The leaders of the Dubai International Financial Centre are devising a post-downturn strategy for the free zone with the aim of keeping it at the centre of regional business
A makeover for the DIFC
The Dubai International Financial Centre (DIFC) is on the verge of a strategic shift that its senior management hopes will maintain its lead as the premier financial market in the Gulf region.
"We will be communicating soon the priorities of the organisation as part of the growth strategy for the centre, and how the internal set-up will support it," said Abdullah al Awar, the DIFC chief executive. "One thing to note, though, is that the strategic review was based on the fact that the centre needs to build on the competencies and achievements of the past five years. The centre grew in global recognition and, going forward, we need to adjust the priorities to further enhance the growth potential and enable clients to scale up from here and utilise the full structure."
Cutting through the management-speak, that sounds like a clear signal that DIFC, set up in 2004 to make Dubai the financial as well as commercial hub of the Gulf, has done some serious rethinking. It is planning a strategy to take account of the new, more austere global financial climate. The groundwork for the new strategy has already begun, after the appointment last year of Ahmed Humaid al Tayer as governor. He called in McKinsey, the management consultancy that advised on the creation of the DIFC six years ago, and gave the firm "complete freedom", Mr al Tayer told reporters last week.
A McKinsey spokesman declined to comment on client business, but all the talk is of "streamlining". Last month, McKinsey was the "knowledge partner" with DIFC in an event called the MENASA Forum, which replaced the five-day jamboree of previous years known as DIFC Week. MENASA - Middle East, North Africa and South Asia - also gives a clue as to the DIFC's new direction. "It's no longer all about Dubai as the centre of the world but a more realistic ambition that Dubai can represent the wider region in global financial markets," said one DIFC insider who declined to be named because the strategy had not been fully unveiled. The MENASA event gave another indication of the future: the event had a considerably lower profile than its predecessor, and a major reason for that was the cost-cutting that began discreetly at DIFC some weeks ago.
At least 50 members of staff have been let go, but some insiders believe the figure is as high as 140, out of a total staff of about 400 before the cuts. The DIFC declined to comment on that estimate. Most of the job losses have taken place in departments such as marketing, communications and business development, while DIFC Investments, the body responsible for some of the big foreign financial initiatives, is also believed to have lost staff.
It gives some indication of the lighter, slimmer DIFC of the future that Mr al Tayer last week likened the organisation to an overweight individual. "Sometimes you forget yourself, you relax, eat more, you don't exercise and gain weight. I thought over five years the centre gained some weight," he told the Financial Times. Where Mr al Tayer does not want the DIFC to lose weight is in the number of companies using the centre as their primary base in the region. The DIFC must have clients, tenants and customers if it is to justify its existence as a financial centre, and officials take some comfort from the fact that even during the worst of the financial slump last year, few organisations pulled out of the centre.
"There was some downsizing by firms, but we're glad we kept the big names," an official says. Mr al Tayer expects the number of companies operating at DIFC this year to rise to 905, an increase of 17 per cent, including 301 "regulated" - financial services-related - companies. These tenants are crucial to the DIFC's future, but most criticise the centre's rents. "You are paying very high office rents, comparable to what you'd pay in a major European financial centre, and you don't get much for your money. It has to become more competitive," said one financial professional who asked not to be named because of the sensitivity of the issue.
There is some sign, however, that the forces of supply and demand are beginning to have an effect. With new office space in the DIFC free zone coming on-stream at a steady rate, the pressure is coming from developers to persuade the landlord, the DIFC itself, to be more flexible on rents. Matt Hammond, the head of operations in the MENA region for the property consultancy Jones Lang LaSalle, says: "The DIFC is becoming more competitive. Rents that in 2008 reached Dh600 [US$163] per square foot have now fallen to around Dh350 per sq ft, making them good value again. The competitive pressure is likely to remain, with 3.5 million to 4 million [sq ft] of office space coming on in the next couple of years."
Mr al Tayer hinted recently that the DIFC was prepared to be more flexible on rents, differentiating among clients on the basis of how much space they will occupy. "Those who bring 100 employees are different from those who take a desk. We want to encourage companies to operate with the most efficient costs," he said. Six years ago, the strategy was to emulate the great financial centres such as London, New York and Hong Kong, but those locations all have the benefit of an established and vibrant culture of equity trading.
In contrast, the DIFC's exchange, NASDAQ Dubai, has not been able to match their levels of business. But the key statistics have improved this year, with a 65 per cent rise in the value of equities traded. Next month, the tie-up between NASDAQ Dubai and the Dubai Financial Market (DFM) goes a stage further: equities listed on NASDAQ Dubai will be available for trading on the DFM. "This will create a powerful listing and trading hub that is unique in the Gulf region," said Jeff Singer, the chief executive of NASDAQ Dubai. The new-look DIFC may lack some of the bling and glamour of the past, but the strategy soon to be unveiled will determine whether Dubai, despite the economic challenges of the past 18 months, can remain at the forefront of financial services innovation in the Gulf.