The UAE has embraced a policy framework that is unique among the GCC, is showing great promise, and already has success stories.
The Gulf has long been famous for two things: its oil and the lavish spending on extravagant initiatives made possible by oil windfalls. Yet, in this age when humanity is aligning its efforts to achieve a more balanced and sustainable path to growth and systems of production face rapid technology-driven transformation, perhaps unexpectedly, Gulf countries are leading the way.
In the recent years, all the Gulf countries have launched long term plans to transform their economic models to embrace the opportunities created by the 4th Industrial Revolution, by leveraging, experimenting, and exploiting different emerging technologies. While these technologies are successfully deployed across multiple domains, what presently seems their most promising application in the Gulf is in finance [4]. And the way the UAE has embraced financial technology - or fintech - has been especially successful. Such success holds precious lessons for the region, highlighting the importance of both a clever strategy and an effective execution.
Fintech: Why, What, How?
As the UAE decided to differentiate its sources of income beyond oil, it established a clear vision (Vision 2021) and a corresponding country strategy that pursues multiple growth drivers and with a strong focus on building and enabling a digital infrastructure. This vision also offers a broad umbrella policy framework with two distinguishing features that make it stand out with respect to similar visions in neighboring countries.
Execution Muscle. Vision 2021 was designed with an emphasis on implementation, through a framework of coherent and aligned strategies, ensuring that each decision follows a clear plan and is clearly aligned with the final outcomes of the vision.
Disciplined Creativity. While fintech is a broad concept that spans from insurance to financial literacy and from wealth management to payments, the UAE took a selective approach to support only the initiatives aligned with the goals of Vision 2021.
The combination of execution muscle and disciplined creativity resulted in a coherent overall strategy with specific and yearly measurable milestones to ensure constant progress towards the ultimate goal. At least two compelling success stories illustrate this well.
Success Story One: Blockchain
A good example of UAE’s execution muscle is the articulation of its 2021 Blockchain Strategy aimed at becoming the first blockchain-powered government in the world. It was directly implemented in targeted government areas, with specific KPI’s. Specific initiatives include: urban planning, digital currency, digitalisation of government records through blockchain, and transaction processing. To drive the strategy, a blockchain council was established with regional and global subject matter experts, with a range of different specialisations. This approach has already resulted in several viable plans with realistic expectations, enabling a constantly improvement in blockchain implementation in different government areas.
One of the earliest success stories is DubaiPay. The app processed $35 million of payments in 2017, which was its first year of operations. The government now aims to have more than 50% of its transactions on blockchain software. Other similar examples are now flourishing across different government departments and partner private institutions. The Dubai Electricity and Water Authority and the Human Development Authority also embraced DubaiPay and are now moving to the decentralised ledger to process their transactions, and have already processed more than five million transactions in the first six months of application. The Roads and Transport Authority is testing a vehicle management system. The bank Emirates NBD is piloting a fraud detection software and many other use cases are being developed across the country.
These examples also illustrate the power of creativity under the discipline imposed by a clear vision and a rigorous execution framework.
Success Story Two: Fintech Acceleration
Another illustration of UAE’s approach is the development of its fintech acceleration ecosystem. The government established two acceleration programs focused on fintech, each under the supervision of one of the two main financial authorities of the country: Abu Dhabi Global Market and Dubai International Financial Center. These authorities took a pragmatic approach to deciding the fintech themes for their accelerators. They had to be aligned with the government’s targets to support growth in other sectors. So, each summoned the financial institutions under their authority and asked them to identify the main issues they encountered. They then invited fintech startups that addressed exactly those problems.
This pragmatic approach fast-tracked the acceleration programs. Having direct access to the main financial institutions of the country, and under the auspices of the main financial authorities, fintech startups can immediately test their prototyped solutions. Furthermore, since the accelerator focuses on existing issues, as soon as they graduate from the program, startups can offer their services to address the existing demand of a clearly defined market.
Many success stories highlight this. For example, Robo-advisory startup Sarwa successfully graduated and soon secured over $ 1 million funding to expand in the region. Another interesting case is Norbloc, which implements “know-your-customer” compliance using the blockchain. Upon graduation from the acceleration program, it earned access to many large regional and European banks.
Young is Better
As a young country, the UAE has relatively little established legal and financial infrastructures. While this can be a limiting factor for fintech startups, forward-looking and supportive government policies have proved capable of overcoming these limits. Besides, having few established infrastructures allows the government to introduce and implement change more easily. So, our expectation is that the UAE will not only emerge as a leader in the development and deployment of the new technologies that drive the 4th Industrial Revolution. It will also emerge as an innovator in the policy frameworks that make such technologies possible and their applications successful.
This piece, co-authored with Konstantinos Tsanis, originally appeared on MIT Technology Review Arabia (in Arabic).