DIFC will benefit Arab economies, not only UAE

Speaking at a special session on Trade finance: The role of capital, at the ongoing World Economic Forum in Jordan, Nasser Nabulsi, DIFC Chief Executive Officer, said: "At DIFC, it is our mission to deliver what the region has been waiting a long time for. In particular, regional entities - from the biggest to even the small and medium businesses - will be able to broaden their access to the most advanced financial instruments for their capital requirements.

"With DIFC, and the stock exchange that will be an integral part of it, regional companies will be able to receive an international exposure for themselves, much higher liquidity than is available now in these markets and more efficient pricing for their offers," he commented.

"The creation of the DIFC by His Highness General Sheikh Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and UAE Defense Minister, in 2002 is one of a wider pattern of initiatives that Dubai has done to open up new avenues for economic growth.

According to him, lessons can be learnt by other Middle East states from Dubai's moves to diversify its economic base, and gradually lessen dependence on oil-generated income.
"Dubai is an exceptional case of a well diversified economy with oil representing only 9 per cent of the GDP, while other major revenue streams come from trade, tourism and finance."

In his analysis of the current situation, Nabulsi was clear as to what Middle East states should be doing. "A major impediment in the past to regional economic stimulus resides in the region's financial systems, which do not channel capital to its most productive and efficient uses," he said.

"Another key concern is that most Arab countries were not able to sufficiently develop their legal structures and legal codes. As a consequence, they fail to attract sufficient levels of foreign direct investment - in 2002, their share - at $2.3 billion - of the global FDI flow was less than 1 per cent.

"Then there is the fact that intra Arab trade - between 4 to 8 per cent - is still a minute fraction of the overall potential that exists. Compare this with other economic blocs - intra EU trade is at 60 per cent, intra NAFTA for the North American countries is at 55 per cent and the South East Asian trade is at 23 per cent. As we can see from these comparisons, the Middle East states have a long way to go."

The need for imminent change to the status quo is quite apparent - "With unemployment in the region averaging 15 per cent and given that 50 per cent of the population of these countries are below the age of 20 years, the Middle East needs annual growth rates of 5 to 6 per cent in its private sector in order for growth to be associated with strong job creation," Nabulsi added.

"Arab countries can no longer afford not to take a proactive approach towards the forces driving the dramatic changes witnessed throughout the global economy."

"Dubai", he said, "has made the quantitative as well as qualitative transition in getting the private sector to play a bigger role in the development of the economy. Dubai's private sector contribution to the GDP has increased from 66.3 per cent in 1994 to almost 90 per cent in 2003."

"In this context, an initiative such as the DIFC can play a stellar role in meeting the funding requirements of the companies, local and regional alike," Nabulsi reiterated. "In a region which was largely dependent on one form of financing - short term credit from domestic banks - an international finance center will provide access to a previously unavailable range of financial services.

"Corporate bonds will get a big impetus from the DIFC. In the past, getting a competitive quote for a regional bond offer took days as compared with seconds in the European financial markets. Also, the total value of corporate bonds is $3 billion and only 0.5 per cent of the total trading on the regional stock exchanges. This is something we aim to change completely through the development of the DIFC.

"We will actively encourage the creation of venture capital and private equity funds, apart from bolstering immeasurably the equity issuance and IPO capabilities of regional companies. I can assure any regional institution seeking a wider mandate than was available in the Middle East, with the creation of the DIFC, the global financial markets have come right to their door steps."