Much has been written about the collapse of Dubai based private equity firm Abraaj, and more recently the media’s glare has turned to the local regulator.
The Dubai Financial Services Authority is suffering a bruising period over its role in this sorry episode, which was not pacified by its issuance last week of a chunky fine – its largest ever.
Clearly, there is a broad and concerted effort being made to demonstrate the scandal is now firmly in the past. Prominent local industry figures have argued that the region has moved on, the main characters await trial in the US, probes have been launched, and of course there is that $315 million fine. Perhaps everyone should now move on?
If only it were that simple. My sense is that the legacy of Abraaj will haunt the region’s credibility as a financial centre for many years to come.
A favourite saying amongst PR people is reputations take years to build but only moments to destroy. That is particularly true in this case. Foreign investors have long questioned just how robust and well governed the UAE’s financial ecosystem really is, and what happened at Abraaj has cut to the core of these fears; validating and entrenching them. If you need convincing on that point, just look at the current levels of deal flow.
This was never going to be a quick fix. Encouraging words, calls for more oversight and new fines cannot rebuild a reputation alone. So while the literal crisis might very well be over, it will take time and much hard work to restore trust and confidence – to recover.
But, there is a clear path to recovery lying ahead – and in fact something much more than that – if there is willingness to follow it.
First and foremost, the country’s authorities and leadership needs to face up to reality. This is a defining moment for the Gulf region. They can either shrug it off and just move on applying some sticking plasters here and there, or they can see this as more existential and an unique opportunity.
I propose they do the latter. Like a phoenix from the ashes, the UAE – and Dubai in particular – has a chance to completely reposition itself, and with fresh purpose too. The slate can and should be wiped clean and a new, positive and ambitious approach to the country’s financial markets and its governance created.
There will of course be set backs and distractions on this journey to recovery. But space for serious and unhindered decision taking has been made. Many of the obstacles holding the country back over the last decade can now be tackled front on, like addressing the lamentable liquidity of its stock exchanges, launching and enforcing tough new codes of conduct in capital markets, and most importantly setting out a vision to lead the world in transparency and governance, ridding itself once and for all of the toxic perception of being a safe haven for loose regulation and money laundering.
It is time to be famous for governance, as well as floating sea horse hotel rooms or the world’s tallest building.
There is certainly sufficient leadership, talent and ambition in the UAE to deliver this change. But there must also be a desire to communicate fully and openly through each and every step of the way, and that includes talking openly and transparently about setbacks. No one in financial markets likes uncertainty so managing expectations early and properly is key to hurdling the inevitable obstacles.
To some, this may all sound an unlikely journey for a place like the UAE, but as Mark Twain once said: the first step is to take one. But, more seriously, there is already a legacy of making the impossible happen in Dubai, and turning the city into a respectable financial hub would be a huge achievement; every bit as impressive as The Burj or The Palm.
In my mind the real journey of recovery for the UAE begins with a simple apology from the top. We are sorry we let the market down but we will emerge much stronger and much better from this. That moment of honesty and vulnerability unlocks the right to truly recover, and more specifically the right to paint a clear, step by step vision of the future. The work of renewal can then begin in earnest.
And when that is done, years from now, it won’t just be Emiratis who argue they have moved on from Abraaj. It will be everyone.
Sam Turvey is a Partner at Maitland/AMO in London. He worked in Dubai between 2012 and 2016.