Entrepreneurship & Startups Balancing act: the UAE treads the line between regulation and innovation

Balancing act: the UAE treads the line between regulation and innovation
 
In response to fast-growing sharing economy businesses, the UAE is treading a thin line between regulation and innovation. (Image via Katie Edwards)

In a 2013 article, internet industry analyst Larry Downes made a strong statement: innovation and regulation simply don’t mix.

Regulated industries, he said, operated outside market-based systems, conceding to "regulatory capture" that imposed mutually exclusive interests, price controls, pre-approvals and stringent licensing.

True to Downes’ statement, recent worldwide governments’ responses have been to contain, rather than embrace, disruption brought about by knowledge-sharing companies, and have put into question the ability of bureaucracies to innovate.

Ramzy Ismail, program manager at Flat6labs Abu Dhabi, coins the shake-up of the current regulatory status quo "regulation 2.0".

"Regulation was traditionally around bureaucracy and permission, and [regulation] 2.0 is about transparency and accountability," he told Wamda.

Rohit Majhi, senior manager at Deloitte Monitor Middle East, concurs, saying regulators “have to act second to make sure that the residents of the country are getting the best deal out of any innovation" and ensure a level playing field for industry ecosystems.

A rock and a hard place

Against a league of agile sharing and on-demand businesses, public and private sector giants around the world have been dealt a hard blow by quickly 'Uberizing' economies.

Managed poorly or slowly, the reverberations of this hit can have equally negative implications on the MENA region. A 2015 IBM study shows that, today, 54 percent of C-level executives, including those in the MENA region, view Uberization as the dominant threat for their businesses.

The UAE, which had anchored itself as MENA's financial, business and innovation hub, is taking on a central role in the region's transition to a knowledge-sharing economy. But it has responded to the growing clout of fast-moving Uber, Careem and Airbnb with a regulatory push and pull.

Despite controversial reports that Uber recently slashed its prices in Abu Dhabi vis a vis Careem's by 17 percent, in Dubai both ride-hailing apps operate under two interim pricing regulations set by the Dubai Roads and Transport Authority (RTA): a 30 percent pricing premium against regular taxis.

Regulations that have been occasionally flouted. "By default, we’re a premium product here. In every market outside of the UAE, we’re not. The solution is in adapting and working with the regulations over time," said Careem UAE general manager Christian Eid.

While the Ubers and Careems have been operating in a grey legal area, the tide seems to be changing. A recent announcement by the RTA's director of the Transport Systems Department, Adel Shakeri, stated that ride-hailing apps such as Uber and Careem will be regulated and able to apply for a license to legally operate in Dubai by end of July 2016. According to Majhi, these moves are largely due to efforts by Dubai's Department of Tourism and Commerce Marketing (DTCM) and the RTA, to mitigate the Emirate’s reputation risk particularly vis-a-vis tourists who are heavy users of global peer-to-peer platforms.

Slow-moving targets

However, the UAE's recent patchwork of regulatory loopholes sends mixed signals, particularly on the extent of governmental control on free market businesses.

In late March, UDrive, an app that offered rental cars on a pay-per-minute model was suspended on the basis of "logistical, regulatory, and administrative issues" following a hyped up launch that same month - granted, the company said it was to work closely with the RTA for a solution that aligned with the emirate’s car rental regulations.

In late May, Dubai's DTCM signed an MoU with Airbnb to ensure compliance with regulations it had set in mid-2015 on the platform. The regulations stipulated a long and arduous list of requirements, including applications for a license and the obligatory use of Dubai Tourism-licensed operators - who are, in turn, bound by yet another license application.

Majhi’s rule of thumb is that spaces that have traditionally required little investments and assets can transform with pace. In Dubai, education and healthcare show fast-mover promise under the emirates’ smart city ambitions - under which Dubai and Abu Dhabi are among the candidates for a pilot test for a Hyperloop, a car-sized sled powered by electromagnets that allows passengers to commute inside vacuum tubes at lightning speed. The energy sector, on the other hand, is a slow-moving target, as it requires the setup of a smart grid that is yet to be in place.

Get smart

In spite of the current regulatory fog, Smart Dubai, the government office tasked with driving the city’s smart transformation, has been moving with speed.

Counting 11 strategic public sector partners – including the RTA, DEWA, Dubai Tourism and Dubai Police – the office partnered with Du for the launch of the Smart Dubai Platform in March, which will serve as a central operating system for the city and a services and data hub.  

That same month, followed a law by Sheikh Mohammed bin Rashid Al Maktoum establishing the Dubai Data Establishment (DDE), which will enable data and knowledge exchange capability development for both public and private sector.

The first block chain meeting for the region in May of this year. (Image via Government of Dubai)

On May 30, Dubai saw its first blockchain technology conference, which follows the Museum of the Future Foundation Dubai’s turnkey launch of the Global Blockchain Council in February 2016. As per its launch statement, the council was set up to “help UAE authorities and corporations better understand this technology and consider its regulatory implications”.

Its first pilot project, BitOasis, will be implemented by the Dubai Multi Commodities Centre (DMCC) to design flexidesk contracts and registration processes using the Blockchain ledger. It second, Kraken Bitcoin Exchange, will help DMCC integrate Blockchain technology in select Islamic finance operations – a far cry from 2013, when the first Bitcoin ATM was shut down in the UAE over legal ambiguity.

Regulatory drawbacks and obstacles aside, the UAE’s push on innovation shows great prospects. But if it is to lead MENA by example and prove Downes wrong, the UAE must equally push on collaboration and conversation between private and public ecosystem players – challengers, skeptics and catalysts alike.

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Vanessa Khalil is a Dubai-based research professional working in the media industry, with a background in journalism covering banking and finance, marketing and advertising.