Tax-free, high standard of living, low-cost accommodation and access to the Middle East savers, Dubai holds the future of global banking in its hands. But it could be a few years before this vision of the future becomes a real business model as global banks are reeling from the impact of the global financial crisis.
On the other hand, the crisis should accelerate the move to Dubai. Global banks need to cut their operating costs, and setting up in Dubai is far cheaper than in London, New York, Singapore or Hong Kong. Indeed, the Dubai real estate collapse will make both commercial and residential property far cheaper for incoming financial institutions and their staff.
Banks and financial institutions will also have to consider how to motivate staff in an era of low bonus payments. Offering tax-free salaries in a tax haven is an alternative. Financial professionals in London can pay half their income in tax, and when that money is invested they pay tax again on any capital gain and earnings. Moving to a tax haven makes sense for the money business.
Dubai has also spent the last five years or so developing a special legal system for its financial free zone, the Dubai International Financial Centre, which operates in English under the watchful eyes of former English judges.
The physical infrastructure of the DIFC is also now impressive, with its skyscrapers and low-rise offices a familiar working environment for exiles from The City, Canary Wharf, New York or Singapore. It is both comfortable and practical as a base for the financial sector.
Perhaps a move to Dubai will be the last thing on the minds of senior bankers these days, and it might be difficult to achieve for banks that have been effectively nationalized and therefore have to stay in their uncompetitive home bases.
But money always flows to the lowest cost, most efficient location, and that will be Dubai for the financial world. And the Dubai property crash just increases this cost advantage.
Peter J. Cooper, February 11, 2009