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/For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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