An important aspect of regulation is to foster a culture of growth.
This in turn, is fine-tuned towards specific goals and specific industries, where through a series of incentives as well as oversight, the objectives are achieved. However, an important aspect of this mechanism is the feedback loop — the ability of regulators to listen to its constituents.
In developed economies, this is mostly done through the capital markets where the investor base is large enough. But also due to the enormous impact asset price movements have on economic growth.
These moves are then supplemented at the micro level through the appointments of specialised task forces, and interactions with private sector stakeholders to push through specific policy.
In Dubai — as is the case with most emerging economies — the latter has always been preferred. However, as we move towards a more complex economy, it bears worth considering what the capital markets are signalling as part of the feedback mechanism.
Technology, which has become an integral part of the growth paradigm, requires a commitment to open borders and a process of “rapid diffusion”. This implies that where path-breaking innovations are taking place do not matter, as long as the speed of diffusion is fast enough to be absorbed in other societies.
The speed at which this is done is a function of the commitment a country has to progress. This in turn boils down into a specific set of policies that revolve around immigration, information and incentives.
Dubai has already made progress with the announcement of 10-year visas in specific fields; it appears likely that more of the same is expected in the months ahead. This aspect of policymaking is critical as we know very little about the origins of creativity, other than the fact that in order to nurture it, the right ingredients include a populace with the right to free mobility of ideas and capital.
It is therefore a desirable objective to expand the eligibility criteria for 10-year visas to include people from other disciplines, including those who have shown their commitment to the UAE by living here for long periods. Undoubtedly, there needs to be an emphasis on certain scientific fields, but the history of innovation shows that, in the business world at least, the greatest amount of creativity has been demonstrated by the least likely demographic subset in most places.
Immigration therefore is the centrepiece of the reform process and in the UAE’s” year of tolerance”, nothing can be more fitting than to reaffirm its commitment to an open society.
This also brings under scrutiny the role of asset prices and the feedback these signal. In an economy that is increasingly reliant on asset price growth, volatility is a signal that regulators constantly need to pay heed to.
To be sure, asset prices often overreact, and these tantrums can be difficult to distinguish from the more worrying movements. However, sustained asset price declines can often become systemic and discourage the process of capital formation.
To counteract this, a series of mechanisms must always be in place, not only to gauge the impact of policy moves, but also to change course if certain policy shifts are counterproductive.
In an increasingly “financialized” world, this feedback mechanism process is highly nuanced, more so, given the fact that Dubai has various regulatory zones. Even so, it is critical that various stakeholders in the asset markets have a means to voice their feedback and, more critically, policy shifts take these asset movements into consideration.
The role of the regulator is always a thankless job, with trade-offs in every policy decision ensuring that there will always be a subset of stakeholders unhappy with decisions that are implemented. Asset prices, however, aggregate sentiments, views and outlooks about the future.
Regardless of the mechanism in place, it is imperative the regulatory regime takes these asset movements into account. More importantly, that it is seen to be doing so.
Nasser Malalla Ghanem is Senior Partner at NM Associates, which has a joint venture with GCP.