Posts Tagged ‘abu dhabi’

Abu Dhabi Chamber of Commerce and Industry (ADCCI) recently sat down with Wes Schwalje, COO of Tahseen Consulting, to discuss how Abu Dhabi can attract more foreign investment.

ADCCI: What makes a country attractive for foreign investment?

Schwalje: There is widespread agreement that foreign direct investment flows are influenced by the size and growth of the investment destination, stability, openness, and institutional quality. This consensus is built upon a foundation of a number of stylized facts: larger economies tend to attract more foreign investment; trade openness and export orientation have a strong complementarity with FDI flows; sectoral and cluster effects often signal opportunity for foreign investors that increase investment, political and macroeconomic stability attracts investors; and good governance and institutional quality are key FDI determinants. However, emerging research on FDI shows that bilateral trade agreements, investment treaties, and customs unions potentially have a much higher influence on FDI attraction than macro-economic policy factors like business costs, infrastructure, and quality of political institutions. So, in addition to a continuing focus on strengthening the business enabling environment in the GCC, we will likely also start seeing a much stronger focus on bilateral and multilateral trade and investment frameworks.

ADCCI: What credentials can Abu Dhabi leverage to boost and optimize its FDI?

Schwalje: Abu Dhabi currently offers foreign investors a high level of political and economic stability, strategic location, world-class infrastructure, tax incentives, and strong social infrastructure. It is currently the second most preferred destination of foreign investor in the Arab World. However, there are several competing, emerging FDI destinations in the Arab World which raise questions about how investment destinations can further differentiate themselves from competitors.

ADCCI: What sort of FDI related policies and incentives could attract investors to Abu Dhabi?

Schwalje: In general across the GCC, there is a need for deeper reforms to enhance the business enabling environment and simplify investment approval and licensing. One of the most significant concerns of potential investors in the GCC, which the UAE is currently addressing at the federal level, is limitations on foreign ownership and sponsorship requirements often contained in GCC investment laws. Investment laws which give investors greater control over their investments will be critical. Over the longer term, several GCC countries will need to consider if the investor incentives and protections offered by economic and investment zones that primarily target foreign investors should be rolled out more broadly to benefit onshore businesses. Stepped up policies to support small and medium enterprises are needed. A stronger focus on bilateral investment treaties and free trade agreements can build on the achievements GCC countries have made in improving the business enabling environment. Clarifying the role of countries and the Secretariat General of the Gulf Cooperation Council in promoting FDI could also provide a stronger regional framework for FDI attraction.

Abu Dhabi Chamber of Commerce and Industry (ADCCI) recently sat down with Wes Schwalje, COO of Tahseen Consulting, to discuss the role of small and medium sized enterprises (SMEs) in Abu Dhabi and the region’s development.

ADCCI: How critical are SMEs to the development of a sustainable economy?

Schwalje: SMEs are not just important to regional economies – across the region SMEs ARE the economy. So it is impossible to separate the industrial structure of the Arab World from a discussion about sustainability. Tahseen Consulting conducted a study in 2012 which showed that, if the European Union’s definition of what constitutes an SME is applied to the region, SMEs represent 92% of companies in the Arab region with micro firms <10 employees making up 25%, small firms of 10-49 employees making up 44%, and medium-sized firms with 50 – 250 employees making up 23% of firms. Across the region, these firms employ up to 65% of the workforce depending upon the country. In Abu Dhabi, 95% of the total enterprise population are SMEs which employ 24% of the workforce. While in Dubai, SMEs make up 95% of the enterprise population and employ 42% of the workforce. At the national level, SMEs constitute 94% of the total enterprise population and employ 86% of the workforce.

ADCCI: In particular, which Abu Dhabi sectors would benefit from more SME participation?

Schwalje: The Khalifa Fund estimates that 73% of SMEs in the UAE are in the trade and retail sector, 11% are in services, and 11% are in manufacturing. The Global Entrepreneurship Monitor shows that the UAE has one of the lowest rates of total entrepreneurship activity of innovation-driven economies, and only 2.3% of new ventures are medium-tech or high technology ventures. So technology is a key sector for potential SME growth. It is also important for Abu Dhabi to enhance enterprise creation in the priority sectors highlighted in the Economic Vision 2030. A few Emirates are introducing interesting programs in which large firms in priority economic sectors are working to upgrade SMEs to indigenize their supply chains. These initiatives, which were pioneered by the extractive sector, hold significant promise in building a strong SME base which can not only generate long-term benefits for larger parastatals in the UAE but also broaden the SME base from its traditional focus on trade and retail. Trade and retail cannot provide the high skill, high wage jobs that the UAE aspires to provide for its citizens and residents. Only knowledge-based industries have the potential to do this. However, SMEs in priority knowledge-based industries can’t rely on government contracts alone – they must also be innovative and globally competitive.

ADCCI: What could encourage more SMEs to set up shop in the capital?

Schwalje: Several of Tahseen Consulting’s clients have become interested in the ongoing experiment of Chile in implementing Startup Chile. This initiative has a mission to attract early stage, high-potential entrepreneurs to bootstrap their startups in Chile. It is similar to what the Dubai Future Accelerators initiative is trying to achieve but on a much larger scale. To date, Startup Chile has invested $40 million in accelerating 1,309 startups. These firms are now worth $1.3 billion, have a survival rate above 50%, and created 5,162 positions worldwide. In essence, Chile has achieved a 34x return on its investment while also positioning itself as a global startup and SME hub. We expect to see a lot more Startup Chile type initiatives in the GCC. So national acceleration programs and supply chain indigenization are key strategies that could help attract SMEs to Abu Dhabi and position it as a global startup hub. Such programs would be in addition to resolving the bureaucratic obstacles and barriers to operating an SME in the UAE. It is not enough to gauge progress relative to the quite methodologically flawed World Bank Doing Business Rankings. It is typically the processes which are not measured by such indices that cause SMEs headaches. One particular challenge that comes to mind is cost businesses in eth UAE pay for internet – at an average price per megabyte of download speed of approximately $18, the common entry-level fiber broadband packages offered in the UAE cost 5 times more than similar packages offered by the leading countries in the World Bank’s Ease of Doing Business Ranking.

Abu Dhabi Chamber of Commerce and Industry (ADCCI) recently sat down with Wes Schwalje, COO of Tahseen Consulting, to discuss how Abu Dhabi Global Market Place is faring after one year in operation and how Abu Dhabi’s plans to establish the UAE as a global MRO and manufacturing hub is evolving.

ADCCI: How might Abu Dhabi Global Marketplace (ADGM) change the economic landscape of Abu Dhabi and the UAE?

Schwalje: Abu Dhabi has traditionally been a strong player in the regional financial services sector. ADGM will enable Abu Dhabi to expand its influence from a regional financial hub focused primarily on commercial and Islamic banking to an international financial center that offers a wider array of financial services such as private banking, wealth management, and asset management. Financial centers like ADGM and Dubai International Finance Center support economic diversification efforts as well as respond to demand for increasingly sophisticated financial services fueled by development. This is why the Abu Dhabi Economic Vision 2030 and Dubai Vision 2021 have a strong focus on increasing economic diversification by developing a sustainable economy which can prosper in a post-carbon era. Over the longer term, the vision is to position the UAE and its constituent Emirates as a unified international financial services hub offering a full spectrum of financial services comparable to other leading global financial centers.

 ADCCI: One year in, has ADGM been a success?

Schwalje: ADGM registered 170 companies in its first year of operation. If you contrast this with the initial tenant attraction of other regional financial centers and free zones, ADGM has had remarkable success. For example, a year after the Qatar Financial Center opened in 2004, it had attracted approximately 50 tenants. Back in 2000 the recently launched Dubai Internet City signed up 180 tenants in its initial year of operation. Three years after its launch in 2008, the Dubai International Financial Center had about 400 tenants. However, the number of companies licensed by ADGM to date does not say much about whether Abu Dhabi is developing a broader financial services industry in line with the Abu Dhabi Economic Vision 2030. ADGM’s true success in becoming a financial services hub will only be apparent in a 5-10 year timeframe, but the initial signs of success that have foreshadowed the success of other industry free zones in the region are there.

ADCCI: Shifting gears a bit, what are Strata’s strengths?

Schwalje: In 2008, the Economic Vision 2030 outlined Abu Dhabi’s intention to become a global player in the aerospace MRO and parts manufacturing segments. Aerospace was chosen as a capital-intensive, export-oriented focus sector that could advance economic diversification and knowledge based economic transformation objectives.

Strong government support for the development of the aerospace sector, investment in aviation infrastructure like Nibras Al Ain Aerospace Park and the Midfield Terminal, as well as the growth of both Dubai and Abu Dhabi as global aviation hubs has ensured that Strata has a strong local market for its products. As one of the largest global purchasers of Airbus and Boeing, UAE national carriers are strong captive domestic customers which Strata has leveraged to grow internationally. The success of Strata is both a function of the support the aerospace industry has received from the Abu Dhabi Government as well as shrewd strategic execution of Strata and its owner Mubadala to build world-class MRO and manufacturing capabilities. Strata has leveraged the capabilities it has built serving domestic customers to become a global supplier to aerospace industry leaders like Airbus, Boeing, Rolls-Royce, and GE.

ADCCI: What might the pitfalls/competition be in the coming years?

 Schwalje: Decreasing passenger unit revenues due to the fall in oil prices, along with foreign currency fluctuations, and pricing pressures are currently a key risk to Strata. For example, in November 2016 Emirates Group reported profits down 64% from the previous year due to strong competition and dampened travel demand. However, the internationalization of Strata’s activities will enable it to better weather industry demand fluctuations that may affect aircraft deliveries and maintenance requirements. Competition from other emergent MRO hubs will likely also present a challenge to Abu Dhabi’s plans to consolidate its gains to continue to build its aerospace sector. For example, India, with its growing aviation sector, skilled workforce, and cost advantages, could present strong competition to Abu Dhabi. Another emerging issue that is still unclear is how the introduction of value added tax in 2018 will affect the sector in terms of competing with foreign MROs.

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.

You can view the original blog post here

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.