Can Dubai Keep Its Crown

The Dubai International Financial Centre (DIFC) is busier than at any point in its 20-year history. Since 2021, the number of active companies registered there has more than doubled, from just over 3,000 to 7,700. It now employs almost 48,000 people — 21,000 more than before the pandemic, and is preparing for a 1.6mn sq ft expansion by 2027.

The transformation is a far cry from 2009, when the aftermath of the global financial crisis left the district so quiet it was mockingly called the “Dubai International Food Court.” Back then, a $20bn bailout kept the emirate afloat. During the Covid-19 pandemic, Dubai took a different approach, reopening early to attract executives who were locked down elsewhere. That decision proved decisive in drawing bankers from London, Hong Kong, Singapore and Mumbai.

A Growing Global Role

Once regarded primarily as a regional hub, Dubai now aspires to be counted among the world’s major financial centres. Supporters point to the city’s diverse, open economy, stable regulation, and quality of life that has drawn professionals to settle for longer periods. May Nasrallah, a senior adviser at PJT deNovo, said the government had generally supported business so long as companies operated within the rules and avoided political entanglements.

Yet success has brought strain. Housing costs and rents have risen sharply since the pandemic, prompting warnings that prices may be unsustainable. Traffic congestion, particularly around the DIFC, has worsened. Many junior employees say pay has not kept pace with living costs, while the rapid influx of new residents has put pressure on infrastructure.

Rising Regional Competition

Dubai’s greatest challenge may not be cost pressures, but competition from its Gulf neighbours. Abu Dhabi, backed by an estimated $1.7tn in sovereign wealth, is courting asset managers and hedge funds with deep pockets. Saudi Arabia, the region’s largest economy, is pushing consultants and bankers to base themselves in Riyadh rather than fly in from Dubai.

Some in the industry see Abu Dhabi’s lighter regulatory regime as more attractive. One fund manager described the DIFC as “a nice place to have dinner” but claimed the Abu Dhabi Global Market was better suited to trading and deal-making. While the jibe is exaggerated, it reflects an emerging perception that Dubai cannot take its dominance for granted.

Former DIFC regulator Ian Johnston believes Dubai is well aware of the competition. “They would not be complacent,” he said. “They are watching closely what is happening in other centres.”

Reputation and Regulation

Dubai’s rise has not been without controversy. The city’s openness to international capital has made it a draw for banks, hedge funds, commodities traders and, in recent years, Russian businesspeople relocating after sanctions. But it has also led to scrutiny from international regulators.

In 2022, the Financial Action Task Force placed the UAE on its “grey list” for anti-money-laundering shortcomings. The country has since been returned to normal status, but its low-tax free zones still offer limited transparency. Johnston acknowledged the risks: “We have always recognised that financial crime is the greatest reputational risk.”

The DIFC itself has faced scandals, most notably the collapse of Abraaj, once the Middle East’s largest private equity firm. In 2019, the Dubai Financial Services Authority fined two Abraaj companies $315mn for misleading investors and other serious failings.

Expanding Into New Sectors

Despite past issues, Dubai has positioned itself as an early adopter of emerging industries. It has introduced a regulatory framework for cryptocurrencies and licensed global players such as Binance. Supporters say this is part of a broader plan to build a “new economy” hub encompassing digital assets, artificial intelligence and technology services.

The strategy carries risk. Kristian Ulrichsen, an academic who has studied the UAE, warns that concentrating on sectors such as crypto and AI could leave the city vulnerable if the technology cycle turns. For now, however, new arrivals continue to boost demand for office space and professional services.

Infrastructure Under Pressure

The success of both the DIFC and the Dubai Multi Commodities Centre has brought the emirate close to capacity. Developers are planning new towers, but the existing road network is struggling to cope. Stories of bankers missing meetings because of traffic jams a short distance from their offices are common.

Economist Monika Malik at Abu Dhabi Commercial Bank notes that the post-pandemic population surge has lifted domestic demand but also highlighted the need for more investment in infrastructure. The government is expanding public transport and utilities, but demand is rising faster than capacity.

A Balancing Act

Dubai’s position is the product of two decades of strategic policy: open to capital and talent, with light-touch regulation and a lifestyle attractive to international professionals. The city has used this model to draw business from across the Middle East, Africa and South Asia, and increasingly from Europe and East Asia. Chinese banks, for example, are now prominent in the DIFC.

The challenge now is to balance growth with sustainability — ensuring housing, transport and public services keep pace, while defending against rivals offering equally attractive packages. If Dubai succeeds, it may retain its crown as the Middle East’s financial capital for years to come. If it falters, Abu Dhabi or Riyadh could seize the moment.

For now, the DIFC remains at the heart of the Gulf’s financial industry, with expansion under way and confidence still high. But as Johnston notes, the city’s leaders are under no illusion about the competition. In a region where ambition is matched by resources, the battle for financial supremacy is only just beginning.