Abu Dhabi upgrades profile as financial hub

ABU DHABI (Xinhua) - As part of its strategy to diversify the economy, the sheikhdom of Abu Dhabi, a major oil supplier, launched initiatives in recent weeks to polish its image as a financial center.

Abu Dhabi, home of seven percent of the world's proven oil reserves and the capital of the Gulf state United Arab Emirates (UAE), has witnessed key moves from the government to lift the emirate's status as a financial hub between Europe and East Asia.

Earlier in May, the Abu Dhabi government announced to establish before the end of 2013 a financial free zone named Abu Dhabi World Financial Market (ADWFM), a tax-free district for banks, asset managers and insurance firms with the advantage of 100 percent foreign ownership.

Moreover, one of the biggest holding companies Senaat which has $7 billion worth of assets under management, said last Thursday it plans to list shares on the local stock market ADX.

Amid a strong economic upturn of the UAE with its 8.5 million residents, the ADX market index gained 31 percent in value since the start of 2013. The International Monetary Fund said Tuesday it expected the UAE real GDP to grow 3.1 percent this year and 3.6 percent in 2014 as the politically stable Gulf state attracts tourists and businessmen who avoid Arab countries which were hit by the turmoil.

On May 5, the ADX upgraded its trading rules to an international level by implementing delivery-versus-payment (meaning shares are booked immediately to a trader's account at the time of purchase), a precondition to be upgraded to "emerging market." Global index provider MSCI currently examines if the UAE fulfill the criteria for an upgrade as it is regarded as a frontier market. MSCI will announce its decision next month on June 11.

The announcement to establish the financial free ADWFM Dhabi triggered mixed reactions. While some bank managers who spoke on the condition of anonymity expressed concerns, Giyas Gokkent, chief economist at National Bank of Abu Dhabi, was optimistic about the project.

"The existence of the sovereign wealth funds (SWFs) here can be used as a powerful magnet to attract foreign financial institutions," said Gokkent. The Abu Dhabi Investment Authority, with some $650 billion, is one of the biggest SWFs in the world.

"A focus on asset management activity would attract ancillaries such as brokerage, custody, administration, consultancy, audit, legal, ratings, and so on," said Gokkent.

The economist added that Abu Dhabi authorities have indicated that bridging the time gap between the West and East will be an important factor, "but obviously time zone is one of a range of factors that will be pivotal for the growth of Abu Dhabi's financial center."

The government's initiative Economic Vision 2030 requires investments from all over the world. Abu Dhabi aims to increase GDP by more than 5 times by the year 2030 and reduce oil contribution to the GDP to 36 percent, down from the current 59 percent. The ADWFM shall function as a catalyst to achieve that goal.

However, the financial center DIFC, founded in 2004 in neighboring Dubai, offers the same advantages in relation to tax freedom, geographical positioning and ownership. With the ADWFM, the DIFC will get a competitor an hours' drive away. So, the pieces of the jigsaw in the UAE's financial center strategy are yet to be set.