Family businesses in the region need to move away from investing heavily in traditional sectors such as real estate, logistics and hospitality, and instead, consider diversifying into digital assets, e-commerce and new sectors like financial investments, according to Abdulla bin Touq, UAE Minister of Economy.
“Irrespective of their size, family businesses make a significant contribution to the nation’s economic development and help in job creation,” the minister said at the launch of the DIFC Family Wealth Centre on Wednesday.
“This is happening at a time when the UAE has stepped up its efforts to solidify family businesses as key partners in the country’s sustainable development over the next 50 years.”
Family-owned businesses are key drivers of the UAE economy, accounting for a substantial number of jobs, and they boost economic activity through their supply chain ecosystems.
Last year, the UAE launched the Thabat Venture Builder programme that aims to double family-owned businesses' contribution to the nation's gross domestic product to $320 billion by 2032 by preparing them for the future economy.
The programme aims to transform 200 family business projects into major companies by 2030 with a market value exceeding Dh150 billion ($40.84 billion) and annual revenue of Dh18 billion.
The Dubai International Financial Centre (DIFC) announced the creation of the Family Wealth Centre last August, in a push to double the sector’s contribution to the economy by 2030.
It is expected to bring family businesses and ultra-high-net-worth individuals (UHNWI) — people with a net wealth of $30 million or more — from the UAE and the broader Middle East, Africa and South Asia region and beyond to DIFC, and provide access to a range of support services to enable legacy and succession planning.
The centre will open at a time when about Dh3.67 trillion in assets will be transferred to the next generation in the Middle East over the next decade.
Family businesses face many challenges, including digitalisation, longevity of succession planning, sustainability-related issues, technological advancement and intergenerational shift, Mr bin Touq said.
“It is estimated that only 20 per cent of wealth managed by family businesses reach the third generation in the Middle East”, he said.
“These realities confirm the importance of this centre and similar entities as platforms that bring together the sector’s stakeholders to discuss common challenges.”
Family businesses contribute about 80 per cent to the region’s GDP and employ 40 per cent of the workforce, according to Essa Kazim, governor of DIFC.
However, family businesses are facing challenges, such as increasingly complex regulations in the countries where they hold assets, he said.
“Globally, we are experiencing the biggest intergenerational wealth transfer in modern history. Being a relatively young nation, many family businesses here are experiencing this transfer for the first or second time,” Mr Kazim said.
“This brings complexity because they may not have the experience or established processes in place to manage the transfer of their wealth in a manner where the decision-making entities that hold their business and private wealth remain aligned with the family governance principles.”
About 87 per cent of high-net-worth individuals in the Middle East indicated in a survey that they believe their family businesses are set up for efficient wealth transfer to the next generation. Yet only 24 per cent have effective succession planning in place in a manner that properly preserves wealth for future generations, Mr Kazim said.
If intergenerational wealth transfer is not properly planned, the probability of it being lost by the third generation is very high, he said.
Through certification and accreditation schemes operated by the Family Wealth Centre, family businesses and their advisers will be given examples of best practices and standards in respect of family governance and succession planning.
The DIFC has built a legislative framework to assist families in establishing structures for their succession planning. This includes the foundation law, trust law, DIFC Companies regime and the recently enacted Family Arrangements Regulations, Mr Kazim said.
The financial hub enacted DIFC Family Arrangements Regulations to enable more family-owned businesses to start operating from its Family Wealth Centre.
The new regulatory framework will govern how the UAE's regional and global family-owned businesses, and UHNWI and private wealth offices, operate from the financial hub.
DIFC’s existing family offices have the choice to move to the new centre and take advantage of tailor-made services and extra privacy benefits it offers.