As Abu Dhabi prepares to start operations at its brand new financial centre, the emirate has a fight on its hands to catch up with a more established rival hub in neighbouring Dubai.
The United Arab Emirates’ (UAE) capital founded the Abu Dhabi Global Market (ADGM) free zone in 2013, with the aim of developing it into an international financial business hub. Abu Dhabi is looking to capitalise on its oil wealth, political stability, financial services, and global investment portfolio to draw companies in.
Next door, Dubai has over the past decade managed to attract some of the biggest names in finance to the Dubai International Financial Centre (DIFC), positioning itself as the Middle East’s finance hub and a gateway between east and west for financial institutions. At the core of what makes the DIFC appealing is its regulatory framework, modelled on regulations used in London and New York.
“DIFC has become the financial hub for the region and, as such, it is traditionally very difficult to shake a hub’s dynamic,” says Philippe Dauba-Pantanacce, senior economist, Turkey, Middle East and north Africa global markets, at Standard Chartered Bank. Once established, incumbents tend to grow of their own accord, as new companies are attracted by an existing network.
The Qatar Financial Centre was founded in 2005 in the Qatari capital Doha to bolster the country’s financial services sector, but has not been able to woo large numbers of clients.
“It has been, for example, a testing experience for Doha to meet its ambitions as a financial centre since Dubai-based financial companies were not ready to relocate or split their regional headquarters,” says Mr Dauba-Pantanacce.
The Abu Dhabi centre will soon announce its final regulations and rule books for financial services business transactions, and plans to receive licence applications by the fourth quarter of 2015. Its consultation period for open market feedback and comments on its draft regulations and rules ended in August.
The ADGM describes itself as a broad-based international financial centre for local, regional and international institutions. It has three independent authorities, including one for registration, financial services and the courts. The company says operations at the free zone will be in line with international financial best practices.
But it is not clear whether global financial players will be instantly comfortable with the application of the laws governing companies there.
Emad Mostaque, a London-based strategist at emerging markets consultancy company Ecstrat, says: “They seem to have rationalised a lot of the laws, but it’s going to be a while until they are as refined as the DIFC.”
“It takes a good five to 10 years for financial centres to get critical mass . . . Qatar offered selective incentives for asset management firms to come and join, but it hasn’t achieved critical mass yet.”
Mohammed Ali Yasin, managing director of NBAD Securities in Abu Dhabi, sees two challenges facing the ADGM. The first is creating a suitable framework for global and local companies to operate in.
“They need to come up with something that is really of international standards and not something that is locally-flavoured international standards,” he says. The bigger challenge lies in differentiating the ADGM’s activities from those of Nasdaq Dubai and the DIFC, especially if the ADGM includes an exchange, Mr Yasin adds. “DIFC has come up with and established a very acceptable framework, an alternative here for many companies to operate under international law. We’ve seen things such as bankruptcy protection laws and the real estate tribunals that you had after the 2008-09 crisis so people resort to international law.
“To attract foreign investors into Abu Dhabi you have to have a framework that is acceptable to them.” The ADGM says that its broad consultations — spanning 60 entities and regulators with a panel of 25 of the world’s top companies — will help create the ideal commercial and financial regulations.
For Mr Yasin, the ADGM could achieve success by focusing on local and regional companies. “It wants to attract the Goldman Sachs and the Morgan Stanleys. I think internationals today, with the uncertainty in the world, are not looking to expand with more offices, but to consolidate, so let’s wait and see how that will pan out.”
Unlike its wealthier sister emirate, Dubai has built its economy on trade, business and tourism, cultivating sectors such as transport and logistics, real estate, finance, retail and light manufacturing.
For Abu Dhabi, the financial centre is part of a longer-term plan to diversify away from its vast hydrocarbon wealth. As Ahmed Ali Al Sayegh, the ADGM chairman, says, the plan “is born out of ambition rather than necessity”.
“Abu Dhabi doesn’t need to change. They would like to change, but they don’t have the same impetus and urgency as Dubai,” says Mr Mostaque. “Dubai has the urgency because if these things are not successful they don’t have the fallback.” The plan will still be beneficial to Abu Dhabi’s economy, he says, though it is unlikely it will ever get to the size of Dubai, “just like Dubai will not be the size of London or Singapore for the foreseeable future”.
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