For the past two to three decades in particular, the world has witnessed a changing economic landscape; one that has shifted from heavy industry and manufacturing companies to technology and digital companies. Dubai is playing a significant role in moving the UAE’s digital economy forward by embracing, advocating, and pioneering innovative concepts and technologies including the Metaverse, Web3, blockchain, artificial intelligence, and digital assets.
The diverse expert panel shared thoughts on Dubai’s journey to becoming a digital economy and what mechanisms were needed to monetize it.
â—¾ Mark Beer, OBE, Co-Founder, Seven Pillars Law
â—¾ Raed Safadi, Chief Economist, Whiteshield
â—¾ Neil Petch, Co-Founder & Chairman, Virtuzone
â—¾ Alan Griffin, Partner, Head of Digital Practice, Consulum
â—¾ Moderator: Karl Tlais, Co-Founder, CEO, iAdvisory
Raed Safadi The UAE aims to double the contribution of the digital economy to GDP by 2031. The current size of the UAE economy is USD 4,445 billion, of which, by 2031, the digital economy will contribute USD140 billion. Point to note is that the median age in the UAE is 32.6 years, and it is this young population that will carry us into the digital economy with the targeted ambition.
Alan Griffin: Singapore has virtually reached that number already, and it serves as an excellent reference point. Their approach for the past two decades has focused on investing in individuals, technological advancements, upskilling the workforce, and actively seeking to establish major corporations’ headquarters rather than just customer or sales offices. This strategy significantly contributes to fostering innovation, promoting tech-related projects, and attracting other affiliated entities.
In Saudi Arabia, there is a significant investment in transformation. However, compared to Dubai, they are lagging by about ten years, due to a skills and knowledge gap. A noteworthy aspect in Saudi Arabia’s strategy is using gaming, which is a fascinating lever.
Mark Beer: In 2016, Dubai emerged as the leading global hub for blockchain technology with a comprehensive blockchain strategy. This marked the beginning of its transformative journey into the next phase. The city is currently undergoing an extensive transformation, displaying unwavering enthusiasm and a plethora of talent. The government aims to grant 100,000 golden visas to traders and distribute 40,000 digital visas, which are set to further catalyse the thriving economy of the city.
It is the top-ranked passport globally for citizen travel. Why can’t we establish a business license in Dubai, which operates like a portable passport? This would align with the concept of a digital economy, enabling seamless and effortless global business operations from within Dubai. Additionally, as individuals, we desire the ability to travel worldwide. It would be exceptional if the Dubai government extended this service globally, allowing businesses to enjoy business or first-class flights through a Dubai system.
If you possess a license for conducting global business operations and have access to financial services, the final missing element lies in having a universally accepted currency. Enter the UAE’s digital currency, a global form of currency, which empowers you to bolster the business ventures you are engaged in through your financial services under the umbrella of global licensing. This seamless and unrestricted environment is pivotal in transitioning Dubai’s economy from a primarily domestic focus, involving limited localized visas and a few fintech professionals in the IFC, to a compelling worldwide value proposition.
Karl Tlais: What are key economic indicators to ensure long term success in monetizing this economy?
Raed Safadi: The GDP growth rate for the UAE was 3.3% – 3.4% in real terms last year and inflation is currently at 3.4% – 3.5%. From an economic standpoint, the digital economy, like any sector, is comprised of various components such as taxation, competition policy, and data protection. Ensuring fair competition and safeguarding data privacy are key challenges within this domain.
Handling of data and compliance with the UAE 2021 data privacy law prohibits the sale of data for profit. In this context, it is important to discuss how to promote fair competition and prevent one entity from dominating the market. This issue is particularly relevant as competition policies are currently undergoing significant revisions.
To ensure optimal returns on investments in the ICT sector, a policy will be implemented in the UAE to track the multiplier effect of such investments. For every dollar invested in ICT, there is a multiplier effect of 1.9, which is quite healthy. This has attracted significant interest, as evidenced by Dubai attracting USD1.2 billion in start-up investments last year, the highest in the region.
In the Arab region, there is a significant disparity in the funding attracted by different countries for startups, with Dubai attracting USD 1.2 billion compared to Saudi Arabia’s USD 533 million. This difference is notable given the population size difference between Dubai and Saudi Arabia. It emphasizes the importance of considering numerous factors, such as competition policies and balancing consumer and business interests, when promoting business growth. Careful navigation of these challenges and trade-offs is crucial, especially when aiming to develop industries like ICT in the region.
The government has already invested in R&D and innovation, indicating their commitment to the game. Competition policies are being implemented to ensure fairness and consumer protection. These factors present challenges in implementing new initiatives, requiring careful consideration of trade-offs and proper testing before making decisions. Sandboxes, like those in Dubai, DIFC, Abu Dhabi, and Adam, are utilized in policy development and implementation.
The Central Bank of the UAE has implemented sandboxes, but why are they necessary? If these concepts are beneficial, why not integrate them into the mainstream economy? The reason we do not do this is due to the associated risks and trade-offs.
Alan Griffin: There are risky yet intriguing opportunities in certain sandboxes, such as gambling in the UAE, particularly in RAK. Observing its impact on economic growth could be compelling. The UAE’s 12th ranking in the Digital Competitiveness Index raises questions on how to achieve the top position for further growth. Sandboxes offer opportunities for innovation and growth, but scaling initiatives and attracting creative minds to establish successful companies remains a key challenge, especially in accessing markets within the region despite the UAE’s small market size.
Neil Petch: The country is known for quick decision-making and attracting investors looking for fast returns. The demanding environment and lack of legacy issues allow for swift progress on many big projects. The recent rise of cryptocurrency has seen various risky and unregulated entities operating in the sector. Despite potential negative consequences, the technology behind these companies is efficient and resilient. Cryptocurrency appeals to individuals frustrated with traditional banking systems, high fees, and lengthy processing times.
We recently announced a joint venture with a company that enables small businesses to tokenize a portion of their business for cash infusion. Startups worldwide often face challenges in accessing funds, including opening a bank account and securing financial support to fuel growth. Tokenization offers a unique and expedited alternative for raising capital. Through partnerships with Visa and Mastercard, Vara is working to streamline this process for businesses in Dubai and beyond.
The UAE is on the cusp of becoming a global hub for fundraising, with the potential to attract top talent and establish itself as a rival to Silicon Valley. The thriving community of skilled individuals in the region has been a result of factors such as the high standard of living and safety. The focus going forward should be on demonstrating that funding opportunities can be found in the UAE, with efforts towards fostering relationships and highlighting the region as the new epicentre of innovation and entrepreneurship.
Karl Tlais: What are your thoughts on taxation in the digital economy?
Alan Griffin: An important discussion arises regarding the necessity of paying taxes. In the context of the UAE’s future economy, which may no longer rely heavily on oil revenues, there remains a need to generate funds for developing essential services and creating a top-tier infrastructure to attract residents. The challenge lies in finding innovative ways to adapt to the digital world and the globalization of data, determining who should bear the taxation burden and how to efficiently collect and manage these funds. Should the focus be on taxing service providers or directly charging consumers at the point of sale? These are pivotal questions that need to be addressed in a strategic manner.
Mark Beer: Tax was introduced in this country by international organizations with the nudge that it was a customary practice among other nations. This tax will carry through to the monetization of the digital economy. Reflecting on Dubai’s historical transformation from oyster trading to gold trading, and then to oil trading, we can see a pattern of adapting to existential threats. For example, the shift from oyster trading to gold trading was prompted by the Japanese producing pearls, while the transition from gold to oil was influenced by the threat of reduced revenue due to restrictions on gold imports by Indians and Iranians.
Dubai’s shift to the hub model posed a significant challenge as it was running low on oil reserves. Unlike in the past, where existential threats prompted the city to make strategic changes, Dubai currently thrives on revenue from various sources such as real estate, traditional economy, licenses, and visas. This has led to a different mindset among the leadership, as there is no immediate need to transition to a digital economy. Dubai has the luxury of observing and learning from others before making a move. Looking back at Dubai’s history, it raises the question of whether past existential threats were the driving force behind transformative changes or simply functioned as catalysts for preexisting plans.
Raed Safadi: Though the decision to implement a minimum tax on profit was nudged by the G7, it is likely that even without this dictate, as economies mature, they would have eventually implemented some form of corporate tax system. Whether influenced externally or not, the international decision accelerated the adoption of corporate taxation within individual countries.
Karl Tlais: What are your thoughts on gaming and the digital economy?
Neil Petch: Saudi Arabia is investing heavily in e-sports and other sports sectors to attract more attention to the region. I believe that accelerating this development will benefit Dubai as a neighbouring regional hub because people, including the relevant talent, still prefer to live here. Dubai should make the most of this development in the region.
Karl Tlais: Is technology still the primary driver for IP development and investment opportunities in this region, leading to growth and expansion in the digital economy?
Mark Beer: We require an existential threat to prompt a strategic shift, as we have in previous cycles. It is a valid observation that Saudi Arabia could serve as the catalyst for to propel itself into a new phase of digital economic development.
Raed Safadi: The UAE has already pivoted towards digitalization. The implementation of the smart government UAE strategy in 2013 paved the way for the introduction of the UAE pass and various digital technologies. This foresight in embracing digital advancements resulted in a 99% penetration rate of digital technologies in the UAE. The goal of increasing the digital economy’s GDP by 2031 is a tangible objective, with significant investments being made in this direction, including regulatory measures. The launch of the metaverse strategy further underscores the country’s commitment to embracing digital innovation.
Neil Petch: Currently, in the UAE, our reliance on the US dollar and central bank is substantial, leading to significant profits for these entities. Recently, India has begun to assert its influence effectively. This trend suggests a shift in the global economic landscape, with the UAE aligning itself with the expanding BRICs nations. The announcement yesterday allowing the use of Visa cards for seamless transitions between crypto and fiat currencies is a positive development.
Governments are actively trying to gain maximum control over innovative technology to establish their own currency and effectively track and tax all digital assets. This level of control is concerning as it limits individual freedoms and increases government oversight. However, some progress has been made towards decentralization, with the UAE partnering closely with leading banks to drive innovation in this area. I anticipate a number of forthcoming announcements introducing innovative payment methods in the next 12 months. It raises the question of why we need to go through the hassle of transferring funds to USA first, to get the funds to a country just an hour away.
Concluding thought echoed by all the panellists: The future is bright with enormous potential and borderless.