UAE vs Singapore, the old duel, is rising to the next level as both economic powerhouses face tailwinds and headwinds. The UAE is in danger of pricing itself off the market with rising office rents and the introduction of VAT in 2018, while Singapore feels the heat from China’s slower growth.
Also, both countries, with strong UK ties, will face repercussions due to Brexit negotiations. Meanwhile, each tries to grab a share of the Fourth Industrial Revolution, with the rise of drones, autonomous cars, the Internet of things (IoT) and Artificial Intelligence.
There was a time in the first decade of the New Millennium when Singapore was mentioned as a role model at almost every conference in Dubai and Abu Dhabi. Nowadays, the name “Singapura” (the name is from Sanskrit and means “lion city”) can only sporadically be seen on PowerPoint slides in UAE ballrooms, and “S’pore” is rarely overheard during swanky chats at gala dinners.
Internet of everything
Today, the two rising stars are partners and rivals alike. With the fourth industrial revolution embracing all levels of life in which both Dubai – the UAE’s business hub, with ten million inhabitants – and Singapore are strong at, the race is on for a new round in the decades-long Arab-Asian healthy competition.
Dubai, the future host of World Expo 2020, is regarded the most dynamic and diversified Arab metropolis, according to the World Economic Forum. Earlier in April, UAE Vice President, Prime Minister and Ruler of Dubai Sheikh Mohammed Bin Rashid Al-Maktoum officially launched the UAE Mars 2021 program with the aim of sending a probe to the Red Planet by 2021 and to settle it by 2117.
A week later, Dubai Crown Prince Sheikh Hamdan Bin Mohammed Al-Maktoum, who is also Chairman of the Dubai Executive Council, launched Smart Dubai 2021, whose goal is to make all government services paperless by that year, including the foundation of a firm.
However, Singapore (with 5.4 million inhabitants) still ranks behind London as the best global hub for companies to do business in, revealed a study by consultancy firm PwC.
“Both cities are good places to do business and banking, as they play an important role in connecting their respective regions with the world,” says Julian Wynter, CEO – UAE of British bank Standard Chartered.
E-business in both metropoles is going strong. Authorities of both nations have started to deploy drones and robots for security purposes, while smartphones have become must-haves for white-collar UAE residents or Singaporean citizens. In 2016, nine out of ten Singaporeans had a smart device in their pockets, while some statistics indicate that, in the UAE, eight of ten residents use their smartphone to pay electricity bills or parking tickets and to order pizza or coffee via the hundreds of apps that have mushroomed over the years.
The Dubai International Financial Center (DIFC), where Standard Chartered runs the biggest building, has launched the Fintech Hive, a platform for fintech start-ups from across the globe, which aims to become an incubator for the next generation of financial services. “We’re delighted that Fintech Hive at DIFC has attracted applications from start-ups in the UAE and across the world. With more than $23.2 billion invested in global fintech deals in 2016, the program is filling a considerable gap in the market by linking innovative tech thinkers to financial industry leaders in an ecosystem that accommodates the full supply chain,” Raja Al-Mazrouei, acting executive vice president of Fintech Hive at DIFC, tells TRENDS.
According to Shamel Janbek, Chief Technology Officer at China’s ICT giant Huawei: “By no means is Singapore the leading smart city in the world, but Dubai is determined to take over this role in the coming years.” He adds: “I think Dubai is very close to surpassing S’pore soon.”
Both cities, however, are also in slowdown mode. Rents for residential units in Dubai have plummeted in the wake of the slump in oil prices. A lackluster local stock exchange Dubai Financial Market (whose main index DFMGI lost 3.93 percent in the first half of 2017, compared to the +8.03 percent performance of the US Dow Jones Industrial Average during the same period) reflects the uncertainty over the further direction of oil, stuck at roughly $50 a barrel. Then there is the value-added tax (VAT), which will be introduced across GCC countries starting 2018, putting additional cost pressure on individuals and corporations alike.
Office rents, on the other hand, have not been lowered significantly, diminishing the chance for firms that hoped lower rents would mitigate the effect of VAT.
Euler Hermes, the world’s leading provider of credit insurance solutions, said in its latest analysis that Singapore “is stuck in a slow growth mode”. While the analysis praises the city-state’s “stable political system and effective policy making”, it adds that Singapore’s “exports growth continues to disappoint in 2016”. GDP growth is expected to improve by 0.5 percent to 2.5 percent in 2017, but “it will remain well below the ten-year average (+5 percent 2006-15)”, added Euler Hermes.
The two metropoles share China as their biggest trade partner, so they are exposed to the slowdown of the world’s second-largest economy, which is expecting only 6.5 percent GDP growth in 2017. Last year, China’s GDP grew 6.7 percent, the slowest increase in 26 years.
Dubai and its rival also suffer from the repercussions of Brexit due to both having historically strong ties with the UK – this is despite near-desperate declarations by British decision makers on an almost daily basis that Brexit will have “no impact” on UAE-UK ties. Because business confidence and the pound sterling plummeted in the UK, a growing number of British firms closed their Gulf branches, among them asset management firm Killik & Co. which pulled out of DIFC at the end of 2016.
Impressed by the speed and precision with which Singapore, a non-oil state, transformed itself into a regional powerhouse for trade, finance, aviation and tourism in once-unstable South-East Asia, the leadership of Dubai implemented similar strategies designed to lift the emirate’s profile as the hub of choice in its region and beyond.
In March this year, the Dubai Gold and Commodities Exchange (DGCX) – the biggest of its kind in the Middle East in relation to international regulatory standards, scored a major point against Singapore when it listed the DGCX Shanghai Gold Futures Contract. The Contract, which the exchange said uniquely allows access to the Chinese gold market, traded a total of 2,946 contracts between the day of listing on March 10 until the end of April, said the exchange.
Following the signing of a deal between the DGCX and the Shanghai Gold Exchange (SGE) in October 2016 during the promotional “Dubai Week in China”, the listing of the Shanghai Gold Futures Contract marked “the first-ever usage of the Shanghai Gold Benchmark Price in international markets,” said Gaurang Desai, CEO of the DGCX.
Paresh Kotecha, Chairman and CEO of Dubai-based commodities trading firm Richcomm Global Services, told Chinese news agency Xinhua in an interview: “The Shanghai Gold Futures Contract has given the DGCX a decisive advantage over Singapore, because in the Southeast Asian city-state Chinese gold futures are traded over the counter, but not as a standardized futures contract.”
In comparison with the past, differences are visible. Singapore was occupied by Japan during World War II after Britain suffered “the worst disaster and largest capitulation in British history” in 1942, according to Winston Churchill.
Dubai, on the other hand, was never occupied by foreign suppressors. Like the other sheikhdoms, Dubai was part of the “trucial states” from 1820 to 1971, whereas the ruling Arab families granted the British access to its ports in exchange for protection against pirates and possible foreign invaders. The agreement ended when the late Sheikh Zayed Bin Sultan Al-Nahyan founded the UAE on December 2, 1971, and became its first President.
Today, the race is on between Dubai and Singapore to determine who will make it as the best metropolis in terms of e-citizenship, IoT and fintech. With China’s One Belt and One Road strategy aiming to revive the ancient Silk Road across East Asia, the Middle East, Africa and Europe, the two financial centers are eager to get a slice of the trans-national cake.
In addition, both the UAE and Singapore are members of the Beijing-based Asia Infrastructure Investment Bank (AIIB) which functions as a catalyst to steer capital into infrastructure projects along the New Silk Road.
Connecting the world
Nevertheless, the two progressive nations remain rivals on several fronts. Dubai’s free port Jebel Ali, the biggest man-made container port in the world, connects Europe and Africa with Central and East Asia. Meanwhile, the port of Singapore is the world’s second-busiest and the busiest transshipment port globally.
From Dubai, passengers fly in approximately eight hours to Beijing and Johannesburg, as well as to London and to Singapore. Even as Singapore Airlines, in 2007, was the first commercial carrier to add the Airbus A380 to its fleet, Dubai’s government-controlled Emirates Airline, over the years, became the biggest customer of the Superjumbo made in Europe.
Emirates has 94 A380 aircraft in service and 48 units of the twin-deck plane on order. Thanks to the strategic partnership it entered into with Australia’s largest carrier Qantas in 2013, the Emirates and Dubai International Airport, known as DXB, achieved a major victory over its close rival Singapore. This alliance also meant that Qantas ditched Changi Airport for DXB as the stop-over for flights to the Europe and elsewhere.
In spite of the competition, the UAE and Singapore enjoy excellent diplomatic relations, too. It is no coincidence that the DIFC Courts is led by Singaporean Chief Justice Michael Hwang and the UAE’s second financial free zone ADGM is supervised by Hwang’s countryman Richard Teng, CEO, ADGM Financial Services Regulatory Authority. He headed the regulatory department of the Singapore exchange SGX for 7.5 years.
For Dubai, there might be light in the tunnel (if not at the end of the tunnel). On June 11, Emirates NBD said the seasonally adjusted Emirates NBD UAE Purchasing Managers’ Index (PMI), a composite indicator designed to feel the pulse of operating conditions in the non-oil private sector economy, fell from April’s 26-month high of 57.7 to 55.0 in May. While a slight decline of the index was recorded, it “was comfortably above the neutral 50.0 threshold and was in line with the long-run series average”, said the lender. “May data highlighted a robust improvement in the health of the non-oil private sector, with output and new orders expanding at a sharp rate. That said, the respective rates of expansion eased since April,” added the bank.
However, the introduction of five percent VAT across the GCC by 2018 puts UAE growth prospects in limbo, as analysts expect a further increase of administration costs and a dampening of the consumer sentiment due to the implementation of the indirect tax. Here, the UAE can certainly get a few cues from Singapore, where the VAT is seven percent. Over the years, Singapore has mastered the formulation of a robust mechanism to maintain a balance between the overall earnings and the tax regime