Doubling the DIFC

Kevin-BirkettThe head of financial services at the Dubai International Financial Centre Authority tells George Mitton about plans to attract twice as many companies and employees.

“We’re seeing a new generation coming into local family firms and local government institutions,” says Kevin Birkett, head of financial services at the Dubai International Financial Centre (DIFC) Authority. “They’re putting the industry under a greater degree of scrutiny. Like most investors around the world, they want to look you in the eye when they talk to you.”

Being credible requires a local presence, says Birkett, and this is where the DIFC, a free zone in the United Arab Emirates that houses about 300 financial companies, comes in. In an age when clients may want to set up face-to-face meetings at short notice, a system in which salesmen fly to the Gulf for a week, fit in as many meetings as possible, and fly home, just doesn’t cut it any more.

Birkett should know. “I used to be one of those suitcase bankers,” he laughs.

The DIFC has a new chief executive and chairman, who plan to double its business in five years – doubling the number of firms and the number of people employed there, says Birkett. There are about 900 businesses in the DIFC, about 300 of which are financial companies, with about 65 ancillary services such as lawyers. The rest are services like coffee shops and hairdressers.

One critic has said the preponderance of restaurants means the centre could be called the Dubai International Food Court. Birkett laughs this off. There are about 13,000 people employed in the centre, “somebody’s got to feed them”, he says.

Perhaps it’s a good time to promote the centre. Dubai’s GDP growth was its highest since 2007 in the first half of this year and property prices in Dubai have exceeded their 2009 peak. It seems the emirate is recovering from the downturn that saw major company Dubai World alarm investors by restructuring its debt.

However, the Dubai Financial Markets Index, the index of the stock exchange in the DIFC, is still 75% below the peak it reached in 2008. Companies have declined to list on the exchange since the crisis, leaving equity investors lacking new options to invest in.

One idea that could increase trading activity is to merge the exchange with others in the region. Another is for the government to list some state-owned businesses, such as the Emirates airline. Though such decisions are beyond the remit of the DIFC, Birkett believes “there’s a great opportunity for some government-driven initiative to encourage listings on those exchanges”.

The muted trading activity is one why reason why funds under management in the GCC remains low as a proportion of regional wealth. It also helps explain why an estimated 95% of the funds distributed by companies in the DIFC are domiciled elsewhere. Though it is possible to domicile funds in the DIFC itself, only a handful of companies have done so.

Birkett says it is on his agenda to increase the number of DIFC funds, but says the project is like “pushing on a piece of string”. He concedes it would not make sense to domicile a fund investing in a region such as Latin America in the DIFC. Growth of DIFC funds may have to wait for trading volumes and valuations in the GCC region to pick up. Then, it may make sense to establish a number of DIFC-domiciled funds to invest in the region.

Dubai will be in the spotlight in 2013 when banking conference Sibos comes to the country. The emirate’s sunny location, beaches and hotels ought to ensure a high turnout. “It’s not too difficult to get people down here once the summer’s ended,” says Birkett.

The DIFC has also been in talks with the organisers of Fund Forum about hosting the Mena Investment Management Forum next year, taking it from Doha in Qatar, though Birkett says the decision is with the organisers.

Perhaps it is a good time to promote the DIFC, because the centre has more competition than in the past. The Qataris are spending a great deal on advertising Doha as a financial centre. Meanwhile, in Abu Dhabi, the Al Maryah Island “investment zone”, previously called Al Sowwah, could be a rival centre within the UAE itself.

“There’s always rivalry, whether you’re sitting in the GCC, Europe or the US,” says Birkett. He adds that the legal jurisdiction of the DIFC, based on British common law, and the lifestyle Dubai can offer foreign expatriates are two “killer blows” that give Dubai an advantage over other financial centres.

The DIFC still seems to be a popular choice for many international firms. It is home to more than twice as many financial companies as the Qatar Financial Centre, which boasts 135 active firms. Bahrain still hosts many financial companies, though some have set up back-up offices in Dubai after political unrest broke out in 2011.

But though the regulatory framework of the DIFC is often hailed as a success, there has been confusion after the Securities and Commodities Authority (SCA), the UAE regulator, published rules on investment funds that imposed limits on fund distribution.

“It is not in the best interests of the UAE to have that lack of clarity continue,” says Birkett. “We are working hard to discuss these issues and we hope to make some progress.”

When Birkett joined the DIFC at its launch in 2004, staff wrote him a biography that mentioned three decades of experience in financial services. Now, eight years later, his experience is closer to four decades. The region has developed a great deal in that time.

“Clients want to see that you’re participating in the region rather than plundering the assets and taking them back to wherever you came from,” he says. “In these parts, there’s a feeling that the region has matured and they want to be treated with the respect that that deserves.”

©2012 funds global

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