BUILDING AN ECOSYSTEM FROM SCRATCH

By Jefferson Nama and Heikki Ulander

In the heart of the Middle East lies a beacon of innovation and enterprise - Dubai. This glitzy metropolis, once known primarily for its opulent skyscrapers and luxury lifestyle, has rapidly transformed into a global hub for entrepreneurship and innovation.

Dubai's journey towards becoming a dynamic entrepreneurial hub can be traced back to the early 2000s when the Emirate's visionary leadership recognised the need to diversify its economy beyond oil. Faced with the certainty of finite oil resources, the government embarked on an ambitious mission to foster a knowledge-based economy driven by innovation and entrepreneurship.

Central to this vision was the establishment of free zones (Dubai Internet City, Dubai Knowledge Park, Dubai International Financial Centre (DIFC), and Dubai Technology Entrepreneur Campus (DTEC), and business-friendly regulations, offering a conducive environment for start-ups with incentives such as 100% foreign ownership, tax exemptions, and simplified company registration processes, aiming at attracting foreign investment and talent. These initiatives created a fertile ground for start-ups and SMEs to flourish, offering tax incentives, streamlined bureaucracy, and access to state-of-the-art infrastructure.

Furthermore, strategic investments in education and technology played a pivotal role in nurturing homegrown talent and fostering a culture of innovation. Institutions like Dubai Internet City, Dubai Knowledge Park, and Dubai Silicon Oasis emerged as vibrant ecosystems, providing start-ups with the necessary support, mentorship, and funding to thrive.

Global hub with local touches

Dubai's entrepreneurial ecosystem stands out on the global stage, not only for its rapid growth but also for its unique blend of Eastern and Western influences. While Silicon Valley remains the epitome of innovation and entrepreneurship, Dubai offers a distinct advantage with its strategic location at the crossroads of Europe, Asia, and Africa.

Unlike Silicon Valley's competitive and often insular culture, Dubai fosters a collaborative ecosystem where entrepreneurs from diverse backgrounds come together to share ideas, resources, and networks. The city's melting pot of cultures and nationalities creates a fertile ground for cross-pollination of ideas, leading to innovative solutions tailored to global markets.

Moreover, Dubai's regulatory framework strikes a delicate balance between fostering innovation and maintaining stability, providing start-ups with the freedom to experiment while ensuring investor confidence and consumer protection. This pragmatic approach has attracted a wave of foreign investment, with multinational corporations and venture capital firms setting up their regional headquarters in the city.

Innovations for the region

One of the most remarkable aspects of Dubai's entrepreneurial ecosystem is its ability to adapt to the region's unique socio-cultural and economic dynamics. Unlike Silicon Valley's homogenous demographics, Dubai is home to a diverse population comprising expatriates from over 200 nationalities.

Entrepreneurs in Dubai must navigate a complex tapestry of cultural norms, language barriers, and regulatory frameworks, presenting challenges and opportunities. However, savvy entrepreneurs leverage this diversity as a source of competitive advantage, tapping into niche markets and catering to the needs of an increasingly globalised consumer base.

Furthermore, Dubai's strategic focus on key sectors such as tourism, hospitality, logistics, and finance has paved the way for specialised incubators and accelerators tailored to these industries. Initiatives like Dubai Tourism's Futurism program and the Dubai Future Accelerators provide start-ups with access to industry-specific mentorship, funding, and market insights.

Dubai's entrepreneurial ecosystem represents a compelling case study in innovation, collaboration, and resilience. From its humble beginnings as a desert outpost to its current status as a global innovation hub, Dubai continues to redefine the boundaries of possibility and inspire entrepreneurs worldwide. As the city looks towards the future, one thing remains certain—the entrepreneurial spirit of Dubai will continue to shine brightly amidst the sands of success.

What makes the ecosystem unique?

Nestled amidst the desert dunes, Dubai has transcended its origins as a trading hub to become a pulsating epicentre of entrepreneurship and innovation. The city's meteoric rise as a global entrepreneurial powerhouse can be attributed to a confluence of factors, each playing a pivotal role in shaping its vibrant ecosystem. Let's delve into the main drivers fuelling Dubai's entrepreneurial fervour and the unique characteristics that set it apart on the global stage.

Strategic Geographic Location 

Dubai's strategic location at the crossroads of East and West has been a cornerstone of its economic success. Situated between Europe, Asia, and Africa, the city serves as a natural gateway for trade and investment, offering unparalleled access to emerging markets spanning multiple continents. This geographic advantage has attracted a diverse pool of talent, capital, and ideas, fostering a dynamic ecosystem characterised by innovation and cross-cultural collaboration.

Pro-Business Policies and Infrastructure

Dubai's government has been unwavering in its commitment to creating a business-friendly environment conducive to entrepreneurship. The establishment of numerous free zones and special economic zones has streamlined bureaucratic processes, offered tax incentives, and provided world-class infrastructure to support start-ups and SMEs. Initiatives like Dubai Internet City, Dubai Knowledge Park, and Dubai Silicon Oasis have emerged as vibrant ecosystems, providing entrepreneurs with access to state-of-the-art facilities, funding, and mentorship programs.

Cultural Diversity and Tolerance

Dubai's cosmopolitan makeup, with expatriates from over 200 nationalities, is a testament to its cultural diversity and tolerance. This melting pot of cultures has fostered a spirit of openness, creativity, and collaboration, enabling entrepreneurs to leverage a rich tapestry of perspectives and experiences. The city's inclusive ethos ensures that start-ups have access to a diverse talent pool, global networks, and market insights, essential ingredients for success in today's interconnected world.

Visionary Leadership and Strategic Investments

At the helm of Dubai's entrepreneurial journey is visionary leadership, which is unafraid to dream big and take bold risks. The government's forward-thinking policies and strategic investments in key sectors such as technology, tourism, finance, and logistics have laid the groundwork for innovation and economic diversification. Initiatives like Dubai Future Foundation and Dubai 10X are driving initiatives to transform Dubai into a global innovation hub, fostering disruptive technologies and pioneering solutions to address the challenges of tomorrow.

Access to Capital and Market Opportunities

Dubai's thriving financial ecosystem provides entrepreneurs access to a robust network of investors, venture capitalists, and angel investors eager to fuel the next wave of innovation. The city's burgeoning start-up ecosystem offers a plethora of funding options, from traditional bank loans to venture capital funding and crowdfunding platforms. Moreover, Dubai's strategic focus on key sectors such as tourism, real estate, and technology presents ample market opportunities for start-ups looking to scale and expand their operations.

Infrastructure and Connectivity 

Dubai's commitment to building world-class infrastructure and leveraging cutting-edge technologies has propelled its status as a global business hub. The city boasts state-of-the-art transportation networks, including one of the world's busiest airports and a sprawling seaport, facilitating seamless connectivity and logistics. Additionally, investments in smart city initiatives and digital infrastructure have laid the foundation for a tech-savvy ecosystem poised for exponential growth in the digital age.

Dubai's entrepreneurial ecosystem is a testament to the power of vision, innovation, and collaboration. Dubai has positioned itself as a beacon of opportunity and possibility in the global landscape by harnessing its strategic advantages, fostering a culture of entrepreneurship, and making strategic investments in key sectors. As the city continues to evolve and diversify, one thing is clear - the spirit of entrepreneurship is alive and thriving in the City of Gold.

Paperless and unbureaucratic bureaucracy

With Dubai and the whole of the UAE having profited from impressive growth in the last decades, it has seen its economy and skyline transformed from a timid coastal town specialising in regional trade to a global business hub with glimmering skyscrapers growing as fast as mushrooms after the rain. In only 20 years, the UAE’s economy has grown almost fivefold, with a GDP in 2002 of 109 billion USD (current USD) and 507 billion USD in 2020. Whilst it is clear that a large part of the growth stems from Abu Dhabi’s vast oil reserves, the smaller but arguably better-known emirate of Dubai has also played a vital role in the development.

For a long time, Dubai has been known as a neutral port of business, welcoming anyone willing to do business, all whilst giving individuals a significant degree of freedom to run their businesses efficiently. Compared to many European, Asian or American commercial and financial hubs, Dubai has gained the reputation of a “safe haven” with attractive corporate and income tax regimes, meaning that until now, there have been practically no taxes. Over the years, however, Dubai has attracted some negative attention related to its regulatory practices, or lack thereof.

Since the Emirate has seen an increase in development fairly recently and previously lacking a modern regulatory environment, Dubai and its surrounding emirates have had the ability to propose an attractive regulatory environment promoting the freedom of business with practically no government or regulatory involvement, all whilst offering stable and competitive free zones. To attract foreign companies and entrepreneurs from around the world, who might be wary of an Islamic law legal system, Dubai has set up many free zones in which the applicable law is not the local law, but for example, English law. This provides significant comfort to companies to conduct their business as they are already familiar with the workings of English law.

These free trade zones provide an attractive opportunity for companies to set up their regional operations in a city-state that provides a high quality of life and all the amenities any person can think of, from fine dining to high-quality health care to even indoor skiing if you are looking for a place to practice your turns before heading to the French or Swiss alps.

Building up the human capital

However, Dubai’s attractivity as a regional and global business hub serving the surrounding regions has not been without any controversies. As with all states having favoured a “regulatory light” model, Dubai has been involved in its fair share of scandals, including money laundering, sanctions busting and tax fraud. Whilst this is regrettable, it can be argued that it is part of a natural developmental cycle for financial hubs. For example, Luxembourg, one of the world’s wealthiest countries, saw its economy take off with a focus on global finance. Luxembourg itself has had its fair share of tax optimisation scandals, such as Lux Leaks – this led to the revelation of the government agreeing to secret tax deals with large multinational companies, ensuring significantly lower corporate tax rates, sometimes even under 1%.

Helped by an attractive fiscal and regulatory regime, Luxembourg built up a large pool of highly skilled employees in the financial sector. This, in turn, has allowed it to thrive in an ever-competitive global economy with increased regulation obliging states, corporations, and financial institutions to ensure that no money moving through the system remains untraced and unverified. It can be expected that Dubai is on the same path, albeit guaranteeing a more efficient and business-friendly paperless bureaucracy. There are already clear signs of increased regulation being applied. As of 1 June 2023, a business will be subject to a corporate tax, directly increasing supervision by the Dubai Government and its tax authorities, thus building confidence in the ecosystem.

Looking into the future…

A development as rapid and impressive as the one experienced by Dubai is hard to emulate and comprehend. Despite its solidifying position as a global business and commercial hub for multinational companies, Dubai still has many steps to take to build an ecosystem that is as trusted and as dynamic as might be found in other regions, such as Silicon Valley, be it for start-ups or businesses.

By encouraging entrepreneurs and companies to engage in commercial and financial activities in free zones, the local government ensures the long-term viability of its ecosystem. Most companies would struggle to find a more diverse and dynamic economy offering a supermarket approach not only to the expats moving to Dubai or the UAE for work but also to companies, even giving them the choice of the legal system to which they wish to be subject. 

As an example, Hub71, an Abu Dhabi government-supported incubator, is based in a common law free zone, with its financial regulation closely following one of England’s with some local touches and supported by the government’s willingness to foster a sustainable ecosystem. It is not common for some ministries, notably Abu Dhabi’s Department of Health, to have branches directly implemented in such start-up incubators, allowing for a low barrier and direct line of communication with the start-ups themselves. This not only allows for a rapid implementation of new technologies but also permits innovative solutions to various and sometimes urgent problems to be applied – such as Covid – at a significantly faster rate, bypassing lengthy and burdensome administrative procedures.

The same logic of easing the administrative burden and tailoring the regulation to promote innovation while protecting all market participants can also be found in the financial sector, be it for crypto solutions or investment funds. Thus, Hub71 has been able to incubate and support local fintechs in the crypto sphere at a faster pace than many other jurisdictions, such as the United States or the EU.

With a region that is exceptionally proud of its own culture and heritage and prefers to develop solutions to challenges locally, the enthusiasm and interest of all actors, be it the entrepreneurs themselves, investors, or local governments, is palpable. By harnessing the region’s vast natural and financial resources, the governments can afford to invest in new technologies massively and prepare for a time in which oil will not be their primary source of wealth. Even though this shift is not expected to take place in the coming decades, the Gulf Cooperation Countries compete with each other in an ever-more aggressive fashion, with the main rivalry being the region’s commercial hub, which is emerging between Saudi Arabia and the UAE.

Both countries benefit from leadership with a stern look into the future. They have identified key economic sectors in which they wish to develop their competencies and nurture an entrepreneurial ecosystem through favourable business practices and authentic government support. With the KSA and the UAE having well-structured and concrete development plans, the region’s economic powerhouses aim to transform their economies by 2030, with the Saudi Vision 2030 and Dubai Industrial Strategy 2030, respectively.

As part of Dubai’s Industrial Strategy 2030, a simplified administration that has already become paperless is key to achieving this. With a government bureaucracy that aims to be more and more efficient in its working and with the recent push to remove unnecessary administrative procedures, Dubai is on track to nurturing a vibrant ecosystem of local start-ups interconnected with multinationals that use Dubai as a regional and global hub to serve clients from Africa to the Indian subcontinent.

Included in these reforms are measures to increase Dubai's attractivity to foreign workers, with the aim of ensuring that they will stay in Dubai for longer and longer by offering high-quality housing for all kinds of different lifestyles. Dubai has something to offer everyone, from suburbia to eco-villages to skyscrapers.

… but there is still some way to go

However, Dubai’s development to what it is currently has not been without any issues. Historically presenting the characteristics of a highly volatile economy, it is no stranger to economic crises, be it a global pandemic or significant and long-term variations in the price of crude oil, which still presents a substantial part of the region’s economy. Thus, there is a need for a diversified economy that focuses on key areas such as technology, finance, and education, amongst others.

One of Dubai's most notable challenges has recently occurred since March 2022. This was when Dubai was placed on the Financial Action Task Force (FATF) grey list because the FATF identified strategic deficiencies in Dubai’s systems to counter money laundering, terrorist financing, and proliferation financing. Having made some critical reforms in the emirate and with close cooperation with FATF, Dubai has managed to tackle these deficiencies. Thus, Dubai is expected to be removed from the FATF grey list.

Reforms like these are crucial for the development of Dubai in the long term as a business and commercial hub, as they allow international actors to gain more and more comfort with doing business in the region.

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