Dubai was originally a small fishing village and it has now grown into a major trading hub by attracting businesses with very low taxation rates, a secure environment in a troubled part of the world and first class transport hub.
Now it’s planning another transformation to bolster its claim as the leading center for business in the Middle East—to an economy that relies heavily on blockchain technology.
Blockchain is perhaps best know as the technology behind the digital currency bitcoin, but it can serve many purposes. It uses a digital ledger to efficiently share and track information related to contracts and transactions, the records of which are permanent, verifiable and secure.
The goal of Dubai’s government is to conduct a majority of the emirate’s business using blockchain, which it expects will make government services more efficient and help promote enterprise in Dubai as it will become easier to do business there.
Aisha Bin Bishr, director general of Smart Dubai, a government office tasked with facilitating innovation in the emirate said:
“We want to make Dubai the first blockchain-powered government in the world by 2020. It is disruptive for existing systems, but will help us prepare for the future,”
Blockchain has yet to be deployed widely for commercial use, but many big global companies are testing the technology. It has attracted the most attention in the financial-services sector and is seeing growing interest from industries such as supply-chain management, health care and shipping.
Wal-Mart Stores Inc. is trying out blockchain to improve the way food is tracked, transported and sold to consumers across China. And Depository Trust & Clearing Corp., a big Wall Street firm that processes financial transactions, plans to start using blockchain by early next year. The technology shift could help cut its cost of warehousing information on the transactions it handles, savings that could be passed on to customers.
Challenges for Blockchain Adoption
In general, blockchain has the potential to speed up transactions, increase transparency and help reduce fraud such as money laundering. But it also faces several challenges to broad adoption.
One is cybersecurity. Backers of blockchains claim they are secure by design, but the technology hasn’t been adopted widely enough yet for it to be seriously tested. Several hacking attacks against digital currencies in recent years underscore the security concerns.
Regulatory uncertainty is another hurdle, especially in the financial-services industry. Legal frameworks globally will have to change to adapt to the growing use of the new technology.
The costs to shift to the new technology, which continues to evolve, are also high. And there are many technical challenges involved in integrating blockchain databases with existing systems.
Despite all that, the advantages of blockchain are attractive for many businesses and institutions. Dubai, a semiautonomous member of the United Arab Emirates, is the first city to back the technology on a government level.
Public and Private Partnerships
Smart Dubai kicked off a citywide effort to implement blockchain in March. It will conduct workshops with key government, semigovernment and private organizations to identify and prioritize the services that can be most enhanced by blockchain over the coming months. It also will educate the public and private sectors about the technology’s potential.
Following these workshops, Smart Dubai expects the public and private sectors to collaborate and start rolling out blockchain pilot projects this year. It also plans to build a shared platform, Blockchain as a Service, for Dubai government entities to use for implementing their projects.
Wesam Lootah, the chief executive of Smart Dubai, says a collaborative effort is crucial to ensure that the emirate as a whole is moving in the same direction to take advantage of synergies and avoid duplication of efforts and costs.
Smart Dubai has appointed International Business Machines Corp.IBM -2.19% as its blockchain lead strategic partner and Consensys, a custom-software development consultancy, as its blockchain adviser.
Takreem El Tohamy, IBM’s general manager for the Middle East and Africa says Dubai is adopting this technology because:
“government agencies and businesses realize the need to have a shared, secured ledger that establishes accountability and transparency while streamlining business processes. The key is to always keep business value at the forefront.”
Several key Dubai entities are already trying out the blockchain technology.
The Department of Economic Development, a government agency, is usually the first stop for any company planning to do business in Dubai. Its role includes facilitating the setting up of businesses, issuance of commercial licenses, protecting the rights of businesses and consumers, and promoting enterprise and trade in Dubai.
The department, to start with, is working on shifting its entire business registration and licensing services to blockchain.
Mohammed Shael Al Saadi, the department’s chief executive for corporate strategy said:
“We want to transfer existing data to blockchain as well as create a system for new information. This data would be available to other Dubai entities, cutting down on duplication and easing and accelerating the process to set up businesses in Dubai,”
Another big early investor in blockchain is Emirates NBD, Dubai’s largest bank, which is majority owned by the Investment Corporation of Dubai, manager of the Dubai government’s portfolio of commercial investments. Emirates NBD in February started working with IBM and some other Dubai entities to explore the use of blockchain for trade finance and logistics.
Trade is Dubai’s biggest business. It has used its ports and free zones to become a major import-export hub, connecting markets in Asia with those in Africa, Europe and beyond. Non-oil foreign trade in the emirate totaled about $348 billion in 2016.
Ali Sajwani, (pictured above) the group chief information officer at Emirates NBD said:
“The aim is to replace paper-based contracts with smart contracts that will help reduce complex documentation for the tracking, shipping and movement of goods,”
Smart Dubai’s Ms. Bishr says:
“We have a very clear objective to make Dubai the capital of the blockchain industry. By 2020 we’ll have 100% of applicable government services and transactions happen on blockchain.”