UAE wants to be among the Top 5 nations for hosting fintechs. It is well on its way to reach that destination. Image Credit: Shutterstock

Business clusters represent a dynamic engine for economic development.

They are not just geographic concentrations of interconnected companies and industries, but a synergy catalyzing innovation and competitive performance.

The narrative of economic clusters is deeply interwoven with the fabric of national financial strategies, particularly evident in the UAE. The country has embraced the cluster approach to diversify beyond the traditional bedrock of oil and construction.

Approximately 20 anchor sub-sectors - ranging from the foundational pillars of oil and real estate to emergent forces in pharmaceuticals and food processing - are recognized for their robust contribution to GDP and employment. These sectors showcase a solid track record for investment and an impressive trajectory of export potential, representing the diversified engines of economic growth and acting as drivers for cluster development that fuels the UAE’s economy.

The true essence of cluster potential extends beyond raw economic metrics to embrace qualitative factors that foster competitive growth. The UAE's commitment to developing clusters is reflected in its systematic approach to identifying and nurturing the conditions that underpin successful clusters - a solid domestic and international demand, a competitive supply base, readily available inputs like capital and talent, and a supportive regulatory framework.

A use case for clusters

Clusters have proven to be successful for economic growth around the world. The Basque Clusters in Spain are an excellent example. By creating clusters in sectors like energy, aeronautics, and advanced manufacturing, the Basque region has increased its GDP by 3.3 per cent annually, raising productivity by 10 per cent and generating over 100,000 jobs.

The Singapore Biopolis Cluster is another example, which has contributed to over 14,000 jobs since 2003 and generated more than $5 billion in value-added output.

The UAE is keenly aware of the unique challenges intrinsic to the region. Recognizing the modest size of the domestic market, the UAE is already implementing an outward-looking, export-driven cluster strategy. With a clear understanding of its proximity to economies offering lower production costs, there is a deliberate shift towards higher value-added, knowledge-intensive activities. Simultaneously, the region is seen as ripe with opportunities.

Its strategic geographic position as a crossroads of major trade routes, a diverse economic base, and a proactive approach to human capital development are all leveraged for successful cluster formation.

UAE as finance and fintech hub

Significant strides have been made towards establishing the country as a leading finance and fintech hub. Its financial strategy is closely aligned with economic clusters, fostering innovation and enhancing competitive performance.

Home to over 650 fintech companies, the UAE aims to rank among the Top 5 global fintech hubs.

The strategy primarily focuses on understanding and meeting market demand, enhancing the competitiveness of related and supporting industries, ensuring the availability of essential inputs like capital and talent, and creating a regulatory environment conducive to the growth of cluster components.

The UAE's strategy in cluster development is comprehensive, encompassing established and emerging sectors. This balances the need for immediate economic gains with the pursuit of sustainable, long-term growth.

The Abu Dhabi Global Market (ADGM) and DIFC are central to this strategy. These financial free zones are at the forefront of fostering the nation's burgeoning fintech sector. Initiatives like the DIFC Fintech Hive, the $100 million DIFC Fintech Fund, the ADGM RegLab fintech sandbox, and the Plug and Play ADGM accelerator program exemplify their significant contributions.

The UAE has also established over 40 Special Economic Zones (SEZs). These zones are not just specialized ecosystems; they equip businesses with essential infrastructure, comprehensive regulatory frameworks, and robust support services, creating an ideal environment for business growth and innovation.

The strategic cultivation of clusters in the UAE and across the GCC heralds a new era of economic development. This promises to be defined by innovation, diversification, and sustainable growth.

As the region continues to build on its strategic initiatives, the cluster approach stands out as a proven strategy for economic transformation. For the UAE and the broader GCC, this is more than an economic imperative; it is a path that will secure its place as a leading player in tomorrow's global economy.