By Peter JR Morgan
The financial crisis has presented an ideal opportunity for Dubai to become a leading global financial centre
The global financial crisis which has become almost pandemic in the last few years has led to a lack of confidence in not only the banking and economic systems which currently operate, but in the financial centres and governments that provide these services and regulate them. The City ofLondon, for example, has come under continual fire in recent years and similar criticism has been seen across the Atlantic in Wall Street too.
The majority of the problems seem to have originated in the West. America and Europe in particular have encountered great difficulty with complications arising in the futures and conglomerated debt markets, in addition to recurring sovereign debt crises seen throughout the Euro Zone. The financial commotion has continued to deteriorate in recent months with Spain requesting a bailout from the European Financial Stability Fund adding to existing recipients Greece, Ireland and Portugal.
There seems to be no end in sight to the financial crisis in the West and it could deteriorate further in coming years. However I think this crisis presents an opportunity for other countries around the world to enter the financial service market. Dubai in particular is a prime candidate for such an industry and already has many advantages over the existing financial centres.
The current problems in the West will likely end with an increase in regulation and higher taxes to pay off the enormous sovereign debt. This will deter financial organisations from setting up operations in the existing financial centres. Some may move elsewhere to avoid the escalating costs of auditing and reductions in profit margins from further taxes.
Dubai does not currently charge personal income tax or corporation tax, which makes it an attractive alternative for financiers who wish to escape from the looming asset confiscation likely to occur in America and Europe. The cost of auditing will be less expensive in Dubai due to softer regulation and the smaller sized government. Employment costs will also be lower and it would be easier to reduce employee numbers to streamline businesses in difficult times due to less union pressure.
The infrastructure already exists in Dubai to accommodate large corporations and the staff they would need to employ. Recreation and amusements parks throughout Dubai, which were originally built to attract tourists, will also be an appealing attribute to a prospective investor. Existing skilled labour, which has also been called in to serve the tourist industry, could also be useful resource for a new financial centre.
New financial products could also be an appealing draw to Dubai. The Islamic banking system has been relatively unaffected by the financial crisis and a move into this alternative would give Dubai an edge over many other competitors trying to attract financial service providing corporations. This in addition to Dubai’s positioning, which is well placed for the new emerging world markets including Russia, India and China, sets Dubai as a front runner to become the next global financial centre.
* Peter Morgan is a freelance writer and macroeconomist. You can read more of his work at http://morganisteconomics.blogspot.co.uk/
NASDAQ Dubai (formerly called the DIFX) is the international stock exchange. It opened in September 2005. since then 3 companies are listed at the bourse, they are DP World, DEPA Limited, DAMAS International, total thee stocks!, and the DAMAS is delisted, the DPW was secondly listed at LONDON STOCK EXCHANGE due to poor performance of their home market , and the last one DEPA is planning to be shifted to DFM market!
Even the local companies do not like the MARKET at all! Now seven years already passed, the market will complete one decade after another 3 years, I doubt that any listed company still be there by than!!!
Dubai has blown its chance to become a world financial centre. One word did it all. Nakheel.
You haven't mentioned the new UAE investment fund rules. How will they affect the DIFC?
John.... best one word answer yet, "Nakheel"
You are joking. Nakheel's behavior continues to destroy Dubai's reputation. If anyone in the world reads your interview with the Chairman of Nakheel, what future does Dubai have.
Well the polls of new office start ups in the last year would appear to prove you all wrong. http://www.emirates247.com/business/dubai-in-top-5-financial-centres-2012-03-21-1.449714
In relation to the existing staff working in hospitality that will attract people due to the service, they would not be doing the banking.
The main appeal is the low tax which is something bankers always follow. It is just a matter of time till they start to increase tax in the existing financial centres then watch them all flee to Dubai.
Nakheel. Is a property business. That might have failed but that does not detract from the appeal of Dubai to attract financial service providers. They are two separate issues.
If the other financial centres increase taxes or become less hospitable corporations will look to set up elsewhere. Dubai is a tax haven.This is something unrelated to Nakheel.
Hi you are right that Dubai has increased its financial rules for investment funds. However this is something I believe will help as it will meet the requirements of the foreigners who are concerned about the stability of investments. The rules include an increase in reserves to cover liabilities if the firm goes bust. This is like an insurance and although it makes it slighty harder (still better than western competitors) for firms to operate it makes the security of the fund much better.
Here is a quote explaining it.
"The new regulations may help lift the country's status as it seeks approval for an upgrade from index provider MSCI.
"Working without a proper regulatory framework on investment funds was a shame. This shows they (UAE authorities) are responding to what foreigners require of them to join the line of emerging markets," said Reda Gomaa, portfolio manager at Mashreq.
Sadly, Morgan is deluded. Nothing is unrelated to Nakheel because as a state-owned company it breaks every single rule in the governance book and that casts a pall over all sectors, and much as they like the ivory tower of the Gate (laundromat) DIFC is not a law unto itself or separated from the travesties of state firms. Nakheel is a statement of fact about Dubai governance.