Rene Descartes once said: “Once in a lifetime we must demolish everything completely and start again from the foundation”.
As we get the lift-off in interest rates, and the focus starts to shift to cashflow-oriented investments, Dubai has certainly adopted that maxim with sweeping changes to the pension law, as well as with its listings of blue-chip companies like DEWA.
Allowing employees to participate in the pension scheme, and empowering pension fund managers (as well as individual investors) with the choice to invest conservatively in cashflow-oriented investments, the city has put capital market growth at the center of its next growth trajectory and capital formation. Recognizing that the past experience in equity markets has been somewhat of a mixed bag, Dubai regulators have ripped out the existing playbook and replaced it with one that puts the small investor’s interest front and center, by securing end-of-service benefits and allowing for choice in how these funds are invested.
To be sure, the infrastructure of capital markets will evolve steadily, as more reforms invite new players into the market place. Both in terms of companies seeking to raise funds as well as investors allocating their hard earned savings into such offerings. In the process, middlemen such as market-makers, principals such as family offices, institutions and fund managers all will have a role to play as the market breadth and depth increases.
Each of these roles will have to be fleshed out, as the focus shifts from debt funding and private ‘chit fun’ collection schemes to a more formalized approach that codifies the rights of each of the parties involved. The shift in the economic model is happening throughout the region as state-sponsored companies throughout the GCC look to raise capital through the equity markets.
A magnet for talent, capital
It is also a recognition of the role of private capital but, more importantly. of the twin goals of a) regulated framework and b) offering rights and protection to the employee/small investor. These reforms - along with the broad swathe of immigration/judicial and economic incentives that have already been put into place - makes Dubai a frontrunner in the high stakes game of attracting talent and capital.
The evolution of the marketplace will likely closely follow the trajectory of the maturation of Western capital markets (albeit with greater velocity). In a sense, the counter argument has always been why these reforms were not introduced earlier. And while some of the reservations are valid, it ignores the culture of growth paradigm that Locke and later Mokyr invoked; which is to state that ideas come primarily through experience.
It has been the experience of the city, both specifically in the capital markets, as well as in the broader perspective of liberalization that has led to the current decisive stage of regulations. The impulse has always been the same, which has been at the heart of the city - expression of creativity and freedom of choice through private sector enterprise with a safety net for all participants.
Ever more globailsed
At a time when the global mantra has been one of nationalism, Dubai has continued to move in the opposite direction of inclusivity and globalization, despite the headwinds of geopolitical crises that have created hurdles.
By insisting on the start of a new philosophy, Descartes had thrown down the gauntlet, and it was inevitable that it would invite its share of sceptics. Voltaire famously remarked with his characteristic wit that Descartes was “born to discover the errors of antiquity and at the same time to substitute his own”.
Despite this kind of criticism, Descartes’ influence in philosophy remains unquestionable nearly four centuries later. So it is the case with Dubai with its relentless quest to not only reinvent itself, but to do so through an endless series of trial-and-error mechanisms that aspire towards an ever more dynamic model of creativity and capital formation.
With inflation rearing its ugly head throughout the world, the categorical imperative remains to invest so as to protect and grow real wealth. In this context, capital markets will play a definitive role in Dubai’s next growth story. Perhaps, even more likely, make it more indispensable in the game that we call the economic game of thrones.
