All games have winners and losers — and historic events usually involve unforeseen, unintended benefits as well as consequences. Brexit is no exception; one may deplore, on principle, the outcome of the June 23 vote but this crisis in international relations does offer multifaceted opportunities for those who stand to gain from what the UK will predictably lose.
Dubai is one such player on the global stage that should, right now, identify those opportunities and take decisive steps to seize them. In turn, the rest of the world should observe carefully how Dubai fares in this post-Brexit competition, as it could have significant ramifications for both world markets and for regional stability in the Middle East. In the short term, Brexit may be costly to Dubai since Brits comprise a fair percentage of its tourism industry. As the pound sterling plummets, they’ll no doubt find less expensive destinations or simply stay home. Yet that fall-off seems a reasonable price to pay if Dubai can attract businesses, especially financial institutions, in search of freer, greener pastures.
No one port-of-call will overnight replace London as a comparably dominant international capital market; instead, we’re looking at more of a dismemberment as the City’s pieces get flung in the general directions of Dublin, Liechtenstein, Frankfurt, Paris — not to mention Hong Kong and Singapore that already enjoy enough critical mass to readily attract financial institutions in search of reliable harbours.
Dubai has every reason to bid at this auction. It is a regional business hub and financial centre serving a respectably large area from Turkey and North and Central Africa to the old Soviet republics. With its balance of liberal amenities and traditional Islamic and Arab values, the UAE, of which Dubai is a part of, is stable at multiple levels.
Government services match or surpass what the EU bureaucracies provide. With minor exceptions, there are no corporate or income taxes. More importantly, the UAE has become a centre for talent attraction mainly for the Arab world, but even globally.
This is critical for financial institutions. The UAE offers quality of life that is unmatched in the region. Above all, the UAE is a safe haven in a turmoil region.
An important point that cannot be overlooked when considering Dubai is that it, and in fact the UAE in general, has consistent vision and direction of policy that it has been pursuing for the past 40 years. Thanks to its leadership, that vision is unlikely to change.
One should not forget that Brexit was a change of direction in politics and a shift from a vision that companies, institutions and individuals have invested in for decades to be suddenly told that a complete 180-degree turn is going to happen now.
In many ways, Dubai is thus set up to accommodate Brexit fugitives. The world’s biggest names in finance already have a presence here; they can add to their existing facilities rather than build from scratch. The Dubai International Financial Centre (DIFC) has been a success since it’s founding in 2002, supported by effective regulation based on the UK’s own Financial Services Authority. DIFC’s sophisticated court system is likewise modelled on the English system.
As suggested, Hong Kong and Singapore are Dubai’s most formidable competitors. Less so Liechtenstein and Frankfurt, which are too small, and Paris, which is too bureaucratic. In any event, for all its aforesaid attractions, Dubai also has deficiencies that need to be remediated if the emirate is to seize full advantage of the opportunities presented by Brexit.
These are long-standing issues, but the good news is that Brexit is an unanticipated incentive to speed up fundamental improvements. As Dubai’s presumably realises, the post-Brexit race is to the swift.
Three challenges loom large but are manageable.
* First, Dubai has to modernise its commercial laws. True, the DIFC’s legal framework is world-class, but the governing regimen in Dubai and the UAE dates back in part even to the Ottoman Empire. The UAE still lacks a bankruptcy law, an arbitration law, a financial markets law, and even a modern companies law.
* Second, businesses face operational stumbling blocks in Dubai that need to be cleared away. For example, it is difficult, sometimes impossible, to get information even on public companies operating in the UAE without a court order. Absent transparency and an efficient flow of information, major lenders obviously cannot do enough lending.
* Third, it is time for Dubai to do away with its notorious practice of imprisoning defaulters for issuing bounced cheques or reneging on debts. Similarly, Dubai must no longer stop business travellers at airports without prior notice because of travel ban issued for defaults on civil obligations, or on telephone and utility bills.
The question remains, can Dubai effect these changes fast enough to compete, especially with Hong Kong and Singapore? Certainly it can, as a litany of past transformations since the accession of His Highness Shaikh Mohammed Bin Rashid Al Maktoum, UAE Vice-President and Prime Minister and Ruler of Dubai, tends to suggest.
Look at Dubai’s astonishing progress in terms of the “hard” infrastructure, the lightning progress it has made in transportation and real estate and construction. Now it must shift its focus more toward improvements in the “soft” infrastructure that are needed for maximum participation in a global economy.
It is my sense of those in power that, confronted with such exigent opportunity, they will act robustly, well before the British invoke Article 50. Dubai’s rulers presumably realise that these “soft” changes must eventually be made anyway, regardless of how much actual new business they attract as a result of Brexit.
In other words, Brexit provides a decisive push to move forward in ways Dubai has wanted all along.
Dubai’s further ascension in a post-Brexit marketplace will mean an even more diversified global marketplace — which, in turn, has only positive implications for global security. After all, the UAE is more than an oasis of stability; it’s been a role model, a decisive encouragement to the vast majority of Arabs, especially younger Arabs, throughout the region.
Dubai’s message to them is all about pan-Arab potentiality far beyond tribalism and terrorism. At this point in time, an even stronger Dubai won’t end the war in Syria. But it will help prevent future wars.
The writer is Chairman of Baker & McKenzie Habib Al Mulla, the law firm.