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Sound financial infrastructure is characterized by reliable and easily accessible financial information, credible and transparent commercial regulation and effective legal dispute resolutions mechanisms.  Arab countries’ financial infrastructure still leaves to be desired and limits the expansion of the region’s financial systems and their ability to support socioeconomic development.

In terms of the financial information infrastructure, Arab countries do well, but could improve.  Data and information providers, such as the Prime Holding and Zawya, collect, analyze, and distribute information to market participants to help them monitor market developments and shape their investment decisions.[1] These providers pay particular attention to corporate governance to identify and manage risks and instill market confidence.  Similarly, accounting and auditing standards and practices instill confidence in the quality and reliability of financial data. Most of these activities are conducted by the private sector and are generally regulated. Some self-regulated organizations, such as the International Arab Association of Certified Accountants, provide several of these functions, including the development of accounting standards and training or brokerage codes.[2] Information providers would need to reach out to the larger public beyond financial professionals as well as play a role in the financial education of the population at large. 

However, it is in the area of legal certainty and contract enforcement that Arab governments need the most improvements to shore up their financial systems.  The table below, provided by the World Bank Development Indicator report, demonstrates why.

Table: Legal Institutional Environment

Source: World Bank World Development Indicators, http://databank.worldbank.org/data/views/reports/tableview.aspx

As can be seen, most Arab countries fall below the world average for strength of legal rights, with only Saudi Arabia close to the world average. Nor do Arab countries fare well in terms of days required for contract enforcement compared to high-income countries, or even to China, Hungary, or Malaysia. In Egypt, it may take up to 1,010 days for a contract to be enforced, almost three times more than in the United States. Arab countries also take an inordinate amount of time to resolve insolvencies. It may take less than a year in Canada, and only Morocco and Tunisia are close to the time it takes in higher-income countries. These weaknesses add to business costs and adversely affect competitiveness. They also reflect legal uncertainty, a genuine obstacle to financial sector development.

Without significant progress in ensuring legal rights and systems for contract enforcement and liquidation, the Arab world’s financial systems will remain underdeveloped and underutilized and continue to be a drag on growth and prosperity.