The news this month that the various emirates do not contribute evenly to the federal budget should not have come as a surprise to many Emiratis. In 2010, Abu Dhabi will contribute Dh17 billion of the Dh43.6 billion total budget and Dubai will allocate an additional Dh1.2 billion, according to figures published in The National. The remainder of about Dh25.4 billion will be paid by the revenues earned by federal bodies.
The Northern Emirates must understand that what they invest in the federation will only be multiplied in the most positive sense in terms of the value created by federal expenditures. If an emirate contributes even Dh100 million, the "return" provided by federal ministries that spend more than Dh43 billion each year will more than make up the expense. But how can the country cover a federal budget shortfall of Dh18.2 billion, which is now carried by only Abu Dhabi and Dubai? One way of generating cash flow would be through the introduction of a tax regime. The issue of personal income taxes may be far too sensitive and complicated due to the bureaucracy needed to ensure that individuals declare their real income. But there is one group that is already declaring revenues - publicly listed firms.
In 2009, the top 25 listed firms in the UAE by market value registered profits of nearly Dh35 billion, according to Bloomberg. If a 10 per cent tax on the profits of these listed companies was levied by the federal government, it could rake in about Dh3.5 billion. A great step forward was taken in November 2007 when Sheikh Khalifa bin Zayed, the President of the UAE, issued an Emiri decree to establish the Emirates Investment Authority (EIA). Led by the savvy Emirati investor Sheikh Mansour bin Zayed, the EIA looks after federal government holdings in more than 30 corporations, including Etisalat, Du, Gulf International Bank, United Arab Shipping Company and Gulf Investment Corporation. And in the wake of the financial crisis, EIA could play an even bigger role with a new and energised board of directors.
In terms of the individual emirates' contributions to the federal budget, they should be calculated not just in terms of cash provided, but also include the costs of certain infrastructure projects in that total. The purpose of this construction, which includes federal government buildings, is to serve the federation. It would encourage these kinds of key projects by acknowledging the contributions of the emirates' to the union as a whole.
The 2008 figures for the UAE's gross domestic product - the value of all goods and services the economy produced - provide some perspective on the size of the individual contributions of each emirate to the federal budget. In2008 the country as a whole registered GDP of Dh934 billion with the share of each emirate as follows: Abu Dhabi Dh520 billion, Dubai Dh301 billion, Sharjah Dh72 billion, Ras Al Khaimah Dh16 billion, Ajman Dh11 billion, Fujairah Dh10 billion and Umm Al Qaiwain Dh3.7 billion.
Abu Dhabi's contribution to the federal budget was in the neighbourhood of three per cent of its GDP. And it should be highlighted that Abu Dhabi also generously assists its fellow emirates outside the context of the federal budget. Dubai's contribution of Dh1.2 billion in 2010 amounts to about half of one per cent of its 2010 expected gross domestic product of Dh254 billion. There must be a mechanism after nearly 40 years of federation that would ensure an automatic process for collecting fees based on a specific percentage of an emirate's GDP. Having each emirate contribute one per cent of its income is unfair to the capital, for instance. Therefore, a recalculation of the ratios that the various emirates ought to contribute may be essential until the federal budget is covered entirely by revenues of federal bodies.
All seven emirates must take the matter of uneven contributions to the budget seriously. It is a classic case of the more one gives, the more one receives. An automatic mechanism could be instated in which an emirate's contribution would be calculated using the averaging ratio of the past three years' income, for instance. Paying even a symbolic amount to the federal budget would prove that the Northern Emirates are as involved as their wealthier fellow emirates. No one can expect the less wealthy emirates to contribute as much as the powerhouse of Abu Dhabi, but what we ought to expect is that each of us does our bit as best we can for the sake of the union.
Sultan Sooud Al Qassemi is a non-resident fellow of the Dubai School of Government
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
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THE SPECS
2020 Toyota Corolla Hybrid LE
Engine: 1.8 litre combined with 16-volt electric motors
Transmission: Automatic with manual shifting mode
Power: 121hp
Torque: 142Nm
Price: Dh95,900
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
MATCH INFO
Inter Milan 2 (Vecino 65', Barella 83')
Verona 1 (Verre 19' pen)
PREMIER LEAGUE RESULTS
Bournemouth 1 Manchester City 2
Watford 0 Brighton and Hove Albion 0
Newcastle United 3 West Ham United 0
Huddersfield Town 0 Southampton 0
Crystal Palace 0 Swansea City 2
Manchester United 2 Leicester City 0
West Bromwich Albion 1 Stoke City 1
Chelsea 2 Everton 0
Tottenham Hotspur 1 Burnley 1
Liverpool 4 Arsenal 0
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The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.