Doing the Math for Tomorrow
Dubai is an exemplar of leading-edge solutions, and the Emirate is jostling to become a global hub of financial services, not least through the strategic implementation of fintech.
A Broader Outlook
The UAE banking sector overall is forecast to benefit this year from the knock-on effects of the upcoming Expo 2020, reflected most in construction financing. Fueled in part by that sector, BMI forecasts GDP growth for the year at 2.8%, close to the 2017 print of 2.9%. Banks will also reap the dividends of monetary tightening. The central bank’s policies stand to spell higher rates among banks, themselves indexed to the central bank policy rate. UAE loan growth is foreseen at 5% in 2018, up from 2% in 2017. Indeed, the figure for March 2018 was up 2.1% YoY. Consumer confidence, too, is set to prompt an uptick in lending. Consumer credit had actually declined to AED324.8 billion in 3Q2017 from AED349.1 billion a quarter before. Meanwhile, sector data indicates a rise in loans to the private sector in the UAE to AED746.215 billion in 4Q2017 quarter from AED732.9 billion in the third quarter.
At the heart of the Emirate’s financial universe is the Dubai International Financial Centre (DIFC), a free-zone with a 10-year strategy that is being rolled out in sync with Dubai Plan 2021. The objective is to deepen core synergies with resident clients, providing cutting-edge infrastructure and skilled staff, and accelerating momentum along the South-South trade corridor. Today, DIFC ranks among the world’s top-10 financial hub, and first in the Middle East, Africa and South Asia (MEASA) region. Close to 200 wealth and asset management enterprises reside in DIFC, and the free zone aims to boost the number of active domiciled financial firms to 1,000 by 2024, up from 362 back in 2014.
In April, DIFC revealed initiatives to boost its competitive global footprint, while attracting FDI essential for Dubai’s sustainable and diversified economy, notably from Southeast Asia. Dubai seeks to carve itself a key role in China’s gigantic One Belt, One Road initiative. Last year, Chinese enterprises present in DIFC free zone boasted assets of USD33.4 billion. China’s big-four banks by total assets, namely Bank of China, Agricultural Bank of China, ICBC, and China Construction Bank Corporation are residents.
DIFC closed 2017 with a record 315 new companies in residence totaling 1,853, predominantly Middle Eastern in origin, followed by European, Asian, and US firms. Its financial services sector representation rose to 473 companies, and the non-financial sector grew 17% to 1,139 companies. DIFC’s financial hub printed an annual profit rise of 25% YoY in 2017 to USD99 million on revenues of USD221 million (+1% YoY). Arif Amiri, the CEO of DIFC Authority, announced the goal of tripling in size by 2024 through the arrival of 1,000 financial enterprises. Investment arm DIFC Investments and its subsidiaries generated USD491 million of net profit for 2017, trouncing the 2016 print of USD93 million.
FinTech: The Buzz from the Hive
The fintech universe has revolutionized the way money is transacted, boosting participation and enabling financial operations unimaginable a scant few years ago. Raja Al Mazrouei is the Acting Executive Vice President of the FinTech Hive at DIFC, perfectly located for commercial synergy. Today, FinTech Hive has close to 45 participant organizations, “including our strategic partners Dubai Islamic Economy Development Centre (DIEDC) and International Finance Corporation and UAE Exchange,” he told TBY. The hub fosters fintech development through initiatives such as the, “Innovation Testing License (ITL)—another first for the region—which allows qualifying fintech firms to develop and test innovative concepts from DIFC, without being subject to the regulatory requirements that normally apply to financial firms.” Added to this is a USD100-million fintech fund to help establish, grow, and upscale start-up and growth-stage fintech firms looking to access the MEASA markets. The Hive’s accelerator program has picked 11 start-ups to develop and test, which have access to “legal clinics and (the oversight of) our independent regulator, the Dubai Financial Services Authority (DFSA).”
Regarding financial participation, Paolo Gagliardi, the CEO of Trriple, explained how its mobile wallet “allows our customers, mostly unbanked people, to perform a variety of payments.” Today in Dubai, “40% of people are so-called blue-collar workers, with low incomes and predominantly no bank account.” In fact, “approximately 75% of the payments in the UAE are still happening in cash.” Add millennials to the mix, and over 80% of the population is ready for inclusion under the right circumstances through fintech and mobile solutions.
The Capital Markets
As elsewhere in the financial universe, Dubai continues to shore up the regulatory environment for sustainability and standardization of business practice. Two recent and related items of legislation, namely the Trust Law and Foundations Law, are aimed at enhancing DIFC’s private wealth management and succession planning capabilities. Elsewhere, the proposed Mortgage Law aims to provide the crucial real estate sector with yet more depth by welcoming the arrival of specialized funds capable of offering financing beyond the scope of regular banks.
At the bourse, 2017 saw a decline for the year as the Dubai Financial Market General Index (DFMGI) shed 4.6% to 3,370 points from 3,531 points a year earlier. By breakdown, four out of the nine sectors represented closed down, with the decline led by the heavy 52.9% fall of the consumer staples and discretionary sector, followed by telecommunications (-17.7%) and real estate and construction (-6.2%). The services sector appreciated 26.3%, as did the banking (3.1%) and insurance (1.9%)sectors. Market capitalization climbed 16.7% YoY to AED394 billion, while the value of shares traded was AED115.1 billion, down 13.4% from AED133 billion in 2016. As of April 24, DFMGI’s 52-week range was 3,029.18-3,684.19, while YtD and one-year returns were -9.96% and -7.01%, respectively.
Market observers foresee the potential for IPOs to generate USD9 billion this year and from a spectrum of sectors. In 2017, the UAE saw companies generate roughly USD2.1 billion going public. This year, private school operator Dubai-based Gems Education is set to see an IPO with a minimum valuation of USD4 billion. Additionally, the Middle East’s premier aluminum producer Emirates Global Aluminum seems poised for dual listing in Dubai and the UAE capital to the tune of around USD3 billion.
Just as the possibilities of participation are being expanded elsewhere in the financial universe, so too are citizens being educated on the merits of adequate coverage. At DIFC, resident insurers feature both start-ups and household names, adding up to a formidable insurance and reinsurance hub of almost 100 insurance-related firms. Endorsed by the Insurance Authority (IA) in April, the World Takaful Conference (WTC), the world’s largest such forum to be established, explored the potential for Islamic insurance, takaful, within the scope of “Differentiation, Innovation & Profitable Growth.” Dr. Abdul Zahra A. Ali, the CEO of National General Insurance Company (NGI), spoke of an extremely fragmented market with 62 insurance companies and 165 brokers. Mergers may be on the horizon. Looking ahead, the GCC insurance sector is estimated at USD62.1 billion by 2020 on a CAGR of 18.7% between 2014 and 2020. Awareness, for one, will convert the 89% of UAE residents today lacking home contents insurance.