Archives For Qatar

By Ewald Müller, director, Financial Analysis, QFCRA

Oil and gas-rich Qatar is one of the fastest-growing economies in the world, reporting GDP growth of more than 14% in 2011. Since the turn of the century, though, the country has taken steps to diversify its interests and has established a successful financial services sector in Doha, known as the Qatar Financial Centre (QFC).

Qatar Skyline

The relative newness of Qatar’s financial services industry means that the regulatory system around it has also been created almost from scratch. The Qatar Financial Centre Regulatory Authority (QFCRA) was established in March 2005 and was tasked with building a principles-based regulatory and financial reporting regime that is aligned with best practice internationally.

QFCRA’s objectives include the ‘maintenance of efficiency, transparency, integrity and confidence in the QFC, as well as the maintenance of financial stability and reduction of systematic risk’. Effective risk reporting is an essential element of that objective, but is something that is relatively new to companies based in Qatar. The prevalence of risk reporting has increased across the Middle East in the past few years, but there is a lack of a broad understanding of risk reporting, a lack of skills around risk reporting, and a lack of understanding among users about what risk reports are meant to convey.

In many developed countries, the global financial crisis has been a catalyst for a more focused conversation about the value of risk reporting. One of the difficulties for those hoping to encourage better risk reporting in Qatar, though, was that the impact of the crisis was not felt as keenly in that country.

One of the benefits of starting with a blank piece of paper is that the QFCRA has been able to focus on what it sees as the essentials of good risk reporting: brevity. In Qatar a lot of what we’ve focused on in terms of risk reporting has come from the IMF’s financial stability indicators, which is not a vast set of data. It is a very good starting point, in the sense that it reflects the work of the entire world and focuses only on key indicators.

The biggest issue for me around risk reporting is quality versus quantity. Internationally, I think there’s so much disclosure that often users can’t see the wood for the trees and risk reports do more to confuse them than they do to help them. As far as I’m concerned, the crux of successful risk reporting is that it tells me what is useful – and materiality plays probably the single biggest role in that. Brevity is the key, and that is driven by materiality.

So far companies in Qatar have been “very appreciative” of the work of the QFCRA from a prudential perspective and there is an appetite for better risk reporting. Good risk reporting, which is linked to transparency, is a cornerstone to good governance. If risk reporting becomes a habit, it will create value. The problem is that the flipside is easier to prove – those who do not report risk well probably have something to hide.

 

Ewald joined the QFC Regulatory Authority in April 2012 from the South African Institute of Chartered Accountants (SAICA) where, as Senior Executive: Standards, he influenced developments in international standard-setting and South African legislation and regulation.  Prior to his position with SAICA, Ewald held senior roles in financial management, regulation, financial analysis and investor relations, primarily in the financial services industry.

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SustainabilityBy Gordon Hewitt, sustainability advisor, ACCA

The COP18 climate negotiations came to a close in Doha on 8 December, a day later than scheduled and following an all-night final negotiation session.

The two-week conference resulted in nations signing the Doha Climate Gateway. This outcome document makes modest progress in addressing the risks associated with climate change, with the main points including a continuation of the Kyoto Protocol, reiteration of commitments on long-term climate finance and the inclusion of ‘loss and damage’ in a conference outcome document for the first time. The conference also saw progress on the Durban Platform (ADP) towards an agreement covering all countries by 2015.

The Kyoto Protocol, which is currently the only binding agreement under which developed countries have committed to cut their greenhouse gas emissions, has been extended for a period of eight years from 1 January 2013. Whilst the continuation does maintain some degree of forward momentum, it will not result in a major reduction in emissions, as many developed countries have not signed up to the second commitment period. Countries that have signed up include the EU, Norway and Australia; whilst those who have not include the US, Japan, Canada and Russia.

As the Protocol only covers around 15 per cent of emissions, forging an agreement that encompasses a much greater proportion of emissions will be a key focus of future negotiations. A critical challenge will be the distinction between developed and developing countries, as the world has changed enormously since the UNFCCC was negotiated in 1992, yet the classification of countries has remained the same.

Developed countries have reiterated their commitment to scale up climate finance, mobilising US$100bn per year by 2020, but practical commitments were scarce and few nations made any pledges that cover the period between 2013–2020. A number of European countries, including the UK, Germany, France and Denmark announced concrete finance pledges for the period up to 2015, totalling approximately US$6bn. The lack of further finance commitments was seen as a major disappointment from developing countries.

Much of the negotiation focused on the inclusion of ‘loss and damage’ proposals within the outcome document. This term refers to the dispersion of funds to vulnerable communities for the loss and damage caused by climate change. A particular opponent of this term was the US, who did not want any language connoting legal liability to be included in the text, as this could result in unlimited amounts of litigation. Whilst no international mechanism on loss and damage was set up in Doha, the possibility of setting one up in the future has been included in the agreement, a point that will undoubtedly be a major focus of COP19 in Poland next year.

A common criticism of UNFCCC negotiations has been the decision making process, which relies upon consensus between all parties. This has allowed nations to veto and block policies that are against national interest and resulted in many stalled negotiations and missed opportunities over the years. In order to address this issue, Mexico and Papua New Guinea have proposed to introduce majority voting to the COP process. This was not discussed officially in Doha, but will likely be included on the agenda of COP19.

Whilst some progress was made at COP18, it is widely regarded that the commitments made by governments to date are failing to address the risks posed by climate change and if emission levels are not curtailed soon, we will experience a level of warming that will have widespread negative consequences. The next two years leading up to 2015 are critical if governments are going to reach an agreement that will limit warming to 2C – the commonly agreed limit to avoid dangerous climate change.