Sheikh Mohammed's new financial vision of the future

There was a good deal of tub thumping and an impressive display of business support after the announcement of the new Dubai International Financial Centre this week by Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum. His vision is to create a regional financial services hub serving a hinterland of 1.5 billion people, stretching from the Caspian Sea to Africa and from Morocco to Bangladesh.

How practical is this idea? What does it really mean? These are the questions that Sheikh Mohammed answered in outline only, and which demand more critical analysis.

For a financial services centre to thrive - like London, Hong Kong or Singapore - the first requirement is a credible regulatory structure. It seems that the DIFC will create its own regulatory authority, doubtless modeled on successful regional examples such as Bahrain. For the UAE Central Bank has declared that the DIFC is a project for Dubai alone. This is not an impossible mandate by any means, but it will require careful implementation, and the DIFC's high-powered new advisory board will be needed for active duty.

From the point of view of creating the infrastructure, the DIFC is envisaged as a dense block of skyscrapers behind the existing Emirates Towers on Sheikh Zayed Road. Nobody who has watched the speedy creation of the Dubai Internet City and the Dubai Media City can suggest that Dubai is not up to this job. But even in Dubai it will take two to three years before such a complex can be physically created.

It is to the DIC and the DMC that we should turn to see what the DIFC will be in practice. These IT and media free zones have done a commendable task in promoting the emirate as a hub for the New Economy, and have attracted some big new names and moved a lot of old names to a new location.

Expect the DIFC to offer the same attractions for international finance. A world class office complex, with current Dubai based financial firms - perhaps HSBC, Credit Suisse, ABN Amro, Citibank, the list is already quite impressive - mingling with new recruits drawn from the upper echelons of the financial world. It has not yet been revealed whether the DIFC will offer 100% foreign ownership and its own employment rules, but if it follows the example of the DIC and DMC then surely that would be appropriate.

This factor alone, if it becomes apparent, would be a magnet to international firms in the region that currently struggle to meet local employment requirements and abhor ownership structures with anything less than 100% control. However, this is a controversial area and it will be interesting to see how the Dubai Government can balance the employment requirements of its citizens against the demands of international finance.

What sort of services will be based in the DIFC? Again the Dubai Government has recognized that without a long tradition of trading securities, it may be best placed to attract asset managers and Islamic banks. Back office operations from all sorts of financial services companies also need a home, and why not Dubai? And re-insurance is a business with some history in this region.

But this is a project that will certainly succeed, and international finance loves certainty. The record of the Dubai Government in delivering new free zone initiatives that more than satisfy the most demanding customers is exemplary, and a hard act for others to copy. Sheikh Mohammed is absolutely clear in his vision and deserves applause for his sheer gall at a time when the global financial community is running scared in the face of a mounting recession.