UAE’s future as a financial hub hinges on implementing lesso...| MENAFN.COM

Saturday, 04 February 2023 05:58 GMT

UAE’s future as a financial hub hinges on implementing lessons from the past


The United Arab Emirates has launched a full-throated campaign to become one of the world’s premiere financial centres, rolling out some 50 economic initiatives aimed at attracting at least $150 billion in overseas investment in the next nine years. As well as targeting key partnerships with a number of established and fast-growing economies around the world, the country is also looking to make itself more appealing to foreign talent by relaxing its stringent residency laws.


Encouragingly, the Emirati government also appears to have realized that a strong regulatory and judicial framework is essential in attracting investment and has taken several positive steps in that direction. However, the shadow of the ongoing investigation into the spectacular collapse of the Dubai-based Abraaj fund still looms large over the country and the Emirates will need to make a special effort to ensure that there is full accountability for one of the biggest financial scandals of recent years. For the Gulf state to truly realize its international economic ambitions, it must guarantee that the likes of Abraaj will never happen again.


Bold beginnings


The UAE’s ‘Projects of the 50’ programme has been launched to coincide with the nation’s Golden Jubilee – and it’s certainly ambitious in its outlook. As well as drawing in at least $150 billion in investment by 2030, the country is also aiming to increase its investment outflows by 14% by the same date. The government have thrown themselves headlong into the scheme, signing a flurry of deals and agreements in the last few weeks alone.


In an attempt to strengthen ties with established economies, the UAE has already held high-level talks with the UK on trade and investment over the past month. That follows on from a pledge to pour almost $14 billion into promising British projects over the next five years. Abu Dhabi has also opened discussions with Seoul about enhancing cooperation with South Korea across several priority issues, including climate change, green energy and advanced technological solutions.


With regards to fast-developing economies, the UAE recently concluded negotiations with Indonesia to invest up to $10 billion in a range of sectors, while it is hoping to sign off on a similar deal with India that will purportedly double non-oil trade between the two nations to over $100 billion inside five years. It has also recently penned an agreement to promote mutual investments with Iraq. The UAE currently has more than 100 such arrangements in place with countries all over the globe, aimed at making the Emirati business environment more inviting for foreign investors.


On that note, the UAE has also introduced new visas for entrepreneurs and freelancers. With over 90% of its 9.1 million-population comprised of expatriates, the move is intended to entice and retain the most talented professionals in all industries to Emirati shores.


FDI dependent on conducive and accountable business climate


While these reforms and agreements are certainly encouraging, the UAE must also prove that it fosters an inviting environment for overseas investors. To that end, it has established independent agencies, government departments and Abu Dhabi-based courts tasked with combating money laundering and tax evasion.


Despite these positive steps, the country’s hopes of becoming a top financial centre are still dogged by the fallout from the ongoing Abraaj scandal. It’s difficult to overstate the devastating impact of Abraaj’s collapse—Bloomberg even declared that it “wrecked private equity for the Middle East”.


The fallout has been so severe because the Dubai-based fund was once one of the world’s largest investment funds, with Pakistani founder Arif Naqvi claiming to manage some $14 billion of capital in philanthropic and sustainable projects. In reality, he was apparently misappropriating cash for unsanctioned purposes and shifting monies between Abraaj funds (such as Abraaj Fund IV or the $1 billion healthcare fund) to paper over the company’s dire financial straits.


Following a whistle-blower’s report, Naqvi was arrested in 2019 and could face a 291-year prison sentence if convicted. Perhaps most concerningly of all, however, his malfeasance apparently went unnoticed by the firm’s auditors, Dubai-based KPMG Lower Gulf (LG), a Middle Eastern affiliate of the well-known global firm. KPMG somehow missed the gross financial irregularities in Abraaj’s books, repeatedly signing off on the fund’s financial reports despite extensive “window dressing”—a strategy of transferring tens of millions of dollars from one fund to another immediately before filing deadlines in order to artificially inflate account balances. 


The tight ties between KPMG LG and Abraaj have raised further red flags. KPMG not only audited some of the companies which Abraaj invested in, including Air Arabia, but there are plenty of personnel connections as well. The son of KPMG LG Chairman Vijay Malhotra worked at Abraaj, while executive Ashish Dave—who was slapped with a $1.7 million fine earlier this year for his role in the Abraaj fraud—worked for KPMG in between two stints as the troubled fund’s CFO. 


Needless to say, these anomalies run counter to proper corporate governance standards and raise serious questions about the independence of KPMG LG’s auditing. The case is still ongoing, and it will be vital for the UAE to overcome early perceptions that Emirati authorities, such as the Dubai Financial Services Authority (DFSA), had been too slow to respond to the widespread wrongdoing at Abraaj. Ensuring that the full spectrum of actors with a hand in Abraaj’s disastrous demise are held accountable will be essential to rebuilding confidence among foreign investors whose nerves were shaken by the Abraaj scandal. 


The 50 initiatives which the Emirates recently launched contain all the building blocks to set the UAE up as a regional and international hub for trade and investment. In order to live up to this potential, the Gulf state must demonstrate that its business environment will not tolerate wrongdoing, either on the part of individual businessmen or the consulting firms expected to keep them in line.


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