Financial Centres

In the financial markets recriminations still fly, regeneration is the buzzword, and "remembering the past" means the past 24 hours let alone 24 months. Governments fret over exit policies (or lack of them), investment bankers are looking forward to the next round of bonus payments and "joe public" scratches its collective head wondering what just happened; for him no job, too much debt, minimal prospects but the newspapers tell him it's all good. 

Meanwhile, anywhere East of Istanbul, the cry has gone up "Let's be a Financial Centre!".

Putting aside for a minute the older established Asian centres of Tokyo, Hong Kong and Singapore, and the old debate about Shanghai's aspirations, and now that five year old successful "upstart" in the Middle East, the Dubai International Financial Centre (well, of course I'm biased!), I am beginning to wonder whether some of the new aspiring centres have any idea what they are talking about. 

Designating a city (or cities in the case of Korea) as a financial centre seems to be the easy part. Do they mean an International Financial Centre or a Regional Financial Centre? Do they look at London and say, "they are an International Financial Centre so we want to be like them"? If so, there is a little matter of 300 years of history to contend with in terms of infrastructure (it's okay, we can build that), safety and security (oh yes, we will have that), and reputation (reputation? can't we buy that too?).

A Deloitte study of Istanbul's potential to be a financial centre was circulated at the IMF meeting I attended earlier this month. A study that suggested there were "twelve dimensions of competition" for financial centres in order for them to be successful. Reputation was just about mentioned, as an adjunct to Image. Of course, you can have all the legal environment and regulatory framework (two of the twelve dimensions) you like, but if it is not demonstrated - over time (which is how you build your reputation) - that it is applied evenly and fairly across the industry, then what's the point?

I am not picking on Istanbul particularly, but it just happens to be a city with aspirations for which I have a recent study. (I must also say it was my first visit - and it certainly won't be my last!). The Deloitte report, on which the Turkish Prime Minister and the Association of Banks is pinning a lot of hope, says amongst other things:

- Significant improvements must be made regarding the legal environment.

- The fiscal environment needs greater certainty and efficiency and requires reduction in some taxes.

- The regulatory environment requires a more coordinated and responsive regulator based in Istanbul.

- The availability of skilled labour needs improvement

- Currently there is no brand or image that supports Istanbul as a venue for international finance.

The above is only a selection of their commentary, but it highlights the difficulties facing a city like Istanbul, and to be fair, just about any other city that has similar aspirations.

It is actually quite easy to sit and enumerate the qualities needed to create a financial centre. Deloittes have done it for Istanbul. Even I do it reasonably frequently, when asked, and one never wishes to dampen the enthusiasm of city, provincial or national authorities who want to consider ways of improving their respective economies. What I find harder to do, and am therefore asked less frequently, is to provide solid arguments about the differences between International and Regional Financial Centres. Can Seoul, for example be an International Financial Centre and Busan be a Regional one? How would they be differentiated?

And I also find it hard to answer my own question about how many "Financial Centres" do we actually need? Given the growing aspirations of countries in the Middle East, who are now beginning to publicly state their own aspirations, as well as Mumbai, various other cities in China and the rest of Asia it is becoming a little like "Well you've got one, I want one too!". This usually ends up in a no-one really wins situation, but where any success will be created by the creative, the non-bureaucratic and the quick - using external help in the early stages to ensure that the basic rules are simply written, clearly understood and consistently applied. Where the long term view is to build a reputation. Where corruption is not a feature of the country and where foreign workers are welcomed to help in the process.

Comments

[Term Papers]

It’s a great post, you really are a good writer! I’m so glad someone like you have the time, efforts and dedication writing, for this kind of article…

[hans olijve]

Maybe countries like the Philippines ( in the 60s the largest economy in asia ) and Indonesia ( huge reserves of national resources) should take a look at the Deloitte report. Implement the recommendations and voila....a vulcano of opportunities might erupt...wishfull thinking or just an utopia...