Today marks the fifth anniversary of the founding of the Dubai International Financial Centre. The tally of 869 trade licenses is impressive but that includes the tailor and ice-cream parlour.
Less impressive is that after five years only 1,400 professionals work in the DIFC. Yes, that is not a misprint. Not 14,000 or 140,000. Just 1,400 or an average of less than two per trade license!
Big names, no staff
It is true that the big names have all set up in the DIFC. Some like Standard Chartered Bank have a staff of 950 in the centre. But clearly most of the big names of finance just have a name-plate.
With the skyscrapers of the DIFC complex now coming up for completion the centre must be hoping for an influx of staff to fill the office space reserved by these companies. But clearly after the biggest global financial crisis in living memory over the past year there may not be as many new banking professionals as expected.
The theory of the DIFC is fine: a banking sector regulated to Western standards and working in English in the middle of Arab oil wealth. The practice has been dogged by the volatility of local and global financial markets. There has been no shortage of energy, vision and astute management.
Take its regional stock market, now re-branded as Nasdaq Dubai. It launched just after the local Dubai Financial Market had suffered a huge crash. Now it is battling to achieve critical mass against the background of the unprecedented global financial crisis of the past year.
But as with the whole DIFC there is still reason to believe that such a good idea as a regional stock market will also turn into a business success story. Creating a regional futures market for 20 top stocks shows the way forward as in more developed markets futures trading is bigger than the equity markets they are written against.
Goldman Sachs
It is good to hear that three more brokers have joined Nasdaq Dubai as members in recent weeks, including the king-pin Goldman Sachs. Indeed, Nasdaq Dubai is the future as its platform opens up the region to global institutional share traders as well as locally based individuals.
Much the same could be said DIFC initiatives in many other areas of finance from Islamic sukuks to the Dubai Mercantile Exchange for commodities. But what will it take to bring in the thousands of professionals that will give the centre its critical mass? Office space is one thing. The actual flow of business is another.
A global economic recovery and much higher oil prices would do the trick. Regional business in general and Dubai in particular has taken a big hit in the global financial crisis with Dubai real estate ranked 46th out of 46 global markets for price performance over the past year.
But starting from a market bottom has its advantages in lowering the cost of doing business and promoting necessary consolidation and debt refinancing which is the business of the DIFC. Then the new uptrend can begin with higher trading volumes on the Nasdaq Dubai opening the way for initial public offerings and new listings.
The road to recovery
How long this process might take in anybody’s guess. There could well be another leg to the global financial crisis from which the recovery seems far too easy to be true. Oil prices might go down not up.
The DIFC is a long-term investment with a big pay-out when it comes. But let us not get too carried away with celebrating success before it has happened. The difficult part is still ahead: making the DIFC another engine for Dubai’s growth, like Jebel Ali Free Zone or Emirates Airline.
Going forward the DIFC has the potential to become a financial hub like London, New York, Singapore or Hong Kong. Its geographical position is favourable as are the stable politics of the UAE. Its regulatory structure fits with global best practice. Dubai’s low tax regime is especially attractive to financial professionals, and the city’s standard-of-living what they expect.
This is a winning hand but the DIFC needs to be dealt better cards if it is to win the game ahead. Otherwise it will continue to struggle amid tough financial markets, and might be forced to reconsider its business model.
That said the DIFC is still all upside to come for Dubai. What will 10,000, 20,000 or 30,000 white collar financial professionals mean ultimately for Dubai house prices, retailers, luxury car sales and restaurants? Financial hubs bring a rich prize for domestic demand, and it has not even started yet.END
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