Dubai utopia still on hold

One year on, Bob McMillen of MAC Capital gives his views on how Dubai has coped with the crisis, and how it is emerging again.

In December last year, Bob McMillen, who had migrated to Dubai from Thailand in 2006 where he headed Seamico Securities, commented on the immediate aftermath of an economic crisis which hit Dubai hard, and speculated about where Dubai was heading.

One year later we caught up with him during a visit to Hong Kong to ask what happened next.

What has happened to your firm since we last spoke?
The investment bank, MAC Capital, continues to provide investment banking services, the majority of our assignments being cross-border, and perhaps, in the future, restructuring advice. We advised on the first listing of a Chinese company on Nasdaq Dubai and in the Middle East, and advised on the first NYSE listed company to list on Nasdaq Dubai.

But our local stock brokerage business MAC Sharaf Securities was just not viable in this environment and we have suspended it for the moment. We understand at least 30 more brokers are in the process of doing the same.

What has caused this decimation of Dubai’s brokerage industry?
The decline in the daily average market volumes over the past four years has been horrendous. Daily average market volumes are down by over 90% since we decided to come to Dubai in 2006.

Average Daily Volumes (AED millions)





Increase /





















2010 (first 9 months)





So, the turnaround in the market did not happen swiftly. Were your comments last year too optimistic?
Dubai has been guilty of inertia. In reading my article almost a year on, I would first say that most of the key points are still accurate, namely that that Dubai’s infrastructure is world class; property is relatively cheap (and perhaps getting cheaper); income tax rates are zero; most international banks have their regional head quarters in Dubai; costs are falling rapidly to the extent that Dubai could be considered cost competitive; and Dubai hasn’t moved. It is still in the centre of a 2.1 billion population base and oil is still pouring out of the sand in Abu Dhabi, Kuwait and Saudi Arabia, and gas in Qatar.

Dubai is still a desirable regional hub. Bahrain is simply too small. Qatar is wealthier than the U.A.E. on a per capita basis but has a long way to go. Saudi Arabia and Kuwait are less western friendly and Oman is, well, very relaxed and peaceful.

The Greater Middle East region is doing well. Iraq is showing promise, with many new oil contracts announced, a somewhat greater degree of stability and people are talking more about investing there. India is booming and funds are flowing from there into the U.A.E. Iran is also contributing to the cash flow of Dubai in many different ways. Turkey and Egypt are both booming. Syria has opened a stock market and Lebanon is continuing to party.

Can you give examples of the ‘inertia’ you mentioned?
For example, residents' visas. Nothing has happened here as far as I am aware. If anything, it has become a little more difficult to stay in the U.A.E. If you lose your job, you usually have to leave within six weeks.

Very little has happened with investor friendly laws. I was hoping that bankruptcy laws would be clarified and put in place, that the antiquated listing/IPO laws would be clarified and rectified, and that the three “smallish” stock markets would be merged so that they may rival Saudi Arabia as the largest in the region. All these issues remain unresolved.

Disclosure is an issue throughout the region. It's not easy for anyone to admit their problems, yet to recognise the problem is the only way to fix it.

Did businessmen fall in love with the Dubai propaganda of the mid-noughties?
We were all seduced by the concept: The only truly international financial centre in the middle of a region of over two billion people, only eight hours from both Hong Kong and London; a multi-cultural city, surrounded by a multitude of oil rich nations and less than two hours from India; based in a country with the second highest per capita income in the world and providing a base for access to the Arab world. All this was encapsulated in a 110-acre financial centre in a city with one of the busiest airports in the world.

To add to the seduction, we were to be given a brand new stock exchange, managed and partially owned by Nasdaq. This exchange would permit companies from anywhere in the world to list their shares if they could achieve an initial market capitalisation of a modest $50 million or more and meet the international standards set by the regulators.

It is also possible to own 100% of your own investment bank, pay no local income taxes for the next 50 years, obtain a seat on the new stock exchange and, even if you bought an apartment, have guaranteed residence. Utopia right? Well not quite.

Why did it fail to live up to expectations?
One suspects that the gap between aspirations and reality is largely due to differing views on the initial goals of the DIFC. To the idealistic, it was a new financial frontier, a western-style financial paradise. To the decision-makers in Dubai, it was a property deal, just another clever way to encourage investment into another economic free zone (to add to a list which includes Health-care City and Media City).

Both sets of objective may still be achieved but it will take significant co-operation from the DIFC, the other stake holders and the central government regulators based in Abu Dhabi.

The problem is that Dubai’s destiny is not all under its control. The federal government has influence over what happens in Dubai, from funds being provided in times of need (a reported $20 billion since the crisis started), to control of central bank policy and on influencing immigration policies.

Four years after leaving Thailand, has Dubai delivered on your expectations?
To illustrate, I recently attended a meeting of DIFC-based chairmen and CEOs earlier this month to hear Abdulla Al Awar, the recently appointed CEO of the DIFC, deliver his vision for the future: the “DIFC 2010 and Beyond”.

Whilst the key message of the evening was that all the DIFC’s stakeholders should work together to recover from the present economic ills, he also explained that, in November 2010, he and his team would advise what they could do about reducing the rent!

Being cost conscious myself, I decided to provide Abdulla with a little survey of my own, free of charge, on a scale of 10 points (set out below) which were the principal reasons my partners and I decided Dubai was for us in 2006. In conclusion, in our view, the DIFC is not meeting its potential.


Our reasons for coming to the DIFC (and the actual status today)

My Current Grade


Legal system (well defined laws of international standard and well regulated)



Taxes (there are no taxes here and the U.A.E. has many international tax treaties!)



Infrastructure (excellent … they even gave us a sky train!)



Costs (a big fail … still no real respite here yet on rentals. To be fair, there are some reductions in other costs such as costs of incorporation, licencing, fees and registering funds)




Access to Local and International Investment Capital (very disappointing compared to the expectations of many)



As a Regional Stock Market (laws are in place but very few companies are interested in listing on this market due to the lack of liquidity and access to cash)




Foreign ownership (100 per cent foreign ownership is possible)



Global Financial Centre (not really a recognised centre yet. Without a fully functioning stock market to provide cash, the DIFC will remain a Regional HQ and booking centre at best).




Regional Centre (most of the World’s major financial institutions have a regional HQ in the DIFC)



Financial Centre (cannot be deemed a financial centre without a functioning stock market and true access to international, regional and local investment funds … but it has attracted all the big players.)


Dubai is depicted as a wilderness of unoccupied office buildings that will take years to fill, and preposterous islands with luxury houses for football players. If property helped get Dubai get into this mess, can it help get it out? If not, what will? Abu Dhabi?
The Dubai property market (and even that in Abu Dhabi) will not be the solution. Property markets where the “bubble bursts” do not recover quickly. It took Thailand six to eight years. In all, 9,000 residential units are expected to come onto the market in Dubai in 2011.

Dubai does have some shining lights, such as its ports; airports; tourism; Abu Dhabi has already coughed up $20 billion for Dubai. It still has oil and dividends from ADNOC (Abu Dhabi Natural Oil Company) and will help ADIC and ADIA continue to invest. There is no doubt that Abu Dhabi will continue to try and spend its way out of trouble, nuclear power plants, railway projects, aerospace and green cities and a little bit of money for Dubai, but will it be enough?

The listing of Emirates Airlines, Dubai Electricity and Water Authority and other very sound government companies on a recognised exchange (perhaps Nasdaq Dubai) may be just the thing to restart the flagging equity markets. One would think that only 25% of the equity of each would need to be sold during the IPO and I strongly believe this will go a long way to helping bring back confidence.

So are you putting more of your own money into the Middle East?
Just to show that we and our partners still put our money where our mouth is, Quam Limited, our Hong Kong Partner, created the Quam Middle East Fund at the end of September 2010 and we, together with Quam and its close clients, are now investing in UAE listed equities, cautiously!

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