Family Business Gulf Business
This interview originally appeared in Gulf Business, covering the importance of family businesses to Middle East economies and how DIFC is introducing new ways that help family businesses thrive.
Family-owned businesses contribute an impressive 60 per cent of the GDP and employ 80 per cent of the workforce, says the chief officer of Strategy and DIFC Ventures.
5 min read
In what ways do family-owned businesses impact the economy as a whole?
Across the world, family-owned businesses are a crucial part of many economies. In the Middle East alone, they contribute an impressive 60 per cent of the GDP and employ 80 per cent of the workforce.
With significant numbers like this, it is clear to see why family businesses need focused advice and support to not only maximise the overall economic benefits for the region, but to ensure the full potential of the family business is being realised within a supportive and tailored environment.
An additional consideration for family-owned businesses globally is the impending ‘Great Wealth Transfer’, which will be the biggest generational wealth transfer in modern history.
Take the UK and US as examples of this transfer. It is estimated that $5.5tn in wealth will be transferred across generations just within the UK over the next 30 years, with 90 per cent to be transferred via inheritance bequests.
Data from the US shows that in 2020, 57 per cent of all the wealth and assets in the US economy were held by the Baby Boomer generation (born 1946 to 1964) and Millennials (born 1981 to 1996) held a mere 3 per cent. The Great Wealth Transfer will drastically change this balance, with this younger generation now holding 60 per cent of the world’s wealth over the next 10-20 years. In the US this could be worth $68tn.
The Middle East will also feel this generational shift with yet another layer of complexity in the Great Wealth Transfer due to the unique methods of investment that Middle Eastern families tend to use.
Middle Eastern families tend to diversify and invest all over the globe, so the trans-generational wealth transfer also takes place across borders and different countries, with different tax implications and multiple moving parts.
To what extent are family-owned businesses in the Middle East prepared for a transfer of wealth?
Some family-owned businesses may only have been operating for one to two generations, so they may not have the established processes in place to adequately manage their wealth and wealth transfer processes.
A survey by Geneva’s oldest private bank, Lombard Odier, has shown that about 87 per cent of high-net-worth individuals (HNWIs) in the Middle East believe their family businesses are set up for an efficient wealth transfer to the next generation, but in reality, only 24 per cent actually have a full estate plan in place.
With this unique proposition here in the Middle East, and particularly in Dubai, where there is a high concentration of HNWIs and ultra HNWIs, there has been a clear calling for a focused approach to support the needs of family businesses that goes beyond what general advisors and partners can normally bring to the table.
In what ways can DIFC assist family-owned businesses?
Dubai International Financial Centre (DIFC) has created a completely unique global offering in the new DIFC Family Wealth Centre.
We have nearly 20 years’ experience in supporting family businesses already and have now consolidated that experience in a formal offering. We have looked at what family businesses need in their journey to successfully preserve and grow their legacies across generations, as well as geographies. For example, we can provide certification for family businesses relating to their governance, ESG standards and other best practices.
Through the centre, family businesses can access a trusted network of accredited professional advisors who are experts on family business matters such as succession planning; international legal and tax advisory, ESG and sustainability advice, relevant education and leadership programmes and dispute resolution.
We also recognise that families need to be able to focus their time and energy on developing their business, so the Dubai Family Wealth Centre provides concierge services to make life easier.
What is your view on the potential impact of the Centre?
The DIFC Family Wealth Centre provides a world-first in the end-to-end service requirements of family businesses, ideally located in one of the most attractive cities in the world to do business in.
We expect that it will positively contribute to economic growth in the UAE through attracting an ever-increasing amount of foreign direct investment to Dubai through family businesses that wish to take advantage of the unique and highly competitive offering within DIFC.