Kick-start the UAE’s venture capital ecosystem to boost the economy

So why, if everyone is telling us that the oil price is going up, are rental taxes, sorry fees, being applied? Don’t get me wrong, fiscal reform is necessary, but if oil is going back up, let us give the common man a breather. Here’s an idea – let’s start with taxing everyone who has a monopoly agency. You know, the rich.

Speaking of announcements, I would like to introduce a new statistic, similar in importance to GDP, CPI (inflation), the unemployment rate, etc. I call this statistic the Reality Based Ratio. It is the ratio of the number of projects announced to the number of projects completed. Of course this needs to be adjusted for size of project and time needed to complete, but you get the idea. The higher the ratio, the lower the reality basis of the economy. People need to stop applauding projects announced and start applauding projects completed. Well, they don’t need to, they just should if they want any sort of economy in the future.

The recent visit by Britain’s chancellor to meet UAE businesses and the recent BP-Adco deal show the UK’s fast, assertive move to build bilateral financial ties with the world as it turns from the EU. This is a tremendous opportunity to strengthen the UAE’s global position in the world financial markets. If Donald Trump follows up with his promise to reduce American trade and the US turns inwards, there will be further opportunities for the UAE to build bilateral financial bridges.

This will give the ADGM and the DIFC the chance to move out of Singapore’s shadow and become true regional and global financial hubs. They can do this if they learn to stop being regulatory and legal centres and become truly commercially focused. More than 50 per cent of their boards and executives should be non-government and non-regulatory, but private businessmen and investors, if they are to have the right experience to steer these projects to global success.

ADGM and DIFC can stop working on building office space and retail outlets, and use the money to create start-up incubators. Tasteful restaurants, enjoyable as they are, do not help the economy. Don’t tell me how many existing companies open in your free zone. Tell me how you have supported local companies in growing. An international asset manager opening in a UAE free zone adds near zero value to the UAE economy, its citizens and residents. Convincing local SWFs to move to a free zone similarly misses the point, as they don’t manage third-party money so the regulation is meaningless, and business service revenue paid into the federal economy is hijacked by the free zone. Instead, tell me how many venture capital companies investing locally you have attracted. Oh, sorry, if they are based in your free zones then they cannot transact locally. I forgot.

Investing in the local start-up and venture sector is not just for the government.

Super large private equity companies such as Abraaj Capital and Gulf Capital made their money based out of the UAE and have grown to billions of dirhams, but there is no mat­erial reinvestment into local start-ups. No venture capital funds.

Where are we investing our money? We talk a big game about SMEs, entrepreneurship and innovation. But we’re building superyacht marinas. Did Santa hand out superyachts to the UAE while I wasn’t looking? Why don’t we have new venture capital funds? Why don’t we use the cash to support our start-ups and SMEs? Oh, and if you made your money here, mostly as a government official, kindly invest your money here.

Why don’t we have 50 regional venture funds each seeded with a billion dollars funded by liquidating one of our several mammoth SWFs? And let’s have entrepreneurs run these venture funds. They, at least, are willing and able to take risks. Capitalism works, if you allow it to.

This article was originally published in The National.

7 Comments

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  2. […] a recent article I pointed out the failure points in the UAE’s venture capital ecosystem, in particular the lack […]

  3. Rooster

    Having set up and run a company in the UAE for the last 8 years I can say I have run into one barrier after another, I have been onshore and also in a free zone. I wanted to be onshore as I believed it was the right thing to. If i am setting up in a country and profiting from it then I have no problem having a local sponsor and paying him. However i found every element of setting up and running the company very difficult because of the business prevention attitude of officials. I also found to my dismay a genuine prejudice against local companies. There is an inherent attitude that if I am a local company I must be inferior to an international company. Even though the international company is merely a franchise staffed by people with a couple of years experience compared to my 15 years of experience in London, New York etc. I thought it very sad that the large local companies were very open about having no interest in supporting local based companies and were happy to pay more to overseas companies. With that attitude it makes it very hard to justify fighting the barriers to want to build a business based in the UAE. I wanted to be a business that covers multiple geographies and brings revenue into the country , however our clients seemed happier sending that revenue to overseas economies. I have since relocated my business to Singapore, what a breath of fresh air.

    1. I would be very interested to hear about your experience in moving to Singapore. It might even make sense to share your experience via one of my articles.

  4. I totally agree. From a personal first hand experience as well. . It’s a shame. It’s just a real estate business after all to them.

  5. Great article Dr. Al Binali! The startup world needs advocates like you. Sustaining a startup in UAE requires cash, time and mentorship. There should be more interaction between startups and potential investors, mentors and government officials. This way more dialogue can result in even better collaboration. Eventually this will lead to an improved ecosystem which will be a win-win for startups, government entities, investors and regulatory bodies.

  6. Excellent article Sabah. I too believe that the UAE has great potential in becoming the intellectual hub for a lot VC investing happening across the region. The US VC industry is established and sophisticated because a number of VC funds decided to pick the same location to be based out of and this was driven in large part by the intellectual capital emanating from the top-notch academic institutions near to Silicon Valley. Today the investments made from Silicon Valley are dictating the global technology industry. The UAE could play the same role for the Middle East and Africa and potentially even for South Asia if the right support was given to new VC funds if the government set up such funds instead of spending billions buying office buildings in the US and UK and lending even more money to the US govt vis-a-vis treasury bill purchases. The bigger question is could the government justify to itself, or be seen to be part-funding “risky investments” for potential long-term job creation in the UAE, boosting long-term tax revenues, supporting greater regional interconnectivity and being the birthplace of future corporate giants? Lets hope that the answer to this is Yes.. I would certainly like to be part of such new initiatives…

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