Nearly 98 per cent of the companies operating in Gulf oil producers are held by families and this means they could disappear by time unless they are turned into joint stock ventures, according to a Saudi study.

Despite the success of some of them, the companies in the six-nation Gulf Cooperation Council (GCC) are suffering from a high degree of courtesy, which is affecting their performance, said the study, authored by Saleh al Sarei, a member of the trade panel at the Jeddah Chamber of Commerce and Industry.

“Latest statistics showed that almost 98 per cent of the GCC’s total private sector companies,” he said in the study, carried by the Saudi daily Aleqtisadiah.

He said nearly 33 per cent of those firms is controlled by the second generation of the family while 15 per cent is held by the third generation and four per cent by the fourth generation. “This means that in case of the death of its founder, the company could either collapse, fail or have poor performance,” he said.

Sarei said most family firms in the GCC, which controls over 40 per cent of the world’s proven oil wealth, suffer from what he described as “courtesy”.

“In many case, we see that courtesy and flattery could be at the expense of others and this will affect its performance,” he said.

“This should prompt efforts to change the system of these firms in a way that will guarantee their continuation and support their role in contributing to the national economy in a more active way….it has become imperative to turn these companies into publicly-held firms to preserve the future of next generations.”

In a study last year, a key Saudi investment firm blamed financial malpractices at banks and family companies for the severe debt default crisis that jolted two family business in the world’s oil superpower and largest Arab economy.

NCB Capital, owned by Saudi Arabia’s largest bank, National Commercial Bank, said the crisis that involved $ billions in bad debt was the main factor in dampening investor confidence and obstructing economic recovery in the GCC.

“Even as the regional corporate sector has generally performed well in the face of the crisis, the scandals have offered evidence of over-extension and poor risk management at some companies…..the impact of the crises has been amplified by poor transparency and the relative lack of well-defined and broadly accepted mechanisms for dealing with situations of distress,” it said.

“From the regulatory perspective, the crisis has highlighted the risks and limitations of many outdated credit practices but new standards have yet to fully replace them….the poor sentiment in the corporate sector has gone hand in hand with highly restrictive lending practices by regional banks.”

Besides the credit squeeze, the default problems sparked calls for reforms with within local family businesses, including their management and practices.

According to a private study published in the UAE recently, family companies dominate private sector business in the GCC as they contribute nearly 75-95 per cent of the sector’s trade activity in the six members.

The study by Saleh Al Rousan, economic adviser at the Ras Al Khaimah Chamber of Commerce and Industry, showed around 20,000 family companies operate in the GCC, with investments reaching $ 500 billion. Their total global wealth is estimated at over $ two trillion and they employ nearly 15 million people.

In Saudi Arabia, by far the largest GCC member, around 300 major local family companies contribute nearly 25 per cent of the GDP. In the UAE, family firms represent more than 90 per cent of the business community.