First with Financial Comment from Arabia

Dark before the dawn for the Dubai financial sector

with one comment


The empty corridors and stalled cranes of the Dubai International Financial Centre hardly seem the harbinger of great days to come. The local stock market is falling, and the Nasdaq Dubai a bold move that has so far failed. DIFC firms are losing money.

Yet the darkest moment always comes before the dawn. And Dubai has a long history of building the right infrastructure ready for when the people decide to come.

9/11 precedent

Look at how 9/11 was perceived in 2001 in Dubai. It looked a disaster for tourism, aviation and foreign direct investment. Yet this actually proved to be the lift-off point for the next Dubai boom as Arabian money flew back to Arabia from North America, quite literally in plane loads of gold and cash in fear of seizure.

Could the present global financial crisis prove a similar nemesis for the DIFC? Well, skyscrapers once built can not be removed or transported easily. And it is not just the DIFC with its physical and legal infrastructure that is is attractive, it is the whole of liberal and Westernized Dubai.

So who will come and why will they come? First, in an era of falling revenues the only way to make money is to cut costs: on salaries, housing allowances and office rents. And how do you boost salaries without paying more? Move to a no income tax location.

The DIFC reminds me of London’s Canary Wharf in the early 1990s. Then a recession left this 10 million square foot office development largely empty and the developers went bankrupt. It was a sad tale: I met the new owners when they first arrived in London and a couple of years later attended the press conference announcing their bankruptcy.

But by 2000 Canary Wharf had not only filled up, the major banks HSBC and Citibank had actually added their own skyscrapers, and the project achieved its ambition to rival The City as a financial centre in London.

Now whether the DIFC or part of the development actually has to go through a bankruptcy proceeding remains to be seen. But I have no doubt about the final outcome. The global financial crisis is throwing some big opportunities to Dubai.

For one thing the limits on bonuses, new market regulations and even the US attack on Swiss banking secrecy should all be music to the ears of the Dubai authorities.

In Dubai you are free to compensate employees as you see fit and nobody even wants to know what you are paying your staff. And while Dubai models its regulations on the London FSA, imposing draconian regulations on business is just not its free market style.

Swiss secrecy

At the moment the hedge funds are moving out of Mayfair and into Geneva, pushing up house prices. But the Swiss are losing Arab clients who fear that if UBS is prepared to open the accounts of its US clients for inspection, they could be next.

So where might Arabs feel comfortable investing their money? Perhaps Dubai, especially in large global financial institutions that base themselves in this city. These just have to be the future tenants of the DIFC, just like they saved London’s Canary Wharf. The smartest might buy buildings now off near bankrupt developers.

Dubai is home to the multinationals of the Middle East, why not more multinational banking to take advantage of this city’s tax and cost structure as Arab money returns again from the West during the financial crisis?


Written by Peter Cooper

November 2, 2009 at 9:46 am

One Response

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  1. Provided that Gulf states can keep their mouths shut I can see many people putting their money in local banks if they guarantee the deposits and give good returns. The Swiss should not have given into US demands.


    November 2, 2009 at 11:43 am

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