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Since the foundation of the UAE in 1971, there has been rapid development in its economy from oil and gas to a developed market economy. A 30-year development plan provided for substantial investment for education and infrastructure. Successful efforts have reduced Dubai’s reliance on oil and gas to 4% of its gross domestic product (GDP).
Dubai is now approaching the tailspin of the second stage of development, which is to apply core competencies in the new areas of telecommunication, media, information technology, energy, healthcare and finance. The Dubai International Financial Centre (DIFC) just celebrated its fourth anniversary.
Among Dubai’s strategies for economic development are to sustain a GDP growth rate of 11% per annum, achieve a GDP per capita of US$44,000 and increase productivity by 4% per annum.
Apart from that, its strategy is to move from existing sectors of strength to new frontiers, both domestically and internationally.
Among the goals of DIFC is to serve the vast region between western Europe and East Asia which has a regional wealth of US$2 trillion, and to provide a regulatory framework of world-class standards with full transparency. DIFC’s goal includes replacing several fragmented local stock exchanges with an international financial exchange.
The DIFC region comprises 42 countries spanning the Middle East and North Africa (MENA), the Caspian and subcontinent with a population of 2.23 billion as at 2007. The region’s combined GDP stood at US$2.46 trillion as at 2007.
The financial wealth of high net worth individuals in the Middle East region grew at 11.7% in 2006, surpassing the pace of growth in North America, Europe and Asia-Pacific. About US$1.8 trillion of the regional wealth is invested abroad. In 2007, the DIFC region’s total exports stood at more than US$1.5 trillion and its total imports exceeded US$963 billion.
The DIFC region is undergoing major economic reforms, state divestment and privatization, leading to significant investment opportunities. There is growing private-sector participation in infrastructure across the region, with total required investment valued to be in excess of US$630 billion for the MENA region alone between 2006 and 2015.
The Gulf Cooperation Council (GCC) as a region is the 16th largest economy in the world and is projected to be in the top 10 by 2015. With economic diversification and liberalization, attractive investment prospects existing across many sectors.
The total value of projects planned or under development in the Gulf exceeds US$1 trillion. Of this amount, oil and gas projects make up US$239.16 billion, construction projects are worth US$604.88 billion, power projects make up US$70.23 billion, petrochemicals projects are about US$104 billion, water and waste projects are estimated at US$14.9 billion and industry projects are worth US$46.43 billion.
These projects, a majority of which are infrastructure developments, require financing to be arranged by financial institutions. Hence, the financial institutions in Malaysia should participate in these projects and use DIFC as a platform to enter the Gulf.
The DIFC is the world’s fastest-growing international financial centre. It aims to develop the same stature as New York, London and Hong Kong. It primarily serves the vast region between Western Europe and East Asia.
Since it opened in September 2004, the DIFC has attracted high-caliber firms from around the globe as well as its region. A world-class stock exchange, the Dubai International Financial Exchange (DIFX), opened at the DIFC in September 2005.
The DIFC focuses on several sectors of financial activity: banking services (investment banking, corporate banking & private banking); capital markets (equity, debt instruments, derivatives and commodity trading); asset management and fund registration; insurance and re-insurance; Islamic finance & professional service providers.
Financial institutions operating in the DIFC are eligible for benefits such as a zero tax rate on profits, 100 per cent foreign ownership, no restrictions on foreign exchange or repatriation of capital, operational support and business continuity facilities.
Financial services in the DIFC are regulated to international standards by the Dubai Financial Services Authority (DFSA).
Prior to DIFC, Nik Norishky Thani was head of Islamic capital markets at MIMB Investment Bank Malaysia and Bank Islam Malaysia. He has more than 10 years’ experience in advising on and structuring Islamic financial instruments, in particular Sukuk. |
