As the 1980s drew to a close, the end of the Cold War ushered in an era of open markets, free trade and economic liberalisation. It came at the right time: data from the World Bank showed that in 1990, 35.8% of the world’s population was living in extreme poverty. By 2015, that number had fallen to just 9.9%.
While this represents nothing short of an economic miracle, the headline figures hide an uncomfortable fact: global inequality and in-country income inequality have been rising steadily for decades.
Even in the richest country in the world, the US, income inequality has consistently risen over the past four decades, with the bottom 10% of earners’ incomes rising far slower than the top 10%. Yet it is the world’s poorest people — those in the least developed countries (LDCs) and the developing world — who have struggled to see the fullest benefits of globalisation.
Not only have LDCs benefited the least, but analysis shows that their progress has slowed. Gross domestic product in the LDCs grew by an average of 4.7% per year between 2011 and 2019, which is lower than the previous 10-year average of 6.6%. There are multiple reasons why, not least the fact that many LDCs have struggled to compete in a global knowledge economy. Poorer access to education and outdated technologies have left the poorest nations excluded from global value chains, with limited integration into the overall world economy.
Analysis suggests that the Covid-19 pandemic wiped out up to 255 million jobs in 2020 alone across low-income countries. The good news is that the bottom 40% of people in 60 out of 94 countries with data have increased their share of national income — but there is concern that greater urgency and multilateral coordination are needed if the UN’s Sustainable Development Goals (SDGs) on inequality are to be met by 2030.
The climate imperative
Despite the challenges, there is hope and opportunity — and from unexpected quarters. The climate crisis is changing the rules of globalisation. The International Monetary Fund has written extensively on the effects of climate change on the world economy, critical infrastructure and lower-income countries. This global crisis has, in many respects, brought regulators, the private sector, capital markets, and the world’s financial system closer together to identify ways of driving forward action on climate finance.
The emergence of environmental, social and governance (ESG) protocols reflects this ethical dimension, giving rise to a new approach to financing climate-related investments.
As a global financial centre strategically driving the future of finance through its 2030 Strategy, the Dubai International Financial Centre (DIFC) is leading the charge for sustainable finance across the Middle East, Africa and southern Asia (MEASA) region, driving innovation in ESG bonds, green finance and sukuk investment alternatives. Its work pre-dates the pandemic, with DIFC launching the Dubai Sustainable Finance Working Group (DSFWG) in 2019.
The DSFWG is raising capital for impact-driven and sustainable projects within the DIFC to fund and scale better solutions to complex social and environmental challenges. As an investment vehicle, green bonds that drive capital towards climate mitigation have the potential to accelerate progress towards net-zero carbon emissions and innovate solutions to endemic challenges. In turn, these investments are funding projects that will contribute to the SDGs.
The DIFC’s work is also adding to the UAE’s pursuit of a net-zero future, driving climate finance mobilisation by connecting investors and funds with growth markets in the region. Furthermore, its ‘Path to COP28’ campaign, in partnership with the Global Ethical Finance Initiative — which also coincided with the UAE’s Year of Sustainability in 2023 — has helped drive the global conversation on green and sustainable finance.
Yet sustainability-linked financing is only part of the jigsaw. If we are to build a new model for globalisation that is truly inclusive, we must also harness the power of the digital economy and the transformative potential of financial technologies.
Enabling digital innovation
Bringing together traditional finance, digital innovation and entrepreneurialism have been the heart of the DIFC’s strategy since its inception in 2004. Entering its 20th anniversary in 2024, it celebrates its emergence as a regional global leader in shaping the future of finance as a vibrant digitally empowered ecosystem of more than 40,000 professionals working across more than 5000 active companies and financial institutions. Many are transforming the provision of financial services across LDCs and developing economies.
The DIFC’s digital milestones include the creation of the first and largest fintech accelerator programme in the Middle East.
Their ability to do so is thanks in part to the DIFC Courts, which have been instrumental in creating the legal and regulatory foundations necessary for companies to leverage Industry 4.0 technologies. Its strategy is designed to align with Dubai’s Digital Strategy, and last year, Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, the deputy prime minister, the minister of finance, the deputy ruler of Dubai, and president of DIFC, further reaffirmed DIFC Courts’ strategy to support Dubai’s ‘D33’ economic plan. The plan comprises a comprehensive 10-year strategy aimed at transforming Dubai’s economy and solidifying its position as a global economic powerhouse.
Supporting this strategy, the DIFC’s digital milestones include the creation of the first and largest fintech accelerator programme in the Middle East, the region’s first open finance lab, and the DIFC Innovation Hub. The latter is home to a diverse community of fintech start-ups, growth-stage businesses and global digital ‘unicorns’. The respective impact of the hundreds of fintech, regtech and insurtech firms at the DIFC is of critical importance in building a more inclusive global economy.
A new era of connectivity
As solutions such as digital trade financing become more accessible and financial inclusion improves, the world’s policy-makers are also revolutionising how goods, services and people move around the developing and least developed economies.
The African Continental Free Trade Area (AfCFTA) represents a significant milestone for economic integration, the removal of trade barriers, and the enrichment of in-country and regional value chains. The African Union designated 2023 the ‘Year of AfCFTA: Acceleration of the African Continental Free Trade Area Implementation’, providing an impetus for the enactment of multiple policy reforms and trade facilitation measures.
The AfCFTA — if it realises its potential — will transform the African continent’s economic resilience, reduce import dependency, tackle climate change, and help to eliminate poverty.
Further afield, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has made significant progress in reducing and eliminating tariffs and non-tariff trade barriers between member countries, which include Chile, Malaysia, Mexico, Peru and Vietnam. To date, approximately 95% of import/export tariffs between member countries have been removed. These include high-employment, high-growth sectors such as automotive, retail, communications, agricultural produce and manufactured products.
Agile regulatory growth environment
The AfCFTA and CPTPP are just two just of many new approaches to international trade and human development. Others, such as China’s Belt and Road Initiative, are transforming infrastructure and connectivity between Asia, the Middle East and Africa, unlocking historic opportunities for a new kind of globalisation. However, as ‘Globalisation 2.0’ takes shape, governments are also looking to embrace economic reforms that help liberalise trade.
Across the Middle East, we have seen countries throughout the Gulf Co-operation Council (GCC) radically transform the relationship between the state and private enterprise. State-owned entities have gone public, with swathes of government assets listing on exchanges across the region, encouraging inward investment and access to capital markets.
In tandem, we are seeing a change in the flow of capital, from both east and west towards Dubai and the DIFC — unleashing opportunity in the emerging high-growth markets.
Robust growth is testament to the strength of the DIFC’s well-established common law framework, and its independent and internationally regulated judicial system. The transparency and security these legal frameworks provide are a decisive factor in attracting established and growth stage firms, and the region’s deepest pool of financial and technology talent.
As the leading global financial centre in the MEASA region, the DIFC is strategically and geographically placed at the epicentre of global trade routes and digital connectivity. This brings ever-growing opportunity as we continue to deliver a new future for finance in a world of rapidly changing trade routes and relationships — one that has the potential to revitalise growth in low-income countries and deliver hope to billions of people through a new global economic order.
We see the impact of innovation pioneered by the finance industry delivering transformative opportunities in other sectors as well and creating greater social impact by improving lives and protecting our planet. Innovation has become fundamental to our survival, sustainability and growth, and our commitment to driving the future of finance will no doubt continue to unlock opportunities regionally and globally.
Essa Kazim is governor of the Dubai International Financial Centre.
