the financial sector would help to ensure better access to
financing, which can be especially difficult to obtain for SMEs and growth companies.
When countries have deep stock markets and other non-bank financial intermediaries,
they generally tend to host more competitive banking sectors. A comparison of market
capitalisation in MENA economies with that of other countries indicates that there is
room for further growth (Figure 2.3).

Figure 2.3. Stock market capitalisation to GDP, 2016 (%)

Egypt 10%
Turkey 20%
Tunisia 20%
Palestinian Authority 25%
Lebanon 26%
Poland 30%
Mexico 34%
Oman 35%
Brazil 42%
Morocco 57%
Bahrain 61%
United Arab Emirates 61%
Jordan 64%
China 65%
Saudi Arabia 69%
Chile 86%
Qatar 102%
Malaysia 121%
United States 147%
0% 20% 40% 60% 80% 100% 120% 140% 160%

Source: WB, World Development Indicators Database (2017).

The depth of financial institutions represented by the average ratio of private credit to
GDP varies widely across countries in the region. For example, the average private credit
to GDP ratio for the 2011-2015 period is 7% in Iraq compared to 88% in Lebanon, a 13-
fold difference (World Bank GFDD). Although the region experienced both the negative
effects of the 2008 financial crisis and economic and political instability after 2011, credit
to GDP ratios have generally rebounded. However, this is not the case in Egypt (43% in
2007, 15% in 2015) or Jordan (85% in 2007, 68% in 2015).
Credit to the private sector has also slowed due to reduced deposit growth as a result of
lower oil prices (IMF, 2017a). The decrease in private credit has limited financial
alternatives for the private sector, which relies on a bank-dominated financial system. The
total credit gap for micro, small and medium-sized enterprises (MSMEs) in MENA is
estimated at USD 260-320 billion, which means that a 300% increase in outstanding SME
credit is required to close this gap (Stein et al., 2013). In view of the evidence regarding
the difficulties faced by companies in securing loans, it can be inferred that the financing
gap is also large for growth companies.
Insights into private-sector lending in the region emerge from a MENA enterprise survey
conducted in 2013-2014 by the European Bank for Reconstruction and Development,
European Investment Bank, and World Bank Group (EBRD et al., 2016). The survey
covered more than 6 000 private firms in the manufacturing and services sectors in eight
MENA economies: Djibouti, Egypt, Jordan, Lebanon, Morocco, Palestinian Authority,
Tunisia and Yemen. It found that credits are concentrated and that most of the companies,
especially SMEs, consider themselves as deprived of bank credit.

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Another study supports this conclusion (Rocha, Arvai and Farazi, 2011). In the MENA
economies that are not in the Gulf Co-operation Council (GCC), credit concentration
ratios – the ratio of the top 20 exposures to total loans – are among the highest in the
world. In 2010, the top 20 exposures accounted for more than half of total loans in the
economy, implying that credit is channelled to a small number of large companies,
leaving the bulk of firms with little or no access to credit.
Furthermore, the requirements set by public banks in many MENA economies favour
state enterprises and large industrial firms, meaning that SMEs and growth companies
have difficulty accessing capital. A study by Bhattacharya and Wolde (2010) found that
MENA jurisdictions were quite successful in mobilising financial resources, but relatively
less efficient in allocating them.
There are also high collateral requirements in MENA economies, though not necessarily
more so than in other developing countries (Figure 2.4). Those requirements mean that
young and small firms may have insufficient assets to qualify for finance.

Figure 2.4. Value of collateral required for a loan (% of loan amount)

300%

250%

200%

150%

100%

50%

0%
Yemen Egypt Tunisia Djibouti Lebanon Algeria Morocco Iraq Palestinian Jordan Turkey Chile Mexico Poland
(2013) (2013) (2013) (2013) (2013) (2007) (2013) (2011) Authority (2013) (2013) (2010) (2010) (2012)
(2013)

Source: World Bank Enterprise Surveys (2017).

These various weaknesses in MENA financial systems – a financial sector dominated by

banks, low stock market capitalisation in relation to GDP and the high collateral needed
to secure a loan – combine to create restrictions on access to finance in the region.

2.2.2. Equity markets and growth

The role of capital markets in the growth of the economy has been the focus of extensive
research. Studies suggest that equity finance can contribute to growth by improving
resource allocation. In addition, capital markets make long-term investment possible and
improve the efficiency of the whole financial system through the competition among
different financial instruments (El-Wassal, 2013).
Characteristics of equity financing
Equity capital has a number of distinct characteristics that give it a unique advantage over
other external sources of capital. First, equity finance is permanent. Once equity has been
issued, there is no expectation for it to be retired or paid back. This is in contrast to bank

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loans, which have a finite life span. Second, equity capital is patient and returns are not
guaranteed. The shareholder will be paid only after all other stakeholders, such as
employees, suppliers, tax authorities and creditors have been paid. Unlike other capital
providers, shareholders will be the first to bear the cost of adverse business performance.
In contrast, debt lenders have a priority claim on a company’s assets in case of default.
Third, since equity only receives residual profits in the form of dividends, equity capital
is typically more suited to finance risk than other forms of capital, which yield a strictly
defined return regardless of a company’s operating performance.
The permanent, patient, and risk-willing nature of equity capital means that supply and
access to equity is not only important for the company. Availability of enough long-term
capital is of systemic importance to the very structure and long-term dynamics of an
economy’s corporate sector. Importantly, the availability of equity allows for a gradual
shift in a country’s industrial structure towards more future oriented, innovative,
knowledge-based and human-capital intensive enterprises.
A study examining the effects of financial development in MENA indicates that a
reduction of constraints on access to finance – from the MENA average to the world
average – could lead to an increase in real per capita GDP growth in the region
(Bhattacharya and Wolde, 2010). Evidence that financial stability and efficiency are
linked to growth also emerges from a study by Naceur et al. (2017). The authors conclude
that the effect of finance depends on a jurisdiction’s income level, policy regime and
institutional quality.
Research into how companies that issue in capital markets evolve compared to non-
issuers, meanwhile, found that issuers of equity, bonds and syndicated loans in the Arab
region were larger and grew faster than non-issuers (Lorente et al., 2017a).

2.2.3. Corporate governance in MENA capital markets

A sound corporate governance framework and sound practices facilitate capital market
development over time. Investors need assurance that their rights are protected when they
invest in capital markets. Similarly, companies will not be willing to use capital markets
without clear responsibilities defined by the rule of law (OECD, 2015a).
Improving the quality of corporate governance frameworks and practices is essential for
developing more efficient and deeper capital markets. Corporate governance and capital
market development have a symbiotic relationship, each benefitting the other. Progress in
corporate governance facilitates capital market development, while requirements (e.g.
disclosure) linked to capital markets encourage better corporate governance.
Analysis of data from emerging markets shows that improved corporate governance
promotes deeper, more liquid and more efficient capital markets, increasing resilience to
global financial shocks (IMF, 2016b). The IMF found that companies in emerging
markets with better corporate governance tended to have stronger balance sheets, lower
short-term debt ratios, lower default probabilities and the ability to borrow at longer
maturities.
The quality of corporate governance affects the cost of capital and company value.
Investors who are not confident about a company’s corporate governance structure are
less willing to provide financing and more likely to charge higher rates (Claessens and
Yurtoglu, 2012). Better corporate governance structure also increases a company’s
competitiveness and efficiency through better business decisions.

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MENA governments have endeavoured to develop their corporate governance

frameworks in recent years (OECD, 2012; Crescent Enterprises, 2016). Reforms
undertaken since the 2000s include the establishment of stock exchanges and capital
market regulators, review of company laws, adoption of corporate governance codes,
imposition of stricter rules, and requirements for greater disclosure and transparency from
listed companies.
Today almost all MENA jurisdictions have a corporate governance code, and regulatory
initiatives in the corporate governance area continue in the region. Nevertheless, there is
room for improvement in several areas, according to a recent S&P Global Ratings report.
Weak disclosure and transparency, coupled with a lack of board independence and
insufficient oversight, continue to hold back companies from attracting international
investors (Gulf Business, 2017).

2.3. Corporate use of public equity markets

Equity is an essential component of corporate finance. Sources of equity finance include

retained earnings, private equity, public offerings and, with recent technological
advances, alternative platforms such as crowdfunding. A vibrant equity market is crucial
to support growth companies and to secure their access to funding through IPOs and
secondary public offerings (SPOs).
This section examines how MENA companies use public equity financing. Due to
challenges in obtaining data, IPO analysis for the region for the years 2014-2017 is
mainly based on the annual reports of stock exchanges and the IPO reports for MENA of
Ernst & Young (EY).2
Two global trends on IPO markets affected growth companies after the 2000s. First, there
was a shift from advanced economies to emerging markets in terms of the number of
IPOs. Second, fewer and larger companies have been going public (OECD, 2018;
OECD, 2015a).
Indeed, since the 2000s, there has been marked decline in the IPOs of growth companies,
both in terms of their number and average size. This is especially the case in the United
States and Europe, and the trend persisted in 2016 in Europe and Japan (OECD, 2017a).
Total proceeds of secondary issuances by listed non-financial companies have been
higher than proceeds of IPOs since 2005 (OECD, 2015a).
Over the period 2008-2017, a total of 230 MENA companies issued an IPO. The amount
of capital raised totalled USD 41 billion (Figure 2.5). Hence, the average value of equity
capital raised per company through an IPO over the period was USD 179 million.
As Figure 2.5 indicates, 2014 was a good year for IPOs: MENA companies raised
USD 11 billion, a sum comparable to the USD 13 billion raised in 2008, before the global
financial crisis (EY, 2015). Overall IPO activity in 2014 saw a 254 % increase in value
compared to 2013. In 2014, Saudi Arabia had the largest share (60%) in terms of capital
raising from the region, with the proceeds of USD 6.7 billion from its six IPOs. A
comparison of average IPO size indicates that larger IPOs took place in 2014
(USD 383 million) than in 2008 (USD 244 million).
Over the 2014-2017 period, the majority of IPOs in MENA took place in Saudi Arabia
and Egypt. Together, their IPOs raised USD 10.2 billion in capital. However, Saudi
Arabia’s IPOs far exceeded Egypt’s in terms of the value of capital raised (Figures 2.6
and 2.7).

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Figure 2.5. Initial public offerings in the MENA region, 2008-17

Number of IPOs Total proceeds (USD billion)

60 54 14.0
13.2

50 12.0
11.1
10.0
40
8.0
29
30 26
25 24
6.0
20 18
15 14 14 4.0
3.1 11
2.7 2.9
10 2.2 2.0
2.1 2.0
1.2
0.8
0 0.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Adapted from EY MENA IPO reports and the websites of stock exchanges.

Figure 2.6. Number of IPOs per country, 2014-17

SAUDI ARABIA EGYPT

MOROCCO OMAN
TUNISIA BAHRAIN
QATAR UAE
ALGERIA IRAQ
11
7
2
1
23

10

10
18
5

Source: Adapted from EY MENA IPO reports and the websites of stock exchanges.

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Figure 2.7. Total value of MENA IPOs, 2014-17 (USD billion)

SAUDI ARABIA
EGYPT MOROCCO
OMAN TUNISIA
BAHRAIN QATAR
UAE ALGERIA
IRAQ
0.06 0.004

5.02

8.84
1.04

0.02
0.19
0.48 0.49
1.40

Source: Adapted from EY MENA IPO reports and the websites of stock exchanges.

Figure 2.8 displays the size of IPOs in MENA’s non-financial sector. The IPOs of MENA
growth companies rebounded in 2017, possibly due to an increase in small IPOs in the
Saudi market. After the launch of the Nomu-Parallel Market on the Saudi Stock
Exchange, the capital raised in 2017 totalled 169 USD million, representing 37% of total
MENA growth company IPO proceeds.

Figure 2.8. Non-financial IPOs in the MENA region

Number of issues <USD 50 M (LHS) Number of issuesUSD 50 M to USD 100 M (LHS)

Number of issues >USD 100 M (LHS) Share of Issues <USD 100M, % (RHS)

4 000 40%

3 500 35%

3 000 30%

2 500 25%

2 000 20%

1 500 15%

1 000 10%

500 5%

0 0%
2014 2015 2016 2017

Source: Adapted from EY MENA IPO reports and the websites of stock exchanges.

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It is noteworthy that the share of growth company proceeds in non-financial company

IPOs in MENA (35% in 2017, 18.94% in 2014-2017) exceeded global averages (15% in
2008-2016) (OECD, 2017a).
Figure 2.9 displays the sectoral breakdown of MENA initial public offerings of less than
USD 100 million over 2014-2017. It shows that total proceeds from growth company
IPOs were more or less evenly distributed among different sectors, with the combined
consumer goods/services sector (cyclical and non-cyclical) emerging as the main user of
equity markets.

Figure 2.9. Sectoral breakdown of small IPOs in MENA, 2014-17

Cyclical Consumer Goods / Services Telecommunications Services

Non-Cyclical Consumer Goods / Services Technology
Healthcare Basic Materials
Utilities Financials
Industrials Energy
2%
0.3%
4%
18%
9%

11%
15%

13%
14%
14%

Source: Adapted from EY MENA IPO reports and the websites of stock exchanges. Economic sectors are
based on the Thomson Reuters Business Classification.

The situation in MENA differs greatly from advanced economies, where high technology
and healthcare accounted for 40% of all equity raised through growth company IPOs
from 2000 to 2014. This is in line with research showing that equity markets are
especially suitable for growth companies in future-oriented industries with relatively high
risk (OECD, 2015a). Conversely, the share of IPOs in technology, telecommunications
and healthcare industries is quite low in MENA.
A recent working paper found that secondary equity offerings have grown at a faster rate
than IPOs in Arab jurisdictions over the 1991-2014 period (Ismail, Cortina Lorente and
Schmukler, 2017a).3 The study was based on a dataset including 138 091 companies and
719 242 security issuances. It showed that the share of IPOs in total equity proceeds
decreased from 55% (1991-98) to 26% (2007-14). The jurisdictions with the highest
proportions of secondary equity issuances were Kuwait (95%), Egypt (92%) and Qatar
(88%). The share of secondary equity offerings was less than 60% in Morocco, Saudi
Arabia, Tunisia and UAE.

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2.4. Stock exchanges in the region

MENA’s stock exchanges date back to the late 19th century, when the Egyptian exchange
was established. Since the 1980s, the establishment of stock exchanges has accelerated in
the region. However, despite the global process of demutualisation and privatisation in
recent decades, most of the region’s exchanges are still state owned or organised as public
institutions (Figure 2.10).

Figure 2.10. Ownership structure of MENA stock exchanges

State-owned Majority State-owned

Stock Exchanges Public Institution
Ownership Structure
Mutualised Demutualised Public listed company
Public Shareholding company

6%

6%

6%

41%

12%

17%
12%

Note: The countries included are Algeria, Bahrain, Egypt EGX, Egypt NILEX, Iraq, Jordan, Kuwait,
Lebanon, Morocco, Oman, Palestinian Authority, Qatar, Saudi Arabia, Tunisia, UAE DIFC, UAE Federal.
Source: OECD (2019), OECD Survey of Corporate Governance Frameworks in the Middle East and North
Africa 2019, www.oecd.org/corporate/oecd-survey-of-corporate-governance-frameworks-in-mena.htm.

The Palestine Securities Exchange and the Dubai Financial Market are the region’s only
stock exchanges with the status of a public listed company, but Kuwait and Saudi Arabia
are making structural changes. The Boursa Kuwait, a private entity, was set up in 2014 to
develop the Kuwait Stock Exchange, and in October 2016 it was granted an official
license to own the exchange. An IPO for Tadawul, the Saudi exchange, originally
planned for 2018, is now expected in 2019, according to news reports.
Table 2.1 displays key characteristics of MENA’s stock exchanges in 2017. Total market
capitalisation was USD 1.128 billion, or 1.42% of global market capitalisation. Given that
MENA’s GDP represents 3% of global GDP, the region’s market size does not reflect its
potential.

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Table 2.1. Main characteristics of MENA stock exchanges, 2017

Market capitalisation of Stocks Stocks

Number of Market capitalisation of listed Stocks traded,
listed domestic traded, total traded, total
listed domestic companies turnover ratio of
companies value value
companies (USD billion) domestic shares (%)
(% of GDP) (USD billion) (% of GDP)
Algeria* 5 0.37 0.2 - - -
Bahrain 43 22 62 0.56 1.61 2.6
Egypt 254 47 19.6 14.4 6.0 30.7
Iraq* 101 9 4.5 0.75 0.37 8.4
Kuwait* 175 93 77 19.0 15.8 20.5
Lebanon* 10 11 22.3 0.76 1.4 6.6
Morocco 73 67 61 4.2 3.8 6.3
Jordan 194 24 59 2.3 5.7 9.7
Oman 112 21 28.6 2.3 3.2 11.2
Palestine 48 4 29.0 0.46 3.5 12.1
Qatar 45 131 78 18.3 11.0 14
Saudi Arabia 188 451 66 218 31.9 48.4
Tunisia* 81 9 22.1 0.97 2.4 11
UAE 127 239 63 43.0 11.4 18

Note: Countries marked with an asterisk (*) belong to the Arab Federation of Exchange. Market capitalisation
of listed domestic companies (percentage of GDP) has been calculated manually using WB World
Development Indicators.
Source: WB World Development Indicators (2018); IMF World Economic Outlook Database (2018).

Market capitalisation varies greatly among MENA exchanges. The Saudi Stock Exchange
has the largest market capitalisation, at USD 451 billion, which represents approximately
40% of the total MENA market at the end of 2017. While market capitalisation is also
high in other GCC countries, it is very low in several jurisdictions in the region.
The market capitalisation to GDP ratio declined severely in almost all economies after the
2008 financial crisis, but the global average has returned almost to its 2007 level (114%
in 2007, 99% in 2016). Recovery has been generally slow in MENA jurisdictions,
perhaps due to the region’s exposure to external and internal shocks, especially after
2011. Stock market capitalisation in most jurisdictions declined significantly following
the global financial crisis and, apart from the UAE, has not yet caught up with pre-crisis
levels. Declines were most severe in non-GCC jurisdictions (Figure 2.11).
The number of companies listed on MENA stock exchanges increased dramatically after
1998, partly as a consequence of privatisation programmes across the region, and the vast
majority of these companies were listed in Egypt. The total number of listed companies
for the region stood at 1 844 in 2000, of which 1 057 were in Egypt. However, the
number of companies on the Egyptian Exchange decreased drastically in 2017, when
untraded companies were delisted.
As of 2017, the number of companies listed on MENA stock exchanges totalled 1 350,
ranging from five in Algeria to 254 in Egypt (Figure 2.12). Although the Saudi stock
exchange is the region’s largest in terms of market capitalisation, more companies are
listed in both Egypt (254) and Jordan (194) than in Saudi Arabia (188).

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Figure 2.11. Market capitalisation as a percentage of GDP

2007 2016

160%

140%

120%

100%

80%

60%

40%

20%

0%
MENA GCC MENA Non GCC World Europe & Central Asia East Asia & Pacific Latin America &
Caribbean

Source: WB World Development Indicators Database (2017); Rocha, Arvai and Farazi (2011).

Figure 2.12. Number of listed companies on MENA exchanges

2000 2008 2017

2 000
1 844
1 800
1 600 1 451
1 350
1 400
1 200 1 078 1 096
1 000
769
800
600
400
200
0
Total MENA MENA except Egypt

Note: The countries included are Bahrain, Egypt, Kuwait, Lebanon, Morocco, Jordan, Oman, Palestinian
Authority, Qatar, Saudi Arabia, Tunisia and UAE.
Source: WB Global Financial Development Database (2017), IMF and stock exchange websites.

Regional stock exchanges formerly relied on IPOs of state-owned enterprises as a major

source of local and foreign investor interest (OECD, 2012). Privatisation has slowed in recent
years. However, several MENA economies have started to reconsider privatisation through
IPOs due to the deteriorated fiscal situation of their exchanges. In addition to the efforts of
Kuwait and Saudi Arabia, described above, the Egyptian government is launching an IPO
programme that will offer shares in dozens of state-owned companies over the next three to
five years (Reuters, 2018), and Oman is working on privatisation plans.
New privatisation-related listings could contribute to capital market development by
increasing the depth and liquidity of MENA markets. The region’s markets are less liquid
than the world average, as indicated by turnover ratios in 2017 (28.5 in MENA, 100.4
globally). But the MENA average masks important differences among jurisdictions.
Turnover ratios in Bahrain (2.6) and Morocco (6.3) are far lower than the MENA
average, and even the region’s highest turnover ratio, in Saudi Arabia (48), is lower than
that of peer countries. These figures indicate that financial market efficiency is
insufficient in the region.

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Market concentration ratios in terms of market capitalisation and trading volume vary
within the region4 (WB GFDD, 2017). High ratios imply that liquidity is limited, with
access more difficult for new companies. Market capitalisation in MENA is dominated by
financial and infrastructure firms (Table 2.2). The limited sectoral diversification may
affect market development and limit investment opportunities.

Table 2.2. Market capitalisation by sector in selected MENA exchanges, 2016 (%)

Petrochemical
Banks and financial services Telecom and information technology Other
industries
Saudi Arabia 29 25 10 36
UAE DFM 44 1 9 46
Qatar 47 4 7 42
Kuwait 57 1 11 31
Morocco 40 4 21 35
Egypt 36 5 12 47

Source: Annual reports of stock exchanges.

Specialised SME markets or tiers have been introduced in the MENA region. Egypt’s
Nilex (2007) was the region’s first dedicated SME market, while the Nomu Parallel
Market in Saudi Arabia (2017) is the most recent. Tunisia, Dubai and Qatar also have
SME tiers.
Two exchanges in the region have introduced the London Stock Exchange Group’s
ELITE business development programme for fast growing companies. The Casablanca
Stock Exchange launched the programme in April 2016, and 24 Moroccan companies
have enrolled, from sectors including technology, construction and household goods.
ELITE has since partnered with the Saudi SME Authority to initiate business support and
a capital raising programme.
MENA stock exchanges have also started to invest heavily in financial technology. An
example is the Dubai Financial Market’s ambitious Smart Borse initiative, launched in
2014. It includes eIPO, a smart IPO platform that allows investors to participate in IPOs
electronically; an iVESTOR card that allows secure payment for transactions; and a
smartphone application that lets investors track their stock portfolios. These services had
80 000 users at the end of 2017 (Dubai - MENA Herald, 2017).
Several MENA markets are still classified as “frontier markets” by the MSCI, an index
provider widely accepted as a benchmark,5 but the situation is evolving. Compared to
developed and emerging markets, frontier markets typically have limitations for foreign
investors in their regulatory and operational environments.
As of 2018, the MSCI classified Bahrain, Jordan, Kuwait, Lebanon and Oman as frontier
markets; only Egypt, Qatar and UAE were included in the MSCI Emerging Market Index.
The Saudi Arabian and Palestinian markets had Standalone Indices, enabling foreign
investors to follow them more closely.
However, the MSCI has announced that the MSCI Saudi Arabia Index will be included in
the Emerging Markets Index as of June 2019, and that Kuwait will be reviewed in 2019
for possible reclassification as an emerging market. The decision on Saudi Arabia
followed reforms by the country in areas including the (T+2) execution rule, short selling
and delivery versus payment rules. Inclusion on the MSCI Emerging Markets Index is
likely to increase institutional investors’ interest.

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Ongoing capital market development in the region requires better corporate governance
and more transparency, which are key to attracting listing and liquidity (OECD, 2012).
MENA stock exchanges have been supporting good corporate governance by adopting
and enforcing higher listing and disclosure standards, providing transparency about listed
companies, facilitating the exercise of shareholder rights and conducting public
awareness activities about corporate governance. However, there is room for
improvement in this area (Chapter 3).

2.5. Corporate use of bond markets

The small size of the MENA corporate bond market suggests that corporate bonds have
the potential to become a more prominent alternative source of financing for growth
companies. Corporate bond issuance also encourages companies to improve disclosure
and transparency, which is in line with good corporate governance. The development of
this market can be used as a policy tool to address the financial needs of growth
companies, given their importance and the constraints they face in accessing financing.
Issuing corporate bonds thus helps growth companies to access public equity markets.

2.5.1. Overview of MENA corporate bond markets

Global bond issuances have increased significantly since the 2008 financial crisis in both
developed and emerging economies. This is the case in MENA region, where companies
have increasingly used domestic bond markets as a source of finance, to the sum of
almost USD 66 billion as of 2014 (Table 2.3).
Nevertheless, the region’s corporate bond market remains small. Factors affecting its
development include oil prices, the dominance of banks, cultural and religious
preferences, and a small investor base. Another possible factor is weak creditors’ rights
(Garcia-Kilroy and Silva, 2011).
Conditions have been changing in the region since 2014, mainly due to lower oil prices.
In the GCC countries, fiscal deficits have increased and economic conditions have
deteriorated, while factors in the non-GCC countries include lower remittances and
tourism revenues, and security concerns. Against this backdrop, MENA governments
have started to use the bond markets more often, especially international bond markets,
which offer better conditions.
Table 2.3 presents the size, growth rate and depth of domestic and international corporate
bond markets in the MENA region.

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Table 2.3. MENA corporate bond markets, 2014

Domestic corporate bond market International corporate bond market

Size Depth Size Growth % Depth
Growth % (2005-14)
(USD billion) (% of GDP) (USD billion) (2005-14) (% of GDP)
UAE 43.56 - 15.16 75.08 22.38 26.12
Saudi Arabia 20.81 60.22 3.95 9.81 20.77 1.86
Egypt 1.02 12.25 0.47 - - -
Morocco 0.42 15.11 0.46 1.85 19.95 -
Tunisia 0.04 - 0.08 2.91 - 6.55
Qatar - - - 14.96 12.79 11.95
Bahrain - - - 4.99 12.81 19.42
Lebanon - - - 2.51 - 6.61
Kuwait - - - 1.53 - 1.28
Oman - - - 1.45 19.23 -

Note: Size shows total amount outstanding in USD billion and is based on the definition of the BIS, domestic
versus international outstanding. A dash (-) indicates that data for the variable is not reported by IOSCO.
Source: Tendulkar (2015), Corporate Bond Markets: An Emerging Markets Perspective.

Corporate bond issuance as a percentage of GDP has generally been increasing in the
region since the onset of the financial crisis (Figure 2.13). The exceptions are Saudi
Arabia, Kuwait and Lebanon. Although Saudi Arabia has been one of the fastest growing
domestic corporate bond markets (60% globally for the 2005-14 period), its corporate
bond issuance as a percentage of GDP decreased over 2007-14 compared to 2000-06.

Figure 2.13. Corporate bond issuances as a percentage of GDP (average)

2000-2006 2007-2014

8
7
6
5
4
3
2
1
0

Note: 0 values are displayed for Morocco and Tunisia (2000-06) and Jordan and Tunisia (2007-14).
Source: Adapted from Tendulkar (2015), Corporate Bond Markets: An Emerging Markets Perspective.

The total size of corporate bond markets as a percentage of GDP remains small, however,
relative to the size of the MENA economies. Under a classification system for domestic
corporate bond markets presented in a recent working report (Tendulkar, 2015), United
Arab Emirates was categorised in 2014 as a medium-sized market (USD 30-100 billion),
Saudi Arabia as a developing market (USD 10-30 billion) and Morocco and Tunisia as
micro markets (less than USD 1 billion). The region had no established market (greater
than USD 100 billion), and Bahrain, Kuwait and Qatar were classified as absent markets.
Table 2.4 presents further information from the working report.

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Table 2.4. Corporate bond market development in MENA

Market Classification Growth Depth % Domestic % International

Medium Sized Market
UAE Stalled/Negative Shallow 37 63
Developing Market
Saudi Arabia Fast Very Shallow 68 32
Small Market
Egypt Medium Shallow 100 0
Micro Markets
Morocco Medium Shallow 19 81
Tunisia Stalled/Negative Shallow 1 99

Note: Growth is delineated as follows, based on the compounded annual growth rate: Equal or greater than
20% (fast), 10-19% (medium), 1-9% (slow), less than 1% stalled/negative). Depth is classified as a
percentage of GDP as follows: equal to or greater than 100% (very deep), 50-99% (deep), 20-49%
(moderate), 5-19% (shallow), less than 5% (very shallow). The percentage of domestic corporate bond market
size versus international corporate bond size is based on the 2014 amount outstanding.
Source: Tendulkar (2015), Corporate Bond Markets: An Emerging Markets Perspective.

The recent study of Arab companies cited above found that bond activity remains low in
Arab jurisdictions compared to international levels, even though bond issuances have
increased (Ismail, Cortina Lorente and Schmukler, 2017a). It also suggests that Arab non-
financial companies6 issued the world’s longest-term corporate bonds (11.5 years) during
the period. This may be due to the large share of corporate bond issuances for
infrastructure financing by large Arab companies operating in the transportation,
electricity and gas sectors.
Perhaps because of the large share of infrastructure bonds, the median issue size in Arab
countries (USD 200 million) is much higher than in other regions (USD 44 million in
Asia, USD 97 million in G7). This indicates that corporate bonds in the region are being
issued by large firms. A separate study confirms this, finding that corporate bond issuers
in the region tend to be vastly larger than equity issuers (Cortina Lorente, Ismail and
Schmukler, 2017b). Over 2003-11, the median equity issuer had assets of around
USD 240 million, while the median bond issuer’s assets were USD 10.4 billion.
Other characteristics of MENA corporate bond markets include the following:
 MENA companies generally use international markets rather than domestic
markets. Saudi Arabia and Egypt are the region’s only countries with large
domestic corporate bond markets comparable to international markets.
 Issuer concentration is high, which can make it difficult for growth companies to
access the corporate bond market. When the issuances of the top 10 issuers in
each market are measured against total issuance in that market, concentration is
100% in Bahrain, Egypt, Kuwait, Lebanon, Morocco and Oman for the 2010-14
period (Tendulkar, 2015). UAE stands out as the region’s only market with a
relatively low issuer concentration (59%).
 In addition to conventional bonds, MENA companies issue sukuk (Islamic
bonds). In 2017, the sukuk issuances of GCC countries raised a total of
USD 4.61 billion, representing around 29% of global corporate sukuk volume
(IFSB, 2018).

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Several MENA jurisdictions are acting to accelerate procedures and reduce the cost of
issuing bonds. Saudi Arabia has adopted new corporate bond regulations to shorten
procedures; Kuwait, Oman and UAE have updated their sukuk regulations (Zawya,
2016); and Egypt has introduced new regulations under which credit rating is not required
in the case of private placements (Gramon, 2016). Some MENA jurisdictions are also
moving to modernise bankruptcy regimes (Reuters, 2017).

2.5.2. Growth companies and the corporate bond market

A growth company might choose corporate bonds as a source of finance since their issue
does not affect its ownership and control structure. Bonds might also be suitable for some
companies due to their fixed term, determined in accordance with expected cash flows by
the issuer. Moreover, issuance procedures are generally simpler for corporate bonds than
for equity.
Nevertheless, bond issuances by growth companies remain limited in both advanced and
emerging markets. Corporate bond markets are more suitable to larger companies due to
factors including the fee structures of service providers, such as rating agencies and
underwriters; the investment strategies of institutional investors; and the incentives of
market makers (OECD, 2015a).
In addition to the small size of the MENA corporate bond market, growth companies face
disadvantages such as a limited track record, lower visibility and higher information
asymmetries affecting their access to market.
An OECD study based on data from more than 150 000 individual transactions between
1995 and 2014 indicates that nearly 50% of all listed companies that issue corporate
bonds for the first time during the period five years prior and after their IPO date do so
within three years following their entry in the market (OECD, 2015a). This result shows
that joining the stock market, which requires a formal corporate governance structure,
may increase opportunities to tap into the corporate bond market. The reverse may also be
valid when there is a well-functioning corporate bond market that requires disclosure and
transparency.

2.6. Corporate ownership structure

Ownership structure directly affects corporate governance. Concentrated ownership,

which is prevalent in the MENA region, raises corporate governance issues including
disclosure and transparency, related party transactions and minority shareholder rights.
Ownership categories affect monitoring and shareholder engagement in the corporate
decision-making process. Companies with concentrated ownership in the form of
sovereign investors or families can face conflicts between the controlling shareholders
and minority shareholders.
The region’s relatively small base of institutional investors, the dominance of retail
investors on its stock exchanges and restrictions that limit foreign investor interest also
present challenges. This section presents an overview of MENA’s corporate ownership
structures and owner categories.

2.6.1. Concentrated ownership

The majority of listed MENA companies have concentrated shareholders in the form of
sovereign investors or families (OECD, 2017b). State ownership is high in listed

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companies because of previous privatisations and active investment by sovereign

investors.
An analysis of the 600 largest firms listed on the region’s exchanges, which account for
97% of total market capitalisation (GOVERN, 2016), demonstrates that sovereign
investors are the largest investor category in all MENA markets except Lebanon and
Tunisia. It shows that:
 30% of the region’s largest listed companies have a government shareholder
 MENA listed companies that have government stakes account for 65% of market
capitalisation.
These figures are even higher in large companies and in the GCC markets.
With the exception of the oil business, 80% of MENA companies are family-owned
businesses (IFC, 2016). Family companies in MENA are generally reluctant to list their
shares on MENA exchanges, SMEs may be the exception. For example, in Saudi Arabia,
only 19% of the companies listed on the main market are family-owned companies,
compared to more than 90% for those listed on the country’s SME market (WFE, 2018).

2.6.2. Small institutional investor base

Publicly available data is limited on the size of institutional investors in MENA markets,
but several international organisations report that the institutional investor base (pension
funds, insurance companies and investment funds) is rather small in the region.
Across the GCC countries, which have the MENA’s largest capital markets, the assets of
mutual funds amounted to USD 25 billion and public pension funds to USD 411 billion in
2016 (Ernst & Young, 2018a). The total assets of GCC sovereign wealth funds were
dramatically greater, at USD 2.9 trillion.
Indeed, of the world’s 15 largest sovereign wealth funds, seven are from the MENA
region (SWFI, 2018). The total wealth of high-net-worth individuals in the Middle East
stands at USD 2.42 trillion (World Wealth Report, 2017).
These figures contrast with global trends. In the OECD member states, institutional
investors are the dominant type of investor, and the assets of institutional investors are
increasing rapidly. In 2016, for instance, the assets of pension funds grew faster than
GDP in 25 of the 35 OECD countries.

2.6.3. Dominance of retail investors

MENA stock exchanges are dominated by retail investors, with an estimated 39% of
shares belonging to retail investors across the region, and retail dominance in trading is
even higher (GOVERN, 2016). This is confirmed by a recent analysis by the World
Federation of Exchanges on the impact of retail participation on equity markets
(WFE, 2017a).
For the four MENA exchanges included in the WFE study, the average value of retail
trades in 2016 amounted to 64% of the value of total trades on the Egyptian Exchange,
71% on the Dubai Financial Markets, 83% on the Amman Stock Exchange and 92% on
the Muscat Securities Market.
Retail investors contribute a reasonable proportion of total trades in other MENA
markets. The exception is the Casablanca Stock Exchange, which has a developed

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institutional investor base and where the average value of retail trades in 2016 was just
10% of the value of total trades. The figure for 2016 was 30% on the Bahrain Stock
Exchange, 40% on the Kuwait Stock Exchange, 51% on the Qatar Stock Exchange and
83% on Saudi Arabia’s Tadawul. As for the Moroccan financial centre, institutional
investors accounted for 90% of the total value traded in 2016.

2.6.4. Limited foreign investor interest

Foreign investor interest has remained relatively limited in MENA economies because of
restrictions on foreign ownership and other regional factors such as the relatively small
size of markets, low liquidity and existing ownership structures. A report prepared under
the MENA-OECD Investment Programme (2011) identified foreign ownership
limitations as one of the main obstacles to foreign investment in the GCC.
Limits on foreign investment may be motivated by reasons such as the protection of
national interests or strategic sectors. In order to attract foreign interest, some MENA
jurisdictions have recently started to revise those constraints in line with national
diversification and economic liberalisation policies.
Regulatory amendments were adopted in Bahrain in 2016 and in UAE in 2018 to allow
for 100% foreign ownership in companies. Qatar raised foreign ownership limits from
25% to 49% in 2014, and Saudi Arabia has adopted new rules to open up direct access to
its capital market to foreign investors.

2.7. The way forward

2.7.1. Key findings

The findings of this chapter indicate that MENA economies could benefit from deepening
their capital markets. Capital market development would increase opportunities for
growth companies to access finance and contribute to the region’s overall economic
development. Better corporate governance is crucial in this regard.
Despite differences among MENA jurisdictions, there are common challenges across the
region. Key findings include the following:
 Stock market size measured by market capitalisation relative to GDP is relatively
low in MENA compared to peer countries. Equity markets have the potential to
offer more capital for the real sector in the region.
 The total value of growth company IPOs and the low sectoral diversification in equity
markets suggest that a limited number of companies have access to capital markets.
Large companies have increasingly used domestic bond markets as a source of finance in
MENA. Nevertheless, the region’s corporate bond market remains small. Bond issuances
by growth companies remain limited in both advanced and emerging markets.
 Bank lending in the region is channelled to large companies, particularly state-
owned enterprises and large industrial firms, leaving SMEs and growth
companies deprived of bank credit.
 Concentrated ownership in the form of sovereign shareholders or families is
common. The reluctance of family-owned companies to disclose information or
dilute their stakes by going public affects capital market development in the
region.

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 A large and diversified investor base is crucial for capital market development
since it ensures liquidity and stable demand. Institutional investors can have a
positive impact on corporate governance by monitoring company practices and
engaging with company management. Yet the region’s institutional investor base
is small and its markets are dominated by retail investors, which may not be
conducive to the long-term growth of companies.
 Restrictions on foreign ownership are a key obstacle to greater foreign interest in
investing in the region. Other obstacles include MENA’s small market size and
ownership structures.
Efforts by policy makers to address these challenges would need to address three main
target areas in which there are indications of market imperfections, or where MENA
capital markets may be underperforming their potential.
First, distortions in the allocation of bank credits must be avoided. This relates
particularly to an apparent preference given to SOE borrowers as well as certain large
well-connected incumbent companies.
Second, family owned companies and other SMEs should be better incentivised to raise
equity finance. This includes taking measures to establish or improve the attractiveness of
SME equity market segments. Some countries may also want to review elements of their
national legislation, including concerning the tax treatment of debt and equity. The
apparent reluctance of family firms to disclose information could be addressed both via
less onerous reporting requirements on small listed companies, and by requiring larger
unlisted family companies to raise their disclosure requirements.
Third, an overriding priority is measures to increase the overall attractiveness of being
listed in equity markets in the MENA region. Some options for further action to raise
market liquidity, transparency, investor protection and market infrastructure are reviewed
in the following section.

2.7.2. Policy options

A group of interrelated policy options is proposed to address the challenges facing
MENA economies in terms of capital market development and access to finance
(Figure 2.14).

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Figure 2.14. Main policy areas for better access to capital markets

Enhance
capacity of key
institutions

Enhance a Diversify
sound financial sources of
ecosystem finance

Develop strategies
for capital market
growth

Establish
Develop the public markets
investor base for growth
companies

Address issuer
side factors

These key policy options are summarised in Table 2.5 and developed below. Not all
recommendations apply to every country; the policy options must be tailored to each
MENA economy’s specific circumstances and needs.
However, the recommendations as a whole are intended to ensure the deepening of
capital markets and to enable growth companies to obtain finance from them. If possible,
therefore, they should be implemented in a holistic manner under a comprehensive reform
programme suited to each economy’s needs.

Table 2.5. Policy options for improving access to capital markets

Objective Policy Options

Develop strategies for capital Investigate whether the preconditions of sound capital market development are in place
market growth
Monitor policy measures adopted by other countries to develop capital markets and improve corporate
governance
Prepare a national action plan, monitor the results and revise regularly
Ensure an effective corporate governance framework
Enhance the capacity of key Improve the monitoring and enforcement capacity of securities regulators
institutions
Deepen international co-operation to benefit from knowledge sharing opportunities
Enhance the operational independence and accountability of the regulators
Improve capital market financing Provide new facilities for issuing securities and expand the types of capital market financing methods that are
alternatives available to companies in MENA
Review the efficiency of the public offering regime
Design and implement measures guaranteeing investor protection without creating undue burdens
Consider introducing a hybrid issuance procedure and private placement regime

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Objective Policy Options

Establish specialised markets for Conduct a feasibility study to find a suitable model
growth companies Promote good corporate governance by incorporating governance requirements into listing rules, monitoring
compliance with standards and enforcing high disclosure standards
Address issuer side factors Investigate factors affecting the issuance and listing decisions of companies
Explore and allow for proportionality in the corporate governance framework
Launch capital market awareness programmes for both investors and potential issuers
Launch IPO readiness programmes targeting growth companies to support their cultural and organisational
development
Explore ways to decrease the cost of public offering and listing
Develop the investor base Promote a capital markets culture by raising overall financial literacy and build trust by ensuring strong minority
rights, good corporate governance and greater transparency and disclosure
Consider increasing free float requirements
Conduct planned privatisation through public offering
Create a regulatory environment conducive to the growth of institutional investors
Adopt measures to encourage institutional investors to take a more active role in demanding good corporate
governance
Evaluate the effects of portfolio limitations on capital market investment and consider adopting rules to allow
institutional investors to invest in certain types of companies
Increase the presence of sovereign wealth funds in capital market development and good corporate governance
Relax foreign ownership limits to attract international institutional investors
Develop a sound financial Establish the right regulatory infrastructure, including incentives and requirements, to enable effective
ecosystem functioning of all service providers
Require or encourage the disclosure of potential conflicts of interest faced by service providers
Evaluate alternative measures to increase analyst coverage

2.7.3. Developing strategies for capital market growth

Stable macro-economic conditions, strong institutional settings and legal structure, and a
well-functioning financial infrastructure are preconditions for local capital market
development. Similarly, sound corporate governance and the availability of long-term
savings are crucial for active market-based finance. Bond market development is more
challenging than equity market development since the necessary infrastructure is more
complex and extends to areas such as creditor rights and insolvency regimes.7 The
government should have a strong role in tackling these challenges.
MENA governments are aware of these challenges and have implemented reform
programmes to deepen their capital markets. However, even after determining the
measures needed to deepen the markets, putting them practice can prove difficult.
Because the policy options are generally interrelated, co-operation is needed among
several institutions: regulatory and supervisory authorities of financial sectors; stock
exchanges; tax authorities; and other government institutions supporting
entrepreneurship. A coherent national action plan should be prepared through
consultation with all related parties.
Policy makers should consult targeted market participants at an early stage while
programmes are being designed. Public awareness programmes could then be organised
to reach a larger target audience. Regular monitoring and review could result in a best-
practice model that would benefit the entire MENA region.

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Box 2.1. Saudi Arabia’s Financial Sector Development Programme

Saudi Arabia has recently accelerated efforts to facilitate investment and strengthen the
role of capital markets as a funding channel. In April 2017, the country’s Council of
Economic and Development Affairs (CEDA) launched a Financial Sector Development
Programme in line with Saudi Vision 2030, a comprehensive plan to diversify the
economy.
The programme seeks to create a thriving financial sector in order to support economic
development by stimulating savings, finance and investment. It is underpinned by three
main pillars:
 enabling financial institutions to support private sector growth
 developing an advanced capital market
 promoting and enabling financial planning.
The programme, which was designed to comply with international standards of financial
stability, aims to increase the country’s financial assets to GDP ratio, the share of capital
market assets and the share of SME financing at banks. It also envisions a digital
transformation as the country moves towards a cashless society.
The programme defines the responsibilities of all related institutions, including the
Capital Markets Authority; the Ministry of Finance, Ministry of Commerce and
Investment, and Ministry of Economy and Planning; the Public Investment Fund; and the
Monetary Agency. Efforts are co-ordinated among relevant stakeholders and progress is
monitored.
Source: www.vision2030.gov.sa/en/FSDP

Saudi Arabia, Jordan and Qatar have already introduced national programmes aimed at
developing capital markets. Saudi Arabia’s Financial Sector Development Programme
offers a good-practice example that may be of interest to other jurisdictions in the region
(Box 2.1).
Initiatives taken by countries outside the region could also prove interesting to MENA
policy makers as they seek to deepen capital markets. For example, the European Union’s
capital market union aims to increase the access of smaller growth companies to capital
markets. Measures range from introducing simpler disclosure rules for small companies
to creating pan-European institutional investors specialising in long-term investment,
particularly in SMEs.
The EU has also introduced corporate governance initiatives that aim to strengthening
shareholders’ rights and that encourage long-term shareholder engagement in listed
companies. The EU Shareholder Rights Directive was amended in 2017 for this purpose.
Monitoring these developments and understanding alternative policy options can help
MENA policy makers to build their own models. Existing international organisations,
such as the Union of Arab Securities Authorities (UASA) and Union of Arab Stock
Exchanges, can play an active role in information and experience sharing.
However, MENA policy makers also need to consider their domestic and regional
circumstances in order to develop suitable policy options. For example, state-owned stock
exchanges in MENA jurisdictions generally face different challenges than demutualised

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stock exchanges in setting standards; monitoring; and enforcing listing and corporate
governance rules. Assigning such stock exchanges central roles for the regulation and
monitoring of members could support overall market development efforts and ease the
burden on securities regulators.
Similarly, sovereign investors, as the biggest investor category in the MENA region,
could assume a strong role in supporting capital market investment in growth companies
or influencing a company’s corporate governance practices. Finally, Islamic capital
markets can play a vital role in growth company financing. The importance of Islamic
finance has been recognised by MENA authorities, and several countries have accelerated
their efforts to develop this market. For example, United Arab Emirates has taken
initiatives aimed at promoting Dubai as the capital of the global Islamic economy.
Policy makers must also lay the groundwork for an effective corporate governance
framework. This framework determines which corporations are allowed to access public
markets and the terms upon which savers are able to invest in a corporation (Çelik and
Isaksson, 2017).
Investors need assurance that their rights are protected when they convert their savings
into investments. Capital market investors also need detailed, up-to-date information in
order to evaluate investment opportunities in the market and to monitor the use of their
investments. Companies may also be unwilling to use capital markets without clear
responsibilities defined by the rule of law (OECD, 2015a).
Policy makers must be committed to establishing a regulatory environment that is flexible
and attractive enough to enable any company, including growth companies, to tap into
capital markets, while at the same time enhancing investor confidence.
Their programmes should also address identified weaknesses in corporate governance
practices and regulation in MENA jurisdictions. These weaknesses, which are discussed
in detail in Chapter 3, involve disclosure and transparency, board independence and
oversight.

2.7.4. Enhancing the capacity of key institutions

Securities regulation is relatively recent in the region, but regulators have been able to
achieve considerable improvements in a short period (Amico, 2014). Recent amendments
to capital market legislation and corporate governance rules indicate that regulation and
practice are being reformed to meet changing needs. However, the monitoring and
enforcement capacity of securities regulators will need to be strengthened as capital
markets expand. Markets are becoming more complex due to technological and market
innovations as well as increasing cross-border trade, and detecting possible market
misconduct is becoming more challenging for every supervisory authority in the world.
MENA regulators have intensified efforts to strengthen supervision, investor protection
and effective enforcement. In complex cases, including insider trading, supervisory
authorities have published their regulatory enforcement actions (UAE, Saudi Arabia,
Oman, Iraq).
In 2016, the United Arab Emirates established a new regulator, the Dubai Centre for
Economic Security, to combat financial crimes such as market abuse. The centre has wide
powers to supervise, investigate, take precautionary measures and exchange information.
The UAE also enacted protection for whistle blowers in 2016. These developments can
serve as a model for other markets in the region.

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Capacity building programmes are also being conducted in the region for the staff of
regulatory authorities. One such programme was launched by the UASA in the second
half of 2017.
In order to increase investor confidence, the competent authorities must have adequate
powers, resources and institutional capacity to supervise the market and enforce capital
market rules effectively. It is essential that the authorities be operationally and financially
independent, and also accountable.
International co-operation can help strengthen the institutional capacity of securities
regulators. Twelve MENA jurisdictions (Algeria, Bahrain, Egypt, Jordan, Kuwait,
Morocco, Oman, Palestine, Qatar, Saudi Arabia, Tunisia and UAE) are currently
members of the International Organisation of Securities Commissions (IOSCO), while
only two (Egypt and UAE) are members of the International Forum of International Audit
Regulators (IFIAR). Active involvement and participation in these organisations, which
work on setting standards in capital markets, would improve regulation quality and
facilitate experience sharing and co-operation among countries.

2.7.5. Improving capital market financing alternatives

Meeting the funding needs of issuers is fundamental for efficient capital market
development in the MENA region. Equity financing is particularly suitable for growth
companies. Alternative investment products and methods, such as securitisation, cover
bonds, sukuk and fund collection via private placement and crowd funding, are also being
used for financing younger growth companies in most markets.
Policy makers could promote market-based finance by acknowledging the value of these
alternatives. Regulation and clear schemes for implementation must first be in place, and
programmes, rules and regulations should be in line with the realities of the business
landscape and be understood by target companies.
MENA companies may prefer to issue Islamic capital market instruments rather than
conventional instruments in order to attract a wider investor base. To realise the full
potential of Islamic capital markets, however, several challenges must be addressed.
These include the complexity of Islamic instruments, the high cost of Islamic contracts,
lack of standardisation, lack of diversification, low liquidity and low availability of
qualified human resources (Mohieldin, 2012). Issuing sukuk, for instance, is reported to
be more complex and costly than issuing conventional bonds (IFSB, 2018).
A limited time frame for the approval process would make issuance procedures more
transparent. The use of this good practice has begun in the region. For example, Egypt’s
financial regulatory authority adopted a regulation in 2017 introducing a 15-day time
frame for the review of an IPO application.
MENA authorities could also consider evaluating the efficiency of their public offering
regime for facilitating companies’ access to capital markets. In particular, the efficiency
of prospectus rules should be reviewed, since time-consuming and costly procedures can
influence potential issuers. Prospectuses should provide adequate disclosure about the
issuer and the offer to allow an informed investment decision. Good practices adopted at
the international level, such as the IOSCO disclosure standards for cross-border offers or
the EU Prospectus Directive, can serve as a guide.
Common methods for lowering costs and administrative burdens in public offerings
include: prospectus exemptions based on offer size or targeted investors (such as

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qualified investors); a proportionate disclosure regime for companies with reduced

market capitalisation; use of incorporation by reference; shelf registration systems; and
simplified rules for secondary issuance regimes or frequent issuers. MENA policy makers
who have not yet implemented such measures should seek to strike the right balance
between investor protection and alleviating administrative burdens on issuers and offers.
A hybrid issuance procedure and private placement regime for equities and bonds is
another option for easing access to capital markets for smaller growth companies. In a
hybrid offer regime, some issuance and disclosure requirements are reduced for private
placements to institutional investors. This regime is widely used globally, especially in
corporate bond markets.
A recent report noted that procedures for public offers and public placement of corporate
bonds are similar in Egypt, Jordan, Morocco and Tunisia, where the evaluation of a bond
issuance application takes three to four months (EBRD and AMF, 2015). Under changing
market conditions, long evaluation periods and complex issuance procedures could
discourage potential issuers.
A private placement regime is especially important for growth companies. Private
placement helps unlisted growth companies to tap into capital markets for the first time. It
generates a closer relationship between security holders and the company, and this
relationship creates opportunities for growth companies to reach capital market investors
(OECD, 2015a).
In other words, a privately placed issue can enable an unlisted company to gain
experience in capital markets while operating with lighter regulatory requirements. The
company can in turn assess its options for attaining further funding from the capital
markets, and complete any capacity improvements needed for that purpose.
Access to any form of capital market finance requires reliable, consistent and timely
disclosure of company information, as well as formalisation of rights and obligations with
respect to how a company is managed. In this sense, an offer through private placement
also encourages companies to adopt a better corporate governance structure.

2.7.6. Establishing specialised markets for growth companies

Public equity and bond markets designed in accordance with the needs of growth
companies should be developed in the MENA region. Special equity markets for young
and growing companies have been established in many of the world’s economies, yet
only three such dedicated parallel markets currently exist in MENA, in Egypt, Morocco
and Saudi Arabia (Box 2.2).
Dedicated alternative markets provide access to capital markets for smaller growth
companies with lighter regulatory requirements. After the establishment of the Nomu-
Parallel Market in Saudi Arabia, which was promoted by Tadawul as a market open to
companies of all sizes, the total amount of capital raised in the market was
169 USD million, representing 37% of total MENA growth company IPO proceeds in
2017.

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Box 2.2. SME markets around the world

Many of the world’s stock exchanges have established SME markets to encourage
smaller companies to access capital markets. As of the end of 2017, 33 stock exchanges
had dedicated SME markets. The number of listed companies on those markets has
expanded from fewer than 5 000 in 2002 to 6 807 at the end of 2017, with the size of the
SME markets varying from two to nearly 2 000 listed companies.
Three MENA stock exchanges have established SME markets. As of the end of 2017,
listed SMEs numbered 32 in Egypt and 27 in Morocco. Saudi Arabia established its
Nomu-Parallel Market in February 2017, and by April 2018 counted 9 listed companies.
Research by the World Federation of Exchanges on SME exchanges (WFE, 2017b)
delivered the following findings:
 While obtaining access to finance is important element in listing decisions, other
factors, such as positioning the firm for growth and diversifying the investor base,
also play a role.
 Companies perceive the process of initial and ongoing listing requirements to be
burdensome, costly and time consuming.
 SMEs may not have adequate information on various aspects of listing, such as
initial and ongoing listing requirements, ongoing listing costs and the benefits of
listing.
 Investors would value the opportunity to have access to more information on
SMEs.
 All surveyed parties attach importance to the market liquidity of company shares.
These results indicate factors that need to be addressed for the development of a
successful SME market.
Source: WFE (2018b), SME Markets: Key data points; WFE (2017b), SME Financing and Equity Markets.

In addition to equity markets, special bond markets for unlisted SMEs can be designed.
Different markets across Europe target corporate bonds issued by smaller companies
(mini bonds). They include the London Stock Exchange's Order Book for Retail Bonds,
the Stuttgart Bond Market, B and C segments at Euronext, Alternext in France, Mercato
Alternativo de Rent Fija in Spain and ExtraMOT PRO in Italy.
These examples can provide useful insights for MENA policy makers. It should be noted,
however, that developing a parallel market is complex and that not all special markets are
successful. Information asymmetry, high listing and maintenance costs, compliance costs,
lack of awareness, low levels of liquidity and high monitoring costs are commonly
mentioned as brakes on the success of these markets.
Focusing on growth companies could be useful in establishing a specialised market.
Several studies note that public equity financing is appropriate for high growth,
innovative companies (OECD, 2015b; Harwood and Konidaris, 2015).
Methods used by policy makers around the world to address these challenges include:
applying more flexible listing conditions, relaxing disclosure requirements, lowering
admission costs and requiring a key adviser and/or liquidity provider. However, there are

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no magic bullets for ensuring a positive outcome. Each jurisdiction should consider how
to design measures guaranteeing investor protection without creating barriers restraining
market conditions.
Certain methods, even if not in widespread global use, could correspond to the market
characteristics of a particular economy. For example, instead of implementing lower
disclosure standards for younger growth companies, policy makers could consider
creating a special segment in stock exchanges for companies that implement higher
corporate governance standards.
Several stock exchanges, such as the London Premium Market or Brazil’s Nova Mercado,
have taken this approach. Adopting higher corporate governance standards may
strengthen investor demand for growth company shares, which are normally perceived as
high risk. It may also encourage other companies to improve their corporate governance
practices.

2.7.7. Addressing issuer side factors

Understanding the factors that can influence potential issuers is crucial for addressing the
reluctance of MENA companies to access public capital markets, and the consequent
small size of these markets in the region.
For this purpose, rules and regulations that may constrain companies’ issuance and listing
decisions should be analysed in detail. Such studies, especially in relation to the family-
owned company structure that is common in MENA, would provide considerable input.
MENA policy makers can already benefit from studies conducted by other regulators or
international organisations. For example, WFE research that included family-owned
companies from two economies in the region found that the main reason family
companies are not being listed is concern about loss of control. It would probably be safe
to assume that this concern is valid for the entire region.
The one-share-one-vote system adopted in a number of MENA economies may also
exacerbate company concerns about loss of control. It is argued that investors may accept
alternatives to the one-share-one-vote option if the investment is deemed otherwise
attractive.
Where appropriate, MENA economies that apply the one-share-one-vote principle might
want to assess the pros and cons of introducing dual share mechanisms, in which one
class of shares is offered to the general public and another to company founders,
executives and family. In this case, the protection of minority shareholders requires
adequate safeguards such as disclosure, board member loyalty to the company and
shareholders, and qualified majorities for certain shareholder decisions.
This approach is reflected in the G20/OECD Principles of Corporate Governance, which
recommend flexibility and proportionality to make the framework flexible enough to
meet the needs of companies operating in different circumstances. Factors that may call
for flexibility include the size of listed companies as well as their ownership and control
structure, geographical presence, sectors of activity and stage of development.
Lack of awareness among companies and investors about the role and potential benefits
of capital market finance may also be a factor in the small size of MENA’s capital
markets. Greater involvement in relevant studies by non-governmental organisations,
such as professional unions, associations and universities, could be beneficial.

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However, awareness-raising programmes do not suffice to address issuers’ concerns.

Companies also need to be prepared for the longer-term commitments arising from
capital market financing, and notably the reporting obligations. Consulting services to
support the cultural and organisational development of all related institutions could help
increase growth companies’ access to capital markets. The ELITE business development
programme in Morocco and Saudi Arabia, mentioned above, is a good example.
Another example is the Irish Stock Exchange’s IPO-ready programme, which was
launched in 2014 to provide high-growth IPO candidate companies with extensive
support. It prepares them to raise strategic finance, become listed on the stock exchange
and attract investment from domestic and international shareholders. The programme,
supported by Enterprise Ireland and the Ireland Sovereign Development Fund, could be
of interest in a region with the largest sovereign funds in the world.
The high advisory and legal costs associated with accessing capital markets may also
discourage listings by growth companies. Although there is no comprehensive study to
identify the cost structure of IPOs in the region, the overall IPO cost as a percentage of
the offered amount is estimated at 5-10% in Dubai and 10% in Morocco (IOSCO, 2015).
Given those relatively high expenses, MENA policy makers could consider measures that
have been taken elsewhere, such as lower listing fees, subsidies to help cover the cost of
IPOs, government credits and tax breaks. Reinforcing competitive conditions in the IPO
services markets could also lead to better outcomes.

2.7.8. Developing the investor base

The development of a robust investor base is essential in the region. To spur investor
interest, policy makers should aim to promote a capital market culture. This requires
raising overall financial literacy, building trust by ensuring strong minority rights and
good corporate governance practices, and requiring more transparency and disclosure.
Efficient insolvency regimes and effective enforcement of creditor rights are important
for investor interest in corporate bonds.
A vibrant secondary market also makes equity investment more attractive. However, the
limited number of listed companies and low liquidity in MENA may discourage investor
participation.
Around the world, it is common to require a minimum free float of 25% to support
liquidity in equity markets. The main MENA markets have different free float
requirements: 30% in Saudi Arabia, 25-30% in UAE, 10% in Bahrain, 5% in Egypt. In
order to address liquidity problems, MENA policy makers should evaluate the efficiency
of free float requirements in their market. Depending on the results, they could consider
increasing free float requirements. Other widely used measures, such as establishing a
market maker system or a call market, could be considered to address liquidity concerns.
Issuances in sufficient size and frequency are essential for secondary bond market
liquidity.
Planned privatisations around the region could also provide liquidity and improve market
attractiveness. However, policy makers need to clarify prior to privatisation the main
goals that are to be achieved in financial and non-financial terms. Of key importance is
whether an IPO should target a small class of professional investors or the general public.
The World Bank has argued that deep discount distributions in the past have resulted in
massive oversubscriptions, retarding the development of the markets’ price discovery
function (Rocha, Arvai and Farazi, 2011). Conversely, some European countries have

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successfully developed domestic "mass shareholder cultures” by offering SOE shares to

the public at somewhat discounted prices. In any case, in order to attract investors, state-
owned enterprises need to adopt an adequate corporate governance structure prior to
privatisation.
As liquidity largely depends on the existence of a robust investor base with different
investment preferences, the development of institutional investors should be an essential
part of MENA policies for capital market development. Governments should take action
to create a regulatory environment conducive to the growth of private pension funds,
insurance companies and investment funds, which can provide long-term finance.
The presence of institutional investors as a strong shareholder group could also promote
better corporate governance practices (OECD, 2017b). In the presence of a strong
shareholder group, institutional investors would have the capacity to represent
shareholder interests and influence corporate management, either directly or through
monitoring and possible exit.
MENA markets have great potential for further development of institutional investors.
The Islamic funds industry in particular deserves more attention in the region. Although
Saudi Arabia accounts for 38% of total assets under management in the global Islamic
funds industry, the Islamic funds market is relatively small in other MENA economies
(IFSB, 2018). As prospects for the global Islamic funds industry are positive, with global
Islamic funds under management expected to reach USD 77 billion by 2019 (Thomson
Reuters, 2015), MENA economies must try to develop their Islamic fund markets.
Because global Islamic funds invest largely in equity – 42% in 2017 (IFSB, 2018) –
development of this market may also create a stable investor base for growth companies.
Longstanding regional conflicts and economic slowdown have limited the development
of institutional investors in the MENA region. Economies also face challenges in
demanding good corporate governance practices due to the region’s small market size and
concentrated ownership structure. The presence of a dominant shareholder weakens the
capacity of institutional investors to influence corporate governance. In some cases,
institutional investors do not have proportional voting rights and as a result may not vote
at shareholder meetings and will not disclose their voting policies (GOVERN, 2016).
MENA economies could follow the example of other countries with a prevalence of
controlling shareholder structures, such as Chile and Indonesia, to encourage institutional
investors to take a more active role in corporate governance. This may include
requirements on the disclosure of voting rights and management of conflicts of interest.
The G20/OECD Principles of Corporate Governance note that requirements to engage,
for example through voting, may be ineffective and lead to a box-ticking approach when
shareholder engagement is not part of the institutional investor’s business model.
Therefore, a first step could be to encourage institutional investors to establish and
disclose their voting policy.
Different models are required or recommended for the exercise of voting rights by
institutional investors. This is especially the case when an institutional investor holds
more than a specified share of a company’s equity or for voting on certain important
issues, such as the election of board members and the compensation committee, and
compensation for the board of directors and executive management (OECD, 2017b). It
may be worth exploring the benefits of voluntary stewardship codes that institutional
investors can follow, especially where they are dominant investors in the equity market,
as in Morocco.

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MENA policy makers could also consider reviewing portfolio limitations of institutional
investors to assess whether relaxing limits on capital market investments could encourage
more active institutional investor representation in corporate management. New
regulations could possibly be adopted to allow institutional investors to invest in certain
types of companies, such as younger high-growth companies.
Finally, sovereign wealth funds, the largest institutional investor category in the MENA
region, have the potential to contribute to the improvement of capital markets and
corporate governance practices. Capital market investments by sovereign wealth funds
could therefore be encouraged. Investments by sovereign wealth funds in growth
companies could be increased through programmes that are devised with the stock
exchange and other relevant authorities, such as Ireland’s IPO-ready.
Sovereign wealth funds around the world use different methods to influence the corporate
governance practices of investee companies. Norges Bank Investment Management, for
example, formulates expectations in terms of good governance and board accountability,
and publishes guidelines on voting policy. Companies are monitored, and those found to
be unfit – on issues including environmental damage, sustainability and violations of
human rights – are excluded from its investment portfolio. MENA sovereign wealth funds
that adopt such methods could favour the development of good governance.
Sovereign investors could also make a significant contribution on their own initiative by
implementing good governance practices. They have the potential to reduce possible
political pressure and improve accountability by increasing board effectiveness,
publishing governance and voting policies, monitoring investee companies and adopting
strong internal control and risk management processes. This is important for sustainable
value creation and sound capital market development.
While local institutional investors are evolving in the region, foreign investors could
contribute to competition, shareholder engagement and the transfer of know-how as well
as liquidity and price discovery in the market. As noted above, several MENA economies
have already started to relax foreign ownership limits, and with greater liberalisation the
level of foreign investors will probably increase. Efforts to liberalise foreign investment
in capital markets should be continued.

2.7.9. Enhancing a sound financial ecosystem

A sound financial ecosystem is vital for the functioning and deepening of capital markets.
A strong ecosystem includes independent professionals such as analysts, brokers, rating
agencies and market makers that support companies during and after a public offer.
A weak ecosystem may impede market development, reduce the willingness of
companies to tap into the market and deter investors from investing. It is therefore
important for policy makers to establish the right regulatory infrastructure, including
incentives and requirements, to enable all service providers to work effectively. Requiring
or encouraging the disclosure of potential conflicts of interest faced by service providers
falls within the framework of sound corporate governance practices and underpins capital
market integrity. Disclosure of how conflicts of interests are managed is also beneficial.
Nonetheless, the capital market ecosystem is under pressure in many countries around the
world, with particularly onerous effects for smaller growth companies. For example, there
are less “support services”, such as analyst coverage and proxy advice, for smaller
companies. As a result capital markets are used mostly by large companies.

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This seems to be relevant for MENA markets. According to a study conducted in 2015
for the largest GCC markets (Kuwait, Qatar, Saudi Arabia, UAE), analyst coverage as a
percentage of all stocks traded in securities exchanges ranges from 8.1% in Kuwait to
49.7% in Saudi Arabia (Marmore, 2015). This suggests low levels within the region. A
closer look reveals that analyst coverage for large-cap companies is considerably higher,
ranging from 64% to 100%, and that the ratio drops significantly for small-cap
companies, ranging from 3% to 28%. Furthermore, in Egypt, 73% of all listed companies
have no analyst coverage and only 20 companies are followed by five or more analysts
(GOVERN, 2016). The greater availability of research and public information for large-
cap companies may play into differences in analyst coverage.
Initiatives taken by other countries to increase analyst coverage could be instructive for
MENA. For example, Euronext has adopted a fee scheme that introduces lower trading
costs for brokers who meet certain criteria with respect to trading volumes and equity
research coverage. EnterNext, a Euronext subsidiary that supports SMEs, set up a
partnership with the Morningstar investment research company to provide analysis on the
330 small and midcap tech companies listed on Euronext markets.
In further examples, an independent research company produces one or two reports per
year for companies listed on the SME platform of India’s BSE market, with the cost of
the research covered by the country’s Investor Protection Fund. And an initiative by
Spain’s Alternative Stock Market and the Spanish Institute of Financial Analysts aims to
increase the market visibility of listed companies (Arce, López and Sanjuán, 2011).

Notes

1
The bank deposits to GDP ratio is especially high in Lebanon (247%). Excluding Lebanon, the
ratio is 66.41 %.
2
General IPO activity in MENA is provided for the 2008-17 period. Detailed IPO analysis for the
region covering the years 2014-2017 is based on the annual reports of stock exchanges and
Ernst & Young’s MENA IPO reports. IPO data excludes real estate investment trusts, investment
funds and unit/trust offerings.
3
The paper focuses on 12 Arab countries, namely Algeria, Bahrain, Egypt, Jordan, Kuwait,
Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia and UAE.
4
Value traded excluding top 10 traded companies to total value traded is between 25-59 %, market
capitalisation excluding top 10 companies to total market capitalisation is between 21-71%.
5
Rating agencies and index providers classifying markets include MSCI, S&P, Dow Jones, FTSE
and Russell. Rating agencies and index providers classify markets as developed, emerging and
frontier markets based on different parameters (such as size, liquidity, market accessibility). Less
advanced capital markets from emerging markets are classified as frontier markets.
6
The study includes dataset of companies from Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon,
Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and the United Arab Emirates.
7
This difference may be in part due to the importance placed on infrastructure and the institutional
and legal structure in bond market development owing to the limited return on bonds compared to
equity, which presents the possibility of unlimited return (Laeven, 2014).

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Chapter 3. Improving transparency and disclosure in MENA

Corporate transparency and disclosure is a key component of the corporate governance

framework needed to promote private sector development in MENA economies. This
chapter presents the current legal framework for transparency and disclosure in MENA
economies. It begins by describing the corporate governance landscape in the MENA
region. It then reviews international standards on transparency and disclosure, including
the G20/OECD Principles of Corporate Governance, and examines transparency and
disclosure practices in MENA economies. The chapter looks in particular at two areas of
significance in the region: disclosure of beneficial ownership and of related party
transactions. It reviews the disclosure practices of some of the region’s largest
companies, investigates monitoring and enforcement of disclosure rules and presents key
challenges for policy makers as they seek to strengthen disclosure policies and practices.
The chapter concludes with policy options, based on international good practices.

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3.1. Introduction

Transparency and disclosure are a key part of the corporate governance framework
necessary for promoting private-sector development in the MENA region.
Without relevant and timely dissemination of information to the market, investors cannot
properly evaluate opportunities and risks. Companies need sound financial information in
order to make business decisions, and shareholders need accurate and timely disclosure to
monitor the company’s management. Disclosure is also fundamental to facilitating access
to finance, and this is particularly important for growth companies. Given that investors
look at corporate governance frameworks and practices in making their investment
decisions, countries with better transparency are in a better position to attract finance.
MENA economies have endeavoured to improve their corporate governance structures,
yet gaps remain in terms of transparency and disclosure regulations and practice. Foreign
investors have cited the quality of disclosure practices in the region as one of their main
concerns (Crescent Enterprises, 2016).
This chapter aims to identify the key challenges faced by MENA economies with respect
to disclosure and transparency. It examines the region’s corporate governance landscape,
including legal framework, role of regulators and stock exchanges, ownership structure
and business culture. It reviews international disclosure standards, as well as initiatives to
enhance transparency after the 2008 global financial crisis. It then addresses the
challenges facing the MENA region, with a focus on two areas: beneficial ownership and
related party transactions. The chapter concludes with a discussion of policy options for
improving transparency and disclosure in MENA in order to foster economic growth.

3.2. Corporate governance landscape in the MENA region

A country’s corporate governance landscape impacts the effectiveness of its policies and
regulations. This landscape includes the legal framework for corporate governance, the role of
regulators and stock exchanges, company ownership structure and the predominant business
culture. A review of this landscape in MENA economies can help to determine the extent to
which challenges in these areas affect transparency and disclosure.

3.2.1. The policy framework for corporate governance

The legal framework covering transparency and disclosure in the MENA region, in line
with global practice, includes national corporate law, securities law, listing rules and
corporate governance codes. MENA authorities acknowledge the role of strong disclosure
and transparency for developing capital markets and attracting investors, and initiatives to
strengthen this area are taking place across the region (World Bank, 2018; World Bank,
2017b). Between 2015 and 2018, eight jurisdictions under review (Bahrain, Egypt,
Jordan, Kuwait, Morocco, Qatar, Saudi Arabia and UAE) updated their company law
(OECD, 2019).
Although corporate governance is a relatively new issue in the region, codes have been
developed across MENA since 2002. Oman and Egypt were the region’s first countries to
adopt corporate governance codes, and 11 countries had followed by 2009 (Koldertsova,
2011). The revision of codes has gathered pace recently: since 2015, Bahrain, Egypt,
Jordan, Kuwait, Oman, Qatar, Saudi Arabia and UAE have revised their corporate
governance codes (OECD, 2019).

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Implementation of corporate governance codes varies across MENA. Bahrain and Egypt
use the comply-or-explain approach, which provides flexibility for companies to decide
not to implement certain of the recommendations. Egypt has also incorporated mandatory
governance requirements into the Egyptian Exchange listing rules. Jordan, Oman, Qatar
and UAE Federal impose binding requirements, while Kuwait, Palestinian Authority,
Saudi Arabia and UAE Dubai International Financial Centre (DIFC) take a mixed
approach. Algeria, Lebanon, Morocco, Tunisia and Yemen have opted for voluntary
implementation (Table 3.1).

Table 3.1. Corporate governance codes in MENA

Custodians/Regulators Public, private, stock First code Approach

exchange, or mixed C/E: Comply or
initiative explain
B: Binding
V: Voluntary
Algeria Algerian Institute for Corporate Private 2009 V
Governance (Hawkama El Djazair)
Bahrain Central Bank of Bahrain (CBB) Public 2010 C/E
Egypt Financial Regulatory Authority (FRA) Public 2005 C/E
Jordan Jordan Securities Commission (JSC) Public 2008 B
Kuwait Capital Market Authority Public 2013 B & C/E
Lebanon Capital Market Authority / Banque du Mixed 2011 V
Liban/LCGTF
Morocco National Corporate Governance Mixed 2008 V
Commission
Oman Capital Markets Authority (CMA) Public 2002 B
Palestinian Authority Palestine Capital Market Authority Public 2009 B & C/E
Qatar Qatar Financial Markets Authority Public 2009 B
Saudi Arabia Capital Market Authority /Saudi Public 2006 B & C/E
Stock Exchange
Tunisia Conseil du marché financier Mixed 2008 V
(CMF)/Tunisian Corporate
Governance Centre
UAE DIFC Dubai Financial Services Authority Public 2004 B & C/E
UAE Federal Emirates Securities and Public 2007 B
Commodities Authority (ESCA)
Yemen Yemeni Business Club Private 2010 V

Note: This table includes information provided by MENA jurisdictions in May 2018. Information was
provided for 15 of 18 jurisdictions covered in this chapter.
Source: OECD (2019), OECD Survey of Corporate Governance Frameworks in the Middle East and North
Africa 2019, www.oecd.org/corporate/oecd-survey-of-corporate-governance-frameworks-in-mena.htm.

Disclosure of corporate governance reports is not mandatory in some MENA

jurisdictions, such as Algeria, Lebanon, Tunisia and Yemen (OECD, 2019).

3.2.2. Regulators and other institutions

The development of modern securities legislation began in the region during the 1990s.
Algeria and Morocco were the first to establish regulatory institutions, in 1993, while the
most recent countries to create a capital market regulator were Kuwait (2010) and
Lebanon (2011). Most countries in the region accept the sectoral model of financial
supervision.1 However, Egypt has a sectorial-integrated model (a single supervisor for
capital markets and insurance), and Bahrain has a single authority for financial markets
(Central Bank of Bahrain).

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In addition to securities authorities, other institutions with responsibilities related to

corporate governance enforcement include the Ministries of Commerce and Industry in
Bahrain; the Ministry of Commerce and Investment and the Monetary Authority in Saudi
Arabia; and the Central Banks of Egypt, Jordan and the GCC countries. The regulators
promote good corporate governance through training and public awareness activities.
Stock exchanges promote good corporate governance by issuing listing rules and
disclosure standards and by monitoring compliance (OECD, 2012), but their role varies
from country to country. Exchanges in Oman, Jordan and Egypt have incorporated
governance requirements into listing rules. Stock exchanges monitor the corporate
governance code in seven economies: Egypt, Morocco, Oman, Palestinian Authority,
Qatar, Saudi Arabia and Tunisia (OECD, 2019). The websites of MENA stock exchanges
also provide information on the corporate governance practices of listed companies.
In recent years, MENA stock exchanges have stepped up efforts on sustainability issues.
The Egyptian Stock Exchange in 2012 became one of the world’s first five stock
exchanges to make a public commitment to advancing sustainability via the United
Nations Sustainable Stock Exchanges initiative (Box 3.1). The initiative aims to enhance
corporate transparency and performance on environmental, social and corporate
governance (ESG) issues and to encourage sustainable investment. Of the initiative’s
current 78 partnering exchanges, seven are from the MENA region (Egypt, Jordan,
Kuwait, Morocco, Qatar, Tunisia and UAE).

Box 3.1. Promotion of disclosure by Egypt’s stock exchange

Egypt’s stock exchange (EGX) has made considerable efforts to boost the transparency of
listed companies. Listing rules include disclosure requirements (financial reporting,
corporate actions, material events, shareholding structure, board of directors and general
assembly meetings), the obligation to have an independent audit committee and rules on
related party transactions. The Electronic Disclosure System, which enables listed
companies to send their disclosures to EGX electronically, was introduced in 2015.
These rules have affected the number of companies listed on EGX. The Egyptian
Exchange, the first in the MENA region, was established in the late 19th century. The
number of listed companies increased sharply after the 1990s, partly due to significant
privatisation, but has since decreased dramatically, from 1 075 in 2000 to 254 in 2017
(WB, WFE). This is because companies that were untraded and/or not complying with
listing rules were delisted. Despite the large number of delistings, EGX remained the
largest MENA stock exchange in terms of number of listed companies as of 2017.
The EGX has also worked to promote greater transparency of ESG information. After
joining the UN’s SSE initiative in 2009, it launched its S&P EGX ESG index in 2010 and
the EGX Model Guidance for Reporting on ESG Performance and SDGs in 2016.
Source: EGX, UN Sustainable Stock Exchange Initiative.

Private institutions focusing on corporate governance have also been established in the
region. The first was the Egyptian Institute of Directors, established in 2003 to promote
corporate governance. Hawkamah, The Institute for Corporate Governance was
established in Dubai in 2006 to help companies to develop globally recognised corporate
governance frameworks. Institutes of directors or corporate governance centres have

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since been established in seven countries,2 while regional institutions, such as the Union
of Arab Securities Authorities (UASA) and the Arab Federation of Exchanges, also have
activities aimed at enhancing corporate governance in the MENA region.
These institutions have been actively involved in promoting corporate governance
activities through research, conferences, training and advisory services. In 2011,
Hawkamah launched the first MENA-wide ESG Index in co-operation with Standard &
Poor’s in order to encourage MENA listed companies to pursue sustainable business
practices. The Index covers the 50 companies scoring highest on ESG commitment from
the 150 biggest companies in Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman,
Qatar, Saudi Arabia, Tunisia and UAE. In July 2017, the UASA issued a guideline for
listed companies in Arab financial markets aimed at reducing the obstacles faced by Arab
countries in applying the rules of governance. Also in 2017, the Governance Centre at
Alfaisal University’s College of Business launched a Corporate Governance Index to
monitor and promote good governance practices among corporations doing business in
Saudi Arabia. These activities are important since the results of corporate governance
reforms depend on public-private co-operation and high-level awareness of best practices.
Morocco offers a good example of strong public-private co-operation to build
commitment for corporate governance reforms. A National Corporate Governance
Commission was established in 2007, led jointly by the Ministry of Economic and
General Affairs (public sector) and the General Confederation of Moroccan Enterprises
(private sector). The commission issued a National Code of Corporate Governance in
2008, and the Moroccan Institute of Directors was established in 2009 (OECD, 2012).
International co-operation can strengthen countries’ efforts to adopt and implement best
practices. Currently, securities regulators of 12 MENA economies3 are ordinary members
of the International Organisation of Securities Commissions (IOSCO). However, only
two (UAE and Egypt) are members of the International Forum of Independent Audit
Regulators (IFIAR). Participation in international dialogue is especially useful for the
exchange of experiences, improving institutional capacity and implementing effective
enforcement for securities markets.

3.2.3. Other factors affecting corporate governance practices in the MENA

region
Corporate governance practices in the MENA region are often perceived as not
sufficiently developed to attract investors and contribute to capital market development.
Improving corporate governance principles is challenging, however, due to the region’s
distinctive features: concentrated ownership, a relatively non-transparent business culture
and the level of capital market development (as described in the Overview).
Ownership structures can affect disclosure and transparency, with the quality of voluntary
disclosure increasing when ownership is less concentrated.
The majority of listed MENA companies have concentrated shareholders in the form of
sovereign investors or founding shareholders, such as families (Amico, 2014). The 600
largest firms listed on the region’s exchanges constitute 97% of total market
capitalisation4. A recent analysis of these firms demonstrates that sovereign investors are
the largest investor category in all MENA markets except Iraq, Lebanon and Tunisia,
while family offices are the second biggest investor group (GOVERN, 2016).

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A country’s legal system (common law or civil law) affects disclosure levels. Most
MENA jurisdictions follow a civil code, while research indicates that disclosure levels are
substantially higher in common-law markets.
A country’s historical/economic relations with other countries can also play a role. A
study of the annual reports of 216 companies from 13 MENA economies (Othman and
Zeghal, 2010) found that disclosure levels were higher in countries with privileged
economic ties to Anglo-America (Egypt, Jordan, the Gulf Co-operation Council
countries) than in those with ties to Continental Europe (Tunisia, Morocco, Lebanon).

3.3. Transparency and disclosure: Key issues

3.3.1. International standards on transparency and disclosure

The G20/OECD Principles of Corporate Governance (hereinafter referred to as the
Principles) identify building blocks for sound corporate governance and offer practical
guidance for policy makers. Chapter V states that timely and accurate disclosure should
include material information on the following:
 the financial and operating results of the company
 company objectives and non-financial information
 major share ownership and voting rights
 remuneration of members of the board and key executives
 information about board members, including their qualifications, the selection
process, other company directorships and whether they are regarded as
independent by the board
 related party transactions
 foreseeable risk factors
 issues regarding employees and other stakeholders
 governance structure and policies.
The Principles state that disclosure should be carried out through periodic reports and all
material developments that arise in between.
A 2105 update of the Principles places greater emphasis on disclosure of beneficial
ownership, clarifies recommendations on related party transactions and encourages
disclosure of non-financial information, directors’ and non-executives’ shareholdings,
and the roles and responsibilities of the chief executive officer (CEO) and Chair.
Since the global financial crisis, international organisations have accelerated efforts to
foster investor protection via a fair, efficient and transparent market. The IOSCO revised
its Objectives and Principles of Securities Regulation in 2010 to stress the importance of
regulations on auditor independence, oversight and the disclosure of conflicts of interest.
An increasing number of countries are using international accounting and auditing
standards to ensure the truth and fairness of financial reports. As of April 2018, 144
jurisdictions required International Financial Reporting Standards (IFRS) for listed
companies and financial institutions in their capital markets. These standards are now
permitted or required for approximately 35 000 listed companies on the world’s 93 major

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stock exchanges (IFRS Foundation, 2018). Similarly, 128 countries are using or in the
process of adopting the International Standards on Auditing (ISA) (IAASB, 2018).
Improvements in the standards have a direct impact on global capital markets by
increasing transparency and cross-border comparability.
A major European Union initiative was the 2012 European Company Law and Corporate
Governance Action Plan, which stresses the transparency of listed companies. Recent EU
legislation also covers disclosure of directors’ remuneration; audit quality; non-financial
(ESG) reporting; shareholders’ rights; and disclosure requirements for companies’ issuers.
In the United States, an initiative to update and modernise the disclosure requirements of
listed companies was introduced in 2013. In 2017, the Securities and Exchange
Commission (SEC) proposed amendments to eliminate redundant, overlapping, outdated
or superseded provisions in light of changes in the information environment, and the
Public Company Accounting Oversight Board adopted a new auditing standard to provide
additional information to investors.
To enable sustainable finance and promote responsible investment, greater attention is
being paid to disclosure on environmental and social matters. The 2015 edition of the
Principles encourages companies to disclose non-financial information relating to
business ethics, the environment and, where material to the company, social issues and
human rights. Disclosure of non-financial information on environmental and social issues
has started to become obligatory for large companies in many countries.

3.3.2. Transparency and disclosure in the MENA region

Corporate governance frameworks and disclosure practices in the MENA economies have
evolved in the last two decades, according to evaluations by international organisations.
These evaluations include: corporate governance assessments conducted by the World
Bank and the EBRD; an OECD-UASA survey on related party transactions; and World
Bank Doing Business reports that measure the protection of minority investors.
This section seeks to highlight issues that still need to be addressed. It reviews the
disclosure obligations of MENA listed companies, based on the international evaluations,
and presents the disclosure practices of the region’s top 15 listed companies.

Disclosure obligations of MENA listed companies

Transparency and disclosure practices of MENA listed companies include both periodic
and ongoing disclosure, in line with international standards and best practice. Periodic
information generally includes financial information (yearly, interim financial reports,
annual reports, etc.). Ongoing disclosure includes material changes in direct and indirect
beneficial ownership and ad hoc price-sensitive information.
International Financial Reporting Standards are required in most MENA economies
(IFRS Foundation, 2017), and eight jurisdictions (Bahrain, Jordan, Kuwait, Lebanon,
Palestinian Authority, Tunisia, Saudi Arabia and UAE) are using or in the process of
adopting International Standards on Auditing (IAASB, 2018).
A 2017 report by the Hawkamah Institute found that MENA listed companies had
significantly improved transparency and disclosure levels since 2007. The study
compared several categories of disclosure, including disclosure of non-financial
information, among the 50 largest and most liquid companies listed on 11 MENA
markets: Bahrain, Egypt, Jordan, Lebanon, Kuwait, Morocco, Oman, Qatar, Saudi

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Arabia, Tunisia and UAE. Its findings highlight the impact of efforts by MENA
authorities and listed companies in the area.
In order to limit administrative burdens on smaller companies, and in line with the
Principles, proportional disclosure requirements have been adopted in specialised SME
markets in the MENA region. For example, for companies listing on Saudi Arabia’s
Tadawul Parallel market (the region’s newest SME market), disclosure standards of
annual reports are indicative rather than mandatory, and the deadline for publishing
financial statements is more lenient than the deadline of the main market.

Evaluations of corporate governance disclosure in MENA economies

International evaluations of disclosure and transparency in the MENA region have
identified areas that need regulatory improvements.
The World Bank Doing Business report, which covers 11 areas of business regulation across
190 economies, measures issues relating to corporate governance through its “protecting
minority investors” topic. One set of indicators (extent of conflict of interest regulation)
measures the protection of minority shareholders against misuse of corporate assets by
directors for personal gain, while another (extent of shareholder governance) measures
shareholder rights and corporate transparency requirements (World Bank, 2017a). Countries
and regions are ranked on a scale of 0-10, with 10 showing the strongest performance5.

Figure 3.1. Extent of conflict of interest regulation index (0-10)

Qatar 2
Libya 3
Algeria 3.3
Jordan 3.7
Yemen 4.3
Egypt 4.7
Iraq 4.7
Lebanon 5
MENA Region Average 5.2
Oman 5.3
Latin America and Caribbean 5.4
Bahrain 5.7
East Asia and the Pacific 5.7
Palestinian Authority 5.7
Tunisia 6
Kuwait 6
Morocco 6
Europe and Central Asia 6.2
South Asia 6.4
OECD 6.5
Saudi Arabia 7.3
United Arab Emirates 7.7
Djibouti 8.7
0 1 2 3 4 5 6 7 8 9 10

Source: World Bank, Doing Business 2019.

The 2019 rankings, displayed in Figures 3.1 and 3.2, show that the MENA region
performs less well than other regions in both aspects of “protecting minority investors”.
However, scores vary widely across the region. The GCC countries (except Qatar)
perform generally better than other regional averages in this area. Djibouti is the MENA
economy with the most notable improvement in the 2019 rankings, while Saudi Arabia
receives a high score of 8.7 out of 10 points for the shareholder governance index. In both
indexes, certain MENA economies outperform some OECD countries.

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Figure 3.2. Extent of shareholder governance index (0-10)

Palestinian Authority 2.0

Libya 2.0
Lebanon 3.3
Qatar 3.7
Algeria 3.7
Oman 4.0
Sub-Saharan Africa 4.2
Yemen 4.3
Latin America & Caribbean 4.3
Iraq 4.7
East Asia & Pacific 5.2
MENA Region Average 5.2
Tunisia 5.3
Kuwait 5.7
Jordan 5.7
Morocco 6.0
OECD 6.3
South Asia 6.6
Europe & Central Asia 6.8
Egypt 7.0
United Arab Emirates 7.3
Djibouti 7.7
Bahrain 7.7
Saudi Arabia 8.7
0 1 2 3 4 5 6 7 8 9 10

Source: World Bank, Doing Business 2019.

Saudi Arabia now ranks 7th globally in terms of protecting minority investors. The World
Bank reports that Saudi Arabia strengthened protections by “providing clear rules for the
liability of directors and increasing the role of shareholders in major decisions” (Box 3.2).

Box 3.2. Recent improvements in Saudi Arabia’s corporate governance framework

The Saudi authorities have pushed for better corporate governance since the
establishment of the Capital Markets Authority (CMA) in 2003. New measures to
regulate disclosure and strengthen transparency have been adopted recently in line with
Saudi Vision 2030, a comprehensive plan to diversify the economy. They include
requirements for:
 annual disclosure of remuneration policies, and mechanisms for determining such
remuneration
 annual disclosure of cash and in-kind benefits to each board member in exchange
for any executive, technical, managerial or advisory work or positions
 disclosure of related party transactions or arrangements equal to or greater than
1% of the gross revenues of the issuer
 disclosure of changes in the composition of the directors or CEO of the issuer
 disclosure of the entering into or unexpected termination of any material contract.
In addition, corporate governance regulations were updated in 2017, becoming more
comprehensive, with 85% of the code’s provisions now binding.
Source: CMA representative, “Transparency and Disclosure in the Saudi Capital Market”, 2017 meeting of
the MENA-OECD Working Group on Corporate Governance.

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The World Economic Forum’s Global Competitiveness Report assesses the quality of
accounting and auditing standards (Table 3.2). In its Strength of Auditing and Accounting
Standards Index for 2017-2018, Qatar and Bahrain are ranked globally as 25th and 29th
respectively and lead the MENA region with scores of 5.6 and 5.4 on a scale of 1-7.
Table 3.2. Strength of auditing and accounting standards, 2018 (1-7)

Country Score
Qatar 5.6
Bahrain 5.4
Saudi Arabia 5.3
UAE 5.2
Oman 5.2
Morocco 5.1
Jordan 5.0
Egypt 4.7
Kuwait 4.4
Lebanon 4.3
Tunisia 4.3
Algeria 3.4
Yemen 2.6
Mauritania 2.2
Source: World Economic Forum, Global Competitiveness Report 2018.

Transparency on beneficial ownership, board members and audits

The World Bank Doing Business report’s “protecting minority investors” topic also
assesses corporate transparency on matters like beneficial ownership, the activities and
compensation of board members, and disclosure of audits. The findings for the MENA
economies under review are presented in Table 3.3.

Table 3.3. Extent of corporate transparency index, 2019

Implemented Not implemented

Buyer must disclose direct and Bahrain, Egypt, Jordan, Kuwait, Lebanon, Algeria, Djibouti, Iraq, Libya,
indirect beneficial ownership Morocco, Saudi Arabia, Tunisia, UAE Mauritania, Oman, Palestinian
stakes representing 5% Authority, Qatar, Yemen
Information on board members’ Egypt, Jordan, Kuwait, Saudi Arabia, Tunisia, Algeria, Bahrain, Djibouti, Iraq,
primary activities and directorships UAE Lebanon, Libya, Mauritania,
in other companies must be Morocco, Oman, Palestinian
disclosed Authority, Qatar, Yemen
The compensation of individual Jordan, Kuwait, Oman, Qatar, Saudi Arabia, Algeria, Bahrain, Djibouti, Egypt1,
directors and high-ranking officers UAE Iraq, Lebanon, Libya, Mauritania,
must be disclosed Morocco, Palestinian Authority,
Tunisia, Yemen
Annual financial statements of Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan,
listed companies must be audited Kuwait, Lebanon, Libya, Mauritania, Morocco,
by an external auditor Oman, Palestinian Authority, Qatar, Saudi
Arabia, Tunisia, UAE, Yemen
Audit reports of listed companies Bahrain, Djibouti, Egypt, Jordan, Kuwait, Algeria, Iraq, Libya, Mauritania,
must be disclosed to the public Lebanon, Morocco, Oman, Palestinian Yemen
Authority, Qatar, Saudi Arabia, Tunisia, UAE
1Egypt has recently strengthened disclosure regulations on remunerations of directors. Currently, all amounts
received by the chairman and each member of the board of directors, including salaries, compensation and
bonuses, should be disclosed by listed companies.
Source: Adapted from World Bank, Doing Business 2019.

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Various issues emerge from analysis of this table.

 Disclosure of beneficial ownership stakes (representing 5% or more of capital) is
required in only half of the MENA economies under review.
As noted by the Principles, investors have a basic right to have transparent information
on the ownership structure of companies. This information is especially important for
investment decisions in economies characterised by concentrated ownership, such as
those in the MENA region. Although most MENA jurisdictions have passed legislation
obliging companies to disclose substantial ownership of shares, the true ownership of a
company can remain opaque (OECD, 2016).
 Disclosure of information on board members’ other activities and directorships is
mandatory in only six of the 18 MENA economies under review.
The Principles note that investors require such information, which can shed light on
potential conflicts of interests and on whether board members devote adequate time to
their activities. This is relevant for MENA economies, where family members and
government representatives often hold seats on company boards (Othman and Zenghal,
2010), and where one member may hold seats on the boards of multiple companies.
 Disclosure of the individual compensation of company directors and high-ranking
officers is required in only six MENA economies.
The Principles state that shareholders need such information to evaluate links between
remuneration and long-term company performance. The 2017 OECD Corporate
Governance Factbook, which covers 47 economies, reports that 89% have introduced
general criteria on remuneration, mainly through the comply-or-explain system.
Disclosure on an individual basis, including termination and retirement provisions, is
increasingly regarded as good practice, but remains a sensitive issue in some countries
(OECD, 2017a). Although individual remuneration disclosure is now required or
recommended in most OECD member states (OECD, 2017a), emerging markets prefer
aggregate reporting on remuneration (IOSCO, 2016). Alternative approaches are taken by
several emerging markets. For example, companies in Argentina must submit individual
remuneration information to the capital market authority only, while companies in Brazil
must disclose the minimum, maximum and average individual remuneration for the last
three years (IOSCO, 2016).
As shown in Table 3.3, and similar to other emerging markets, disclosure of individual
remuneration is not required in most MENA economies. A specific format for disclosure
of the remuneration of board members and executives is now required under Saudi
Arabia’s corporate governance regulations, adopted in February 2017.6
 Public disclosure of auditing reports is not mandatory in all MENA economies.
Investors need high-quality comparable and consistent financial information to make
informed investment decisions. Capital markets could not function properly without the
accurate and timely disclosure of financial statements. The auditing of financial
statements by independent auditors, in line with international standards, and the
disclosure of auditing reports are thus of vital importance for capital market development.
The financial statements of listed companies are audited in all MENA economies, with
Algeria, Iraq, Libya, Mauritania and Yemen not having compulsory requirements to
disclose auditing.

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The audit report is the main tool for auditors to communicate with shareholders, and its
disclosure is crucial to achieve the intended benefits of auditing. In line with the IOSCO
Principles for Periodic Disclosure by Listed Entities, global good practices indicates that
company annual reports should contain an audit report for the period.

Table 3.4. Information disclosed by 15 of the largest MENA companies

Disclosure items by category Number of companies disclosing the item

1. Financial and operating results
1.a. The balance sheet 14
1.b. Profit and loss statement 14
1.c. Cash flow statements 14
1.d. Notes to financial statements 13
1.d. A statement of changes in ownership equity 14
1.e. Consolidated accounts where the company controls other enterprises 14
1.f. Management discussion and analysis 14
2. Company objectives (commercial and non-commercial objectives) 12
3. Major share ownership and beneficial owners
3.a. Major share ownership 8
3.b. Beneficial owners 4
4. Remuneration of members of the board and key executives
4.a. Actual remuneration 13
4.b. Details of remuneration 9
5. Information about board members
5.a. Qualifications of board members 6
5.b. Selection process of board members 8
5.c. Other board membership and executive positions 10
5.d. Independence of board members 11
5.e. The beneficial holdings of each board member and key executive 8
6. Related party transactions
6.a. Material related party transactions 12
6.b. The terms of such transactions 7
7. Foreseeable risk factors
7.a. Foreseeable material risk factors 14
7.b. The procedures that has been established to manage such risks 13
8. Issues regarding employees and other stakeholders
8.a. Issues regarding employees 13
8.b. Environmental, social, and governance (ESG) disclosure 13
9. Governance structures and policies
9.a. Corporate governance statement 12
9.b. Committee structures and functions 13
9.c. Audit committee 13
9.d. Remuneration committee 13

Source: Company annual reports and company websites. See full list of companies reviewed in Annex 3.A

Transparency on related party transactions

Related party transactions (RPTs) are another important aspect of disclosure regulations,
especially where concentrated ownership and business groups exist. As stated in the
Principles, “it is essential to fully disclose all material related party transactions and the
terms of such transactions to the market individually”. Regulation of RPTs varies around
the world, but their disclosure is a legal requirement in almost all economies
(OECD, 2017a).

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A detailed survey of RPTs among MENA economies, conducted in 2014 by the UASA
and the OECD, found that ex-post disclosure of RPTs is required in MENA economies in
line with global practice, but that immediate reporting was less common in MENA
markets (OECD-UASA, 2014). However, the OECD’s 2017 survey on corporate
governance frameworks in MENA indicates that disclosure requirements on RPTs have
been strengthened in the region since 2014.

Disclosure practices of the largest listed companies in the MENA region

This section analyses the current disclosure practices of 15 the 20 largest MENA listed
companies. Seven of the 15 companies are traded on the Saudi Stock Exchange
(Tadawul), the biggest market in the region, while the others are traded on the Kuwait,
Morocco, Qatar and UAE markets (A list of these companies is provided in Annex 3.A).
The Principles were used as the main benchmark for the analysis, which aims to evaluate
the disclosure level of the top listed companies from the perspective of international
investors. Annual reports for 2016 in English were evaluated, and company websites
were checked if a disclosure was missing from the annual report.
It should be noted that this research presents the existence or not of the disclosure item,
and not the quality of the disclosure, nor does it address disclosure regulation. Company
practices based on both voluntary and mandatory disclosures have been examined.
Among the region’s 20 largest companies, five did not publish their 2016 annual reports
in English on their websites. This suggests that websites of major listed companies may
not be regularly updated. The information disclosed by the 15 companies that did publish
their 2016 annual reports in English is presented in Table 3.4.
Findings from this review, in addition to those presented in the table, include the
following points.
 While 12 of the 15 companies published their objectives, these objectives were
not explained clearly in most instances, with the information mainly provided in
statements by the chairman and CEO.
 Eight of the companies disclosed major ownership, but beneficial ownership is
not expressed clearly. In cases where the company’s major shareholder is a public
sector entity, the beneficial ownership of the state can be inferred.
 Thirteen of the companies disclosed the aggregate amount of remuneration to
board members and a limited number of key executives, and nine disclosed details
of remuneration, such as salaries, other compensation and allowances. Only one
company in the sample disclosed individual remuneration.
 Six of the companies provided information about board member qualifications in
their annual reports, and five on their websites. Eight disclosed procedures for the
election of board members in their annual reports, without saying whether a broad
field of candidates was allowed. Eleven disclosed independent board members,
although the criteria for evaluating independence was not provided.
 Material related party transactions were disclosed by 12 companies, mainly as
part of accounting standards; seven provided information on the terms of these
transactions, but used generic formulas such as “governed by limits set by the
regulations” or “at mutually agreed terms”.

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 Financial institutions tend to provide greater detail on material risk factors. In

Kuwait, the internal audit procedures of financial institutions are subject to annual
independent auditing, and the auditor’s opinion is disclosed in annual reports.
 Six companies published ESG reports in addition to their annual reports, while
eight created separate website sections on corporate social responsibility.
 Although two companies did not disclose their governance structure in their
annual reports, all companies provided this information on their websites. All 15
companies had established an audit committee and 14 had a nomination and
remuneration committee.
 The separation of CEO and chairman is prevalent in reviewed companies with
one-tier boards. A single person combines the roles of CEO and chairman in only
two companies, but the rationale for this arrangement was not disclosed clearly.
One company has a two-tier board system.
The results show that the level of disclosure is highest for financial statements.
Companies in Saudi Arabia and UAE disclosed the most detailed information. Most of
the companies in the sample provided substantial non-financial information in their
annual reports; only one, from Morocco, disclosed only financial information. In some
instances, information not published in the annual report appeared in the corporate
governance report or the investor relations section of the company website.
This research sheds light on aspects of the region’s disclosure and transparency practices
that could be improved. For example, as shown in Table 3.5, only four of the 15
companies disclosed beneficial ownership.

Table 3.5. Information least disclosed by 15 of the largest MENA companies

Least disclosed items Number of companies disclosing the item

Beneficial owners 4
Qualifications of board members 6
Terms of related party transactions 7
Major share ownership 8
Selection process of board members 8
Beneficial holdings of each board member and key executive 8
Details of remuneration 9
Other board membership and executive positions 10

This analysis may not reflect the full picture across the region, as it is based on companies
in just five MENA economies and on disclosures from one year only. There is also
extensive literature indicating that disclosure is stronger among larger than smaller
companies, since the former are more visible and subject to more intensive monitoring by
different stakeholders, such as governments, investors and analysts. But although further
research is needed, the results provide an indication of general trends.
The review suggests two key areas where disclosure could be strengthened: ownership
and related party transactions. These areas are deeply interconnected, since disclosure of
ownership provides market participants with updated information on who may exert
influence on the company, and thus helps them to monitor related party transactions.

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3.4. Disclosure of ownership

Knowing the ownership structure of a company is key to making an informed investment.

Disclosure of ownership is especially important when concentrated ownership is
prevalent, as in the MENA region.
The Principles list major share ownership as one of nine material issues that should be
disclosed. Disclosure of ownership contributes to market efficiency, since inadequate,
unclear or inaccessible information may affect the functioning of markets. Disclosure of
ownership is also important for corporate governance as it enables shareholders and
potential investors to evaluate agency costs7.
In concentrated ownership – or “blockholder” systems – majority shareholders can play
an active or passive role as owners of a company. Non-disclosure may lead to self-
dealing, such as abusive related party transactions, insider trading or share dilutions. It
may also lead to tax evasion, or even money laundering, financing of terrorism or other
financial crimes. Conversely, disclosure may discipline blockholders and prevent them
from engaging in abusive behaviour (Siems and Schouten, 2009).
Disclosure of ownership is also crucial for stakeholders such as employees and creditors,
who cannot properly exercise their rights if the ownership structure of a company cannot
be identified. Regulators and supervisory agencies also need to know the owners of a
company in order to enforce rules and prevent financial crime (Vermeulen, 2013).

3.4.1. Legislative and regulatory approaches

In most economies, the ownership disclosure obligations of listed companies are
regulated by securities laws and listing rules. Economies often require disclosure of
beneficial ownership data starting from the IPO stage, mainly through prospectuses. After
the IPO, disclosure of beneficial owner information is required at least annually, and as
soon as the ownership threshold requiring disclosure has been exceeded.
Disclosure requirements on beneficial ownership generally apply to three different groups
(OECD, 2016):
 Major shareholders are required to disclose their shareholdings when the size of
holdings reaches, exceeds or moves below certain thresholds. The thresholds
requiring disclosure are generally well below controlling ownership.
 Listed companies are generally required to disclose their shareholder structure
through their prospectus, annual report, company website, shareholder meeting
circular or other materials such as listing applications.
 Management and board members are also required to disclose share ownership in
many countries, regardless of their actual shareholding percentage.
The effect of these disclosure requirements largely depends on the definition of beneficial
ownership.

Definition of beneficial ownership

A beneficial owner is usually defined as a natural person who is entitled to the benefits
accruing from securities and/or has power to exercise controlling influence over the
voting rights attached to shares.

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International efforts to improve the transparency of beneficial ownership have accelerated

in recent years. These efforts, carried out by G8 and G20 leaders, the Financial Action
Task Force (FATF), governments and international organisations, generally aim to
prevent the misuse of corporate vehicles for illicit purposes, such as tax avoidance,
money laundering or financing of terrorism.
Nonetheless, the “true”, “ultimate” or “de facto” beneficial owner of a company can
remain opaque. Ultimate beneficial ownership information can be concealed through
structures such as shell companies; complex ownership and control structures involving
many layers of shares registered in the name of other legal persons; bearer shares;
nominee shareholders and directors; trusts; and other legal arrangements that enable a
separation of legal ownership and beneficial ownership of assets (FATF, 2014).
Applying the concept of ultimate beneficial ownership can mean that disclosure
obligations extend to any party who has access to voting/control rights, including those
who hold shares indirectly through controlled parties. For example, securities held by a
person’s spouse and/or children would be considered as securities held by the beneficial
owner. This would also be the case for owners who employ control-enhancing
mechanisms, such as pyramid structures, cross-shareholdings, dual class and non-voting
shares, derivative products of shares and shareholder coalitions, agreements and other
“acting in concert” arrangements. When another company holds the shares of a listed
company, the disclosure of beneficial ownership should also be required up to the
ultimate level (OECD, 2017a).

Deadlines for disclosure

As noted in the Principles, it is good practice to call for “immediate” disclosure of
material developments. This is usually defined as a prescribed maximum number of days,
although some countries use vaguer formulas like “as soon as possible”, “promptly” or
“without delay”.
The EU’s Transparency Directive requires major shareholders to inform the issuer of the
acquisition or disposal of major holdings in listed companies, and the issuer then to
disclose this information to the market. The deadline for notifying the issuer can range
from within the same day to four trading days after the shareholder is informed of the
triggering event. Most European Economic Area (EEA) countries (20) apply a deadline of
four trading days for notification. The publication deadline varies among EEA countries
from the same date to three trading days after notification is received.

Practices in MENA
Disclosure of beneficial ownership stakes representing 5% or more of capital, the
common international threshold, is mandatory in only half of the MENA economies
under review: Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Saudi Arabia, Tunisia
and UAE (WB Doing Business, 2018). Other MENA markets, such as Iraq and the
Palestinian Authority, require disclosure of ownership above 10%,
In all MENA economies where a disclosure obligation exists, the issue is regulated by
securities law and regulations including listing rules. Substantial shareholders, directors
and listed companies in many MENA economies are required to disclose beneficial
ownership, in line with global practice, although the rules vary (Table 3.6).

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Table 3.6. Disclosure obligations of substantial shareholders

Minimum
shareholding Reporting requirements on
Country Timing of the disclosure Provision
percentage for change in shareholding
reporting
Bahrain1 5% of the issuer's Any changes received by the Immediate disclosure Bahrain CBB Disclosure Standards
issued and paid-up issuer relating to: (Articles 32, 40, 41, 42)
capital Acquisition of 5% or more of the
issuer's issued and paid-up capital
by a beneficial owner, reaching
5% or more.
Ownership of a beneficial owner
reaches 10% or more
Egypt2 5% of capital Transactions that lead to changes - Capital Market Law and listing rules
in ownership exceeding 5% (or of the Egyptian Stock Exchange
multiples of 5%) of capital
Jordan 5 % or more of any Any 1 % increase in ownership by Within one week Instructions of Issuing Companies
securities of the same shareholders whose holdings Disclosure, Accounting and Auditing
issuing Company. exceed 5 %. Standards
Intention for any purchase above
the 10% rate.
Kuwait 5% of the capital of Any changes in ownership Within a period not exceeding Kuwait Capital Market Law
the listed company exceeding 0.5% of the issuer’s five business days from (Articles 100, 101, 102)
capital by shareholders whose acquisition of 5% of the capital The executive bylaws (Disclosure
holdings exceed 5% For changes to ownership, and Transparency)
Such reporting remains mandatory disclosure is within a period not
when the change results in a exceeding ten business days as
decline of the interest to below 5% of the date of the change.
of the capital.
Lebanon 5% of shares All purchase operations that result Within 24 hours from the Capital Market Law
in reaching or exceeding 5% limit execution of the transaction (Article 45)
Morocco 5% of capital or voting Exceeding or falling below 5%, Within five days from the date Dahir (Royal Decree) establishing
rights 10%, 20%, 33.33%, 50% or of change Law No. 1-93-211 (Article 68 b and c)
66.66% of capital or 5%, 10%, CDVM Capital Market Code (Article
33.33%, 50% or 66.66% of voting III.2.18, Appendix III.2.L)
rights
Saudi 5% of shares or Any change to the list of Third trading day following the Capital Market Authority Rules on the
Arabia convertible debt substantial shareholders occurrence of the relevant Offer of Securities and Continuing
instruments event Obligations (Article 68)
Tadawul Listing Rules (Article 33)
Tunisia3 5% of capital of a When participation in the capital of - -
listed company a listed company reaches or
exceeds the thresholds of 5%,
10%, 20%, 33.33% or 66.66%
UAE 5% of the shares of a 1% change above the disclosure Immediate disclosure Securities and Commodities Authority
listed company requirements Board of Directors Decision No. 3 of
10% of the shares of a 2000 Concerning
parent company, The Regulations as to Disclosure and
subsidiary company, Transparency
sister company or (Articles 3, 33, 36)
affiliate company of a
listed company
1In Bahrain, listed companies are required to disclose information on majority shareholders. In these disclosures
they should highlight any significant change in the list shareholders. The other circumstances that should be
disclosed are as follows: when a beneficial owner's ownership reaches 10% or more of the issued shares and total
paid capital; when an entity intends to purchase or own 20% of the issuer's shares. In addition, acquisition or
disposal of 10% or more of the paid-up capital of any listed issue on the Bahrain Stock Exchange should be
approved by the Bahrain Central Bank, prior to the execution of such order on the Exchange.
2 Cigna, Djuric and Sigheartau (2017), Corporate Governance in Transition Economies: Egypt Country Report.
3 Tunisia stock exchange, www.bvmt.com.tn/en-gb/content/investors-protection.

Source: The web pages of the capital markets authority except where otherwise indicated.

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Table 3.7. Disclosure obligations of directors

Reporting requirements on Timing of

Country Minimum shareholding percentage for reporting Provision
change in shareholding disclosure
Bahrain The issuer must adopt rules governing dealings by - - Bahrain CBB Disclosure
directors, senior management and associated persons Standards
in listed securities of the issuer, in terms no less Article 40
exacting than those issued for shareholders who have
5% or more of the capital issued by the Bahrain Central
Bank.
Egypt1 3% of the capital of issuer Exceeding 3% or its Capital Market Law and
multiples listing rules of the
Egyptian Stock
Exchange
Kuwait No minimum; in addition to any changes in securities Any purchase or sale Immediate Kuwait Capital Market
owned by directors, transactions in securities of disclosure Law
the intention to buy securities should be disclosed the company; Article 100,101,102;
intention to buy securities executive bylaws
(Disclosure and
Transparency)
Lebanon No minimum (notification to capital markets authority) All transactions that have Within 10 days Market Conduct
been made, directly or from the date of Regulation Article 4106
indirectly transaction
in a traded security of the
issuer or in other securities
related to the traded
security
Saudi 5 % of shares or Any change to the list of Third trading day CMA Rules on the offer
Arabia convertible debt instruments substantial shareholders following the of Securities and
occurrence of the Continuing Obligations
relevant event Article 53
UAE No minimum All trades carried out by Immediate Securities and
members of the company's disclosure Commodities Authority
board of directors and its Board of Directors
executive management Decision No. 3 of 2000
concerning
the Regulations as to
Disclosure and
Transparency
Articles 33, 36
1Cigna, Djuric and Sigheartau (2017), Corporate Governance in Transition Economies: Egypt Country Report.

Source: The web pages of the capital markets authority except where otherwise indicated.

Disclosure thresholds can apply to all shares of a listed company, to the voting shares or
to both. The former approach is used by most MENA economies, while in Morocco the
disclosing threshold refers to capital or voting rights. Regulations in some economies,
including Kuwait, take voting rights into account indirectly.
Disclosure requirements often apply to de facto as well as de jure beneficial owners.
Among MENA economies, regulations regarding de facto ownership are most detailed in
Saudi Arabia and Kuwait. Under Saudi regulations, for instance, the total number of
shares or convertible debt instruments held by a single person include: securities held
directly by the person; those held by a relative of or a company controlled by the person;
and those held by any other persons who have agreed to act in concert with the person.
Requirements on the timing of disclosure by shareholders also vary among MENA
economies. In the case of significant acquisitions in a listed company, the United Arab
Emirates and Bahrain require immediate disclosure. In other economies, the mandated
period for disclosure varies between 24 hours and 10 days.

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Company directors and senior officers must disclose beneficial ownership information in
many MENA economies, although the requirements differ across the region (Table 3.7).
In Kuwait and UAE, directors are required to disclose their interests regardless of their
shareholding percentage. In some countries, directors must disclose their trading to the
securities regulator but do not have to make a public disclosure.
Listed companies in the region are often required to disclose the names of their major
shareholders in prospectuses, listing documents and annual and other periodic reports. In
some economies, such as Kuwait, listed companies are also required at the beginning of
each year to disclose the names of shareholders whose shares represent 5% or more in
their capital, as well as any changes occurring to this percentage.
According to Hawkamah’s ESG reports (2012, 2017), the largest listed MENA
companies are improving their transparency on ownership. Of the region’s 50 largest and
most liquid companies, 88% disclosed their largest shareholder in 2017, compared to
fewer than 40% in 2007. However, other analyses point to persistent challenges in the
region concerning the identification of ultimate beneficial owners (Cigna, Djuric and
Sigheartau, 2017; Cigna and Meziou, 2017b; GOVERN, 2016; Santos, 2015).
As a member of the G20, Saudi Arabia was included in a 2015 study by Transparency
International of strengths and weaknesses in the beneficial ownership transparency
frameworks of the G20 member countries. The analysis found Saudi Arabia’s framework
to be of average strength, with the country’s beneficial ownership definition fully
compliant with the Principles on Beneficial Ownership Transparency. But it also found
Saudi Arabia to be non-compliant on identifying and mitigating risks like money
laundering, and only partially compliant on other principles, such as acquiring and
accessing beneficial ownership information.

3.5. Disclosure of related party transactions

This section focuses on transactions involving the movement of resources between a company
and its major shareholders or other related parties, either directly or indirectly. Such related
party transactions can take a variety of forms, including: transactions involving the sale or
purchase of goods, property or assets; provision or receipt of services or leases; transfer of
intangible items; provision, receipt or guarantee of financial services; assumption of financial
or operating obligations; purchase of equity or debt; or establishment of joint ventures (OECD
and UASA, 2014). Although executive compensation can also be considered a related party
transaction, it is excluded in this discussion.

3.5.1. Legislative and regulatory approaches

Related party transactions (RPTs) are regulated around the world in order to protect minority
investors. A related party transaction is a transaction that takes place between two parties who
hold a pre-existing connection prior to the transaction. Regulatory measures to combat RPTs
can take the form of: procedural rules (board approval, shareholder approval or opinion from
independent experts); disclosure (periodic or immediate disclosure, or disclosure of policy on
related party transactions); or prohibition of certain related party transactions.
In some economies, specific roles are assigned to the board of directors or independent
directors for RPTs. In addition, an independent advisor’s view and shareholder approval
are required for certain types of transactions. Only a minority of economies forbid
specific types of RPTs. However, disclosure of related party transactions is an essential
part of regulation in almost all economies (OECD, 2017a).

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The Principles state that “disclosure should include, but not be limited to, material
information on related party transactions”. The OECD methodology for implementing the
Principles specifies essential criteria for the disclosure of RPTs:
 Disclosure should be required at least annually in respect of routine and/or less
significant transactions.
 In transactions that are subject to shareholder approval, sufficient time should be
provided after disclosure to minority shareholders to enable them to make an
informed decision.
 In other related party transactions that have a material impact on the price or value
of the company but do not require shareholder approval, disclosure, in sufficient
detail to enable minority shareholders to express concerns before the transaction
is implemented, should be required.
These issues are addressed by regulations around the world. Periodic disclosure of RPTs
is required under international accounting and auditing standards; immediate disclosure
of certain RPTs is also a common global practice. An IOSCO review in 2015 found that
timely disclosure of material RPTs was required in 26 of the 37 jurisdictions surveyed.
Another legal tool commonly used by policy makers is disclosure of policy on RPTs.
UNCTAD (2011) reports that disclosure of the decision-making process for approving
transactions with related parties is required in 92% of 25 emerging markets from the
MSCI Emerging Markets Index.

Practices in MENA
The concentrated ownership structure of MENA economies gives grounds for concern
about the protection of minority rights and the possibility of abusive RPTs. A review of
disclosure practices of the 50 largest listed companies in the MENA region found that the
RPTs of only 20% of companies covered by the S&P/Hawkamah ESG Pan Arab Index
were conducted on market terms (Hawkamah, 2012; Hawkamah, 2017).
An OECD-UASA study found that while ex-post disclosure of RPTs is generally required
in MENA economies, immediate reporting is less common. The 2014 study found that
12 of the 15 jurisdictions reviewed did not have materiality requirements for the disclosure
of RPTs (the exceptions were Jordan, Iraq and the Palestinian Authority), and that no
materiality conditions for approval and disclosure had been introduced by UASA member
authorities (OECD and UASA, 2014).
Based on the survey findings, the OECD and the UASA made the following
recommendations on the disclosure of RPTs:
 To capture transactions that present a risk of abuse, the legal definition of “related
parties” should be made clearly and consistently in law and regulations, and
should be substantially similar to international good practices summarised in
International Accounting Standards (IAS) and OECD recommendations.
 Material RPTs should be disclosed in interim, quarterly or annual company
reports, including their terms and the approval process. Ongoing reporting of
RPTs to the regulator, shareholders and other relevant parties should be improved.
 Regulators should urge companies to develop and make public a policy to monitor
RPTs that makes clear which RPTs are prohibited and which are accepted, as well as
the circumstances in which they can be considered as acceptable.

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 Electronic disclosure platforms developed by stock exchanges and securities

authorities could be a useful mechanism for facilitating continuous disclosure.
As noted by the 2017 OECD survey on MENA corporate governance frameworks, several
jurisdictions have changed their company laws, securities laws and corporate governance
codes since 2014, resulting in a strengthening of disclosure requirements on RPTs.
The World Bank Doing Business reports have signalled improvements in RPT disclosure
regulations since 2014 in Djibouti, Egypt, Saudi Arabia and UAE. However, the World
Bank’s 2017 report found that Qatar had weakened minority investor protection by
reducing requirements for the approval of RPTs and their disclosure to the board of
directors, and by limiting the liability of directors in the event of prejudicial RPTs.
In Saudi Arabia, regulations now distinguish RPTs according to their materiality and
conditions. Through an amendment in 2016, quantitative disclosure threshold criteria
were introduced for the immediate disclosure of RPTs. Before the amendment, a listed
company was required to disclose any RPTs regardless of size, while the new listing rules
limit the requirement for immediate disclosure to transactions with a value equal to or
greater than 1% of the company’s gross revenue according to the latest audited financial
statements. Listed companies in Saudi Arabia must also disclose a board of director’s
report that includes the nature, terms and amount of each RPT annually regardless of the
size. The boards of listed companies are required to develop an explicit and written policy
to deal with actual and potential conflict of interest situations, including RPTs.
In Egypt, listed companies are required to disclose to the market any arrangement
concluded with related parties (Al Tamimi et al., 2016). A 2016 amendment to listing
rules requires the board of director’s report to disclose all agreements concluded between
the listed company and any of its founders or main shareholders, and the date of prior
approval by the ordinary general meeting for each contract (Law Today, 2016).
The UAE adopted detailed transparency rules and specific procedural obligations through
a new company law (2015) and new corporate governance rules (2016). The new rules
establish disclosure requirements for RPTs regardless of the value of the transaction,
while former rules required disclosure only when the transaction value was equal to or
greater than 10% of the company’s total assets. All RPTs must be disclosed to the board
of directors and securities regulator, with a written confirmation that the terms are fair,
reasonable and in favour of shareholders. Under the new rules, listed companies are to
maintain a register of the names of related parties together with transaction details and
actions taken. Listed companies must also inform their shareholders of such transactions
in the general assembly. When the value of the transaction is more than 5% of the
company’s share capital, a review by independent advisors and shareholder approval are
required. Shareholders representing 5% or more of the shares of a company involved in a
related party transaction may access documents relating to the transaction.
The research described above yields the following on RPTs in the region:
 A major step forward has been the adoption of International Financial Reporting
Standards in ten MENA economies (Bahrain, Iraq, Jordan, Kuwait, Oman,
Palestinian Authority, Qatar, Saudi Arabia, UAE and Yemen).
 To define “related parties”, MENA economies use company law (Egypt, Iraq,
Lebanon, Morocco, Oman, Tunisia, UAE), capital market regulations including
listing rules (Egypt, Iraq, Kuwait, Palestinian Authority, Saudi Arabia, UAE) and

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corporate governance regulations (Bahrain, Egypt, Jordan, Morocco, Oman, Qatar,

Saudi Arabia, UAE, Yemen) in addition to accounting rules (OECD, 2019).
The definition of a related party transaction varies across the region (Annex 3.B). In the
countries under review, it clearly covers key management personnel of the reporting
entity. Related parties generally comprise the parent company and/or any of its
subsidiaries or associate companies. The definition of related parties commonly includes
relatives of the controlling shareholder. However, in some economies (Lebanon),
relatives are not stated explicitly in the definition, while in others the definition covers
relatives up to a certain degree of kinship.

3.6. Monitoring and enforcement of standards

Effective monitoring and enforcement are crucial to ensure that sound corporate
governance rules are applied by companies. Monitoring and enforcement can be public
(provided by securities regulators) and/or private (provided by activist shareholders,
institutional investors and minority investor groups). Public enforcement can involve the
imposition of sanctions for breach of laws and dishonest behaviour (OECD, 2013).

3.6.1. Global trends in corporate governance monitoring and enforcement

Enforcement of corporate governance principles is challenging for public authorities due
to the time, resources and expertise required. To verify the accuracy of disclosed
information, some regulatory authorities co-operate with public institutions such as tax
authorities, central securities depositories, custodians and other financial intermediaries.
International co-operation is also used for verification. The sharing of both public and
non-public information among regulators takes place through different arrangements such
as the IOSCO Multilateral Memorandum of Understanding. Enforcement approaches and
regimes vary among countries. Public enforcement may be both formal (judicial/criminal
penalties and fines, administrative penalties and fines, remedial orders) and informal
(information requests, notice letters or norm-enhancing reprimands) (OECD, 2013).
Other market participants and institutions can play a significant role in the enforcement of
disclosure rules. Stock exchanges can be effective enforcers, as they often adopt
disclosure requirements as part of their listing rules, and delisting is a real threat for any
listed company in cases of noncompliance. Accountants, auditors and rating agencies may
discover weaknesses in corporate governance activities and may provide unofficial advice
to companies. The media can play an important role in raising public awareness on the
importance of good corporate governance.

3.6.2. Monitoring practices in MENA economies

In most MENA economies, the body responsible for developing the corporate
governance code also performs a monitoring role. Securities regulators and stock
exchanges are thus the main supervisors of corporate governance codes in 12 MENA
economies. In Oman, the Muscat Stock Exchange is responsible for monitoring
company compliance with the code (OECD, 2012). A monitoring report is published
in seven MENA economies (OECD, 2019).8
MENA regulatory authorities use different approaches for monitoring disclosure.
These include: standardisation of disclosure through regulations (e.g. shareholder
statements in Oman and Egypt); co-operation with other parties (e.g. with the stock
exchange in UAE); and giving independent experts (UAE) or the board of directors

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(Saudi Arabia) a central role in ex-ante assessment of material transactions. Forced

disclosure and cancellation of illegal RPTs are common enforcement mechanisms in
MENA economies (Amico, 2014).
International evaluations indicate that there is room for improvement in the
monitoring and enforcement of corporate governance in the region. Disclosure
practices of MENA companies are often judged inadequate by investors (Amico,
2014; Crescent Enterprises, 2016). An OECD paper indicates that only 15% of
companies in the UAE and 12% in Qatar disclose corporate governance reports
(Amico, 2014), while a GCC survey found that just 42.5% of 200 publicly listed
companies in GCC countries provided an annual report on their website or a copy
upon request (GCC Board Directors Institute, 2011).
Efficient monitoring is all the more important in MENA economies due to
concentrated ownership, which increases the probability of weak disclosure practices
due to low incentives. An OECD review found that the enforcement capacity of
MENA securities regulators has been growing but could be further developed
(Amico, 2014). The review notes that private enforcement in the region is virtually
non-existent, mainly due to weak shareholder activism and the lack of a litigation
culture.
Monitoring efforts by capital market authorities have improved since this review. In
Jordan, 222 of 248 companies, or 90%, disclosed their semi-annual financial reports
in 2016, the Jordanian Securities Commission announced. The Egyptian Exchange
reports that almost 90% of listed companies file their financial statements within the
period specified in the listing rules. The high percentages may be due to effective
monitoring by the securities authority. The Iraq Securities Commission decided to
suspend trading on the Iraq Stock Exchange of shares of companies that did not
comply with disclosure obligations (UASA, 2016). Stock exchanges also monitor
companies’ disclosures, but institutional capacity building is needed, especially in
newly established authorities.
Persistent challenges in monitoring and enforcement in MENA economies include:
difficulties in ensuring the accuracy of information regarding ownership and related
party transactions, unless directly disclosed by the company and board members.

3.7. The way forward

3.7.1. Key findings

Certain characteristics of the MENA region constitute challenges for effective
corporate governance. These include small capital markets, a small institutional
investor base and low shareholder involvement. As this chapter has shown, another
challenge for the region is transparency and disclosure, particularly in two areas:
disclosure of beneficial ownership and disclosure of the terms of related party
transactions.
Findings, based on international evaluations and a review of the practices of the
largest MENA companies, include the following:
 Disclosure of ultimate beneficial ownership stakes and RPTs is not mandatory
in some MENA economies, nor is the disclosure of board members’ other
activities and directorships or the compensation of directors and executives
(World Bank, 2019).

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 Most MENA economies have adopted or approved International Financial

Reporting Standards, and eight have adopted or are in the process of
approving International Standards on Auditing.
 While financial statements of listed companies must be audited by an external
auditor in all MENA economies, disclosure of the auditing reports is not
required in five countries (Algeria, Iraq, Libya, Mauritania and Yemen)
(World Bank, 2019).
 Remuneration of board members and key executives is disclosed as an
aggregate only and the link between remuneration and long-term company
performance is usually explained in generic terms by 15 top companies in the
region.
 Criteria for the independence of board members and procedures for their
election are generally not disclosed by the sample companies.
 In some MENA economies, such as Egypt and Morocco, it is not mandatory to
publish corporate governance reports as part of annual reports.
Regarding beneficial ownership, country regulations in the region generally require
major shareholders and directors of listed companies to disclose their ownership, in
line with global practice. However, despite improvements in regulation, challenges
persist, especially in relation to the identification and disclosure of ultimate beneficial
owners.
Regarding related party transactions, definitions of such transactions have generally
improved, and greater requirements for their disclosure have been introduced in
MENA economies. However, requirements on the method and timing of disclosure
vary across the region. Many MENA economies have not adopted thresholds for
disclosure and shareholder approval. Regulation also varies on the definition of
related parties.
Nonetheless, many economies have recently amended regulations on related party
transactions. A future review could shed more light on the situation.

3.7.2. Policy options

MENA economies should continue their reform efforts with respect to transparency
and disclosure practices in order to improve the effectiveness of their corporate
governance frameworks. Attention should be devoted to the adoption of international
best practices and to enhancing supervisory authority capacity and shareholder
involvement.
Based on the findings presented in this chapter, two types of policy options can be
proposed. The first involves improvements to the general corporate governance
environment; the second concerns policies specifically targeting the chapter’s focus
issues, namely disclosure of beneficial ownership and of RPTs (Figure 3.3).

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Figure 3.3. Main policy areas for improving transparency and disclosure

Effective
supervision and
enforcement

Voluntary Optimal mix of

improved mandatory and
disclosure voluntary
practice disclosure

International
standards and best
practice

Full and proper

Better
disclosure of
shareholder
related party
engagement
transactions

Full and proper

disclosure of
ownership

While such efforts may be costly and time consuming, they can lead to greater
investor confidence, stronger market reputations and fluid access to finance, thus
contributing to the overall growth and development of the MENA economies and
companies.
Complementing the efforts of policy makers, companies can take immediate action to
improve their disclosure practices. In order to attract investors to the region, it is
important for company websites to be updated regularly and for more reports,
including corporate governance reports, to be made easily available online in English.
Key policy options for corporate governance disclosure are summarised in Table 3.8
and developed below. Not all recommendations apply to every country; policy
options must be tailored to each MENA economy’s specific circumstances and needs.

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Table 3.8. Policy options for improving transparency and disclosure

Objective Policy options

Continue convergence with Monitor the evolution of international developments on disclosure standards and
international standards and best adopt the most appropriate models
practices
Ensure an adequate mix of legislation Consider mandatory regulation in cases of low compliance with voluntary rules
and voluntary codes Consider strengthening disclosure rules on beneficial ownership, related party
transactions, other activities and directorships held by board members,
compensation of directors, auditing reports
Adapt flexible regulation to the needs of different types of companies according to
their size, sector and complexity
Incorporate corporate governance reports as part of annual reports
Encourage best practices through guidance and regular publication of monitoring
findings
Ensure timely, consistent and effective Ensure that supervisory authorities have operational and financial independence
supervision and enforcement as well as adequate powers
Consider adopting a risk-based supervision approach
Share the results of monitoring and action taken against non-compliance with
market participants
Establish clear channels for conveying information to authorities and adopt
measures for the protection of whistle-blowers
Organise awareness-raising activities
Strengthen shareholder engagement Promote active shareholder involvement by strengthening investor protection and
improving public awareness
Consider policy alternatives to encourage more active engagement from
institutional investors, such as requiring or recommending disclosure of voting
policies and exercise of voting rights
Strengthen the functions of company investor relations departments
Ensure full and proper disclosure of Adopt an accurate, clear and comprehensive definition of beneficial ownership
ownership structures in line with good Evaluate the minimum threshold at which disclosure is required
practice Reconsider the time periods allowed for mandatory disclosure to ensure that
investors receive information on timely basis
Consider requiring charts and figures in disclosure of beneficial ownership and
control structures
Review other countries’ mechanisms for assessing beneficial ownership and adopt
the option most appropriate
Ensure full and proper disclosure of Require immediate disclosure of material transactions in addition to periodic
related party transactions disclosure
Improve the definition of related parties to cover all parties who may exercise direct
and indirect control in a transaction
Consider setting a threshold for immediate disclosure based on the materiality of
the transaction
Encourage or require listed companies to adopt and disclose a related party
transaction policy
Ensure sufficient disclosure well in advance of the relevant shareholder meeting in
cases of ex ante shareholder approval of certain material related party transactions
Ensure the qualifications and independence of the accounting and auditing sector

Models for disclosure regulation

MENA economies have upgraded their legal and regulatory frameworks in recent years.
Thanks to better protection of minority investors’ rights, Saudi Arabia and United Arab
Emirates are now ranked 7th and 15th in that area (WB, 2019). However, the low rankings
of other MENA economies suggest that there is room for further improvement.

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MENA authorities should continue to work towards full convergence with international
standards and best practices. The key international benchmarks are the Principles,
International Financial Reporting Standards, International Standards on Auditing and the
IOSCOs Objectives and Principles of Securities Regulation.
Adoption of international standards plays an important role in helping investors decide
how and where to invest. As institutional investors have started to request not only
financial information but also non-financial information, policy makers should monitor
the evolution of international developments on environmental, social and governance
disclosure as well. International best practice recommendations can be found in the
OECD Guidelines for Multinational Enterprises and the Global Reporting Initiative.

Choosing between mandatory and voluntary disclosure

Corporate governance frameworks in the region range from binding regulation to self-
regulation or optional standards. Five MENA economies currently opt for voluntary
implementation of corporate governance codes.
However, guidance and a voluntary code may be insufficient to achieve good corporate
governance practices when there are no mandatory regulations and when, as in MENA,
corporate governance is not market driven.
This chapter has pointed to important areas that are not being disclosed by listed
companies in the region. When specifying the items subject to mandatory disclosure,
MENA policy makers should place a priority on disclosure of ultimate beneficial
ownership stakes, related party transactions, other activities and directorships held by
board members, compensation of company directors and executives, and auditing reports.
Regulations should be flexible enough to take account of the needs of different types of
companies according to size, sector and complexity. As emphasised by the Principles,
disclosure regulations should not place unreasonable administrative or cost burdens on
companies.
Regardless of the corporate governance framework used, a comply-or-explain approach
and formal regulation are crucial for an effective system. The quality of disclosure
becomes even more important when a comply-or-explain approach is adopted. For this
reason, companies must first publish a corporate governance statement. At present,
disclosure of corporate governance reports remains non-mandatory in some MENA
economies, such as Morocco.
In global practice, a corporate governance statement has become a part of the annual
report of listed companies (OECD, 2019). Generally such statements require that any
company departing from the corporate governance code must state which sections of the
code it fails to comply with and the reasons for this non-compliance.
Corporate governance reports must be of adequate quality and content to enable investors
to make informed decisions. Invalid, overly general and limited explanations limit the
benefits of comply-or-explain. According to the European Commission (2009), the main
means used by regulators around the world to ensure the quality of corporate governance
reporting include:
 issuance of guidance on the fulfilment of disclosure requirements (EU)
 required independent auditing of some parts of corporate governance codes,
primarily those relating to financial reporting and the audit committee (UK)

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 adopting a specific template for governance reporting (Spain, Portugal)

 publishing the monitoring findings, including best practices (France).

Supervision and enforcement

Timely, consistent and effective supervision and enforcement are needed to derive the
best results from regulation. In the MENA region, this is even more essential since
corporate governance is not market driven and private enforcement tends to be rare.
To achieve this objective, competent authorities should be operationally and financially
independent, and have adequate powers to adopt supervisory measures and to implement
sanctions. When there is more than one authority for supervision and enforcement (e.g.
securities regulator and stock exchange), co-ordination of investigations and information
sharing are crucial to efficiency. A memorandum of understanding, frequent meetings and
dialogue among related authorities are common methods used to improve co-ordination.
Policy makers should analyse market conditions to define the most effective supervision
and enforcement approach for their jurisdiction, taking into account market needs,
priority areas and objectives, and resource allocation. It is essential to prioritise
monitoring the implementation of mandatory rules and the timeliness of disclosure by
listed companies.
MENA authorities could consider adopting a risk-based supervision approach, which is
common among regulators (e.g. Germany, Brazil, Poland, Portugal and Turkey). A
combination of a risk-based approach and random sampling, rotation between the two, or
both can be considered. In developing a risk-based approach, factors that may be
considered for selection criteria include risks related to a specific sector, common
findings from previous examinations, complaints received, referrals by other regulatory
bodies, issues raised in the media and academic research (UNCTAD, 2017).
The results of monitoring and action taken against non-compliance should be shared with
market participants to encourage best practices and signal that non-compliance could be
penalised. In addition to the “name and shame approach” (punishing by highlighting the
name of companies with poor practices), a “name and shine approach” (rewarding by
highlighting of name of companies with good practices) can incentivise companies to
adopt better practices. MENA supervisory authorities could also consider using external
resources, such as universities and associations, to collect and publish information for
corporate governance reporting.
As securities authorities may initiate investigations based on information provided by
investors and whistle-blowers, clear procedures and channels for conveying this
information and measures for protecting whistle-blowers should be established.
Organising activities to raise awareness contributes to effective implementation of best
practices. More activities should be conducted through public-private co-operation to
develop awareness on the benefits of good corporate governance practices.

Shareholder engagement
Investors need to play an active role in supporting better corporate governance practices.
In the MENA region, however, concentrated ownership, the dominance of retail investors
and the small base of institutional investors have led to low shareholder engagement.

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Policy makers can promote active shareholder involvement by strengthening investor

protection, providing guidance on expected best practices and improving public
awareness on the rules and benefits of corporate governance disclosure.
MENA policy makers could consider requiring or recommending disclosure of voting
policies and exercise of voting rights in cases where institutional investors hold more than
a certain threshold of a corporation’s equity, or regarding voting on material issues.
Where institutional investors are dominant in the equity market, stewardship codes can be
introduced. Portfolio limitations of institutional investors can be reviewed to improve
their shareholder engagement. Sovereign wealth funds, the region’s largest institutional
investor category, can contribute significantly to corporate governance disclosure through
active exercise of shareholder rights, by requiring good corporate governance practices
from investee companies, and via direct monitoring.
Strengthening company investor relations (IR) departments can also help to improve
corporate disclosure and facilitate shareholder dialogue. UAE and Qatar offer good
examples from the region (Box 3.3).

Box 3.3. Initiatives for effective investor relations

UAE: A new regulation requires all companies listed on UAE exchanges to establish and
develop an investment relations function starting from 2016. Under this regulation:
 All listed companies must appoint an acting Investor Relations Officer with both
Arabic and English language capability.
 Websites of listed companies must incorporate IR-related disclosures including
contact details, financial reports, minutes of general meetings and any other
information relevant to shareholders.
 The Investor Relations section of the website should include all information or
statements already disclosed to markets, regulators and investors, along with any
statements on changes in the company or shareholders' rights.
 Listed companies must publish investor presentations showing their financial
position, strategy and outlook at least once a year.
Qatar: The Qatar Stock Exchange launched an Investor Relations Excellence Programme
in 2015. The programme surveyed experts in the domestic and international investment
community to recognise best practices in investor relations. The programme also featured
a detailed ranking of corporate investor relations websites.
Source: www.meira.me Qatar Stock Exchange website.

3.7.3. Recommendations on the disclosure of ownership

Disclosure rules in the region must ensure full and proper disclosure of ownership
structure, in line with good practice. Disclosure must be required at least annually, and on
a timely basis when the ownership threshold requiring disclosure has been exceeded.
MENA policy makers must carefully determine the ownership threshold at which
disclosure is required. A threshold of 5% is generally accepted as a global norm, but some
countries have introduced lower thresholds (Ireland, Italy, Portugal, Spain, UK).

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Some MENA economies implement a threshold of 10% or more. In economies where a

threshold is not yet in place, MENA policy makers could consider setting the initial
disclosure threshold at 5%, which may be sufficient to capture major shareholders’
interests given the concentrated ownership structure in the region. Other considerations
can help to determine the optimal threshold level. For example, when there is a tendency
by investors to keep their shareholding slightly below the disclosure threshold in order to
conceal ownership, policy makers could consider lowering the threshold.
Regarding disclosure of beneficial ownership, clarification is needed. Although MENA
economies have adopted regulations to cover disclosure of de facto beneficial ownership,
in some countries these regulations do not list securities held by a person’s relatives as
being under the control of the ultimate beneficial owner. Likewise, disclosure obligations
for those acting in concert with the beneficial owner are not defined clearly.
As a possible model for policy makers, OECD (2016) guidelines specify that:
 Securities held by a person’s spouse and/or minor children should be counted as
securities held by that person
 Ultimate beneficial ownership (through deemed and indirect ownership) should
be disclosed
 Beneficial owners who have crossed the 5% threshold through “acting in
concert”, “trust” or “control enhancing” arrangements should disclose their
beneficial ownership position.
It is also good practice to disclose the shareholdings of directors regardless of the
percentage they own. This is not always the case in the region.
Regarding the time allowed for disclosure, changes in major ownership interests should
be disclosed as soon as the defined thresholds have been exceeded. And as for timely
access to material information by all stakeholders, and not just the securities regulator,
companies should be required to make all disclosures available on their websites.
Regulatory authorities should also strive to increase the quality of disclosure. Companies
in the region sometimes engage in “grudging” or “boilerplate” compliance, creating the
appearance of disclosure while concealing the true nature of ownership. The OECD
suggests that a good way to prevent this is to require visually accessible charts and figures
in disclosure of beneficial ownership and control structures (OECD, 2017b).
Competent authorities also need access to up-to-date beneficial ownership information in
order to fulfil their supervisory, monitoring and enforcement tasks. Recommendations by
international organisations include creating a central beneficial ownership register and
establishing information-sharing mechanisms.

3.7.4. Recommendations on the disclosure of related party transactions

Fighting abusive related party transactions is high on the policy agenda around the world.
One approach that could be useful for MENA policy makers is the OECD’s Guide on
Fighting Abusive Related Party Transactions in Asia9, another region where concentrated
ownership is present. The guide provides recommendations focusing on disclosure and
the board/shareholder approval system, a common practice in the MENA region.
A detailed definition of related parties exists in many MENA economies (Annex 3.B), but
thresholds of shareholding that constitute “control” in a company vary from 5% to 30%.
Improvements are needed to cover all parties who may exercise direct and indirect control

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in a given transactional context. For example, transactions by controlling shareholders

other than board members or by relatives are not always explicitly covered. While Saudi
Arabia and UAE have improved the consistency of their definitions since 2014, work
should continue in the region to harmonise definitions among different bodies of law.
Requiring disclosure of all RPTs is common practice among MENA economies, but
Saudi Arabia has adopted a regime distinguishing RPTs according to their materiality.
Instead of requiring immediate disclosure of all RPTs, thresholds can be set for material
RPTs that require immediate disclosure. These thresholds, based on the transaction’s
impact on certain elements of a company’s financial position (gross assets, profits, market
capitalisation or gross capital), may increase the effectiveness of the disclosure system.
The disclosure of material transactions can be accompanied by a report – by an
independent expert, the board of directors or the company’s audit committee – assessing
whether the transaction is fair and reasonable from the perspective of the company and
the shareholders. This good practice has been adopted in the region by UAE.
If shareholder approval is required for RPTs, as is common in the region, disclosure
should be sufficient to enable shareholders to make an informed decision. Oman’s
regulations constitute a good example (Box 3.4). Ex-ante shareholder approval of certain
material RPTs and disclosure well in advance of the relevant shareholder meeting are also
essential.

Box 3.4. The Omani regime for disclosure of related party transactions

Under Oman’s Corporate Governance Code, all related party transactions must be
approved by the general meeting prior to execution. The notice to the meeting must
include:
 name of the beneficiary related party
 nature of the transaction, terms and conditions, and rationale
 value of the transaction
 period of completion of the transaction
 any other data related to the transaction
 an independent valuation in case of purchase or disposal of assets.
The notice must include a note explaining the opinions of the audit committee and the
board regarding the proposed transaction, and an undertaking to bear responsibility for
the related party executing the transaction as per the agreement.
Source: Oman Corporate Governance Code.

Finally, qualification and independence in the accounting and auditing sector must be
ensured. For the disclosure system to be effective, it is crucial that financial statements be
prepared in accordance with IFRS. Periodic disclosure of related party transactions, along
with opinions of auditors and accountants, should be encouraged.

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Notes

1
Algeria, Iraq, Jordan, Kuwait, Lebanon, Morocco, Oman, Palestinian Authority, Qatar, Tunisia,
Saudi Arabia, and the UAE.
2
Algerian Corporate Governance Center, Jordan Institute of Directors (2012), Lebanese Institute
of Directors (2011), Moroccan Institute of Directors (2009), Oman Center for Corporate
Governance and Sustainability (2015), Saudi Governance Center (2017) and Tunisian Institute for
Corporate Governance (2009).
3
Algeria, Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Palestinian Authority, Qatar, Saudi
Arabia, Tunisia, United Arab Emirates.
4
Close to 40% of the shares of the region’s 600 largest listed firms are held by the state. These
600 firms, in Bahrain, Egypt, Iraq, Jordan, Lebanon, Kuwait, Oman, Saudi Arabia, Morocco,
Qatar, Turkey, Tunisia and UAE, account for 97% MENA’s market capitalisation.
5
To view the World Bank’s methodology on this topic, see
www.doingbusiness.org/en/methodology/protecting-minority-investors.
6
The Saudi Arabia Capital Market Authority, on 26/3/2018, announced that the remuneration of
senior executives mentioned in sub-paragraph (b) of paragraph (4) of Article 93 of the Corporate
Governance Regulations is to be disclosed collectively. Companies Law also set maximum limits
on remuneration in Saudi Arabia.
7
Agency costs are a type of internal business cost that must be paid to an agent acting on behalf of
a principal. These costs arise because of core problems, such as conflicts of interest, and an agency
costs can include any expense that is associated with managing the relationship and resolving
differing priorities between key parties in the business.
8
Lebanon, Morocco, Palestinian Authority, Qatar, Saudi Arabia, Tunisia, and the UAE DIFC.
9
To access the guide, go to: www.oecd.org/daf/ca/corporategovernanceprinciples/43626507.pdf.

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Annex 3.A. Companies covered in the review of disclosure practices

Company name Country of exchange Exchange name NAICS international Company market
industry name capitalisation
(USD as of 31/12/
2016)
Saudi Basic Saudi Arabia Saudi Stock Petrochemical 73 182 436 215
Industries Corporation Exchange Manufacturing
SJSC
Emirates United Arab Emirates Abu Dhabi Securities Wired 44 527 312 835
Telecommunications Exchange Telecommunications
Group Co PJSC Carriers
Qatar National Bank Qatar Qatar Exchange Commercial Banking 37 569 520 556
SAQ
Al Rajhi Banking & Saudi Arabia Saudi Stock Commercial Banking 27 302 912 310
Investment Exchange
Corporation SJSC
Saudi Electricity Saudi Arabia Saudi Stock Electric Power 24 891 108 773
Company SJSC Exchange Generation
National Commercial Saudi Arabia Saudi Stock Commercial Banking 22 722 423 725
Bank SJSC Exchange
Industries Qatar QSC Qatar Qatar Exchange Petrochemical 19 523 096 781
Manufacturing
Almarai Co SJSC Saudi Arabia Saudi Stock Dairy Product (except 14 609 826 974
Exchange Frozen)
Manufacturing
DP World Ltd United Arab Emirates Nasdaq Dubai Marine Cargo 14 533 300 000
Handling
First Abu Dhabi Bank United Arab Emirates Abu Dhabi Sec. Exch. Commercial Banking 14 295 843 494
PJSC
Emirates NBD Bank United Arab Emirates Dubai Financial Commercial Banking 12 850 433 673
PJSC Market
Maroc Telecom Morocco Casablanca Stock Wired 12 318 091 403
Exchange Telecommunications
Carriers
Saudi Arabian Mining Saudi Arabia Saudi Stock Other Non-metallic 12 149 258 092
Co SJSC Exchange Mineral Mining and
Quarrying
National Bank of Kuwait Kuwait Stock Commercial Banking 11 993 915 909
Kuwait SAKP Exchange
Kingdom Holding Co Saudi Arabia Saudi Stock Hotels (except Casino 11 810 671 400
Exchange Hotels) and Motels

Source: Thomson Reuters

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Annex 3.B. Definition of related party transactions

in selected MENA economies

Country Definition of related party transactions Source of definition

Egypt Related parties and groups: Any group that is under actual control of the natural or juridical Corporate Governance Code
shareholders, or that has an agreement on co-ordination upon voting in the meetings of the
general assembly or board of directors of the company.
Related parties: Any party that has a direct or indirect relation with the company giving it influence
over the company’s decisions, whether this relation is created by the party’s position in the
company, or in the subsidiaries thereof, or by having a significant ownership interest in the
company/subsidiaries.
Related party transactions: Transactions entered into between the company and members of its
board of directors or main shareholders. Approval of the general assembly is to be obtained
before implementation of said transactions.
Kuwait A party is considered related to a company if: 1) the person has direct or indirect control over the CMA Module I, Glossary of
company; 2) the party is a subsidiary company; 3) the party is a member of the same group in definitions
which the company is a party to; 4) the party is a board member of the company or member of its
executive management; 5) the person is a relative of a related party referred to in 1) or 4); 6) the
party is a company under the control or combined control of or material influence of the related
parties referred to 4) and 5) through their direct or indirect voting power.
When determining related parties, the provisions of the law, bylaws, IAS No. 24 and amendments
thereto shall be taken into account.
Lebanon In Lebanese regulation, “related party” is not explicitly defined. However, the scope of the term Lebanese Code of Commerce,
can be inferred from the following provision: Article 158
“Any agreement between the company and one of its board of directors members, whether
entered into a direct manner, or under the cover of a third party, requires the general assembly’s
prior authorisation. Ordinary contracts, the objects of which are transactions between the
company and its clients, are excepted from the provisions hereof. Shall also require the general
assembly’s prior authorisation every agreement between the company and another institution
(establishment) if one of the board members is the proprietor of this institution (establishment), a
general partner in it, its manager or a member of its board of directors. The member who fits in
any of these categories should inform the board of directors. Each of the board of directors and
the auditors shall submit to the general assembly a special report on the agreements that are
intended to be entered into, and the general assembly shall pass its resolution in the light of these
two reports. Agreements that have been authorised shall not be challenged except in the case of
fraud. The authorisation should be renewed every year if it pertains to contracts with successive
long-term duties. Members of the board of directors of the company, unless they are corporate
entities, are prohibited from receiving from the company, in whatever way, a loan, an overdraft
facility in their favour, a guarantee or a guarantee of financial instruments in favour of third
parties. However, the said prohibition shall not apply with respect to banks, if the referred to
operations constitute ordinary operations within the scope of these banks’ activities.

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102 │ 3. IMPROVING TRANSPARENCY AND DISCLOSURE IN MENA

Country Definition of related party transactions Source of definition

Oman 1) A person is deemed a related party if such person: a) was a director of the company, its parent Code of Corporate Governance
company or of its subsidiary or associate companies in the past 12 months; b) has significant for Public Listed Companies
influence on the company and its performance; c) is among the top senior executives of the
company or its parent company, such as the chief executive officer, general manager or an
employee who reports directly to the board; d) holds or controls 10% or more of the voting rights
in the company, its parent company or any of its subsidiary or associate companies; e) is a first-
degree relative of any of the persons fulfilling the points a, b, c and d above; f) is an associate of
any of the business entities stated in 2) below, wherein he/she holds individually at minimum 25%
of the voting rights.
2) An enterprise is deemed a related party if: a) it is a member of the same group, i.e. a parent
enterprise, subsidiary or an associate; b) it is a joint venture of the company or related
enterprises; c) persons identified in 1) above hold jointly or severally at minimum 25% of voting
rights or the right to direct their resolutions or have significant control thereof; d) it is a commercial
enterprise the directors of which act according to the company will; e) it is a pension fund or end
of service project providing an end of service scheme for the employees of the company or any of
its related enterprises.
3) The following entities are not deemed related parties: a) financiers of the company; b) labour
syndicates, trade unions and federations; c) public utilities (managed by the government or
companies under concession contracts).
Qatar A person is considered a related party to the company if that person is a board member of the Governance Code for
company or a company of its group; is a member of the senior executive management of the Companies & Legal Entities
company or any company of its group; owns at least (5%) of the company shares or any of its Listed on the Main Market
group; or is a relative of any of the former mentioned to the second degree. The definition also
includes the legal persons controlled by a member of the board of the company or any company
of its group or of senior executive management and their relatives to the second degree, or that
participated in a project or a partnership of any kind with the company or any company of its
group.
Saudi Arabia Related party: 1) affiliates of the issuer; 2) substantial shareholders of the issuer; 3) directors and Rules on the Offer of Securities
senior executives of the issuer; 4) directors and senior executives of affiliates of the issuer; and Continuing Obligations;
5) directors and senior executives of substantial shareholders of the issuer; 6) any relatives of Glossary of defined terms used
persons described at 1), 2), 3), 4) or 5) above; 7) any company controlled by any person in the regulations and rules of
described at 1), 2), 3), 4), 5) or 6) above. the Capital Market Authority

Related parties: a) substantial shareholders of the company; b) board members of the company Corporate Governance
or any of its affiliates and their relatives; c) senior executives of the company or any of its affiliates Regulations
and their relatives; d) board members and senior executives of substantial shareholders of the
company; e) entities, other than companies, owned by a board member or any senior executive
or their relatives; f) companies in which a board member or a senior executive or any of their
relatives is a partner; g) companies in which a board member or a senior executive or any of their
relatives is a member of its board of directors or is one of its senior executives; h) joint stock
companies in which a member of the board or a senior executive or any of their relatives owns
(5%) or more, subject to the provisions of paragraph d) of this definition; i) companies in which a
board member or a senior executive or any of their relatives has influence on their decisions even
if only by giving advice or guidance; j) any person whose advice or guidance influences the
decisions of the company, the board and the senior executives; k) holding companies or affiliates.
Advice or guidance that is provided on a professional basis by a person licensed to provide such
advice shall be excluded from the provisions of paragraphs i) and j) of this definition.
UAE DIFC A person is a related party of a listed company if that person: DFSA Market Rules
i) is, or was within the 12 months before the date of the related party transaction: a) a director or a
person involved in the senior management of the reporting entity or a member of its group; b) an
associate of a person referred to [above]; or
ii) owns, or has owned within 12 months before the date of the related party transaction, voting
securities carrying more than 5% of the voting rights attaching to all the voting securities of either
the reporting entity or a member of its group; or
iii) is, or was within the 12 months before the date of the related party transaction, a person
exercising or having the ability to exercise significant influence over the reporting entity or an
associate of such a person.

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Country Definition of related party transactions Source of definition

UAE Federal Related parties: The chairman and other members of the board of directors and the senior Federal Law No. 2 of 2015 on
executive management of the company and working therein, and the companies in which any of Commercial Companies
such persons holds at least 30% of their share capital and subsidiary, associated or sister
companies. The Chairman of Authority's
Board of Directors' Resolution
No. 7 R.M) of 2016 Concerning
the Standards of Institutional
Discipline and Governance of
Public Shareholding Companies

Notes: The definitions provided in the table are taken directly from the English translations of the
relevant country regulations.
Zreik (2009), “Related party transactions under Lebanese law (with comparative references to the UAE
Law)”.
Source: The web pages of MENA securities regulators, except where otherwise indicated.

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Chapter 4. Achieving gender balance in corporate leadership

Women’s economic empowerment supported by sound corporate governance is a critical

policy area that enhances economic growth and competitiveness. This chapter assesses
progress, identifies challenges and proposes policy options for MENA economies to
increase gender balance in corporate life, in line with the 2013 OECD Gender
Recommendation and 2015 G20/OECD Principles of Corporate Governance. It
highlights why greater participation by women in corporate leadership is important for
the region, including its positive impact on company performance, and shows why better
data is needed in order to make informed policy decisions. The chapter then explores the
challenges women in MENA face in accessing corporate leadership positions and
presents examples of good practices in OECD and MENA economies. It concludes with
policy options. Analysis is based on publicly available information, survey responses and
input from practitioners in the region.

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4.1. Introduction

Closing the gender gap in corporate decision-making roles remains a challenge, yet there
is strong impetus for MENA economies to embrace initiatives that empower and promote
women in the corporate sphere. Women’s leadership and talent are increasingly seen as
cornerstones for building competitive, value-creating companies and, by extension,
resilient, inclusive economies.
During the last decade, MENA economies have responded to a shifting global and
regional landscape by embarking on an era of transformation characterised by economic
diversification and reform. In particular, citizens have called for governance reforms and
an inclusive society with social and economic opportunities for all. As such, increased
access for women to corporate leadership is an extension of a much larger debate within
the region on women’s participation in economic life and society in general.
OECD research shows that progress in the MENA region on gender balance in the
workplace and women’s increased participation in corporate leadership roles has been
slower than in other regions, but is still on par with global trends. However, data on
women’s participation in corporate life in MENA is limited, due in part to lack of
publicly available information and the scarcity of research on this topic in the region. This
complicates efforts to design and implement policies for increasing women’s access to
corporate leadership roles.
This chapter aims to identify the challenges facing MENA economies with respect to
achieving gender balance in corporate leadership. It highlights why increased female
participation in corporate leadership is important for the region, including its positive
impact on company performance, stressing the need for better data to inform policy
design. The chapter then explores the challenges women in MENA face in accessing
corporate leadership positions and presents examples of good practices in OECD and
MENA economies. It concludes with policy options that were developed in discussion
with experts involved in driving change in MENA.

4.2. The case for gender balance in economic and corporate life

Increasing gender balance in corporate decision-making roles has been a priority for
OECD countries. Most have initiated policies to promote gender balance on company
boards and in senior management (OECD, 2017b). Advancing the gender balance at
decision-making levels has also become a goal for many companies globally that wish to
capitalise on female talent and bring about gains for both the company and the overall
economy.
The G20/OECD Principles of Corporate Governance1 acknowledge that diversity in the
boardroom is integral to sound corporate governance, and a key component of this is
gender diversity. Likewise, the 2013 OECD Recommendation on Gender Equality in
Education, Employment and Entrepreneurship recommends increasing the representation
of women in decision-making positions across the public and private sector, as well as
eliminating gender wage gaps and other discriminatory factors (Annex 4.A).
Nevertheless, and despite the efforts of many economies worldwide to promote women’s
empowerment, gender gaps persist in all areas of social and economic life, and in
economies at all levels of development.

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Women’s labour force participation rates have moved closer to men’s over the past few
decades, but in every country women are still less likely than men to engage in paid work.
When women do work, they are more likely to work part-time, are less likely to become
managers or to be entrepreneurs, and they earn less than men. Globally, the median
full-time female worker earns 15% less than her male counterpart on average
(Figure 4.1).

Figure 4.1. The global gender income gap has widened

Female: average annual earnings (USD) Male: average annual earnings (USD)

25 000

20 000

15 000

10 000

5 000

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Global Gender Gap Index 2017, World Economic Forum.

Women in the MENA region remain an untapped resource for the economy. While
women represent around 49% of the region’s total population, their participation in the
labour force is significantly lower (World Bank, Gender Statistics, 2017).
The average female labour force participation rate for OECD countries is 51%. In
contrast, only 16% of women participate in the labour force in Jordan and Algeria, and
just 25-32% participate in Egypt, Libya, Morocco and Tunisia. At the same time, men’s
labour force participation in these six MENA economies reached 70% or more in 2014,
only slightly below other emerging economies (WDI, 2017).
Women are also underrepresented in public sector management and in politics, holding
on average only 17% of seats in national parliaments in MENA economies. Gender gaps
are largest in private sector employment and entrepreneurship.
Gender equality is a fundamental driver for more inclusive and equitable societies, in
particular women’s economic empowerment through economic participation as
employees or entrepreneurs. Closing the gender gap in labour force participation by 2025
could add USD 12 trillion (26%) to global GDP (OECD, 2017c). However, recent
progress has been slow; research on current trends in 106 economies signals that it will
take 100 years to close the global gender gap. In the MENA region, estimates suggest this
could take as long as 157 years, given current trends (WEF, 2017).

Gender balance and company performance

Diversity is a critical pillar of effective board performance. A lesson learnt from the
global financial crisis is that overly entrenched boards may fail to identify risk factors,

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protect the interest of all stakeholders and act in consequence. “Groupthink” is more
likely to occur among homogeneous groups lacking diversity in areas related to gender,
nationality, age and educational backgrounds.
Bringing the experience and perspective of women to the table enhances the decision-
making process, helping to avoid groupthink and contributing to better conflict resolution
(Bernardi, 2009). Research conducted in 2015 by Morgan Stanley Capital International’s
Environmental, Social and Governance arm (MSCI ESG) found that “companies lacking
board diversity tend to suffer more governance-related controversies than average” and
have “higher environmental, social and governance risk management ratings and
strategies across virtually all risk issues” (Lee et al., 2015).
Studies show a positive impact of increased female participation in corporate leadership
in several ways. Gender diversity on boards and within senior management improves
employee retention and company reputation by utilising available talent pools more
effectively (MSCI, 2016; Catalyst, 2017a; Hunt et al., 2015). Moreover, boards with three
or more women correlate with improved decision-making; can help steer the hiring and
promotion of women in a company; and show that women’s leadership is valued
(Thwing-Eastman et al., 2016; Lee et al., 2015). The trickle-down effect of fostering a
stronger gender diversity framework at all levels is crucial to the retention of female
talent and employee engagement.
Gender-balanced leadership provides the diversity in thinking, ideas and knowledge that
are needed to mitigate risks and strategise in an age of rapid digital advancements, big
data analytics, artificial intelligence and the internet. A diverse board is less likely to
come to swift consensus and can examine a problem from more angles to reach well-
thought out decisions (GMI, 2013). Women with board-level experience who were
interviewed in the United Arab Emirates said that boards needed women because they
brought a transformational leadership style, better teamwork and a reduction in
aggressive culture, and that women were less prone than men to take risky and unethical
ventures, going instead for steady growth and improvements (Hawkamah Institute, 2013).
Although causation is not fully established, a growing body of research suggests that
firms with strong female leadership enjoy better financial results. MSCI ESG research
found that companies with more women on their boards have higher results on same-year
return on equity (ROE) and earnings per share (Thwing-Eastman et al., 2016). ROE for
global companies with strong female leadership was 2.7% higher than for those without
(Thwing-Eastman et al., 2016; Lee et al., 2015). The 2016 Credit Suisse Gender 3000
report, which covers 3 400 companies, found that companies with at least one female
director had generated a compound excess return per annum of 3.5% for investors over
the previous decade. Companies where more than 15% of senior managers were women
had profitability more than 50% higher than companies with fewer than 10% female
senior managers (Credit Suisse, 2016).
Recent studies in the MENA region also provide financial arguments for supporting
gender diversity on boards and in senior management. Research in Jordan by the
International Finance Corporation (IFC) showed a positive correlation between, on the
one hand, gender diversity in the boardroom and senior decision-making positions, and
on the other, higher returns on assets and equity (IFC, 2015) (Box 4.1). A 2013 study
conducted by the Moroccan Institute of Directors across 500 large enterprises, including
75 listed companies, found that average turnover at state-owned companies with women
on boards was higher by 5 billion MAD (Moroccan dirham; USD 533.6 million) than at
those without.

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Box 4.1. Impact of gender diversity on company performance in Jordan

In 2015, the International Finance Corporation conducted a study of the impact of gender
diversity on the economic performance of 237 listed companies in Jordan, of which 52
had a woman on the board of directors.
The study recorded a correlation between the financial performance of companies and
gender diversity in the boardroom and in senior decision-making positions, although there
was no evidence of causation.
The average return on assets in 2012 was three times higher in companies with women on
their boards (3.03) than in those without female participation (0.99), and companies with
women on boards had an average return on equity (17.51) almost double the ROE of
companies without (9.83). In 2011, 2010 and 2009 the data showed similar results.
From a corporate governance perspective, the results also showed that companies with
increased gender diversity in the boardroom experienced a greater improvement in the
implementation of good corporate governance practices than those without.

Source: IFC (2015), Gender Diversity in Jordan: Research on the Impact of Gender Diversity on the
Economic Performance of Companies in Jordan,
www.ifc.org/wps/wcm/connect/e93318004a0d7ff195cfb7e54d141794/IFC_Jordan_Gender_Report_Sep_201
5.pdf?MOD=AJPERES.

Putting gender balance measures into practice

Introducing measures to ensure greater gender balance in corporate leadership has helped
MENA economies to align constitutional guarantees of equality and equal opportunity
with international commitments. However, not all economies have seen results in
corporate practice.
All MENA economies considered in this report have ratified or are in accession in line
with the United Nations Convention on the Elimination of Discrimination against Women
(CEDAW) (Table 4.1). Article 2(e) of CEDAW requires jurisdictions to take all
appropriate measures to eliminate discrimination against women by any person,
organisation or enterprise. Article 3 of CEDAW encourages economies to take “all
appropriate measures, including legislation, to ensure the full development and
advancement of women, for the purpose of guaranteeing them the exercise and enjoyment
of human rights and fundamental freedoms on a basis of equality with men”, especially in
“political, social, economic and cultural fields”.

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Table 4.1. MENA constitutional provisions on equality and non-discrimination

Constitution (year Ratification or

Constitutional provision on equality
Country instated, revised or accession (a) of
and/or non-discrimination
promulgated) CEDAW
Algeria 1996 Preamble, Articles 29, 31 &140 1996a
Bahrain 2012 Articles 4, 5 & 8 2002a
Djibouti 2010 Article 3 1998a
Egypt 2014 Preamble, Articles 4, 9, 11 & 53 1981
Iraq 2005 Preamble, Articles 14 & 16 1986a
Jordan 2016 Article 6 1992
Kuwait 1992 Preamble, Articles 7, 8, 29 & 175 1994a
Lebanon 2004 Preamble, Article 7 1997a
Libya 2011 (interim) Preamble, Articles 6 & 8 1989
Mauritania 2012 Preamble, Article 1 2001a
Morocco 2011 Preamble, Articles 6, 19 & 35 1993a
Oman 1996 Articles 9, 12 & 17 2006a
Palestinian Authority 2003 (basic law) Preamble, Articles 9 & 26 2014
Qatar 2003 Articles 18, 19, 34 & 35 2009a
Saudi Arabia 2013 Article 8 2000
Tunisia 2014 Preamble, Articles 21 & 46 1985
United Arab Emirates 2001 Articles 14 & 25 2004a
Yemen 2001 Articles 25, 41 1984a

Source: UN Women (2016), Global Gender Equality Constitutional Database,

http://constitutions.unwomen.org/en; country constitutions.

Yet when it comes to corporate board composition and senior management, constitutional
measures and ratification of CEDAW have not yet translated into company practices in
MENA economies.
In making the case for improved company practices, the Office of the UN High
Commissioner for Human Rights states that “the private sector creates and defines jobs,
produces growth, sets parameters of income distribution and affects the social and
environmental conditions of the communities in which they function. Women’s equal
access to business leadership is essential both for women’s empowerment and for their
ability to affect economic policy making which determines the quality of life for women
and men, their children and communities.”

4.3. Women in the workforce and in corporate leadership

Closing the gender gap in economic participation is a work in progress throughout the
world, but it is especially challenging in the MENA region. This section considers
women’s labour force participation and representation in senior management, first across
the OECD and then in MENA economies.

A slow narrowing of the gender gap in OECD countries

In every OECD country, men remain more likely to be in paid work than women.
Women’s labour force participation rates have improved, but the average gender gap in
OECD employment rates has been narrowing slowly, decreasing by just 0.6 percentage
points from 2012 to 2016.

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Most OECD countries have initiated policies to promote gender balance on boards and in
senior management. As of 2016, nine OECD countries had introduced gender quotas for
the board of publicly listed and/or state-owned enterprises. Other countries have taken an
approach involving voluntary targets, corporate governance codes and/or disclosure rules.
Yet a recent OECD study highlights a continued gender imbalance in corporate
leadership and concludes that the glass ceiling remains intact. Women make up only
about one-third of managers in OECD countries (Figure 4.2). They are also far less likely
than men to become chief executive officers (CEOs), sit on boards of private companies
or hold public leadership positions, although government quotas – and, to a lesser degree,
targets – have led to relatively quick changes in the share of private and public leadership
positions held by women in some countries (OECD, 2017b).

Figure 4.2. Women in management and the labour force in OECD countries (%)

Female share of managerial employment (↘) Female share of the labour force

Female share (%)

60

50

40

30

20

10

Note: All ages, 2015 or latest year. The female share of managerial employment is the female share of the
employed who hold jobs classified in International Standard Classification of Occupations 1968 (ISCO 68)
major group 2 (administrative and managerial workers) for Colombia; in ISCO 88 category 1 (legislators,
senior officials and managers) for Canada, Chile, India, Indonesia and the United States; in ISCO 08
category 1 (managers) for all other countries except China, which uses the National Occupation
Classification. Data for Colombia and India refer to 15-64 year-olds only.
Data for China refer to 2010, for India to 2011-12, for Indonesia and the United States to 2013, and for
Australia, Brazil, Canada and South Africa to 2014.
Source: OECD Employment Database, www.oecd.org/employment/emp/onlineoecdemploymentdatabase.htm; ILO
(2016), ILOSTAT database, www.ilo.org/ilostat; census data for China; and OECD Secretariat calculations
based on the Gran Encuesta Integrada de Hogares for Colombia and on the National Sample Survey for India.

In the OECD countries,2 the average percentage of women on company boards is

modestly higher than the global average (Box 4.2), reaching 20% in 2016, up from 16.4%
in 2013. On average, 4.8% of CEOs in the OECD countries were women in 2016, double
the 2.4% in 2013 (OECD, 2017b).

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Box 4.2. Global gender trends in corporate leadership

Beyond the OECD, global progress in increasing the number of women on boards and in
senior management has also been slow. Findings from three reports are presented below.
 MSCI World Index Research covering 4 218 companies found that 16% of
corporate board members were women in 2016, up from 12% in 2014, and that
19% of company directorships were held by women in 2016, up from 18% in
2015.
 An analysis by Deloitte covering 64 countries and nearly 7 000 companies found
that women held 15% of board seats in 2017, up from 12% two years earlier.
 The 2017 Credit Suisse Gender 3000 Survey reviewed gender balance in senior
management across 3 400 companies and found that the global average for
women’s participation had barely improved, growing to 14% in 2016 from 13%
in 2014.
Source: Eastman (2017), Deloitte (2017a), Credit Suisse (2016).

A large and persistent labour force participation gap in MENA

Women’s labour force participation rates in the MENA region are among the world’s
lowest: around 24% on average, compared to around 50% in OECD countries
(Figure 4.3). Wage gaps between men and women persist in both the private and public
sectors, and vulnerable or informal employment is particularly high among women
(OECD, 2017c).

Figure 4.3. MENA labour force participation rates by gender (2017)

Female (ages 15+) Male (ages 15+)

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Note: Modelled ILO estimates, percentage of population ages 15+.

Source: World Bank (2017), World Development Indicators.

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Although the causes of low female labour force participation vary across MENA
economies, the relationship between legal frameworks and social norms plays a role in
driving gender gaps in the labour market (OECD, 2017c). Restrictive family law
provisions impact job choices for women and influence employers’ behaviour in hiring
and promoting. Social norms and attitudes – informed by gender-based labour regulations
including parental benefits, retirement provisions and income taxes – also play an
important role in labour market decisions.
These factors have led to a large share of women working in low-wage positions, often
with a high level of informality, without access to social protection and pension
provisions. Women in MENA economies tend to work in traditionally female roles such
as teaching, social services and nursing, with career choices often based on “societal
pressures of what are deemed to be respectable occupations” (Momani, 2016). Women’s
employability, as shaped by educational attainments, also plays a role.
The labour force participation rate of women in Gulf Co-operation Council (GCC)
economies3 tends to be much higher than in other MENA economies, due in large part to
the considerable number of foreign workers (OECD, 2017b; Young, 2016).
Disaggregated data show that the overall percentage of non-national women working far
exceeds that of national women in GCC countries (Table 4.2).

Table 4.2. National vs. non-national women working in selected GCC countries

Time period National women Non-national women

Bahrain 2003-11 15% 40%
Kuwait 2012-13 29% 56%
Qatar 2010 20% 44%
Saudi Arabia 2011-13 7% 24%
UAE 2016 18% 42%

Note: Data availability differs for each country, therefore time periods vary.
Source: Young (2016) “Women's Labour Force Participation Across the GCC”, www.agsiw.org/wp-
content/uploads/2016/12/Young_Womens-Labor_ONLINE-4.pdf.

Female labour force participation in MENA is often lower in the private sector than in the
public sector. Women in MENA economies state that they prefer to work in the public
sector, citing better working conditions and benefits (OECD, 2017b, 2017d, 2014). This
preference may also be driven by societal pressure to undertake work deemed respectable
for women. Public sector work, which ends early in the day and provides substantial time
off and “oversight by fellow nationals”, is more acceptable to husbands and family than a
private sector job with an uncertain environment, potential work travel and longer work
hours (Momani, 2016).
Reaching positions of senior responsibility is also challenging for women in the region
both because of their high drop-out rate from the labour force at a young age and because
of early retirement. The share of total public and private sector executive leadership
positions held by women was 15% in Tunisia and 10% in Egypt in 2012, 13% in
Morocco in 2008, and 5% in Jordan and 5% in Algeria in 2004 (ILO database quoted by
OECD, 2017c).
To boost female labour force participation, countries can take measures, including laws
that mandate equal pay for equal work and labour codes that ensure non-discrimination in
hiring. However, the majority of MENA economies do not yet have laws on these two
key issues. As of 2018, only Algeria, Morocco and UAE had legislation on equal pay for

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equal work, while Bahrain, Lebanon, Morocco, Tunisia and UAE had laws to prevent
gender-based discrimination in hiring. And even when laws are on the books, challenges
remain in their implementation.

Low female representation in corporate leadership in MENA

Assessing women’s actual participation in corporate leadership is a challenge in the
region. As there is no central mechanism to disclose the gender composition of boards
and senior management, statistics tend to be based on public disclosures of information to
stock exchanges and company websites. Data from unlisted enterprises are often not
available.
A 2016 policy paper by Shareholder Rights provides a snapshot of women’s participation
on boards in the MENA region. The paper, covering 1 483 publicly listed companies in
13 MENA economies, found that 305 companies failed to disclose any information on the
composition of their boards. Of the 1 178 companies with full disclosure, 248, or 21%,
had women on their boards of directors (Figure 4.4).

Figure 4.4. MENA listed companies with women on the board of directors (%)

Source: Shareholder Rights (2016), “Women Representation on Boards of Directors on MENA Exchanges”.
https://euromenafunds.com/Women-On-Board-Report-2016.pdf.

The Shareholder Rights research found that women’s participation on boards can
fluctuate by sector. The number of companies with female board members was highest in
pharmaceuticals (29%) and education (27%), and lowest in the media (0%), chemicals
(4%) and food and agriculture (10%).
The 2016 study only pertains to publicly listed companies, and therefore the number of
firms varies across countries. Disaggregated data across sectors and company types –
listed, unlisted, family owned, etc. – are needed to better evaluate women’s standing in
corporate leadership and hone in on problem areas. For example, data on the participation
of women on boards and in senior management within unlisted enterprises would be
useful for purposes of comparison.

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Information on women in top management positions (CEO or equivalent) in large firms is

scarce for MENA economies. According to disparate international sources that provide a
slightly different picture than the Shareholder Rights paper, women make up 23% of
senior management positions in Morocco, 17% in UAE, 16% in Egypt and 7% in Qatar
(Deloitte, 2017a; ILO, 2016b). According to IFC research, women hold 21% of senior
management positions in Jordan, but the influence of these positions may vary and many
are not on a path that can lead to the boardroom (IFC, 2015). In Bahrain’s banking and
finance sector, women hold 2% of CEO posts, 5% of executive manager positions and
8% of directorships (Intellect Resources Management, 2015).
A 2018 survey commissioned by the OECD4 found that, despite progress, the
representation of women on the boards of the largest 142 public companies in MENA
remains modest, at 4.8% of total voting board seats (60 of 1 258 seats). The survey found
that 31% of companies had at least one women board member, 24% had at least two and
only 7% had three or more women board members. Morocco’s MASI exchange leads,
disclosing just over 11% women board members, while Saudi Arabia’s TASI falls
behind, with only 0.7% women board members (Figure 4.5).

Figure 4.5. Voting women board members by MENA exchange (%)

12%

10%

8%

6%

4%

2%

0%
MASI ASE NASDAQ Dubai EGX DFMGI ADX TASI

Note: The following exchanges are covered: ADX 20 (UAE); ASE 20 (Jordan); DFMGI/NASDAQ Dubai 23
(UAE); EGX 30 (Egypt); MASI 20 (Morocco); and TASI 30 (Saudi Arabia).
Source: OECD secretariat analysis (2018), based on data collected by Ethics & Boards Governance Analytics.

Women are underrepresented in board chair positions across the six stock exchanges.
Only two companies in Morocco and one each in Jordan and Egypt disclose that they
have a women chair.
The survey also looked at women’s representation on boards by sector. The education
sector was found to be strongest, with 24%. Mining, retail distribution and food and
beverages followed, with 19-20%. However, no women were present on boards in the
industrial, cigarettes, automotive and construction sectors (Figure 4.6).

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Figure 4.6. Voting women board members in MENA listed companies by sector (%)

25%

20%

15%

10%

5%

0%

Source: OECD secretariat analysis (2018), based on data collected by Ethics & Boards Governance Analytics.

Given the unique challenges facing women across economies, market capitalisation of
companies appears to have little impact on the number of women board members across
the 142 companies (Table 4.3). Companies surveyed in Saudi Arabia have an average
market capitalisation of USD 14 billion, yet only 7% have women board members. In
contrast, companies surveyed in Morocco have an average market capitalisation of just
under USD 4 billion, yet 70% have at least one woman on the board.

Table 4.3. Market capitalisation and voting women board members by MENA exchange

Companies Companies Companies Companies

Stock Women Total Women
Index market with 0% with 0-10% with 10-20% with > 20%
exchange voting voting board
Country capitalisation women women women women
index (no. of board board members
(USD billion) board board board board
companies) members members (%)
members members members members
Saudi TASI (30) 427 2 277 0.7% 93% 0% 7% 0%
Arabia
UAE ADX (20) 123 2 167 1.2% 90% 5% 5% 0%
UAE DFMGI 100 7 175 3.9% 67% 0% 26% 4%
/Nasdaq
Dubai (23)
Morocco MASI (20) 79 21 184 11.4% 30% 10% 35% 25%
Egypt EGX (30) 29 11 244 4.5% 73% 3% 13% 10%
Jordan ASE (30) 21 17 211 8.1% 45% 25% 25% 5%
142
Total 776 60 1 258 4.8% 69% 6% 18% 7%
companies

Note: UAE’s DFMGI and Nasdaq Dubai have been grouped to account for the jurisdiction (this differs from
separate values in Figure 4.5).
Source: OECD secretariat analysis (2018), based on data collected by Ethics & Boards Governance Analytics.

Board committees are important to oversee some of the core management functions of the
company. Of the 44 companies disclosing women board members, women are better
represented on audit committees (7%) than on remuneration (4%) or nomination (4%)
committees (Table 4.4).

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Table 4.4. Women on MENA audit, nomination and remuneration committees (%)

Representation of Women by Board Committee

(% of total committee members)
Companies With Available All Audit Nomination Remuneration
Country Index
Information Committees Committee1 Committee1 Committee1
Morocco MACI 20 8 11% 18% (8) 0% (7) 0% (7)
Jordan ASE 30 11 8% 12% (11) 15% (4) 15% (4)
Egypt EGX 30 11 7% 3% (11) 10% (5) 8% (7)
UAE DFMGI / NASDAQ 18 6% 7% (18) 6% (15) 8% (18)
Dubai 23
UAE ADX 20 16 3% 4% (16) 0% (11) 0% (13)
Saudi Arabia TASI 30 16 0% 0% (16) 0% (14) 0% (13)
Total 142 Companies 79 5% 7% (79) 4% (55) 4% (61)
1The number in brackets refers to the number of companies declaring a specific board committee in each index.
Percentages have been rounded.
Source: OECD secretariat analysis (2018), based on data collected by Ethics & Boards Governance Analytics.

4.4. Challenges faced by women in accessing corporate leadership positions

Family cohesion is of prime importance in the MENA region, and any strategy to increase
women’s presence in economic life would be remiss without taking this into account.
Nevertheless, a stronger role for women in economic life, particularly via corporate
leadership, does not need to come at the expense of family cohesion. Rather, it can be an
opportunity for both men and women to exercise a stronger sense of agency over work
and family life and enjoy the benefits that this freedom of choice and women’s inclusion
can bring to society at large. The dual income generated by both spouses working can
help families to afford greater opportunities for their children, and in life too.
This section explores the challenges faced by women in the MENA region that hinder
gender balance in corporate leadership.

Underlying causes and costs of gender inequality in MENA

The legal framework underpinning women’s rights in MENA economies has a
tremendous effect on women’s ability to participate actively in the labour force.
The OECD’s Social Institutions and Gender Index (SIGI) is a cross-country measure of
discrimination against women in social institutions – both legal and customary practices
that can affect the opportunities of women and girls over a life cycle and limit their ability
to participate equally with men in economic life. According to SIGI, common areas
where discriminatory practices occur in the region include: household responsibilities,
inheritance, secure access to formal financial resources, workplace rights, access to
justice and political voice.
In recent years, legal transitions, especially affecting a woman’s role in economic life,
have begun to take shape. As noted above, MENA economies have ratified international
conventions on gender equality and include constitutional provisions that guarantee
women’s access to equal opportunity and equality with men in economic life. Still,
hindrances exist in national legal provisions (OECD, 2017c).
The Family Codes of MENA economies tend to assign specific duties to men and women
that entrench gender roles and constrain the choices men and women have over how best

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to organise work and family life. Often men are not only socially perceived as responsible
for providing for their families financially, but they are legally bound to do so. In turn,
women are expected to maintain the household, rear children, and care for sick, disabled
or ageing relatives (OECD, 2017c).
In addition, customary laws, which are often not favourable to gender equality and
women’s empowerment, continue to exist in parallel with statutory laws. Even when the
right legal frameworks are in place, their enforcement and implementation remains a
challenge (OECD, 2017c).
OECD research based on SIGI indicates that the economic cost of gender-based
discrimination in social institutions is immense worldwide, including in MENA
(Box 4.3).

Box 4.3. The economic cost of gender-based discrimination

Gender-based discrimination in social institutions lowers female access to education and

jobs. The current level of such discrimination induces an estimated annual loss of 16% of
global income, or up to USD 12 trillion, according to research using the OECD Social
Institutions and Gender Index (SIGI).
The research suggests that gender-based discrimination in social institutions has a
significant negative impact on economic growth in MENA. It estimates annual income
losses for the region due to such discrimination at USD 575 billion.
Regional income losses are also significant elsewhere: about USD 6.116 trillion in OECD
countries, USD 2.4 trillion in East Asia and the Pacific, USD 888 billion in South Asia,
USD 733 billion in Eastern Europe and Central Asia, USD 658 billion in Latin America
and the Caribbean, and USD 340 billion in sub-Saharan Africa.

About the SIGI

The Social Institutions and Gender Index measures gender-based discrimination in social
norms, practices and laws across 160 countries. The SIGI comprises country profiles, a
classification of countries and a database; it serves as a research, policy and advocacy tool
for the development community and policy makers. The SIGI covers five dimensions
spanning major socio-economic areas that affect the life course of girls and women:
discriminatory family code; restricted physical integrity; son bias; restricted resources and
assets; and restricted civil liberties. These dimensions look at the gaps that legislation and
attitudes create that impact rights and opportunities for women.

Note: Figures refer to the results of the 2014 SIGI.

Source: Ferrant and Kolev (2016), “The economic cost of gender-based discrimination in social institutions”,
www.oecd.org/dev/development-gender/SIGI_cost_final.pdf.

Barriers to corporate leadership positions for women in MENA

Social norms and inclusive workplace culture are important to providing opportunities for
women’s advancement. Metaphors such as “glass-ceiling”, “sticky floor” and “labyrinth
of leadership” 5 have been used to describe barriers to women’s upward mobility in the
workplace. Even women who make it to top-tier positions face continuous hurdles.

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Studies show that women in the MENA region are held back by a variety of social, legal
and institutional barriers (Deloitte, 2017b). They face significant constraints: the double
burden of work and domestic responsibilities; expectations that women will not work;
lack of female role models; and lack of opportunities to network. Moreover, recruiting
and promotion systems can be based on lateral career paths that do not consider potential
career breaks, notably for women who take maternity leave. In board selection in
particular, woman suffer from the slow turnover of board seats, non-transparent board
selection criteria, lack of female role models and informal board appointments based on
networks.
Networking can be especially challenging for women in the MENA region. In some
economies, women cannot participate in men-only social gatherings such as majlis or
diwaniya, where men “informally exchange information and expand their professional
networks” (McKinsey, 2014).
Restrictive laws can have an impact on women’s advancement in their careers. Labour
codes in some MENA economies restrict women’s activities at night and in hazardous
work (OECD, 2017c). There are also limitations on the freedom of movement, such as
women’s ability to travel for business without a male companion. In Saudi Arabia,
companies are required to invest in creating separate spaces for women and men, which
can be a disincentive for hiring women (McKinsey, 2014).
Women account for a disproportionate share of unpaid care work. Women globally spend
more than three times more time on unpaid care work than men do; in the MENA region,
this rises to more than five times as many hours on unpaid care work for women than men
(McKinsey, 2017).Women also often lack family-friendly and work/life balance policies
such as part-time or flex-time arrangements.
Labour codes in Jordan6, Morocco7, Egypt8 and Libya9 require private-sector employers
to provide childcare facilities on site when they employ more than a specific number of
women. In Jordan, a private-sector employer with 20 or more married women employees
must provide childcare facilities if the women collectively have at least ten children under
the age of four. The minimum number of women employees for mandatory provision of
childcare facilities is 50 in Morocco and Libya, and 100 in Egypt (OECD, 2017c). In
practice, the obligation of private-sector employers to provide parental leave and
childcare for female employees exerts a negative influence on women’s recruitment and
on the payment of salaries equal to men’s.
A further barrier to women is that gaining the credentials needed to rise to the top of a
company’s board or serve in a management position requires expertise and the
development of certain skills over time. Entrepreneurship can be a springboard for
attaining leadership roles in corporations or a seat on the board. However, levels are low
in MENA. On average, 3% of firms in MENA have majority female ownership,
compared to 13% in Europe and Central Asia, 20% in Latin America and the Caribbean,
and 29% in East Asia and Pacific (World Bank Enterprise Survey, 2018).
There have been valuable studies in the region analysing women’s perceptions of barriers
to corporate leadership roles. A survey of 160 companies in the United Arab Emirates,
conducted by the Hawkamah Institute in 2016, asked respondents about cultural elements
perceived to have the greatest impact on gender parity. The respondents cited maternity,
work/life balance, stereotypes about housewives and working mothers, and lack of self-
confidence. The study also indicated that women often sacrifice their careers to support
their families (Hawkamah Institute, 2016).

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The IFC study of gender diversity in Jordan (cited above) found that a mix of
underrepresentation, cultural influences and legal issues act as barriers for women to
reach leadership roles. It is also interesting to note that Jordan’s current corporate
governance regulations require directors to have a certain level of shareholding to be
nominated, which means that only women with shares can be directors. Alternatively,
women can be nominated as directors on behalf of corporate shareholders; however, in
this case, they need to be in senior positions (IFC, 2015).
In a 2015 survey conducted by the Pearl Initiative in GCC countries, just 27% of female
respondents agreed that the leadership in their organisation was committed to having
women in senior roles, and only 25% believed that they were treated equally in the
workplace. A further 80% believed that gender bias had negatively impacted their career
progression. And though 62% aspired to move into management roles, only 45% believed
that this would be feasible given current policies.
Research by McKinsey in 2014, using a survey of female managers in GCC countries,
suggested that the main constraints contributing to low female representation in corporate
leadership included:
 family and social expectations of women causing a double burden
 conscious and unconscious biases against women in leadership (by both men and women)
 infrastructure gaps such as HR capacities and transport services for daily commuting
 limited networking opportunities and lack of targeted leadership programmes for women.

4.5. Good practices for increasing gender balance in corporate leadership

Policies to increase women’s access and participation on corporate boards and in senior
management positions can be driven by governments, regulators and companies
themselves, with measures adapted to specific contexts (by sector, country, etc.). Policies
can include quotas; reporting requirements; targets; voluntary disclosure by companies of
gender composition or gender equality policies; increasing the size of a board; and
actively recruiting qualified women to replace outgoing male board members.

4.5.1. Good practice examples from the OECD

On the whole, OECD countries follow four main policy approaches:
 laws that set a minimum quota for women on boards
 rules on disclosure of the gender make-up of company boards and/or diversity policies
 comply-or-explain provisions on gender in corporate governance codes
 voluntary targets for gender diversity on boards and/or in senior management.
Quotas and numerical targets can encourage an increase in the number of women on
boards in the short term. The mere expectation that mandatory measures will be
implemented can spur companies into action. In both France and Italy, for example,
anticipation of a quota incited companies to take measures to increase the proportion of
women on boards through hiring practices, numerical targets and/or recommendations on
board composition in their corporate governance codes (Deloitte, 2016).

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European countries have seen women’s representation on boards double, triple or more
since the adoption of quota laws. In Germany, for example, a 2014 law introduced a
quota of 30% with a deadline of 2016; women’s representation on boards increased from
16% in 2011 to 33% in 2018 (DIW Economic Bulletin, 2013). The results of Italy’s 2011
quota law were even more striking: women’s representation on boards jumped from 3%
in 2009 to more than 35% in 2018 (CONSOB, 2011).
Policies that combine targets with strong monitoring and accountability mechanisms have
proven effective (OECD, 2017b). European countries lead the charge in terms of the
overall participation of women on boards. The five top performers globally are OECD
members: Norway, France, Sweden, Italy and Finland, all of which have implemented
mandatory quotas. In North America, where board diversity is advancing slowly,
advocates have preferred investor pressure and voluntary initiatives over regulation.
Disclosure driven policies, like those of North America, can be ineffective without the market
dynamics needed to drive desired changes, such as investor and shareholder activism
(Kamalnaath and Peddada, 2012). Investors have been the most active proponents of greater
gender diversity on boards in the United States where quotas remain unpopular and regulators
and legislators have been slow to demand change (Deloitte, 2017).
The assets of institutional investors have more than doubled since 2000, reaching
USD 84 trillion in OECD countries in 2017 (OECD, 2018). Shareholder activism can
therefore help galvanise change. Companies such as State Street and Blackrock have
taken steps to promote greater board diversity. Blackrock notably voted against the re-
election of directors at more than 400 companies that failed to encourage diversity. 10 The
results can be good for business. In a 2014 study, Credit Suisse found that companies
where at least 15% of senior managers were women had profitability more than 50%
higher those where fewer than 10% of senior managers were women (Credit
Suisse, 2016).
In the United Kingdom, a combination of policy initiatives has helped to increase the share of
women in corporate leadership. For example, a requirement for mandatory reporting on gender
pay gaps has named and shamed companies that do not promote pay transparency and has
forced disclosure. Measures for flexible working arrangements and reduced childcare costs,
including a new tax-free childcare scheme, have fared well in combination (OECD, 2017b).
Corporate governance codes have become a popular method of improving corporate
governance in OECD countries. Australia and the UK use comply-or-explain mechanisms
in their codes to encourage greater gender balance on boards. In Australia, the presence of
women on corporate boards has increased from 8% on the ASX 200 index in 2010, when
code recommendations were introduced, to 23% in February 2016 (Clarke et al., 2016). In
the UK, the corporate governance code was updated in 2018; it now requires companies
to report on the gender balance of senior management in their annual reports and to
provide details of company practices to encourage greater diversity on boards.
A selection of policies, programmes and good practices in OECD countries is presented
in Annex 4.B.

Resistance to quotas in MENA’s corporate sector

The constitutions of all MENA jurisdictions call for equality and non-discrimination
between the sexes, and MENA economies show a commitment to improving gender
balance across the public and private sector. Yet the use of quotas and targets in the
corporate sector remains controversial in MENA economies.

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The region’s only country formally to mandate a quota is United Arab Emirates, where
state-owned enterprises are required to have at least one woman on their boards (Deloitte,
2017a). In the Pearl Initiative’s 2015 survey in GCC countries, only 24% of respondents
supported the use of quotas.
Business leaders in GCC countries interviewed in a Deloitte study in 2017 had similar
views. Though some were in favour of quotas, others said that quotas or targets should
not be used because: they involve reverse discrimination; men are hostile to them; they
lead to tokenism; market forces will correct gender balance; and alternate routes should
be explored first (Deloitte, 2017b). Respondents felt that issues such as oil prices and
geopolitics should take priority over fostering gender diversity in corporate leadership.
While similar arguments have been made elsewhere, countries that have introduced
quotas “have seen more immediate increases in the number of women on boards, while
those that have taken a softer approach, using disclosure or targets, have seen a more
gradual increase over time” (OECD, 2017b).
Cultural norms in MENA may be hindering the acceptance of quotas and targets in the
corporate world, where, as in the political realm, a patronage-like system is not
uncommon. Given this similarity, it is worth considering the use of measures taken to
increase women’s representation in political decision-making bodies that might render
similar results in corporate leadership. Such lessons from the public sector could help
guide policies for the private sector.
In order to strengthen women’s participation in political bodies, some MENA
jurisdictions have adopted quotas or special electoral measures. These steps have
increased the number of women in parliaments and on local councils in countries
including Algeria, Egypt, Jordan, Libya, Morocco, Saudi Arabia and Tunisia.
Moreover, the overall number of women who are elected outside the quota system
grows with each election, giving credence to the notion that quotas are a first step to
greater women’s participation.
Similarly, MENA economies could use quotas or targets to increase the number of
women on corporate boards and in senior management. The quotas can be a temporary
measure implemented until goals have been met and social norms have evolved to allow
for more equal representation in decision making.
Prior to the harder-line step of implementing quotas, MENA companies and economies
may take other measures, such as disclosure-driven policies, to increase women’s
representation in corporate leadership. However, as companies in the region commonly
have a controlling shareholder (either family or government), disclosure-driven policies
could be less potent in advancing change without a willingness on the part of controlling
shareholders to promote women in leadership.
It is important to note that an increase of women on boards may not directly translate into
an increase in women’s participation in executive positions. While quotas have boosted
the number of women on boards in many economies, the gains have not been reflected
below board level (OECD, 2017b).
A 2016 survey by the Hawkamah, The Institute for Corporate Governance of companies
in UAE asked respondents what methods they thought would be most useful for
achieving gender diversity on boards and in top management. Respondents suggested:
 targeted training and development programmes

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 leadership and mentoring programmes

 company quotas and targets
 top management involvement in setting targets
 following up on gender diversity and transparency in hiring and promotions.
An innovative approach that has been used in the MENA region is an in-company
training programme that targets male executives and employees. It takes as its starting
point the premise that men are often an untapped yet critical resource in diversity and
inclusion efforts to eliminate gender bias (Box 4.4).

Box 4.4. Dell EMEA’s Men Advocating for Real Change campaign

An initiative called Men Advocating for Real Change (MARC) has developed
in-company training at all levels to tackle gender inequality in the workplace. The aim is
to sharpen awareness of the societal and cultural influences behind unconscious gender
biases. Participants, including both men and women, attend intensive workshops on
subjects like “exploring gender role conditioning and its link to leadership”.
The MARC programme has been used by Dell EMEA to train more than 2 000 staff
across 21 economies, including Egypt, Morocco, Qatar, Saudi Arabia and UAE. After
receiving training, 82% of participants said that MARC had changed the way they think
and behave, and 68% reported that they had seen a change in their leaders’ behaviour.
Dell EMEA has committed to training 100% of their executive-level staff by 2020 and
would like all staff to take e-learning on unconscious bias.
MARC is an initiative of Catalyst, a global non-profit organisation working with
companies to build workplaces that work for women.
Source: Presentation at the OECD on 9 March 2018 by Stéphane Reboud, VP at Dell EMEA; Catalyst,
www.catalyst.org/events/marc-men-advocating-real-change-engaging-men-change-agents.

Use of corporate governance codes to encourage gender diversity

Corporate governance codes set the rules, standards and priorities on how companies
should operate for optimal performance.
All economies in the region except Iraq have corporate governance codes (OECD, 2019).
However, the importance of encouraging gender diversity on boards is mentioned in only
two of the 27 codes, guidelines and ministerial resolutions reviewed for this chapter
across 12 economies (Algeria, Bahrain, Egypt, Jordan, Lebanon, Morocco, Oman, Qatar,
Saudi Arabia, Tunisia, UAE and Yemen).
The only MENA economies with corporate governance codes that mention gender
diversity on boards are Jordan and Morocco. Jordan’s 2012 Corporate Governance Code11
includes gender balance among factors to be considered in the composition of boards of
directors (ECGI, 2017a). Morocco’s 2008 Code of Good Corporate Governance Practices
states that the governing body must be composed of members who, among other qualities,
ensure diversity, including gender balance, “to provoke real debate and avoid the
systematic search for consensus”12 (CGEM, 2008). A 2011 annex to the Moroccan code

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on the governance of state-enterprises uses similar language, while annexes covering

small businesses and credit institutions do not (ECGI, 2017f, 2017g).
Broad diversity provisions are included in Lebanon’s 2010 Guidelines for Listed
Companies (Article 10), Tunisia’s 2008 Code of Best Practice for Corporate Governance
and Egypt’s Code of Corporate Governance. A non-discrimination clause to ensure that
company employees are treated fairly regardless of “race, gender or religion” is included
in Qatar’s 2009 Corporate Governance Code13 and Lebanon’s 2006 Corporate
Governance Code (Deloitte, 2017a; ECGI, 2017b, 2017c).
Using the relevant vocabulary in corporate governance codes signals that gender diversity
is important. If this is not acknowledged, there is less impetus for reform. Important key
words such as “diversity”, “inclusivity”, “non-discrimination” and “gender” are absent
from most MENA corporate governance codes. Guidelines can even differ within
economies that have adopted specialised codes for financial institutions, state-owned
enterprises, small and medium-sized enterprises, family businesses, etc.
The 2010 Muscat Declaration on Effective Implementation of Governance Frameworks
in the Middle East and North Africa Region14 encourages policy makers and regulators
“to focus on improving the transparency and disclosure of enterprises” including on
executive compensation and board structures. This could be taken to mean that the gender
composition of boards is also a factor to be disclosed.
Gender diversity as a means of increasing organisational effectiveness has started to gain
a place on the corporate agenda in MENA, especially in GCC countries, (McKinsey,
2014). There tends to be greater awareness at the company level of the importance of
gender balance in decision making and improving women’s access to corporate
leadership. However, multinational companies tend to be more open to the concept, while
companies owned by family groups are more traditional in their view of male and female
roles and are conservative when it comes to change (Deloitte, 2017b).
One multinational that has implemented policies to improve gender balance is the global
building company LafargeHolcim. The company aims to achieve a minimum of 30% of
gender diversity by 2030 at all management levels across all sites, including more than 200
locations in MENA economies with more than 10 000 employees. The company’s share of
women among senior managers has already increased, from 15% in 2016 to 18% in 2017.
Accelerating progress and sustaining a stable pipeline of female talent to fill leadership
roles in the future requires a comprehensive approach. The “leaky pipeline” phenomenon,
in which women discontinue career paths at a higher rate than men, is well-documented
in both OECD and MENA economies and tends to occur at crucial times in women’s
careers, for example in middle management before advancement to more senior roles
(ILO, 2015). This leads to a shortage of women in senior management posts who could
serve as role models (ILO, 2016a).
Table 4.5 provides an overview of initiatives already in place in MENA economies and
companies to address the challenges outlined above and to increase the number of women
in corporate leadership.

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Table 4.5. Selected MENA initiatives to increase gender balance in corporate leadership
Country Level
Egypt’s National Global Compact & Corporate Social Responsibility Centre, in collaboration with the American University in Cairo and
the IFC, developed a “Women on Boards” initiative to improve the gender balance on corporate boards through awareness raising,
networking, coaching, facilitation, direct training for certification and lobbying for legislative and policy reform. The programme has a
Corporate Governance Module for “providing a general understanding of corporate governance concepts, board structure and
Egypt responsibilities as well as basic understanding of financial statements, internal planning, family business governance, etc.” and a
Leadership Module for “developing leadership identity, practicing leadership skills and managing vision and voice”. The initiative also
works on sensitising male board members to gender issues and to qualifying women within and outside of the corporate mainstream
to be appointed to boards.
The UAE Gender Balance Council, established in 2015, is a federal entity responsible for developing and implementing the UAE’s
gender balance agenda. Its overall objectives are to enhance women’s participation and achieve gender balance across all sectors,
and to promote the UAE’s status as a benchmark for gender balance legislation. Notable measures include: i) the launch of a Gender
Balance Index for the government sector that can be emulated by the private sector; ii) the creation, with the OECD, of a UAE Gender
Balance Guide to provide organisations and companies with guidance on creating a gender sensitive work environment and
increasing women’s participation in upper echelons of power; and iii) an awards system for organisations and companies that reach
milestones in fostering greater gender balance. Additionally, the UAE launched the National Strategy for Empowerment of Emirati
United Arab Women for 2015-2021.
Emirates
The Securities and Commodities Authority UAE recently signed an MOU with the Gender Balance Council to reach the UAE's target
of 20% female participation in the corporate boardrooms of listed companies by 2020.
The Dubai Women Establishment’s Woman in Boards Initiative, in collaboration with Hawkamah and the Mudara Institute of Directors,
aims to: identify barriers restricting women’s participation at senior executive levels; advocate changes to remove barriers; increase
awareness on gender diversity in local and regional boardrooms; train women leaders for taking on board roles; and mentor the next
generation of women leaders.
Regional Level
Hawkamah,
The Institute The Hawkamah Institute supports “institution building, corporate sector reform, good governance, financial market development,
for investment and growth in the region”. Created to advance corporate governance reform, the institute has conducted studies on
Corporate gender diversity on boards and in senior management.
Governance
The Pearl Initiative, developed in co-operation with the UN’s Office for Partnerships, groups nearly 50 partner companies in a
regionally focused network of business leaders “committed to driving joint action, exhibiting positive leadership and sharing knowledge
The Pearl and experience” in order to work towards higher standards in areas such as corporate governance, anti-corruption, codes of conduct,
Initiative integrity and reporting. Core activities include regional research-based insight reports, business dialogue forums and university
programmes, with gender-diverse leadership considered a core tenant of corporate governance.

The 30% A chapter of the 30% Club was established in the GCC in 2015 to support a business-led approach to increasing women’s
Club participation in corporate life at all levels.
Company Level
The Saudi e-portal Glowork matches women with jobs by creating opportunities in sectors previously inaccessible to women. It aims
Glowork to bring more than half a million women into the MENA workforce in the next five years and to leverage the talent of highly educated
women to strengthen the region’s workforce.
The Saudi national oil company Saudi Aramco has set up two programmes to address a problem with the retention of female talent.
Women in Business, which targets younger people starting their careers, teaches basic soft skills to build young women’s confidence,
Saudi ensure their contributions are noticed and allow them to navigate the waters of a male-dominated business world. Women in
Aramco Leadership, for senior employees, combines self-awareness diagnostics, guided discussions, lectures, and interactive exercises
(McKinsey & Co., 2014). Since the programme began, the number of women leaders has risen from three to 84. In April 2018, Saudi
Aramco appointed the first woman, Lynn Laverty Elsenhans, to the board.

Sources: The following websites were consulted:

www.eg.undp.org/content/egypt/en/home/presscenter/articles/WOB-Programme-2014.html,
www.oecd.org/gov/gender-balance-guide-actions-for-uae-organisations.htm, https://government.ae/en/about-
the-uae/strategies-initiatives-and-awards/federal-governments-strategies-and-plans/national-strategy-for-
empowerment-of-emirati-women, www.dwe.gov.ae, www.hawkamah.org/, www.pearlinitiative.org,
https://30percentclub.org/about/chapters/gcc, www.glowork.net/.

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4.6. The way forward

Key findings
Increasing the representation of women in corporate leadership roles is a cornerstone of
the inclusive economic growth needed to boost the competitiveness of the MENA region.
Evidence demonstrates that increasing the gender balance in corporate leadership brings
benefits to both companies and economies. Not undertaking measures to ensure this
would be a missed opportunity.
MENA has made progress in improving gender balance at the workplace. However,
despite differences among jurisdictions, the region faces common challenges in terms of
increasing women’s representation in corporate leadership. Key findings include the
following:
 Corporate governance codes in MENA economies rarely endorse gender diversity
 Constitutional measures in MENA on non-discrimination against women have not
yet translated into company practices, and representation of women on company
boards remains modest
 Company and securities laws generally neither acknowledge the importance of
gender diversity nor mandate the disclosure of board composition and senior
management by gender
 The region lacks targeted measures, such as quotas, to encourage gender balance
in corporate leadership
 Assessing women’s actual participation in corporate leadership is a challenge due
to limited disclosure and a lack of reliable data
 MENA legal frameworks and social norms, including family codes, play a role in
driving gender gaps in the labour market
 Networking can be especially challenging for women in the MENA region.

Policy options
Removing the barriers to entry and retaining female talent in corporate leadership
requires efforts at multiple levels, including broader societal and cultural change.
A group of interrelated policy reform areas can be proposed to address the challenges
facing MENA economies in terms improving gender balance in corporate leadership
(Figure 4.7).
These possible strategies and actions for governments and companies in the MENA
region are summarised in Table 4.6 and developed below. As not all policy options apply
to every country, they should be tailored to each MENA economy’s specific
circumstances and needs.

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Figure 4.7. Main policy areas to promote gender balance in corporate leadership

Reform legal and

policy frameworks

Combine
Create a conducive measurable
cultural national goals with
environment company
strategies

Promoting gender
balance in
corporate
leadership
Facilitate networks
and provide
Improve data
support for women
collection and use
in the corporate
world

Attract talent and

limit pipeline
issues

Table 4.6. Policy options for promoting gender balance in corporate leadership

Objectives Policy options

Reform legal and policy Revise corporate governance codes and related laws and regulations to endorse gender
frameworks diversity.
Combine national goals with Underpin goals, targets and policies by strategies aimed at fostering gender balance
company strategies throughout the company and the career cycle of women.
Involve company leaders to make government policies more likely to succeed.
Improve data collection and use Gather more and better-quality data at the regional and national levels and from
companies.
Share good practices and compare approaches.
Use scorecards and Gender Impact Assessments to assess governance practices, show
progress and compare companies within or across economies.
Attract talent and limit pipeline Develop a “whole of company” diversity framework and conducive human resource
issues policies to create an ecosystem that facilitates women’s corporate leadership.
Ensure that the business community and government co-ordinate goals underpinned by
sustainable policies.
Facilitate networks and provide Provide training programmes and facilitate leadership networks to drive change.
support for women Create coalitions and compacts to boost implementation of core government policies, and
provide mentoring to shift values.
Create a conducive cultural Make use of advice, feedback and education to help in adapting to new and more diverse
environment corporate paradigms.
Use best-practice models and reference points to ensure that governments encourage
companies to grow and evolve into vehicles for change.

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Reforming legal and policy frameworks

There is a strong momentum for change in the MENA region, and the OECD is
committed to supporting policy dialogue among governments, authorities, companies and
business associations to accelerate the pace of change for gender balance in corporate
leadership. Good practices, as outlined in this chapter, can help to guide policy options,
but galvanising change will require increased engagement between government and the
private sector to facilitate an environment capable of increasing the number of women on
boards and in top-level executive positions.
Revising corporate governance codes and company and securities laws to endorse gender
diversity is a first step towards increasing women’s participation on corporate boards and
within senior management.
At a national level, disclosure mechanisms within corporate governance codes, such as
comply-or-explain approaches, are especially effective in highlighting problem areas and
providing data to guide policy implementation. For instance, analyses might show that
women are better represented in some sectors than others or reveal barriers for women’s
upward mobility.

Combining national goals with company strategies

Goals, measurable targets and policies can be underpinned by strategies aimed at fostering
gender balance throughout the company and the career cycle of women. Results from
government policies are more likely to succeed when company leaders are active and
involved.
Company boards should regularly carry out evaluations to appraise their own performance
and assess whether they possess the right gender mix. These evaluations can be implemented
at company level on a voluntary basis or at a national level, whereby the national authority
encourages companies to engage in board training and evaluation according to the needs of
the individual company. Economies may wish to combine these with company measures such
as voluntary targets, disclosure requirements, boardroom quotas and private initiatives that
enhance gender diversity on boards and in senior management.

Improving collection and use of data

The lack of gender-disaggregated data on education and economic participation makes it
difficult for governments to enact informed policies that support female employment and
entrepreneurship and to monitor these policies. There is a need for data on women’s
presence and absence in the labour force to support effective management in the private
sector. There is also a lack of data on women in senior leadership in different business
classifications or according to company size.
Accurate information guides implementation and allows companies to tailor practices to
ensure that they are most effective. What is disclosed matters, too: the more, the better.
Going beyond board composition, disclosure can and should cover remuneration
packages, family-friendly and work/life balance policies, mentorship and sponsorship
programmes, recruitment procedures, sexual harassment policies, etc. Cross-referencing
of this information can help to reveal why qualified women may not be advancing to
decision-making positions at the same rate as their male colleagues. As for increasing the
presence of women on boards, disclosure allows for the creation of national databases
with information on qualified female board candidates to allow the lack of female
corporate visibility to be addressed immediately.

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Scorecards and regular Gender Impact Assessments, such as EDGE certification15, can be
used to assess a company’s governance practices, show progress over time and compare
different companies and groups of companies within or across economies. These
measures are especially effective in ensuring the implementation of family-friendly and
work/life balance policies such as flex-time, teleworking, paternity and/or parental leave.
They also provide support for models that allow for paid or unpaid leave for life-cycle
needs (emergency family needs, childcare, etc.) and that do not penalise employees in
their career progression. In this regard, rewarding and acknowledging performance and
workable methods used by companies to reach gender targets is complementary.
Data fortify an evidence-based approach for informing policy by identifying bottlenecks
that hinder progress and by monitoring the effectiveness of initiatives over time. Despite
commonalities among MENA economies on corporate makeup and private sector
operation, each country has its particularities. Sharing good practices and comparing
approaches is therefore essential to success and a timesaver for those companies and
economies that adopt already tested practices.
It is important to highlight two elements when analysing data on women in the workforce
in MENA economies. First, the population and employment figures can be skewed due to
the high number of expatriate male workers that impact the equal weighting between men
and women. Second, lack of disaggregated data makes it difficult to decipher the cause of
increased female participation in the workforce in the case that government policies are
aimed at increasing the total numbers employed in both the public and private sectors
(Kemp et al 2015). Therefore, better quality sectoral data is needed on the composition of
company boards and senior management as well as measures to increase gender balance
in corporate leadership in the MENA region.

Creating an ecosystem for gender balance in corporate leadership

A pipeline of talent and identification of the next generation’s female leaders is key to a
“whole of company” diversity framework. New human resources policies in recruitment,
development of talent, etc., are needed to create an ecosystem that is conducive to
women’s corporate leadership in the region.
Shifting negative attitudes surrounding women’s ability to lead, and accelerating a
women’s path to leadership, require measures that are sustainable. Policy dialogue
between business and government is needed to underpin objectives, and works as an
important vehicle for sharing knowledge and experience.
Several key tools and strategies can be used to help galvanise change. These involve
ensuring new standards within traditional company practices, mentoring, collaborative
career mapping through coalitions and compacts, and scorecards and impact assessments
to ensure that targets are being met at the company and national level.
Revised human resource management guidelines create a clear standard for gender-
sensitive techniques and criteria used for recruitment, hiring and promotion across
companies. Mentorship and sponsorship programmes cultivate talent and create a
successive pipeline for female talent at all levels of business.

Facilitating networks and providing support for women

Engaging top-tier management and support for a diversity agenda within the largest
companies in each country is a critical starting point, especially at the board and senior
executive levels. The creation of regular training programmes and leadership networks

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within and across companies, sectors and regions are effective in driving real change,
especially in economies with stricter societal norms and biases.
Coalitions and compacts can boost the implementation of core government policies and
provide upwards and downwards mentoring to shift values. They help to create “gender
champions” throughout companies and sectors that advocate for the gender-balance
agenda and to ensure that targets are met. They also create networks for women in
business.
Global examples are the 30% Club, launched in the UK in 2010 with a goal of achieving
a minimum of 30% women on FTSE-100 boards. The compact has helped to accelerate
progress: female representation on FTSE-100 boards increased to 27.9% after the
initiative, from 12.5% previously. Signatories include the CEOs and chairs of some of
England’s most prominent companies.
A similar initiative in the United States is Paradigm for Parity, a coalition of businesses
dedicated to addressing the leadership gender gap in corporate America. The coalition has
set a target for companies to achieve 30% female board seats by 2030. Its more than 60
signatories range from product and services industries to advertising, food processing,
finance and mining. In 2017, the Women’s Forum of New York recognised 19 Paradigm
for Parity member companies as Corporate Champions for having at least 25% of board
seats held by women.

Creating a conducive cultural environment

Cultural changes take time. Advice, feedback and education can help MENA economies
to adapt to new and more diverse corporate paradigms. However, creating a cultural
environment conducive to increased women’s participation in corporate leadership also
requires conscious effort on the part of business and government.
In order to enhance the gender balance in corporate leadership, policy makers need to
address the factors that lead women to drop out of the workforce while they are on the
road to management roles. This implies changing the cultural environment so that women
no longer feel undervalued.
Factors that discourage women from pursuing careers up the corporate ladder include
lack of work/life balance, unequal pay in comparison to male colleagues and grim
prospects for promotion in an environment where executives promote successors who are
like themselves (i.e. other men).
Reference points and models of good practice are important in helping companies to grow
and evolve into vehicles for change. Good practices in MENA economies, such as the
Men Advocating for Real Change initiative described above, focus on encouraging a
culture that sees the value of female leaders.

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Notes

1
The revised G20/OECD Principles of Corporate Governance provide a non-binding reference for
policy makers to build effective corporate governance processes:
http://dx.doi.org/10.1787/9789264236882-en.
2
OECD-wide includes South Africa, India, Colombia, People’s Republic of China, Hong Kong
China, Brazil and Indonesia in addition to the 35 OECD member countries.
3
The Gulf Co-operation Council groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE.
4
Data collection and research provided by Ethics & Boards Governance Analytics, information as
of 23 May 2018.
5
The expression “the glass ceiling” first appeared in the Wall Street Journal in 1986 in article
entitled “Breaking the Glass Ceiling: Can Women Reach the Top of America's Largest
Corporations?” (Economist, 2009) and is defined by Merriam-Webster as “an intangible barrier
within a hierarchy that prevents women or minorities from obtaining upper-level positions.” The
term "sticky floor" is used to describe a discriminatory employment pattern that keeps a certain
group of people at the bottom of the job scale. See “Women and the Labyrinth of Leadership”, by
Alice Eagly and Linda L. Carlin in the Harvard Business Review, published in the September 2007
Issue, https://hbr.org/2007/09/women-and-the-labyrinth-of-leadership.
6
Article 72 of the 1996 Labour Law
7
Article 162 of the 2003 Labour Law.
8
Article 96 of the 2003 Labour Law.
9
Article 26 of 2010 Labour Relations Law.
10
Wall Street Journal, February 2018: www.wsj.com/articles/blackrock-companies-should-have-
at-least-two-female-directors-1517598407.
11
The 2012 Jordanian Corporate Governance Code covers private shareholding, limited liability,
and non-listed public shareholding companies.
12
Original French text: 2008 Code Marocain de Bonnes Practiques de Gouvernance d’Entreprise,
section 3.4.1. Composition de l’organe de gouvernance: “La composition de l’organe de
gouvernance est essentielle pour lui permettre de remplir au mieux son rôle. Il doit être composé
de membres intègres, compétents, informés, impliqués, apportant une diversité (formation,
parcours professionnel, équilibre hommes-femmes, âge, nationalités, …) de nature à susciter de
vrais débats et à éviter la recherche systématique du consensus.”
13
Applies only to companies listed in markets regulated by the Qatar Financial Markets Authority.
14
Policy makers, representatives of stock exchanges, not-for-profit organisations, insolvency
profession and business leaders from the countries of the Middle East and North Africa, including
Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, the Palestinian
National Authority, Tunisia, Syria, Saudi Arabia, Qatar, Yemen and the United Arab Emirates,
gathered with international and regional experts on the occasion of the 5th Regional Annual
Corporate Governance Conference organised by the Hawkamah Institute for Corporate
Governance, the OECD and the Oman Capital Markets Authority and endorsed the Muscat
Declaration.
15
The Economic Dividends for Gender Equality (EDGE) Certification is a global assessment
methodology and business certification standard for gender equality. EDGE Certification has been
designed to help organizations not only create an optimal workplace for women and men, but also
benefit from it. EDGE Certification is currently working with nearly 200 organizations, in 50
countries and 23 industries.

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management”, Osler, www.osler.com/en/resources/governance/2016/best-practices-for-improving-
gender-diversity-on-b.
McKinsey & Co. (2014), “GCC Women in Leadership – from the First to the Norm”, McKinsey &
Company,
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WNLOAD.pdf.
Momani, B. (2016) “Equality and the economy: why the Arab world should employ more women”,
Brookings Doha Centre, Brookings Institution, www.brookings.edu/doha.
OECD (2019), OECD Survey on Corporate Governance Frameworks in the Middle East North Africa
2019, www.oecd.org/corporate/oecd-survey-of-corporate-governance-frameworks-in-mena.htm.
OECD (2018), OECD Business and Finance Outlook 2018, OECD Publishing, Paris,
https://doi.org/10.1787/9789264298828-en.
OECD (2017a), Methodology for Assessing the Implementation of the G20/OECD Principles of
Corporate Governance, OECD Publishing, Paris.
http://dx.doi.org/10.1787/9789264269965-en.
OECD (2017b), The Pursuit of Gender Equality: An Uphill Battle, OECD Publishing, Paris.
http://dx.doi.org/10.1787/9789264281318-en.
OECD (2017c), Women's Economic Empowerment in Selected MENA Countries: The Impact of Legal
Frameworks in Algeria, Egypt, Jordan, Libya, Morocco and Tunisia, Competitiveness and Private
Sector Development, OECD Publishing, Paris, https://doi.org/10.1787/9789264279322-en.
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OECD (2013) “Gender inequality and entrepreneurship in the Middle East and North Africa: A
Statistical Portrait”, a working paper for the OECD-MENA Investment Programme and MENA-OECD
Women’s Business Forum, www.oecd.org/mena/competitiveness/Statistical%20Portrait.pdf.
OECD (2012), Closing the Gender Gap: Act Now, OECD Publishing, Paris.
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Ramady, M.S. ed. (2016), The Political Economy of Wasta: Use and Abuse of Social Capital
Networking, Springer International Publishing, https://doi.org/10.1007/978-3-319-22201-1.
Rayasam, R. (2016), “Why Germany’s new quota for women on boards looks like a bust”, Fortune,
http://fortune.com/2016/03/11/germany-board-quota-women/.
Sanford, S. (2015), “Japan’s and Germany’s new laws to promote women in business”, Cross Border
Business Law Blog, Garvey Schubert Barer, www.gsblaw.com/cross-border-business-law-
blog/japans-and-germanys-new-laws-to-promote-women-in-business.
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Staley, O. (2016), “You know those quotas for female board members in Europe? They’re working”,
Quartz, https://qz.com/674276/you-know-those-quotas-for-female-board-members-in-europe-theyre-
working/.

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The Pearl Initiative (2015), “Women’s Careers in the GCC: the CEO Agenda”,
www.pwc.com/m1/en/publications/pearl_initiative.html
Thwing-Eastman, M., D. Rallis and G. Mazzucchelli (2016) “The tipping point: women on boards and
financial performance”, Morgan Stanley Capital International (MSCI) ESG Research,
www.msci.com/documents/10199/fd1f8228-cc07-4789-acee-3f9ed97ee8bb.
The Economist (2009), “The Glass Ceiling”, The Economist Newspaper Ltd,
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958ABCA688.
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Winters, T. and M. Jacobs-Sharma (2016), “Gender Diversity on Corporate Boards: The Competing
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Labor_ONLINE-4.pdf

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Annex 4.A. OECD gender recommendations

 The 2013 OECD Recommendation of the Council on Gender Equality in

Education, Employment and Entrepreneurship recommends adopting
practices that promote gender equality in education, promoting family-friendly
policies and working conditions that enable fathers and mothers to balance their
working hours and their family responsibilities and facilitate greater women’s
participation in private and public sector employment. It also recommends
increasing the representation of women in decision-making positions, eliminating
the discriminatory gender wage gap, promoting all appropriate measures to end
sexual harassment in the workplace, reducing the gender gap in entrepreneurship
activity, and paying attention to the special needs of women from disadvantaged
minority groups and migrant women. See: https://www1.oecd.org/els/2013-oecd-
recommendation-of-the-council-on-gender-equality-in-education-employment-
and-entrepreneurship-9789264279391-en.htm.
 The 2015 Recommendation on Gender Equality in Public Life promotes a
government-wide strategy for gender equality reform, sound mechanisms to
ensure accountability and sustainability of gender initiatives, and tools and
evidence to inform inclusive policy decisions. It also promotes a “whole-of-
society” approach to reducing gender stereotypes, encouraging women to
participate in politics and removing implicit and explicit barriers to gender
equality. See: www.oecd.org/gov/2015-oecd-recommendation-of-the-council-on-
gender-equality-in-public-life-9789264252820-en.htm.
 Reports
 OECD (2017), Women’s Economic Empowerment in Selected MENA
Countries: The Impact of Legal Frameworks in Algeria, Egypt, Jordan, Libya,
Morocco and Tunisia, OECD Publishing, Paris.
 OECD (2017), The Pursuit of Gender Equality: An Uphill Battle, OECD
Publishing, Paris.
 OECD (2017), Gender Balance Guide: Actions for UAE Organisations,
OECD Publishing, Paris, www.oecd.org/gov/gender-balance-guide-uae-
2017.pdf.
 OECD/CAWTAR (2014), Women in Public Life: Gender, Law and Policy in
the Middle East and North Africa, OECD Publishing, Paris.
http://dx.doi.org/10.1787/9789264224636-en

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Annex 4.B. Policies and good practices in OECD countries

Country Selected policies and good practices for increasing gender balance in corporate leadership

Australia The Australian Stock Exchange (ASX) recommends that listed companies establish and disclose board diversity
policies. In 2015, the Australian Institute of Company Directors (AICD) announced a voluntary target of 30% for all
boards (Deloitte 2017a). The AICD began a mentoring programme for women in 2010 where female aspirants sign up
to a “Mastering the Boardroom” course or an “International Company Director’s Course” to make them board ready
(Kamalnaath and Peddada, 2012). Successful candidates are paired with a mentor who works with them for one year
and places them on public company boards after the programme. The participation of women on boards for ASX 200
companies has more than doubled since these changes, from 11% in 2010 to 25.1% in 2016 (Catalyst, 2017c). In the
largest listed companies, women’s participation is even higher – at 29.1% on ASX20 company boards, 27.4% on
ASX50 company boards, and 25.7% on ASX100 company boards (Deloitte, 2017a).

France France enforces a mandatory quota of 40% for both genders on boards of companies whose shares are traded on a
regulated market and for companies (listed or not) whose revenues or total assets exceed EUR 50 million and employ
at least 500 people for three consecutive years. This increased the previous quota of 20% set by France’s National
Assembly in 2010. The changes were ushered in under the 2014 Gender Equality Law, effective 1 January 2017,
which amended France’s Code of Commerce (Article L225-18-1). As of 1 January 2020, the same conditions will apply
for companies that employ at least 250 people. If a company’s board of directors is composed of eight members or
fewer, the difference between the number of directors of each gender may not exceed two. Any appointment made in
contravention is considered null and void. Fines are applicable for non-compliance, and director appointments not in
line with the law can result in the withholding of all director fees until there is a resolution (Deloitte, 2016). As of March
2017, women filled 40% of seats on CAC40 boards, 42% on SBF120 boards, 34% at all companies covered by the
regulation and 37% at France’s largest listed companies (Deloitte, 2017a).

Germany A 2015 law affecting around 110 companies required the introduction of a fixed women’s quota of 30% on non-
executive supervisory boards in Germany as of 1 January 2016. The law also introduced a “flexi-quota” for smaller
firms, affecting around 3 000 companies, requiring them to set their own targets for women on executive and
supervisory boards and for senior management (Hans Böckler Stiftung, 2015). Women’s participation in supervisory
board posts hovered at around 10% between 2005-2010; an expectation that mandatory targets would be set led
companies to appoint more women, and the share of women supervisory board members in a sample of 160 public
traded companies rose to 22% by 2016, although this was still short of the target (Rayasam, 2016). No fines exist for
non-compliance. Instead, larger companies must keep a relevant board seat empty until it is filled by a woman, and
smaller companies cannot set a quota less than their current status quo (Hans Böckler Stiftung, 2015). Women
represent 19.5% of board members in Germany (Deloitte, 2017a).

Italy Italy has significantly increased women’s participation on boards of directors in recent years. Quotas require that
women make up at least 33% of board members at listed companies; the percentage of women on boards doubled
from 15% in 2013 to 30% in 2016 (OECD, 2017b). The government has also made efforts to support families with
childcare through a voucher system. Improving access to childcare should help more women enter the workforce given
that Italian women do more than three-quarters of all unpaid work in the home, such as care for dependents
(OECD, 2017b).

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Country Selected policies and good practices for increasing gender balance in corporate leadership

Japan In 2015 the Japanese Diet passed the Act of Promotion of Women’s Participation and Advancement in the Workplace.
The law requires companies with more than 300 employees to collect and analyse data on women’s participation in the
workforce, including the ratio of women in management. The law further requires these companies to formulate and
make public an action plan to close gender gaps, including numerical targets, and to disclose gender-related statistics
to the public (Abe, Javorcik and Kodama, 2016). Companies with fewer than 300 employees are not formally required
to comply but are encouraged to do so (Sanford, 2015). The presence of a single female director has corresponded to
a higher percentage of women in middle and senior management and new females hires in Japan (Thwing-Eastman et
al., 2016). Japan’s Gender Equality Bureau statistics show that women make up 6.2% of managerial positions and
3.4% of executive level positions in private corporations (2017).

Norway Norway was the first country to introduce a quota for women on company boards. The quota of 40% was introduced in
2005 via the Norwegian Public Limited Liability Companies Act, which covers public limited companies, state and
municipality owned companies, and co-operative companies. Companies that do not comply are delisted (Shareholder
Rights, 2016). Norwegian boards are close to gender parity, with 46.7% of board seats held by women, an increase of
seven percentage points since 2013; women represent 41% of board members at the largest listed companies
(Deloitte, 2017a).

United Kingdom In 2010, the 30% Club was launched in the UK with a target of increasing the proportion of women on FTSE-100
boards to 30% by 2015 without using mandatory quotas. In 2016, it expanded its 30% target to FTSE-350 boards
(currently at 24.1%) and to senior management of FTSE-100 companies by 2020. This initiative has led to a doubling
of female directors on FTSE-100 boards, from 12.5% in 2010 to 26.6% in 2016. Its success has led to the launch of
30% clubs in Australia, Canada, GCC countries, Hong Kong, Ireland, Italy, Malaysia, Southern Africa, Turkey and the
United States. Women currently hold 22.8% of all board seats in the UK (Deloitte, 2017a).

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Chapter 5. State ownership in MENA

Transparency regarding the operations and objectives of state-owned enterprises is

crucial for monitoring their performance and maximising their economic and societal
contributions. This chapter examines what is known about state-owned enterprises in the
MENA region and points to areas where more systematic investigation could inform
policy efforts. It first discusses the policy and institutional arrangements for state
ownership in the region, highlights reforms underway in some MENA economies and
compares the situation in the region with international trends. It then discusses the
collection and public availability of quantitative information on state-owned enterprises
in individual countries and compares this with international practices. The chapter
concludes by proposing policy options for improving state ownership policies and
practices in the region, drawing on the standards of the OECD Guidelines on Corporate
Governance of State-Owned Enterprises.

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5.1. Introduction

State-owned enterprises play a fundamental role in MENA economies, as in many other

regions of the world. They often operate in systemically important sectors on which the
broader economy depends, in addition to providing public services to citizens.
While it is possible to draw general conclusions about the economic and societal
importance of state-owned enterprises (SOEs), the region’s state ownership landscape is
nonetheless characterised by a scarcity of data and limited structured information on
SOEs’ ownership and regulatory arrangements. Identifying which companies are state-
owned, what objectives they are expected to achieve and how they are regulated could
inform improvements in state ownership practices and help to ensure that companies
owned by the state operate efficiently, transparently and on a level playing field with
private companies.
This is of pivotal importance for economic development outcomes. The impact of SOEs
on the broader economy is particularly decisive when they operate in important sectors
on which businesses and citizens depend, such as electricity and gas, telecoms,
transportation and finance.
State ownership also gives rise to unique governance and regulatory risks that can
prevent SOEs from creating optimal value for the economy and society. When SOEs
operate inefficiently and are subject to weak governance arrangements, they can create a
strain on public resources, crowd out more productive private sector activity and, in the
worst case, be used as tools for political patronage or for self-enrichment at the expense
of society at large.
This in turn can erode the trust of citizens, companies and investors in public institutions
and markets. The reputational damage that can result from poorly governed or regulated
SOEs can ultimately turn away private investors, both domestic and foreign, whose
capital is crucial for financing development.
For these reasons and more, the importance of well-governed state-owned enterprises, in
the MENA region and beyond, cannot be overstated.
This chapter aims to contribute to ongoing policy reflections on state ownership in
MENA. It examines state ownership issues primarily from a transparency angle, taking
stock of what is known about state ownership in the region, where there are gaps in
information and what areas of investigation could inform ownership reforms. It begins by
reviewing international standards on the corporate governance of SOEs. It then identifies
trends in state ownership arrangements and landscapes in the region and compares them
with global practices. Following this, it explores the public availability of quantitative
information on SOEs in the region and compares with international practices. The
chapter concludes by proposing policy options to support MENA governments in
implementing reforms.

5.2. Corporate governance standards for state-owned enterprises

State-owned enterprises are prone to governance risks that can hamper their performance
and distort the competitive landscape. For example, if state ownership responsibilities are
not clearly assigned within the public administration, SOEs can be subject to vague or
frequently changing corporate objectives, leading to underperformance. Or, if a state
body is simultaneously responsible for exercising ownership rights in a state company

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and regulating the competitive market in which it operates, this can create conflicting
objectives and ultimately lead to decision making in the interest of a single enterprise at
the expense of market efficiency and competitiveness.
Many SOE governance issues are furthermore exacerbated by insufficient transparency
on their operations, making it difficult to measure – and make the state and corporate
boards accountable for – their performance.
These factors create challenges for policy makers as they seek to ensure that the state-
owned enterprises in their jurisdiction generate the maximum benefit both for the
economy and for society at large.

The OECD Guidelines on corporate governance of SOEs

Addressing the many policy challenges that emerge when the state is an owner of
companies is the objective of the internationally agreed OECD Guidelines on Corporate
Governance of State-Owned Enterprises (SOE Guidelines).
The SOE Guidelines aim to ensure that SOEs create value for the economy and society
via good-practice ownership, corporate governance and regulatory arrangements. Their
main tenets are presented in Box 5.1.

Box 5.1. OECD Guidelines on the corporate governance of SOEs

The OECD Guidelines on Corporate Governance of State-Owned Enterprises are

recommendations to governments on how to ensure that SOEs operate efficiently,
transparently and in an accountable manner. These are their main tenets:
 The state should disclose the rationales for state ownership to the general
public, who are the ultimate owners of SOEs. The purpose of state
ownership should be to maximise value for society.
 The state as an owner should be professional, transparent and
accountable.
 SOEs should compete on a level playing field with private companies.
State ownership and regulatory functions should be separate to avoid
conflicting objectives.
 Non-state shareholders should have equitable treatment and equal
access to corporate information.
 SOEs should respect stakeholders’ rights and implement high standards of
responsible business conduct.
 SOEs should be subject to the same high standards of accounting,
auditing and disclosure as listed companies.
 SOE boards of directors should have the mandate, autonomy and
independence to set enterprise strategy and oversee management, absent of
political interference.
Source: Adapted from OECD (2015), OECD Guidelines on Corporate Governance of State-Owned
Enterprises, http://dx.doi.org/10.1787/9789264244160-en.

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Since the SOE Guidelines were first developed in 2005, state ownership reforms around
the world – including in many MENA economies – have generally brought national
practices closer to their aspirational standards. Examples of global trends in state
ownership reforms include:
 the elaboration of ownership policies clarifying the state’s financial and non-
financial performance expectations for SOEs
 steps to subject all SOEs to high standards of corporate governance and disclosure
 legislative and institutional reforms to ensure that SOEs are subject to the same
laws and regulations, including those bearing on competition, as private
enterprises.
These and other global trends in state ownership reforms over the past decade have often
occurred in tandem with increased transparency on the characteristics, objectives and
performance of SOEs.
In countries with the most advanced transparency practices, the state reports to the
general public – considered the ultimate shareholders of SOEs – on the operations and
performance of the SOE portfolio through annual aggregate reports. Such strengthened
disclosure practices have increased accountability by state shareholders, corporate
directors and senior management for the performance and efficiency of SOEs.
These and other international experiences can be instructive for governments around the
world, including in the MENA region, as they continue their efforts to optimise the
contribution of SOEs to economies and societies.

5.3. The state ownership landscape in the MENA region

State-owned enterprises in the MENA region operate across a wide range of sectors,
including the primary sector, electricity and gas, telecoms, postal services, other utilities,
finance and transportation. Several MENA governments also own companies outside
these more traditional sectors for state ownership, for example in manufacturing and
property development. Many SOEs operate with a mix of commercial and public policy
goals, which are not always well-defined or disclosed.
SOEs also often operate natural monopolies, where a single-firm market is considered
the most economically efficient arrangement. In many cases this is because it is
considered more cost effective for the state to operate a monopoly than to regulate a
privately owned firm. It follows that privatisation is not always the most economically
optimal option and that SOEs, if well-governed and efficient, can usefully contribute
alongside private enterprises to well-functioning economies and societies. If, however,
the state does decide to privatise an SOE, then strengthening its corporate governance
and performance can increase fiscal revenues from the sale.
The region’s SOEs are not a particularly dominant feature of the global marketplace, yet
two of them are among the world’s 500 largest companies: Emirates Group in the United
Arab Emirates and SABIC in Saudi Arabia.1 By all accounts, Saudi Aramco should also
be included in this list, but presumably is not because its revenues, on which the
classification is based, are not made public.
State ownership arrangements are decentralised in most MENA economies, with
responsibilities dispersed among numerous institutions. Only one MENA economy,
Morocco, has a central co-ordination body. Other countries have taken steps towards
centralisation by transferring a portfolio of large or strategically important SOEs to a

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state holding company or sovereign wealth fund. A number of the region’s governments
are in the process of undertaking state ownership reforms, ranging from institutional
changes to the establishment of dedicated corporate governance guidelines for SOEs.
This section provides an overview of current state ownership arrangements in MENA
and compares with global trends.

Decentralised ownership
State ownership responsibilities appear to be undertaken primarily by line ministries in
the majority of MENA economies (Table 5.1).2 Ownership responsibilities are
understood to comprise voting on corporate policy on behalf of the state shareholder,
appointing board members and setting SOEs’ objectives.
The line ministries are in many cases also responsible for market regulation and/or
sectoral development policy. Previous OECD research indicates that independent sectoral
regulators are not common in the region, with notable exceptions in the telecoms,
transportation and electricity sectors, where steps have been taken to introduce
competition in previously monopolised markets (OECD, 2013). The banking sector also
stands apart, with a longer history of sector-specific regulation.

Table 5.1. Overview of state ownership arrangements in MENA

State ownership arrangements Economies

Predominantly decentralised (state ownership undertaken by Algeria, Djibouti, Iraq, Jordan, Lebanon, Mauritania, Oman,
line ministries) Palestinian Authority, Qatar, Syria, Tunisia, Yemen
Predominantly decentralised with co-ordinating agency Morocco
Predominantly decentralised, with a non-trivial portfolio of Bahrain, Egypt (hybrid model), Kuwait, Saudi Arabia, UAE
SOEs held by central state holding company(ies)

Source: Online review by OECD Secretariat of publicly available information on the state ownership
arrangements of known SOEs in the region, as of April 2018.

Decentralised state ownership arrangements can be non-optimal for a number of reasons,

including the inherent conflict involved when ministries simultaneously benefit from
SOEs’ commercial success and are responsible for regulating them. Decentralised
ownership arrangements also often coincide with limited transparency about corporate
operations and weak oversight of ownership ministries and SOE management. These
issues, as well as potential measures to mitigate them in the context of decentralised
arrangements, are discussed in greater detail below.
State ownership arrangements in Iraq provide an example of a predominantly
decentralised state ownership model. State ownership responsibilities for the country’s
157 SOEs are divided among ten ministries (Table 5.2). More up-to-date reporting by the
Iraqi government places the number of SOEs at 176, which could indicate some recent
corporate restructuring or simply more comprehensive reporting (Government of the
Republic of Iraq, 2016). In many countries around the world, discrepancies in the number
of SOEs reported by different national institutions are not unusual and often reflect
differences in the criteria used to define “SOEs”, for example whether subsidiaries or
enterprises in liquidation are considered SOEs.

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Table 5.2. Decentralised state ownership arrangements in Iraq

Number of enterprises in Number of employees

Ownership entity Main sectors of operation
ownership entity’s portfolio in enterprises
Ministry of Industry and 711 145 400 Manufacturing
Minerals
Ministry of Electricity 24 83 000 Electricity generation, transmission
and distribution
Ministry of Oil 18 143 600 Oil and gas exploration and
production
Ministry of Transportation 10 37 000 Airports, sea and land
transportation
Ministry of Housing and 8 13 700 Design and construction
Construction
Ministry of Trade 7 10 500 Food trade and marketing

Ministry of Agriculture 7 4 300 Agricultural research and

production
Ministry of Defence 6 20 500 Military manufacturing

Ministry of Water Resources 3 2 800 Dam maintenance, water research

Ministry of 3 18 300 Postal and internet services

Telecommunications
Total 157 479 100

Note: Value of enterprises not available.

1Since 2015, the Ministry of Industry and Minerals has reduced the number of SOEs in its portfolio

from 71 to 32, primarily through mergers of SOEs undertaking similar operations.

Source: Questionnaire response provided by contributing institution in Iraq, based on reporting by the
Prime Minister’s Advisory Commission.

Within Iraq’s decentralised arrangements, some degree of co-ordinated oversight has

taken place and it may be strengthened in the future. In 2007, the Prime Minister’s
Advisory Commission established a working group on restructuring state-owned
enterprises to co-ordinate SOE reform efforts among concerned ministries. 3 More
recently, in 2016-17, the government established a committee on SOE restructuring,
led by the Minister of Industry and Minerals, to lead reform efforts. The ministry,
which oversees some of the country’s largest SOEs, is to work together with other
concerned ministries and experts. Iraq’s state ownership model could therefore be
characterised as decentralised with co-ordination.

A central co-ordination body in Morocco

State ownership responsibilities in Morocco are at least partly co-ordinated by one
central state body, the Ministry of Economy and Finance, in many cases through its
Department of Public Enterprises and Privatisation (Box 5.2). This is a departure
from the more common MENA practice of decentralising responsibilities for state
companies. In practice, line ministries in Morocco also undertake many state
ownership functions, including the nomination of board members in individual
SOEs.

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Box 5.2. Co-ordinated state ownership in Morocco

The Ministry of Economy and Finance represents the state as shareholder in Morocco.
One of its key functions is the appointment of state representatives to the boards of SOEs.
These representatives are generally appointed from the ministry’s Department of Public
Enterprises and Privatisation, but they can also be appointed from: the ministry’s Budget
Department, notably if the SOE receives state subsidies; the Department of Treasury and
External Financing if the SOE is a public financial institution; or a combination of these
departments.
The main state ownership functions mandated to individual departments within the
Ministry of Economy and Finance can be summarised as follows:
Department of Public Enterprises and Privatisation
 examining projects related to the establishment of SOEs or to proposed changes
in the level of state participation in existing SOEs
 participating in the management of the state portfolio, including decision making
on measures that would affect the structure, profitability and investments of SOEs
 examining SOE investment projects, including their financing modalities, with a
view to ensuring profitability
 evaluating SOE performance and, for this purpose, developing an economic,
financial and social data bank on the public sector
 monitoring the work of SOE boards of directors and the implementation of their
decisions within SOEs
 preparing a general plan for transferring SOEs to the private sector and
undertaking tasks related to their effective transfer.
General Treasury of the Kingdom
 ensuring the preservation of the securities of the state.
Budget Department
 releasing the funds necessary for creating SOEs, increasing the state’s equity
capital in existing SOEs or investing state or SOE equity in private companies.

Source: Adapted from questionnaire response provided by the authorities of Morocco

Morocco can thus be considered to employ a state ownership model falling somewhere
between the decentralised model, but with some degree of central co-ordination, and the
dual model, in which one central ministry, usually the Ministry of Finance (in the case of
Morocco, the Ministry of Economy and Finance), shares the exercise of state ownership
rights with sectoral line ministries. At the time of writing, Morocco was in the early
stages of a significant state ownership reform process, which is discussed in the section
below on general ownership and governance reforms.

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State holding companies

Some MENA economies, mainly members of the Gulf Co-operation Council (GCC),
have taken steps towards centralisation by transferring a portfolio of large or strategically
important SOEs to a state holding company or sovereign wealth fund, which then
subjects its portfolio enterprises to more rigorous, and often purely commercial,
performance expectations.
This is the case, for example, in Saudi Arabia, where the Public Investment Fund under
the Ministry of Finance holds majority shareholdings in seven companies, either solely or
together with other state institutions, in addition to minority shareholdings in 19
enterprises (which are not considered SOEs). These companies operate across a range of
sectors including mining, petrochemicals and other manufacturing, transportation and
telecoms (OECD, 2017). The Saudi Public Investment Fund was established in 1971 to
invest state funds into strategic sectors or enterprises, in support of broader national
economic development goals.
A similar approach has been adopted in Kuwait, through the Kuwait Investment
Authority, and in Bahrain, through the Mumtalakat Holding Company, a sovereign
wealth fund mandated to manage state investments outside of the oil and gas industry,
with reported equity stakes (including many minority stakes) in more than 38 companies.
The state holding company approach is used at the sub-national level in Abu Dhabi
through the Mubadala Investment Company, which merged with the Abu Dhabi
Investment Council in March 2018. Dubai uses this approach through the Investment
Corporation of Dubai, while Dubai Holding manages and invests sovereign wealth. One
of its subsidiary companies, Tecom Group, manages the development of sector-specific
economic zones. At the federal level in the United Arab Emirates, state investments are
carried out through the Emirates Investment Authority sovereign wealth fund.
Abu Dhabi’s Mubadala has notably contributed to heightened transparency in the state-
owned sector (Box 5.3).
The Abu Dhabi government has taken steps to centralise state oversight of a broader
portfolio of SOEs beyond those in Mubadala’s portfolio. Most SOEs in Abu Dhabi,
including Mubadala, are required to report to the Office of State-Owned Enterprises
within the Abu Dhabi General Secretariat of the Executive Council, which monitors the
performance of public-sector entities and governmental projects (Abu Dhabi Digital
Government, 2018).
Abu Dhabi’s SOEs are also subject to central oversight and auditing by the Abu Dhabi
Accountability Authority. These institutions appear to perform mostly monitoring and/or
co-ordination functions, however, rather than purely state shareholder responsibilities.
Egypt has adopted a somewhat hybrid state holding company model, through the
establishment of several state-owned holding companies that hold shares in subsidiary
affiliate companies. The holding companies operate in different sectors of the economy
and are overseen by the Ministry of Investment.
This model is enshrined in Egypt’s Public Sector Companies Law (Law 203), adopted in
1991, which authorised the transfer of ownership of certain SOEs from the state to holding
companies pending their foreseen privatisation. Since then, the state has undertaken full or
partial divestment in several sectors of the state-owned economy, but more than 150 SOEs
still operate within this state holding company structure. Law 203 includes provisions related
to the corporate governance of the holding companies and their affiliate companies, for

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example requiring the separation of management and ownership functions, the issuance of
articles of foundation, the establishment of boards of directors and the prevention of abusive
related party transactions and conflicts of interest (Hassouna, 2018).

Box 5.3. The state holding company approach in Abu Dhabi

Mubadala, an investment company wholly owned by the government of Abu Dhabi, is

mandated to achieve sustainable financial returns and to contribute to a globally
integrated and diversified economy. Before its 2018 merger with the Abu Dhabi
Investment Council, Mubadala was reported to have USD 127.8 billion in assets and
USD 45.2 billion in revenues.
Mubadala’s geographical footprint makes it somewhat atypical among MENA SOEs. It
employs around 68 000 people worldwide, with active operations in more than 30
countries. At the end of 2017, Mubadala’s portfolio comprised both MENA-based and
global assets, with a wide sectoral distribution: petroleum and petrochemicals (32.7%);
financial investments and infrastructure (28.1%); technology, manufacturing and mining
(21.1%); aerospace, renewables and information and communications technology (9.2%);
and corporate projects (8.9%). Within these sectors, Mubadala also invests in activities of
socio-economic importance, such as health care and education infrastructure.
Mubadala has a stated commitment to transparency, ethics and world-class governance
standards. It has notably published audited financial statements and annual reports since
2009. Through these disclosures, together with the publicly available Base Prospectus for
Mubadala’s Global Medium Term Note bond programme, listed on the London Stock
Exchange, Mubadala reports on its strategic objectives, risk management, ownership
details, governance bodies such as the board and associated committees, and financial and
operational insights.
Mubadala also details specific governance and compliance matters in its public reporting,
resulting in the highest possible rankings for transparency and disclosure by the
Sovereign Wealth Fund Institute’s Linaburg-Maduell Transparency Index. Mubadala was
the first SOE in MENA to score a perfect 10 in the index in 2009, a position it has
retained for almost a decade.
Concerning Mubadala’s portfolio companies, a notable future development is the planned
IPO of Emirates Global Aluminium, which Mubadala co-owns with the Investment
Corporation of Dubai. The IPO, originally expected in 2018, was postponed due to
market conditions, as was the IPO of Mubadala’s wholly owned Compañía Española de
Petróleos S.A.U., one of Europe’s largest multinational oil and gas companies.
Source: Information contributed by a focus group member from Mubadala.

The use of state holding companies as a means of improving the corporate governance
and performance of SOEs is not necessarily the most suitable option for all economies in
the MENA region – or indeed, in some cases, even an economically feasible option.
Whether the state holding company approach would be transferable to lower income and
less resource-rich economies in the region is perhaps a topic for debate and further
investigation.

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Elements of good practice for testing SOE reforms within a small portfolio of SOEs –
including through the state holding company approach, but also through transfers of
strategically important SOEs to more centralised oversight structures – could perhaps be
useful for MENA policy makers seeking to introduce improved governance practices
within SOEs.

State audit institutions

Although they do not exercise state ownership functions, state audit institutions
often play a role in monitoring SOEs. State audit institutions can strengthen the
accountability landscape for SOEs, particularly if their functions go beyond
conducting financial audits to include reviews of SOE governance practices or
performance and recommendations for reform. In many MENA economies, state
audit institutions undertake financial audits of individual SOEs on behalf of the
state, usually when the SOEs receive budget appropriations from the state. It is less
common for audit institutions in the region to undertake in-depth reviews of SOEs’
performance and governance to inform improvements in state ownership practices.
The state audit institution in Morocco recently undertook such a review, which
resulted in recommendations for improving the governance and supervision of the
country’s SOEs (Cour des Comptes, 2016). The publicly available document not
only synthesises the state auditor’s recommendations addressed to the Ministry of
Economy, but also reproduces the Ministry of Economy’s response on the
recommendations, highlighting relevant reform efforts underway. This is an
example of how state audit institutions in the region can play a role in informing
state ownership reforms.
The role of state audit institutions in monitoring SOEs’ governance and
performance has not been the subject of systematic research in the MENA region,
and this could be an area for future investigation.

Reform of state ownership and governance in MENA

State ownership and governance reforms are underway to varying degrees in a
number of MENA economies, including Algeria, Egypt, Morocco, Saudi Arabia,
Tunisia and UAE. These reforms include general ownership and governance reform
programmes that target all SOEs; the development or update of SOE corporate
governance codes; and plans to list SOE shares on national stock exchanges to
strengthen their commercial orientation and develop local capital markets.
Moving forward, it could be fruitful to monitor the implementation of these
reforms, with a view to focusing on good practices that might be useful for other
governments in the region.

General ownership and governance reforms

Morocco and Tunisia recently launched state ownership reforms that are broad in
scope and target the entire SOE sector. Current ambitions include profes sionalising
the state shareholding function, making SOE boards of directors more efficient and
improving the financial arrangements and returns of state-owned companies.
Morocco’s wide-ranging SOE reform programme aims to introduce more active
public portfolio management practices, to improve the SOE governance framework,

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including through reform of financial control and an update of the SOE governance
code, and to strengthen SOE accounting practices (Box 5.4).4

Box 5.4. State ownership reforms in Morocco

Morocco aims to increase the socio-economic value of public enterprises and

establishments by introducing more active public portfolio management practices. This is
a priority project of the Strategic Action Plan 2017-21 of the Ministry of Economy and
Finance/Directorate of Public Enterprises and Privatisation. The project is supported by a
unit set up within the directorate. With the collaboration of public enterprises and
concerned ministries, this unit conducted a study to identify actions needed to implement
active public portfolio management, beginning with a pilot group of state-owned entities.
The unit’s main missions include:
 contributing to strategic dialogue between the concerned state-owned entities and
ministerial departments
 proposing and conducting a programme of strategic studies
 evaluating and monitoring the performance of the entities within the scope of the
pilot project.
Plans are also underway to rework the system of financial control over SOEs and to
update the Moroccan Code of Good Governance Practices for Public Enterprises and
Establishments. The objective is to introduce greater transparency and efficiency in the
management of public resources and to improve the quality of governance and
management of state-owned entities. These efforts aim to:
 clarify the roles of the state (as strategist, shareholder and “controller”) and
strengthen the contractual relationship between the state and state-owned entities
 empower boards of directors and professionalise and clarify their responsibilities
 reinforce internal control and governance, with a view to improving performance
and risk management.
A third project, for consolidating SOE’s financial accounts, aims to shed light on the
value of the state’s assets in order to:
 develop an overview of the state-owned entity sector and monitor the progress of
its consolidated financial statements
 identify relevant aggregate indicators on the evolution of the state portfolio
 support the consolidation of the state’s accounts with their four main components:
central administrations, territorial communities, public enterprises and
establishments, and social welfare organisations
 facilitate exchanges with national accounts data
 improve the readability, transparency and comparability of national accounting
and financial data for investors, especially foreign investors, and lenders.
Source: Adapted from text submitted by the Moroccan authorities.

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In Tunisia, a strategy for reforming state-owned enterprises, adopted in 2015, was

included in the country’s National Programme for Major Reforms 2016-2020 (Box 5.5).

Box 5.5. State ownership reforms in Tunisia

In November 2015, Tunisia’s government adopted general principles and a strategy for
restructuring state-owned enterprises. The strategy calls for global governance reforms,
including the consolidation of supervisory institutions, improved internal governance,
increased social dialogue and financial restructuring.
The strategy aims to increase the competitiveness of SOEs, improve their financial
situation and ensure their medium-term viability through restructuring. This restructuring
would involve new governance arrangements to allow state-owned companies to operate
without undue government interference.
The strategy includes the creation of a new body, the Agency for the Supervision and
Coordination of Management of Public Enterprises, to oversee the reforms under the
authority of the Finance Ministry, and the establishment of a public-private fund to
restructure public enterprises operating in competitive sectors.
Source: Tunisian Government, Programme National des Réformes Majeures 2016-2020.

Development of corporate governance codes for SOEs

The development and implementation of SOE-specific corporate governance codes
presents some design particularities which should be taken into account by policy
makers. In particular, they need to be consistent with the country’s corporate
governance code for listed companies. This is especially relevant in jurisdictions
where SOE shares are listed on the national stock exchange. Consistency avoids
differences in standards and helps to ensure a level playing field.
Various governments around the world have addressed this issue by explicitly
subjecting all SOEs to relevant parts of the corporate governance code for listed
companies. This is the case, for example, in Sweden, where the state ownership
policy states that all SOEs must apply the standards of the corporate governance c ode
for listed companies, with exceptions concerning the rules on board nomination
committees, nominating directors and selecting auditors (Government Offices of
Sweden, 2017).
In the MENA region, corporate governance codes or guidelines specifically for SOEs
have been developed in Bahrain, Egypt and Morocco and, as of 2014, were under
development in Algeria and Tunisia (OECD, 2014). Egypt and Morocco are currently
updating their codes in order to strengthen their standards and bring their provisions
into line with the updated SOE Guidelines. In 2017, Iraq received support from the
World Bank for developing a charter on SOE governance.
Examining how these codes are implemented within SOEs and how compliance is
monitored and enforced could be a fruitful area for future study and sharing of good
practices in the region.

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The listing of SOE shares on stock exchanges

The state ownership landscape among listed companies in the MENA region can be
expected to change in the coming years due to planned partial listings of SOEs, which
have been announced in a handful of economies. The process of listing shares of SOEs on
national stock exchanges often coincides with, or results in, improvements in their
corporate governance and disclosure practices.
At present, publicly available information shows that MENA governments are important
shareholders in the region’s largest listed companies. Among the region’s 100 largest
companies listed on stock exchanges, the state exercises majority ownership, or an
equivalent degree of control, in 36 companies, which are therefore considered to be SOEs
(Table 5.3).
The state is a minority shareholder in an additional 34 of the region’s largest listed
companies, with holdings of 10% to 50%. Because many of these minority-owned
companies are only partially listed, and because the ownership of non-listed shares is
often not publicly disclosed, it is difficult to determine whether the state in fact owns
more than a minority share or otherwise exercises effective control. The state might, for
example, exercise control despite holding a minority equity stake if it is the largest
individual shareholder.
Table 5.3 includes six companies in which the state holds a minority share but exercises
effective control. These companies were identified through research for this chapter.
Other companies might also fall into this category, but limitations in publicly available
information make them difficult to identify.
This is clearly an area for further study. Moving forward, it could be useful to undertake a
complete inventory of MENA governments’ majority shareholdings in all listed companies,
and not just the largest 100, as a point of departure for monitoring future developments.
The stated objectives of recent or planned SOE listings in MENA economies have often
included goals that are external to the companies, such as developing local capital markets or
shifting funds from the share sale to other state projects. For example, the planned partial
listing of Saudi Aramco is a central element of Vision 2030, Saudi Arabia’s plan for
diversifying the economy and reducing dependence on oil. The listing, which was postponed
in 2018 due to market conditions, would involve the flotation of about 5% of the state oil
company on stock exchanges in Riyadh and possibly also abroad.
The portfolio of the Saudi Public Investment Fund already includes 26 companies that are
listed on the Tadawul, the national stock exchange. These companies, nine majority
owned and 17 minority owned, are together valued at USD 213.7 billion.
Elsewhere in the region, the Egyptian government has announced plans to float minority
shares of 23 state-owned companies operating in several economic sectors, including
petroleum, banking, transportation and real estate. The objective is primarily to raise
funds and increase liquidity in the country’s capital markets. The process was supposed to
kick off with the sale in 2017 of about 24% of the state-owned Engineering for Petroleum
and Process Industries (ENPPI), but its listing has been delayed.5 Another SOE in the
region with an expected future stock-exchange listing is Emirates Global Aluminium in
the UAE, which is jointly owned by the state holding company Mubadala and the
Investment Corporation of Dubai. Its listing was initially planned for 2018 but was
delayed due to market conditions.

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Table 5.3. State-owned companies among MENA’s 100 largest listed companies, 2017

Rank in Market
100 largest Company Country Sector capitalisation
listed companies (USD billion)
1 Saudi Basic Industries Corporation (SABIC) Saudi Arabia Industrial 93.9
2 Qatar National Bank Qatar Banks and Financial Services 39.3
4 National Commercial Bank Saudi Arabia Banks and Financial Services 37.8
5 Saudi Electricity Saudi Arabia Utilities and Energy 23.3
7 Etisalat UAE Telecommunication 37.7
8 Emirates NBD UAE Banks and Financial Services 15
9 Saudi Telecom Saudi Arabia Telecommunication 44.1
12 Abu Dhabi Commercial Bank UAE Banks and Financial Services 9.4
14 DP World UAE Logistics 18.3
15 Riyad Bank* Saudi Arabia Banks and Financial Services 11.8
16 Kuwait Finance House Kuwait Banks and Financial Services 10.9
18 Dubai Islamic Bank* UAE Banks and Financial Services 8.3
27 Ooredoo Qatar Telecommunication 5.8
29 Saudi Arabian Mining (Ma’aden) Saudi Arabia Industrials 17.3
32 Zain Kuwait Telecommunication 5.4
34 Industries Qatar Qatar Industrials 18
35 Alinma Bank* Saudi Arabia Banks and Financial Services 8.2
41 Du UAE Telecommunication 6.4
43 TAQA UAE Industrials 2
45 Aldar Properties* UAE Real Estate and Construction 4.5
47 Union National Bank UAE Banks and Financial Services 2.8
61 Barwa* Qatar Real Estate and Construction 3.7
63 Omantel Oman Telecommunication 1.5
64 Arab Banking Corporation Bahrain Banks and Financial Services 0.982
65 Qatar Electricity and Water Qatar Utilities and Energy 5.9
66 Aluminum Bahrain Bahrain Industrials 2.3
68 RAKBANK UAE Banks and Financial Services 2
70 Housing Bank Jordan Banks and Financial Services 3.7
74 Mobily (Etihad Etisalat Company)* Saudi Arabia Telecommunication 3.8
75 Nakilat (Qatar Gas Transport Company) Qatar Transportation 2.1
84 Mesaieed Qatar Industrials 5.1
85 Ahli Bank Qatar Banks and Financial Services 1.8
88 National Bank of Bahrain Bahrain Banks and Financial Services 2.3
91 Emaar The Economic City Saudi Arabia Real estate and Construction 3
92 Bank of Bahrain and Kuwait (BBK) Bahrain Banks and Financial Services 1.3
97 National Bank of Fujairah UAE Banks and Financial Services 1.1

Note: Compiled by identifying those companies on the Forbes list of 100 largest companies in the Arab
world in which the state is: i) the ultimate beneficiary owner of a majority (over 50%) of the shares, as
reported by the FactSet database; or ii) the largest individual shareholder despite holding a minority
stake, thus exercising effective control. Companies listed by FactSet as minority state-owned but
identified by other sources as majority state-owned or controlled are identified by an asterisk (*).
Source: FactSet and Forbes (2018), Top 100 Listed Companies in the Arab World 2018,
www.forbesmiddleeast.com/en/list/top-100-listed-companies-in-the-arab-world-2018/.

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Centralising state ownership

Beyond MENA, there is a general trend towards greater centralisation of state ownership
arrangements. An OECD study of state ownership arrangements in 31 countries found
that about half of the countries surveyed use a centralised state ownership model or have
centralised ownership for most large SOEs.8
The fully decentralised model employed in most MENA economies is the least common
model internationally, used in only three of the surveyed countries (Argentina, Colombia
and Mexico). Five other countries have decentralised arrangements with a co-ordinating
entity, similar to the approach employed in Morocco (India, Israel, Kazakhstan, Latvia
and Lithuania) (OECD, 2018).
The OECD study classified state ownership models along a spectrum ranging from
highly decentralised, where state ownership responsibilities are dispersed across the state
administration with no co-ordination on policy or decision making, to fully centralised,
where all state ownership responsibilities are undertaken by a single government body
Figure 5.1).6 In the latter case, the tasks of the central body generally include setting
financial targets, making decisions on technical and operational issues (those not within
the purview of the board of directors) and monitoring performance.

Figure 5.1. Spectrum of state ownership models

Decentralised Dual Co-ordinating Centralised

entity

• Various • Two • Various • One

government governmental government governmental
institutions, insitutions, institutions, institution
often line often the often line undertakes
ministries, Ministry of ministries, ownership
have Finance and have responsibilities
ownership the relevant ownership for all SOEs.
responsibilities line ministry, responsibilities • This institution
for distinct share that are can be a
portfolios of ownership co-ordinated ministry, a
SOEs. responsibilities by a central specialised
• These . entity. ownership
government • One institution, • The central agency, a
institutions are often the entity often has holding
often Ministry of advisory or company, or a
simultaneously Finance, is monitoring unit within a
responsible for usually functions high-level
ownership and responsible for concerning body, for
regulation in financial SOE board example the
the relevant targets, and nominations, Prime
sectors. the other for performance Minister's
operational monitoring and Office.
strategy. compliance
with corporate
governance
rules.

Source: Adapted from OECD (2018), Ownership and Governance of State-Owned Enterprises: A
Compendium of National Practices, www.oecd.org/corporate/ownership-and-governance-of-state-owned-
enterprises-a-compendium-of-national-practices.htm.

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A key tenet of the OECD’s SOE Guidelines is that “the exercise of state ownership rights
should be centralised in a single ownership entity, or, if this is not possible, carried out by
a co-ordinating body”. Centralising state ownership, rather than dispersing ownership
across the state administration, is considered good practice for a number of reasons:
 It can help to separate state ownership and regulatory functions.
 It can facilitate the development and consistent implementation of a state
ownership policy.
 It can help to promote greater efficiency within the public administration.
Separating state ownership and regulatory functions is of particular importance when
SOEs operate in competitive markets, to avoid situations where line ministries are tasked
with the conflicting objectives of maintaining fair competition in a given sector and
ensuring the commercial success of the SOEs under their purview.
A state ownership policy generally outlines the rationales for state ownership, the
performance objectives of individual SOEs and the role of state actors in implementing
the ownership policy. When the state is transparent about its objectives as an owner, this
can strengthen its accountability for achieving those objectives. The development of a
state ownership policy does not require full centralisation of the state ownership function,
but it does need a degree of consensus across ministries to ensure its consistent
implementation. This can be facilitated by centralisation.
A central entity can also support efficiency in the exercise of state ownership functions
such as setting objectives for SOEs, monitoring their performance and nominating board
members. Gains in efficiency are achieved by housing pools of experts within the central
entity, with competencies in areas such as accounting and financial reporting. Such
efficiency gains are particularly present in a context of shrinking SOE portfolios, when it
no longer makes sense for several ministries to exercise ownership responsibilities
separately over a very small number of enterprises.
While centralisation of state ownership is generally considered good practice, it often
occurs after other priority state ownership reforms have been implemented, such as
corporatising large SOEs operating in competitive sectors or relinquishing state
ownership in certain sectors or enterprises.
Countries seeking to centralise state ownership might consider first establishing a high-
level co-ordination body. When state ownership is dispersed (and full centralisation is
not yet feasible), this can be an effective means of harmonising ownership functions such
as board nominations and of monitoring SOEs’ compliance with corporate governance
standards. It can also be an intermediate step when full centralisation is either not feasible
or not warranted, for example if the state’s portfolio of enterprises is so large that
centralising their oversight in one ministry would be burdensome and inefficient.
Box 5.6 provides an example from Lithuania of the establishment of a state ownership
co-ordination and monitoring body in the context of decentralised state ownership
arrangements. For further reference, the 2018 report Ownership and Governance of
State-Owned Enterprises: A Compendium of National Practices provides additional
details on the basic tasks undertaken by state ownership co-ordinating bodies in India,
Israel, Lithuania and Latvia (OECD, 2018).

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Box 5.6. Lithuania’s state ownership co-ordination body

Lithuania has primarily decentralised state ownership arrangements. In most of the

country’s 66 SOEs, primarily line ministries that are also responsible for sectoral policy
and/or regulation in the relevant markets exercise state ownership rights.
In the context of this decentralised system, Lithuania has taken significant steps to
harmonise state ownership practices across the public administration through the
development of SOE governance and disclosure standards and the establishment of a
Governance Coordination Centre tasked with monitoring and reporting to the public on
their implementation. It notably produces a detailed annual report on SOEs. Its main tasks
include the following.
 preparing aggregate reports on SOEs, with information on their financial
performance and efficiency
 supporting SOE goal setting, including by calculating return-on-equity targets and
evaluating the content and implementation of strategic goals
 participating in SOE board nomination processes
 contributing to SOE policy formulation, including by making methodological
recommendations and initiating legislative reforms
 advising and consulting with the government, responsible line ministries and
SOEs on matters like SOE governance practices, ownership decisions and
dividend pay-outs.
Source: Adapted from Lithuanian Governance Co-ordination Centre (2018), Governance Co-ordination
Centre (website, in Lithuanian), accessed 22 November 2018, https://vkc.sipa.lt/apie-mus/. See also OECD
(2018), Corporate Governance in Lithuania, https://doi.org/10.1787/9789264302617-en.

5.4. Sectoral distribution of state-owned enterprises in MENA

Strategic state-owned enterprises in MENA are present in nearly all economic sectors.
They can be found in the network industries (electricity and gas, telecoms and
transportation), and in the primary sectors, finance, manufacturing and real estate. No
internationally comparable dataset on national state-owned enterprises in the MENA
region exists, making it difficult to undertake cross-country or cross-regional
comparisons. The sections that follow highlight what we know about the SOE landscape
in the MENA region, both as a whole and in select MENA economies for which SOE
data is available. However, owing to limitations in the scope of data and differences in the
criteria used to define what constitutes an SOE, the information presented in this section
cannot be used to undertake comparisons. The data is presented mainly to illustrate the
degree of quantitative information available on SOEs and to highlight general trends in
their sectoral distribution in the MENA region.

An overview of national SOE sectors

An OECD inventory of 271 strategic SOEs in 16 MENA economies sheds light on their
sectoral distribution (OECD, 2013). The inventory did not identify the value or number of
employees of these enterprises; such information is for the most part not publicly available in
the region. However, examining the number of strategic SOEs by sector offers a qualitative
illustration of their distribution (Figure 5.2).7

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Figure 5.2. Sectoral distribution of strategic SOEs in 16 MENA economies, 2013

Other activities, 5%
Real estate, 4% Primary sectors, 14%

Transportation, 16%
Manufacturing, 13%

Other utilities, 6%

Electricity and gas, 10%

Finance, 23%
Telecoms, 9%

Note: The graphic portrays the sectoral distribution of strategic SOEs, by number of enterprises, in the
following MENA economies: Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco,
Oman, Qatar, Saudi Arabia, Syria, Tunisia, UAE and Yemen. The sectoral classification of enterprises
has been updated to align with the methodology used in the OECD’s recurrent SOE dataset.
Source: OECD Secretariat calculations based on “Strategic state-owned enterprises in the MENA
region” in OECD (2013), State-Owned Enterprises in the Middle East and North Africa: Engines of
Development and Competitiveness? http://dx.doi.org/10.1787/9789264202979-en.

The illustration in Figure 5.2 is subjective, since the identification of strategic SOEs
was based on authors’ judgement and did not rely on any size or revenue thresholds.
Although the OECD inventory focuses only on large, known SOEs and includes no
information other than their sector of operation, it provides the most comprehensive
overview available of national SOE sectors in the MENA region. As such, it could
serve as a point of departure for future in-depth research on the characteristics of
these strategic SOEs, for example on their corporate forms, number of employees and
valuation. (An adapted version of the OECD’s inventory of strategic SOEs in MENA
can be viewed in Annex 5.A.)
Separately, the Moroccan state’s annual report on SOEs provides an overview of
their sectoral distribution, offering a useful illustration of the characteristics of
Morocco’s state ownership portfolio (Figure 5.3). The figures include both “public
enterprises” (SOEs) and “public establishments”, such as the National Employment
Bureau and the country’s pension fund. According to the report, 24% of the country’s
SOEs operate in the health, education and training sectors; 19% in habitat, urbanism
and territorial development; 15% in agriculture and fisheries; and 13% in natural
resources (water, energy and mining).

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Figure 5.3. Sectoral distribution of SOEs in Morocco, 2017

Other, 13%

Finance, 4% Social, health, education and

training, 24%
Tourism and handicrafts, 6%

Infrastructure and
transportation, 6%

Water, energy and mining ,

13% Agriculture Habitat, urbanism and
and fisheries, territorial development, 19%
15%

Note: By number of enterprises. The data on Moroccan SOEs uses a different sectoral classification than that
used for the MENA regional overview in Figure 5.2.
Source: Ministry of Economy and Finance of Morocco (2018), Projet de Loi de Finances pour l’année
budgétaire 2018: Rapport sur les établissements et entreprises publics,
www.chambredesrepresentants.ma/fr/system/files/documents/depp_fr.pdf.

It bears mentioning that many entities included in Morocco’s figures serve primarily as
vehicles for implementing public service or public policy objectives and do not undertake
predominantly commercial or competitive activities in the marketplace.

Sectoral data for listed companies

Corporate valuation and employment figures for individual enterprises are more readily
available for SOEs that are listed on national stock exchanges. This chapter has not
undertaken to produce an overview of government stakes in MENA’s listed companies.
However, information on the Saudi Public Investment Fund’s shareholdings in listed
companies, collected in the context of a recent review of national SOE sectors in 40
countries, illustrates the degree to which listing on stock exchanges improves the
availability of basic corporate information, for example on corporate valuation,
employment and degree of state ownership (OECD, 2017). In the case of Saudi Arabia
specifically, such information is publicly available for the listed companies in the Public
Investment Fund’s portfolio, while it is less readily available for other SOEs, for example
in the oil sector.
Table 5.4 provides an inventory of all listed companies in which the Saudi Public
Investment Fund, alone or together with other parts of the state administration, holds at
least 10%. The majority of these companies by value are found in the manufacturing
sector (33%), followed by finance (30%) and telecoms (17%).

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Table 5.4. Saudi Public Investment Fund listed shareholdings

Market value
Company name Percentage state ownership
(USD million)
Electricity and Saudi Electricity Company 81.2% 17 455
gas
National Gas and Industrialisation 10.9% 509
Company
Finance National Commercial Bank 54.3% 27 243
Samba Financial Group 38.0% 12 443
Company for Co-operative Insurance 23.8% 2 113
Riyadh Bank 21.8% 9 936
National Agricultural Development 20.0% 659
Company
Saudi Investment Bank 17.3% 2 987
Alinma Bank 10.7% 5 908
Saudi Industrial Development Group 10.7% 1 657

Manufacturing Saudi Basic Industries Corporation 70.0% 61 200

(SABIC)
National Petrochemical Company 16.3% 2 138
Saudi Pharma INDS & Medical Appl 13.1% 1 062
Southern Province Cement Company 37.4% 2 614
Qassam Cement Company 23.4% 1 681

Eastern Province Cement 20.6% 727

Yanbu Cement Company 10.0% 1 832
Other activities Saudi Airlines Catering Company 35.7% 2 691

Dur Hospitality (Saudi Hotels) 16.6% 714

Primary sectors Saudi Arabian Mining Company (Maaden) 50.0% 10 335
Rabigh Refining and Petrochemical 37.5% 2 869

Real estate Saudi Real Estate Company 64.6% 735

Telecoms Saudi Telecoms Company 70.0% 36 496
Transportation Saudi Ground Services Company 52.5% 2 270
National Shipping Company of Saudi 34.0% 4 885
Arabia
Saudi Public Transport Company 15.7% 559
Total 26 companies 7 SOEs, 19 minority-owned 213 718
companies

Source: OECD Secretariat calculations based on data collected for OECD (2017), The Size and Sectoral
Distribution of State-Owned Enterprises, http://dx.doi.org/10.1787/9789264280663-en.

The predominance of manufacturing, financial and telecom companies in the Saudi

Public Investment Fund’s portfolio of listed companies could perhaps signal an effort to
improve the performance of SOEs operating in competitive sectors by subjecting them to
the market (and shareholder) pressures associated with listing. It could also reflect

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measures to rescue failing companies considered to be of systemic importance, for

example in the financial sector, or to develop local capital markets.
Although listed SOEs represent only a small part of the SOE landscape in the region,
gathering more information on MENA governments’ listed shareholdings could provide
useful insights into the state’s role in the corporate economy.

Comparison with OECD countries

Owing to the aforementioned data limitations, it is not possible to undertake a cross-
regional comparison of the characteristics of MENA and OECD-area SOEs. However,
some points of commonality can be identified based on the data available. For example,
SOEs in the OECD area are also quite concentrated in the network industries (electricity
and gas, telecoms and transportation) and the financial sector.8 In addition, SOEs in
OECD countries are at least present, although not necessarily predominant, in most of the
same sectors as MENA SOEs.
According to the latest review of SOEs in OECD countries (OECD, 2017), 58% of SOEs
by value are found in the network industries (electricity and gas, transportation, telecoms
and other utilities, including postal services). The financial sector represents 25% of all
SOEs in OECD countries by value, followed by the primary sectors at 7% ().

Figure 5.4. Sectoral distribution of SOEs in the OECD area, 2015 (by value)

30%
25% 24%
25%
22%

20%

15%

10% 8% 7%
5% 4%
5% 4%
1%

0%
Finance Transportation Electricity and Other utilities Primary sectors Real estate Other activities Telecoms Manufacturing
gas

Source: OECD (2017), The Size and Sectoral Distribution of State-Owned Enterprises, OECD, Paris,
http://dx.doi.org/10.1787/9789264280663-en.

Comparing the sectoral distribution of OECD-area SOEs with that of the Saudi Public
Investment Fund yields additional insights (). The Saudi fund was chosen for the
comparison primarily because its offers a relatively large universe of companies for
which corporate valuation figures are publicly available, while there is a scarcity of
corporate valuation data for SOEs in most MENA economies.

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Figure 5.5. Sectoral distribution of SOEs held by the Saudi investment fund, 2015 (by value)

50%

45% 43%

40%

35%

30%
26%
25%
19%
20%

15%

10% 7%

5% 2% 1% 1% 1%
0%
Manufacturing Telecoms Finance Primary sectors Transportation Other activities Electricity and gas Real estate

Source: OECD Secretariat calculations based on data on the Saudi Public Investment Fund’s portfolio,
collected for OECD (2017), The Size and Sectoral Distribution of State-Owned Enterprises,
http://dx.doi.org/10.1787/9789264280663-en.

The most marked difference between OECD-area SOEs and the portfolio of the Saudi
Public Investment Fund is the predominance of manufacturing SOEs in the Public
Investment Fund’s portfolio. Since the fund’s portfolio only includes the state’s non-oil
assets (and is therefore not representative of the entire SOE sector in Saudi Arabia), this
difference merely suggests a preference for subjecting manufacturing SOEs to the market
pressures and disclosure requirements of stock-exchange listing.

5.5. Collection and publication of data on state-owned enterprises

Most MENA economies do not collect or publish centralised information on the

characteristics or performance of the state’s portfolio of enterprises. The absence of
centralised data on the number, size and sectoral distribution of SOEs is partly a natural
consequence of most MENA economies’ dispersed state ownership arrangements, but
can also reflect a disinclination to subject SOEs to heightened scrutiny by the state and/or
the public.

A dearth of aggregate data on SOEs in MENA

Morocco appears to be the region’s only country to collect and publish performance data
on the entire SOE sector on a regular basis. The country’s Ministry of Economy and
Finance publishes an annual report on all public institutions and enterprises as part of the
budgetary approval process within the Parliament (Ministry of Economy and Finance of
Morocco, 2018). The report, which is transmitted to Parliament and made available on
the ministry’s website, reviews the financial situation and performance of SOEs, state
budget transfers to SOEs and developments in individual sectors.
Two MENA economies, Iraq and Tunisia, have taken steps to make basic information on
SOEs available online.
In Tunisia, the Presidency of the Government (prime minister’s office) has published an
online, searchable inventory of SOEs that includes links to enterprise websites as well as
details on their legal form, their domain of operations among 62 sectors and their

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geographical location. Many SOEs cited in the inventory perform primarily non-
commercial functions, for example the investment promotion agency, and are
presumably included because they are legally incorporated as public establishments
(Presidency of the Government, Republic of Tunisia, 2018).
In Iraq, data on the financial relationships among the country’s largest SOEs, state banks
and the central government in 2014-15 has been published on the government’s website
as part of a World Bank-supported project. According to the publicly available dataset,
Iraq’s SOE Restructuring Committee manages a centralised database on SOEs’ financial
and non-financial information based on reporting by individual enterprises, as required
by Decree 446 of 2015 (Republic of Iraq, 2018).

Table 5.5. Publicly available data on state-owned enterprises in MENA

Estimated
Government institutions with state
Country Estimated number of SOEs number of
ownership responsibility
employees
Information Egypt 150 (partial portfolio) Not available Ministry of Investment holds
available approximately 150 SOEs. Information is
not available on SOEs held by the
Ministry of Defence, Ministry of
Transport or the military. The Egyptian
state also holds shares in 620 joint
ventures with privately owned
companies.
Iraq 157 479 100 Ten line ministries
Morocco 253, comprising 210 public 130 000 Ministry of Economy and Finance
establishments
(établissements publics) and
43 fully corporatised entities
(sociétés anonymes), which
have more than 400
subsidiaries
Saudi Arabia 24 (partial portfolio) 25 900 Public Investment Fund for this portfolio
(Public (end-2015). SOEs are also held by
Investment various line ministries, e.g. the Ministry
Fund) of Communications and Information
Technology.
Tunisia 104 117 400 14 line ministries, Presidency of the
Republic and Presidency of the
Government
No
Algeria, Bahrain, Djibouti, Jordan, Kuwait, Lebanon, Libya, Mauritania, Oman, Palestinian Authority, Qatar,
information
United Arab Emirates, Yemen.
available

Source: (OECD, 2017) for Saudi Arabia; (OECD, 2013) and (Hassouna, 2018) for Egypt;
(World Bank, 2014) for Tunisia; and questionnaire responses submitted by contributing institutions for Iraq
and Morocco.

Some basic information on the number of SOEs and their sectors of operation is also
publicly available Egypt and Saudi Arabia. Table 5.5 presents an overview of data on
national SOE landscapes in the five MENA economies where such data is publicly
available. This is not to say that there is a complete absence of information on SOEs in
the other MENA economies under review in this report. However, no efforts appear to
have been made for the central collection and publication of comprehensive quantitative
information on national SOE sectors in these countries.

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The collection and publication of centralised information on the characteristics and

performance of state enterprises is clearly an area that could be further developed in the
MENA region.
It bears noting that the absence of centralised data on SOEs is not unique to MENA. An
OECD review of national SOE reporting practices in 52 countries – all 35 OECD
countries and 17 emerging economies – found that about one-third of them did not
undertake any form of public reporting on the SOE sector as a whole.
Nonetheless, the review found that more than half of the 52 countries surveyed provided
some form of SOE reporting to the public, via annual reports on the entire SOE sector,
reports on a portfolio of SOEs or online inventories of SOEs that are functionally
equivalent to aggregate reports (Figure 5.6). The review focused on reports to the public
and did not attempt to identify other forms of reporting, for example to Parliament or to
line ministries, which also constitute important monitoring and accountability
mechanisms (OECD, 2018).

Figure 5.6. SOE aggregate reporting practices globally

No aggregate reporting, no
online inventory, 35%
Aggregate reporting on all
SOEs, 40%

Online inventory of SOEs , Aggregate reporting on

13% portfolio of SOEs, 12%

Note: The graphic portrays the results of a review covering all 35 OECD member countries as well as
Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Kazakhstan, Lithuania, Malaysia,
Paraguay, Peru, Philippines, Russian Federation, Saudi Arabia and South Africa and Viet Nam.
Source: OECD (2018), Ownership and Governance of State-Owned Enterprises: A Compendium of National
Practices, www.oecd.org/corporate/ownership-and-governance-of-state-owned-enterprises-a-compendium-
of-national-practices.htm.

Good practice on the reporting of SOE data

The publication of annual aggregate reports on SOEs is considered good practice for
ensuring transparent and accountable state ownership. The internationally agreed SOE
Guidelines consider the general public to be the ultimate owners of SOEs and
recommend that the state and state-owned enterprises implement the same standards of
transparency and disclosure that shareholders expect of listed companies.
The SOE Guidelines not only recommend that SOEs disclose corporate and financial
information in line with international standards, but also call for the state to produce
regular aggregate reports on the operations and performance of all SOEs (Box 5.7).

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Box 5.7. Good practice on the publication of SOE aggregate reports

Chapter VI of the OECD Guidelines on Corporate Governance of State-Owned Enterprises

states the following:
“The ownership entity should develop consistent reporting on SOEs and publish annually an
aggregate report on SOEs. Good practice calls for the use of web-based communications to
facilitate access by the general public.”
Annotations to Chapter VI add the following:
 Aggregate reporting should cover all SOEs. It should be a key disclosure tool directed
to the general public, the legislature and the media, and should allow the ownership
entity to deepen its understanding of SOE performance and to clarify its own policy.
 The reporting should result in an annual aggregate report issued by the state that
focuses on financial performance and the value of the SOEs. It should provide an
indication of the total value of the state’s portfolio and should include a general
statement on the state’s ownership policy and how the state has implemented this
policy.
 The aggregate report should provide key financial indicators including turnover,
profit, cash flow from operating activities, gross investment, return on equity,
equity/asset ratio and dividends. Information should be provided on the methods used
to aggregate data. The aggregate report could also include individual reporting on the
most significant SOEs.
 The ownership entity should consider developing a website, which allows the general
public easy access to information.
Source: Edited excerpt from OECD (2015), Guidelines on Corporate Governance of State-Owned Enterprises,
http://dx.doi.org/10.1787/9789264244160-en.

Table 5.6. Aggregate value and performance of SOEs in Sweden

State-owned enterprises, total

SEK billion 2015 2014
Net sales 346.1 350.0
Net sales including associated companies 387.5 389.0
Profit/loss before changes in value -6.6 23.0
Changes in value 5.2 5.1
Operating profit/loss (EBIT) -1.4 28.1
Profit/loss before tax -7.8 20.6
Profit/loss after tax -1.8 16.5
Gross investments 48.2 47.9
Cash flow from operating activities (excluding SEK and SBAB) 60.3 65.2
Total equity 341.4 363.8
Total assets 1 491.1 1 540.3
Number of employees including associated companies (thousands) 158 163
Dividend 26.0 18.4
Estimated value 430 460
Return on equity, % 0.39 4.86
Equity/assets ratio, % 22.89 23.62
Source: Government Offices of Sweden (2015), Annual Report State-Owned Enterprises 2015,
www.government.se/reports/2016/09/annual-report-state-owned-enterprises-2015/.

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Table 5.7. Example of company-specific reporting: Sweden’s postal service

State ownership (60.7%) 2015 2014

Income statement, SEKm
Net sales 39 351 39 950
Operating profit 564 351
Financial income 21 89
Profit/loss before tax 451 245
Net profit 278 176
-of which attributable to minority interest 2 3

Balance sheet, SEKm

Total assets 24 723 25 464
Non-current assets 15 605 16 407
Equity 9 150 7 991
-of which, minority interests 3 4
Net debt 1 695 3 284
Operating capital 10 845 11 275

Key indicators
Operating margin, % 1.4 0.9
Return on equity (average), % 3.2 2.1
Return on operating capital (average), % 5.4 2.9
Net debt/equity ratio, multiple 0.2 0.4
Equity/assets ratio, % 37.0 31.4
Gross investments, SEKm 1 200 1 846
Appropriation, SEKm 0 0
Dividend, SEKm 0 0
Average no. of employees 32 256 37 407
Employees, gender distribution (women/men), % 34/66 35/65
Management group, gender distribution (women/men), % 29/71 25/75
Board, gender distribution (women/men), % 38/62 38/62

Reported in compliance with GRI guidelines Yes

Externally assured GRI report Yes
Reporting in compliance with IFRS Yes

Source: Government Offices of Sweden (2015), Annual Report State-Owned Enterprises 2015,
www.government.se/reports/2016/09/annual-report-state-owned-enterprises-2015/.

Sweden offers an example of good practice in aggregate reporting. An annual report on state
ownership is published by the Government Offices of Sweden and is available online in both
English and Swedish. The report includes extensive details on the state’s ownership policy
and practices and on the financial and non-financial performance of the state’s portfolio of
enterprises. Non-financial performance reporting includes information on the achievement of
public policy objectives and sustainability targets.
Table 5.6 reproduces a table in the Swedish report that discloses basic information on the
aggregate value and performance of the state’s entire SOE portfolio.
Sweden’s aggregate report also includes company-specific pages that reproduce annual
income statements and balance sheets and disclose information on the following:
 significant events that occurred over the course of the year

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 company performance against financial, sustainability and public policy targets

 the identity of board members and the CEO and their total remuneration
 key performance indicators.
The key performance indicators notably include reporting on the gender balance among SOE
employees, board members and managers, which is related to the government’s stated target
that all SOE boards should comprise at least 40% of each gender. Table 5.7 reproduces data
from PostNord AB, the national postal service.

5.6. The way forward

Key findings
This chapter has shown that exercise of state ownership remains dispersed across the
public administration in the majority of MENA economies, with ministries in many cases
simultaneously exercising ownership and regulatory roles. This can lead to conflicting
objectives on the part of state actors.
As markets liberalise and are opened to greater competition with private companies, and
as SOEs become increasingly active in cross-border trade and investment, their
competitive conditions in home markets may lead to heightened concerns from abroad
about how this impacts the global level playing field.
Many MENA governments have taken steps to harmonise state ownership and
governance practices across ministries, for example through the development of SOE
governance codes. Others have transferred commercially oriented SOEs to holding
companies to subject them to more explicit financial performance targets. In a few
countries, state audit institutions have begun to play a more prominent role in
strengthening the accountability landscape for SOEs, by undertaking financial audits or,
less frequently, in-depth reviews of SOEs’ performance and governance.
Given the degree of decentralisation of state ownership arrangements in the MENA
region, there have been limited efforts to gather and publish centralised information on
SOEs’ characteristics and performance in individual economies. There is also scope for
clarifying and disclosing SOEs’ commercial and public policy objectives.
Establishing a clear overview of the state-owned enterprise landscape is a crucial starting
point for designing effective ownership reforms. Clarity regarding the nature of SOEs’
objectives is also necessary to monitor and improve their performance.
These key findings can be summarised as follows:
 State ownership is predominantly decentralised in the MENA region. Line
ministries often simultaneously undertake state ownership and regulatory
functions, leading to conflicts of interest and inefficiencies.
 There is scope for further professionalisation of state ownership practices, for
example through the development of ownership policies or, at least, harmonised
corporate governance standards applicable to all SOEs.
 Lack of transparency on the objectives, performance, governance and regulation
of SOEs limits the scope for MENA governments to monitor, and ultimately
improve, SOE performance.

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 Measures could be taken to improve accountability in the state-owned enterprise

sector, including by strengthening financial audits and clarifying the role of state
audit institutions in monitoring SOE governance practices.

Policy options
A group of interrelated policy options can be proposed to address the challenges facing
MENA governments as they seek to improve the performance and practices of state-
owned enterprises (Figure 5.7).

Figure 5.7. Main policy areas for informed state ownership practices

Structured
information on
the SOE
landscape
Clarity on the
Aggregate
roles of state
reports on SOEs'
ownership,
operations and
regulatory and
performance
audit bodies

International
standards and best
practice

Harmonised Well-defined
governance performance
standards for objectives for
the SOE sector SOEs

Data on SOEs'
financial and
non-financial
performance

The OECD Guidelines on Corporate Governance of State-Owned Enterprises provide a

blueprint for ensuring that SOEs operate efficiently, transparently and on a level playing
field with private enterprises. All recommendations in that document can be used as a
guidepost for MENA governments as they consider undertaking policy and legislative
reforms to improve the corporate governance of SOEs.
However, implementing the SOE Guidelines is a process that requires prioritisation of
reform efforts. The policy options summarised in Table 5.8 and developed below attempt
to support this prioritisation by proposing measures that are adapted to the current status
of state ownership policy development in most MENA economies.
These policy options are by no means an exhaustive or prescriptive list. They mostly
emphasise measures to improve the transparency with which SOEs in the region operate,
with a view to strengthening accountability and ultimately driving better performance.
The SOE Guidelines provide a more complete and long-term set of policy
recommendations that take into account the holistic nature of SOE governance reform.

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Table 5.8. Policy options to inform effective state ownership reforms

Objective Policy options

Inform effective ownership policies through Undertake a comprehensive mapping of national SOE portfolios
comprehensive data on SOEs Publish aggregate reports on SOEs’ operations and performance
Strengthen the accountability of SOEs and ownership Clarify and disclose the objectives of individual SOEs
ministries, leading to performance improvements Identify the rationales for maintaining state ownership in individual
enterprises, which may lead to the decision to privatise
Professionalise state ownership practices to minimise Harmonise state ownership and governance practices across the
conflicting objectives and introduce institutional SOE portfolio if centralisation of state ownership functions is not
efficiencies feasible
Streamline monitoring of SOEs’ performance Clarify the role of state audit institutions in monitoring SOEs’
performance
For commercial SOEs, ensure that financial audits are undertaken
by external auditors

Mapping national SOE portfolios and undertaking aggregate reporting

A central mapping survey of all enterprises in the state’s ownership portfolio is
fundamental for the design of coherent and effective state ownership reforms. National
governments could consider gathering and disclosing information on which companies
are state-owned, what objectives they are expected to achieve and how they perform
against those objectives.
Disclosing this information to the public would strengthen the accountability of state
actors and of the corporate organs of SOEs concerning the performance of state-owned
enterprises. Such a data collection could be facilitated by the identification of one state
body clearly mandated and sufficiently resourced to lead the effort.

Clarifying and disclosing the objectives of SOEs

National governments could also consider measures for clearer definition and disclosure
of individual SOEs’ commercial and non-commercial objectives.
SOEs should be given the autonomy to achieve clearly defined performance objectives,
which would help shield them from ad hoc or political interference that can hinder their
efficiency or even jeopardise their commercial viability.
In jurisdictions where a comprehensive identification of all SOEs’ objectives is not
feasible at the current juncture, governments may find it fruitful to begin identifying and
disclosing the rationales for state ownership of individual enterprises. This may lead to
the decision to relinquish or gradually reduce state ownership of enterprises where there
is no evident rationale for state ownership.
This exercise could lay the groundwork for the development of a policy that clearly
outlines the rationales for state ownership as well the responsibilities of government
entities involved in implementing the ownership policy.

Reorganising the state ownership function

It might not yet be feasible, or indeed economically efficient, for MENA governments to
centralise state ownership functions in one entity. Steps could nonetheless be taken to
harmonise state ownership practices across the public administration to ensure that

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ownership is conducted on a whole-of-government basis rather than at the discretion of

individual ministers.
For example, state ownership policies or, alternatively, SOE corporate governance
standards applicable to all SOEs, could be formulated. Monitoring of their
implementation could then usefully be undertaken through a regular reporting process,
which could eventually be incorporated into aggregate reports to the public.
Any corporate governance standards applicable to all SOEs should be sufficiently
flexible to accommodate SOEs operating with a variety of commercial and non-
commercial objectives. For purposes of creating a level playing field, policy makers
should also ensure that the code of corporate governance for SOEs is consistent with
corporate governance standards for listed companies.

Clarifying the role of state audit institutions

The role of state audit institutions in monitoring the finances and performance of SOEs
varies across the region, often depending on how integrated SOEs’ operations are within
the public administration.
For SOEs that are not incorporated according to general company law and that are mostly
operated as part of the general government, state auditors have a legitimate role to play in
reviewing the quality and credibility of SOEs’ financial statements.
For SOEs that are incorporated as companies and operate in competitive sectors of the
economy, audits of financial statements should be undertaken by a qualified external
auditor. In such cases, the responsibilities of state audit institutions should be limited to
conducting “performance audits” or “value-for-money” audits, which assess the extent to
which SOEs create value from the resources at their disposal.
Such performance audits could usefully examine how state ownership and regulatory
arrangements impact SOEs’ value-for-money, and could make recommendations
accordingly.

Avenues for future work

Building on the policy options proposed above, Box 5.8 summarises potential avenues for
future work that were identified during the preparation of this report.

Box 5.8. Avenues for future work on state ownership

Possible avenues for future work emerged during the preparation of this report, many of
them suggested by members of the Focus Group on State Ownership in MENA.
Monitoring developments and sharing good practices
In order to strengthen the performance, efficiency and governance of SOEs, MENA
policy makers might consider taking the following steps:
 Seek and share advice on policy, institutional and legislative reforms that are
necessary for successful implementation of a centralised state ownership model,
including advice on how to sequence the reforms.

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 Identify good practice for the use of holding companies to improve corporate
governance and performance in SOEs. This could involve examining how state
holding companies that manage special economic zones balance their regulatory
and commercial (developer) roles.
 Monitor developments in the listing of shares of SOEs on stock exchanges and
share related good practices. This could build on previous work by the OECD that
examined the national experiences of China, India, New Zealand, Poland and
Turkey in this domain (OECD, 2016).
 Examine the role of state audit institutions in strengthening accountability for
state ownership in the region. Issues to investigate could include state audit
institutions’ degree of independence, their mandate and whether they have the
resources for effective performance auditing of the SOE sector.
Strengthening data on SOEs in MENA economies
In order to facilitate reform through greater transparency and disclosure of data about
state ownership, MENA policy makers might consider taking the following steps:
 Collect high-quality and comprehensive data on the value, employment and legal
forms of all SOEs. This could potentially be undertaken with the support of the
MENA-OECD Working Group on Corporate Governance.
 Add interested MENA economies to the OECD’s recurrent data collection on the
size and sectoral composition of SOEs (OECD, 2017), once they have collected
the relevant data.
 Gather data on the ownership levels, sectoral distribution and value of MENA
governments’ listed shareholdings to shed light on this form of state involvement
in the corporate economy.
 Explore the role of MENA SOEs in cross-border trade and investment, for
example their export orientation and performance, and discuss policy concerns
related to the internationalisation of SOEs. This could be carried out in
collaboration with the MENA-OECD Working Group on Trade and Investment,
and could build on OECD work on the issue (OECD, 2016).

The policy options for reform of state ownership that are presented in this chapter are
necessarily broad in scope to maintain their applicability at the regional level. Building on
this, it could be fruitful to develop country-specific options for reform.
The OECD undertakes reviews of national state ownership practices upon request. The
reviews result in recommendations to align national practices more closely with the
standards of the OECD SOE Guidelines. Examples are available here:
www.oecd.org/daf/ca/oecd-soe-reviews.htm.

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Notes

1
This is based on an identification of government-owned companies in the 2017 edition of the
Fortune 500 list of the world’s largest companies, http://fortune.com/global500/list/. Of those 500
companies, about 20% are state-owned, most of which are domiciled in China.
2
The conclusion that most MENA economies have decentralised state ownership arrangements is
based on author judgment, drawing on a non-exhaustive online review and identification of the
ministries overseeing large, known SOEs in individual MENA economies (e.g. national postal
services operators, telecoms companies, oil and gas companies and national airlines and railways).
3
The Working Group on Restructuring State-Owned Enterprises in Iraq developed a roadmap for
SOE restructuring with the support of several international organisations (UNDP, UNIDO, World
Bank, OECD). The roadmap was approved by the Iraqi Council of Ministers in 2010. It notably
included plans for the full corporatisation of SOEs, but ultimately did not achieve its intended
outcomes.
4
Information on Morocco’s draft legislative proposal on SOE governance and financial control,
which was under consideration by the government as of early 2018, is available in French at:
www.sgg.gov.ma/portals/0/AvantProjet/115/Avp_Loi_gouvernance_Fr.pdf.
5
For more information on the planned partial listed of Enppi and Egypt’s IPO programme, see:
www.bloomberg.com/news/articles/2017-06-15/egypt-expects-to-raise-up-to-150-million-from-
enppi-share-sale.
6
To simplify, the figure does not include a fifth ownership model, the “twin track” system, which
is not very commonly employed. To this spectrum of state ownership models could be added a
sub-category of “centralised with exceptions”, to reflect situations where almost all SOEs are
overseen by a central ministry.
7
The sectoral distribution of strategic SOEs in 16 MENA economies is adapted from OECD
(2013). A number of companies have been reclassified into different sectors in an attempt to use
the sectoral classification of the OECD dataset on the size and sectoral distribution of SOEs, the
results of which were published in OECD (2017). Some enterprises were added in April 2018,
based on feedback from the Focus Group on State Ownership in MENA.
8
It is not possible to undertake a reliable comparison of the sectoral distribution of SOEs in the
MENA region and OECD countries, given the lack of comprehensive, comparable data on MENA
SOEs. In the absence of such data, this text highlights some general trends.
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 5. STATE OWNERSHIP IN MENA │ 175

Annex 5.A. Listing of strategic SOEs in the MENA region

Other
Country Primary sectors Manufacturing Finance Telecoms Electricity and gas Transportation Other utilities Real estate
activities
Algeria Manadjim El Asmidal Banque de Algérie Télécom Naftal Agence nationale Algérie Poste Entreprise
Djazair Entreprise Nationale l’Agriculture et Sonelgaz d’études et de Algérienne des Nationale des
Office National des Industries de du suivi de la Eaux Matériels de
des Aliments du l’Électroménager Développement réalisation des Travaux
Bétail Entreprise Nationale Rural investissements Publics
Sonatrech des Industries Banque ferroviaires
Électroniques Extérieure Entreprise
Société Nationale des d’Algérie Nationale de
Véhicules Industriels Banque Transport
Nationale Maritime de
d’Algérie Voyageurs
Crédit Société Nationale
Populaire des Transports
d’Algérie Ferroviaires
Bahrain Bahrain Lube Aluminium Bahrain Al Ahli United Bahrain Bafco Gulf Air Bahrain
Base Oil Gulf Petrochemical Bank Telecommunications Banagas Tourism
Company Industry Company National Bank Company Company
Bahrain National of Bahrain
Gas Expansion Securities and
Company Investment
Bapco Company
Tatweer
Petroleum

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176 │ 5. STATE OWNERSHIP IN MENA

Other
Country Primary sectors Manufacturing Finance Telecoms Electricity and gas Transportation Other utilities Real estate
activities
Egypt Egyptian General Chemical Industries Bank of Nilesat Egyptian Electricity Egypt Air Egypt Post Misr Real Enppi
Petroleum Holding Company Alexandria Telecom Egypt Holding Company Egyptian National Holding Company Estate Assets (Engineering
Corporation Misr Spinning and Banque du Vodaphone Egypt GASCO (Egyptian Railways for Water and for the
Weaving Caire Natural Gas Suez Canal Wastewater Petroleum &
Banque Misr Company) Authority Process
Misr Insurance Industries)
Holding
Company
National Bank
of Egypt
Iraq Central Electronic Industrial National Iraq Telecommunica State Company for Iraq Public State State
Petroleum Company Insurance tons Electrical Industries Railways Organisation Organisation
Enterprise National Chemical Company Iraqi Broadcasting State Organisation for Iraqi Airways for Building for Roads and
Iraqi Cement and Plastic Company Rasheed Bank and Television Electricity State Company of Bridges
State Enterprise National Company for Establishment Iraq Ports
Iraqi National Oil Food Industries
Company
State Company
for Oil Projects
State
Establishment for
Oil Refining and
Gas Processing
State
Organisation for
Agricultural
Mechanisation
and Agricultural
Supplies

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 5. STATE OWNERSHIP IN MENA │ 177

Other
Country Primary sectors Manufacturing Finance Telecoms Electricity and gas Transportation Other utilities Real estate
activities
Jordan Arab Potash Jordan Telecom NEPCO (National Royal Jordanian
Jordan Group Electric Power Airlines
Phosphates Company)
Mining Company
Kuwait Kuwait Petroleum Kuwait Cement Al Ahli Bank of Mobile Al Soor Fuel Kuwait Airlines
Company Kuwait Telecommunications Marketing Company Livestock
Gulf Bank Company (Zain) Transport and
Kuwait Finance National Mobile Trading Company
House Telecommunications
Company
Lebanon La Régie des Tabacs Intra Alpha Électricité du Liban Beirut, Tripoli, Four water Elyssar Casino du
et Tombacs Investment Ogero Sidon, and Tyre authorities Linord Liban
company ports Rashid
Middle East Karami
Airlines International
Fair
Sport City
Centre
Libya National Oil Gumhouria Afriqiyah Airways
Corporation Bank Libyan Airlines
Libyan Foreign
Bank
Wahda Bank

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178 │ 5. STATE OWNERSHIP IN MENA

Other
Country Primary sectors Manufacturing Finance Telecoms Electricity and gas Transportation Other utilities Real estate
activities
Morocco Office Chérifien Crédit Agricole Maroc Telecom (The Office National Autoroutes du Poste Maroc Compagnie
des Phosphates du Maroc Société nationale de de l’Electricité, Maroc Office National de Générale
Office National Crédit radiodiffusion et de previously included in Office National l’Électricité et de Immobilière1
des Immobilier et télévision this category, was des Chemins de l’Eau Potable
Hydrocarbures et Hôtelier merged with the Fer
des mines Office National de Royal Air Maroc
l’Eau Potable in 2011
and is included in the
“other utilities”
category)
Oman Oman Oil Oman Cement Bank Dhofar Oman Electricity Holding Oman Air Oman Post
Company Company Bank Sohar Telecommunications Company
Oman Petroleum Raysut Cement National Bank Company Oman Gas Company
Development Company of Oman Oman LNG
ORPIC (Oman Oil
Refineries and
Petroleum
Industries
Company)
Qatar Qatar Petroleum Industries Qatar Al Khalij Qatar Telecom Qatar Electricity and Qatar Airways Q-Post Barwa Real Gulf
Commercial Water Company Estate International
Bank Qatargas Company Services
Masraf Al
Rayan
Qatar National
Bank

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 5. STATE OWNERSHIP IN MENA │ 179

Other
Country Primary sectors Manufacturing Finance Telecoms Electricity and gas Transportation Other utilities Real estate
activities
Saudi Rabigh Refining National Al Khalij Saudi Telecom National Gas and Saudi Public Saudi Post Saudi Real
Arabia and Industrialisation Commercial Industrialisation Transport Estate
Petrochemical Company Bank Company Company Company
Company National Al Rajhi Bank Saudi Electricity Saudi Railways
Saudi Arabian Petrochemical Alinma Bank Company Organization
Mining Company Company Banque Saudi National Shipping
SABIC Francis Company of Saudi
Saudi Arabian Riyadh Bank Arabia
Fertilizer Company SABB
Saudi Industrial Samba
Investment Group Financial
Saudi International Group
Petrochemical Saudi
Company Investment
Saudi Kayan Bank
Petrochemical Company for
Company Co-operative
Southern Province Insurance
Cement Company
Yanbu National
Petrochemical
Company
Syria Al Furat Agriculture Syrian Telecom Chemins de Fer
Petroleum Co-operative Syriens
Company Bank Syrian Arab
Syrian Petroleum Commercial Airlines
Company Bank of Syria
Industrial Bank
Popular Credit
Bank
Real Estate
Bank

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180 │ 5. STATE OWNERSHIP IN MENA

Other
Country Primary sectors Manufacturing Finance Telecoms Electricity and gas Transportation Other utilities Real estate
activities
Tunisia Compagnie des El Fouladh (Société Banque de Tunisie Télécom Société Nationale de Compagnie des La Poste Société La Pharmacie
Phosphates de Tunisienne de Financement Distribution des Transports par Tunisienne Nationale Centrale de
Gafsa Sidérurgie) des Petites et Pétroles Pipelines au Office National de Immobilière Tunisie
Compagnie Groupe Chimique Moyennes Société Tunisienne Sahara l’Assainissement de Tunisie Société
Tunisienne de Tunisien Entreprises de l’Électricité et du Compagnie Société Nationale Générale
Forage Manufacture des Banque de Gaz Tunisienne de d’Exploitation et d’Entreprises
Entreprise Tabacs de Kairouan l’Habitat Société Tunisienne Navigation de Distribution de Matériel et
Tunisienne Régie des Alcools Banque de l’Électricité et du Société de des Eaux de Travaux
d’actitivés Régie Nationale des Nationale Gaz Transports des Société
Pétroliers Tabacs et des Agricole Hydrocarbures par Promosport
Office des Allumettes Compagnie Pipelines Société
Céréales Société des Ciments Tunisienne Société des Tunisienne
Office des Terres d’Oum El Kélil pour Transports de des Marchés
Domaniales Société des Ciments l’Assurance du Tunis de Gros
Société de Bézirte Commerce Société des
Tunisienne Société des Industries Extérieur Transports du
d’Aviculture Pharmaceutiques de Société Sahel
Société Tunisie Tunisienne Société des
Tunisienne des d’Assurances Travaux
Industries de et de Ferroviaires
Raffinages Réassurances Société Nationale
Société des Chemins de
Tunisienne de Fers Tunisiens
Banque Société Nationale
du Transport Inter-
Urbain
Tunis Air
Tunisie
Autoroutes

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Other
Country Primary sectors Manufacturing Finance Telecoms Electricity and gas Transportation Other utilities Real estate
activities
United Abu Dhabi Abu Dhabi Ship Dubai Holding Emirates Integrated Abu Dhabi Water and Dubai Ports Emirates Post Emaar Arkan Building
Arab National Oil Building Company Abu Dhabi Telecommunications Electricity Company Dubai Public Properties Materials
Emirates Company Dubai Cable Commercial Etisalat Dubai Electricity and Transport Agency Nakheel Company
(includes Emarat (Emirates Company (Ducab) Bank Water Authority Emirates National
sub- General Dubai Aluminum Abu Dhabi Empower Energy Etihad Corporation
national Petroleum (Dubal) National Solutions4 Fly Dubai for Tourism
entities)2 Corporation) Emirates Aluminium Insurance Sharjah Electricity and Hotels
Roads and
Emirates National (Emal) Company and Water Authority Transport
Oil Company Commercial TAQA (Abu Dhabi Authority
Bank of Dubai National Energy Sharjah Transport
Dubai Islamic Company)
Bank
Emirates
Investment
Authority3
Emirates NBD
First Abu Dhabi
Bank
Mubadala
Investment
Company
Tamweel
Union National
Bank
Yemen General CAC Bank Teleyemen Yemen Public Yemenia Yemen Post
Company for Oil, Yemen Bank Electricity
Gas and Mineral for
Resources Reconstruction
and
Development
Notes: The sectoral classification of entities has been updated to align with the methodology used in the OECD’s recurrent SOE data collection exercise (OECD, 2017). For UAE, some enterprises held at the sub-national level of government (by individual states) are included in the
inventory of strategic SOEs, while for the other countries only enterprises held by the central level of government are included.
1
The Moroccan authorities report that the Compagnie Générale Immobilière is a medium-sized enterprise of no strategic importance operating in a highly competitive sector.
2
The sectoral classification of entities has been updated to align with the methodology used in the OECD’s recurrent SOE data collection exercise (OECD, 2017). For UAE, some enterprises held at the sub-national level of government (by individual states) are included in the
inventory of strategic SOEs, while for the other countries only enterprises held by the central level of government are included.
3
Emirates Investment Authority is the sovereign wealth fund of the United Arab Emirates and therefore could be classified as a state ownership entity, rather than as an SOE.
4
Empower provides cooling solutions to buildings and is owned jointly by the Dubai Electricity and Water Authority (DEWA) and the Dubai Technology and Media Free Zone (Tecom).
Source: Adapted from OECD (2013), State-Owned Enterprises in the Middle East and North Africa: Engines of Development and Competitiveness? http://dx.doi.org/10.1787/9789264202979-en, with updates provided by Focus Group members as of May 2018.

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ISBN 978-92-64-78979-1 – 2019
Corporate Governance
Corporate Governance in MENA
BUILDING A FRAMEWORK FOR COMPETITIVENESS AND GROWTH
A strong corporate governance framework is essential for MENA economies as they strive to boost economic
growth, strengthen competitiveness and build prosperous societies. The G20/OECD Principles of Corporate
Governance and the OECD Guidelines on Corporate Governance of State-Owned Enterprises are a reference
in order to build such a framework. This report assesses the corporate governance landscape in the MENA
region by identifying challenges and proposing policy options for reform. The findings of the report are based
on an analysis of policies and practices in four thematic areas: boosting access to finance and capital markets,
improving transparency and disclosure, achieving gender balance in corporate leadership and enhancing
the governance of state-owned enterprises in MENA. Overall, the report finds that MENA economies have
made progress in strengthening corporate governance frameworks in recent years, but that the region still faces
challenges in adopting and implementing corporate governance measures that support economic efficiency,
sustainable growth and financial stability.

Consult this publication on line at https://doi.org/10.1787/2a6992c2-en.

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ISBN 978-92-64-78979-1

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