Despite the trying economic times, analysts say fundamentals in the Middle East are sound and businesses are going back to basics. Managing director for business development at the Dubai International Finance Centre (DIFC) Abdulla Al Awar remains haltingly optimistic about the outlook for the centre and the region. He denies there is a property bubble in the Emirate, he says the DIFC grew in 2008. He points to niche financial segments - such as Islamic finance and family offices - as the way forward for Dubai and the Gulf Cooperation Council countries. Here are some of his thoughts.
On the current sentiment in Dubai...
There is this notion of concern that is a result of what is happening globally. The talk is, "Will Dubai be next?" but, in my opinion, we will not be as badly hit as other major financial centres. A good degree of the businesses are undertaking or offering Shar'iah-compliant products so the Islamic finance market is a bit bigger and this makes [Dubai] less prone to what's happening globally.
On the impact of Dubai's property bubble...
I don't think there was a [property] bubble. There is a necessary slowdown or correction in [property] prices. The timing of this correction was perfect because it probably prevented Dubai going through a bubble. In addition, the low percentage of subprime mortgages in the region, make the Middle East much more protected.
Government decisions in the region seem to be more preventive in nature. For example, the government's backing of a merger between Amlak and Tamweel, pushed capital markets up by as much as 10%. The announcement renewed investors confidence and showed the fundamental value is still here. These are all signs that we will not go the same direction as Europe and the US.
On Dubai's banks...
We certainly haven't seen any significant underlying problems with Dubai's banks as yet and I suspect that we won't see anything given the government's recent preventive action. What's happened in Kuwait is natural as the region is not immune from the global economic crisis and the majority of their investments are abroad. This is not the case with the UAE [United Arab Emirates], Saudi Arabia, Bahrain or Qatar.
While we have not experienced any fallout to date with banks in Dubai, I suspect we will see a merger trend take place, as banks take steps to strengthen their capabilities by merging with other banks in the GCC to form stronger institutions. We have already seen two national banks merging into one, huge banking system - Emirates International Bank and the National Bank of Dubai - and we might see more. Ironically speaking, this merger happened before the crisis but it lays the groundwork for future cases.
On the DIFC's performance and future growth...
We can't complain. Given the global economic crisis, we - not only us but also the region - have not been affected that much by what has happened. The fundamental values are still there, clients' interests are still there and in the last quarter [fourth quarter 2008] we have seen growth in the number of companies registered in the DIFC month-by-month.
At the moment, what is most critical to us is that we didn't see a drop in business. Overall growth in 2008 compared to 2007, in terms of companies registered, is about 52%. This is still good. We hope, and anticipate, a double-digit growth rate in 2009 and we plan to keep the momentum up.
What we need to be wary of though is not creating enough awareness. Now is a time when we should focus on creating awareness for niche segments and markets - for example Islamic finance, family businesses, family offices and trust services. We've seen interest in these trends increasing in the latter part of 2008 and I certainly think it will continue.
On the role of Islamic finance in the Gulf...
Islamic finance is a crucial segment, not only for the Muslim population but also for non-Muslims. Practically speaking, Islamic finance products are, in my point of view, the safe way to do business.
You see in the press that most of the international institutions have discontinued providing services that seem to be high risk - investment banking and so forth - and we've seen those global institutions now undertaking more traditional methods and products. The underlying principles in Islamic finance, the prohibition of usery activities and transactions were the root cause of the global crisis. The fact that its very difficult, in fact impossible, to have subprime mortgages through Shar'iah-compliant institutions makes Islamic finance an appealing segment at this time.
An outlook for the Gulf...
In 2009 and 2010 we will see a rise in new segments. Islamic finance, family businesses, family offices and trust services will come into play and be more in demand. We've seen these trends beginning to increase in the latter part of 2008 and I certainly think it will continue.
What there is now is an emergence of the concepts of having corporate governance, transparency and best practices embedded in family offices and the management of assets and the establishment of trusts. The trust business is key right now; we've seen the segment increasing vastly at the DIFC and in the GCC. 2009 will be a good year for trust service providers as well as asset managers and family offices.
