Why FDI continues to grow in Dubai

A home for investors and venture capitalists

Dubai hosts the highest number of investors and venture capitalists with the UAE having the second highest number of ultra-high-net-worth individuals (those who have amassed a fortune of US$30 million or more) in the MENA region. There are an estimated 810 individuals with this level of wealth, and they control US$120 billion between them. As a result, Dubai is a fertile destination for those seeking business capital.

Tech investors make up the largest proportion of investors, though many organisations focus on specific areas, such as Womena and the Women’s Angel Investment Network, which focus on companies led by women.

There has also been a rise in equity crowdfunding platforms and lower-cost portfolio investment products are unleashing new capital for entrepreneurs and businesses. These platforms are giving middle and lower-middle-income citizens the ability to become investors. Growth in the provision of credit, an increasing interest in private equity and a rise in venture capital are also helping to drive growth in the Middle East market.

Growth in FDI

The government’s ongoing expansion drive has been reflected by surging levels of Foreign Direct Investment (FDI). This wave of incoming business is largely attributed to Dubai’s position as a pro-business, technology and finance leader, as well as its impressive infrastructure.

These factors have led to rising levels of FDI valued at US$12.6 billion in 2019, up 135% from the year before. Dubai-based businesses are set to be positioned in one of the most exciting business arenas in the world as foreign investors seek to gain a foothold in the market.

Signalling the market’s growing global appeal, 25% of investments in regional start-ups have been made by individuals or companies based outside of the MENA region, showcasing the confidence international investors have in the governments of the region. In the first three quarters of 2019 alone, Middle Eastern start-ups raised US$517 million. This figure represents a 30% increase in venture funding and the UAE has taken the vast majority of this funding, at 62%.

New opportunities

The untapped growth of the region lends itself to fintech investment, which soared in the MENA region by 66% between 2014-2019, compared to a global average of 26%. With its own focus on attracting investment in technology including robotics and artificial intelligence (AI), Dubai is well positioned to lead the fintech revolution, and is already recognised as one of the world’s top ten fintech hubs.

In addition to fintech, analysts have highlighted e-commerce as a sector to watch due to its fragmented nature. Souq.com’s acquisition by Amazon for US$580 million, Mastercard’s investment in the payment processor Network International and successful funding rounds by companies such as Mumzworld continue to signal the region’s appeal to international and local investors alike.

Transport is another sector of interest. Uber’s purchase of Careem for US$3.1 billion in 2019 and the emirate’s overall drive toward autonomous transport have positioned the sector as a market ripe for investment.

Health-related technology is also booming. The government is looking for international pharmaceutical and medical equipment firms to transfer manufacturing and research centres to Dubai in order to take advantage of the emirate’s logistical muscle. Dubai’s healthcare sector is forecast to grow at a compound annual growth rate (CAGR) of 8.5% between 2018 and 2023.

Governmental support

Governmental support for investment takes the form of various initiatives led by the Dubai International Financial Centre (DIFC) which is bolstering its involvement with the emirate’s venture capital ecosystem and improving access to funding. The Centre has appointed Middle East Venture Partners and Wamda Capital to manage 10% of its dedicated US$100 million FinTech Fund. To date, DIFC has invested in fintech organisations including payments, robo-advisory, blockchain and KYC platforms.

DIFC’s total Wealth and Asset Management (WAM) industry is worth USD$424 billion, equivalent to approximately 30% of the GCC’s combined GDP, demonstrating the organisation’s financial weight. Gross Written Premiums for the insurance sector reached nearly USD$2 billion in 2019, representing a growth of 17.4% versus 2018.

A haven for investors

Dubai represents the ultimate haven for investors seeking to engage with emerging industries. Dubai’s solid finance footing and comprehensive legal and regulatory framework lend a sense of confidence, allowing investors to become involved with the emirate’s various booming markets. Skyrocketing levels of FDI and the government’s own support signal the high levels of confidence both local and international investors have in the emirate’s various markets.