Posts Tagged ‘abu dhabi’

When it comes to news on economic trends and policies in the UAE, government and business leaders turn to the Abu Dhabi Council for Economic Development’s Economic Review. Tahseen Consulting is honored to contribute its analysis on the economic policy role of the Abu Dhabi Investment Authority to the publication’s November issue. We have posted the full article below.

In the article, Tahseen Consulting’s Chief Executive Officer, Walid Aradi, spoke with representatives from the Abu Dhabi Council for Economic Development regarding his thoughts on the Abu Dhabi Investment Authority’s role in fiscal policy.

Abu Dhabi Council for Economic Development: Who Does the Abu Dhabi Investment Authority Serve?

Aradi: Based on the constitution of the United Arab Emirates, natural resources are the public property of the Emirate in which they are located. The Abu Dhabi Investment Authority (ADIA) receives funds from the Government of Abu Dhabi and invests these funds in the public interest of the Emirate and its citizens. The process for allocating and transferring revenues to ADIA is not rule based but is based on three sources:

  • Budget surpluses, which arise from an excess of petroleum revenues, from the Government of the Emirate of Abu Dhabi. This includes taxes on oil companies as well as profits from the Abu Dhabi National Oil Company (ADNOC)
  • Investment income from returns made by ADIA
  • ADNOC pays an undisclosed percentage of its income directly into two natural resource funds (Abu Dhabi Investment Council and the Abu Dhabi Investment Authority)

The size of the funds under the management of ADIA has been conservatively estimated at between $700 billion and $800 billion.

Abu Dhabi Council for Economic Development: How is it Managed?

 Aradi: ADIA is an independent government investment institution wholly owned by the Abu Dhabi Government. However, it carries out its investment mandate independently of the Abu Dhabi Government and other institutions that also invest funds on behalf of the government. Since 2008, ADIA has made significant progress in transparency and disclosure and has participated in the formulation of the Santiago Principles and meetings of the International Forum of Sovereign Wealth Funds. Key stakeholders in the management of ADIA include:

  • Government of Abu Dhabi: The Government of Abu Dhabi established the legal mechanism for ADIA in 1976 and remains the legal owner of ADIA and its assets.
  • Board of Directors: Provides oversight over ADIA’s management. The Board’s nine members are appointed for three-year periods which are renewable. H.H. Sheikh Khalifa bin Zayed Al Nahyan serves as the Chairman of the Board.
  • Managing Director: Is responsible for investment and operational decisions and reports to the Board of Directors. The Managing Director is also a member of the Board of Directors.
  • Investment Committee: Advises the Managing Director on investment policy and external manager selection and performance.
  • Internal Audit Department: Reports to the Managing Director and the Board of Director’s Audit Committee.
  • Audit Committee: Oversees and appoints two external auditors

Abu Dhabi Council for Economic Development: How is it important for the development and future of Abu Dhabi?

Aradi: ADIA plays a critical economic policy role in efficiently and effectively managing the financial wealth of the Government of Abu Dhabi. Since 1976, Abu Dhabi has maintained a prudent fiscal policy in which oil revenues were used to balance the Emirate’s budget and finance development. Surpluses are invested through ADIA and are drawn upon in times of deficit.

ADIA operates as an inter-generational savings fund with a diversified portfolio of international assets and a focus on generating long-term financial returns. Savings funds are typically utilized by countries to preserve some part of the revenues from a depleting resource for future generations and spending need. In countries that have a high degree of fiscal dependence on the export of nonrenewable resources, a key challenge is to transform nonrenewable resources into sustainable and stable sources of future income while also isolating the country from volatility in commodity prices. Placing commodity revenue in a sovereign wealth fund such as ADIA is a means to avoid boom and bust cycles, such as those we are potentially experiencing now, by accumulating adequate international assets.

ADIA is an important fiscal revenue source that allows Abu Dhabi to reduce its reliance on volatility in oil revenues. Its purpose is it to decouple Abu Dhabi Government finances from oil revenues and to maximize future spending power and to prepare the economy for a post-commodity era.

Tahseen Consulting’s research on labor market requirements in the UAE’s Islamic finance sector was cited again in the Gulf News’ article Islamic Finance Talent Gap to Reach 8,000 Plus.

Last year we projected that another $87 to $124 billion could potentially enter the Islamic banking system in the UAE by 2015 which will create approximately 7,800 new jobs at Islamic banks in the UAE. By 2015, the UAE’s Islamic financial services sector will likely double in size from approximately 10,000 employees currently to 20,000.

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Tahseen Consulting’s work on identifying skills shortages in the Islamic finance sector in the UAE has been frequently cited by the media and in the run up to the Global Islamic Economy Summit

Tahseen Consulting’s work on identifying skills shortages in the Islamic finance sector in the UAE has been frequently cited by the media and in the run up to the Global Islamic Economy Summit

When it comes to news on economic trends and policies in the UAE, government and business leaders turn to the Abu Dhabi Council for Economic Development’s Economic Review. Tahseen Consulting is honored to have its work on Islamic finance highlighted in the publication’s August issue. We have posted the full article below.

Recently, Tahseen Consulting’s Chief operating Officer, Wes Schwalje, spoke with representatives from the Abu Dhabi Council for Economic Development regarding his thoughts on the evolution of Islamic finance in the UAE. In a wide-ranging discussion, Schwalje laid out a broad vision of the future, the need to benchmark best practices for other financial hubs, and how human capital is essential to the UAE’s aspirations.

Abu Dhabi Council for Economic Development: What factors have contributed to the development of Islamic finance in the UAE and in Abu Dhabi in particular?

Schwalje: The global growth of Islamic finance, which has considerably outpaced conventional banking, is a primary factor behind the UAE’s desire to develop its Islamic banking sector. With the exception of Oman, which only recently ratified its regulatory framework for Islamic finance, the UAE has the lowest concentration of Islamic banking assets as a portion of total banking assets in the GCC. However, the UAE has the highest total banking assets in the GCC. This presents an opportunity for the UAE to unseat some of its competitors in the region, most notably Bahrain, as well as attract international assets to become both the primary financial and Islamic banking hub in the GCC. At the moment Dubai Islamic banks hold 50% of Sharia compliant assets in the UAE while Abu Dhabi banks hold 40%. Abu Dhabi entered the Islamic banking sector with the establishment of Abu Dhabi Islamic bank 22 years after the establishment the UAE’s first Islamic bank the Dubai Islamic Bank. Abu Dhabi is now trying to position itself, as well as the UAE as a whole, as both a financial and Islamic banking hub that has world class, robust institutions, markets, infrastructure, and regulation. Federal level intervention to establish and effective legal framework and infrastructure for Islamic finance will have a positive impact on both Dubai and Abu Dhabi which potentially will draw international banks with Islamic banking windows and other conventional institutions to offer Sharia compliant products.

Abu Dhabi Council for Economic Development: How have laws pertaining to Islamic financing developed in Abu Dhabi to help Islamic financial institutions and what laws are needed to help develop it into an Islamic finance hub?

Schwalje: All banks in the UAE operate under the provisions of Federal Law No. 6 of 1985 Regarding Islamic Banks, Financial Institutions and Investment Companies which vests the Central Bank with licensing, supervision, and inspection powers. This law was passed 28 years ago, while the Islamic banking industry has evolved significantly since then. I view four areas of reform as critical to the success of the UAE: Broadening International Financial Activities which requires reform of laws pertaining to cross-border foreign exchange flows, capital mobility, financial intermediation, clearing systems, and active exchanges. Increasing the diversity of market participants which will require reforms related to diversity of financial providers, strengthening institutions, and increasing public understanding of Sharia compliant product. Product Innovation is required in the UAE and the region in particular. This will include developing the capabilities at the federal or institutional level to expand the use and types of Sharia compliant products available as well as promote flexibility in structuring financial products.

Abu Dhabi Council for Economic Development: What other new products do Islamic institutions in the UAE need to develop to grow?

Schwalje: The UAE is a leader in Sharia compliant Islamic bonds. However, there are a whole host of other products which are available in other Islamic hubs which are less developed in the UAE. This included trade and lease financing products for businesses. Wealth management, retirement and healthcare financing, and debt financing for households are not as developed as elsewhere globally. Finally, many equity financing and capital market products which would facilitate economic diversification into high –value added industries, attract FDI, and funds from international capital markets are still underdeveloped.

Abu Dhabi Council for Economic Development: What are the main challenges facing Islamic financial institutions in the UAE and Abu Dhabi in particular? 

Schwalje: Talent attraction and development is single most worrisome challenge to the evolution of Islamic banking not only in the UAE but globally. Based on our projections, we estimate that a another $71 billion could potentially enter the Islamic banking system in the UAE by 2015 which would create approximately 7,800 new jobs at Islamic banks in the UAE assuming current asset concentration ratios remain similar. We also project another 500 jobs will be created by 2015 in other Islamic financial services segments. By 2015, the Islamic financial services sector will double in size from approximately 10,000 employees currently to 20,000.

To meet this growing demand for employees trained in Islamic finance, the UAE will need to significantly broaden its education and training options to ensure availability of human capital does not stall the growth of the sector. While it has a number of current executive training institutions and higher education institutions that target mid-level employees in the Islamic finance sector, the UAE does not have any programs that target new entrants interested in the field or senior level leaders. The UAE also does not have institutions which provide research and analysis that advances the field. The experiences of Bahrain and Malaysia show that research capabilities and institutions have been key structural feature of Islamic banking systems that lead to product innovation and effective regulation. Furthermore, many of the masters programs in Islamic banking and finance in the UAE remain general MBAs or masters degrees with very few specialized courses related to practical aspects of Islamic banking that are required by employers. The exceptions are Zayed University and Hamdan Bin Mohammed e-University which have in-depth course offerings in Islamic finance and economics.

Abu Dhabi Council for Economic Development: How can the setting up of a new financial center in Abu Dhabi help Islamic financial institutions and the industry as a whole?

Schwalje: The UAE’s largest Islamic banks do not presently operate in financial centers. However, the Abu Dhabi World Financial Market has the potential to attract regional banks from the GCC as well as international banks who want to enter the UAE market. The new financial center also has the potential to enhance the diversity of financial providers in the sector by attracting non-banking financial companies such as mutual funds, insurance companies, and other institutions. However, it is unclear to what extent such a center will be able to operate independently of federal laws which very clearly convey the powers of licensing, supervision, and inspection of Islamic financial institutions to the Central Bank.