Finance
Dubai has established itself not only as the banking and financial-services capital of the United Arab Emirates – where asset totals of local banks had reached AED 1.06 trillion by September 2007 – but also as a leading regional and international financial hub.
Dubai strengthens its role as financial-services hub
The cornerstone of Dubai’s financial-services sector is the Dubai International Financial Center (DIFC), established in 2004 by Sheikh Mohammed, who serves as DIFC president. The DIFC aims to position Dubai as a financial-services hub with a global stature equal to that of New York, London and Hong Kong. It serves a market of some 1.8 billion people, or one-third the world’s population, in a region with a combined GDP of USD 1.5 trillion.
The DIFC – which allows 100 percent foreign ownership of enterprises – is now home to more than 500 companies, including Credit Suisse, Deutsche Bank, Lloyds TSB, Barclays Capital, Mellon Global Investments and Merrill-Lynch. One of the draws for investors is that the DIFC is carefully overseen by the Dubai Financial Services Authority (DFSA), an independent body created to ensure that the DIFC is one of the best-regulated financial centers in the world. The DIFC is also governed by the Dubai International Financial Center Judicial Authority (DIFC Courts) and the Dubai International Financial Center Authority (DIFC Authority).
Within the DIFC is the Dubai International Foreign Exchange (DIFX), which serves as the region’s leading financial exchange for bonds, equities, funds, Islamic products and other securities. The announcement by Dubai’s government in August 2007 that it would consolidate its two stock exchanges – the DIFX and the Dubai Financial Market (DFM) – through a new holding company, Borse Dubai, signals the maturity of the emirate’s financial-services sector as well as the government’s commitment to positioning Dubai as one of the world’s leading financial-services hubs.
Soud Ba’alawy, Chairman of Dubai Group and of DIFX, explains, “This merger will improve systems and promote financial innovation.” Dubai Group is known for its innovation and its ability to capitalize on investments and opportunities.
Borse Dubai is building on existing synergies between the two exchanges and will explore opportunities with capital markets across the globe, thus strengthening Dubai’s international presence. It is already bidding for major stakes in leading European stock exchanges. Dubai also has a thriving commodities exchange, the Dubai Multi Commodities Market (DMCC).
Biggest bank in the Gulf
Dubai’s financial sector continues to make headlines. The high-profile merger between the National Bank of Dubai and Emirates Bank International to form Emirates NBD, owned 56 percent by Dubai’s government, created the largest bank in the Gulf in assets (around USD 50 billion). The merger signals a trend toward strategic alliances in the banking sector, which can provide a cost-effective route for foreign financial-services firms wishing to enter Dubai’s fast-growing market. Analysts cite growing demand for partners with strong brands, systems, investment and risk-management credentials.
New trends in financial services
Dubai’s financial-services institutions, both local and foreign, are leading the way in providing new services and in broadening their reach. Largely thanks to Dubai’s real-estate boom, for example, the local project-finance market is one of the largest in the world.
Retail banking, the mortgage sector (stimulated by recent legislation allowing foreigners to own freehold property) and Islamic finance have all been growing particularly rapidly in Dubai recently. DIFX handles 44 percent of the total value of Sukuks listed per year, including the two largest Sukuks ever listed.
There has also been rapid growth in the private-equity market in the number, type and size of funds, particularly concerning funds operating according to Islamic principles. Several billion-dollar-plus funds have been announced in the region recently, and, unlike in other markets, the Middle East’s private-equity sector had a record year in 2007.
At the Private Equity Forum held in Dubai in June, financial-sector leaders from all over the world met to explore how to best seize market opportunities both regionally and worldwide. Sponsors of the event were Dubai’s Ithmar Capital, currently managing proprietary investments in excess of USD 500 million across the region, and M’Sharie, the corporate venture-capital arm of Dubai Investments.
Local banks expand services and markets
Nasser Al Suwaidi Governor Central Bank
In the local retail banking sector, which formerly focused almost exclusively on high-net-worth individuals, banks are adding offerings for a broader customer base. Private banking continues to thrive, and corporate banking is also growing exponentially. Local banks, including Dubai Islamic Bank and Dubai International Capital, are also establishing operations in new markets, particularly other Islamic countries.
Inflation remains a challenge for the Gulf region’s financial-services sector, and may result in a change in the current policy of pegging the AED to the dollar, although in January this year, the governor of the United Arab Emirates’ Central Bank, Nasser Al Suwaidi, said the authorities had decided to keep the current peg against the dollar for the present.
Dubai continues to focus on maintaining the highest standards of quality in its financial- services industry, which has been singled out by Sheikh Mohammed in his “Vision 2015” plan as one of the emirate’s key growth sectors.
