By Edward Attwood
Mistakes were made in Dubai's meteoric rise, according to Dr Habib Al Mulla. But necessary regulatory changes could herald a new dawn for the Gulf's first business hub.
Dr Habib Al Mulla is well-known as a straight talker. As perhaps the UAE’s foremost lawyer, he made his name by founding the financial free zones concept that led to the launch of Dubai International Financial Centre (DIFC) and the Dubai Financial Services Authority (DFSA). More than most, he is qualified to discuss the emirate’s recent performance in a candid and honest light.
There can be little doubt that Dubai retains some pretty significant cards, he says. “The population has not dropped, according to the number of residency permits issued and cancelled. It’s true that around 250,000 labourers have left the country but this does not add much in consumer consumption. The ratio of new trade licences issued to those cancelled is three to one.”
Speaking at the 3rd Arabian Business Forum, Al Mulla continues, ticking off the positives on his fingers. The cost of living has dropped, encouraging regional firms to once more consider Dubai as a base of operations. Hotel occupancy rates are up by around fourteen percent. Bank deposits in the emirate have passed the one trillion dirham mark. Bank loans have increased and the rate of defaulted bank loans has dropped by 50 percent in 2010 compared to last year.
“But these signs of recovery do not mean that all is well, that no mistakes were made, and that that there aren’t areas in need of improvement,” he says. “During the phase of expansion and boom, we have no doubt stretched our resources — and by that I mean our human resources. We have a limited number of qualified local Emirati executives who are capable of performing efficiently.”
Al Mulla believes that with so many executives sitting on different boards, and looking after several companies at any one time, it is virtually impossible for those firms to be working at optimum efficiency. As a result, the country needs to make a long-term commitment to education — particularly in primary and secondary schools — which he says is not one of the UAE’s major strengths. That feeds into a proper objective framework for top-level executives, with the current system based on “connections and who knows who.”
“This must change and be replaced by a transparent appointments system, otherwise our problems will continue to be repeated,” he argues. “Our agencies have to be run on a professional basis, with competent staff."
Al Mulla reserves particular criticism for the DFSA, a regulatory body containing members who he says had no regulatory background whatsoever. This not only added no value to the DFSA’s natural growth, but also was a hindrance for progress and development of what he terms a fine agency.
Elsewhere, it’s no surprise that the legal system also comes in for a degree of opprobrium. The lawyer says that investors need to have faith in doing business in the country, that contracts must be enforced, and that “transparency must be the address of the future”. More specifically, the UAE cannot afford to keep detaining businessmen at airports, for what can turn out to be negligible debts. Al Mulla refers to three specific cases, one of which involved an executive arrested due to an Etisalat worth AED152, run up by a member of staff who had left the country.
“The law on personal debt must be changed. Indeed the failure to pay a post-dated cheque is in my opinion no more than a failure than to perform a contract, and it too should not be made criminal,” he points out. “I say it loud and clear — outdated laws have to be outlawed.”
Al Mulla adds that crucial changes to debt repayment laws were enacted by the US during the Great Depression, and by Lebanon during the civil war, claiming that Dubai’s circumstances are sufficiently critical to broker legislative change. “We need extraordinary resources to address extraordinary situations,” he says. “It’s unfortunate that our laws are issued in reaction to events, and in many cases that reaction comes too little too late.”
Meanwhile, the lawyer warns that further pain is being inflicted by the UN embargo on Iran, which is affecting Dubai’s historic links to its neighbour across the Arabian Gulf. But all in all, Al Mulla claims that Dubai needs a new business model.
“We could position ourselves as an arbitration centre for the Gulf, which is a lucrative resource,” he argues. “Another way forward to build on our core strength — by enlarging and exploiting the concept of the hub. We have invented the concept in the region — we have it, and others are trying to copy it.”
It’s pretty tough to disagree with what Al Mulla says — many people in the Gulf agree with his assessments, but it’s rare that you will hear such views aired so explicitly. It may not be easy for some to take on board his arguments, but it’s also clear that these issues are being raised with Dubai’s best interests at heart. “Yes, we’ve made our fair share of mistakes in the past, yes, the challenges are not easy, and yes we have to work hard,” he says. “But the fact is that despite the current economic situation, Dubai is still full of life and can continue to play a leading role in the region as it always has.”