Dubai: Country and Foreign Investment

On this Page:

- Dubai Geography
- Dubai Population Language and Culture
- Dubai Government
- Dubai Economy and Currency
- Dubai Entry and Residence
- Dubai Business Environment
- Dubai Stock Exchange
- Dubai Gold and Commodities Exchange
- Dubai International Exchange

Dubai Geography

The Emirate of Dubai extends along the Arabian Gulf coast of the UAE for approximately 72 kilometres. Dubai has an area of c. 3,885 square kilometres, which is equivalent to 5% of the country's total area, excluding the islands.

The major part of the Dubai emirate consists of rolling sand dunes lapping the foothills of the arid Hajar mountains in the east.

Dubai city is built along the edge of a narrow 10-kilometre long, winding creek which divides the southern section of Bur Dubai, the city's traditional heart, from the northern area of Deira.

The Ruler's office, together with many head offices of major companies, Port Rashid, the Dubai World Trade Centre, customs, broadcasting stations and the postal authority are all situated in Bur Dubai.

Jebel Ali, home of a huge man-made port, has the largest free-trade zone in Arabia, housing an ever growing list of international corporations which use the zone for both manufacturing and as a redistribution point.

Inland, the mountain resort town of Hatta is an extremely attractive location. Adjacent to a lake reservoir, the Hatta Fort Hotel is set in extensive parkland and provides a perfect base for exploring the nearby wadis and mountains, which extend into Omani territory.

Dubai International Airport is second only to Tokyo in the number of daily transit passengers it handles and second only to Seattle as a sea-air hub. Its harbor is the most important port in the Middle East and is ranked among the world's top 15 in terms of container throughput.

In November 2005, in anticipation of a huge increase in the numbers of tourists, business travellers and rising trading volumes, the Dubai authorities announced the launch of a project to build the world's largest airport in the Jebel Ali Free Zone.

The airport, initially known as the Jebel Ali International Airport (JXB), but since renamed the Al-Maktoum International Airport, will be a massive undertaking, with total infrastrucutre costs expected to hit USD33 billion.

The airport is to being completed in phases, and the first runway of six was completed in November 2007 at a cost of USD1 billion. The airport was opened on 27 June, 2010 with one operating runway and only handling cargo. Passenger flights were expected to commence in the first half of 2011 but it has since been announced that passenger flights will commence during the fourth quarter of 2011 at the earliest. When completed, the airport will have six concourses, and be capable of handling more than 120 million passengers, and more than 12 million tonnes of cargo per year.

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Dubai Population

Modern Dubai is the product of more than 20 years of intensive development. Prior to that, Dubai was a small trading port, clustered around the mouth of the Creek.

It had grown gradually from a fishing village inhabited in the 18th century by members of the Bani Yas tribe. Its origins, however, go back into the far more distant past. The town’s museum displays a rich collection of objects found in graves of the first millenium BC at nearby Al-Qusais, while a caravan station of the sixth century AD was excavated in the expatriate suburb of Jumairah.

Beginning in 1820, Great Britain entered into treaties with various leaders in the area out of a desire to protect its ships in the Gulf and the Indian Ocean. In addition, Britain was allowed to handle foreign relations for the area known as "Trucial Oman" or "the Trucial States" because of the Perpetual Maritime Truce which the Arab rulers signed with the British in 1853. The United Arab Emirates became fully independent on December 2, 1971, although Ras al-Khaimah did not join until 1972.

By the turn of the 20th century Dubai was a sufficiently prosperous port to attract settlers from Iran, India and Baluchistan, while the souk on Deira side was thought to be the largest on the coast, with some 350 shops. The facilities for trade and free enterprise were enough to make Dubai a natural haven for merchants who left Lingah, on the Persian coast, after the introduction of high customs’ dues there in 1902. These people were mostly of distant Arab origin and Sunni, unlike most Persians, and naturally looked across to the Arab shore of the Gulf finally making their homes in Dubai.

Meanwhile a flourishing Indian population had also settled in Dubai and was particularly active in the shops and alleys of the souk. The cosmopolitan atmosphere and air of tolerance began to attract other foreigners too: by the 1930s, nearly a quarter of the 20,000 population was foreign, including 2,000 Persians, 1,000 Baluchis, many Indians and substantial communities from Bahrain, Kuwait and the Hasa province in eastern South Arabia. Some years later the British also made it their center on the coast, establishing a political agency in 1954.

The population has increased tenfold since the 1960s to nearly 1.97 million, and now hundreds of hotels accommodate the expat workers and tourists who help run the economy. Indeed, only around 22% of the emirate’s population, at the last count, were actually ethnically emirati in a population mixture that has to be one of the world’s most cosmopolitan.

This diversity discourages any real ethnic tensions and while war and the threat of war might simmer further north, it creates far less tension in Dubai than many might imagine it would. There are large groups of Indians, Pakistanis, Iranians and Southeast Asians. The population is, however, 95% Muslim. Arabic is of course the official language but English is widely spoken as are Urdu, Malayalam and from the Philippines, Tagalog.

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Dubai Government

There are no elections or legal political parties in the UAE. Power rests with the seven hereditary sheikhs -- also known as emirs, and hence the area ruled by an emir is known as an emirate -- who control the seven traditional sheikhdoms (Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Qaiwain, Ras al-Khaimah and Fujairah -- each emirate is named after its principal town) and choose a president from among themselves. Sheikh Khalifa bin Zayid al-Nuhayyan, the ruler of Abu Dhabi has been President since 3 November 2004, following the death of the UAE's Founding Father and first President Zayid bin Sultan Al Nuhayyan

The Vice President and Prime Minister is the ruler of Dubai, which was Sheikh Maktoum bin Rashid al Maktoum until his death in January 2006, following which the role was assumed by his brother and heir, Sheikh Mohammed bin Rashid al-Maktoum. There is also a Cabinet, and its posts are distributed among the seven emirates. (The members of the Cabinet are the government ministers, such as Minister of the Interior, etc.)

The Supreme Commander of the Armed Forces is the President while the second in command (Deputy Supreme Commander) is Sheikh Mohammed Bin Zayed Al Nahyan, the Crown Prince of Abu Dhabi.

The parliament is known as the Federal National Council (FNC). It was established on 13th February 1972 and is considered a landmark in the country's constitutional and legislative process. The FNC advises the Cabinet and the Supreme Council but cannot overrule them. According to the constitution, the FNC consists of 40 members who are drawn proportionately from each of the seven emirates. Each ruler appoints the members for his emirate.

The FNC is structured as follows:

A Speaker and his two deputies and two elected observers

The Parliamentary Section Executive Committee headed by the speaker, the council's undersecretary, the secretary general and four elected members.

There are also eight specialized committees dealing with studies regarding draft laws and general issues in addition to the legislative, legal, educational, health, social, planning, labour, oil and mineral resources, agriculture and fisheries and public work sectors.

The FNC has powers to amend and review all legislation and also to summon Ministers to review and criticize the work of their ministries.

Despite the fact that there is a federal government, each ruler is completely sovereign in his domain.

The UAE was a founding member of the Gulf Cooperation Council (GCC) created at a summit conference in Abu Dhabi in 1981. The members of the GCC include Saudi Arabia, Kuwait, Bahrain, Qatar, the Sultanate of Oman as well as the UAE. The country is also a member of the League of Arab States, the Islamic Conference Organization, the United Nations.

On January 1, 2003, the unified customs area of the Gulf Co-operation Council came into effect, covering Kuwait, Qatar, Oman, Saudi Arabia, Bahrain, and the United Arab Emirates (including Dubai). As of 2006, Yemen has been in negotiations with the existing member states, and hopes to join by 2016.

In April 2005, the 15th Joint Council and Ministerial Meeting between the European Union and the six member states of the Gulf Cooperation Council in Bahrain took place, focusing on the state of the free trade agreement negotiations between the European Union and the Gulf Cooperation Council.

The two parties agreed that rapid progress was needed on a number of outstanding trade issues, particularly on services, industrial tariffs and public procurement, and noted the importance of a rapid conclusion of the negotiations on human rights, terrorism, weapons of mass destruction and migration issues.

A joint communique was issued after the 20th EU - GCC meeting, which took place on 14 June, 2010 in Luxembourg. In the statement it said that "The EU and the GCC reiterated their continued commitment to the promotion and protection of all human rights and fundamental freedoms, in line with the Universal Declaration of Human Rights and relevant international instruments."

The 21st meeting took place on 20 April, 2011 in Abu Dhabi. The foremost points of discussion were the uprisings and turmoil in North Africa and the Arabian Peninsula. A joint statement said that "The Ministers expressed the view that further strengthening EU-GCC relations would be an effective and valuable contribution to regional security and stability."

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Dubai Economy and Currency

Petroleum has traditionally dominated the economy of the UAE. The immense wealth has been invested in capital improvements and social services in all seven of the emirates. Petroleum production is centred in Abu Dhabi and Dubai. Industrial development is essentially petroleum related and is limited by a lack of trained personnel and raw materials.

After seeing big rises in GDP for many years, the global financial crises afftected the UAE badly mainly because of the country's heavy exposure to depressed real estate prices. GDP in 2010 rose by 3.2% (est.), effectively cancelling out the 3.2% drop recorded in 2009. This was preceded by growth of 7.4% and 6.2% in 2008 and 2007 respectively. Wholesale and retail trade and repair and maintenance were the largest contributors to GDP in 2008 following a successful policy of economic diversification; the portion of GDP based on oil is estimated at 3% in 2010.

The emirate of Dubai is strategically located between Africa and the Middle East and between the Far East and Europe, making it a gateway to over 1.5 billion consumers located in countries surrounding the Red Sea and the Gulf. It has a superb infrastructure with the consequence that it has become a key link in the global transport and distribution system.

Dubai is served by more than 170 shipping lines and more than 86 airlines offering links to over 100 cities worldwide. The strong shipping and transportation sector is composed of most of the leading regional and international freight forwarders, insurers and shipping agents. It has a rapidly developing high quality manufacturing sector and a buoyant and prosperous domestic market. In a nutshell its infrastructure and services match the highest international standards.

Despite a relatively small population, in 2009, total non-oil imports stood at USD150bn. The reason is that Dubai is the major re-export centre for the region. Many of the economies of the region served by Dubai are still at a relatively early stage of development, so there is plenty of long term scope for diversification and expansion in the future. Another important consideration is Dubai's rapidly developing role as a supplier to such emerging markets as India, the CIS, Central Asia and South Africa.

There are no foreign exchange controls, quotas or trade barriers. Import duties are extremely low, and many products are exempt. The UAE dirham is freely convertible and is linked to the US dollar, the currency in which oil revenues are paid. The current exchange rate is AED3.67 = USD1 and no revaluation has occurred since 1977.

In 2003, the government of Dubai set a precedent by launching the country's first ever government bond issue worth AED1.5bn (USD400m).

Following the success of the Jebel Ali free zone, the government has developed Dubai Internet City (DIC), which has a highly developed technical infrastructure.

The DIC occupies 3,200 hectares in the South of Dubai, near the Jebel Ali Free Zone. It offers state of the art facilities and sites for manufacturing, offices, housing, and academic, research, distributions and logistics institutions.

During 2002, Dubai developed plans for the Dubai International Financial Centre (DIFC), which is proving to be a major financial entrepot. The DIFC fills what was once a significant gap in the market for international Shariah banking, fund management and life assurance. One of its biggest selling points is that it appeals to both Arab money looking for a local centre of excellence and Western cash seeking sophistication and safety.

Philip Thorpe, chief executive of the DIFC Regulatory Authority, explained at the time that: "We have...made good use of our freedom to create a single, logical framework - in contrast to older-established jurisdictions, who often have to make (do) and mend within existing frameworks which may gradually become more complex and less relevant."

Deutsche Bank, HSBC and Standard Chartered Bank were among the many international financial sector firms which signed up to be among the first residents of DIFC. By the end of 2010, the number of firms licensed by the Dubai Financial Services Authority (DFSA) to operate in the DIFC had reached 317, comprising 250 authorised firms, 52 ancillary service providers and 15 registered auditors.

It had been hoped that the DIFC would double - to 20% - the financial sector's contribution to the GDP of the United Arab Emirates by 2010, but recently released reports put the contribution at 3.6% for 2010.

In July, 2003, the Federal Cabinet of the United Arab Emirates (UAE) approved a Federal Decree allowing the Dubai International Financial Centre (DIFC) a large degree of sovereignty. The approval of the Decree, which allows for Financial Free Zones to be established in the UAE, marked a significant step forward for the Centre.

In January, 2004, the Dubai Financial Services Authority (DFSA) announced 12 new laws relating to operations within the Dubai International Finance Centre (DIFC), providing a wide-ranging corporate legal envelope.

In 2006, the Companies Law contained in the 2004 package was updated.

In July, 2004, Sheikh Mohammed bin Rashid Al Maktoum acted decisively to guarantee the independence of the Dubai Financial Services Authority (DFSA), giving his personal commitment to the independence of the DFSA and declared that this will be formally enshrined in the Dubai Law which will signal the launch of the DIFC. Dr Habib Al Mulla, Chairman of the DFSA Regulatory Council, said: "The way is now clear for the DIFC when it launches, very soon, to become the powerful engine of business and employment creation that our region needs."

Finally, in September 2004, His Highness Sheikh Maktoum bin Rashid Al Maktoum, Prime Minister of the United Arab Emirates and Ruler of Dubai signed a decree formally establishing the Dubai International Finance Centre.

In addition to confirming the appointment of General Sheikh Mohammed bin Rashid Al Maktoum, UAE Defence Minister and Crown Prince of Dubai as the President of the DIFC, the decree officially created the DIFC Financial Services Authority, the DIFC Judicial Establishments and the DIFC Registrar of Companies.

In April 2007, the Dubai International Financial Centre (DIFC) held an official inauguration ceremony for the DIFC Courts, an independent judicial system which deals with matters arising from and within the DIFC, and which is expected to raise the bar of legal standards within the region.

The Real Property Law, enacted in June 2007, guarantees ownership of freehold land and buildings, and other interest in land, within the DIFC. The Law is based on the underlying principles of English common law, but also incorporates the Torrens system of land registration, well known in countries such as Australia, New Zealand, Canada and Singapore.

Under the Real Property Law, land transactions are registered in a central register administered in the DIFC. Once registered, the Law certifies them to be fully effective. Unlike some other systems of land registration, title interests registered under the Real Property Law are “indefeasible”. In practical terms, this means that persons buying real estate in the DIFC, lending on the security of real estate in the DIFC, or taking a lease of real estate in the DIFC, can be assured that their investment is backed by the full protection of the Law.

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Dubai Entry and Residence

The Naturalization and Immigration Department at the Ministry of Interior is the only administrative authority responsible for issuing visas to foreigners wishing to enter the UAE. The visas issued by the Department differ in accordance with the purpose of the visit of the foreign visitor.

Citizens of GCC countries (Gulf Cooperation Council: Saudi Arabia, Kuwait, Bahrain, Qatar and the Sultanate of Oman) and British nationals with the right of abode in the UK do not need visas to enter the UAE. GCC nationals can stay more or less as long as they like. Britons can stay for a month and can then apply for a visa for a further two months.

The Dubai Naturalization & Residency Department (DNRD) issues different types of visas ranging from 96 hours up to 90 days, depending on the purpose of the visit. Fees vary, from AED165 for a 96 hour short stay visa up to AED1,220 for a long-term 90 day visa.

Whatever kind of visa you request, it will be deposited at the airport for you to collect upon arrival, but there is a charge for this service. If your passport shows any sign of travel to Israel, you will be denied entry to the UAE.

German citizens (both tourists and business visitors) may apply to the UAE embassy in Germany for one or two year multiple-entry visa. No sponsor is required. The maximum duration of stay should not exceed three months a year. The visa fee is AED1,500.

US citizens may apply to the UAE embassy in the US for one to ten year multiple-entry visas. A sponsor is required and the visa will be granted free of charge. The maximum duration of stay should not exceed six months per visit.

A Residence Visa stamped on a passport proves the legal residence of an expatriate in the country. This visa is given to workers who have obtained work permits or for relatives living with them permanently, and additional documentation is required.

In 2003, Dubai, and the United Arab Emirates (UAE) started making a determined push to increase the participation of locals in the work-force under a policy known as 'emiratisation'.

Dr Omar bin Sulaiman, CEO of Dubai Internet City, noted at the time that while the Dubai Internet City was devoted to emiratisation, this would not mean that all UAE nationals would be guaranteed a job there. "Nationals must not take for granted that jobs are waiting for them at DIC, which will scour the market to hire the most dedicated individuals irrespective of nationality. Dubai is a cosmopolitan city and we will look at all individuals of various nationalities to recruit the best. You will secure a job not because you are a citizen but because you are a hard-working citizen."

In June 2005, the body responsible for administering the programme, the National Human Resource Development & Employment Authority (or Tanmia) announced plans to deny work permits and entry visas to firms that do not comply with their prescribed 'emiratisation' quotas.

The Board of Trustees, chaired by Dr Ali bin Abdullah Al Kaabi, Minister of Labour and Social Affairs, decided to step up measures to deny firms not complying with the prescribed Emiratisation quotas the right to obtain work permits and entry visas for foreign labour.

Studies undertaken by Tanmia revealed that in the banking sector only seven out of 47 banks operating in the UAE had achieved their 2004 Emiratisation target of four per cent; that over 19 banks registered a gap of over 10 per cent between the targeted and realised levels; and that the overall Emiratisation percentage realised by the sector was 27.6 per cent. In the insurance sector, only one out of the 46 operating firms achieved the prescribed quota (5 per cent) and that the nationals accounted for only 5.3 per cent of the sector's overall work force in 2004. Practical steps were agreed upon in the meeting to accelerate implementation of the Cabinet resolutions in order to reverse the modest results.

In June, 2004, the Dubai government unveiled plans to enshrine in law rules governing foreign freehold ownership of property.

In March 2006, the long-awaited Dubai property law was issued, but Law No.7 of 2006 stipulated that freehold is limited to UAE and GCC citizens and companies wholly owned by them, as well as public shareholding companies. However, the law also stipulated that upon approval of Dubai's ruler, non-UAE nationals may be given the right to own properties in some parts of Dubai.

In November 2005, meanwhile, as soaring rents and other costs prompted businesses in Dubai to consider relocating to cheaper bases, the government stepped in to ensure that property owners couldn't increase rents by more than a stipulated level over the following year.

The latest decree issued by General Sheikh Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and UAE Minister of Defence, in January 2011, rents in the Emirate can not be raised by more than 20% if the current rental value is 55% or more below the average similar rent. The allowed increases are capped at 15%, 10% and 5% for property rental values 46%-55%, 36%-45% and 26%-35% below the average respectively.

In August 2006, the Dubai International Financial Centre Authority (DIFCA) published draft legislation that would allow foreign freehold ownership of property in the DIFC.

The laws included the DIFC Real Property Law 2006 and the Strata Title Law 2006. These laws, enacted in June 2007, allow for foreign companies and individuals to hold freehold ownership of real estate within the Dubai International Financial Centre.

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Dubai Business Environment

Overseas businessmen will find that their counterparts combine local and regional expertise with a full understanding of international business practices. English ranks on a par with Arabic as the main business language and there are plenty of foreign banks, lawyers and other advisors - as well as the Department of Tourism and Commerce Marketing, The Economic Department, Chamber of Commerce and Industry and Jebel Ali Free Zone Authority to help those wishing to enter the market.

The emirate's transport infrastructure is unrivalled in the region in terms of size, facilities and efficiency. Its ports are served by more than 170 shipping lines and the airport by around 100 airlines.

The postal system in the UAE is very modern and the post offices are among the most efficient in the Gulf. Between the UAE and Europe or the USA, mail takes about ten days. To Australia, mail takes about eight to ten days. There is an excellent telephone system and you can phone anywhere in the world from the most remote areas. Throughout the country there are telephone offices which are equipped to send and receive fax, telex and telegraph messages. Internet use in the UAE in general and Dubai in particular (as evidenced by the creation of Dubai Internet City) is extensive, and the government has developed many effective online portals for accessing services and information.

There is no corporate tax in Dubai. The only exceptions to this are for oil producing companies and branches of foreign banks. Likewise, there are no personal taxes. Direct taxation is against the traditions of the UAE and it is highly unlikely that it will be introduced in the near future. (See Direct Corporate Taxation and Personal Taxation.)

Trade practices in Dubai are in line with normal international standards. All correspondence should be in Arabic or English. As a sophisticated market, full technical specifications should be provided with CIF Dubai prices and Middle East references. Payments are normally effected by letter of credit.

The UAE is a signatory of the General Agreement on Tariffs and Trade (GATT).

The registration of accountants and auditors in the UAE is governed by Federal Law No. 9 of 1975. There is no local professional body of accountants but many of the large international accountancy firms have offices in Dubai. Under Federal Law No.13 of 1988, as amended, all businesses are required to keep financial records but current legislation is not specific as to the nature of such records.

Dubai has many local and international law firms willing to advise foreign business organisations on legal matters.

Dubai has civil, criminal and Shariah (Islamic) Courts of first instance. All court decisions may be brought to the Dubai Court of Appeal. Thereafter, a final appeal may be made to the Dubai Court of Cassation.

The Civil Court (as opposed to the Shariah court) has jurisdiction over labour, civil and commercial transactions, as well as personal matters (e.g. wills, divorces etc) relating to non-Muslims. The language of the Courts is Arabic and advocates admitted to plead are Arab nationals.

However, in addition to these systems, the DIFC has its own court, which held its first session in October 2005. The session was chaired by Sir Anthony Evans, Chief Justice of the DIFC Courts and Mr Michael Hwang, who was recently appointed as the Deputy Chief Justice of the DIFC Courts.

“Today is a historic day for us. We have firmly established what we set out to create – an international financial centre governed by internationally recognised laws and regulations. The first session of the court reaffirms our status as a unique institution in the region, " commented Dr Omar Bin Sulaiman, Director General of DIFCA, at the time.

In 2009, Dubai was for the first time classified as the top destination city in the world for foreign direct investment (FDI) in a special report published by the Financial Times, surpassing the likes of London and Shanghai. The United Arab Emirates (UAE) continued to lead the way in the Middle East and Africa, accounting for 50% of total projects in the region.

In its position as the top destination city for FDI for 2008, Dubai attracted a total of 342 projects, had USD21bn of capital investment and created over 58,000 new jobs. The UAE was once again the leading destination for FDI in the region with 480 projects, capital expenditure of USD35bn and the creation of over 87,000 new jobs in 2008. For the Middle East as a whole, sources show that the total number of FDI projects amounted to 969, with capital expenditure of USD154bn, creating over 237,000 jobs. The financial crisis saw a significant drop in FDI during 2009 and 2010 and investment in Dubai fell to USD4bn in both 2009 and 2010, an increase of 30% is expected for 2011.

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Dubai Stock Exchange

Dubai stock market trading began in March 2000 in the Dubai Financial Market (DFM).

DFM operates as a secondary market for trading of securities issued by public shareholding companies, bonds issued by the Federal Government or any of the Local Governments and public institutions in the country, investment units issued by local investment funds and any other financial instruments, local or foreign, which are accepted by the Market. Located in the Dubai World Trade Center, the Market is regulated by the Emirates Securities and Commodities Market Authority (ESCA). Its rules ban insider trading and enforce transparency rules and release of information guidelines.

The fall of Saddam Hussein in Iraq led to a major influx of investment in the stock markets of the United Arab Emirates, including the Dubai Financial Market, with market capitalisation jumping significantly to reach a level of AED4.5 billion (USD1.23 billion), up 17%, by late 2003.

Abdullah Salim Al Turifi, Executive Director of ESCA, said: "Adoption of stringent regulations and corporate governance, transparency of the companies' half yearly and quarterly profits, restoration of investors' confidence in the stock market regulations and absence of alternative investments opportunities are some of the reasons that helped in local market growth in the last nine months."

DFM has an electronic share registry, order-driven trading and a clearing system that can support six trading floors and link more than 3,000 terminals. Share tickers are displayed on TV, the Internet, Reuters, Bridge and Teletext. Trading hours are 10.00am -2.00pm Saturday through Thursday.

In November 2008 DFM merged with NASDAQ Dubai (see below).

On 11 July, 2010, NASDAQ Dubai outsourced its trading, settlement, clearing and custody functions for equities to DFM as part of a strategy to increase trading volumes. At the same time, the outsourcing created a deep liquidity pool with over 550,000 investors.

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Dubai Gold And Commodities Exchange (DGCX)

The DGCX commenced trading on November 22, 2005, and is the first international commodities derivatives market in the Middle East region. DGCX offers a range of commodities, commencing with gold futures, with electronic trading accessible from anywhere in the world.

Transactions on the DGCX take place on a state-of the-art electronic trading platform.

The exchange is established within the Dubai Metals and Commodities Centre (DMCC), which is a strategic initiative of the Dubai government created to establish a commodity market place in Dubai. The DMCC is also a free zone authority offering 100% business ownership, a guaranteed 50 year tax holiday and freehold property options.

The DGCX is regulated by Emirates Securities and Commodities Authority.

Alongside the DGCX, the newly created Dubai Mercantile Exchange (DME) is likely to focus on energy trading starting with crude futures, and will not compete against the DGCX.

In February 2006, the DME unveiled its plans to launch a new trading hub concept on an electronic trading floor, in an effort to capitalize on local liquidity, draw regional market participants and attract financial institutions from the Middle East and internationally.

Once the trading in futures is stabilised, the DGCX will allow options trading on different commodities.

The Dubai Mercantile Exchange announced in January, 2011 that trading volumes increased by 35% year-on-year with average daily volumes close to 3,000 contracts. Open interest were at record levels during 2010 in its flagship DME Oman Crude Oil Futures Contract (DME Oman) . The DME also achieved a new record for physical delivery of 15.1 million barrels for delivery in September 2010, surpassing the previous high of 13.4 million barrels set in April 2010.

Open interest in DME Oman has been increasing steadily, the latest figure exceeding all previous open interest records. According to the DME, the rise in open interest is a leading indicator of the market’s continuing confidence in DME Oman as the most efficient price discovery and risk management tool in the East of Suez crude oil markets.

DME Oman is the largest physically delivered crude oil futures contract in the world with an average of nine million barrels per month delivered through the Exchange in 2009. Since its launch in June 2007, more than 235 million barrels of Oman crude have been delivered through the DME.

Daily trading averaged 2,898 lots for 2010 with average daily volumes during the last three months of the year rising to 3,152 lots.

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Dubai International Financial Exchange

The Dubai International Financial Exchange (DIFX) opened for trading for the first time on September 26, 2005. It has since been rebranded as Nasdaq Dubai after Nasdaq OMX acquired a one-third stake in the exchange in 2008.

The launch of the first truly international stock exchange located between Western Europe and East Asia took place at a ceremony at the Dubai International Financial Centre (DIFC), where the DIFX is located.

The stated aim of the DIFX is to become the leading exchange in its region for equities, bonds, funds, Islamic products and other securities, and a gateway for international and regional investment.

It is the first exchange in the region that has been created to list securities from many different countries. UAE companies are able to list shares on the DIFX by setting up a holding company in the DIFC. Companies seeking listings on the exchange must have a minimum market capitalisation of USD50 million.

The exchange is additionally regulated in such a way as to allow companies which list on it to determine the portion of shares that they want to offer to the investing public. This flexibility is designed to encourage family-owned businesses and government entities discouraged by the current UAE lower listing limit of 25% to list on the bourse.

The DIFX market opened with the listing of five Deutsche Bank securities. These are index tracking certificates, which cover the US S&P 500, the German DAX 30, the Japanese Nikkei 225, the EuroStoxx 50 and the Stoxx 50.

The DIFX opened with four member banks – CSFB ( Europe) Ltd, Deutsche Bank AG, HSBC Bank plc and UBS AG. In 2007, it had 19 member brokers, including leading international and regional banks.

In August 2007, the Dubai Government announced the consolidation of its holdings in the Dubai Financial Market (DFM) and Dubai International Financial Exchange (DIFX) into a new holding company, Borse Dubai.

The government stated at the time that the move was in line with the Dubai Strategic Plan 2015, and demonstrated its commitment to position Dubai as the leading capital market in the region.

DIFX and DFM continue to be regulated by the Dubai Financial Services Authority (DFSA) and the Emirates Securities and Commodities Authority (ESCA) respectively.

Explaining the role of Borse Dubai within the new structure, DFM Chairman Essa Kazim, who was appointed as the Chairman of Borse Dubai, said that the company is intended to be a facilitator, allowing DIFX and DFM to explore joint opportunities for the development of capital markets in the region and in the broader context of global exchanges.

He commented at the time of the announcement that:

"Both exchanges will share best practices, maintaining operational efficiency at international standards. Borse Dubai will boost confidence among issuers, investors, and intermediaries who will benefit from a presence in both exchanges, as well as a broader and more varied range of services."

The DIFX has ambitions to become the exchange of choice for the listing of Islamic finance instruments, and took major steps towards this goal with the listing of over 100 Sukuks, or Islamic bonds, in 2007. In fact, as 2007 drew to a close, the DIFX was already the largest exchange in the world for Sukuk by listed value, at USD13.78 billion.

In October 2007, the DIFX announced that it was preparing to list a range of Islamic structured products that will offer investors new Shariah-compliant opportunities on a new platform known as TraX. Created by the DIFX in August 2007, TraX is the only structured products platform in the region, and major banking institutions including Citigroup, Deutsche Bank, Merrill Lynch and Morgan Stanley plan to list conventional and Islamic products on the platform.

Per E. Larsson, then Chief Executive of the DIFX, stated at the time that: “The structured products market is growing rapidly around the world and the DIFX is at the forefront of expansion in its region.

In December 2007, Dubai's Jebel Ali Free Zone listed a AED7.5 billion (USD2.04 billion) Islamic bond, or Sukuk, on the DIFX, confirming the exchange’s status as the largest in the world for Islamic bonds.

The DIFX is also a significant draw for the listing of conventional bonds, and in February 2007 Dubai Holding Commercial Operations Group (DHCOG) listed bonds worth USD2.46 billion on the exchange, in the largest corporate bond issue in the Middle East under a European Medium Term Notes (EMTN) programme.

Commenting on the listing, Mohammed Al Gergawi, Executive Chairman of Dubai Holding, stated that: “The DIFX is a gateway for both regional and international investors. Following its rapid growth, the DIFX is the ideal platform for Dubai Holding to list this important issue of bonds, the first it has ever made. As an exchange that operates to high international regulatory standards, the DIFX provides expanding opportunities for the business and financial community.”

In March 2008, the DIFX announced the composition of its new Board of Directors following the closure of a deal between the DIFX, Borse Dubai Ltd and the Nasdaq Stock Market, Inc., which resulted in the Nasdaq OMX Group, Inc. acquiring a 33.3% stake in the DIFX. The two new DIFX Board members were Robert Greifeld, Chief Executive Officer of Nasdaq OMX Group and Adena T. Friedman, Executive Vice President, Corporate Strategy of Nasdaq OMX Group. The rest of the DIFX Board membership remained unchanged and comprised: Soud Ba’alawy (Chairman), Per E. Larsson (Chief Executive Officer), Maha Al-Ghunaim, Bisher Barazi, Mohamed Binbrek, Essa Kazim, Gerald Lawless, George Möller and Shadi Sanbar. Larsson has since vacated his post to be replaced by former Nasdaq executive Jeffrey Singer.

The year 2008 also saw the first dual listing take place on the DIFX, that of Netsol Technologies Inc., a California-based IT company with extensive interests in the Middle East, which is also listed on the US Nasdaq exchange. Furthermore, 2008 also saw the first Chinese company, (China Security and Surveillance Technology, Inc.) list its shares on the DIFX.

In November 2008, The DIFX rebranded its market as Nasdaq Dubai, reflecting the growing links between the DIFX and the Nasdaq OMX group.

Nasdaq OMX acquired a one-third stake in Nasdaq Dubai in February 2008. The other two-thirds is owned by Borse Dubai.

Bob Greifeld, Chief Executive of Nasdaq OMX Group and Vice Chairman of Nasdaq Dubai, said, "Nasdaq Dubai provides a first-class venue through which Nasdaq OMX listed companies can reach new investors in the Gulf and the Middle East. We've attracted 29 companies to our first Middle East investor conference here in Dubai and there is clear and tangible interest in this market. At the same time, we can provide local investors with opportunities to invest in innovative, growth-oriented companies." Greifeld added, "To facilitate dual listings on Nasdaq Dubai, we have created a streamlined listing process for companies looking to have a secondary listing here."

On November 4, 2009, the International Finance Corporation, an affiliate of the World Bank, listed an Islamic bond, or Sukuk, on Nasdaq-Dubai. The IFC Hilal Sukuk is a dollar-denominated USD100m issue, AAA rated, with a five-year maturity.

While this is a symbolic amount compared to some of the mega-Sukuk, the Hilal Sukuk offered by the IFC set a milestone for Islamic Finance and for financial markets in the Gulf Cooperation Council (GCC). It was the first time that a non-Islamic financial institution has issued a Sharia-compliant security for term funding.

It was also the first time that a sizeable Sukuk was listed exclusively in the Gulf, ie. on Nasdaq Dubai and the Bahrain Stock Exchange, which represents an acknowledgment of the progress made by the emerging financial sector in the region, in terms of liquidity, but more importantly in terms of the trading, clearing and settlement, and the legal and regulatory environment.

In 2010, equities trading volumes on the Nasdaq Dubai exchange fell by 15% to 2.62 billion shares, compared to 3.10 billion in 2009. However, 2010 saw a value increase of 22% to USD1.31 billion.

The exchange introduced mandatory reporting of all over-the-counter equities trades in September 2008.

Equity derivatives volumes totaled 125,000 in 2009, with 73% of the volume taking place in the second half of the year as the market expanded. A total of 14,100 derivatives traded in December 2009, down 31% from the November 2009 figure of 20,490.

Nasdaq Dubai launched its equity derivatives market in November 2008. Equity futures are listed on 21 individual UAE companies and on the FTSE Nasdaq Dubai UAE 20 share index, which was designed as a hedging and investment mechanism for Gulf Cooperation Council and international investors. The index rose by 48% in 2009 to 1,851.

A total of 81,522 Dubai Gold Securities (DGS) traded in 2009 following their listing in March, with 52% of trades taking place in the last quarter of the year. In December, 641 DGS traded, down from 40,668 in November.

Each DGS security is valued at approximately 1/10th of the spot price of gold. DGS are an initiative of the Dubai Multi Commodities Centre and the World Gold Council and have been declared Shariah-compliant.

The previous month, the exchange announced that it had accepted a USD121m takeover offer from the DFM. Commenting at the time, Essa Kazim, Executive Chairman of the DFM, said: “With this transaction, DFM will gain a wider array of product offerings for investors and a clearer path to integrate certain back office and technology functions with Nasdaq Dubai. Unifying the ownership structure of the two exchanges will further strengthen Dubai's leading role as a center of capital markets and innovation that places the interest of investors, issuers and brokers first."

Jeff Singer, Chief Executive of Nasdaq Dubai, added: "The combined strengths of the two exchanges will help attract new issuers, from across the region and internationally, who will be able to choose which of the two exchanges is appropriate for them according to their commercial and regulatory preferences. Through the ownership structure and closer operational links between the two exchanges, Dubai will achieve its goal of creating a powerful capital markets hub for the GCC and the wider Middle East."

The completion of the transaction was expected to take place six weeks after the December 22, 2009 announcement. However, it was in June 2010 that the move was completed and DFM became majority shareholder of Nasdaq Dubai.

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