The United Arab Emirates has seen enormous change. Oil wealth has transformed the desert into a landscape of resorts, skyscrapers and green neighbourhoods.
As it has grown it has diversified into tourism, financial services and technology, retail and luxury goods. Dubai, where London Business School (LBS) runs a campus has positioned itself as a regional magnet for talent. All ingredients are there for the next stage of its economic growth in the Middle East.
Earlier this year, the UAE government said it would support more foreign investment, when it allowed 100% foreign ownership of firms in more than a 100 different economic activities across 13 sectors including renewable energy, agriculture, e-commerce and manufacturing.
As part of our 2019 Worldwide Alumni Celebration event, an expert panel was welcomed to our Dubai campus by Evie Boustantzi (EMBADJ2013), General Manager at b.fm, a facilities services company, and President of the LBS Alumni Gulf Association. The panel was chaired by Florin Vasvari, LBS Professor of Accounting, Chair of Accounting faculty and Academic Director of the Private Equity Institute.
Panellist Sheikh Maktoum Hasher Maktoum Al Maktoum, Chairman of Risk and Board Member at Commercial Bank of Dubai and Chairman of Artemis Resources, began the discussion saying that the driving force behind Dubai's rise has been its vision for infrastructure and ease of doing business.
Sheikh Maktoum described a gradual opening up process taking place within the economy and explained why the economy was in parts still restricted to some Emirati ownership.
"Stability is good for business," he explained. "And one part of stability is the distribution of wealth. The fact that the UAE government restricts foreign ownership has meant we have kept more wealth among the local population."
He argued the UAE had fared better compared to many other resource rich nations who had wasted opportunities for short-term cash.
"Would you interpret these relaxed foreign ownership rules as being a sign that there's no need for restrictions on foreign owners anymore?" probed Professor Vasvari.
"Global private equity funds coming into the region are sitting on lots of dry powder."
"I would love to make it 100%," he responded. "But I don't think that every indigenous person would do the right thing. We could see important assets sold (to foreigners) based on short-term thinking for big profits and that would trump their long-term benefit to the UAE."
Panellist Iyad Malas, partner at private equity firm Gateway Partners, said stability had been an important ingredient in the UAE success story. Dubai and Singapore based Gateway Partners connects private capital to investment opportunities across Africa, Middle East, South Asia and South East Asia.
"At the end of the day, the ownership has to be completely transparent and bulletproof,” he said. “This is an important factor in terms of attracting foreign investment. We haven't seen the benefit of global funds looking for opportunities in the UAE yet, but this recent relaxation of the rules is going to be an important factor as people begin to wake up to the opportunities here.”
The panel was completed by Omnia Kelig (EMBADJ2019). Kelig is Chairwoman and Managing Director of Naeem Financial Investments – a member of Naeem Holding Group, it sources private equity opportunities in the UAE and Egypt.
“The UAE is ranked 11th out of 190 countries by the World Bank for ease of doing business,” she said. “All the other GCC council members are lined up far below. When it comes to investment you know the right protections are in place and you know how to exit.
"However, there is a need for collaboration across countries to facilitate transaction execution."
"This recent relaxation of the rules is going to be an important factor as people begin to wake up to the opportunities here."
Malas concurred: "Legally it’s clear but the market liquidity isn’t there. And that's really the under development of local capital markets. If you look over the past 10 to 15 years, there's not been too many very successful exits through the capital markets.”
Malas said there was a case for greater regional cooperation: “We really think about this being one region, we need to have all the liquidity and that is something governments on a regional basis can do, which would be helpful for the development of any company.”
Professor Vasvari also put it to the panel that it was difficult for foreign private equity firms to compete with local companies backed by family wealth in the UAE.
Malas said there is a generational shift taking place from making private investments towards an innovation and entrepreneurship culture in which foreign investment could play an important role in supporting new ventures.
"The main challenge is deal origination," said Kelig. "I see that the global private equity funds coming into the region are sitting on lots of dry powder. And with the sovereign funds and family offices active in the same industry as well, there will be too much money chasing too few good assets. This is why we need rational regional expansion."
Sheikh Maktoum advised investors to look for UAE firms with a global focus and scale to truly succeed. He hopes regional connections and growth, led by the UAE, would help the region’s companies, backed by foreign investment, emerge onto a world stage.