Leverage hub status to make telling impact in global Islamic finance.
The Silk Road historically brought prosperity to cities that had the foresight of ensuring it went through them. Likewise, London was said to have its streets paved with gold, or at least that’s what Dick Whittington believed.
Dubai is positioning itself with a major hub for global supply chains — the modern equivalent of the Silk Road — and at the same time setting itself up not just as ‘the capital of Islamic Finance’ but indeed all finance. That is wonderful, but would it be possible to avail the synergies of both efforts?
Indeed, developing supply chain finance (consistent with Islamic finance) and supply chain insurance would ensure Dubai to be uniquely placed in the world to do so.
To say that Dubai is positioning itself to be a major global hub in global supply chains would be an understatement. Dubai has developed not only massive capacity for its port but also for airfreight and for trucks.
A quick look at the map and Dubai’s location between Asia and Europe, its centrality in the Middle East and its proximity to Africa shows such a strategy is indeed a powerful one. When the Icelandic volcano disrupted airfreight over European skies in 2010, Dubai provided an attractive alternative of getting goods from Asia into Europe by land and sea.
As for finance, Dubai is already a regional centre for finance. More than that, it has announced its intent to become ‘capital of Islamic Finance’ and out-compete Kuala Lumpur. Keeping an eye of estimates of the market size being $2 trillion (yes, with a ‘t’ ), David Cameron, the UK Prime Minister, has sought to pre-empt that by announcing UK plans for Islamic Finance as well with the largest issue of a sukuk.
Some natural advantages:
Again, a quick look at the map would confirm that Dubai has some natural advantages over both Kuala Lumpur and London. But in the world of finance, neither London nor Kuala Lumpur have huge first-mover advantage.
So Dubai must leverage its other unique asset – its infrastructure to be a hub for global supply chains – that neither of the other two cities has. And to take advantage of this, it can offer supply chain finance combining and reinforcing both its strengths.
Add supply chain insurance and you have a winner:
Supply chain finance is a way for a buyer to arrange finance for a supplier during the period it is waiting to get paid by the buyer. Because it is tied to assets (goods produced and delivered) rather than to interest per se, supply chain finance certainly merits a closer look by Islamic Finance scholars.
The same applies to supply chain insurance, which is also tied to assets: it insures the loss a company might incur due to a disruption somewhere in its supply chain.
Both supply chain finance and supply chain insurance are relatively small today relative to finance and insurance in general. But this is the time to understand these and develop thought capital and talent.
Last year, Cameron got large UK-based companies and banks together to state his government’s emphasis on supply chain finance following Bank of England’s interest to develop secondary markets.
Likewise, London-based insurers are looking actively into supply chain insurance and some of them already have rudimentary offerings.
Efforts such as these would make cities and nations great only if supported by talent with ties to the city or nation, and this is where UAE efforts on Emiratisation are extremely important. At the basis of developing talent is good education not only on fundamentals but also on opportunities for growth that are important to the region.
Indeed, education on supply chain, on trade, on finance, and on insurance fundamentals can be tied to good jobs anywhere. But combine these with the opportunities that Dubai can create, and sky’s the limit.
The vision for Dubai seems to be already there, so the next step is to continue implementing that vision and to further seek synergies. By combining its strengths in supply chain and in finance, Dubai will be able to truly mix metaphors by paving the Silk Road through it with gold.
— The writer is professor of operations and supply chain management at Cass Business School and the Cass Dubai Centre, City University London .