According to the Global Financial Centres Index, which since 2007 has ranked cities according to a range of financial, economic and quality-of-life measures, Dubai has steadily closed the gap with the top tier (see chart 1). It now hovers just outside the top ten. The next highest Middle Eastern centre is Tel Aviv in 36th place, followed by Abu Dhabi, the capital of another emirate (and the UAE) in 39th.
The heart of Dubai’s financial ecosystem is the Dubai International Financial Centre (DIFC), a 110-acre “free zone” in the city centre set up in 2004 to boost Dubai as both financial waystation and investment destination. The DIFC has grown into an impressive cluster of banks, fund managers, and law and accounting firms, with over 2,500 registered companies—820 of them financial—and 25,000 professionals.
The DIFC says it hosts 17 of the world’s top 20 banks; eight of the ten leading global law firms; and six of the ten biggest asset managers. Many of them have their regional headquarters there. The banks have around $180bn of assets booked there; DIFC firms arranged an additional $99bn of lending last year. Some specialise in trade finance and infrastructure lending. The DIFC’s fund managers have assets of $424bn. Its financial firms are restricted to foreign-currency transactions. Some Dubai-based banks have operations in the zone too, but conduct dirham-denominated business from branches outside it.
The DIFC’s appeal lies largely in its bespoke tax regime and regulation. Like the other 40-odd free zones in the UAE, it sets its own rules. It is tax-light, allows foreigners full ownership (outside zones this is capped at 49%) and sets no local-hiring quotas. It has its own regulator, the Dubai Financial Services Authority, run by a former bank supervisor for America’s Office of the Comptroller of the Currency. Financial firms outside free zones fall under the central bank and other national authorities.